Invest in housing mutual funds if you have high-risk appetite, say experts

Mutual Fund industry is soon going to get its first housing focussed fund with HDFC Mutual Fund last week filing offer document with Securities and Exchange Board of India (Sebi). 

The fund house plans to launch a close-ended thematic equity scheme HDFC Housing Opportunities Fund.

As the name suggests the fund will invest in housing theme to take advantage of the expected growth in housing and allied business, said the fund house in a draft offer document. 

Sharing the rationale behind launching this fund, a senior official of the fund house said, “In the budget 2017, the government has given a thrust to affordable housing sector. In fact, we have seen growing demand of housing sector among investors. Hence, we plan to launch a fund focussing on housing sector.” 

ALSO READ: Are liquid funds a good option as bank saving interest rates drop?

The fund house plans to introduce three plans in the scheme depending on the tenure ranging between 24 and 66 months. The scheme will invest a minimum of 70% in equity instruments of entities in housing and its allied business activities, which include the cement and steel industries. 

The fund can also take exposure of up to 10% of corpus in REITS and InvITs. It will also invest up to 30% in debt and money market instruments. 

Should you invest in it?

Sebi, in January, had allowed mutual funds to invest in REITs and InVITs as part of its efforts to make real estate and infrastructure investments trusts attractive for investors.

Also, Real Estate (Regulation & Development) Act 2016 came into effect from May 1ending the nine year long wait for regulation of real estate sector. The real estate sector currently has over 76,000 companies across the country and will have to follow RERA rules.

ALSO READ: Mutual Funds' asset base from smaller cities up 41% to Rs 3.09 lakh crore in FY17

Experts say the fund is suitable for investors having high-risk appetite. 

Anurag Garg, Founder and Chief Executive, Providential Advisory Services, said, "Such funds will not only invest in developers but also in ancillary businesses like housing finance, cement, plywood, sanitaryware companies. Such funds will be good option for investors who would want to benefit from this growth, but they must have long term focus while investing."

Kaustubh Belapurkar, Director Manager Research, Morningstar Investment Adviser India, said, "Mutual Fund managers have had limited exposure to real estate developers for many years now.  But have been adding significant positions to allied industries such as Housing Finance cos, cement and certain niche plays like ceramics and tiles."

"With the government's recent focus on affordable housing, there can be an interesting play on housing and allied industries. Funds focusing on specific sectors and themes tend to be more volatile. Investors should consider their risk return objectives before investing in such funds," Belapurkar said. 

Disclaimer: This story is for informational purposes only and should not be taken as an investment advice.