Widely read:
हिंदी में भी पढ़ें 
The Indian real estate sector, after a decade of consolidation, is witnessing a resurgence due to rising per capita income, improving affordability, increasing urbanisation and supportive government initiatives.
To capitalise on this opportune moment, HDFC Asset Management Company (AMC) has launched a new fund that will track India's real estate index (Nifty Realty Index (TRI)
HDFC Nifty Realty Index Fund, a passive fund, will be the first of its kind to replicate the performance of the real estate index.
The new fund has been open for investors to subscribe to since March 7, 2024. The closing date is March 21, 2024.
Here are the details you need to know about HDFC Nifty Realty Index Fund's NFO (new fund offer):
NFO snapshot
| Fund name | HDFC NIFTY Realty Index Fund |
| SEBI category | Index fund |
| NFO period | March 7 to March 21, 2024 |
| Investment objective | To achieve returns similar to those of the NIFTY Realty Index (TRI), subject to tracking error |
| Where will the fund invest | Minimum 95 per cent investment in Nifty Realty index (TRI) |
| Benchmark | Nifty Realty Index (TRI) |
| Fund managers | Nirman Morakhia and Arun Agarwal |
| Exit load | Nil |
| Tax treatment | If units are sold within a year, capital gains will be taxed at 15 per cent. If units are sold after one year, capital gains are taxed at 10 per cent. Gains of up to Rs 1 lakh are tax-exempt. |
About Nifty Realty Index
It's important to know about the Nifty Realty Index because the HDFC fund will copy its performance. Given this context, let's understand the index's makeup and performance.
This index, launched way back in August 2007, is mandated to include just 10 real estate companies from the Nifty 500 universe, with a cap of 33 per cent weight. Meaning, no company is allowed to corner more than 33 per cent share of the index.
Currently, DLF, Macrotech Developers and Godrej Properties are the big hitters, comprising 62 per cent of the index. That said, the numbers may change every six months, as the index is rebalanced twice a year to reflect each company's current free float market capitalisation.
Regarding performance, this almost 17-year-old index has been rather mercurial, characterised by sharp peaks and troughs, as can be seen below.
While its one-year performance of 132 per cent far exceeds Nifty 500 TRI's 39.7 per cent, its long-term performance has been a horror show. The real estate index has beaten the Nifty 50 and 500 just 9 per cent of the time on a 10-year monthly rolling returns basis since 2007! Let that sink in.
About the fund managers
Nirman Morakhia and Arun Agarwal will jointly manage the Nifty Realty Index Fund.
Morakhia has over 14 years of experience managing passive funds across various asset classes at HDFC AMC, having previously worked with Mirae Asset Global Investment Management.
Agarwal, meanwhile, joined HDFC AMC in August 2020. He has previously worked with SBI Funds Management, ICICI Bank and UTI Asset Management.
Our take
HDFC AMC is a reputed fund house. But we have three concerns about the real estate index this fund will try to copy.
a)
The index has only 10 companies
. It excludes firms from allied sectors like building materials and housing finance. In other words, its limited breadth makes it highly risky.
b)
The performance swings wildly.
Real estate as a sector is inherently cyclical. The index is no different. You can scroll above to check the sector's long-term performance. That will give you the complete story.
c)
HDFC NIFTY Realty Index Fund is a sectoral fund.
And we usually shy away from sectoral funds because they are mostly very risky. This sector's performance backs us up.
What you should do
Avoid them.
Opt for more diversified equity mutual funds instead. Flexi-cap funds is one such example of a diversified fund. In fact, many of these funds will already have exposure to real estate companies.
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