Sebi has allowed existing mutual funds (MFs) to launch REMFs, provided they have experienced key personnel to manage them. For the new entrants, Sebi said, the fund sponsors should have at least five years experience in the real estate sector.
Every REMF scheme will have to be close-ended and its units will have to be listed on a recognised stock exchange. The net asset value (NAV) of the units will also be have to disclosed daily. However, the problem here, according to industry sources, is that the NAV of close-ended funds will be quoted at a discount as the usual practice is and investors will be at a loss.
As for the investment pattern of REMFs, Sebi said, at least 35% net assets of the scheme will have to be invested directly in real estate assets. The balance may be invested in mortgage-backed securities, securities (equities) of companies dealing in real estate assets and other securities. Taken together, investments in real estate assets, real estate related securities (including mortgage-backed securities) should not be less than 75% of the net assets of the scheme.
Sebi has made it mandatory to value each asset by two valuers, who are accredited by a credit rating agency, every 90 days from date of purchase. Lower of the two values shall be taken for the computation of NAV. This will, however, create volatility in the units at the end of every quarter, industry sources said.
Sebi has taken enough precautions on REMFs. It said caps will be imposed on investments in a single city, single project, securities issued by sponsor/associate companies and the like. It also said MFs will not be allowed to transfer real estate assets amongst its schemes. Sebi said MFs will not invest in any real estate asset which was owned by the sponsor or the asset management company or any of its associatesin the past five years.