Funds for mutual investors in India are now showing an interest for Real Estate Investment Trusts (REITs) as well as Infrastructure Investment Trusts (InvITs). These financial instruments are providing new opportunities for investors of all kinds to profit from the real estate and infrastructure gains without the need to purchase real estate or financing huge projects by themselves. Although they are gaining popularity however, their place in the portfolios of mutual funds is still quite limited in comparison to other heavyweights such as bonds and stocks.
What is the difference between REITs and InvITs? Imagine REITs as an opportunity to invest in huge real estate developments and InvITs as an way to participate in major infrastructure projects such as power grids or highways. Instead of owning the buildings or properties, they purchase units similar to shares. In time the units will be a source of income, making they attractive for generating an income that is steady and long-term.
However, here’s the problem. While they sound intriguing on paper, they’ve still not made it into the minds (or pockets) of the majority of Indian investors. Most are still stuck with the things they are familiar with such as fixed-income or equity investments. Why? First of all REITs and InvITs are fairly new in India. With only a few historical records of the performance of these funds, people are cautious. Investors want to know if there is solid evidence before making a decision to invest their hard-earned money.
However, things are beginning to develop for these possibilities. In the last few years SEBI Securities and Exchange Board of India (SEBI) has been attempting to streamline the rules and regulations, with the aim of make InvITs and REITs more accessible. This, in conjunction with the government’s ambitious plans for infrastructure development and urbanization will mean better days ahead for these investment tools.
For managers of mutual funds, REITs and InvITs offer something special. They are a great option to diversify portfolios while giving stability. Additionally, the earnings generated by these investment, usually paid out in dividends, could be very lucrative. For now it is still a matter of caution and the risk of these investments is in the lower end.
To summarize REITs and InvITs are making an impact however they’re still not able to gain mainstream acceptance. The positive? With increased awareness and steady performance, they may be a standard to mutual funds within the next few years. If you’re looking to explore this option, a amount of research and curiosity can be a big help.
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