How is Kotak International REIT Fund NFO?
Kotak International REIT Fund FoF NFO would open for subscription on 7th December, 2020. This fund would invest in SMAM Asia REIT Sub Trust fund (international REIT). REITs โ Real Estate Investment Trusts would manage high value real estate property portfolio. This is a high risk business. How is Kotak International REIT Fund NFO? Should you invest in Kotak International REIT Fund NFO? How much returns one can expect from such REIT Fund of Funds?
Also Read: 8 High Risk – High Return Mutual Funds
What are REITโs in India?
Real Estate Investment Trusts (REITs) would manage the portfolio of high value real estate properties. In simple terms, such companies own real estate properties, operates, lease them, finances income generatingย real estate. Individual investors can participate in such high value real estate properties without buying them directly.
How REITs are comparable with Fixed Income and Equity?
Lets quickly check how REITs are comparable with fixed income and equity (source Kotak MF presentation).
Kotak International REIT Fund (Fund of Fund) NFO Issue Details
This is an open-ended mutual fund scheme. Here the NFO issue details.
| Kotak International REIT Fund – NFO Issue Details | |
|---|---|
| Scheme Opens | 07-Dec-20 |
| Scheme Closes | 21-Dec-20 |
| Scheme reopens for continuous purchase/sale | 05-Jan-21 |
| Minimum investment (Lumpsump) | Rs 5,000 |
| Minimum investment (SIP) | Rs 500 for 6 months |
| NAV of the fund | Rs 10 during NFO period |
| Entry Load | Nil |
| Exit Load | 1% load – If exited within 1 year |
| Risk | High Risk |
| Max Total expense Ratio (TER) | 2.00% |
| Benchmark | S&P Asia Pacific ex Japan REIT Total Return Index |
| Fund Manager | Mr. Arjun Khanna |
Download Kotak International REIT Fund NFO SID
What is the investment objective of Kotak International REIT Fund NFO?
The investment objective of the scheme is to provide long-term capital appreciation and income by investing in units of SMAM ASIA REIT Sub Trust fund and/or other similar overseas REIT funds.
However, there is no assurance or guarantee that the investment objective of the Scheme will be realized.
What is the allocation pattern in this mutual fund scheme?
This fund investment pattern is as follows.
| Type of instruments | Min % | Max % | Risk Profile |
|---|---|---|---|
| Units of SMAM ASIA REIT Sub Trust Fund# and/or other similar overseas REIT funds | 95% | 100% | High |
| Debt & Money Market Instruments | 0% | 5% | Low to Medium |
What are the advantages of International REIT compared to domestic REIT?
This picture depicts everything.
Why should you invest in such REIT Funds?
Here are a few reasons to invest in such schemes.
1) REITs provide a way for investors to invest in high value properties. This is generally not possible for every investor.
2) REITs invest in high value properties. This fund focus is now on Asia Pacific REIT as it provides an attractive dividend yield.
3) REIT market is expected to grow with increased opportunities in APAC region.
Some risk factors you should consider before investing in such funds
One should consider some of these risk factors / negative factors before investing.
1) This REIT FoF invests in existing REIT trust fund outside India. If we check SMDAM Asia Pacific REIT fund performance, it gave an average of 8% returns in the last 5 years and 11% in the last 10 years. However, the returns are not stable. E.g. In one year one may experience a loss of 10% and another year the returns could be a profit of 20%.
3) This fund invests up to 5% in debt instruments. This segment has turned to be high risk due to defaults from corporates.
3) Since it is a new mutual fund scheme, there is no past performance, hence we would not know, how the fund would perform in the future.
4) You can go through all risk factors indicated in the scheme related documents before investing.
Do Covid-19 kind of scenarios impacts such funds?
The underlying fund has zero exposure to hotels. It has diversified portfolio which includes industrial segment (factories, rampup buildings, light industrial buildings etc.), Speciality segment (Agri properties, Social Infra etc.,), Diversified Segment (residential, office, retail, build to rent etc.,). Hence, it is like of covid proof portfolio.
How is the Performance of existing REIT Funds?
Currently Kotak International REIT Fund is the first fund in India in this segment. There are no other funds to check past performance.
Also Read: 5 Smallcap Mutual Funds that gave up to 60% returns in 1 year
Should you invest in the Kotak International REIT Fund NFO?
Kotak International REIT Fund (FoF) invests in existing REIT Fund outside India. Such underlying trust fund would invest in high value properties and generate fixed income through lease rent. However, such returns are not fixed. Covid-19 has made people to work from home. We do not know how far such REIT funds would be successful with this concept in the near future. However, once virus vaccine is found, the current picture would turn back. If you are a high risk investor and believe that such themes would work in the future, you can invest in such REIT Funds. If you are moderate to high risk investor, stay away from such schemes.
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Most of the REIT funds operating in India during the last more than 10-12 years have not yielded much result due to mismanagement at the Fund level, wrong judgment calls and default by the builders/real estate developers or the underlying property developers. The CAGR returns vary from 0 or minus to 2-4% over an extended period of more than 9 to 10 years of a typical REIT Fund life/tenure.
I agree. However this fund invests in REIT outside India which has proven performance. I agree REITs are always risky