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What Are Real Estate Mutual Funds? Are They Suitable For Senior Citizens?

Unlike land, a house or a building, which can’t be sold at short notice, real estate mutual funds are highly liquid, as you can redeem your investment in a day

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Outlook Money
November 24, 2023
Retirement Planning Should Not Be Ignored

Retirement Planning Should Not Be Ignored

Real Estate Mutual Funds are sectoral funds that invest in realty or allied company stocks and Real Estate Investment Trusts (REITs), entities that operate income-generating estate projects. Senior citizens could consider them and other assets for diversification depending on their risk-taking ability. When the share prices of the allotted assets rise, the fund’s NAV also increases.

These funds may face sectoral risks and may take 5-6 years to see modest returns. Examples of real estate mutual funds include the HDFC Housing Opportunities Fund, which invests in companies like Ambuja Cements, Larsen & Toubro, and property developer Prestige Estates, and the Tata Housing Opportunities Fund, which invests in Asian Paints, DLF, Polycab, etc.

Should Senior Citizens Invest In Real Estate Mutual Funds?

Senior citizens with at least a five-year investing horizon can explore these mutual funds. These funds offer some unique advantages. For instance, investors can invest in real estate at a fraction of the cost compared to physical properties, which could be off-limits for many.

Moreover, real estate mutual funds are easily accessible, besides the ease of buying and redeeming funds via mobile apps and websites of the asset management companies (AMCs), allowing small investors to earn from the real estate market.

Real estate mutual funds can provide good returns if you have a longer horizon. These funds and other asset classes can help senior citizens diversify their portfolios to protect them against an economic slowdown or underperformance of the market. Besides, buying a physical property requires a lot of paperwork, which is not the case in a real estate mutual fund.

Key Advantages 

Unlike a physical property, one can invest in a real estate mutual fund for as low as Rs 1,000, allowing small investors to profit from the real estate market growth.

Further, it offers flexibility in investments through the Systematic Investment Plan (SIP), where people can invest small sums of money each month as per their ability. Investors can participate in the real estate market without buying a physical property. Mutual funds also give access to diverse properties, from commercial, residential, and rental to hospitality.

Also, unlike land, a house or a building, which can’t be sold at short notice, real estate mutual funds are highly liquid, as you can redeem your investment in a day. Also, since real estate prices rise continually, funds investing in them will likely beat inflation in the long run. Real estate mutual funds can also be an alternative asset for portfolio diversification.

Limitations

The real estate sector can take time to grow, so you must have a longer horizon, at least 5-6 years. However, in the long term, they can offer decent returns. The risks could be due to an economic slowdown or if the sector or its allied sectors take a significant hit due to government policies and returns becoming sluggish due to limited buyers and investments. The expense ratio is usually the same as other mutual funds, and so is the taxation framework.

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