January 30 , 2013
Real estate is traditionally known to beat inflation and everyone who can afford it likes to create wealth through it. Around 2007-08 infrastructure theme caught the fancy of mutual funds and between 2007 & 2009 over 15 funds based on the theme were launched. Investors believed infrastructure mutual funds were the answer for affordably investing in real estate and many rushed to them hoping to make quick bucks. But is investing in units of infrastructure mutual funds actually as good as investing in real estate itself? The answer is no.
Infrastructure mutual funds are thematic funds that invest in stocks of companies forming part of infrastructure sector. These include companies in industries like construction, power utilities, banks, heavy industries etc. By the name you can conclude these funds are not restricted to the real estate industry.
This does not mean that a fund that invests purely in real estate companies could solve the problem. Stocks of real estate companies have not reflected growth in value as real estate has for many reasons.
What could possibly be a feasible alternative to real estate holding for retail investors is Real Estate Mutual Funds (REMFs) or Real Estate Investment Trusts (REITs). These are like mutual funds that pool money from investors and would to put them in various property projects across various locations and make money through rental income or capital appreciation which is then distributed. Presently though these exist only in SEBI draft regulations.
Today there are REITs in India but they are not meant for small investors and are more like private equity funds. However when REITs/REMFs as SEBI regulations provide become real, investors may be able to take advantage of real estate growth without actually holding it.