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ICICI Mutual Fund’s Housing Opportunities Fund opens today: Should you invest?

This theme-based fund will invest in stocks and sectors that can benefit from the growth of housing market in India

ICICI Prudential Mutual Fund, the country’s second-largest asset manager, has launched a theme-based fund after a long time. The ICICI Prudential Housing Opportunities Fund’s new fund offer opens today (March 28), which will focus on the housing theme.

The scheme

S Naren, chief investment officer of ICICI Prudential Mutual Fund, who is known for his macro and business cycle calls, will be managing the fund along with co-fund manager Anand Sharma.

ICICI Prudential Housing Opportunities Fund will be benchmarked against the Nifty Housing Index, which is a newly-launched index by NSE.

The fund will not just invest in stocks of real estate companies that directly benefit from the growth of housing market, but also the allied sectors that will benefit. Unlike a sectoral fund, a thematic fund invests in a broad set of stocks and sectors.


What works?

Sharma says that the fund will have a diversified portfolio, as it will invest in companies that belong to different sectors that can benefit from the growth of housing market. So construction, financial service companies, home loan companies, consumer goods, cement, power, metals, etc. will be some of the sectors where the fund will look for investment opportunities.

The Nifty Housing Index itself comprises of 50 stocks. But, Sharma says that the investable universe for the fund is much larger, as the index doesn’t fully capture the theme. As per SEBI regulations, at least 80 percent of the scheme’s investments will have to be aligned with the theme. The rest can be at the fund manager’s discretion, including any cash calls that he may decide to take.

“With thematic funds, the timing of the launch of the fund is important. It seems ICICI Mutual Fund is coming up with a housing fund, when the time is more conducive for this theme,” says Shiney Sebastian, managing director of Affluenz Financial Services.

Kavitha Menon, founder of Probitus Wealth, also says timing is critical as wrong timing can prove very costly for investors entering the fund.

HDFC Housing Opportunities Fund is the only other housing theme fund in the mutual fund industry. The fund has just delivered 4.5 percent returns since its launch back in December 2017, shows data from Value Research.

Sharma says one of the major problems that impacts housing market is oversupply. “Right now that problem is not there, there is a certain equilibrium when it comes to demand and supply,” he says.

Roopali Prabhu, chief investment officer at Sanctum Wealth, says that there has been a time correction (prices being stagnant over a long period) in real estate market and now things should turn around.

What doesn’t work

Real estate can go through periods of long upcycle, as well as periods of long downcycle.

“The last cycle when real estate did well lasted for ten years,” Sharma says.

When the times are good, a thematic fund can do well for investors, but at the same time there can be periods of high volatility when times are rough.

Sebastian says themes can take a lot of time to play out and such an investment is only suitable for an investor, who doesn’t need any immediate liquidity or is not linking this fund to any immediate financial goals.

“You can’t have a defined investment horizon when it comes to this fund. However, the idea behind the fund is quite powerful. Shelter is a basic need for everyone,” she says.

Prabhu of Sanctum Wealth says themes can fall out of fashion over long periods of time, even if the theme is structural in nature. “The theme may play out in 3-4 years and then people need to watch their portfolio and consider exiting as over longer periods like 10-15 years, most thematic funds tend to underperform broad-based indices. So, it is important for investors to review their portfolio every two-three years,” she says.

With the US Fed announcing an interest rate hike, rate cycle can also pick-up here in India, which is not considered conducive for real estate. But, Sharma says that the link between rising interest rate scenario and weak real estate market might not be as strong.

“There have been lot of instances when real estate has done well despite high interest rates. In the first five years between 2003 and 2013, interest rates were high, even then property prices were going up year after year. If there is certain demand in the system, then interest rate will not have a major impact,” he says.

He adds that if there is a problem of affordability, then high interest rates can impact demand. “Although now several builders are coming up with small-ticket options that are focusing on affordability,” he says.

Moneycontrol’s take

ICICI Prudential Housing Opportunities Fund is more suitable for savvy investors, who can enter and exit the fund at the right time. Such investors can consider investing some part of their portfolio in the fund, if they are looking for more options beyond the regular active and passively-managed funds. The NFO closes on April 11.

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Jash Kriplani is a journalist with over ten years of experience. Based in Mumbai. Covering mutual funds, personal finance. His last stint was with Business Standard, where he covered mutual funds and other developments in the financial markets
first published: Mar 28, 2022 08:18 am
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