In this article, you will know the primary difference between REITs and InvITs in India in the simplest way. You will know which investment is the best investment in terms of cash flow and for a long-term view to growing your initial capital.
REITs and InvITs in India – The Differences
Here is the list:
- What is a real estate investment trust (REIT)
- What is Infrasture investment trust (InvIT)
- REITs versus InvITs
- What is the best for a beginner investor
- How to Invest
But first, let’s learn how REIT and InvIT work, and then we shall compare them accordingly.
What is a Real Estate Investment Trust (REIT)?
Real Estate Investment Trusts are similar to mutual funds. Money is taken from investors and invested in revenue-generating commercial or residential properties. The rental income generated from the properties is then distributed among investors.
You can purchase units of the REIT via the stock market just like the stock you want to invest in. All you need is a Demat account and a bank account connected to it and you are ready to trade in a REIT.
There are lots of REIT investments in every country in the world. In India, there are three and those are:
- Mindspace REIT
- Brookfield REIT
- Embassy REIT
All the had an IPO last year during the time of the pandemic and they ae raised good money. And also the Government made some changes to attract investors to invest in REITs.
What Qualifies as REIT?
To qualify as a REIT, a company must meet several criteria:
- Invest at least 75% -80% of assets in real estate.
- Derive at least 75% – 85% of gross income from rents.
- Pay at least 90% of the distributable dividend to the shareholders.
- Be a taxable corporation.
- Be managed by a trustee.
All these criteria can vary in every country but the rules are similar almost.
Here are the ten largest REITs based on the market cap as of March 2022.
- Prologis ($116.4B)
- American Tower ($109.8B)
- Crown Castle ($76.8B)
- Public Storage ($65.9B)
- Equinix ($64.4B)
- Simon Property Group ($48.9B)
- Welltower ($43.0B)
- Digital Realty ($40.1B)
- Realty Income ($40.1B)
- AvalonBay Communities ($34.6B)
These are the basics of REIT investment. Now move on to the InvITs.
What is a Infrastructure Investment Trust (InvIT)?
An infrastructure investment trust is not too far from REIT. Very similar to a REIT, but they invest in different things, not on commercial or residential properties, and collect rental income.
Here the money is invested in infrastructure projects like roads, power plants, transmission lines, pipelines, etc. If the business performs well, you get the earnings every year, sometimes after five years.
InvITs are a form of long-term investment. You need to be patient in order to earn good money in the process. There are more InvITs than REITs in the world. In India, there are more than 15 SEBI-registered InvITs. Some of them are:
- POWERGRID Infrastructure Investment Trust
- IRB InvIT Fund
- Indian Highway Concessions Trust
- India Infrastructure Trust
- India Grid Trust
- HIGHWAYS INFRASTRUCTURE TRUST
- Digital Fibre Infrastructure Trust.
- Data Infrastructure Trust
- Shrem Invit
SEBI says it has more than 18 InvITs registered with them. You can buy these via the stock market, just like a stock. And then sell it for profit, or you can earn dividends over time. The choice is yours.
It’s all about choice, as they say. But the difference might shock you. InvITs are not that popular outside India, but in terms of return, I think they may surpass REITs, as the data says.
REITs and InvITs – The Difference
Here is the few main difference between REITs and InvITs in India.
- The main difference is that it can give you a wonderful dividend over 15 -20 years without any fluctuations. The contracts for Power Grids, Roads, and other infrastructure projects take time. That’s why it is very stable in terms of cash flow.
- But the dividend coming from REITs may vary every year because of the quick demand and supply in the occupancy rate. A downfall in the property occupancy rate might cause a lower dividend.
- InvITs have proven to give more return than REITs in the long term as some Indian InvITs gave around 18% return on their investor’s money what REITs are grown at 15% -20% annually. This is one of the main differences that InvITs are getting popular in India because of the ROI.
- Plus, the Government is reducing the investment boundary and encouraging people to buy InvITs and REITs. Because they want to boost this sector also.
So, these are all the differences. Now let’s understand, what is the best choice for a beginner investor who knows nothing about these two investments.
REITs and InvITs – Where to Invest?
Here are some points you must consider before investing in any of them.
- InvITs are the best investment for the long term for about 10 – 20 years view, and REITs are the best investment for a short term view for about five years.
- Both will give you 90% of their distributable dividend once or twice a year. That is the best thing about these two.
- It gives you a better opportunity for diversification as an individual investor.
- Very less competition. It can benefit you as a beginner.
- A liquid investment. You can sell them in seconds, not unlike a physical property that takes over a month to sell.
- All these stocks are regulated by SEBI in India and in other countries their stock exchange platforms.
- A perfect choice for diversification.
Create a plan on how to enter, and exit the investment in any one of them. The ‘Entry and The Exit’ is the backbone of any investment. Before you invest a single penny of yours, create a strategy, and enter the market.
Otherwise, you might not get the desired profit you want, or even you will lose money, as every beginner does. They never make plans. They invest and pray to God to help me. Remember, God will help those who help themselves.
So that’s all for REITs and InvITs in India. I am not recommending you invest in either of them. It’s up to you. But, before you invest, please do your research. So that your money can grow.
Frequently Asked Questions (FAQ)
What is the main difference between REITs and InvITs?
REITs are the best investment for a short-term view for about five years, and InvITs are the best for the long term for about 10 – 20 years view.
What are the best REITs in the world?
Prologis ($116.4B), American Tower ($109.8B), and Crown Castle ($76.8B) are considered the best REITs in the world.
What are the best InvITs in the world?
Powergrid infrastructure investment trust, IRB InvIT fund, and Indian highway concessions trust are considered the best InvITs.