Real Estate Mutual Funds: Suitability, Advantages, Risks

Updated on: Jan 13th, 2022


6 min read

A real estate mutual fund (REMFs) is a mutual fund that invests in the securities of real estate companies. A large part of these funds goes into investment in commercial and corporate properties, residential complexes, and agricultural land. REMFs can invest in property, directly or indirectly via Real Estate Investment Trusts (REITS)

Who can invest in Real Estate Mutual Funds?

Real estate mutual funds are favourable to small investors who are not able to invest in real estate directly. Such investors can get exposure to the sector through smaller amounts and can be rewarded with good returns as professionals and experts manage these funds. Real estate funds also allow them to diversify across properties, whereas direct real estate investments will allow the purchase of one or two properties only. It is important to note that the overall returns on this investment are dependent on factors such as real estate market conditions, interest rates, supply and demand of residential and commercial spaces, and so on.

Advantages of Investing in Real Estate Mutual Funds

Here are some of the reasons investing in real estate mutual funds could prove to be fruitful:-

Flexibility to Invest:
They offer great flexibility to investors as they have the choice to invest depending on their financial goals and the amount of income available to invest.

Alternative to Purchasing Property:
Real estate mutual funds allow a small investor an alternative to purchase an investment property and also lower the involvement in the management of the fund.

Diversification of  Portfolio:
These funds allow investors, who have only a limited amount of capital available, to invest in focused or diversified real estate investments where the investment required is low. Residential, commercial and rental projects are part of the investment portfolio.

High Liquidity:
Investment in real estate offers low liquidity since reselling a property might not be very easy. On the other hand, investing in real estate mutual funds can help you get higher gains when the market is up, and you can liquidate your funds whenever you want.

Portfolio Stability:
This fund balances out the high-risk investments in the portfolio. Although the real estate prices may fluctuate at times, this does not affect real estate funds to a large extent.

Protection Against Inflation:
During inflation, the prices of property and rent increase which can lead to a rise in the value of the real estate as well, which in turn can increase the value of real estate mutual fund units.

Risks Associated with Real Estate Mutual Funds

Like every investment, real estate mutual funds are not immune to risks. Two major risks are associated with an investment in the real estate mutual funds:-

Market Risk:
In a rising market, the real estate funds will perform well, but a crisis in the real estate sector will affect the real estate mutual fund as well.

Interest Rate Risk:
Rising interest rates affect the overall returns of the real estate mutual funds One disadvantage associated with this investment is that the investors do not have the rights to decide how the fund should be run or in which company their funds should be invested in. Investors who own stocks in a company have a say in issues of this sort, but the same does not hold for real estate fund investors.

1. Aditya Birla Sun Life Global Real Estate Fund – REtail (G)
2.Kotak Asset Allocator Fund
3. Sundaram Hybrid Sr
4. HSBC Managed Solution Growth (G)
5. HDFC Property Fund
6. Aditya Birla Real Estate Fund Real estate mutual funds are a low cost– highly liquid investments fetching steady returns over time.

With minimal effort and constant fund management by experts, these funds have become popular among investors who don’t want to invest directly and have a low budget for investment. Therefore, an investor who is aware of the real estate sector and the overall growth of the economy can benefit a lot out of real estate mutual funds.

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Quick Summary

Real estate mutual funds (REMFs) are investments in real estate securities, advantageous for small investors offering diversification, liquidity, and portfolio stability. They are managed by professionals and offer flexibility. Risks include market and interest rate risks, with limited investor decision-making power. Popular real estate mutual funds include Aditya Birla Sun Life Global Real Estate Fund, Kotak Asset Allocator Fund, and others. Investing in REMFs can provide steady returns and benefit those with low budgets for direct investment.

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