The Hindu Business Line : SEBI set to issue norms for real estate schemes ‘very soon’

Mr V.N. Dhoot (right), President, Assocham; with Mr D.S. Rawat, Secretary-General, Assocham; and Mr A.P. Kurian, Chairman, AMFI (extreme left), at a conference on real estate mutual funds in the capital on Friday. —

Our Bureau

New Delhi, April 4 The long-standing demand for enabling retail investors to participate in the country’s booming realty market through mutual funds may soon be met, with the Securities and Exchange Board of India set to issue guidelines for floating real estate mutual fund (REMF) schemes.

“Within 15 days the guidelines will be out. The reason why it has taken so much time is that regulators in this country are extra cautious. It pays well in the long run. There is nothing like going back on a decision at any point of time. If we go on changing the decisions you take, it affects your image and in turn credibility. SEBI is a credible organisation,” Dr T.C. Nair, whole-time member of SEBI said at Assocham-AMFI (Association of Mutual Funds in India) conference on mutual funds here on Friday.

Dr Nair later said the guidelines would come out “very soon” and that the 15-day period was an outer limit. He said that there were lot of intricacies on legal, accounting and valuation issues concerning REMF, but now all issues have been sorted out.

“The guidelines will explain everything, It will cover valuation, net asset value etc,” he said.

Conditions apply

The AMFI Chairman, Mr A.P. Kurian, said the REMFs in India would not be either open-ended or close-ended funds. “They would be interval funds. There will be more than one external valuer. The net asset values (NAVs) would not be declared on a daily basis. It would be done on quarterly basis. A lot of conceptual clarity has come,” Mr Kurian said.

He made it clear that REMFs are different from Real Estate Investment Trusts, which are listed in stock exchanges. “What we are looking forward under REMF is like any other scheme of mutual fund, but back to back it will invest across real estate. There will be conditions on what kind of real estate”.

Risk management

AMFI has also made a number of suggestions in the nature of restrictions to ensure that the retail investors are well protected against the risks involved in REMFs. It has suggested that a REMF should not be allowed to invest all its money in one real estate developer.

This is in addition to the proposed restriction that a REMF would not be allowed to invest more than 10 per cent of its funds in a real estate developer, 15 per cent in unlisted companies and 25 per cent in associate companies. “You ensure by definition a process of diversification,” he said. AMFI has also made a case for geographical spread so that REMFs do not invest in one city alone.

Meanwhile, Dr Nair urged major players in the mutual funds industry to spread to more cities, stating that the mutual funds investment has caught the fancy of investors in 8-10 cities alone.

“It needs to move further. I would request the major players in the industry to spread to the East, West of course culture on investment, to the North and definitely to the South. I would also request them not to be complacent. As volumes grow there would be problems.

Put in place robust risk management systems without even SEBI insisting on them. If you don’t take care of yourself, it will bring problems for the industry as a whole,” he said.

Stating that SEBI would keep supporting the mutual funds industry all the time as retail investors were involved here, Dr Nair said that there should be further cost reduction in this area as it was the “small man” who was the investor here.

“He (small investor) should no way give a penny more for the services that is being given for investment in mutual funds,” Dr Nair said.

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