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Sebi move opens up REITs and InVITs to retail investors
Live Mint  |  April 26, 2019

Neil Borate
  • A Sebi circular issued on 23 April reduced the minimum lot size for REITs from Rs 2 lakh to Rs 50,000
  • Sebi also reduced the minimum lot size for InVITs from Rs 10 lakh to Rs 1 lakh

 

A Sebi circular issued on 23 April reduced the minimum lot size for Real Estate Investment Trusts from Rs 2 lakh to Rs 50,000. The regulator also reduced the minimum lot size for Investment Trusts (InVITs) from Rs 10 lakh to Rs 1 lakh. In doing so, Securities and Exchange Board of India (Sebi) has opened up both products to retail investors. Those with investments worth less than Rs 2 lakh are considered retail investors in India’s capital markets. Earlier retail investors were only able to take exposure to these products indirectly through vehicles like mutual funds and National Pension System (NPS). In case of the latter, exposure to REITs and InVITs is available up to 5% of the pension corpus under Asset Class A.

 

Sanjeev Chandiramani, National Director, Knight Frank India, welcomed the move. “REITs and InVITs are successful abroad also. With the Real Estate Regulation and Development Act, 2016 (RERA) in place, the sector as whole, is regulated properly. REITs and InVITs are long term assets which can serve retail investors well," he said. “The minimum ticket size was a constraint for retail investors earlier. The reduction in the ticket size opens up an opportunity for them to take exposure to the real estate market through an efficient financial vehicle," said Prakash Praharaj, a Mumbai based Registered Investment Advisor.

 

A Real Estate Investment Trust (REIT) invests in commercial real estate. It earns rental income from its holdings which is passed on to investors. A REIT has to distribute 90% of its cash flows to investors at least once in six months. Investors also benefit from capital appreciation in the underlying assets. An Infrastructure Investment Trust (InVIT) invests in infrastructure projects and has a similar structure. “REITs and InVITs are good substitutes for physical real estate said Vinit Iyer of Wealth Creators Financial Advisors, a Pune-based Investment Advisory Firm. “Physical real estate also typically involves a lot of debt that the buyer takes on. This does not have to happen here, due to the small ticket size," he added.

 

The income earned by a REIT/InVIT is taxed in the form in which it is received. For example, if a REIT receives rental income, this is taxed as income from house property in the investor’s hands. Similarly, interest income of a REIT is taxed as interest income (income from other sources) in the hands of an investor.

 

Mostly though, incomes from REITs get distributed in form of dividend to investors, which is tax free in the hand of the investor.

 

India’s first ever REIT &ndash Embassy Parks REIT launched in March 2019. InVITs were launched earlier with IRB InVIT Fund being the first to get launched in May 2017. The InVIT has performed very poorly losing 34% of its value since launch. However, some experts have raised concerns about Sebi’s move. “Retail investors will not understand this product. Even today, retail investors get confused about basic issues, such as the difference between mutual funds and SIPs. Expecting them to invest in a complex instrument like a REIT or InVIT may not be in their best interest," said Amol Joshi, Founder, Plan Rupee Investment Services.