Are you intrigued by the idea of investing a mere 10,000 in India’s real estate market, where properties worth crores of 2 BHK residential properties are a common sight? It may sound like clickbait, but there’s a little-known secret that makes this opportunity a reality – REITs Vs invITs.
These investment options, REITs vs. invITs, provide a convenient way to enter India’s real estate market with small ticket investments while still reaping the benefits of rental income and capital appreciation.
In this blog, we will delve into the world of real estate investment and explore the differences between REITs Vs. invITs – two powerful investment options that have gained significant popularity in the Indian market. Understanding these distinctions is crucial as it will help you determine which aligns better with your investment goals and risk appetite.
REITs: Definition, Returns, Types and Minimum Investment
REITs, short for Real Estate Investment Trusts, operate on a concept similar to mutual funds, but instead of investing in stocks and bonds, they invest in commercial and residential properties. Just like mutual fund houses pool money from multiple investors to buy a diversified portfolio of securities, REITs pool funds from investors to purchase real estate assets.
When you invest in a REIT, you essentially become a fractional owner of the underlying real estate properties held by the trust. These properties can include office buildings, shopping malls, apartments, hotels, and more. As the value of these properties appreciates over time, so does the value of your investment.
Moreover, by law, REITs must distribute 90% of their income as dividends to their investors. This kind of transparency assures buyers of their trust in this new investment avenue.
With enormous success in the US market, the Real Estate Investment Trusts (REITs) concept entered the Indian market in 2014. Over the past nine years, three prominent REITs have made their way into the Indian stock market.
With a minimum ticket size as low as 10,000 Rs, you can invest in one of three REITs available in India as they are traded in the stock market. The list of REITs are as following:
- Embassy Office Parks REIT
- Brookfield India Real Estate Trust:
- Mindspace Business Parks REIT
- Nexus Select Trust REIT
If you’re wondering how to invest in REITs in India or looking for the best REIT in India, that the process is as simple as investing in shares and mutual funds since REITs are traded on the stock market. Opening an account with a discount broker enables you to purchase the top REITs available in India easily, and you can start with as little as 300₹s.
Now, let’s explore opportunities for investing in InvITs.
What Is InvIT: Definition, Returns, Types, Minimum Invetsments
Infrastructure Investment Trusts (InvITs), as the short form suggests, are investment products that share similarities with REITs but have some key differences. InvITs invest 80% in finished infrastructure projects and 20% in work-in-progress infrastructure developments such as roadways, power plants, and transmission projects in India.
The primary focus of InvITs is to generate cash flow over a consistently longer period of time. invITs play a pivotal role in developing India’s infrastructure, as a significant portion of the government’s funding for infrastructure projects is estimated to come from these investment vehicles.
They pool money from investors to invest in various infrastructure projects. Out of the 15 invITs registered with SEBI, seven have been listed on the stock market.
According to The Hindu, a total of ₹21,195 crore was collected through invITs in the fiscal year 2021-22.
There are five types of invITs available, each focusing on different infrastructure sectors:
- Energy: power generation and distribution projects.
- Communications: fibre networks and telecom towers.
- Transport & Logistics: highways and toll roads.
- Social: parks
- Water and Sanitation: irrigation networks-related projects
Like REITs, invITs must distribute at least 90% of their income to their unitholders as dividends bi-annually.
The Key Similarities and Differences Between REITs Vs InvITs
Knowing the key differences between REITs Vs InvITs is important for making a wise investment decision. Let’s weigh in on the similarities and differences between these two investment vehicles to gain a better understanding of the topic.
|SEBI registered||REITs are SEBI-registered & regulated investment vehicles that came into existence in 2014||invITs are also registered & regulated by SEBI in 2014|
|Types||Types of REITs include equity, Mortgage, and Hybrid REITs||InvITs are available in two types privately-owned and public-owned InVITs|
|Dividened||REITs distribute 90% of their total income in dividends and distribute it either yearly, quarterly, or monthly basis.||invITs distributes 90% of their income in dividend and distribute it on bi-annually basis.|
|Project Duration/ Holding Period||Investors are advised to hold investment for 10-20 years.||Here project takes 30-32 years to complete thus cash flow is generated for longer duration|
|Structure||REITs have a structure of trustee, sponsor, and manager.||InvITs also have the same structure of trustee, sponsor, and manager.|
|Sectors||REIT invests in real estate sector, including commercial, residential, hospital, shopping mall etc.||InvITs are infrastructure projects like road, bridges, transmission, telecom towers, irrigation related projects.|
|Risk||REITs are considered to be a safer investment among investors due to non-involvement of political forces.||InvITs are considered risky due to involvement of political forces.|
|Control||REITs directly controls the assets as they are the owners or partners.||InvITs are created with the help of special purpose vehicle as the invITs aren’t the owners.|
|Minimum Investment||In REITs, the minimum investment limit is 10,000-15000₹. Earlier it was 50,000||InvITs the minimum investment limit was earlier 100,000₹, but it is reduced to 10,000₹ to 20,000₹|
|Income Generation Method||The method of generating revenue for REITs is through rents received from properties.||Income generation is dependent upon the toll paid by passenger.|
|Trust and Knowledge||As real estate is one of the oldest investment instrument, investors have deep knowledge of REITs and trust it as a proper income generating investment.||Infrastructure investment is newer and instability due to political factors also becomes bottleneck in establishing trust.|
These were some of the similarities and differences between REITs Vs. InvITs. Despite the significant similarities, REITs emerge as the popular choice among average retail investors due to their easy understanding and familiarity.
On the other hand, InvITs have a long way to go, primarily because of the possibility of political intervention and longer gestation periods, which can be advantageous for receiving dividends but also indicate uncertainty.
REITs Vs InvITs: What Should Be Your Preference?
EITs Vs. InvITs have significantly disrupted the investment market in the US, and now they are making their way into India’s investment landscape.
Whether your preference leans towards REITs Vs. invITs depends not only on your financial goals but also on your level of investment experience. To shed light on this decision, let’s hear from Feroze Aziz, a wealth manager who weighs in and explains in an interview with Economic Times.
For retail investors taking their initial stride in the investment world, REITs might be the more suitable option for diversification and passive income. Being primarily focused on commercial real estate, REITs are relatively easier to understand and form an integral part of an investor’s portfolio. Their investment structure is more straightforward, making them a great starting point for beginners.
On the other hand, investing in infrastructure projects and InvITs introduces new complexities, such as varying gestation periods and cash flows. These differences may require some time and experience to grasp and absorb fully. For this reason, retail investors should begin with REITs, gaining confidence and knowledge along the way, before considering venturing into the world of InvITs.
Ultimately, your preference between REITs Vs. InvITs should align with your investment goals, risk tolerance, and familiarity with these investment vehicles.
Taking a thoughtful approach and seeking expert advice can help you make informed decisions and navigate the world of real estate and infrastructure investments.
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Founder of Sustvest
Hardik completed his B.Tech from BITS Pilani. Keeping the current global scenario, the growth of renewable energy in mind, and people looking for investment opportunities in mind he founded SustVest ( formerly, Solar Grid X ) in 2018. This venture led him to achieve the ‘Emerging Fintech Talent of the Year in MENA region ‘ in October 2019.