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REMFs must invest 35 % of assets in real estates

MUMBAI: The Securities and Exchange Board of India (SEBI) on Friday stipulated that at least 35 per cent of the net assets of the Real Estate Mutual Fund schemes (REMFs) would 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 per cent of the net assets of the scheme,” SEBI stated in a press release. SEBI has amended the SEBI (Mutual Funds) Regulations, 1996, to permit mutual funds to launch REMFs on April 16.

According to SEBI, each asset shall be 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 the Net Asset Value. Further, caps will be imposed on investments in a single city, single project, securities issued by sponsor and associate companies. SEBI stated that mutual fund would not be allowed to transfer real estate assets among its schemes. “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,” SEBI noted, adding, “a real estate mutual fund scheme shall not undertake lending or housing finance activities.”

Existing mutual funds are eligible to launch real estate mutual funds if they have adequate number of experienced key personnel, SEBI stated. However, sponsors seeking to set up new mutual funds, for launching only real estate mutual fund schemes, shall be carrying on business in real estate for a period not less than five years. They shall also fulfil all other eligibility criteria applicable for sponsoring a MF. Every real estate scheme shall be close-ended and its units shall be listed on a recognised stock exchange. The net asset value (NAV) of the scheme shall be declared daily. The amended regulations have also specified accounting and valuation norms pertaining to REMFs.

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