PGIM INDIA GLOBAL REAL ESTATE SECUTIEIS FUND OF FUND

Looking to take exposure to Real Estate?

Then consider REITs !!

REITs offer part ownership of Rent Yielding Properties. 

PGIM India has come out with an Exotic fund named PGIM INDIA GLOBAL SELECT REAL ESTATE FUND OF FUNDS

The name *REAL ESTATE* will clearly catch a lot of investors attention and *GLOBAL* is quite fancy these days

With this heady cocktail, is the fund worth your hard-earned money?

Let's try to understand

WHAT IS REIT?

REIT is Real Estate Investment Trust, which is similar to Mutual Funds wherein the money is pooled and invested in Commercial Real Estate Assets. REITs earn rental income from their properties, which is distributed to the Unitholders.  So, while MF invests in Stocks, gold, bonds, etc, the underlying asset in REITs gets invested in actual physical Real Estate.

Exactly similar to a Mutual Fund, REIT too will have a Sponsor which establishes a Trust.

REIT thus is a company that owns, operates (finances in some cases) Real Estate producing Rental Income and possible Capital Appreciation. 

SO, HOW EXACTLY DOES A REIT WORK : 

1. A REIT (like a Mutual fund) collects money from Investors.

2. These monies are invested across Rent Generating Properties.

3. The REIT collects the Rent

4. The REIT distributes the Rent to Investors via periodical Dividends.

5. The Capital Value is reflected in the NAV

In India, there are 3 REITs listed on Stock Markets namely

Mindspace

Embassy

Brookfield

PGIM INDIA will invest in PGIM GLOBAL SELECT REAL ESTATE SCHEME (PGSRES) fund which in turn will invest in multiple REITs across the Globe including the USA, Europe, Japan, Australia,  etc giving exposure to high-quality rent-yielding properties across geographies. 

And since it's a FOF, unlike a typical Real estate, liquidity will not be an issue.

We have covered REITs and their methodology in our earlier article. (please read the same for a better understanding of REITs)

HOW WILL AN INVESTOR MAKE MONEY :

1. The money you invest in this fund will be invested in the parent fund which is called PGIM GLOBAL REAL ESTATE SECURITIES FUND (PGRESF) which is also a Mutual fund

Now, this parent PGRESF will then REITs wherein the underlying asset get returns in terms of RENT

2. Further these RENTs increase annually

3. The underlying assets of REIT being land could also see a rise in capital appreciation resulting in increased NAV 

(albeit over the long term)

4. REITs have to distribute 90% of the rent but PGIM GLOBAL REIT being a Mutual Fund does NOT have this obligation and thus the rent received keeps getting accumulated and reflected in the NAV. 

TAXATION : 

The fund will be treated like a Debt fund investment. 

Meaning, holding above 3 years will give Indexation Benefit

Holding below 3 years will mean taxation at your slab rates. 

WHAT'S GOOD : 

1.
Owning Real Estate is a challenge both financially and in legal hassles, REITS is an easy simplified asset class to own the same without owning it Physically.
Investing in REITs fund for long term is a good way to have an exposure to REAL ESTATE 

2. No Lock-In
You as an Investor can enter or exit the fund as per your wish and convenience, unlike an actual Real Estate which has its own problems thus making it very very liquid. 

3. the Best way to have exposure to Real Estate. Affordable as you can buy a fraction of the property by buying just a few units

4. Real Estate is one of the Most non-transparent asset classes and this fund being a Mutual Fund is the MOST TRANSPARENT way to have Real Estate Exposure.

5. PGIM REIT fund will be investing in Different Geographical locations and mostly in Rental generating assets, it offers Investors a Good Diversification Option. 

WHAT’S NOT GOOD :

 

1. Typical Real Estate Industry Issues like a Bear Market could affect Capital gains

2. The Average Rental Yield may become unattractive due to Covid effect of Work From Home resulting in low office demant

3. Since the fund will invest in REITs that are further listed in Stock Markets, the typical demand/supply mechanism could affect the price of the listed entity and it could be quite volatile. The returns WILL NOT BE IN 1 STRAIGHT SINGLE UPWARD LINE!

And Short-term performance could be awful.

In fact, in the US, Dow Jones REIT Index fell 17% in 2007 and 39% next year!

IN A NUTSHELL, 

Investing in REIT is like investing in a combo of Equity and Fixed income.

Though it has more or less a stable return in form of regular dividends, it also has price volatility in stock markets too.

In fact, in the US, the REITs have been MORE CONSISTENT in delivering top performance than even the S&P 500.

In fact, FTSE Nareit All Equity REITs have beaten Russell 1000 Large Cap Stocks by a good margin even over a 30 year period. 

SHOULD YOU INVEST?

1. The records show that in the US and other developed markets, investors invest in REITs not to beat the Stock Market but for regular income as by Law, REITs have to mandatorily payout at least 90% of their net earnings as Dividends.

2. REITs, although listed, do not always move in the same direction as the stock market as the underlying asset is Commercial Real Estate and thus provides Good Diversification.

3.  REITs in India invest in Commercial Real Estate but this particular fund PGRESF invests in across the category of Real Estate like Healthcare, Warehouses, Server Data Centres, Logistic Centres and thus truly diversified. 

4. The fund could also benefit from Rupee Depreciation as typically Rupee tends to get depreciated vis a vis Dollar

There were earlier offerings from Kotak MF and Mahindra Manulife MF in the same category but they were restricted to the Asia Pacific and this particular PGIM Reits fund invests across the United States (59%), Japan (12%), UK (6%), Australia (4.5%), etc

5. The parent fund PGSREF has given a CAGR of 7% in Dollar Terms since inception. 

6. REITs come in between Equities and Debt and must have a place in All Portfolios. 

Low Correlation with Equities, Diversification across Geographies, Visible Cash Flow to underlying investments make PGIM India Global Select Real Estate FoF worth considering 

7. Most important.......

Returns could fluctuate as the REITs are listed in Stock Markets and various factors including demand/supply of securities could affect prices resulting in a volatile NAV. 

so, Not to be co

nsidered as an alternative to FIXED INCOME. 

INVESTMENT EXPERTS ARE OF THE OPINION THAT INVESTORS LOOKING FOR A SAFER AVENUE TO PARK THEIR MONEY (COMPARED TO EQUITIES AND ACTUAL REAL ESTATE) CAN CONSIDER INVESTING IN THIS FUND

INVESTORS ARE ALSO ENCOURAGED TO LOOK AT THIS FUND MORE AS A DIVERSIFICATION TOOL THAN AS A WEALTH CREATION TOOL

BTW, the Fund has NOT invested in China 

REQUEST YOU TO PLEASE CONSULT YOUR ADVISOR BEFORE TAKING ANY DECISION ON INVESTMENT

THE DETAILS SHARED ARE OUR OPINION ONLY AND SHOULD IN NO WAY BE TAKEN AS A RECOMMENDATION 

All the best,
Regards,
Srikanth Matrubai

MUTUAL FUND DISTRIBUTOR

Srikanth Matrubai, Author of the Amazon Best Seller DON'T RETIRE RICH

You are strongly encouraged to consult your financial planner before making any decision regarding this investment. The views expressed here are the author's personal views and should not be interpreted as a recommendation to invest/avoid.

 

Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH

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