Skip to main content

A very different Kind Of Fund - REITs

 

A very different Kind Of Fund





REITs are not exactly the real estate equivalent of equity mutual funds. what they are and why they hold the promise of a regular, inflation-adjusted income.

 

After being discussed for a few years, Real Estate Investment Trusts (REITs) are finally getting off the ground. In this year's Budget, Finance Minister Arun Jaitley announced measures to make these tax-efficient for investors. Within a few weeks of the announcement, the Securities and Exchange Board of India (Sebi) came out with detailed regulations to govern the design and operation of REITs.

However, before we get to the regulations, investors should understand exactly what REITs are and what they aren't. In their simplest form, REITs are the real estate equivalent of equity mutual funds. In the latter, the investor can buy into a diversified mutual fund and leave the actual investment management to the fund manager. The fund manager decides which stocks to buy and sell and when to do so.

In the above description, replace `equity' with `real estate' and `stocks' with `properties' and you have a REIT. However, there is a catch. Equity mutual funds operate the way they do because the stocks they invest in are the ones that are traded in an active and liquid market, and high-quality information about the underlying businesses is widely available. However, none of this is true for real estate.

Therein lies the practical difference between the mutual funds you buy into as investors and what you will get when you start investing in REITs. Indians invest in real estate primarily for capital gains. Our standard model of investing is to buy property which we think will appreciate rapidly, and wait, opportunistically looking for good deals as the price rises.

However, Sebi's regulations treat REITs as an income avenue. They will buy commercial property generating rental income.


They will buy a set of such properties and commit to them for 10-15 years, or even longer. All rental income will be distributed to those who have invested in the REIT. The funds will be closed-ended, so that you cannot realise the value by redeeming it from the REIT manager, though they will be listed on the stock markets, where they can be sold to other investors. When the tenure of the fund ends, the REIT will sell its holdings in the underlying property and distribute the proceeds to investors.

Clearly, Sebi's conceptualisation of REITs is that of the property investor who buys and holds, looking for rental income.

Will this model of real estate invest find enough takers? The idea behind find enough takers? The idea behind Indian REITs is not to create something investors are looking for, but to resolve the financing problem faced by real estate developers and the banks that are funding them. The finance minister actually made this clear in his Budget speech. He said that REITs (and equivalent infrastructure investment trusts), ...would reduce the pressure on the banking system, while also making available fresh equity. I am confident these two instruments would attract long-term finance from foreign and domestic sources, including the NRIs.

The vision is that the real estate developers will use their own funds and those of the banks to create earning assets, and then sell them to REITs, thus freeing funds for further projects. That is the need that the government is trying to meet. Do REITs fulfil a valid investment need for individuals? In my view it does, but not that of the property trader. Instead, they hold the promise of generating inflation-adjusted income. Unlike the other types of income generating funds, REITs' rental income should escalate with inflation. This is a unique quality. One would expect that as these trusts take off, a new category of real estate investors will start appreciating this unique quality.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

Leave your comment with mail ID and we will answer them

OR

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

---------------------------------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
      2. Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

Popular posts from this blog

Total Returns Index brings out real Equity Funds Performers

From February, equity mutual funds have to change their benchmarks to account for dividend payments. Until now, funds used price-based benchmarks alone. TRI or total return indices assume that dividend payouts are reinvested back into the index. What this does is lift the overall index returns, because dividends get compounded. For example, the Sensex TRI index will consider dividend payouts of its constituent companies while the Nifty50 TRI index will consider dividends of its constituents. Using TRI indices as benchmarks comes on the argument that an equity funds earn dividends on the stocks in its portfolio, which they use to buy more stocks. Therefore, using an index that also considers dividend reinvestment would be a more appropriate benchmark. Shrinking outperformance With a stiffer benchmark, it is obvious that the margin by which an equity fund outperforms the benchmark would shrink. Rolling one-year returns from 2013 onwards, the average margin by which largecap funds out...
Read more

Stock Review: Havells

HAVELLS India's stock performance has been muted in the past three months, in line with the weak broader market. But, given the turnaround in its overseas subsidiary and the launch of new products in its consumer durable business, the company's stock may undergo a re-rating.    Havells is India's leading consumer electrical goods company, with consolidated sales of . 5,527 crore in the past four quarters. Its wholly-owned subsidiary Sylvania, which makes lighting and fixtures, has established brands in European, Latin American and Asian markets. Sylvania repre sented nearly half of the company's consolidated revenues in the first half of FY11.    Sylvania's poor financials hit Havells' consolidated performance in FY10. But, this has changed in the cur rent fiscal. Havells has reduced fixed costs of Sylvania by exiting from unprofitable businesses and outsourcing manufacturing to low-cost locations such as India and China. In the September 2010 quarter, Sylv...
Read more

How to generate a UAN Online

Best SIP Funds Online   In order to make Employees' Provident Fund (EPF) accounts portable, the Employees' Provident Fund Organisation (EPFO) had launched the facility of Universal Account Number (UAN ) in 2014. Having a UAN is now mandatory if you have an EPF account and are contributing to it. So far, you got this number from your employer and every time you changed jobs, you had to furnish this number to the new employer.  However, in order to make it easier for you to get a UAN , and without your employer's intervention, the EPFO now allows you to go online and generate a UAN on your own. This facility can be used by freshers, or new employees, who are joining the workforce as well as by employees who have older EPF accounts but do not have a UAN as yet. As a new employee, you can simply generate a UAN and provide the number to your employer at the time of joining, when you need to fill up forms for your EPF contribution. As per a circula...
Read more

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...
Read more

Health for Wealth - How to buy Health Insurance ?

Tax Saving Mutual Funds Online Current open Infra Bond Application form   HEALTH insurance is a relatively new phenomenon in India. Hence, it is not on the top of the mind for most people to make a conscious commitment towards health insurance. However, it is imperative for each one of us to plan for better health for our families and ourselves. There's no better way than to start with making health your top priority this year. So, your health insurance resolution charter would look something like: ■ Invest in health for wealth: Timely investment in health insurance can help build a security net and hedge sudden dilution of another financial asset class in the event of a health emergency, making it imperative to opt for a comprehensive health insurance plan. ■ Buy a comprehensive health cover that fu lfills your health needs for life: Buy a personal health insurance cover even if you have an employee cover because 'employer provided' health insuranc...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now