UTI S&P BSE Housing Index Fund is a passively-managed fund, which will track the S&P BSE Housing Total Return Index. The fund aims to gain from the growth of the housing sector in India. The new fund offer is open for subscription till 7 June.
This is not the first time the mutual fund industry has seen a fund focused on the housing sector. HDFC Housing Opportunities Fund was the first fund in the category. The fund, however, delivered just 6.3% returns since its launch in December 2017.
Last year, Tata Mutual Fund and ICICI Mutual Fund also launched their housing funds.
A sector-oriented fund can get heavily influenced by the fortunes of the sector it is tracking. As far as the real estate sector is concerned, it can undergo long business cycles, both on the upside and downside.
Interest rates are another concern for the real estate industry. The sector usually doesn’t do so well when interest rates are on the rise.
Sector or theme-based funds may not be suitable for all types of investors. Such funds fall in the high risk-high return category. The success of investing in such funds depends a lot on the time of entry and exit, which is not something that all investors can do on a consistent basis. For retail investors, diversified equity funds would continue to remain a suitable choice for their core portfolio.
Given the fact that the fund is tracking an index, tracking errors cannot be ruled out. Such errors may be due to asset management fees and other expenses charged by the scheme, corporate actions, cash balance in the scheme, changes in underlying index, low liquidity in a stock or any regulatory restrictions. There can also be delays in deploying the funds in line with the index’s stock weightages.
In normal circumstances, the Securities and Exchange Board of India (Sebi) requires that the tracking error (difference between daily index returns and fund) shouldn’t exceed 2%.
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Updated: 29 May 2023, 11:06 PM IST