The InvITs and REITs are emerging funds which attract mutual fund manager’s fancy compared to the previous year. Mutual fund houses infused about INR 735 crore in real estate investment trusts (REITs) in H1 2020 (Jan-Jun) against INR 249 crore in H1 2019. On the other hand, fund managers have invested around INR 4,968 crore in H1 2020 which is less than 8% over the previous first six months in infrastructure investment trusts (InvITs).
In India, real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) are comparably new investment instruments, however these are highly popular in global markets. A REIT comprehends a portfolio of commercial real estate assets and InvIT encompasses a portfolio of infrastructure assets such as highways, power transmission, etc.
Mutual funds are investment tools which create a fund by pooling from large numbers of investors and invest in equity markets, debts, bonds, money market instruments. From February 2017 onwards, mutual funds were allowed to invest in REITs and InvITs.
The sudden spike of investments into REITs and InvITs resulted because prices in the real estate sector plunged throughout H1 2020 compared to the previous half-year. The lower interest rates and the battering economy amid coronavirus pandemic are forcing investors to hunt higher returns in different asset classes. The current economic context is attracting a considerable number of NRIs who are looking to buy property in India and many NRIs are moving back to India.
The attractive return on investment proposition caught the attention of fund managers towards InvITs and REITs. Historically, REITs since listed on the stock market has given a distribution yield of 8% and the price of the unit had appreciated by 20%, giving a total return of 28% in one year. According to the SEBI (Security Exchange Board of India), InvITs and REITs need to disseminate at least 90% of their incomes to unit holders. This makes them an appealing instrument for debts and hybrid mutual funds given the regular payout by these instruments.
Currently, the distribution yield of REITs is in the range of 7 – 8% and the case of InvITs yields are in double digits. As of now, Embassy Office Parks and Mindspace are the only two listed real estate investment trust (REITs). IRB InvIT Fund and India Grid Trust are the only two publicly listed InvITs and other privately placed InvITs are also available in the market.