PRU-ICICI Real Estate Securities Fund in India

We have been informed that Pru ICICI will launch the country’s first real estate fund. We are not too happy with the fund’s objective, really especially, 65% Real Estate Debt + 35% Real Estate Stocks. Here is the presentation that we have got. [PDF]

Why we are recommending a AVOID on this new fund offer?
The fund will take exposure to debt and it can vary between 50&-70%. Kotak, HDFC and other who raised money abroad for Real Estate have 5 to 10 years lock-in but they are investing directly in property and real estate stocks. That means they are acting as REITS [Real Estate Investment Trusts]. However, ICICI is investing 50% in debt and you have seen the lackluster performance of Realty Stocks lately, which is why we are recommending a AVOID.

We always recommend to invest in well diversified funds and over long period of time, they beat every other sector specific fund.

For example, until April2007, IT specific funds were showing YoY returns of 50%+ while diversified funds were showing 40%+. Today IT funds are showing 17% returns YoY while diversified funds are still showing 38%.