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Team LXME

Investing in Real Estate

Owning a land/property may be one of the goals for many investors but not everyone will have a huge sum of money to invest in real estate in a traditional way. This is where REITs and InvITs come into play: These are similar to Mutual funds as they pool in money from various investors and then the trust invests it into real estate/infrastructure projects. Let’s get to know REITs and InvITs a little better.

REITs stands for Real Estate Investment Trusts

It allows investors to invest in large scale real-estate and they get the ownership in properties as per their share. They earn money by the way of rental and lease income, sale of properties, etc. Investors earn by way of dividends and capital appreciation.

InvITs stands for Infrastructure Investment Trusts

This allows investors to invest money into infrastructure projects in sectors like power and telecom, transportation, energy, etc. The revenue generated by the trusts is distributed as dividends among the investors.  

Advantages of REITs and InvITs:

  • Funds collected are professionally managed 
  • Gives an investor an option to invest in large-scale commercial real estate with a small amount of money
  • Suitable for long-term investors looking forward to diversifying their portfolio by investing in real estate.
  • Highly Liquid as compared to traditional real estate investment

Disadvantages of REITs and InvITs:

  • Not suitable for Investors having low-risk appetite and short term goals
  • No tax benefits on the dividends earned 
  • It’s a market-linked instrument so the returns are not fixed.

Securities and Exchange Board of India(SEBI) has reduced the minimum subscription limit for retail investors of REITs and InvITs. Now the minimum amount will be within the range of Rs.10000-15000 instead of Rs.50,000, and the trading lot size has also been reduced to one unit instead of 200. This revision in rules by SEBI will allow more people to have access to such investment instruments and they can diversify their portfolio accordingly. 

Few things you must look for before investing in REITs and InvITs are strong management, earnings of the trust, and quality of properties and tenants. Most importantly, we urge you to spend some time doing proper research before making any decision.  

Happy Investing!

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