PGIM India Mutual Fund (PGIM MF) on November 9 announced the launch of PGIM India Global Select Real Estate Securities Fund of Fund (PGIMRFoF). The FoF will invest in PGIM Global Select Real Estate Securities Fund (PGIMRS), which is a global fund investing in real estate investment trusts (REITs) across different parts of the world.
What are REITs?
REITs are also like mutual funds, but the difference is that these are portfolios of real estate investments. REITs largely invest in income-generating real estate properties. A REIT invests funds sourced from investors and distributes dividends from the income it generates via its property investments. REITs are listed on the exchanges, so there also is scope for capital appreciation as well. The value also increases due to appreciation in the prices of real estate assets held.
What will PGIMRFoF invest in?
PGIMRFoF will invest in a bunch of REITs across different geographies, largely developed markets. As of September 30, 2021, the underlying global fund -- PGIMRS – has 62.2 percent of its investments in North America, 10.8 percent in Europe (except the UK) and 6 percent in the UK. These REITs also operate in a wide range of sectors, which are not available for investments in domestic markets. Ajit Menon, chief executive officer, PGIM India MF, says PGIMRS will have exposure to REITs that hold real estate investments in businesses such as personal storage, senior living, and data centres, apart from sectors such as residential, industrial, hospitality, healthcare, retail and office spaces.
What investments opportunities are PGIMRS is looking at?
The underlying fund is being run by the PGIM Real Estate team, which is the global real estate investment arm of PGIM. As an actively managed fund, the fund managers running the PGIMRS look for investment opportunities that can create value for the portfolio. Rick Romano, managing director of PGIM Real Estate shared some opportunities the investment team is looking at right now.
“Hotel REITs have benefited from the pent-up leisure travel demand coming back as we see more movement and opening up. Now, work-related travel should also come back as we are seeing conferences and other work-related activities picking up,” Romano said.
He also pointed out another emerging trend of elder care facilities. “During the pandemic, these facilities were shut down. But now intakes have started again. The elderly sell their properties to fund for these care facilities. As real estate prices have improved, elderly are liquidating their properties to fund for these need-based long-term care facilities,” he added.
What will be tax implications for investors?
The capital gains from an overseas FoF is treated as debt investment for taxation purpose. After three years, the long-term capital gains (LTCG) tax rate will apply and investors will have to pay 20 percent on the gains with the indexation benefit. Gains before three years are added to investors’ income and taxed at her income tax slab rate.
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