ICICI Prudential Real Estate Securities Fund: Core concern

ICICI Prudential’s new fund is as much a real estate fund as John Abraham’s ‘No Smoking’ is an art film. This fund is a closed-ended fixed income fund with a small portion invested in stocks that will expire in three years. The fund manager says that he would invest around 70% of the fund’s assets in bonds issued by companies that are “associated with or benefiting from” the real estate sector.

The rest will go into stocks in infrastructure oriented sectors that benefit “directly or indirectly” from the growth in real estate industry. This 30% will keep fluctuating as per the prices of these stocks. He says that these real estate companies are rated A+ (but not AAA) which means that their bonds give higher yields than other blue chip companies.

The only issue, however, is the way the fund house has defined a real estate company (one that derives more than half of its operating profit from property); there is a good chance that the final portfolio will consist of companies in several varied businesses. And one would struggle to find any mainstream real estate companies.

Having said that the fund manager says that this is the first of a kind offering in India and with back of the envelope calculations he tells us that the fund will deliver around 13% year on year, if the stock market rises around 20% per year. Try finding someone who liked ‘No Smoking.’