Why MFs want separate category for REITs, InviTs

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Mutual fund houses have recently asked capital markets regulator SEBI to make different categories for real estate investment trusts. Investment is made in Real Estate Investment Trusts through hybrid or multi-asset funds. However, there is no dedicated scheme for this. Creating a separate category means that investors will invest in instruments directly related to real estate.

So, Where does this investment take place?

To understand this, let’s find out what REITs & InvITs are?

Real Estate Investment Trusts or REITs invest in and manage real estate properties. Real Estate Investment Trusts, like mutual funds, pool small amounts from investors. But they invest in commercial buildings, malls, or hotels… In other words, REITs only invest in commercial properties. By purchasing their units, you too can benefit from investing in commercial properties with a small amount of money. These companies provide shareholders with rental or other forms of income as dividends. Similarly, Infrastructure Investment Trusts or InvITs are instruments, like mutual funds, that collect money from individuals and organizations and invest it in infrastructure projects. And the earnings are distributed to investors in the form of returns..

REITs and InvITs are listed in share market. You can invest in these through demat accounts. Their units are bought and sold on the stock market like shares. Apart from direct investment, there is another way to get exposure through mutual funds. Many mutual fund schemes allocate a portion of their investors’ assets to REITs and InvITs.

As per the current rules, in all the assets of a mutual fund house. A share of any one REIT or InvIT unit cannot be more than 10 percent. Similarly, more than 10 percent of the Net Asset Value (NAV) of a mutual fund scheme cannot be invested in REITs and InvITs units. And a share of any one REITs and InvITs cannot be more than 5 percent.

Certified Financial Planner Jitendra Solanki said that for real estate investment, both REITs and InvITs are good options… Real estate provides good long-term returns. In this way, mutual funds offer small investors a great opportunity to invest with very little money. Now, the real estate sector is becoming increasingly regulated. In this context, it’s the right opportunity for mutual fund companies to enter this sector.

Some experts suggest that currently, many hybrid and multi-asset funds are being used to invest in REITs and InvITs. However, in the future, the number of REITs and InvITs is expected to increase. In many countries around the world, there is a trend of dedicated funds exclusively for investing in REITs and InvITs.

So, in India too, there is a felt need to introduce such dedicated funds. It is believed that REITs and InvITs could be placed in the debt fund category. Currently, there are approximately a dozen and a half sub-categories in the debt fund category. However, some experts also say that introducing dedicated funds for only REITs and InvITs might be hasty because options are limited. Currently, SEBI has registered only five REITs and 22 InvITs. So, it can be said that if SEBI allows the introduction of dedicated funds for REITs and InvITs, it will provide investors with another avenue for exposure to real estate…