Real Estate Funds - Meaning, Benefits & Features
In India, just like gold has been a tried and tested source of investment, real estate is viewed as a major asset. Most investors believe that real estate investment can add value to an investor’s net worth and financial portfolio. Besides this, investing in property can yield an income such as rent. However stable and reliable this may be as an investment avenue, not everyone can afford real estate today. This is where real estate mutual funds can offer you instruments tied to real estate without having to worry about owning it.
What’s more, real estate investing may be considered a steady investment as far as portfolio management and diversification is concerned. Real estate funds offer you a range of properties across areas to invest in. Furthermore, these funds can potentially grow your capital as the real estate industry potentially appreciates over periods. Once you know the meaning, features, and perks of these funds, you may consider investing.
What are real estate mutual funds?
Real estate mutual funds invest in the sector of real estate. In this sense, they fall within the mutual fund category of “sector funds”. A real estate fund may potentially invest in a real estate corporation or invest in a real estate investment trust (REIT), according to the aim of investment of the fund, besides other variables.
Real estate funds invest in a basket of properties from commercial properties to residential housing firms. Similar to many mutual funds, real estate mutual funds are managed and controlled by a fund manager who invests in funds, manipulating investments to achieve optimal results in the long term.
Key Features of Real Estate Funds
Real estate funds portray key characteristics that you should be aware of before investing in them:
Long-term Investment: A real estate mutual fund may be considered by investors who are patient for profits and don’t mind sticking with their mutual fund holdings for lengthy periods. Capital appreciation in the investment of property occurs over the long term.
Stress-Free Investment: Some people may be interested in real estate investments but may not have the means, financial or otherwise, to buy physical property. Furthermore, the purchase of real estate is time-consuming and involves effort. Real estate mutual funds let you invest in real estate conveniently as fund managers handle your investments in the fund. Apart from this, you have the opportunity to leverage potential capital appreciation in the real estate industry overall.
Portfolio Diversification: Typically, real estate mutual funds invest across the whole real estate industry. Therefore, any given fund may invest in a spectrum of properties such as commercial, residential, industrial, and more. This permits investors to take advantage of the development of many sub-groups within the real estate domain, helping to balance a portfolio. In this way, an investor’s portfolio remains steady through potential rough patches and attempts to make the most of positive market movements.
Affordable Investment: A real estate investment fund presents a viable affordable option to invest in the sector of real estate. Some investors may not be able to purchase physical real estate as the question of affordability comes in the way. These funds permit you to possess real estate as an asset class in your financial holdings with minimal investment relative to actually buying property.
Advantages of Investing in Real Estate Mutual Funds
Investment in a real estate fund, including REIT funds, could potentially be your ticket to positive gains and true portfolio diversification. These are some key perks of investment in these funds. Nonetheless, more benefits, including these, are listed below:
Affordable Option: Buying units in real estate mutual funds is a cost-effective way to invest in the real estate market. You can invest in any fund with minimal amounts of capital, this being a viable option for novice investors who are interested in the real estate industry for investment purposes.
Flexible Investment: Investors can choose amounts to invest in these funds, depending on their affordability at different times and for varying funds.
Steady Investment: Since real estate funds invest in a gamut of properties, across an array of areas, they tend to offer you a balanced investment and mitigate your risk at the same time. For instance, if some properties in the fund witness lowered values, the rest tend to potentially make up for losses.
Liquidity in Investment: Investment in physical property has the characteristic of decreased liquidity as the sale of property depends on several variables. However, mutual fund units are easy to sell if you need cash for, say, an emergency. Therefore, they offer a distinct element of liquidity.
Weapon Against Inflation: Real estate funds offer you a hedge against inflation as they potentially rise in value in inflationary times (prices of property increase during inflationary periods). With the value of property and rentals high during inflation, real estate funds surge too, offering you a robust financial backup.
Who should consider investing in real estate mutual funds?
Investors who may not be able to buy physical real estate can consider real estate mutual funds. Although they do come with some level of risk, they can offer potentially lucrative returns through capital appreciation. For young or novice investors, this investment may be considered for initial exposure to the sector of real estate. Additionally, these funds may prove to be more stable than funds that invest in other securities such as stocks that are more influenced by volatile markets. Therefore, investors with a low-risk profile may think of investing in real estate funds. Finally, these funds are potentially suitable for long-term investment horizons, approximately 3-5 years, and for investors who have a potentially strong knowledge of the real estate industry.
Conclusion
One of the oldest, and perhaps most trusted, investments known to mankind is real estate/property. Classical though it may be, it is also the least accessible, at least to some people. However, real estate mutual funds can be an affordable way to invest in the sector, in a relatively affordable manner.
Real estate mutual funds and REITs are easier to invest in for retail investors who are permitted to buy stakes in the booming real estate industry. Additionally, real estate mutual funds tend to be more liquid relative to owning real estate directly. The most important benefit that you get out of real estate funds is their feature of portfolio diversification. With such funds investing in assets that are prone to steadier and less volatile than other securities, your portfolio gets the balance it requires to weather economic or financial downturns.
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FAQ
How do real estate funds work?
Real estate funds fall under the broader category of mutual funds and invest their capital in securities and instruments of public real estate firms, including REITs. REITs are financial instruments that pay out dividends regularly, while real estate funds may offer investors value in investing via capital appreciation.
Are real estate funds safe to invest in?
Like all investments, real estate funds can be a potentially safe or risky investment, based on key factors. Real estate funds, contrary to stocks, may not shift in value in the short run. Rather, these funds provide investors with consistently steady gains over periods, specifically in markets embodying growth. However, while considering any real estate fund, investors should check the fund itself, its past performance, the kind of real estate invested, and metrics to determine potential capital appreciation.
Is a real estate fund the most profitable type of mutual fund?
As mutual funds go, the funds that invest in real estate, either commercial or residential, are considered profitable investments relative to, say, stocks. Real estate is considered a stable investment option that has the ability to appreciate over periods. Nonetheless, while investing in real estate mutual funds, investors should keep in mind that factors such as demand, location, and economic conditions potentially influence the real estate market in positive or negative ways.