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:

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)