Mumbai, Apr 25: The Securities and Exchange Board of India has permitted mutual funds to launch real estate funds.

Existing mutual funds can launch such funds readily while a new mutual fund set up only for real estate schemes would have to be in the business of real estate for at least five years and have to fulfill all other eligibility criteria applicable to a MF, a release said.

Every real estate scheme shall be close-ended and its units listed on a recognized stock exchange, the markets regulator said.

Such a fund would have to invest at least 35 per cent of the net assets directly in real estate assets while the balance may be invested in mortgage backed securities, securities of companies engaged in dealing in real estate assets or in undertaking real estate development projects and other securities.

Taken together, investments in real estate assets, real estate related securities (including mortgage backed securities) shall not be less than 75 per cent of the net assets of the scheme, the release said.

Each asset shall be valued by two credit rating Agencies every 90 days from date of purchase. Lower of the two values shall be taken for the computation of net asset value, which would have to be declared daily.

Investments in a single city, single project, securities issued by sponsor/associate companies would be capped and restrictions specified in the Seventh Schedule shall apply, unless otherwise stated.

No mutual fund shall transfer real estate assets amongst its schemes or invest in any real estate asset which was owned by the sponsor or the asset management company or any of its associates in the last five years or hold tenancy or lease rights.

Lastly, a real estate fund shall not undertake lending or housing finance activities, the SEBI said.