Realty MFs can invest in property

The schemes will be governed by Sebi (Mutual Funds) regulations.

Real estate mutual funds (REMFs) will be allowed to invest directly in real estate properties in India, mortgage-backed securities, and equity shares, bonds, and debentures of listed or unlisted companies which deal in properties.

They can also invest in equities, bonds, and debentures of companies that undertake property development.

The Securities and Exchange Board of India (Sebi) approved these guidelines for REMFs today. The schemes will be governed by Sebi (Mutual Funds) regulations.

The funds will be close-ended and the units will be compulsorily listed on the stock exchanges. They will also be required to declare the net asset value (NAV) of the units on a daily basis.

"REMFs shall appoint custodians who have been granted a certificate of registration to carry on the business of custodian of securities by the board. The custodians shall safe-keep the title of real estate properties held by the REMFs," a Sebi release said.

So far, only venture capital funds have been allowed to offer real estate funds. HDFC and Prudential ICICI AMCs were keen on launching REMFs. Both the entities, as well as Kotak Mahindra, IL&FS, and a clutch of domestic and overseas players, have already raised close to $1 billion worth of real estate funds through their venture capital arms.

These are typically close-ended funds of 5-7 years' duration wherein the minimum application amount is rather high. Industry analysts view REMFs by fund houses as offering an opportunity to smaller investors to participate in the sector.

Market sources said the Sebi's decision to allow REMFs to invest in real estate might raise the risk profile of such funds.