The Hindu Business Line : ICICI Real Estate Securities Fund: For the conservative

Investment proposition: Rising demand for residential and commercial real estate is expected to translate into strong growth prospects for real estate and related sectors such as construction, hotels retail, cement and finance.

Yet, realty stocks are volatile and may be risky. Taking the debt route to investing in realty may provide investors with an avenue to earn higher yields, with contained risk.

The fund: A three-year closed-end fund which will invest a minimum of 51 per cent in debt securities of real estate companies, with the option to invest up to 49 per cent in the equity of companies with a significant presence in real estate or likely to benefit from growth in the realty sector. Initial allocation will be 70:30 in favour of debt instruments.

The fund’s investment universe will be large, established real estate companies which have developable land, offer 1.5 to two times cover over the value of investments, have independent valuations for their land bank and have projects in Metros or mini-Metros.

Return/risk profile: The focus on debt instruments of real estate issuers is expected to provide relatively higher yields. At the same time, a focus on top-tier companies is expected to moderate credit risk, despite the high yields.

The fund may be suitable for conservative investors seeking a higher return than is possible from a diversified debt fund. The fund may not pay regular dividends despite its debt bias.

Pros and Cons: This is a unique fund as of now. The only other fund focused on real estate is the JM HIFI Fund, an open end equity-oriented fund.

In the absence of real estate investment trusts in the Indian markets, ICICI Prudential Real Estate Securities Fund offers investors a safer route to participating in the real estate growth story. In terms of risk, though the fund’s focus is on Tier I players, its focus on debt issuances from one sector, may expose the fund to the risk of low liquidity (in these instruments) or credit risk, if the sector goes into a prolonged slump.

The closed-end nature is a disadvantage, but may be necessary to tide over the liquidity issues associated with a debt product.

Details: NFO closes on December 14.

Fund manager: Chaitanya Pande

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