Should You Invest in REITs?
Today’s investors have several investment options to fulfill their different goals: income generation or building wealth. And REITs are 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 REIT is still in its nascent stage in India, many industry leaders believe the sector will continue to grow.
What is REIT?
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.
Structure of REIT
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.
Criteria to qualify as a REIT
Here are some criteria that a REIT needs to meet to qualify as REIT per SEBI guidelines 2019:
Advantages of REIT over traditional real estate investment
How to invest in REIT in India
Embassy Business Park REIT, Mindspace Business Parks REIT, and Brookfield India REIT are the three listed REITs in India. The number of REITs may increase in the coming years.
You can invest in REITs and buy units like regular stock. SEBI has stated that they should reduce the minimum investment amount in a REIT to Rs.10,000-15,000, with a revised trading lot of one unit. Earlier, the minimum investment amount was Rs.50,000, with a secondary market trading lot of 200 units.
You can get exposure to REIT by investing in REIT mutual funds. Currently, you can invest in the Kotak International REIT fund and get the benefits of investing in Indian and international REITs.
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, it would be best to talk with your financial advisor before investing in a REIT.
This blog is purely for educational purposes and not to be treated as personal advice. Mutual funds are subject to market risks, read all scheme-related documents carefully.
We at “Desai Wealth” focus on managing the wealth of our beloved clients in the form of Mutual funds, Life insurance, and Health & General insurance.
We believe that everyone has some goals in their life and has future plans. And with the help of financial investments, those goals are achieved.
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