Differences between REIT and InvIT in India

In 2014, the Securities and Exchange Bureau of India (SEBI) introduced both REIT and InvIT in India as alternate investment options. Currently, the Indian economy depends significantly on infrastructure-based sectors such as real estate, and there is a high potential for considerable gains. Therefore, understanding the role of InvIT and REIT in the Indian investment setting would be beneficial. 

What Is a REIT?

REITs or Real Estate Investment Trusts are investment tools similar to mutual funds that pool several  real estate assets for investment. These trusts own and manage the real estate properties, which generate rental income that allows the investment trust to distribute profits. 

REITs are a suitable investment for steady income at relatively low risks. If you want to diversify your investment portfolio in real estate, REIT can be an effective vehicle. 

What Is InvIT?

Infrastructure Investment Trusts, or InvITs, are similar to REITs in that they pool money from various investors to purchase infrastructure assets that generate income. These trusts mainly finance infrastructure projects such as roadways, power plants, transmissions, warehouses, etc.

InvITS pays its investors through dividends, interest and capital appreciation. Therefore, they are a good  option for investing in high-expense projects at a low cost. While REITs generate rental income from real estate, InvITs generate income from capital appreciation and cash flow from infrastructure projects.

What Are the Differences between REIT and InvIT?

The nature of investment for both REIT and InvIT are quite similar. However, before investing, you must understand the basic differences between the two to make an informed decision.

The following table demonstrates the basic 10 differences between InvIT and REIT based on different factors:

Aspects of DifferenceREITInvIT
Investment sectorInvests in real estate investments such as, corporate offices, retail malls, data centres, shopping malls, etc.Invests in infrastructure projects such as roads, highways, power plants, environmental, transmission and renewable energy projects, etc.
Minimum investment amount  The minimum investment amount used to be ₹  50,000. Now, it ranges between ₹  10,000 and ₹  15,000.The minimum investment amount used to be ₹  1,00,000. Now, it is between ₹  10,000 and ₹  15,000.
Flow of incomeThe income generation of REITs comes from rents paid by tenants of the real estate properties. InvITs gain income from the operational status of the infrastructure  projects. It depends on the tariffs and usage of these properties. E.g Toll collection from toll roads etc.
Level of riskREITs mainly invest in corporate office properties or reputable residential complexes with long-term leases. Therefore, regulatory and political risks are low. It also lowers the chances of defaulters.InvIT investments have a higher risk as they mainly invest in developmental projects such as public welfare and utilities. These projects can get delayed or rejected due to regulatory changes. They are also subject to political risks, protests, misuse, and low-income generation.  
Sector knowledge and participation of the investorThe real estate sector is comparatively more researched and known to investors, which leads to more retail participation.Not many people have sector knowledge regarding developmental and infrastructure projects. Therefore, it witnesses lower retail participation.
Investment liquidityHigher liquidity due to lower share price and lower minimum requirement for buying units.Lower liquidity due to a lower recognition and less familiarity about infrastructure within the investors.
Ownership of assetsREITs have ownership interests in  real estate assets or long-term leases on such properties.InvITs get part ownership of the properties held by the infrastructure trust, which are given back to the authority after the project or contract is completed.
Growth prospectsREITs have a higher growth prospect as they can remodel, refurbish, and add  to their existing properties. They also have  control and firm predictability over their revenue generation through lease extensions, increasing rents, etc.InvITs, on the other hand, have less control over their income generation. Income depends on the tolls it collects and its usability. Moreover, its growth also depends on how much lower the bids get when  acquiring projects and many such factors. 
Regulatory bodyREITs are regulated by SEBI under Real Estate Investment Trust Regulations, 2014. InvITs are regulated by SEBI under Infrastructure Investment Trust Regulations, 2014. 
Listing regulationsr REITs must  be publicly listed.InvITs can be publicly listed, privately listed or privately unlisted.

REIT or InvIT – What to Choose?

Both REITs and InvITs allow you to make smaller investments on big and expensive real estate projects through your Demat account. They also ensure regular income through dividends, making them an attractive option.

However, if you plan to invest, the choice  between InvIT and REIT majorly depends on your investment objective and level of risk tolerance. .

For instance, REITs offer more liquidity than InvITS. However, in terms of risks, InvIT investments are more likely to be affected by political and regulatory decisions as they are concerned with developmental projects. . Therefore, REITs are comparatively a safer option if you are looking for a low-risk investment. 

InvITs, on the other hand, invest in high-quality assets with assured cash flow suitable for annuities. Suppose the regulatory and political environment is reassuring and the usage and tariff of these assets are decent. In that case, you can get high returns on  your investment for a long time.

Nevertheless, you must assess the credibility of the trusts and the assets they hold before investing to ensure regular and quality returns. 

The scope of REIT and InvIT in India

The future prospect of REITs in India is bright due to the rising demand for commercial space  and other real estate properties.. Therefore, this also affects the REITs’ business. As the price of real estate assets increases with increased demand, the profits also increase. 

InvITs,  future prospects   rely  on the need for developmental infrastructure in India. Currently, India requires  better roads and transportation facilities, which  opens a huge scope for investment sectors. However, a number  of people are less comfortable investing here due to comparatively higher risks. 

Final Thoughts 

Both REITs and InvITs are affordable and relatively low-cost investments in real estate. SEBI, the Indian Government and other regulatory bodies have played a significant role in promoting these trusts as they have a great potential for investors and  the country’s overall infrastructure. 

However, before you participate in either  of the two, it is suggested that you go through their assets holdings, credit rating, and reputation to ensure a smart investment plan.

Frequently Asked Questions (FAQs)

What are the limitations of REIT?

REITs have the following limitations:
Exposure to market risks
Lower options
Capital appreciation is low

How much of REITs and InvITs generated income gets distributed among investors?

Both REITs and InvITs distribute 90% of their income to investors through dividends  and interest.

How many types of InvITs are there?

There are five types of InvITs in India as per SEBI regulation:
The energy sector, such as power generation plants and distribution networks
Communications sector, such as optical fibre networks, telecommunication towers etc.
Transportation and  logistics, such as operating highways, bridges and other toll roads
Social and commercial infrastructure, such as public bathrooms and parks
Water and sanitation sector, like irrigation networks

Are REITs and InvITs publicly listed?

REITs are mandated by SEBI to be publicly listed, whereas InvITs  can be either publicly or privately listed.

Jatin is an Investment Professional in the making with expanding expertise in the debt and equity markets. He has completed his Bachelor of Technology in Civil Engineering from the Manipal Institute of Technology. He has helped build Wint Wealth in various capacities ranging from being a member of the Investor Relations Team to contributing actively at the Founder's Office. He has been an integral part of the Assets Team for about a year now.

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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The article may also contain information which are the personal views/opinions of the authors. The information contained in this article is for general, educational and awareness purposes only and is not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision, whether related to investment or otherwise, taken on the basis of this article.

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