For investors wanting to invest in real estate at an affordable cost, Real Estate Mutual Funds can be the best investment option. These funds are the type of Sectoral Mutual Funds which typically invest in securities offered by public real estate companies. As far as the allocation of assets is concerned, a considerable portion of these funds is invested in commercial and corporate properties, raw lands, agricultural areas and complexes of apartments.
The Real Estate Mutual Funds (REMFs) invest either directly in real estate companies or through the Real Estate Investment Trust (REIT). Fund managers are responsible for the choice made between the two options.
Features of Real Estate Mutual Fund Schemes
Real estate is undoubtedly the most popular investment option in India. The Real estate mutual funds are categorised under the most profitable sectors of investment. Here are some of the major features of such mutual funds in India:
- Long-Term Investment Option: Every property requires enough time to develop and be ready to be sold, which makes these funds specialise in long-term investments.
- Lesser Investments: Real Estate Mutual Funds allows individuals and organisations a chance to invest in the real-estate sector without any burdening costs. Investors are free to invest as much as they are capable of according to their own comfort.
- Good Returns: The growth of a particular sector is what defines the returns on the same. In the cities where real estate is a high-end choice, the funds typically give good returns.
- Risk Factor: As far as Real Estate Funds are concerned, the risk of indulging into fraudulent properties or unethical builders is minimised. However, the risk of economic slowdown of the segment is unavoidable. Since it is a sectoral fund, the market fluctuations will affect the investment directly.
- Liquidity Segment: The Real Estate Funds offer investors with a certain level of liquidity. The investors are eligible to get their investment redeemed at any time and can sell the same in the span of a day.
- Diversified Portfolio: The portfolio of such mutual funds are often very diversified. They invest in different properties over a wide range, for example: Combined residential areas, commercial properties on rent, projects under hospitality and more.
- Charges & Fees Involved: Like other mutual funds, Real estate mutual fund schemes also charge a one-time management fees. This amount is equal to a fixed percentage of the amount of investment made.
Advantages of Investing in Real Estate Mutual Funds
Being addressed as an affordable alternative to buying property, REMF comes with a number of advantages for the investors.
- Mutual funds are managed by experienced professionals who are equipped with the skills to plan or strategise the investments. Likewise, Real estate mutual fund schemes are also controlled by qualified professionals. Ample research is executed to ensure the safety of the resources of investors.
- During the time of inflation, the prices and rents of the properties increase which can also bring a rise in the value of real estate making it a protected investment in downfalls.
- The investors of REMF are given the choice of investing after keeping their financial goals and incomes in mind. This factor makes these type of mutual funds a flexible option for investing.
Risks of investing in Real Estate Mutual Fund Schemes
There is no investment instrument which is entirely safe. Investment in REMF comes with some pros and some cons.
- Investing into REMFs might cause an inclination towards different risks for the investors. It is recorded that the rise in interest rates cause an eventual fluctuation in the returns of the real estate mutual funds.
- Also, REMF is a sectoral fund and sectoral funds are directly affected by the changes in the market performance which implies that the performance of real estate funds will prosper only when the real estate market is flourishing. And the entire real estate fund sector will be affected by any drop in the same market.
Who should invest in Real Estate Funds
Investing in real estate not only helps the investors to make money but also enables them to be a part of the sector. These mutual funds are considered as the best investment options for the audience who is interested in indulging into the real estate sector but is lagging behind in terms of assets. They can invest in the Real estate with as much resources as they want, and benefit from the returns.
Moreover, REMF is definitely the best mutual fund type for the investors willing to invest their money into long-term investment plans- at least 5 years. And the people who are in search of quick returns, might not fit as the suitable investors for these funds.
In a nutshell,
- Investors who are willing to invest in Real Estate sector but do not have enough corpus to buy a physical Real Estate ventures can invest in Real Estate Funds
- The suggested investment horizon is at least 5 years which implies that investors with long-term financial goals should invest in REMF
Real Estate Mutual Funds (REMF) and Real Estate Investment Trust (REIT)
There are two popular terms associated with Real Estate investments- Real Estate Mutual Funds (REMF) and Real Estate Investment Trust (REIT).
On one hand, REMF are the funds investing in the securities of real estate companies owning properties. Whereas, on the other hand, REIT is referred to the organisation or association acquiring real estate properties.
Frequently Asked Questions
Q.1: Should I buy Real Estate or Real Estate Mutual Fund (REMF)?
Ans: A Real Estate Fund is the most convenient way to invest in the real estate sector. These funds are convenient, low-cost, highly liquid and high return yielding schemes. It is suggested that you should invest in a good Real Estate Mutual Fund. And, you will also have professional managers to look after your investment portfolio which is ultimately cheaper than the maintenance cost applied in real estate. However, if you are comfortable in bearing the maintenance costs and have enough corpus to buy real estate you can go for it.
Q.2: What is REIT? Is it different from REMF?
Ans: Yes, REIT and REMF are two different Real Estate investment instruments. REMF (Real Estate Mutual Funds) are mutual funds which invest in shares of Real Estate companies. On the other hand, REIT (Real Estate Investment Trust) are organisations or associations acquiring real estate properties. REITs trade on the stock exchange and are purchased & sold by investors like stocks. There are three types of REIT- Equity REITs, Mortgage REITs and Hybrid REITs.
Q.3: How do I start investing in a Real Estate Fund?
Ans: After you have selected the fund in which you want to invest, you can either go to the website of the Fund House online or visit the nearest branch of the fund house. Provide all the necessary KYC documents, Address Proof, Cancelled cheque etc. and buy the units of your selected mutual fund.
Q.4: What is a real estate ppm?
Ans: PPM stands for Private Placement Memorandum. It is a private offering where individuals invest in your Special Purpose Vehicle (SPV) which can be real estate, shares, stocks etc. The primary objective of a PPM is to provide full disclosure envisioned by the federal securities law and also to raise money. A PPM often includes answers to questions to your real-estate like-
- What is the asset investment and overall business plan?
- What is your track record, your model etc.?
- How will the investors participate and how and when they will receive the return on capital? And more.