Today’s investors have several investment options to fulfil their different goals: income generation or building wealth. And REITs is one such new investment avenue.
From a global context, REITs are nothing new. But it is a relatively new investment option for Indian investors. While the REIT is still in its nascent stage in India, many industry leaders believe the sector will continue to grow.
REITs are investment options that invest in real estate and infrastructure projects, respectively. It can also invest in the loans that back these real estate and infrastructure units.
Simply put, REITs are like mutual funds. REITs invest in properties from the money pooled by investors like us instead of stocks and debt instruments.
Let us assume that company A built a commercial complex but wants to exit it. They may want to exit for various reasons.
So, another company will form a REIT trust that will pool small amounts of money from individuals and institutions to invest in the complex. Investing can be done directly through a trust or Special Purpose Vehicles (SPV). An SPV is a company or limited liability partnership (LLP) in which a REIT owns or intends to own at least a 50% equity stake or interest. Besides holding and developing property and any incidental activity, an SPV is prohibited from engaging in any other activity.
Here are some criteria that a REIT needs to meet to qualify as REIT per SEBI guidelines 2019:
The REIT needs to have an asset base of at least Rs.500 crore.
REIT should hold a minimum of 50% of the total nominal value of equity in that SPV.
REITs can be an alternative investment option for investors looking to diversify their investment portfolios. However, as it is a little more complicated investment option than mutual funds or any other investment option. Let us know if you want to know more about how to invest in REITs in India through mutual fund.
This blog is purely for educational purposes and not to be treated as personal advice. Mutual fund investments are subject to market risks, read all scheme-related documents carefully.