Real Estate Mutual Funds

Guided By:Himal K ParikhB.Com, MBA(IIMA)

Prepared By:Prashant Maharshi

WHAT IS REAL ESTATE?The term real estate is defined as land, including the air above it

and the ground below it and any buildings or structures on it

that are intended to be of a permanent nature.

WHAT IS MUTUAL FUNDS?

A mutual fund is a type of professionally-managed collective

investment scheme that pools money from many investors to

purchase securities

How Mutual Fund Works?

Investors

Markets(volatile, has fluctuation)

Trust (pool of money)

Contribute money

Invest in markets

Receive dividend/capital appreciation

Receive interest, dividend or capital growth

What Is Real Estate fund?

Real estate fund is a fund that buys, develops, manages and

shells real estate assets and allows various participants small

and large to invest in a professionally managed portfolio of real

estate properties.

Like mutual funds, real estate funds are founded by a group of

real estate professionals/experts to ‘manage’ property/real

estate for the investor.

What are the objectives of the Real Estate Fund?

Benefits to the individual

Protection from legalities

Affordability

Liquidity

Increase in rental housing generation

Expected to enhance the quality of the housing projects.

Flow of funds in the sector

Sector will become more organized

More credibility to the sector

Availability of foreign investments

Economic and social benefits

Growth of real estate sector can boost the GDP

Opportunities of employment

Benefits to the sector

Growth of ancillary industries

Help in the process of slum development

Help in development of tourism

Funds for the development of B & C grade cities

Availability of funds to the government for infrastructure development

It can also help in improving the penetration of mutual funds in India.

REIS will also help to tap the investments from larger section of Indian Market

Cont…

Affordability

Age Old Acts and Rules

Government Administration

Foreclosure

High cost of funds

Informal Sector

Competition

Legal Hurdles

Construction Finance

What are the Problems with Real Estate Fund?

Risk with the Real Estate InvestmentLiquidity risk

Risk because of high maintenance burden

Risk due to high government controls

Risk due to real estate cycles

Risk due to legal hurdles and complexity

Risk due to lack of information

Risk due to high transaction cost thus forming

barriers to entry and exit

REMF STRUCTUREInternationally there are two structures, which real estate funds follow

REMF STRUCTURE

REIT Structure PMV Structure

Followed In USA and CANADA

REIT is a corporate structure, which collects money from the investors and invests in real estate assets to earn money in the form of rentals and lease.

Followed In UK

In this structure, the funds is in the form of a trust and operates just like an open ended mutual fund

Difference BetweenREIT structure and PMV Structure

REIT Structure PMV StructureFollowed in USA & Canada Followed in UK

Close ended fund Open ended fund

Use leverage Does not use leverage

Are listed on the exchanges Not listed on the exchanges

REMF in IndiaIn April 2008, market regulator SEBI announced

guidelines for REMFs

There is a hot discussion floating in India about which

model the Indian market should adopt.

Should it adopt the US structure or the UK structure or

follow an altogether new structure for a fund, which

invest in Real Estate.

CONCLUSIONThere is high chances that the real estate mutual fund

introduce in India. In India REMFs will follow UK base

structure with some changes. And the real estate area is

majorly advantages area for the inventors.

Thank you…