BAJAJ BROKING
February 24, 2025
12 mins read
Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are financial instruments that enable investors to participate in large-scale commercial real estate and infrastructure developments. While both function similarly to mutual funds by pooling capital from multiple investors, they differ in terms of asset types and revenue generation.
REITs focus on commercial real estate, such as office spaces, shopping malls, and hotels, generating income primarily through rent. On the other hand, InvITs invest in infrastructure projects like highways, power plants, and gas pipelines, earning revenue through tolls or service charges. Both REITs and InvITs are regulated by SEBI and mandated to distribute 90% of their income to investors, ensuring steady cash flows.
Understanding the difference between REITs and InvITs is crucial for investors looking to diversify their portfolios. By evaluating their financial goals and risk appetite, investors can determine whether REIT vs InvIT aligns better with their investment strategy.
Real Estate Investment Trusts (REITs) are investment entities that own, manage, and operate income-generating real estate assets. These trusts function similarly to mutual funds, pooling capital from multiple investors to invest in commercial real estate such as office spaces, malls, hotels, and warehouses.
REITs provide investors with an opportunity to earn passive income through rental yields and capital appreciation without directly owning physical properties. SEBI mandates that at least 80% of a REIT’s investments be in completed and revenue-generating properties, ensuring stability. Additionally, REITs are required to distribute 90% of their income as dividends, making them an attractive option for investors seeking regular returns.
By offering liquidity through stock market trading, REITs enable retail investors to participate in the real estate sector with minimal capital, making them an accessible and regulated investment avenue.
In India, Real Estate Investment Trusts (REITs) offer investors access to premium commercial real estate. Embassy Office Parks REIT, launched in 2019, was the country’s first publicly listed REIT. It owns and manages office spaces leased to multinational corporations in cities like Bengaluru, Mumbai, and Pune.
Another major REIT is Mindspace Business Parks REIT, introduced in 2020 by K Raheja Corp and Blackstone. It holds a diversified portfolio of office spaces across Mumbai, Hyderabad, Pune, and Chennai, generating stable rental income.
Additionally, Brookfield India REIT focuses on large-scale commercial assets, ensuring consistent returns for investors. These REITs allow retail investors to benefit from real estate investments without direct ownership, ensuring liquidity and steady income generation. By investing in REITs, individuals can gain exposure to India's growing commercial property market.
Infrastructure Investment Trusts (InvITs) are investment vehicles that pool funds from multiple investors to own and operate income-generating infrastructure assets. These assets include highways, roads, power transmission networks, gas pipelines, and other large-scale projects essential for economic growth and connectivity.
Like Real Estate Investment Trusts (REITs), InvITs are regulated by SEBI and must distribute 90% of their net distributable cash flows to investors, ensuring a stable source of income through dividends while allowing long-term capital appreciation.
InvITs provide retail and institutional investors with exposure to infrastructure projects that were previously limited to large financial institutions. They allow investors to diversify their portfolios and participate in the development of critical infrastructure. With long-term contracts from government and private entities, InvITs generate predictable cash flows, making them an attractive option for those seeking stable returns.
In India, several reits and invits have emerged as viable investment options, offering exposure to large-scale infrastructure projects. IndiGrid InvIT, launched in 2017, focuses on power transmission assets across India, ensuring stable returns through long-term agreements with state and central utilities.
Another major InvIT is IRB InvIT, which primarily invests in toll road projects across India. It allows investors to benefit from steady toll-based revenue streams, ensuring long-term income stability and predictable returns.
Additionally, PGInvIT manages gas pipeline infrastructure, offering investors exposure to India’s growing energy sector. Understanding the difference between reits and invits is crucial for investors seeking diversification. The reit vs invit comparison highlights how these investment vehicles provide liquidity, diversification, and consistent cash flows, making them attractive options for long-term investors.
The difference between REITs and InvITs is primarily based on the type of assets they invest in, their revenue sources, risk levels, and market liquidity. Both REITs and InvITs serve as investment instruments, pooling funds from multiple investors to develop and manage assets, but they cater to different financial objectives. The table below provides a REIT vs InvIT comparison to help investors make informed decisions.
Category | REITs (Real Estate Investment Trusts) | InvITs (Infrastructure Investment Trusts) |
Investment Focus | Invests in income-generating commercial real estate, such as office spaces, malls, hotels, and business parks. | Owns and manages operational infrastructure assets like roads, power grids, pipelines, telecom towers, and renewable energy plants. |
Revenue Model | Earns income primarily through leasing properties to tenants and collecting rent. | Generates revenue from toll collections, user fees, and long-term service contracts for infrastructure assets. |
Regulatory Requirements | SEBI mandates that at least 80% of REIT investments be in completed and income-generating properties, with 90% of earnings distributed as dividends. | SEBI requires InvITs to allocate at least 80% of their funds into completed infrastructure projects, with 90% of net cash flows distributed to investors. |
Market Risks | Subject to fluctuations in real estate prices, rental demand, interest rate changes, and economic downturns. | Exposed to infrastructure-related risks, including regulatory changes, project delays, demand variability, and political influence. |
Liquidity | Higher liquidity as REIT units are actively traded on stock exchanges with relatively lower entry costs. | Lower liquidity since infrastructure investments are long-term in nature and involve larger capital commitments. |
Minimum Investment | ₹50,000 per lot as per SEBI guidelines, making it more accessible for retail investors. | ₹1 lakh per lot under SEBI regulations, requiring a higher capital commitment from investors. |
Taxation | Dividends from REITs are taxable based on the investor’s applicable income tax slab. Capital gains tax applies if units are sold within a year. | Income from InvITs is taxable based on distribution components, including dividends, interest, and capital gains. |
Growth Strategy | Growth occurs through property acquisitions, asset redevelopment, and leasing expansion to increase rental income. | Expansion is driven by securing new infrastructure concessions, bidding for government projects, and acquiring operational assets. |
Risk-Return Tradeoff | Offers relatively stable and predictable rental income with moderate capital appreciation. | Provides higher return potential but is susceptible to fluctuations based on infrastructure project performance. |
Investor Profile | Suitable for conservative investors looking for steady rental yields and capital appreciation. | Best suited for investors willing to take on more risk for potentially higher, albeit less predictable, returns. |
Investing in REITs and InvITs provides multiple advantages for investors looking to diversify their portfolios. These investment instruments offer stable returns, liquidity, and access to high-value assets. Below are the key benefits of investing in these asset classes:
Diversification of Portfolio: REITs and InvITs allow investors to diversify their portfolios by gaining exposure to real estate and infrastructure assets without direct ownership. They reduce risk by offering investment options beyond traditional equity and fixed-income securities.
Regular Income Generation: Both investment vehicles distribute at least 90% of their earnings, ensuring steady cash flow for investors. REITs generate income primarily through rental yields, while InvITs earn from tolls, service charges, and long-term contracts.
Lower Capital Requirement Compared to Direct Ownership: Unlike buying physical real estate or infrastructure projects, REITs and InvITs allow retail investors to participate in high-value asset markets with lower capital investment. The SEBI-mandated minimum investment for REITs is ₹50,000, while for InvITs, it is ₹1 lakh, making them more accessible than direct property ownership.
Liquidity and Easy Exit: Since REITs and InvITs are traded on stock exchanges, investors can easily buy or sell units: This liquidity makes them more attractive compared to traditional real estate investments, which require time-consuming sales processes.
Professional Management: Both REITs and InvITs are managed by experienced professionals who ensure asset performance and compliance with regulatory requirements. This helps investors avoid the complexities of managing real estate or infrastructure projects directly.
Potential for Capital Appreciation: Over time, commercial real estate and infrastructure projects appreciate in value, benefiting investors through both rental income and asset price growth. With increasing demand for commercial spaces and infrastructure expansion, the long-term potential remains strong.
Regulatory Oversight and Transparency: SEBI regulations ensure that REITs and InvITs follow strict operational and disclosure norms, reducing risks associated with fraud or mismanagement. Investors receive regular updates on asset performance, ensuring transparency.
Hedge Against Inflation: Real estate and infrastructure assets often increase in value over time, protecting investors from inflation. Rental income and toll revenues generally rise with inflation, maintaining purchasing power.
Tax Benefits: Some distributions from REITs and InvITs may be tax-exempt, depending on the structure of payouts. Investors can also benefit from indexation on capital gains when holding these assets for the long term.
By understanding the benefits, investors can assess how REITs and InvITs fit into their financial goals. These instruments offer a balanced mix of stable income, growth potential, and liquidity, making them an attractive option in the evolving investment landscape.
While REITs and InvITs offer numerous benefits, they also come with inherent risks that investors must consider before investing. Below are the key risks associated with these investment vehicles:
Market and Economic Risks: The performance of REITs and InvITs is influenced by broader economic conditions, including GDP growth, inflation, and interest rates. Economic downturns can reduce demand for commercial real estate and infrastructure usage, affecting revenue generation.
Interest Rate Sensitivity: Fluctuations in interest rates impact both REITs and InvITs by influencing investor preferences and financing costs. REITs may see reduced demand when interest rates rise, as investors shift to higher-yield fixed-income options. InvITs face similar challenges, as rising interest rates increase debt costs for infrastructure projects, potentially reducing profitability and investor distributions. Managing interest rate risks is crucial for maintaining stable returns in both investment vehicles.
Regulatory and Policy Risks: Both REITs and InvITs are governed by SEBI regulations, but changes in policies, taxation, or compliance requirements can impact their profitability. InvITs, in particular, are subject to government policies on toll pricing, infrastructure development, and subsidies, which can affect cash flows.
Liquidity Risks: While publicly listed REITs and InvITs offer liquidity, market demand can fluctuate, making it difficult to sell units at the desired price. InvITs tend to have lower trading volumes compared to REITs, which can result in higher volatility.
Operational and Management Risks: The performance of REITs and InvITs depends on how effectively their assets are managed. Poor asset selection or inefficient management can reduce returns. Infrastructure projects under InvITs require constant maintenance and operational efficiency, which, if mismanaged, can lead to revenue losses.
Tenant and Occupancy Risks (For REITs): REITs rely on tenants to generate rental income. If occupancy rates decline due to economic conditions or industry downturns, cash flows may be affected. A high concentration of tenants from a specific industry can increase vulnerability if that sector experiences a slowdown.
Project-Specific Risks (For InvITs): InvITs invest in infrastructure projects that carry execution risks, such as construction delays, cost overruns, and project failures. If a project does not generate the expected revenue due to lower traffic (for roads) or reduced demand (for utilities), investor returns can suffer.
Market Volatility and Price Fluctuations: REITs and InvITs are traded on stock exchanges, making them susceptible to market sentiment and price fluctuations. Economic crises or market corrections can lead to sharp declines in their unit prices.
Currency and Inflation Risks: Inflation can increase operational costs for both REITs and InvITs, potentially reducing their net distributable income. Currency fluctuations may impact foreign investors in Indian REITs and InvITs, affecting their overall returns.
Default and Credit Risks: InvITs depend on long-term contracts and concession agreements with government or private entities. If counterparties default on payments, revenue generation may be impacted. REITs that hold leveraged properties face credit risks if debt obligations exceed sustainable levels.
Investors should carefully evaluate these risks when considering investments in REITs and InvITs. While both vehicles offer attractive returns, they require thorough due diligence and an understanding of market conditions before committing capital.
Investing in REITs and InvITs in India has become more accessible with their listing on stock exchanges. These investment vehicles allow individuals to gain exposure to real estate and infrastructure projects without directly owning physical assets. Below is a step-by-step guide on how to invest in REITs and InvITs in India.
Choose a Suitable Investment Route: Stock Exchange: Publicly listed REITs and InvITs can be bought and sold like shares on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Initial Public Offerings (IPOs): Investors can subscribe to IPOs when new REITs and InvITs are launched, usually at a predetermined price.
Open a Demat and Trading Account: To invest in REITs and InvITs, a Demat and trading account with a SEBI-registered brokerage is required.
Analyze Available REITs and InvITs: Before investing, research existing REITs and InvITs in India. Some prominent REITs include Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India REIT. For InvITs, investors can explore options like IndiGrid InvIT and IRB InvIT, which focus on power transmission and road infrastructure.
Evaluate Investment Parameters: Assess factors such as dividend yield, historical performance, asset portfolio, occupancy rates (for REITs), and revenue sources (for InvITs). Compare liquidity, minimum investment requirements, and risk-return potential before making a decision.
Invest Through the Stock Market: Log into the trading platform and search for listed REITs and InvITs by their stock ticker. Place a buy order based on the preferred quantity and available funds.
Monitor Performance and Market Trends: Track REIT vs InvIT performance based on dividend payouts, unit price movements, and financial reports. Stay updated with economic and regulatory changes that might impact the returns on these investments.
Investing in REITs and InvITs is an excellent way to diversify a portfolio while gaining exposure to India’s growing real estate and infrastructure sectors. However, investors must conduct thorough research and assess their risk appetite before making an investment decision.
Both REITs and InvITs are structured investment options that provide investors with exposure to real estate and infrastructure assets without requiring direct ownership. REITs generate income through rental earnings from commercial properties, while InvITs derive revenues from operational infrastructure projects such as toll roads, power grids, and pipelines.
A thorough understanding of the difference between REITs and InvITs is crucial for making informed investment decisions. The REIT vs InvIT comparison shows that REITs offer stability and steady rental income, whereas InvITs provide the potential for higher but more volatile returns based on infrastructure demand and regulatory factors.
As India continues expanding its commercial real estate and infrastructure sectors, REITs and InvITs will remain attractive investment opportunities. By evaluating asset portfolios, liquidity, income distribution policies, and associated risks, investors can effectively use these instruments for portfolio diversification, steady income, and long-term financial growth. Additionally, with SEBI regulations ensuring transparency and structured cash flow distribution, these investment vehicles provide a regulated and structured way to gain access to large-scale assets.
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Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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The minimum investment for REITs is ₹50,000 per lot, while for InvITs, it is ₹1 lakh per lot, as per SEBI guidelines. This ensures accessibility while maintaining investment discipline.
REITs earn income through rental payments from commercial properties such as office buildings and malls. They must distribute at least 90% of their earnings as dividends, ensuring regular returns for investors.
No, InvITs do not offer guaranteed returns. Their income depends on infrastructure project revenues, demand, and regulatory factors. While they distribute 90% of their net cash flows, external risks can impact payouts.
Yes, individual investors can buy and sell REITs and InvITs through stock exchanges using a Demat and trading account. Both investment options are available for retail and institutional participation.
Dividends and interest income from REITs and InvITs are taxed as per the investor’s income slab. Capital gains tax applies, with rates varying based on short-term or long-term holding periods.
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