Advantages of REITs
Regular income: REITs typically pay high payout ratios — attractive for income seekers.
Diversification: Access to large commercial assets across locations and sectors.
Liquidity: Listed REIT units can be bought/sold like stocks.
Transparency: SEBI-regulated disclosures and audited financials.
Professional management: Day-to-day operations handled by experienced managers.
Use REITs for inflation-linked rental income, and park short-term savings in an FD for liquidity and safety. Check latest rates.
How does a company qualify as a REIT?
To be a REIT, entities must meet SEBI criteria, including structure (trust/corporate), minimum income from real estate, distribution norms (large portion of taxable income distributed), minimum public shareholding, and portfolio constraints (majority in income-yielding commercial assets).
Types of REITs
Equity REITs: Own and operate income-producing properties (most common).
Mortgage REITs: Invest in property debt and mortgage securities.
Hybrid REITs: Combine equity and mortgage assets.
Public vs Private: Public REITs are listed; private REITs are not.
The regulatory framework for REITs in India
SEBI introduced REIT guidelines (2007, updated 2014). Indian REITs follow a three-tier structure: Sponsor (sets up the REIT), Manager (runs assets), and Trustee (safeguards investor interests). SEBI rules mandate listing, minimum asset composition (majority income-generating commercial property), and minimum distribution of rental income to unitholders.
While you evaluate REIT portfolios and managers, consider laddering FDs across tenures at Bajaj Finance to keep some capital earning guaranteed interest while equities/REITs ride market cycles. Book FD.
Pros and Cons of investing in REITs
Pros
Cons
Market risk: unit prices fluctuate.
Income depends on occupancy and rental market.
Taxation can be less favourable than some tax-exempt routes.
Management fees and leverage can impact returns.
Taxation regulations for Real Estate Investment Trusts (REITs)
Dividends from REITs are taxable in the hands of the investor as per their income tax slab.
Capital gains: If units are held ≤ 1 year (equity-like STCG) taxed at 15%; >1 year taxed as LTCG (10% for gains over ₹1 lakh without indexation for equity-like treatment).
International FoFs: Different holding periods and tax rules apply. Always consult a tax advisor for specific implications.
Tips to assess Real Estate Investment Trusts
Analyse the portfolio: asset type, location, lease terms and tenant mix.
Check occupancy & rent rolls: stable tenants and long leases are favourable.
Review distribution history: consistent payouts indicate cash-flow health.
Evaluate leverage: high debt increases risk.
Scrutinize manager track record and governance.
If a REIT’s yield profile looks attractive but you're unsure about market volatility, allocate a portion to FDs (steady interest, simple planning) while keeping REIT exposure for yield upside. Explore FDs.
Who should invest in REITs?
Suitable for investors who want property exposure without hands-on ownership, seek regular income and accept market volatility. Not ideal for ultra-conservative savers who need capital certainty — those investors may prefer high-quality FDs.
