After launching the real estate investment trusts four months ago, the Security and Exchange Board of India on April 25 has approved to launch Real Estate Mutual Fund (REMF) though the concept was first born two years back.
As regards SEBI has issued a guideline allowing the existing mutual funds eligible for launching the real estate product if they have sufficient numbers of key personals or directors.
The news firms/companies, willing to jump in the MFs sectors only for launching REMFs will have to prove their five-year experience of carrying on the business in real estate sector before SEBI, as stated in the released guidelines. Moreover, the sponsors will have to fulfill all other eligibility criteria for being entitled.
“Every real estate mutual fund scheme shall be close-ended and its units shall be listed on a recognised stock exchange,” said SEBI in the release by adding that Net Asset Value (NAV) of the scheme would have to be declared daily with included load structure and minimum required investment.
On the other hand, the assets of real estate scheme will be valued by two valuers that must be accredited by a credit agency in every 90 days, as per SEBI stated.
According to SEBI guidelines, 35% of net asset of the scheme is mandatory for the sponsoring companies to invest directly in the real estate assets while the remaining must be invested in the real estate assets, real estate-related securities, including mortgage-backed securities and other securities.
But out of total investment, not less then 75 % of net assets should be invested in real estate assets, real estate-related securities, including mortgage-backed securities.
“Caps would be imposed on investments in a single city, single project and securities issued by a sponsor or associate companies.” SEBI said.
The calculation of the NAV would be basis on both valuers’ data in which the lower value would be taken in the calculation of NAV while higher value will be used in investment return, as per SEBI directed.
If personnel real asset (owned or rented during last five years) would not be eligible for investment and sponsor or its any associates or Asset Management Company could not represent it as a real estate asset in the market. However, the time period frame beyond last year would not attract this rule as per SEBI guidelines.
AMCs have also been banned from transferring real estate assets amongst its schemes or undertaking any lending or housing finance activities. SEBI also plans to bar investment in any real estate asset, which was owned (or held tenancy or lease rights) by the sponsor, or the asset management company, or any of its associates during the last five years.
‘Inter exchanging or transferring among REMF schemes is also banned’ that means the AMCs can not transfer real estate assets amongst its schemes or undertaking any lending or housing finance activities.
SEBI has also quoted that the units of REMF to be listed on the bourses would be treated like an exchange traded fund (ETF) that means an investor willing to buy units of an REMF needs to have a demat account, which is not mandatory for investing in other conventional mutual fund products. This is the second after gold to be brought under the ETF category in India. It (ETF) is a relatively a novice concept in India.
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