Best Real Estate Mutual Funds in India

Top 3 Real State Mutual Funds in India

The following are the 3 best REIT Mutual Funds in India:

Note:  Mutual Fund investments will be subject to market risks. Any mutual fund listed in the document does not guarantee fund performance or its underlying creditworthiness. Do read the mutual fund document thoroughly before investing. Specific investment needs and other factors have to be taken into account while designing a mutual fund portfolio.

Features of Real Estate Funds

Some of the key features which make real estate funds a popular investment instrument are listed below.

1. Long-term - Investments in real estate funds are typically for a longer period, with most investors looking to gain long-term returns. This is primarily due to the time associated with developing and selling a property.
2. Alternative to buying property - Purchasing property can be a tedious and time consuming process, with real estate funds offering an alternative to physically buying real estate. It not only eliminates the risk of buying property mired in litigations, but also provides returns without the hassle of maintaining it.
3. Liquidity - These funds offer a certain level of liquidity to investors, which is not the case with physical real estate. Investors can cash in on their investment at any time, with it possible to sell them in a span of a day or so.
4. Risk - Real estate funds come with a different set of risks. While the risk of falling prey to unscrupulous builders or fake property is minimised, there is the inherent risk of collapse of the segment. Being a sector fund, any fluctuations in overall real estate trends could have an impact on the investment.
5. Returns - Returns on an investment depend on the growth of the sector, but most funds are known to offer good returns, especially if the fund invests in cities where real estate is a premium.
6. Profit sharing - Investments in REITs are typically eligible to get a share of the profits earned by the company, while investments in real estate companies offer a chance for long-term growth.
7. Minimal effort - A real estate fund minimises the effort required to purchase a property. Professional fund managers handle the fund, ensuring investors needn't take additional responsibility. One can enjoy the benefits without having to worry about paperwork, legal status, etc.
8. Diverse portfolios - Most real estate funds invest in properties across spectrums, aiming to incorporate residential, commercial, rental and hospitality projects in their portfolio. This, in essence provides investors a chance to reap benefits across growth in different segments.
9. Low investment - Purchasing a property is often beyond the reach of most individuals, thanks to ever rising costs. A real estate fund provides people an opportunity to be a part of this sector without paying exorbitant amounts. Individuals can invest sums which they are comfortable with.
10. No direct role - Investment in a real estate fund is typically managed by fund managers, which essentially means that an investor has no direct role in determining where his/her money goes. Investors have no stocks in the company nor do they have any voting rights. Also, they have no say in which property an amount is invested in.
11. Fees - Most funds charge a certain management and one-time fee, with this amount being equivalent to a fixed percent of the investment amount.

Advantages of Real EstateMutual Funds

Real estate mutual funds have several benefits to offer. Here are some of the notable ones.

1. Flexibility To Invest - Real estate mutual funds are one of the most beneficial funds to invest in as they offer great flexibility to investors. In making an REMF investment, investors have the choice to invest as per their financial goals and the amount of income which they may have available at that time to invest. .
2. Benefit of Professional Portfolio Management - Just like mutual funds, real estate mutual funds are also managed by experienced and qualified professionals (fund managers) who manage the investor's fund. The fund manager will carry out extensive research with regards to the company where your money must be invested. He will ensure that the investment is done keeping in mind the investor's financial goal and will yield returns accordingly to fulfill the same.
3. Serve A Dual Purpose - Real estate funds have been designed to offer dual benefit. For medium to long term REMF investors, not only do real estate funds allow for appreciation of invested funds but also provide dividend income.
4. Affordable Alternative For Purchasing Investment Property - Property is one of the most profitable investments, which continued to yield high returns consistently. However, with sky-high property prices, investing in property isn't always possible. Real estate mutual funds offer are a great alternative to purchasing investment property. They are especially helpful in levelling not only the risk involved but also are a viable option for investors who wish to limit their investment and also lower their involvement in management of the fund.
5. Diversifying Investor's Portfolio - Real estate mutual funds are a great option for investors who wish to diversify their investment portfolio. These funds allow investors, who have only a limited amount of capital available, to invest in focused or diversified real estate investments where the investment required is low.
6. Protection From Inflation - Real estate mutual funds may also serve to protect the investment from inflation. During bouts of inflation, prices of property and rent rise, which in turn can lead to a rise in the value of real estate as well.
7. Offer Easy Liquidity - Unlike real estate, which offers very low liquidity to an individual's investment, real estate mutual funds offer high liquidity to your investment. Similar to mutual funds which can be redeemed in a short period of a day or 2, real estate mutual funds can also be traded in a day.
8. Lend Stability To Portfolio - One of the most important benefits offered by real estate funds is stability. If you are looking for a fund to balance out the high-risk investments in your portfolio, real estate funds are a great option. While real estate prices may tend to be unpredictable at times, the resultant negativity does not percolate down to real estate funds.

Disadvantages of Investing in Real Estate Mutual Funds

While real estate mutual funds do have plenty of benefits to offer, they are not entirely without flaws. Here are some of the common risks associated with real estate funds.

1. Interest Rate Risk - Real estate mutual funds are not entirely isolated from the effects of interest rate changes. The returns on real estate funds Rising interest rates can also affect the returns of real estate funds.
2. Market Risk - Real estate funds are not entirely isolated from market related risks. This implies that just like real estate funds will perform well in times when the real estate market is booming, in the same way, real estate funds will be affected as a result of any drops in the real estate market.
3. No Say In The Allocation of Funds - Another risk which accompanies investing in real estate funds is that investors will not have the liberty to decide which companies their funds will be invested in or have any say in how the fund is being run. Also, investors will not have any voting privileges when it comes to issues regarding the fund, a privilege which is allowed to investors who own stocks in a company.

Difference Between Real Estate Funds and Real Estate Investment Trusts (REITs)

A common term which is used in conjunction with real estate funds is real estate investment trusts, or REITs. While they sound similar, there is a slight difference between these two, predominantly in the area of investment.

Real estate fund  - Typically invests in securities of companies which own property (commercial, residential, agricultural or land), a real estate investment trust is an association/trust which owns the land/property.

Real Estate Investment Trusts (REITs) - Typically consist of a number of members who pool resources to purchase and develop a property, with these members eligible to earn a dividend. They own a share of the real estate, and almost all theprofit is distributed accordingly.

In simple words, a real estate fund can invest in a real estate investment trust to offer benefits to investors, making a REIT an instrument of investment.

Who should invest in Real Estate Funds?

A Real Estate Mutual Funds offers individuals an opportunity to be a part of the growing real estate sector, helping them make money. Just like other funds, this one too comes with its own share of risks and rewards, with individuals expected to make informed decisions.

Individuals looking to participate in this sector without physically owning property can consider these funds, especially if they lack the investment to purchase a property themselves.

In addition, this fund is suited to individuals looking at long-term gains, in the range of 3 to 5 years. People looking to make immediate profits might not find it a suitable investment option.

Someone who is aware of how the real estate sector works, with an eye on overall growth can benefit from investments in Real Estate Mutual Funds.