Finance Ministry has told the capital markets watchdog Sebi (Securities and Exchange Board of India) to take a final view on allowing mutual funds to unveil schemes which could invest in real estate. Media reports, quoting officials, said Sebi was of the view that there were legal constraints in opening up, considering that investment in real estate was not a permissible activity. However, the government has said that like in the case of gold, Sebi's regulations could be amended to allow mutual funds to launch real estate schemes. Real estate mutual funds invest in projects directly, to develop real estate. This could be in the form of investments in the securities issued by such companies or in securitised assets.

Experts say Sebi's move may lead to the formation of real-estate investment trusts in India. A real estate investment trust is a mutual fund that buys a real estate project and is close-ended and listed. If the project has a rental revenue model, that is, it is leased out and REITs continues to own it, the fund is treated as a debt fund and if it's sold off, that is, the ownership changes hands, it's treated like an equity fund. Worldwide, REITs account for more than $ 1 trillion in assets.

Some real-estate companies believed to be interested in setting up real-estate trusts are RNA, Pantaloon, Piramals, HDFC and L&T.

Another interesting recent development is that Sebi has approved the proposals of some 20 venture capital funds (VCFs) to invest in real estate in India.

Real estate VCs attract funding from three sourcesdomestic institutional investors and banks, which account for 50-60 per cent of the funds raised; corporate houses and high networth individuals, which account for 20-30 per cent of the investment; and NRIs and PIOs who chip in with another 20 per cent.