Invest in International Real Estate with Just Rs. 5000 Using This NFO

Invest in International Real Estate with Just Rs. 5000 Using This NFO

Kotak Mutual Fund has launched a new NFO, first of its kind in the industry that will help you take exposure in international real estate. And the fund’s name is Kotak International REIT FOF. A while back, we had written about investment in real estate and factors to look at before taking this big decision. Investing in a property usually gets very challenging because of the higher ticket size of investment. But, using the Kotak International REIT FOF you can invest in international real estate properties with just Rs. 5000. In this blog, we will look at more details about the fund and how much of your total portfolio you can invest in this fund.

What is REIT?

REIT or Real Estate Investment Trust owns various real estate properties with the help of retail and institutional investors. On these investments, REITs earn rent and appreciation in property. A part of this is passed on to investors as dividend income or growth in capital. So, the functionality of the REIT is like an Equity Mutual Fund. Generally, REITs invest in commercial real estate as rental yield and potential for appreciation is higher in commercial properties as compared to residential properties.

In India there are some REITs available like Embassy Office Parks REIT. One of the major limitations of REIT in India is that the underlying properties are from 5-6 key metro cities which limits the overall scope for diversification. But the REIT space in India is still evolving and hence, not a lot of mutual funds invest these REITs even though they have a provision to invest in them.

Where does Kotak International REIT FOF invests and how has it performed?

Kotak International REIT FOF is a fund of fund which invests all the money in SMAM Asia REIT Sub Trust. This underlying fund SMAM Asia Pacific REIT (Ex Japan) has an investment objective to seek for mid to long term asset growth by investment in Asia Pacific REITs. The Fund invests in various types of properties like Data Centres, Logistics, Warehouses, Offices, Residential properties etc. Here’s the country wise and security wise break-up of the fund:

Portfolio Break Up of SMAM Asia REIT Sub Trust Fund

The underlying investment opportunities in SMAM Asia REIT Sub Trust are selected on Bottom – Up Basis by focusing on Profit Growth, Dividend yield, Valuation and Market Liquidity. Since the underlying fund has been in existence for a long time, its performance is available. Here’s how it has performed over last 10 years.

Year Return of SMAM Asia REIT Sub Trust Fund

Should you invest in Kotak International REIT FOF NFO?

We have always emphasised on focusing on Asset Allocation while creating your portfolio. While Real Estate is an important part of the overall asset allocation, we believe that this NFO is better way to invest in a Real Estate than buying the property. Here are some of the reasons why you can explore this as an investment option:

  • Diversification across various Asian countries and different types of investment properties.
  • Timing of the launch as the Covid-19 pandemic impacted the returns and there is a potential for an upside over next few years
  • Lower ticket size with as low as 5,000 for lumpsum and 1,000 for SIP
  • Opportunity to invest in organised real estate market with strong growth potential

However, it is also important to be aware of the risks associated with the investment. The Fund invests majorly in APAC region, the performance of the fund will strongly depend on how the economies of these countries develop and in turn the impact of it on the real estate segment. Another factor that will also impact the return is currency movement. The fund is Yen denominated and the investment will happen across various currencies. Hence the performance will also vary based on Rupee performance with respect to various currencies.

As, this is a first of its kind fund, we will have to see how it performs over time. But an investor with some appetite for risk can invest in this as the fund indeed gives good opportunity to invest in Real Estate. However, keep the exposure limited to 5-10% of an entire portfolio so that the performance can be monitored in a better way and exposure can be increased in future if required.

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