REMF for a piece of property action

Must-awaited and much talked-about , real estate mutual funds (REMF) are finally here. Leading the pack are fund houses like ICICI, HDFC, Kotak Group, UTI and Tata Mutual Fund that have already launched or announced ambitious plans. REMF enables the investor to add to his portfolio an entirely new asset class.

Retail investors have been looking forward to it for long as real estate was considered an area where you needed bundles of money to invest in. Now with real estate mutual funds, you can invest and exit out with even a small amount of money.

Real estate mutual funds are managed by a group of real estate professionals or experts who make investment decisions in property/real estate for you. They invest in land, develop projects and finally sell it off, sharing the resultant profits with investors. Unit holders, who pump in only a very small fraction of their money, benefit from any capital appreciation on the sale of property. Not only are the sale proceeds shared with investors, these funds also generate revenue by way letting out property owned by them. Another way is to invest in bonds or instruments that are secured by an underlying property.

Some real estate funds invest in real estates directly, or may fund real estate developers, or even buy shares of housing finance companies. Housing projects will be benefited by an increased influx of funds at its disposal. Equity-oriented products will invest and own real estate property and make money by renting them out or selling it off. Mortgage products deal in investment and ownership of property mortgages. A hybrid fund offers a combination of both equity and mortgage strategies.

The fact that individuals with small amounts of money can take advantage of returns available from the booming housing and real estate market is the single most favourable selling factor . For a few thousand rupees, you could own a piece of office space, mall or a commercial complex. The cumbersome job of verifying documents, title and other paperwork is no longer your responsibility.

It will take sometime before retail investors can get a piece of REMF, with the market regulator SEBI working towards it. The major difference between real estate investing and blocking money in stocks is that stocks markets are volatile. They can touch unbelievable heights and the next hour fall into deep abyss. Unlike stock markets, traditionally property prices have traveled only northwards . However, the concept of making quick big money in real estate is not always true. Investors, who want a piece of real estate mutual fund, must master the art of waiting patiently.

Further, getting stuck with a fund house that has little or no experience in real estate business could mean a big financial loss for you. Invest with caution as these are new avenue both for fund managers and the retail investor.

Real estate funds incur expenses for carrying out their business. This includes paying for experts in real estate domain, administrative fees, legal charges, fund management expenses and so on. These expenses are passed on to the investor, like in the case of ordinary mutual funds. Do not be surprised if you see the usual management fees, brokerage fees for transacting in real estate, administration fees, marketing fees and the like. Take into account fees, charges and entry and exit loads that will be added to your expenses when measuring returns.