IDFC has filed a draft prospectus with SEBI, and is coming out with an open ended mutual fund targeted at the real estate sector.
This fund will primarily invest in shares of real estate oriented companies in India. The asset allocation will be as follows:
|Asset Class||Range of allocation|
|Equity and related instruments of companies engaged in real estate related activity||65 â€“ 100%|
|Debt and money market instruments||0 â€“ 35%|
As you can see from the above allocation, the fund intends to invest in shares of companies related in real estate. It will not invest in real estate directly. The percentage allocation may vary, but the basic idea of the fund is to get investors exposure to the real estate sector in India.
Letâ€™s take a look at the sectors that are considered to be related to real estate:
- Developer: These are the companies that acquire land, get clearances, architect and plan the projects.
- Construction Companies: These companies engage in manufacture of cement, steel, glass, paints, lightings, heavy machinery required for construction and the like.
- Buyer: These companies will provide housing finance, paints, air-conditioning and such.
The minimum investment amount in this IDFC real estate equity NFO is Rs.5,000. The fund has a growth and a dividend option, and further the dividend option has a reinvestment option.
The fund will charge 2.50% of weekly average net assets as recurring expenses. There is no entry load, and a 1% exit load if the investor redeems his units within a year.
The Real Estate Story
There are plenty of real estate mutual funds launched in the Indian market to take advantage of the real estate sector. The rationale behind these is that rising per capital income along with a movement to nuclear families, and increased home ownership will boost the real estate sector and increase its contribution to the GDP.
The problem with this story is that in the past price of real estate companies have far exceeded the underlying values, and real estate companies saw their stock prices falling greatly from the peak.
This is a equity real estate fund which is exposed to the same risks, and you could if prices in the underlying stocks fall, — you could see substantial erosion in your investment.