Real Estate Funds – Advantages & Features
Investing in real estate has been the most-acclaimed way of generating wealth around the world. However, the prices of real estate properties are high enough to deter most investors. If you are interested in the real estate sector and believe that this sector will undergo growth in the near future and want to invest in it, then Real Estate Mutual Funds in India are ideal for you. Here, we will talk about these funds, along with their features and the benefits they offer.
What are Real Estate Funds?
Real Estate Funds are sector funds that invest in securities of companies from the real estate sector. In other words, these funds provide the capital to the real estate company to develop a property. If the sector grows, then the fund makes good returns. A real estate fund might invest in real estate companies or REITs (Real Estate Investment Trusts) based on the investment objective of the fund among other factors.
Who should invest in Real Estate Funds?
A real estate fund offers the investors an opportunity to earn good returns by investing in the growing real estate sector. However, it does come with its own risks and investors must research well before investing. Usually, investors without sufficient funds to purchase a property opt for real estate mutual funds. It is important to note that this investment requires a horizon of at least three to five years. These funds are not recommended to short-term investors. Also, you need to be aware of how the real estate sector functions to benefit from this investment.
Advantages of investing in Real Estate Mutual Funds
Here are some advantages of investing in these funds :-
Real Estate Investment Funds allow you to invest in the real estate sector without burning a hole in your pocket. You have the flexibility to choose the amount that you want to invest.
Alternative to buying property
These funds offer a great alternative to buying an investment property. You can benefit from the growth of the real estate sector without buying a property.
These funds are a blessing for investors with limited available capital who want to gain exposure to the real estate sector.
When you invest in a real estate property, your investment has very low liquidity since selling the property takes time. This is where real estate funds offer an advantage since they are highly liquid and allow you to liquidate your investments when the markets are high.
When you invest in a property, if there is a downturn in prices in your locality for any reason, then you can suffer losses. However, with real estate funds, these fluctuations are balanced out since the fund invests in multiple properties spread across different areas.
Protects against Inflation
When an economy goes through inflation, the prices of property rise and the rents increase too. This, in turn, leads to an increase in the value of the units of a real estate fund. Hence, these funds are great protection against inflation.
Risks associated with investing in Real Estate Funds
Here are two primary risks associated with investing in real estate mutual funds:
The real estate market is highly dependent on the demand for properties (rental as well as for outright purchase). Hence, if the markets are doing well, then the fund will offer good returns. However, in a sluggish market, the fund’s performance will suffer too.
Interest Rate Risk
The interest rate regime affects the real estate market since it has a direct impact on borrowing rates.
Features of Real Estate Funds
Here are some salient features of real estate mutual funds available in India:-
- Investment horizon – These funds are recommended to investors with a long-term investment horizon.
- Hassle-free real estate investing – Purchasing a property is a time-consuming process. As a home buyer, you are required to go through an arduous process before you get the property registered in your name. With real estate funds, you can leave all this hassle to professional fund managers and benefit from the performance of the overall sector.
- Diversification – Most real estate funds invest across the entire gamut of properties like residential, commercial, industrial, etc. This allows you to benefit from the growth in various sub-sectors.
Minimal investment – With property prices sky-rocketing, most investors find it difficult to purchase a property. These funds allow you to include real estate as an asset class in your investment portfolio without having to pay exorbitant amounts.