Real Estate Mutual Funds debunked

With real estate prices shooting through the roof year after year, you may have often wished that you could have invested in a small property too and rented it out. One could have always done with some additional money at the end of the month and not to mention the capital appreciation on your property over time.

Well, Real Estate Mutual Funds (REMFs) let you do just that. Launched by the Securities and Exchange Board of India (SEBI), REMFs is a close ended mutual fund scheme which invests only in real estate. This means that your invested money is used to buy a piece of real estate instead of shares of a company as in the case of regular Mutual Funds.

With the money collected from investors like you, an REMF will take up ownership of real estate assets and rent them out. This rental income will be passed on to you in proportion to your investment. Not only this – apart from the monthly income, once your REMF tenure ends, you will also be eligible to a capital appreciation of your investment, just like a physical property would have earned you.

SEBI has instructed REMFs to invest 75% of an investor's corpus strictly on real estate. However, the rest 25%, SEBI has allowed the individual REMF to use its discretion and invest it as they see fit in equity markets or in debt instruments. This is where the one REMF will start to differ from another as these investments will have a clear impact on the credibility and risk profile of an REMF. Thus it would be advisable that one spends a good deal of time on researching the asset allocation plans of an REMF and understand its risks before investing.

Also, while most of the ground has been covered in terms of finalising the policies on REMFs, it is quite unclear at this stage SEBIs stand on tax exemptions on REMFs - to give long term capital gains tax exemption benefits after one year as in the case of regular Mutual Funds or after three years as in the case of real estate investments. However, a decision would be taken soon.

One can start investing in REMFs for as low as Rs 5,000-10,000 which means you can buy a virtual property, earn rent and gain capital appreciation on it for almost a pittance.

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