Mumbai, Nov. 19 (PTI): The Association of Mutual Funds in India (Amfi) sub-committee on real estate investments has recommended the adoption of the trust structure for selling real estate mutual fund units to retail investors.
“The MF structure is now well understood. Hence, selling realty investments through the mutual fund will be easier,” the Amfi sub-panel headed by K. N. Atmaramani has said.
Only Sebi registered MFs should be allowed to float realty fund and asset management companies should be given flexibility to determine the scheme structure, the panel said.
“However, given the lack of liquidity in underlying investments in real estate, mutual funds may initially launch close ended or interval funds,” the committee said.
The scheme could remain a closed-ended product for a minimum of three years. The scheme could open at the end of every quarter for sale of fresh units based on net asset value calculated every three months.
“This will enable the fund to grow by soliciting fresh inflows from investors, while giving potential investors a chance to participate in the scheme after its initial offer,” the Amfi panel said.
Once the liquidity of the underlying investments was comfortable, the realty MF schemes could be floated as open-ended products.
The realty funds could invest in equity shares, bonds and debentures of the listed companies dealing in properties and also undertake property development.
The Amfi panel said realty funds could also invest in securitised products like mortgage-backed securities.
Real estate investment schemes would need the market regulator’s approval and MFs would have to file the offer document as per Sebi’s mutual fund regulations, the sub-panel said.
On the valuation of investments, the panel recommended that Sebi should approve registered valuers to take up the assignment to assess value of properties held by realty funds.
The sub-committee felt that the government should be requested not to levy stamp duty when an asset is purchased by the Sebi-registered real estate mutual fund.
Alternatively, if stamp duty needs to be paid, a set-off facility should be allowed against future stamp duty payment, when the property is sold.
The realty funds should be exempted from annual property tax to provide better returns to the unit-holders of realty fund, the panel said.