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MF News SEBI allows fund houses to invest its corpus in REITs

SEBI allows fund houses to invest its corpus in REITs

Mutual fund houses can invest up to 10% corpus in REITs and InVITs.
Nishant Patnaik Feb 20, 2017

SEBI has allowed fund houses to invest up to 10% of its corpus in real estate investment trusts (REITs) and Infrastructure Investment Trust (InvITs). However, the market regulator has clarified that fund houses can invest only up to 5% of its corpus in units of single issuer.

In a circular, SEBI has said, “No mutual fund may invest in the units of REITs and InvITs shall not invest more than 10% of its NAV in the units of REIT and InvITs and over 5% of its NAV in the units of REIT and InvITs issued by a single issuer.”

However, fund houses cannot invest corpus of index funds and sector specific funds in REITs and InvITs.

Just like mutual funds, REITs pool money from various investors and invest in real estate ventures. REITs invest in commercial properties generating rental income.

Experts feel that the move may not help fund managers in a big way. “REITs do well in developed countries like US and UK where rental income from property is significantly high. In India, rental income from properties are among the lowest in the world.Even in metropolitan cities like Mumbai, rental income is less than 2.5% which is not lucrative,” said an equity fund manager of a large fund house.

Another fund manager of a mid-sized company seconds the view and said, “Equity funds have a potential to provide better risk adjusted returns to investors over along-term period. Then why should a fund manager look at other investment avenues like REITs.”

REITs are yet to be launched in India. A few media reports said that India will have a few REITs and InvITs by the end of 2017 from players such as Blackstone.

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