REITs & InvITs in India: Yields, Taxation, and Why They Belong in Your Portfolio

 By Penny Counts

InvITs (Infrastructure Investment Trusts) and REITs (Real Estate Investment Trusts) are still not common investment vehicles in India. Many investors are not fully aware of their potential in terms of income generation and how can they fit into a portfolio.

In simple terms they are funds that invests directly in Infrastructure Projects (InvITs) or Commercial Real Estate (REITs). Unlike mutual funds which invest in financial assets like listed stocks of the companies, InvITs and REITs directly invest into real income generating assets like Commercial real estates, pipe lines, transmission lines, malls highways etc. 

These are relatively new concept in India and not many talk about it yet. However, MFs and investors who look for diversification often include InvITs and REITs in their asset mix.

Individual Investor

For individual investor, InvITs and REITs present a unique opportunity to participate in real estate or infrastructure with much lower capital than buying a physical property and earn a relatively stable income out of it. 

InvITs give an average yield of around 7-8% and REITs around 5-6%, which not less than 2x of the rental yield prevalent across India except for a few prime locations. Additionally, a small capital appreciation on the investment can push the total return to decent 10-12% per annum over a long period of time. This clearly shows that this is not for investors who are looking for a high growth in their portfolio. However, it is for those who want to diversify into real-estate and infrastructure.

Comparative Returns: Nifty REITs & InvITs vs. Nifty 50

Time Period	Nifty REITs & InvITs Total Return (%)	Nifty 50 Total Return (%)
QTD	4.87	-3.95
YTD	15.82	4.42
1 Year	16.48	-2.01
5 Years	14.08	17.91
Since Inception	11.96	12.83

Note: Returns for periods greater than one year are Compound Annual Growth Rate (CAGR). The 5-year data for the Nifty REITs & InvITs is a back-tested return as the index was launched in 2023
Source: Nifty REITs_InvITs Factsheet & Nifty50 Factsheet

In India there are many REITs and InvITs which are available to invest, like:

• Embassy Office Parks REIT: The first publicly traded REIT in India, focusing on commercial office spaces.
• Mindspace Business Parks REIT: Manages high-quality office spaces in key economic cities. 
• Brookfield India Real Estate Trust: Manages a portfolio of office and retail spaces.
• Nexus Select Trust: A major retail REIT with a focus on consumption centers and malls. 
• IRB InvIT Fund: Invests in road and highway projects.
• IndiGrid Infrastructure Trust: Focuses on power transmission projects.
• POWERGRID Infrastructure Investment Trust: Also involved in power transmission infrastructure.
• CapInfra Trust: Invests in infrastructure assets.
  

(Note: Check latest listings before investing, as new trusts may come up.)

Risks Involved 

Though REITs and InvITs offer steady income and diversification, they are not risk-free. Investment decisions must take into account the following risks:

• Interest Rate Risk – When interest rates rise, yields from REITs/InvITs look less attractive compared to bonds or FDs, which can pull prices down.
• Occupancy Risk – Vacancies in office spaces or delays in infrastructure projects can hurt cash flows and distributions.
• Leverage Risk – Many trusts use debt to fund assets. If cash flows weaken, debt servicing can eat into returns.
• Regulatory & Tax Risk – Any change in tax rules or SEBI regulations can materially alter investor payouts.
• Liquidity Risk – Trading volumes in Indian REITs/InvITs are still thin. Exiting in large quantities may be difficult without impacting price.
• Market Sentiment – Like equities, REIT/InvIT prices swing with overall market mood, even if rental income stays steady.

How Do They Pay Investors

REITs and InvITs are mandated to distribute at least 90% of their net distributable cash flows to unit holders periodically, ensuring investors receive a steady stream of income from the infrastructure projects owned by the trust. Most of the cash flow an investor receives is in the form of interest, dividends, or rent distributed from the underlying projects.

• Interest: Comes from loans given by the trust to its special purpose vehicles (SPVs). This is fully taxable at your income tax slab rate, just like bank FD interest.

• Dividend: Comes from profits of the SPVs. Since most SPVs follow the new 22% corporate tax regime, dividends are also taxable at slab rate in your hands.

• Rent (only in REITs): For REITs that directly own property, rental income is passed through to investors. This too is taxed as per your slab.

• Capital Gains on REITs/InvITs: Before July 23, 2024 – 15% STCG (<1 yr) & 10% LTCG (>1 yr above ₹1 lakh); On/after July 23, 2024 – 20% STCG (<1 yr) & 12.5% LTCG (>1 yr above ₹1.25 lakh), with no indexation (link).

Above options give you an opportunity to diversify to Real Estate and Infrastructure sector directly even with a low capital base. Else if you already own a home and looking to invest in another property for investments to have steady rental income. These can be a good option to look at as it not only gives a decent return in the form of dividend and capital appreciation but also much needed liquidity unlike physical real estate assets. Therefore, REITs and InvITs solve this problem by giving:

• Low-ticket entry into real estate and infrastructure
• Decent income in the form of distributions
• Liquidity (units can be sold anytime, unlike property)

Investing in real estate involves a huge amount that hinders the wealth creation journey of young professionals / individuals if they tie themselves to a huge Home Loan especially when the prices of real estate stretched. And buying a real estate at overvalued price doesn't make sense as it doesn't give the desired return and also takes away the freedom, flexibility and choices and ties one down to a huge loan and capital appreciation remains minimal. 

This is not an argument against buying home for consumption living but to put the matter in perspective. It's important to have a home to live not just for financial and but also psychological security. 

To conclude, REITs and InvITs should be part of your portfolio mix. They provide stable yields, potential capital appreciation, and diversification into real estate and infrastructure.

Unlocking Wealth: Alternative Investment Funds (AIFs)

By Penny Counts

We are accustomed to looking at investments through the familiar lens of FDs, stocks, mutual funds, gold, and real estate. These have proved to be effective tools for wealth building or wealth generation. The regulatory ecosystem and market offerings are changing. A new player is taking center stage — Alternative Investment Funds (AIFs), especially for High Net Worth Individuals (HNIs).

With some imaginative reforms by the Regulator SEBI and support from RBI, and India’s booming startup ecosystem, AIFs are no longer just a whisper among private bankers and wealth managers. They’re becoming a mainstream choice for HNIs who want more than the usual mutual funds and FDs.

Let’s break it down and understand what they are, why they matter, and what you should know before writing that ₹1 crore cheque, which is the threshold amount for investing into an AIF.

What Are AIFs?

They are more like our regular mutual funds but unlike mutual funds, their investable sphere, style, mandate, and risk profile are vastly different. Think of AIFs as pooled funds for sophisticated investors — money collected from a select few, managed by professionals, and deployed into opportunities outside your traditional stock-bond world. Instead of buying listed equity shares or Bonds, AIFs go beyond.

AIFs invest in:

• Category I: Focuses on socially or economically beneficial investments, including venture capital funds, SME funds, social impact funds, and infrastructure funds. These often enjoy tax incentives.
• Category II: Includes private equity and real estate funds, which invest in unlisted companies or property projects. These are the most popular AIFs, offering stable yet high-return potential.
• Category III: Encompasses hedge funds and other complex strategies, often using leverage and derivatives for aggressive returns. These are high-risk and suited for seasoned investors.

It's a rich man’s playground. The minimum ticket size is ₹1 crore (approximately $120,000 USD), making them exclusive to HNIs, corporates, and institutional investors. Thus, we know that they are vastly different from mutual funds or regular PMS. By mid-2025, the AUM of AIFs has crossed ₹11 lakh crore and is growing by 25% (SEBI data).

Why AIFs Are Hot in 2025

Five reasons why the buzz is real:

• SEBI’s Accredited Investor Regime: In July 2025, SEBI proposed a groundbreaking framework for accredited investors—those with a net worth of ₹20 crore or an annual income of ₹10 crore. This regime reduces compliance burdens for AIFs catering to such investors, enabling faster fund setups and customized strategies. The move is expected to attract global HNIs and NRIs, boosting India’s appeal as an alternative investment hub [Source: SEBI Consultation Paper, July 2025].
• Performance Is Speaking: AIFs have delivered strong returns in 2024-25, with Category II funds (private equity and real estate) averaging 12-15% annualized returns, outpacing many mutual funds. Category I venture capital funds have also capitalized on India’s startup boom, with unicorns like fintech and edtech startups driving growth.
• RBI Lending a Hand: In March 2025, RBI allowed banks to co-invest in AIFs under specific conditions, which gives much-needed credibility to AIFs by having a bank's brand as a partner. With banks, comes greater liquidity and enhanced investor confidence, particularly in real estate and infrastructure funds [Source: RBI Circular, March 2025].
• India’s Startup Engine: India has over 100 unicorns as of 2025, which is a gold mine for Category I AIFs. AIFs are betting on fintech, green energy, AI, and healthcare, giving investors early access to the next wave of disruptors at a valuation when they are still reasonable, and with their listing, huge value unlocking takes place and provides a humungous money-making opportunity.
• Global Capital Is Here: High economic growth has worked as a magnet for PE giants like Blackstone, KKR, and Temasek, who are doubling down on India’s AIFs. They have identified the potential of the burgeoning wealth of the top 10% of India's rich. With 7% GDP growth projections, the Indian story is strong.

Benefits of AIFs

Now, as a Mutual Fund and PMS investor, why should you bother with AIFs? The reasons are many, such as professional management, diversification into assets not correlated with Nifty/BSE, and the investible universe goes beyond the traditional listed stock universe. Another reason is high potential returns as VC & PE AIFs invest into startups, pre-IPO bets, and premium real estate and have historically delivered 15-20% CAGR. AIF investment also offers a tax advantage, as Category I & II AIFs enjoy pass-through status, meaning profits are taxed only at the investor level, avoiding double taxation.

AIFs are not traditional investment avenues, and they are not for everyone, with the big investment threshold amount of ₹1 crore. It keeps the retail investor out. Along with this, there are risks that cannot be ignored. The risk comes from their investing universe, as in search of a higher return, they may invest into startups, distressed debt, or leveraged funds. There may be lock-ins ranging from 3–7 years. Redemption before the minimum lock-in might not be available. As it involves big money and less than transparent investments, the manager risk is as big as anything because your return is as good as the manager. The most important risk is 'regulation,' as AIFs are still evolving, and any abrupt rule change can alter the playing field and jeopardize the investment or return, as happened with crypto.

With regulatory clarity, India has taken a step towards positioning itself as a hub for alternative capital, at par with Singapore and Dubai.

How to Approach AIFs

If you’re considering investments into AIFs, remember the risks involved and that this is not a casual play. So, what groundwork or research should you do or have clarity on:

• Defineyour goals: AIFs are a long-term commitment with considerable risk. Therefore, invest only if an AIF fits into your wealth-building journey.
• Pickthe category of AIF wisely depending on your risk profile:
• Category I if you like startups/impact.
• Category II for stable PE/real estate returns.
• Category III if you can stomach volatility.
• Check the investment manager’s background, her past track record, credibility, and her vision for the AIF.
• Check the lock-ins, management and performance fees which can be at 2% and 20% for AUM & performance and exit rules.
• Resist the DIY, unless you understand every detail. Work with a financial advisor or wealth manager.

To conclude, AIFs are not for everyone. But if you’re sitting on serious wealth, want to diversify, and can lock away capital for 5–7 years, they can be a game-changer. India in 2025 is at an inflection point. With SEBI reforms, startup momentum, and global capital flowing in, AIFs are becoming a serious wealth-building tool. But remember, it's a high-risk and high-reward game with long lock-ins and manager dependence. If you can handle all this, it may be your chance to be part of the next chapter of India’s growth story.

Disclaimers: AIFs carry significant risk. Consult your financial advisor before investing.