What are Real Estate Funds?
A real estate mutual fund invests in the securities of real estate companies.
Passively-managed investment vehicles track an underlying index
For investors who prefer real estate and have just begun their journey in real estate investment, Real Estate Investment Fund can be highly attractive for them. So, let’s gain some idea about Real Estate Funds through this article.
What are Real Estate Mutual Funds?
A real estate mutual fund invests in the securities of real estate companies. These mutual funds build a diversified portfolio of real estate opportunities by investing money pooled from investors to real estate asset classes. It includes Real Estate Investment Trusts (REITs), companies related to real estate, and direct real estate ownership such as commercial and corporate properties, residential complexes, and agricultural land.
What are the different categories of Real Estate Investment Funds?
Real Estate Funds are mainly of three types.
Real estate mutual funds
These mutual funds are professionally-managed investment vehicles, most of which are open to all investors, those who meet the minimum investment requirement.
Real estate exchange-traded funds (ETFs)
Passively-managed investment vehicles track an underlying index, enabling investors to earn returns prevailing in the market. These funds are traded on major stock market exchanges and are open to the public.
Real estate private equity funds
These funds are actively managed and target institutional investors and high-net-worth clients. Therefore, they are primarily available to only institutional and accredited investors.
Advantages of Real Estate Mutual Fund Investments
Investments in real estate funds are typically for a longer period due to the time required for developing and selling a property. Therefore, investors looking to gain long-term returns can invest here for long-term growth.
Since reselling a property might not be an easy task and takes time, investment in real estate has low liquidity. On the other hand, these mutual funds are highly liquid. Therefore, you can liquidate your real estate mutual funds and get higher gains when the market is up.
These funds offer great flexibility and more control to investors. The investors have the choice to truly customize their portfolios depending on their financial goals and money available for investment without having to buy individual assets directly.
Low Initial Investment
The initial investment thresholds of most real estate funds are relatively low. That allows investors to invest significantly less than if they bought individual properties.
Passive investment without any Direct Role
Real estate funds are much more hands-off investments since investors need not take the pressure that requires managing the property actively like the landlord. Instead, others actively manage the properties.
Alternative to Purchasing Property
Real estate mutual funds are an alternative to purchasing an investment property for a small investor without any direct involvement in property management.
Diversification of Portfolio
Investors with a limited source of capital can invest in real estate mutual funds, where the investment requirement is low. Residential, commercial and rental projects are all included in the investment portfolio. This diversification reduces risk, but it may lower an investor’s potential for earning.
This fund balances out the high-risk investments in the portfolio as the varying real estate prices do not affect real estate funds to a large extent.
Protection against Inflation
These funds are excellent protection against inflation. During inflation, the economic slowdown increases property and rent prices, leading to a rise in the real estate value, thereby increasing the value of real estate mutual fund units.
Risks of Real Estate Mutual Fund Investments
Real estate mutual funds are associated with two primary risks:
In a rising market, the real estate funds will offer a good return, but in a sluggish market, the crisis in the real estate sector will affect the performance of real estate mutual funds.
Interest Rate Risk
Rising interest rates directly impact borrowing rates that affect the overall returns of the real estate mutual funds.
Investors without a large amount of capital and less time or experience to manage properties face difficulty participating in the real estate industry. Real Estate Mutual Funds can solve that problem. However, these funds are mainly available to investors through a financial advisor and to some via online brokerages. Therefore, consult a financial advisor to get more handy details before investing in real estate mutual funds.
That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.
With this one can say “Mutual Fund Sahi hai”, so let me do Nivesh