Raja Aristos Commonfloor Tips - Key Questions Investors Should Ask Before Investing in Real Estate Funds

Planning for a successful investing with a huge sum of money, then it entails a various research in depth, if you want your money to be safe and profitable hands.

Here are few basic questions that an investor should be prepared to ask before investing in real estate funds:

·       First and foremost, check who is promoting and managing the real estate fund.

Making a thorough background check of the promoters of a real estate fund and its management is an essential one. Funds registered with SEBI have to stick to certain minimum conditions such trustees to oversee the investment and compliance issues, proper managerial staff, providing their investment schedule and raising the targeted amount.  The promoters should also bring in a minimum of 2.5 or 5 % of the quantity, depending category of fund and size.

The real estate funds mopped money from investors like wealthy individual owners or private trusts and funds through the Venture Capital (VC) fund regulations of SEBI, till 2012.  The minimum investment should be Rs. 10 lakh but most funds accepted minimum deposits around Rs 25 lakh.

According to AIF (Alternative Investment Fund) Regulations by SEBI for real estate funds, hedge funds, private equity, and others, the funds member should not be less than 1,000 investors and the minimum investment amount could be Rs. 1 Crore or more. 

Head Real Estate of Arthveda, an investment management firm of DHFL, Mr. Lalit Kant, says that all the new real estate funds should be registered under the AIF guidelines that would allow only really big investors’ to partake and would daunt small investors.

·      Make sure that by choosing these funds will you obtain the diversification that you want to add in your portfolio

Frequently, private real estate funds invest in a variety of properties or under-developed projects with the profits as capital gains when the fund exits from a development of project. Investors should always inspect the investment summary of a fund and the type of properties in which the amount will be invested.

Sanjay Dutt, Executive Managing Director of Cushman & Wakefield suggests that an investor should also question that how a fund invests moves down to the actual team of the fund manager and the composition of the investment committee, what is the idea of the fund, whether it is a capital appreciation one or an income fund, the investment is in residential or commercial property and in which region.  Asking all these questions will help the investors to invest with a trustworthy real estate funds and will also give a right direction to the investment.