Tag: Mutual funds

08 Nov 2022

REITs: Consider Ticket Size, Transaction Costs, and Other Factors Before Investing

With the real estate market showing signs of stabilising, many investors desirous of investing in real estate are now considering real estate investment trusts (REITs) as their next investment destination, in order to diversify their portfolio.

Incidentally, the structure of REITs is similar to that of a mutual fund.

That said, while in mutual funds, the underlying asset is bonds, stocks and gold, REITs invest in physical real estate.

“The money collected is deployed in income-generating real estate and this income gets distributed among the unit holders. Besides, regular income from rents and leases, and gains from capital appreciation of real estate is also a form of income for the unitholders,” says Shobhit Agarwal, managing director and chief executive officer, Anarock Capital, a real estate services company.

How REITs Can Diversify Your Portfolio?

To begin with, REITs can help retail investors diversify into an alternative asset class.

Says Rishad Manekia, founder and managing director, Kairos Capital, a Mumbai-based financial planning firm registered with the Securities and Exchange Board of India (Sebi): “After the slump in the real estate market over the last decade, capital values in major markets seem to be stabilising. REITs could thus provide effective diversification to the aggressive investor who is already invested in equites and is looking for alternative options. Of course, this should all be done in line with one’s asset allocation and risk profile, and should be thought of as part of the satellite investments in an investor’s portfolio.”

That said, there are a few important things to keep in mind before one begins investing in REITs.

Things To Keep In Mind Before Investing In REITs

  1. As REITs are listed entities, they are a lot like equity shares. Hence, you would need a demat account to be able to invest in REITs in India.
  2.  At present, there are three listed REITs in the Indian market—Mindspace REIT, Brookfield REIT, and Embassy REIT.
  3. Consider the ticket size and other costs before investing. Says Colonel Sanjeev Govila (Retd.), a Sebi registered investment advisor and CEO of Hum Fauji Initiatives, a financial planning firm: “Things like transaction costs, returns, ease of investing, taxation, and other factors make these products different, although real estate still remains the underlying asset. So, one should decide investing in them depending upon his/her own objective of investment, assets allocation, availability of funds and other factors.”
  4. In India, 80 per cent of investments made by a REIT need to be in commercial properties that can be rented out to generate income. Thus, investors of REITs earn returns in the form of dividend (rental income from leased properties) and capital appreciation of unit value at the time of exit, as all REITs have to be compulsorily listed on the stock market.
  5. There is vacancy risk in case of REITs, and development risk in case of real estate funds. “When comparing the two—REIT and real estate funds— for investments, I would prefer REITs, if my main aim is to invest in real estate. That said, REITs should be looked more as an income generating avenue, while real estate mutual funds should be considered as growth avenues,” says Col. Govila (Retd.)
  6. REITs can provide regular income in the form of dividends, but it is not a certainty – there could be bad periods when the dividend could be low or nil. So, depending on the amount of regular income required, one would be better off with investing in fixed income products.
  7. Thus, one could consider investing a portion of his/her total corpus in REITs to diversify the portfolio, if their own financial circumstances permit doing so. Broadly speaking, one should not have more than 5-10 per cent in real estate or real estate-oriented investment avenues.

Check out the originally published article on outlookindia.com by the author

If you need any further details or wish to connect with a Financial Planner, please write to team Hum Fauji Initiatives at contactus@humfauji.in.

Also Read: Last Minute Tax Saving Tips For Senior Citizens, Pensioners and Others

31 Oct 2020
Why is investment in equity mutual funds better than in direct equity_

Why is investment in equity mutual funds better than in direct equity?

This has been a strange year!

The conversations we have had with people with respect to their investments have moved in exact sync with the equity market. In January 2020, when the benchmark BSE Sensex was hovering around 44,000 points, we were dealing with questions like ‘Should I shift from Mutual Funds to direct equity’ on a daily basis.

In March, when the Sensex tumbled to 26,000 points, many people, including some referred to in the previous sentence, frantically called us to seek advice. This time, they were panicking and wanted to exit equity altogether, direct as well as mutual funds.

Such questions usually mean only one thing: The investor is very young in the market, and has not seen market cycles.

Now that the market is again hovering close to 40,000 points, many people would like to get a share of the pie and would like to invest in direct equity. After all, the story of Reliance Industries Ltd getting doubled in value in just a few months will make anyone red with envy! FOMO (Fear of Missing Out) further…

Despite that, we are going to argue today that investing through Mutual Funds is a better idea than direct equity.

Well, the caveat is that this is true for a vast majority of people around us. There will certainly be exception of a few people who can spend time and energy to research on direct equity investments.

Why do we say so? The answer is below.


What it takes to ace direct equity investment?

Short answer: Research.

Long answer: Ability to read between the lines when reading news about companies and industry, a knack for thinking ahead of the curve basis the previous two, deduced information that others might not have, and lastly, capacity to handle big big losses!

Accordingly, all our conversations on direct equity investments start with the last question first! That is surprisingly the weakest link.

Remember that a cash-rich giant like Maruti Suzuki saw its share price fall from around Rs 10,000 to Rs 4,000. Will you be able to sleep peacefully if you bought Maruti at near Rs 10,000 when everybody said Maruti is the new Tesla and now your portfolio has that huge dent? It is another story that strong companies also recover from those depths over time.

The other questions revolve around the understanding of a particular industry and company. People who understand a business really well, and can anticipate the changes – positive and negative – for the company basis their analysis are the ones who gain.

Unfortunately, very few retail investors have that kind of time, energy or zeal for more than a couple of sectors. You could be a defence professional and can make investments in related stocks, but do you also understand the global energy market dynamics? Are you confident of your predictions for the automobile industry or the decorative paints sector?

If not, then it is better to stick to mutual funds.


How you gain through equity mutual funds as retail investors?

Most people we speak to are very enthusiastic about equity investments, but unfortunately cannot extend their research or understanding to a sector beyond the one in which they themselves work. You certainly cannot put all of your money in a single sector! It is like keeping all of your eggs in a single basket. One accident and all or most eggs are gone, not even fit for a humble omelette!

On the other hand, if you spread those eggs in different baskets, you can be certain that even if there is an accident at one or a few places, at least some of the eggs will hatch to give you a few chickens!

Okay, let’s think beyond food again.

Mutual funds will enable a defence professional to have exposure to finance, manufacturing, energy, pharmaceuticals, information technology, emerging businesses and all other sectors that we don’t even think about.

A fund manager and her team, managing your mutual fund investments will however, not miss any of these sectors. This is their profession, they get paid for it and the MF industry has huge competition to emerge out as the best fund manager.

Not only will they not miss the sectors, they will also strive to find the best companies in that space for your investments. Of course, they are doing it for a fee, but that is what makes it a truly professional decision!

In the end we would say that, by all means, invest in equity if you have the expertise. But unfortunately, most people do not have that expertise, or worse still, think that they have it due to a few ‘beginner’s luck’ wins.

Hence, for most people, equity Mutual Funds should be their first choice to get an equity exposure for their investments.

16 Feb 2018
Mutual funds

Invest in SIPs and take control of your Finances

Albert Einstein is supposed to have remarked: *Compounding is the 8th wonder of the world – one who understands it, earns it; one who doesn’t understand it, pays it!!*

Compounding as a benefit of Mutual Fund is been a very talked about subject. But as a layman not many know how does it work.

Compounding is simply an activity in which the earnings of the original investment also earn the same rate of return as an original investment.

Now in the case of Mutual Funds let’s say you invested in the fund when the NAV is Rs. 20. Now assume NAV goes up by 25%, in that case, the New NAV will be 25. Again markets go up by 20%. Now the new NAV will be Rs. 30 which is 20% above Rs 25. If there were no compounding than the return would be 20% over Rs 20 which was an original investment. This is compounding in Mutual Funds for you.

I would like to say is that for a long-term investor compounding will work in his / her favor. In fact, I must say compounding is the magic which magnifies your return over the long term.

It is a way which allows an investor to take control on the finances and Systematic Investment Plans are the way to manage finances with ease of investment.

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