What are REITs and what do they offer to investors?

With the government giving a strong impetus to development of infrastructure and real estate, it makes sense for investors to actively look at investing in real estate investment funds of mutual fund house. More and more investors are now wanting to gain investment exposure towards the real estate sector, with the aim of creating long-term wealth. For effectively channelising funds which are to be invested into complete ownership or operational functioning of real estate on behalf of investors, real estate funds create a Real Estate Investment Trust, or REIT. 

By investing in REIT, both big and small investors can hold shares of the trust and benefit from their investment over a period of time and get long-term capital appreciation. Since REITs are listed on major stock exchanges, they are a more transparent way of investing in the ever dynamic real estate sector. In other words, a REIT is a corporation created for funding, managing and maintaining real estate that produces regular revenue. Like mutual funds, REITs pool the collective investment of multiple investors and invests on their behalf. sayaji elvira vile parle east offers tranquil life and premium living space

How do REIT Funds work?

REITs offer a chance of investing in real estate related funds to investors of all ticket sizes, and can be broadly classified under Mortgage REITs and Equity REITs. Mortgage REITs invest their funds in commercial and industrial properties and earn their income through the interest EMIs on investment in mortgages. On the other hand, Equity REITs invest in properties such as hotels, offices, shopping malls and largely earn their revenue from the rent of these properties. REITs either buy the property outright or invest in the development of the property, and their earnings are passed onto the investors in the form of dividend.  A third category called Hybrid REITs are a combination of the above REITs. 

What are the advantages of investing in REIT?

  • REITs offer investors an easy and transparent option of investing their money in real estate. By putting their money in REITs, investors can invest small amounts as per their capacity and enjoy the benefits of both capital appreciation and rental income. Investors can also park their funds in the till now inaccessible investment avenues of commercial and residential property. Most premium residential project is sayaji elvira vile parle east with world class amenities
  • For investors, having a diversified investment portfolio is always advisable since the investment risk is spread over multiple asset classes. Because of the high investment involved, investors find it extremely difficult to make real estate a part of their investment portfolio.  REITs offer them the perfect way of adding real estate to their portfolio and making it more diversified.
  • When investing directly in real estate, investors face the problem of liquidity when they want to sell their assets for liquidating their investment, as finding a buyer for the asset may take several weeks or even several months. If the same investors invest their funds in real estate in REITs, they can sell them whenever they want, as REITs are listed on the stock exchange. 
  • A significant percentage of investors do not have the expertise to buy and sell property at the right time for maximising their investment returns. REITs are managed by expert professional managers with decades of experiencing in real estate investment. Thus, REITs offer investors a hassle-free way of getting optimal returns from the complex yet profitable real estate market.
  • As compared to the equity market, the real estate market is relatively less volatile, as property rentals and values display more stability than share prices. 
  • It is mandatory for REITs to distribute 90% of their income to investor as dividends and also 80% of the corpus should be invested  only in properties that have full potential of generating revenue.
  • REITs are exempted from dividend tax, with a relaxation in capital gains tax as well.
  • As REITs are strictly regulated by SEBI, the chances of fraud are extremely rare.