Market regulator Securities and Exchange Board of India (Sebi) has asked fund industry to stay away from “volatile sectors” such as realty and not to buy its papers, especially through close-ended capital protection schemes. After the central bank recently expressed concern over the asset bubble situations in the real estate sector, it seems the market regulator is getting wary of investments into the sector which could jeopardise investors’ money.
Market participants said, “Recently, while clearing a capital protection scheme of some fund houses, Sebi had asked them not to buy papers or debentures of the realty sector. According to a senior official, the reservations for investing in the realty sector was made by Sebi in the context of capital protection schemes only. Currently, debt funds have larger investments in debentures, commercial papers, floating rate bond and pass through certificate issued by various real estate players. During the financial crisis of 2008, several realty players reportedly re-scheduled their maturity with debt fund managers to avoid a payment default, said a senior debt fund manager. However, post 2008, mutual funds gradually seemed to have reduced exposure to the realty sector. According to Value Research data, average debt fund investments in the real estate papers have come down in the last three years. While In 2008, it was 9.32% of net assets, it came down to 5.1% in 2009 and 3.6% in 2010.
Murthy Nagarajan, head fixed income at Tata Mutual Fund says, “As a policy we are not investing in real estate papers as it is a risky business.” As of October '10, ICICI Prudential Mutual fund and UTI mutual fund were the fund houses with some exposure in real estate debt papers in companies such as DLF, Unitech, Emaar MGF and K Raheja.