Can you imagine earning from mega real estate and infrastructure projects?
You do not need to buy the whole building, apartment, or road to earn revenue from these projects to generate by providing value to people.
It just like you invest in some companies’ equity and you earn dividends, as the company earns a profit. Same way, you can invest your money in real estate or infrastructure project and earn dividend from these sources.
Isn’t it interesting and profitable at the same time? For investing in these schemes, the investor must know how it is possible to do meaningful investment with small investment amount too, and these investments will be the part of high revenue-generating projects. as they are managed by SEBI-listed InvITs and REITs.
What are InvITs and REITs?
InvITs (Infrastructure Investment Trusts) are institutions that manages funding and investment in infrastructure projects. Basically, these trusts act as intermediaries for the investor and the infra sector projects which requires funding. Trusts, pool money together from institutions, companies, and individual investors and invest the capital, in income-generating projects. The revenue generated from the projects is then distributed as dividends among the investors.
REITs (Real Estate Investment Trusts) are quite similar in function to InvITs. The difference lies in projects, where the trust invests the amount pooled together from companies, institutions, and individual investors. Some common alternatives where REITs invest in hotels, shopping malls, residential apartments, and, office buildings.
What is the structure of these trusts?
In Infrastructure Investment Trusts, there are four position holders who control and manage the working of the trust. They are as below:
First is the sponsor: Sponsor is the person who is involved in setting up InvIT. He is also responsible for appointing a Trustee for the trust. A sponsor is required to hold a 25% stake in IPO offered by the trust with a minimum lock-in period of 3 years.
Second is the trustee: Trustee appointed by sponsor holds assets of the trust. He oversees the regularity in payment of dividends and other legal compliances.
Third is an Investment Manager: An investment manager is appointed to look after available and profitable investment opportunities in infra sector. He is responsible for all investment decisions of the trust.
Fourth is a Project Manager: A Project Manager is mainly responsible for supervision of projects undertaken by the trust. He supervises operations and maintenance of the Projects like Construction and maintenance of roads.
In Real Estate Investment Trusts, working is little different from InvITs. These are the people who manage trust:
Here sponsor is responsible for overall functioning of the trust and appoints a Trustee to delegate the tasks.
REIT has a Trustee appointed, who holds the asset of REIT on behalf of the investors. He manages payments of investors and other compliances.
REIT manager in the trust is to take strategic investment decisions. He is responsible for decision of buying and selling properties to earn rental and interest income.
Property Manager, generally appointed by REIT manager, works in association with REIT manager. Manages the workload delegate to him by REIT manager.
How to invest in REITs?
REITs are listed on stock exchanges. Trading and investment in real-estates are simple. You just need to open a Demat account and you can purchase units of shares offered by Real Estate Investment Trusts.
How to invest in InvITs?
InvITs are also listed in stock markets. Anyone, with a Demat account, can very easily make an investment in these trusts by purchasing units of share offered by the trust.
Pros and Cons of investing in REITs and InvITs
As you already know, every opportunity comes with its own set of pros and cons. Here are some positives and negatives of investing in REITs and InvITs:
What are the advantages of investing in REITs and InvITs?
1. Stable Returns: Both real estate and infrastructure are assets that show very little fluctuation in trade market. These projects can be considered as a consistent and stable source of revenue.
2. Minimal Risk: As per SEBI regulations, 80% of investments need to be done in completed and income-generating projects. So, there is a very minimal risk of low or no dividend. The risk here is comparatively lower than stock investments.
3. Diversification: Both REITs and InvITs offer a wide range of investment arenas. For InvITs, it can be roads, bridges, energy, or power projects. In REITs, investment can be done in hotels, malls, and apartments.
4. Professional Management of Trust: One can rely on investment decisions the way trust is managed. Be it trustee, managers, or sponsors, there are certain eligibility criteria to hold the positions to make decisions about where the trust is going to invest money of unit holders.
What are the disadvantages of investing in REITs and InvITs?
1. Less Growth opportunities: – As per regulations, at least ninety percent of the revenue needs to be distributed as dividends, which consequently leaves very less amount with trust to enhance its portfolio by acquiring more profitable projects.
2. Overregulated: – Any government or banking policies lead to major impact on working of trusts. For example, if the government brings some scheme to lower the rent, it affects the dividend income of investors.
Investment options available for REIT
1. Shopping malls and Marts
2. Residential apartments
3. Hotels and restaurants
4. Office buildings
Investment options available for InvITs
1. Invest in completed revenue-generating projects
2. Investing in projects under construction
Which countries other than India are investing prominently in REITs and InvITs?
Developing as well as developed countries citizens are opting to invest in these trusts because of the stable returns it offers along with prospects of long-term growth. India is a developing country investing in real estate and infrastructure. The US is one of the developed countries which is prominently investing in these trusts. Other countries include China, Japan, Hong Kong.
Importance for Economy
REITs and InvITs are important to economy. On one side, it provides investors with reliable long-term investment opportunities and on other, it makes it easy and simple to raise capital for huge real estate and infrastructure projects requiring large investments. Infrastructure is the base of any economy. The ease of fundraising for these projects can lead to growth and development of economy.
REITs and InvITs are trusts which pool money from people to invest in mega projects. These trusts earn through rentals, tolls, and interests from projects undertaken which in turn is distributed among stakeholders in form of dividends. You don’t need to hustle for finding, buying assets to invest. The investment decision is managed by the trust. If you want to earn a consistent return and you are ready for a long-term benefit, you can surely go for this option.
FAQs about InvITs and REITs in the Economy
What is REIT?
REIT is basically a trust managed by professionals who invest the money, collected through shares offered in IPO, in real estate projects and unit holders are offered dividends from the revenue generated by the projects.
What is InvIT?
InvIT is a trust managed by professionals who invest in wealth, collected from investors, in infra sector projects to earn revenue which is subsequently distributed to unit holders as dividends.
What are the advantages of investing in REIT?
REIT investments offer stable returns, involves lesser risk, managed by professional, and offers diversification in projects.
Are REITs and InvITs regulated by any authority?
Yes, both REITs and InvITs are regulated by SEBI under SEBI REIT Regulations 2014 and SEBI InvITs Regulations 2014 respectively.
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