Some of these aspects include -- restrictions on investment in the properties developed by sponsors of the REMF except in the case of listed securities up to certain limits; restrictions on over-exposures to a single city, single project and to unlisted companies; restrictions on lending or undertaking housing finance kind of activities; valuation by independent valuers; and detail disclosures by the trustees and the asset management company.

However well-intentioned the regulations may be, there are still several aspects which would need further consideration. Firstly on the valuation. It may be quite impractical and somewhat misleading to compute a net asset value of the scheme on a daily basis especially when up to 25% of the scheme can be in unlisted companies undertaking real estate project development.

Secondly, the impact such a huge amount of new capital could have on the prices in an almost overheated market with little supply of investment grade assets coming up.

This is especially an area of concern since foreign institutional investors (FIIs) and NRIs are generally permitted to invest in mutual funds. Adding to it, there being no restrictions on the maximum ceiling of real estate an REMF can hold, it is quite possible that an REMF could effectively operate as a surrogate Real Estate Investment Trust (REIT) without any restrictions of REITs.

More worrisome is the thought that this would allow a backdoor entry to foreign investors through FIIs that may be able to invest in fullybuilt-up Indian real estate without any scale or quantum restrictions. Whether this is intended, or if not, how it will inter-play with the foreign direct investment policy contained in Press Note No 2 and subsequent clarifications remains a mystery.

Whereas the final impact of REMFs can only be conjectured at this stage, it is fair to say that it is a useful addition to the financial ecosystem of investments in real estate linked assets.

In many respects, given the fact that REMFs are permitted to invest both in fully built assets, which deliver stabilised generally safe return and indirectly in under construction projects with a higher risk, they are like `balanced funds' and quite suitable for investors with a moderate risk profile.

Investors with a higher risk profile and seeking higher returns may consider real estate private equity funds and those with a low risk profile and happy with lower returns may consider REITs when introduced. For the rest, REMF is an option worth considering after suitable evaluation of the respective scheme. Finally, it remains to be seen if and how much of an impetus REMFs would provide the system both in financial and real estate markets or how enthusiastically the investor community will embrace it. Hopefully it will be more than `just another brick in the wall'.