Reit vs Invit

Both REITs and InvITs are investment vehicles, pooling funds from numerous investors and managed by a sponsor or trustee. REITs primarily invest in completed and ongoing real estate projects, while InvITs concentrate on infrastructure ventures such as highways, power plants, roads, warehouses, and various other projects. As the Indian investment market matures and more investors enter in, the number of investment opportunities has broadened significantly. Newer and more sophisticated investment instruments are being explored to meet the diverse needs of the modern investor.

Amongst these vehicles, Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs) have attracted significant attention from the investor community.

REIT and InVIT help you invest in large-scale and high-value projects for capital growth and steady returns.

However, these vehicles come with their complexities. Hence, it is important to know the differences between REIT and InVIT so you can navigate the evolving market in a better way.

What are REITs?

REITs known as Real Estate Investment Trusts are companies that pool money from investors to own and operate income-generating real estate like offices, malls, workspaces, residential, healthcare, etc.

Similar to mutual funds, individuals invest their money in REITs for regular income generation and long-term capital appreciation. This provides an easy way to enter the real estate market and diversify your portfolio. REITs make money either through rental income or from profits derived from selling properties in the portfolio.

REITs are required by law to distribute dividends annually in the form of dividends from 90% of their taxable income - making them an attractive option for investors. They are also required to make 80% of their investments in commercial properties.

Example of REITs

The Embassy Office Parks REIT was launched in 2019 as a joint venture between the Embassy Group and Blackstone; this was India’s first publicly traded REIT. This REIT covers prime commercial office spaces in top IT cities like Bengaluru, Pune, Mumbai, and Noida.

Mindspace Business Parks REIT was established by K Raheja Corp and Blackstone, in 2020. Its portfolio boasts of high-quality office spaces in key economic cities like Mumbai, Hyderabad, Pune, and Chennai. This REIT is known for hosting a diverse array of tenants, including multinational corporations and prominent Indian companies.

By investing in these REITs, individuals can participate in the commercial real estate market of India and earn rental income generated by leasing out office spaces to reputable brands and companies from across the world.

What are InvITs?

InVITs are known as Infrastructure Investment Trusts that own and operate infrastructure assets like highways, roads, power plants, telecom facilities, fiber optic networks, etc.

They too are collective investment schemes similar to REITs but they invest in infrastructure projects.

With InVITs, a retail investor gets the opportunity to further diversify their portfolio by investing in large-scale nation-building projects that were earlier available to only institutional investors.

InVITs distribute almost 90% of their cash flows amongst their investors periodically making them a stable investment option for regular income-seeking individuals.

Example of InVITs

The IndiGrid InVIT invests in operating power transmission grids and assets across India. Through this investment, it provides stable returns and a predictable cash flow to its investors. This is made possible by facilitating long-term agreements with Central and State governments.

Another prominent InVIT is the one offered by IRB whose primary focus is investing in roads and highway projects across India to promote connectivity and transportation. By investing in IRB InvIT, investors can gain exposure to India's infrastructure sector and potentially benefit from stable cash flows generated by toll collections on these road assets.

A lot of investors use REIT and InVIT interchangeably. Although the basic structure and operation remain quite the same, the investing styles for both are significantly different:

Difference between InVIT and REIT

Here are some of the differences between InVIT and REIT:

Which is a better option REIT and InvIT?

Whether to opt for a REIT or InVIT depends on

• Financial goal of the investor
• Risk appetite
• Investment horizon

When it comes to returns, both REIT and InvIT distribute about 90% of their income and offer attractive yields.

However, the stability of returns might be generally higher with REITs due to the more predictable nature of rental income, whereas InvITs can offer higher but potentially more volatile returns. Choosing between InVIT and REIT should depend on the investor’s comfort with risk and return, the current economic environment, and the future outlook for real estate and infrastructure sectors.

Ultimately, both InVIT and REIT are useful for diversification and income generation, but they cater to slightly different investment preferences and risk appetites.

Conclusion

Both InVIT and REIT provide unique opportunities and challenges.

Understanding the differences between them is crucial in determining the right investment vehicle based on personal financial goals, risk appetite, and the economic environment. As always, potential investors should conduct thorough due diligence or consult with financial advisors to choose the investment that best suits their portfolio.

However, if you are unsure about investing in either a REIT or InVIT, then you can always come back to investing in mutual funds.

The Bajaj Finserv Mutual Funds Platform makes investing in mutual funds a breeze. You can browse through over 1,000 mutual fund schemes and also compare mutual funds to find the one that aligns with your risk tolerance. You can then make a lumpsum investment amount in that fund or even start a SIP investment.

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