SEBI to Introduce New Follow-on Offers Norms for REITs and InvITs

Markets regulator, the Securities and Exchange Board of India (SEBI), is considering the introduction of norms for follow-on public offers (FPOs) by real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).

Such trusts were introduced in India to give investors an opportunity to gain exposure to real estate and infrastructure projects while helping diversify risk via collective pooling.

REITs are very much like mutual funds, as they are pooled investments, too. However, the difference is that mutual funds invest in various asset classes such as equity, debt, gold, etc., while REITs are listed instruments that invest in a real estate project 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 project.

Similarly, InvITs are professionally managed investment trusts that are more related to infrastructure projects. While being similar in functions to mutual funds, they provide part ownership to an investor in infrastructure projects, such as 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 considerably 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.

SEBI has been putting in efforts to boost the regulatory structure while simplifying procedures for REITs and InvITs. To ensure ease in the public issuance of REITs and InvITs, the markets regulator has cut the time between issue closure and allotment or listing from 12 to 6 working days.

Recently, SEBI came up with regulations granting unique privileges to REIT unitholders, allowing them to appoint representatives to the boards. In addition, the market regulator introduced the concept of self-sponsored REITs.