REITs (Real Estate Investment Trusts) and INVITs (Infrastructure Investment Trusts) are investment vehicles that allow investors to invest in real estate and infrastructure assets respectively, without owning the physical property.
Real Estate Investment Trusts (REITs) are pooled investment vehicles like mutual funds. However, the REITs, as the name suggests, invest in real estate. Thus, it is another way to invest in real estate. REITs are required to be listed, traded on stock exchanges, and can be bought and sold just like shares of any listed company.
The structure the REITs is similar to a mutual fund and there is a sponsor, a management company and a trust. The trust owns the real estate properties on behalf of the beneficiary unit-holders and is responsible for protecting the interests of the unit-holders. The management company is vested with the responsibility of managing the real estate portfolio. Such a tripartite structure provides safety for the investors.
The income for the REITs comes in the form of rental income from real estate investments as well as the capital gains on sale of such properties. The profit is derived after adjusting for various costs associated with the management of this real estate portfolio as well as the fees for various professionals including the management company and the trustees.
Infrastructure Investment Trusts (INVITs) are a type of investment vehicle that allows investors to invest in infrastructure projects. The main objective of INVITs is to provide retail investors with access to investment opportunities in infrastructure projects, which were previously only available to large institutional investors. INVITs offer investors the opportunity to invest in a diversified portfolio of infrastructure projects, which can provide stable income streams and potential capital appreciation over the long term. At the same time, it helps infrastructure projects tap into household savings.
INVITs are similar to mutual funds or REITs, but they invest in infrastructure assets like roads, power transmission lines etc.
INVITs are created by sponsors, who are typically infrastructure companies or private equity firms. The sponsor sets up the INVITs and transfers ownership of the underlying infrastructure assets to the trust. The trust then issues units to investors, which represent an ownership stake in the trust and thus the underlying assets.
Investors in INVITs can earn returns in two ways: through regular distributions and through potential capital appreciation. INVITs typically distribute most of their earnings to investors in the form of dividends, which can provide a regular income stream. In addition, if the underlying assets appreciate in value over time, investors can potentially sell their units for a profit.
Low ticket size: The investor can invest small amounts of money into these financial instruments.
Liquidity: As the units of REITs and INVITs are listed on stock exchanges, there is reasonable liquidity (an exit option) for both the existing investors and the new investors..
Transparency: The investor can easily know where the money is invested as well as what would be the fair value of the investment as the NAV is declared regularly..
Regulations: These are regulated by the Securities and Exchange Board of India (SEBI), which sets rules and regulations governing their formation and operation.