New Delhi, April 7 :     The Securities and Exchange Board of India today permitted mutual funds to invest in securities backed by mortgages - opening the doors to a new cash trove that real estate companies can access funds from. There is a caveat though: these securities should have a credit rating of not below investment grade and represent investments in real estate mortgages or loans secured by real estate collateral and not directly in real estate. The securities will have to be listed on the exchanges. Sebi chairman D.R. Mehta said the move could be seen as a step towards the creation of real estate mutual funds. He said these securities backed by a financial asset (housing loan receivables) and underlying collateral of a physical asset are considered comparatively safe and are unlikely to be vulnerable to short-term fluctuations in the financial environment in view of their long-term underlying mortgages. Sources in Hudco said the move would precipitate a fall in interest rates because the market will be awash with funds The mortgages will be sold in the secondary market as pass-through certificates or derivatives and will be traded as liquid assets. 'More and more mutual fund companies, banks and real estate companies will invest in these securities,' said an Hudco official. Cheap housing loans P.R. Swarup, director of Construction Industry Development Corporation(CIDC), said the government's move would prompt the non-banking finance companies (NBFCs) to funnel funds into the real estate instead of concentrating as they now do on financing consumer durables. 'The interest rate on housing loans will certainly come down by a maximum of 1 per cent,' Swarup added. Reacting to Sebi's announcement, Raghu Parekh, vice-president of Hometrust Housing Finance said, 'This is a welcome step for the housing industry. It will open a new source of funds for this sector. We expect the mutual funds to route a large chunk of their investments into this sector.'