scorecardresearchShould you invest in the UTI S&P BSE Housing Index Fund? 5 experts weigh

Should you invest in the UTI S&P BSE Housing Index Fund? 5 experts weigh in

Updated: 23 May 2023, 05:40 PM IST

The launch of the UTI S&P BSE Housing Index Fund has raised many questions regarding its growth in commensurate with India’s housing sector. Most importantly, investors want to know if it is worth putting one’s earnings in this thematic fund.

Should you invest in the the UTI S&P BSE Housing Index Fund?

Should you invest in the the UTI S&P BSE Housing Index Fund?

UTI Mutual Fund recently launched the UTI S&P BSE Housing Index Fund, which is the first of its kind in its category. This open-ended index fund scheme launched on May 22, 2023 would be open for investment till June 05, 2023, post which the scheme would again reopen on June 09, 2023. The scheme would be tracking the movement of the S&P BSE Housing TR.

The S&P BSE Housing index selects firms from the S&P BSE 250 LargeMidCap Index that are classed as housing-related. Weighting is based on float-adjusted market capitalization, with a single constituent weight cap of five per cent.

Inclined investors willing to invest their bonus amount or added earnings are getting increasingly curious about this fund and its future prospects. The housing sector has done well, especially, during the post-pandemic period. With the launch of this offer, there is an unusual feeling of optimism among investors in the real estate sector.

Viral Bhatt, Founder, Money Mantra said, “Yes, I do sense a feeling of optimism among investors in the real estate sector with the launch of the UTI S&P BSE Housing Index Fund. This is because the launch of this fund indicates that investors are confident in the long-term prospects of the real estate sector. The fund tracks the S&P BSE Housing Index, which is a basket of stocks of companies that are involved in the development and construction of housing projects. The index has been performing well in recent years, and the launch of this fund is a sign that investors believe that this trend will continue.”

The formation of this fund also indicates that investors are looking for new methods to invest in real estate. Investors have traditionally invested in real estate through direct property acquisitions or through real estate investment trusts (REITs). The establishment of this fund, on the other hand, gives investors another way to obtain exposure to the real estate market. This is due to the fact that index funds offer a low-cost and simple approach to investing in a portfolio of stocks.

Financial advisors are being flooded with questions like “With so many investment options to choose from, does it make sense to invest in a housing sector fund? If yes, to what extent would you advise investors to allocate their money to this fund?”

Rishabh Parakh, Chief Play Officer, NRP Capitals explained, “Those who want to take part in real estate growth via indirectly a passive investment may consider this but remember that any sectoral fund comes with a huge risk-reward proposition. However, one needs to be cautious in planning based on their risk profile and you really need to time the exit from sectoral funds well else no point in investing when even if you make money when the sector outperforms but you are stuck in the name of long term and doesn’t really reap the benefit.”

No doubt, the housing sector has done relatively well to date. However, one cannot help but be compelled to notice that it is a thematic fund. The volatility in the housing sector will reflect on the performance of this fund, thus, hinting at the need to assimilate a higher risk compared to large-cap funds containing mostly Blue chip stocks.

Arun Kumar, Head of Research, FundsIndia added, “Thematic funds given their high-risk-high return nature can either give you exceptional returns or extremely poor returns depending on the timing. Investing in a theme requires taking a bet on four things going right

  • Picking a winning theme
  • Selecting the right fund to play the theme
  • Buying at the right valuations which haven't already priced in the theme’s future potential
  • Ability to enter and exit the theme at the right time (i.e., identifying the business/valuation cycle correctly and investing closer to its bottom and exiting as it starts to peak).

In our view, the odds of getting all the above four conditions right on a consistent basis are very low and the payouts can be meaningful only when we get them right. Investors have often piled into these funds at precisely the wrong time (mostly following strong past performance), only to be disappointed. The long-term performance track record for the majority of thematic funds is mediocre.”

“Given their non-diversified exposure, higher risk profile, and the need to time both entry and exit, we would suggest avoiding thematic funds and sticking to well-diversified equity funds. However, if investors still want to explore thematic funds with the hope of boosting returns, use them to complement rather than replace existing core holdings,” added Kumar.

The launch of the UTI S&P BSE Housing Index Fund seems to be a completely new opportunity for those itching to put more money into the market, albeit in an altogether different sector. However, not all may be hunky dory with thematic funds as they look to investors, especially, the new-age investors too willing to take risks for better yields.

Nishant Batra, Chief Goal Planner, Holistic Prime Wealth furthered, “In thematic or sector-based fund, it doesn't make sense to look for the past performance. The best time to invest in these types of funds is when the sector or theme as a whole is not doing well for the past several years. These types of offerings are for high net-worth individuals (HNIs) or institutional investors, retail investors should stick with diversified equity portfolio only.”

Gaurav Rastogi, CEO & Founder, Kuvera warned, “Thematic index fund options are increasing by the day and this is another step in that direction. However, thematic index funds are not everyone’s cup of tea. Venture into this fund only if you have a strong view of the housing sector in India.”

The most pertinent question asked is, “What good would the launch of this fund or category do?” Bhatt shares an optimistic outlook in view of the growing economy of our country.

He added, “Overall, the launch of the UTI S&P BSE Housing Index Fund is a positive development for the real estate sector. It indicates that investors are confident in the long-term prospects of the sector and that they are looking for more ways to invest in it. This could lead to increased investment in the sector, which could boost the economy and create jobs.”


Housing sales in seven cities rose 48% to 3.47 lakh crore in FY23
First Published: 23 May 2023, 05:13 PM IST