Sebi announces real estate MF details

Sebi amended mutual fund regulations to include real estate mutual funds today, which allows existing mutual funds to launch real estate mutual funds (REMF) if they have adequate number of experienced key personnel/directors and also sponsors looking to set up new mutual funds for launching only REMF schemes. However, such dedicated REMF players should be carrying on business in real estate for at least five years. They are also required to fulfill all other eligibility criteria applicable for sponsoring a MF.

Every real estate mutual fund scheme shall be close-ended and its units shall be listed on a recognised stock exchange. The fund will have to declare its net asset value (NAV) shall be declared daily.

At least 35% of the net assets of the scheme should be invested directly in real estate assets. The 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.

The fund house needs to get each asset valued by two valuers, who are accredited by a credit rating agency, every 90 days from the date of purchase. The lower of the two values shall be taken for the computation of NAV.

There will be caps imposed on investments in a single city, single project, securities issued by sponsor/associate companies etc.

Among the other regulations, Sebi says mutual funds cannot transfer real estate assets amongst its schemes.Mutual funds shall not 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.

Besides, a REMF scheme cannot undertake lending or housing finance activities. Sebi has also specified accounting and valuation norms pertaining to REMFs.