InvestorQ : What are these REITs and INVITs that have been recently permitted by SEBI and are they good investment vehicles?
sara Kunju made post

What are these REITs and INVITs that have been recently permitted by SEBI and are they good investment vehicles?

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rhea Babu answered.
2 years ago
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India has been behind in the launch of REITs and INVITs and although the regulations were first passed more than 5 years back, they actually got regulatory clarity only in the last 1 year. But what exactly are these products? There has been a long-standing demand from the real estate sector in India for the introduction of Real Estate Investment Trusts (REITs) and the Infrastructure Investment Trusts (InvIT). While they were first permitted a few years back, they did not take off due to ambiguity of tax treatment of pass through payments. Recently, the government has clarified on the status of pass-through payments in case of REITS and InvITs as also it has permitted mutual funds and banks to invest in these instruments; of course subject to certain pre-defined limits.

Let us look at the concept of REIT and INVIT first and its implications?

A REIT is a kind of a real estate mutual fund. Just as a mutual collects money from unit-holders and then invests them in equities or debt instruments, a REIT will collect money from investors and invest the money in real estate projects. The REIT will then invest such moneys into fully completed and unfinished real estate projects. Whatever returns are generated on these real estate investments are then distributed to the REIT investors in the form of dividends. Most of the REITS are medium term gestation projects.

InvITs are a slight variation of the REIT in that InvITs only invest in infrastructure projects with long gestation periods. Thus a massive road project or highways project or even massive irrigation projects can attract InvITs to invest in them. It may be noted that IRB Infra has recently proposed to launch an InvIT and raise funds from the public for the same. Whatever returns that are generated by the infrastructure project in the form of toll charges will be distributed to the InvIT investors in the form of dividends.

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