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 |
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.
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.
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