HDFC Nifty Realty Index Fund stops lumpsum investments, restricts SIPs days after launch

The new fund offer (NFO) for HDFC Nifty Realty Index Fund opened on March 7 and closed on March 21.

HDFC Mutual Fund, India’s third-biggest asset management company (AMC) in terms of assets, has discontinued fresh subscriptions and capped systematic investment plans (SIPs) in its realty index fund.

The new fund offer (NFO) for HDFC Nifty Realty Index Fund, which is the first mutual fund scheme that entirely focuses on the domestic realty sector, had opened on March 7 and closed on March 21.

The fund reopened for ongoing subscriptions and redemptions from April 2.

However, the fund house, in a notice dated April 1, stated that with effect from April 8, fresh lumpsum investments, including additional purchases and switch-ins, will be discontinued in HDFC Nifty Realty Index Fund. The AMC didn’t explain the rationale behind the move in the notice.

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Moneycontrol has reached out to HDFC MF and the story will be updated as and when the response comes in.

The fund house, in the notice, also said that fresh systematic transactions registrations such as SIPs, including SIP top up and Systematic Transfer Plans (STPs) will only be allowed under the monthly frequency option for an amount of up to Rs 1 lakh per investor per PAN.

Meanwhile, the fund house, in the notice, clarified that systematic transactions registered prior to the effective date would continue to be processed. Moreover, there will be no restrictions on redemptions, switch-out, registration of fresh Systematic Withdrawal Plan (SWAP), and STP-out from the scheme.

HDFC MF’s move has come after 140 percent rise in the Nifty Realty Index in the past one year. This is highest among all the sectoral indices.

After the steep rally in the past one year, the price-to-earnings (P/E) of Nifty Realty Index has reached the 59.04 level as of March 28. Compared to this the P/E of Nifty 50 Index is trading around the 23 level.

As per industry sources, given the steep valuations and recent rally in the realty stocks, HDFC MF has taken a fair call to restrict inflows into its Nifty Realty Index Fund.

Retail investors need to be cautious of sectoral or thematic funds as these are highly risky investment vehicles.

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Data available with ACE MF shows that Nifty Realty Total Return Index (TRI) is down around 50 percent from its all-time high levels, which it had reached during the realty boom in 2008.

Moneycontrol had reported that despite concerns about valuations, brokerage firm Nuvama remains bullish on the real estate sector, citing further potential in the medium term.

About the fund

HDFC Nifty Realty Index Fund is a passive fund that invests in stocks that are part of the Nifty Realty index.

The fund managers to the scheme are Nirman Morakhia and Arun Agarwal. In terms of index construction, Nifty Realty Index currently has 10 constituents.

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DLF has the highest weightage among all the constituents at 29.2 percent. It is followed by Macrotech Developers (14.1 percent), Godrej Properties(13.8 percent), Phoenix Mills (12.9 percent) and Prestige Estates Projects (8.2 percent).

Apart from the HDFC MF’s scheme, two more funds on the realty theme have come up in recent times. Motilal Oswal Nifty Realty ETF was launched on March 15, while the NFO for Tata Nifty Realty Index Fund will open on April 8.