SEBI allows mutual funds to launch real estate schemes

Mumbai: The Securities and Exchange Board of India has permitted mutual funds to launch real estate mutual funds. Accordingly, the market regulator has amended SEBI (Mutual Funds) Regulations, 1996 to permit mutual funds to launch REMFs.

All existing mutual funds are eligible to launch real estate mutual funds while sponsors seeking to set up new mutual funds for launching only real estate mutual fund schemes will have to carry on a real estate business for at least five years.

They will also have to fulfill all other eligibility criteria applicable to a mutual fund, a SEBI release said.

All real estate mutual fund schemes shall be close-ended and the units listed on a recognised stock exchange and its net asset value (NAV) declared daily. At least 35 per cent of these net assets are to be invested directly in real estate assets. The balance can be invested in mortgage, real estate backed securities, and other securities. However, these investments are not supposed to be less than 75 per cent of the net assets of the scheme. 

''Taken together, investments in real estate assets, real estate related securities (including mortgage backed securities) shall not be less than 75 per cent of the net assets,'' the statement said.

SEBI has also imposed caps on investments in a single city, single project, securities issued by sponsor or associate companies. ''MF will not be allowed to transfer real estate assets among its schemes and REMF will not be allowed to undertake lending or housing finance,'' it said.

The assets of the asset managers should be valued every 90 days by two valuers who are accredited by a credit rating agency and the lower of the two values shall be taken for the computation of NAV, SEBI said.

The guidelines also forbid any transfer of real estate assets by mutual funds, amongst its schemes and prevent any real estate mutual fund scheme from undertaking lending or housing finance activities.