The Government is liberalising the FDI policy in Real Estate MFs
The government is considering allowing Foreign Direct Investment (FDI) up to 49% and tax benefits for real estate mutual funds. SEBI is in final stages of framing guidelines for products that will alow retail investors enjoy the benefits of owning a slice of the ever booming Indian real estate market. Internationally, real estate mutual funds are called Real Estate Invetsment Trusts - REITS in short. REITs are companies that buy, sell manage and develop real estate assets.
Much like mutual funds, REITs put together the investments of many individuals and institutions and then deploy this money in real estate. So, people wanting to have a pie in the real estate growth phase mo do so now by buying hsares in REIT or units in real estate MFs.
The main area of concern is disclosure norms and valuation of real estate assets of these mutual funds. It is difficult to value a property on regular intervals like day-to-day unlike other equity and money market instruments. Besides, valuations would depend on the valuer. The market regulator is expected to extend some of the strict disclosure and valuations proposed for real estate IPOs to real estate mutual funds as well. The advisory committee is suggesting a period not more than two months for declaring net asset values and portfolio. In line with real estate IPO norms, the projection of the value of the land may be made only on the present "realisable" value instead of the future projection.
Officials from the legal department of SEBI, a couple of key officials of HDFC Mutual, representatives from the Institute of Charted Accountants of India (ICAI), The Association of Mutual Funds in India (AMFI) and a SEBI nominated independent CA have been meeting over the past few months to finalise rules about disclosures and accounting standards to be adopted. The SEBI is also expected to announce which entities would be allowed to launch such a fund and the minimum investment amount for the investors.
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