HDFC's Realty Index Fund is concentrated, better for long-term investors

Mumbai: HDFC Asset Management's Nifty Realty Index Fund - a concentrated portfolio of 10 property developers - is best suited for investors, who can stay put in the scheme for at least five years, said financial planners.

As many of these stocks have already run up in the past year, upsides in the near term could be capped, they said, while recommending diversified equity schemes to the less risk-averse.

"The run-up in stock prices has been sharp in the last one year. The fund is highly concentrated and valuations are high, so investors should come with at least a five-year time frame," said Abhay Mathure, a Mumbai-based mutual fund distributor. Mathure said first-time investors could stay away from thematic funds.


The new fund offer (NFO) is currently open and closes on March 21. This is a passive fund, which will invest in stocks that are part of the Nifty Realty index. The top five constituents of the index are DLF, Macrotech Developers, Godrej Properties, Phoenix Mills, and Prestige Estates Projects.

Analysts said real estate stocks have been among the top performers with property prices firming up amid growing demand.

"Rising per capita incomes, improving affordability, increased urbanisation, government initiatives of housing for all and RERA provide a large growth runway ahead for the real estate sector," said Anurag Garg, founder, Nivesh.com. He said companies have strengthened their balanced sheets and improved their profitability metrics over the last few years.

In the past year, the Nifty Realty TRI (Total Returns Index) rose 134% as against the Nifty's 28.5%. It returned 37.9% in the last three years compared to Nifty's 16.1%.

With stock prices jumping in the past year, company valuations too have expanded. The Nifty Realty TRI is trading at a price-to-earnings ratio of 57 times compared to Nifty's PE of 22.7 times.

Long-term investors are betting on the sector as it's an underperformer over a longer period. Since the index's inception in 2006, its returns have been flat as against Nifty's 11.8% on a compounded basis.