VR Logo

SEBI's guidelines on REMF

Real Estate Mutual Funds can now be launched, says SEBI, with a number of guidelines to boot.

The Securities and Exchange Board of India (SEBI) has given its final go-ahead to Mutual Funds to launch 'Real Estate Mutual Funds' (henceforth referred to as REMF). According to the newly issued guidelines, existing Mutual Funds are eligible to launch REMF, if they have adequate number of experienced key personnel/directors. Add to it, sponsors willing to set up new Mutual Funds, for launching only REMF, shall be carrying on business in real estate for a period not less than five years. Besides, they have to abide by other eligibility criteria applicable for sponsoring a mutual fund.

All REMF shall be close-ended and its units shall be listed on a recognized stock exchange, thereby providing investors, much needed liquidity. The regulator took a daring step by asking fund houses to declare NAVs of such schemes daily.

As far as the composition is concerned, at least 35% of the net assets of the scheme shall be invested directly in real estate assets. Balance may be invested in mortgage backed securities, securities of companies engaged in dealing in real estate assets or in undertaking real estate development projects and other securities. Taken together, investments in real estate assets, real estate related securities (including mortgage backed securities) shall not be less than 75% of the net assets of the scheme.

On the valuation front, SEBI has directed fund houses to get each asset valued 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. To avoid concentration risk, caps have been imposed on investments in a single city, single project, securities issued by sponsor/associate companies etc.

No mutual fund shall invest in any real estate asset which was owned by the sponsor or the asset management company or any of its associates during the period of last five years or in which the sponsor or the asset management company or any of its associates hold tenancy or lease rights.