REITs v/s infrastructure investment trusts: Which is better?
What's the story
Indian real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) offer unique opportunities for investors looking to diversify their portfolios. While both investment vehicles provide exposure to different asset classes, they have distinct characteristics that cater to varying investor preferences. Understanding these differences can help investors make informed decisions about where to allocate their funds. Here's a look at the key differences between Indian REITs and InvITs.
#1
Nature of assets managed
REITs mainly invest in income-generating real estate assets like commercial properties, office spaces, and retail centers. They focus on generating rental income from these properties. InvITs, on the other hand, focus on infrastructure projects such as roads, power plants, and telecommunications. They generate returns through the revenue generated from these projects. The choice between REITs and InvITs depends on whether you prefer real estate or infrastructure investments.
#2
Regulatory framework
Both Indian REITs and InvITs are regulated by the Securities and Exchange Board of India (SEBI). However, the regulatory frameworks differ slightly for each. REITs are required to distribute at least 90% of their net distributable income as dividends to unitholders. Similarly, InvITs also need to distribute a minimum of 90% of their income but have different guidelines regarding the management of funds and project disclosures.
#3
Yield potential
The yield potential of REITs is usually determined by the performance of the underlying real estate assets. Investors can expect yields in the range of six to eight percent annually. InvITs, on the other hand, can offer higher yields owing to the nature of infrastructure projects that often have long-term contracts guaranteeing steady cash flows. Yields for InvITs may range from seven to ten percent or more, depending on the project.
#4
Risk factors involved
Investing in REITs comes with risks like fluctuations in property values and occupancy rates affecting rental incomes. Economic downturns can impact demand for commercial spaces, leading to lower returns. On the other hand, InvITs come with risks related to project execution delays, regulatory changes in infrastructure sectors, and geopolitical factors affecting global supply chains.