Making the Choice: REITs and InvITs

NSE Indices Ltd, an arm of the National Stock Exchange (NSE) rolled out the country’s first-ever real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) index on April 11, 2023. 

REITs are quite like mutual funds as they are pooled investments, too. The difference is that mutual funds invest in various asset classes such as equity, debt, and gold, etc, while REITs are listed instruments that invest in real estate alone.

REITs help retail investors earn passive income through dividend payouts while offering a high degree of liquidity. Similarly, REITs provide part ownership in a commercial real estate asset. 

According to a report, listed REITs in the country witnessed a 6.85% year-on-year (Y-o-Y)  rise in the total leasable area. From only 87.6 million square feet (msf) in September 2021 to 93.6 msf in September 2022.

On the other hand, InvITs are professionally managed investment trusts which are more infrastructure related. While being similar in functions to mutual funds, they provide part ownership to an investor in infrastructure projects, which could be roads and highways, power distribution networks, telecom, etc. 

InvITs are mandated to distribute about 90% of their income to their investors on a quarterly or half-yearly basis. Besides, interest pay-outs are also initiated on a quarterly or bi-yearly basis. 

In the past few years, InvITs have contributed significantly towards the development of the infrastructure capability of the country with a total equity of Rs 550 billion in the financial year 2021 and Rs 220 billion in FY 2022.

As an investor, you can ideally test the waters with a REIT. Perhaps, they can then look forward to investing InvITs after taking into account the risk profile. Comparatively, InvITs are new and complex investment instruments. There is a significant difference in terms of gestation periods, lock-ins, cash flows, etc all such factors need to be taken into consideration before opting to invest in them.