If you already have a house of your own and are desirous of making further investment in real estate solely with a profit motive, it is advisable to go through the mutual fund route. Real estate in the physical form suffers from a lot of disadvantages.

• Risk of loss due to fire and other natural calamities and hazards.
• High ticket size- The cost of even a small piece of land could run in to lakhs of rupees. Real estate mutual funds ( REMF) require relatively lesser minimum investment.
• Concentration risk – It is very cumbersome to maintain a diversified portfolio of real estate through multiple purchases. In a REMF, the fund manager takes care of this.
• Risk of encroachment- This applies especially to vacant plots of land which need to be guarded and visited regularly.
• Illiquid- Physical real estate investments are not as liquid as other investments like deposits, mutual funds or gold. Deals could take a long time to get executed.
• Lack of transparency – The prices of real estate are not standardized and lack transparency. REMFs are valued through regularly published NAVs
• High transaction costs – Real estate deals – buying and selling involve high transaction costs like stamp duty and registration charges.
• Owning more than one house has greater tax liabilities.

These reasons make Real Estate Mutual Funds with a professional manager, flexible entry amounts and transparent prices a superior investment option.

The following are detail of some of the popular Real Estate Mutual Funds in India :

1. Kotak Realty Fund – Closed ended fund started in 2005 for a term of seven years and the target segment are corporates and High Networth Individuals.
2. HDFC India Real Estate Fund – Closed ended with a minimum initial requirement of Rs 5 crores.
3. Anand Rathi Real Estate Opportunities Fund – Closed ended fund which mainly focuses on acquiring secured rental income real estate assets with good quality tenants.
4. IL & FS Realty Fund – An aggressive private equity fund which seeks to deliver a compounded annual growth of 25 %.
5. ICICI Ventures – Seeks to invest in commercial and residential real estate projects in the developing cities in India.

Though real estate mutual funds haven’t yet really taken off in India, they have a huge future potential. Investors wanting to take exposure to REMFs should check on the fund’s reputation, past returns and investment objective before doing so.