Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are a new asset class that allows investors to invest in completed real estate and infrastructure assets with a small initial investment and plenty of liquidity.
To make REITs and InvITs more appealing to regular investors, the Securities and Exchange Board of India (SEBI) decreased the minimum application value and changed the trading lot for these developing investment vehicles to one unit on July 30.
Are InvITs good investment?
“InvITs can provide monthly income to investors with some insight on the expected cash flows, in addition to portfolio diversification.” Returns are currently returning greater than traditional fixed income products, according to Axis Bank’s Satheesh Krishnamurthy, head of private banking.
What is an InvIT?
An Infrastructure Investment Trust (InvIT) is similar to a mutual fund in that it allows modest sums of money from potential individual/institutional investors to be invested directly in infrastructure and earn a tiny share of the income as a return.
How do InvITs work?
InvIT is a business trust (like a REIT) that owns, runs, and maintains operational infrastructure assets and is registered with the market regulator. The cash flows generated by these long-term revenue-generating infrastructure assets are then allocated to unitholders on a regular basis.
InvITs are a type of hybrid investment that combines the advantages of both equity and debt. While the operating business model, like debt, helps deliver stable, predictable, and relatively low-risk cash flows, equity provides growth potential because returns are not fixed with a range of movement in the unit price.
- Because at least 80% of the investment must be placed in finished and revenue-generating projects, invITs are designed to offset under-construction risks in the infrastructure sector.
- The instrument strives to ensure consistent and predictable cash flows by distributing 90% of the net distributable cash flow to investors.
- These assets have long-term contracts that ensure a consistent cash flow over time–typically 15-20 years, depending on the underlying assets.
- They allow you to expand your business by adding more working projects and raising your yield.
- Like equities stocks, public InvIT units can be listed and exchanged on a stock exchange. SEBI, the market regulator, recently approved lowering the minimum application value for InvITs and REITs from INR 10,000 to INR 15,000, as well as lowering the trading lot size for InvITs to one unit. The move will allow these units to be traded on exchanges without any minimum investment requirements or lock-ins.
What is the difference between ETFs and REITs?
REITs (real estate investment trusts) are corporations that own and operate real estate in order to generate income. REITs, which reflect ownership of a single real estate corporation, can be purchased in the same way that conventional stocks are. REITs’ performance can vary a lot from one to the next. There are several publicly traded REITs, but there are also a number of private and non-publicly traded REITs.
How can I buy Indian InvITs?
Because InvIT units, like Equity Shares and Exchange Traded Funds (ETFs), are listed on the stock market, purchasing units on the stock market is the best option to invest. To invest in InvITs, you’ll need a Demat Account. You can currently buy units of the India Grid Trust or the IRB InvIT Fund on the stock market as a retail investor.
Mutual funds are another avenue to invest in InvITs. Individual Mutual Vehicles, on the other hand, are only permitted to invest up to 5% of their total assets in alternative investment funds like InvITs. As a result, if you go this way, your investment in the infrastructure industry through mutual funds will be relatively limited.
Who can invest in InvITs?
- The units of public InvITs can be traded freely without any lock-in on the BSE or the NSE.
- Any interested investor can utilize the instrument symbol to trade in publicly traded InvITs using their brokerage account (same as for equity).
- On the stock exchanges, an investor can purchase or sell a single unit. This is appealing because mutual fund (MF) SIPs now have a monthly minimum of INR 100-500, whereas the minimum lump sum investment in MFs is roughly INR 5,000.
- The minimum application value in an IPO has also been reduced to INR 10,000-15,000, down from INR 1 lakh formerly required for InvITs.
Which is the best InvITs in India?
The three publicly traded InvITs open to retail investors are Powergrid InvIT, India Grid Trust, and IRB InvIT Fund. The state-owned Power Grid Corp of India, the country’s major power transmission provider, has backed Powergrid InvIT (which will be launched in May 2021). India Grid Trust (listed in June 2017) is backed by KKR, a worldwide investment business, and Sterlite Power Transmission, a power transmission corporation. These two, which are based on the country’s electricity transmission sector, are a safe bet. Since May 2018, India Grid Trust has distributed 3 per unit every quarter (compared to 3.1 per unit in January 2021).
IRB InvIT Fund, on the other hand, is sponsored by IRB Infrastructure Developers and consists of toll-based road projects with collections that are dependent on traffic flow and subject to volatility. The NDS per unit has previously varied from a high of 12.25 in FY19 to a low of 10 in FY20 and then 8.5 in FY21. In FY20 and FY21, the Covid-19 lockdowns harmed the distributable surplus.
What is share InvIT?
Infrastructure investment trusts (IITs) are mutual fund-like investment vehicles authorized by the Securities and Exchange Board of India. Their units, abbreviated as InvITs, are listed on various trading platforms such as stock exchanges and are a well-balanced mix of both equity and debt securities.
The fundamental goal of InvITs is to boost India’s infrastructure sector by encouraging more people to participate in it, and they may be adjusted to fit any situation. Typically, such a mechanism is used to pool money from a number of individuals and invest it in income-producing assets. The resulting cash flow is paid to investors as dividend income. The form and functioning of both are relatively similar when compared to Real Estate Investment Trusts, or REITs.
How do you evaluate InvIT?
Credit rating of InvIT borrowings is based on three primary rating factors: (a) credit quality of asset portfolio, (b) financial risk, and (c) managerial risk. Creditworthiness of the asset portfolio: The credit quality of the assets owned by the InvIT is the most essential factor in determining its credit rating.
What is the average return on a REIT?
Real estate investment trust (REIT) returns The five-year return of U.S. REITs, as measured by the MSCI U.S. REIT Index, was 7.58 percent in May 2021, down from 15.76 percent in May 2020. 5 A return of 15.76 percent is much higher than the S&P 500 Index’s average return (roughly 10 percent ).
What is renewable InvIT?
Virescent Renewable Energy Trust (VRET), India’s first and only renewable energy InvIT (Infrastructure Investment Trust), has raised Rs 460 crore in its first round of fundraising from foreign and domestic investors. The company claimed it was in “advanced discussions” with Focal Energy to buy a 55-MW portfolio.
What is the minimum amount to invest in REITs?
REITs, like equity shares, are listed and traded on the stock exchange. As a result, if you want to invest in REITs in India, you’ll need a demat account.
- Previously, an investor had to spend a minimum of INR 50,000 in REIT units; however, this criterion has been removed, as per a notification issued by SEBI on July 30, 2021, for investing directly through stock exchanges. Initial public offerings (IPOs) and follow-on offers now have a lower minimum investment requirement of INR 10,000-15,000, down from INR 50,000 previously (FPOs).
- Another regulation change is the change in the lot size of REITs traded, which was previously set at 100 units. The minimum lot size has been reduced from 100 units to one unit as a result of the same SEBI regulation.
- There are three REITs that allow investors to invest in India at the moment. These are some of them:
