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How mutual funds investing in REITs and InvITs impacts you

Several fund houses are planning to invest into REITs, InvITs and investors have the choice to opt out of the scheme without having to pay any exit load.

, ET Bureau|
Updated: May 08, 2017, 06.12 PM IST
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Funds are now permitted to invest up to 5% of their net asset value in alternative securities—capped at 10% for a single fund.
Funds are now permitted to invest up to 5% of their net asset value in alternative securities—capped at 10% for a single fund.
Several fund houses are planning to invest into real estate investment trusts (REIT) and infrastructure investment trusts (InvIT). Funds are now permitted to invest up to 5% of their net asset value in alternative securities—capped at 10% for a single fund. This change in investment pattern is a fundamental shift in the attribute of a scheme, so fund houses are asking investors to indicate their consent or to exit the investment.

REITs are companies that own and lease out commercial or residential real estate. The rental incomes from the properties are shared among REIT investors, who are allotted units. These units are tradeable on exchanges. InvITs are similar to REITs, except these own infrastructure assets not real estate. “The risk profile for these instruments is somewhat different, since the repayment capability of the instrument is completely dependent on the sales in the projects and the cash flows are usually volatile,” says Feroze Azeez, Deputy CEO, Anand Rathi Wealth Management. In an environment where yields are falling, exposure to these instruments could actually lift a fund’s return profile. They could be a good source of return for funds provided adequate due diligence is done and risks are understood, says Roopali Prabhu, Head, Investment Products, Sanctum Wealth Management. Liquidity, however, could also be an issue since these are new, untested instruments, she cautions.

Also Read: Does your MF scheme still suits you after the recent rejig?

Investors wishing to opt out of the scheme can do so within the window specified by the fund house without having to pay any exit load. They can also switch another scheme from the same fund house.

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