The launch of the first ever realty fund albeit in the form of a venture capital fund, has opened doors for retail investors to participate in real estate, a booming asset class.

The Securities and Exchange Board of India's (SEBI) recent approval for HDFC property fund to be opened for investments in the real estate sector marked the beginning of realty funds in India. The fund, which is essentially a venture capital fund, will now allow investors to invest in an asset class that provides a combination of high returns and good diversification benefits. The fund will initially target high net worth individuals and corporates for pooling up investments.

Housing activity has been witnessing a major boom in the recent past, mainly due to a continuous period of low interest rates. The trend of low interest has been reversed only recently, but this may not pull back the demand for housing activity. According to PricewaterhouseCoopers (PwC), the urban housing sector in India will require investments worth $25 bn over the next five-year period.

Real estate investment in India by the common man has been mainly for residential purposes. There are few big developers in the real estate sector. The difference between real estate investments from other investments is only in high investment not in returns. Just like stocks which give both income (dividend) and capital gain, real estate also gives income in the form of rent and capital gains. But real estate is beyond the reach of retail investor for many reasons. First, it requires huge initial investment.

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