HDFC Housing Opportunities Fund - Series 1 is a 3-year closed-end thematic equity fund that aims to invest in housing developers and sectors associated with the sector
There’s a new fund on the mutual fund street called HDFC Housing Opportunities Fund - Series 1 (HOF1).
HOF1 is a 3-year closed-end thematic equity fund that aims to invest in housing developers and sectors associated with the sector. The fund is particularly keen to capitalize on the low-cost housing sector, which is a key focus point of the central government, which has taken steps to encourage low-cost housing. The fund closes for subscription on 30 November 2017. From defining affordable housing loans in terms of loan amounts and the property value for which the loans are sought, to putting affordable housing loans in the priority sector lending that sets a target for banks to lend every year, and giving tax exemptions to borrowers as well as additional relief to developers; the government has sent out the right signals to push affordable housing. HOF1 will invest in real-estate companies that build and sell such homes as well as other sectors like banks, housing finance, home appliances, steel, and paints; which would benefit from this uptick.
The fund doesn’t limit itself to affordable housing; though that is a large chunk of the housing segment it aims to invest in. It also aims to capitalize on the lack of housing in India, an area where the present-day government is focusing on. By staying away from the luxury market segment, it would avoid a sector that is going through a lot of stress at the moment. In coming up with this fund, HDFC Asset Management Co. Ltd draws from the experience of its group company Housing Development Finance Corp. Ltd, which has been in the housing loan segment over 35 years.
HOF1 is a thematic fund and therefore among the riskiest types of mutual fund schemes. If the housing sector—especially the affordable housing segment—goes through a slump (the housing sector is anyway going through one such slowdown at the moment), HOF1 would go through a slump as well. Also, HOF1 is a closed-end fund. Premature exits would only be allowed on the stock exchanges at the prevailing market price, which—like many closed-end funds—could trade at a significant discount to its prevailing net asset value. HOF1 has the option to invest up to 20% either in debt and or sectors other than—or related to— housing. If HOF1 invests significantly in other sectors, it could temper the spirit of the fund. That’s not to say it will do so, but you need to note that its offer document allows it to do this.
Typically, we advise against investing in thematic funds and closed-end funds. But as there is no other similar fund in the industry, HOF1 offers something unique. If your portfolio is well-established and well-diversified, invest a small portion here.
Avoid this fund if you are just starting out as a mutual fund investor. HOF1 should not be your first, second or even the third scheme.