You can invest in REITs through mutual funds too. In fact, the Indian mutual fund industry offers three REITs-based schemes.
All three are fund of funds (FOFs)that invest in the units of other funds. They allow you to invest in commercial properties across global markets as well as gain from both price appreciation and dividend income. Two of them invest in the Asia-Pacific region, while one is a global fund.
Kotak International REIT FOF
This is India’s first REIT-based mutual fund scheme. It was launched in December 2020 during the Covid-19 pandemic, when most office spaces were vacant. Despite the negative environment, this fund managed to garner about Rs 100 crore during launch.
The fund is predominantly invested in Singapore, Australia and Hong Kong with exposure of 48.8, 33.7, and 9 per cent, respectively. It also invests in units of SMAM ASIA REIT Sub Trust Fund and other similar overseas REIT funds. It has delivered 7.52 per cent in the last one year, as on December 5, 2022 and -3.29 per cent since its inception.
PGIM India Global Select Real Estate Securities FOF
Launched in November 2021, this fund invests 95-100 per cent of its corpus in its parent fund, PGIM Global Select Real Estate Securities Fund, which invests in REITs and equity-related securities of real estate companies located throughout the world. The parent fund has invested across 12 countries with major allocations in North America and Japan. These two regions account for 75 per cent of the portfolio. It manages assets worth Rs 100.95 crore. It has given 13.83 per cent return since inception.
Mahindra Manulife Asia Pacific REITs FOF
Launched in September 2021, it invests in units of its parent fund, Manulife Global Fund–Asia Pacific REIT Fund. This overseas fund primarily invests in REITs in the Asia-Pacific ex-Japan region. The fund has an asset size of Rs 29 crore and has delivered -11.71 per cent since inception.
Should You Invest?
Globally, real estate underwent a huge shift during the pandemic. Now, as the pandemic fear has eased, and economies across the world are getting back on track, properties such as hotels, assisted living facilities and restaurants are expected to benefit from the pent-up demand for commercial real estate. All these factors will work in favour of growth opportunities for real estate and and, thus, these funds, too.
That said, none of these three funds have impressed investors since their launch. It is still to be seen how they perform in the future.
In terms of taxation, they do not give any respite to investors as they are FOF, and fall under the category of debt fund taxation, where long-term capital gains (LTCG) tax rate will apply after three years, and investors will have to pay 20 per cent on the gains, with indexation.
If you have adequately invested in the Indian equity market and India-focused REITs, and want to diversify your real estate investing beyond India, you may like to add a small slice in your overall portfolio.
kundan@outlookindia.com
