LIC Housing Finance Ltd, the mortgage unit of India’s biggest insurer, has achieved a first close of Rs 250 crore for its maiden real estate private equity fund. Launched late last year, the fund has a target size of Rs 500 crore, with a green shoe option of Rs 250 crore. This provision will allow LIC Housing Finance Asset Management Company, the manager of the fund, to sell more units than planned.

“We have raised Rs 250 crore so far from institutional investors like banks and corporates,” AK Sharma, chief executive of LIC Housing Finance, told ET. We also have additional commitment of Rs 50 crore and are hopeful to finish fund raising by June end.” The fund has a target net internal rate of return of over 22%. It will invest in urban real estate such as mid-income housing projects, IT parks and warehouses across tier I and II cities. “There is a huge demand for mid income category homes in the range of Rs 1,600-4,000 per sq ft and we will target such opportunities,” Sharma said.

The fund is already looking at various proposals. The asset management arm of LIC has received a commitment of Rs 50 crore each from LIC and LIC Housing Finance. LIC, which earlier targeted retail investors, is now looking to raise the remaining capital from the institutional investors. “Retail investment in private equity is yet to pick up. Retail investors do not understand the risks and rewards associated with the business,” Sharma said. There are at least half a dozen real estate-focussed funds in the market that are trying to scoop up fresh or follow-up funds to invest in Indian real estate. These include HDFC Property Fund, JP Morgan Asset Management, IndiaReit Fund Advisors and Kotak Realty Fund.