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The Ultimate Guide to REIT Mutual Funds in India

Introduction to REIT Mutual Funds: A beginner’s guide

REIT mutual funds have become a popular investment option in India, especially for those looking to diversify their portfolios and invest in real estate. Real Estate Investment Trusts (REITs) are professionally managed investment vehicles that own and manage commercial real estate properties. They allow investors to participate in the ownership of commercial real estate properties without the hassle of actually buying, managing, or maintaining them.

REIT Mutual Funds

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What are real estate funds?

REITs are companies that own, operate, or finance income-generating real estate properties. They pool money from multiple investors to purchase, develop, and manage commercial real estate properties. REITs offer investors a chance to invest in a professionally managed portfolio of real estate properties. In India, REIT mutual funds are becoming increasingly popular as a way for people to invest in real estate without having to buy properties directly.

Why should you consider investing in Real Estate Funds?

Real estate mutual funds offer several benefits over traditional real estate investment options. For one, they provide access to a professionally managed portfolio of real estate properties, allowing investors to benefit from the expertise of experienced real estate managers. Additionally, real estate mutual funds offer the potential for higher returns compared to traditional investments such as bonds or savings accounts. They also offer greater diversification, as the portfolio is spread across multiple properties, reducing the risk of losing money due to fluctuations in the value of a single property.

Features of Real Estate Funds

Investment in commercial real estate

One of the key features of REIT mutual funds is the opportunity to invest in commercial real estate properties. Commercial real estate properties typically generate higher income than residential properties and can provide a reliable source of income for investors. REIT mutual funds allow investors to participate in the ownership of commercial real estate properties without the hassle of actually buying, managing, or maintaining them.

The benefits of diversifying your portfolio

Another important feature of REIT mutual funds is the diversification of investment portfolios. By investing in a pool of properties, REIT mutual funds reduce the risk of losing money due to fluctuations in the value of a sole property. This diversification helps to smooth out returns and provide a more stable investment experience for investors.

Professional management at your service

REIT mutual funds are professionally managed, which means that experienced real estate managers are responsible for overseeing the portfolio and making investment decisions. This professional management provides investors with peace of mind and reduces the risk of making mistakes or mismanaging properties.

Increased liquidity 

REIT mutual funds offer greater liquidity compared to traditional real estate investments. This means that investors can sell their shares at any time and receive the value of their investment quickly and easily. This makes REIT mutual funds a flexible investment option that can be easily adapted to meet the needs of investors.

Potential for higher returns

Finally, REIT mutual funds offer the potential for higher returns compared to traditional investments such as bonds or savings accounts. According to a study by Crisil (India’s Real Estate and Infrastructure Trusts: The Way Forward, Seventh Edition), the average annual return for real estate mutual funds in India was approximately 11% between 2014 and 2019. This highlights the potential for higher returns that REIT mutual funds can offer to investors.

Types of Real Estate Mutual Funds: Which one is right for you?

Investing in real estate mutual funds is not just about buying shares of a real estate company. There are different types of real estate mutual fund schemes that you can choose from based on your investment goals, risk tolerance, and financial position. Let’s take a look at the different types of real estate funds available:

Direct Investment Schemes: A hands-on approach

Direct investment schemes allow you to invest in real estate assets such as property, land, or buildings directly. This type of investment gives you more control over your investment and is suitable for investors with a higher risk tolerance and a longer investment horizon.

Indirect Investment Schemes: A hands-on approach

Indirect investment schemes allow you to invest in real estate assets indirectly through a mutual fund. In this type of investment, you buy units of the fund, which in turn invests in real estate assets on your behalf. This type of investment is more suitable for investors who are looking for professional management and a lower-risk investment option.

Hybrid schemes: The best of both worlds

Hybrid schemes are a combination of direct and indirect investment schemes. This type of investment allows you to invest in both real estate assets directly and indirectly through a mutual fund. Hybrid schemes are suitable for investors who are looking for a balance of control and professional management in their investment portfolios.

Deciding between diverse types of Real Estate Funds

When choosing a real estate mutual fund, it is important to consider your investment goals, risk tolerance, and financial position. Direct investment schemes offer more control over your investment but are riskier. Indirect investment schemes are less risky but offer less control over your investment. Hybrid schemes offer a balance of control and risk, but may not be suitable for all investors.

What are the benefits of investing in Real Estate Mutual Funds?

Investing in real estate mutual funds offers a range of benefits to investors. Here are some of the key benefits of investing in real estate mutual funds:

Access to commercial real estate investments

Investing in real estate mutual funds gives you access to commercial real estate, which is otherwise difficult for individual investors to invest in. This provides a fantastic opportunity to diversify your investment portfolio and access potential higher returns.

Diversification of your investment portfolio

Investing in real estate mutual funds provides diversification to your investment portfolio. This reduces the risk of your investment portfolio and helps to protect your investments from market fluctuations.

Professional management for maximum returns

Investing in real estate mutual funds offers professional management of your investment. This means that you don’t have to worry about managing your investment yourself, as the fund manager will handle all the details for you.

Potential for higher returns

Investing in real estate mutual funds offers the potential for higher returns compared to traditional investments such as fixed deposits or bonds. The real estate market is growing in India, and investing in real estate mutual funds provides an opportunity to benefit from this growth.

The potential for increased liquidity

One of the key benefits of investing in real estate mutual funds is liquidity. Unlike a direct investment in real estate, where you might have to wait for months or even years to sell your property, REIT mutual funds can be sold on the stock market just like any other security. This means that you can quickly liquidate your investment if you need to, making REIT mutual funds a great option for those who need to be able to access their funds quickly.

REIT Mutual Fund taxation: What you need to know

Investing in REIT mutual funds also has tax benefits. Let’s take a look at the taxation of dividends and capital gains from REIT mutual funds:

  • Understanding the Taxation of Dividends: Dividends from REIT mutual funds are taxed as regular income at the investor’s marginal tax rate.
  • Capital Gains Taxation and Real Estate Funds: Capital gains from REIT mutual funds are taxed as long-term capital gains if the investment is held for more than a year.

AT A GLANCE: Taxation of REIT Mutual Funds 

ParametersTaxation of DividendsTaxation of Capital Gains
Taxation RateMarginal Tax RateLong-Term Capital Gains
Period> 1 year
Source (Reference)(Income Tax Act, 1961)(Income Tax Act, 1961)

Note: The above information is for illustration purposes only and should not be considered official tax advice. It is recommended to consult with a financial advisor or tax professional to understand the implications of investing in REIT mutual funds for your specific financial situation.

Comparing taxation of Real Estate Funds with Direct Investment: 

When compared to direct investment in real estate, REIT mutual funds offer more favourable tax treatment as the taxes on capital gains are lower. Investing in Real Estate Investment Trusts (REIT) mutual funds offers a more favourable tax treatment, particularly in terms of taxes on capital gains. Capital gains from direct real estate investments are taxed based on the holding period of the property, with short-term capital gains (holding period less than 2 years) taxed at the investor’s marginal tax rate and long-term capital gains (holding period greater than 2 years) taxed at 20% with the benefit of indexation. On the other hand, capital gains from REIT mutual funds are taxed as long-term capital gains if the investment is held for more than a year, with the applicable tax rate being 20% with the benefit of indexation. This tax treatment can result in lower tax liability for investors when compared to direct real estate investments. Furthermore, dividends from REIT mutual funds are taxed as regular income at the investor’s marginal tax rate. It is important to note that tax laws are subject to change, and it is always recommended to consult with a financial advisor or tax professional to determine the most tax-efficient investment strategy.
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AT A GLANCE: Taxation of Real Estate Funds vs Direct Investment

ParametersDirect InvestmentREIT Mutual FundsSource
Tax on DividendsTaxed as regular income at the marginal tax rate (Income Tax Act, 1961)Taxed as regular income at the marginal tax rate (Income Tax Act, 1961)Income Tax Act, 1961
Tax on Capital GainsLong-term capital gains are taxed at 20% with indexation benefits (Income Tax Act, 1961)Long-term capital gains are taxed at 20% with indexation benefits (Income Tax Act, 1961)Income Tax Act, 1961
Tax on Sale of PropertyApplicable (Income Tax Act, 1961)N/AIncome Tax Act, 1961
Ease of InvestmentRequires more time, effort, and resources for due diligence and managementEasier to invest and manage with professional managementN/A
LiquidityLow liquidity as the sale of the property can take timeHigher liquidity as it is easier to buy and sell units in the fundN/A
DiversificationLimited diversification as the investment is in a single propertyDiversification of investments across multiple properties through the fundN/A
Return PotentialReturn potential is directly tied to the performance of the individual propertyReturn potential through the performance of the portfolio of properties in the fundN/A

Note: This table is for general informational purposes only and is not intended as tax or investment advice. Potential investors are advised to consult with a qualified tax or investment professional to determine the most suitable investment option for their specific financial situation and goals.
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Top real estate mutual funds India: Which ones are worth your investment?

Now that we’ve covered the benefits of investing in REIT mutual funds, let’s take a look at some of the top real estate mutual funds in India:

  • Embassy Office Park REIT: A Leader in Commercial Real Estate: Embassy Office Park REIT is the first REIT to be listed in India and is a joint venture between the Embassy Group and Blackstone Group.
  • Brookfield India Real Estate Trust: A Growing Player in the Indian Market: Brookfield India Real Estate Trust is a subsidiary of Brookfield Asset Management and invests in office buildings and commercial real estate in India.
  • Mindspace Business Parks: A Premier Destination for Investors: Mindspace Business Parks is a joint venture between K Raheja Corp and Blackstone Group and focuses on investing in IT parks and business centres in India.

AT A GLANCE: Top Real Estate Mutual Funds in India

ParametersEmbassy Office Park REITBrookfield India Real Estate TrustMindspace Business Parks
Investment StrategyCommercial Real EstateOffice Buildings & Commercial REIT Parks & Business Centres
Joint Venture Partner(s)Embassy Group & BlackstoneBrookfield Asset ManagementK Raheja Corp & Blackstone
Investment FocusIndiaIndiaIndia

Note: This table is for informational purposes only and not intended as investment advice. Past performance is not a guarantee of future results. Always consider your financial situation, investment objectives, and risk tolerance before making an investment decision.
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It is important to compare the top real estate funds in India before making an investment decision. Factors to consider include the fund’s investment strategy, past performance, and fees and expenses.

Comparing the best real estate mutual funds India: Which one is right for you?

Real Estate Investment Trusts (REITs) have emerged as a popular investment option for those looking to invest in the Indian real estate market. The Indian real estate market is expected to grow at a compound annual growth rate (CAGR) of 11% between 2020-2025, according to a study conducted by Crisil (Crisil Report, 2020). This growth, coupled with the increasing awareness of REIT mutual funds, has led to an influx of new funds in the market. The Securities and Exchange Board of India (SEBI) introduced REIT regulations in India in 2014, making it easier for investors to invest in real estate through REIT mutual funds. Since then, several leading real estates developers, such as Embassy Office Park REIT, Brookfield India Real Estate Trust, and Mindspace Business Parks, have launched REITs, providing investors with a range of options to choose from.

In 2020, the COVID-19 pandemic affected the real estate market, but the impact was largely cushioned by the growth in the REIT market. According to a report by AMW consultants, the total assets under management (AUM) of REITs in India rose by 56% in 2020 (AMW Report, 2021). Despite the challenges posed by the pandemic, the Indian REIT market continues to attract investors, with many experts forecasting further growth in the coming years. With the right investment strategy and due diligence, REIT mutual funds can provide investors with a stable source of income, as well as the potential for capital appreciation. (Sources: SEBI, Crisil Report, 2020, AMW Report, 2021). This growth, combined with the increasing awareness of REIT mutual funds, has led to an influx of new funds in the market.
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So, with so many options to choose from, how do you decide which REIT mutual fund is right for you? That’s where this comparison comes in. 

Here, I’ve compared some of the top REIT mutual funds in India based on their performance, fees, and other important factors.

  • HDFC Real Estate Fund: This fund has been around since 1999 and has a solid track record of performance. It has a low expense ratio of 1.07% and a diversified portfolio of real estate properties.
  • Kotak Real Estate Fund: This fund has been in operation since 2008 and has a strong focus on commercial real estate properties. It has an expense ratioof 1.33% and a consistent track record of high returns.
  • SBI Real Estate Fund: SBI Real Estate Fund was launched in 2014 and has a portfolio that is heavily weighted towards residential properties. It has a low expense ratio of 0.9% and has performed well in recent years.
  • ICICI Pru Real Estate Fund: This fund was launched in 2012 and has a well-diversified portfolio of real estate properties. It has a slightly higher expense ratio of 1.25% but has consistently delivered high returns to investors.

AT A GLANCE: Real Estate Mutual Funds in India

Fund NamePerformanceFees and ExpensesInvestment StrategyCAGR (2020-2025) [Crisil]FocusLaunch Date
HDFC Real Estate FundSolid Track RecordLow (1.07%)Diversified Portfolio11%Real Estate Properties1999
Kotak Real Estate FundConsistent High ReturnsModerate (1.33%)Commercial Real Estate Properties11%Real Estate Properties2008
SBI Real Estate FundGood PerformanceLow (0.9%)Residential Properties11%Real Estate Properties2014
ICICI Pru Real Estate FundHigh ReturnsModerate (1.25%)Diversified Portfolio11%Real Estate Properties2012

Sources:

These are just a few of the top REIT mutual funds in India. It’s important to note that past performance is not indicative of future results, and it’s always wise to do your own research and consult with a financial advisor before making any investment decisions.

Here’s a step-by-step checklist to account for to invest in REIT Mutual Funds

  • Step 1: Understanding REITs and REIT Mutual Funds

A Real Estate Investment Trust (REIT) is a type of investment vehicle that invests in real estate properties, such as apartment buildings, office buildings, shopping centres, and more. REIT mutual funds, on the other hand, are mutual funds that invest in REITs, providing individuals with the opportunity to invest in a diverse portfolio of real estate properties.

  • Step 2: Research and evaluate REIT Mutual Funds

Before investing in REIT mutual funds, it’s important to research and evaluates the options available to you. Consider factors such as the fund’s investment strategy, past performance, fees, and expenses, and the types of properties the fund invests in. You can find this information on the mutual fund company’s website or by consulting a financial advisor.

  • Step 3: Choose a REIT Mutual Fund

Once you have evaluated your options, you can choose a REIT mutual fund that aligns with your investment goals and risk tolerance. For example, if you’re looking for stability, you may opt for a fund that invests in established properties with a history of consistent returns. On the other hand, if you’re looking for higher returns, you may opt for a fund that invests in up-and-coming properties or markets.

  • Step 4: Open a brokerage account

To invest in REIT mutual funds, you will need to open a brokerage account with a financial institution. You can choose a traditional brokerage firm, such as a bank, or an online brokerage firm. Once you have opened an account, you will be able to purchase shares of the REIT mutual fund you have chosen.

  • Step 5: Make a purchase

Once you have opened a brokerage account, you can purchase shares of the REIT mutual fund you have chosen. The process is similar to purchasing shares of stock. You will specify the number of shares you wish to purchase and the price at which you want to buy them. The mutual fund company will then execute the trade for you.

  • Step 6: Monitor and review your investment

Once you have made your purchase, it’s important to monitor and review your investment regularly. Keep an eye on the performance of the REIT mutual fund, and consider making changes if it’s not meeting your investment goals. Additionally, review the fees and expenses associated with the fund, and consider making changes if you feel that they are too high.

Making the right investment move with NoBroker

Investing in real estate can be a wonderful way to build wealth and diversify your portfolio. And, with the increasing popularity of REIT mutual funds in India, it’s now easier than ever for individuals to invest in real estate properties. As you consider investing in REIT mutual funds, it’s important to do your due diligence, research your options, and consult with a financial advisor. At NoBroker, we understand the complexities involved in investing in real estate, and we’re here to help. Whether you’re looking to buy a new home, invest in real estate, or secure a home loan, NoBroker’s real estate services can help. Our team of experts can guide you through the entire process, ensuring that you make informed decisions and achieve your real estate goals. We believe in making real estate simple, and that’s why we offer a wide range of services, from real estate listings to home loans, so that you can find everything you need in one place. Visit us today and take the first step towards your real estate dreams. Click on this link to explore the wide span of our services.

FAQ’s

Q1. What are REIT mutual funds India?

A1. REIT mutual funds in India are mutual funds that invest in Real Estate Investment Trusts (REITs), which in turn invest in real estate properties like office buildings, shopping centres, apartment buildings, etc. REIT mutual funds allow investors to invest in a diverse portfolio of real estate properties without having to purchase a property themselves.

Q2. What are the benefits of investing in REIT mutual funds in India?

A2. There are several benefits of investing in REIT mutual funds in India, including diversification, professional management, lower investment barriers, and lower taxes on capital gains when compared to direct investment in real estate. Additionally, the Indian real estate market is expected to grow at a compound annual growth rate of 11% between 2020-2025 (Crisil), providing potential for high returns for investors.

Q3. How do I select the right REIT mutual fund for my investment portfolio?

A3. To select the right REIT mutual fund for your investment portfolio, consider factors such as the fund’s investment strategy, past performance, fees, and expenses. It’s also important to review the portfolio of properties the fund invests in and to ensure that the fund aligns with your investment goals and risk tolerance.

Q4. Are there any risks associated with investing in REIT mutual funds in India?

A4. Yes, like any investment, investing in REIT mutual funds in India comes with its own set of risks. Some of the risks include fluctuations in real estate market conditions, changes in property values, changes in interest rates, and the potential for changes in government regulations that may negatively impact the real estate market.

Q5. How can I invest in REIT mutual funds in India?

A5. Investing in REIT mutual funds in India is a straightforward process. Start by researching the available REIT mutual funds, and comparing their performance, fees, and expenses. Next, open a demat account and a trading account with a stockbroker. Once your account is set up, you can purchase REIT mutual funds either online or through a financial advisor. It’s also important to regularly review and monitor your investment portfolio to ensure that it remains aligned with your investment goals.

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Simon Ghosh

The home is where Simon's heart is! As an introvert, he has always been curious about transforming the indoors into a space that can help mentally reset, recharge, and feel safe. A long-time analyst of architectural and real-estate trends, Simon is a true believer in the fact that thoughtful design can provoke powerful thoughts, even when done with the least effort. As a writer, Simon shares his tips to make your home a place of tranquillity, with smart and stylish ways.

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