REITs and InvITs – Financing Urbanization and Infrastructure in India: A Comprehensive Insight

Picture this: you, the investor, have the power to own a slice of premium
real estate or vital infrastructure projects without the hassle of property
management or construction headaches. REITs and InvITs precisely offer
that – a passport to diverse, income-generating assets that were once
reserved for the elite few. Whether it’s gleaming office towers, bustling
shopping malls, or essential highways and power grids, these investment
vehicles open doors to a world of possibilities.

What are REITs and InvITs?

Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts
(InvITs) were launched in India in 2014. As these instruments are relatively
new in the Indian investment landscape, there is substantial uncertainty
about their effectiveness and benefits.
REITs function like mutual funds, managing real estate properties for
regular income and capital appreciation purposes, thus, pooling funds
from investors to provide a liquid entry into real estate investment and
diversify portfolios.
Infrastructure Investment Trusts or InvITs are also like mutual funds that
pool money from investors that own and operate operational
infrastructure assets like highways, roads, pipelines, warehouses, power
plants, etc. They offer regular income (via dividends) and long-term capital
appreciation.

Advantages to Investors:

• SEBI mandates REITs to invest at least 80% of their investable assets
  in developed and income-generating properties. This mandate by
  SEBI makes it a more stable and less risky investment option for
  investors.
• Further, they need to distribute 90% of their income to investors in
  the form of dividends, which makes it a great passive income source
  for investors.
• As the units of REITs and InvITs are listed on stock exchanges, there is
  reasonable liquidity for both the existing investors and the new
  investors.
• For retail investors, it offers a great diversification option apart from
  equities, debt, and gold. With as little as 500 rupees, investors can lay
  their hands on high-class commercial real estate assets.

While REITs and InvITs are relatively new to Indian investing
landscape, several international markets, such as the United States,
Singapore, Australia, and Japan can help investors understand how they
perform during specific economic cycles. Given the vital role of
infrastructure in a country’s economic development, REITs and InvITs will
help channel funds for critical infrastructure projects without
putting a strain on government finances.

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