The long awaited Mutual fund guidelines are here at last. However it is still very sketchy and full details are awaited and will come hopefully in the coming week. Even at this stage it is a welcome move and good first step for the end customer.

Existing MFs can launch the REMF schemes, provided “they have adequate number of experienced key personnel/directors”, Securities and Exchange Board of India said in a notification in Mumbai on Friday. There is no doubt that existing players like Hdfc (for those who have forgotten, it stands for Housing Development Finance company!) mutual fund, Icici Prudential, Kotak, will have people with experience, the others will start by poaching!

REMFs will be required to declare net asset value (NAV) of the schemes daily, it said, adding that “every real estate mutual fund scheme shall be close-ended and its units shall be listed on a recognised stock exchange”. One finds this difficult to understand as the property value may not change on a day to day basis. However, the interest accrued, and some other income and expenditure might change on a daily basis.

Entities having experience in real estate business of at least five years will also be allowed to sponsor REMFs provided they fulfill other eligibility conditionsing the notification, Prakash Natarajan said “It was a long awaited the move – it will enable small investors to participate in the real estate market, reduce the opaqueness of the deals and importantly bring capital for developers”.

As regards the investment norms, REMFs will be required to invest at least 35 percent of the net assets of the scheme directly in real estate assets and the balance could be invested in mortgage-backed securities, shares of companies engaged in real estate and other securities.

  1. the total investment by REMFs in real estate assets and real estate related securities (including mortgaged-backed securities) will not be less than 75 percent of the net asset of the scheme.

2. All assets, will have to be valued by two accredited valuers every three months from the date of purchase, and lower of the two values will be taken into account for computing NAV.

  1. Limits would be imposed on investments in a single city or project
  2. REMFs will not be allowed to transfer real estate assets from one scheme to another
  3. REMFs will not be permitted to invest in the real estate assets owned by sponsors, asset management companies or its associates for five years.
  4. REMFs cannot undertake lending or housing finance activities.

A more detailed notification regarding the caps on the investment in each project, city, state, builder group, who can be a valuer, accounting norms, NAV compounding methodology, whether a fund can buy from an intermediary, etc. should be announced before any amc can launch a scheme.

It will surely bring some life into the mf industry – and one can see a spate of NFOs. Long live the distributors!

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