Difference Between REIT and InVIT

Investing in real estate and infrastructure can be a lucrative option for individuals seeking to diversify their portfolios and generate steady income. Two popular investment vehicles in these sectors are Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs). While both REITs and InVITs have their roots in investing in income-generating assets, the two have distinct differences. 

In India, Infrastructure Investment Trusts (InVITs) and Real Estate Investment Trusts (REITs) were introduced in 2014. There is a lot of uncertainty regarding the efficacy and advantages of these instruments because they are relatively new to the Indian investing scene. The Securities and Exchange Board of India (SEBI) also governs these investment schemes.

What are REITs?

One kind of financial instrument that owns and manages properties that produce consistent revenue is a Real Estate Investment Trust (REIT). They resemble mutual funds in some ways. Creating consistent income and capital growth is the primary goal of REITs. It makes investments in a variety of real estate properties, including malls, healthcare facilities, offices, warehouses, industrial parks, and hospitality spaces.

By giving investors a simple way to enter the real estate market, REITs pool investor capital. They are also a great way to diversify your investments and provide long-term capital growth in addition to regular income. REITs may also be listed on a stock exchange.

Types of REITs

There are six different kinds of REITs available in the market.

• Equity REITs: These REITs receive their revenue from the rental of income-producing properties.
• Mortgage REITs: Mortgaged REITs, or mREITs, are REITs that lend money to real estate firms and receive income in the form of mortgage payments. In addition, they invest in properties secured by mortgages and receive interest payments.
• Hybrid REITs: Hybrid Real Estate Investment Trusts generate revenue through a blend of mortgage and equity REITs, primarily through rent and interest.
• Private Real Estate Investment Trusts (REITs): These are REITs that are privately placed, have a small investor base, are not listed on a stock exchange, and are not SEBI registered.
• Publicly Traded REIT: REITs that are registered with SEBI and trade on a stock exchange are considered publicly traded REITs.
• Public but not Listed REIT:  REITs that are registered with SEBI but not on the stock exchange are known as public but not listed REITs. Compared to a listed REIT, they are less liquid, but because they are less vulnerable to market volatility, they are also far more stable.

What are InvITs?

A trust known as an Infrastructure Investment Trust (InvIT) collects investor funds and uses them to purchase assets that generate income. InvITs’ primary goal is to generate cash flow over time. 

With the exception of investing in infrastructure projects like power plants, transmissions, roads, and other development projects that take time to produce steady cash flow, they are comparable to REITs. They also hope to provide both long-term capital growth and a consistent flow of income in the form of dividends.

Types of InvITs

The various kinds of InvITs are as follows.

• Completed infrastructure projects: Infrastructure Investment Trusts (InvITs) that finance completed projects like power plants or highways. They start making money right away.
• Under-construction infrastructure projects: Infrastructure projects that are still under construction: They invest in these projects, which take time to pay off.
• Privately held: InvITs that are not available for purchase by retail investors due to their non-listing on a stock exchange are referred to as privately held. Their pool of investors is extremely small.
• Publicly listed: InvITs that are readily tradeable by ordinary investors and listed on a stock exchange are referred to as publicly listed InvITs.
• Infrastructure project type: InvITs are also determined by the kind of project that they manage and control. Generally speaking, depending on the kind of project, there are five different categories of InvITs: energy, transport and logistics, communication, social and commercial infrastructure, and water and sanitation.

Difference Between REIT and InVIT

Here’s a comparison table highlighting the differences between REITs (Real Estate Investment Trusts) and InVITs (Infrastructure Investment Trusts):

Comparison	REITs	InVITs
Asset Class	Primarily invests in income-generating real estate properties, such as office buildings, residential complexes, retail spaces, etc.	Primarily invests in infrastructure projects like roads, bridges, airports, power plants, etc.
Regulatory Body	Regulated by the Securities and Exchange Board of India (SEBI)	Regulated by the Securities and Exchange Board of India (SEBI)
Objective	Generate income through rental/lease income and capital appreciation of real estate	Generate income through a stable cash flow from revenue-generating infrastructure projects
Income Distribution	Mandatory distribution of at least 90% of net distributable income as dividends	Mandatory distribution of at least 90% of net distributable income as dividends
Investment Size	Suitable for retail investors with smaller investment amounts	Suitable for institutional and high-net-worth investors due to larger investment levels
Entry and Exit	Units are listed and traded on stock exchanges, providing liquidity for investors	Units are listed on stock exchanges, but liquidity may vary depending on market demand
Taxation	Dividends received by investors are subject to individual income tax rates	Dividends received by investors are tax-free at the SPV (Special Purpose Vehicle) level, but tax implications apply at the investor level
Asset Management	Managed by REIT management teams, responsible for property selection, lease agreements, and property maintenance	Managed by InVIT management teams, responsible for project selection, operations, maintenance, and revenue enhancement
Risk Profiles	Typically moderate risk, subject to market conditions and property performance	Moderately high risk due to exposure to infrastructure-related risks, revenue fluctuations, and regulatory hurdles
Investment Focus	Primarily focused on income-generating commercial real estate properties	Primarily focused on revenue-generating infrastructure assets
Entry Requirements	Minimum net worth, restriction on related-party transactions, and certain qualifications for sponsor and manager	Minimum net worth, restriction on related-party transactions, and certain qualifications for sponsor and manager
Market Presence	Well-established and widely adopted investment vehicle globally	Rapidly growing and gaining popularity in the Indian investment landscape

What are the benefits of investing in REITs and InVITs in India?

The benefits of investing in REITs and InVITs include:

1. Focused Investments: REITs concentrate on real estate assets, offering investors a direct way to invest in this sector.
2. Diversification: Both REITs and InVITs provide diversification benefits by allowing investors to access a pool of assets across real estate and infrastructure sectors.
3. Stable Income: REITs and InVITs generate regular income for investors through dividends from rental income or project cash flows.
4. Liquidity: Being listed instruments, REITs and InVITs offer liquidity to investors who can buy and sell units on stock exchanges.
5. Monetization of Assets: These investment vehicles enable the monetization of infrastructure and real estate assets, contributing to the growth of the capital markets.

REIT vs InvIT – Which is Better?

Investing in real estate can be simple and hassle-free with REITs and InvITs. Without having to pay the high prices associated with becoming a real estate owner, you can profit from the increase in real estate assets. It’s like having real estate in your demat account, to put it simply.

Investors seeking a reliable source of income, including retirees and high net worth individuals, find invITs and REITs appealing. Additionally, just like debt funds, REITs must give investors the lion’s share of their profits. This means that they can be a dependable source of consistent income.

Which one to choose?

Your level of risk tolerance and investment objective will play a major role in your decision between the two. To put it another way, because they have smaller trading quantities and lower unit prices, REITs are more liquid. Although InvITs have a marginally lower liquidity than REITs. In addition, compared to REITs, InvITs are more vulnerable to political and regulatory risks. As a result, investors may consider REITs as a marginally safer alternative.

When evaluating a REIT or InvIT, keep in mind to use ratings from impartial organisations that assign these trusts a number based on various factors such as cash flows and asset quality. 

Additionally, you should seek professional advice before making an investment decision because these investment vehicles are harder to understand than standard mutual funds.

Bottom Line

REITs and InvITs are excellent long-term income-generating vehicles. Before making an investment in either of the two companies, you should take into account metrics like funds from operations, leverage ratio, credit ratings, capital cost, etc.

Although REITs and InvITs are relatively new to the Indian investment scene, investors can learn more about how they typically perform in other international markets, such as the USA, Singapore, Japan, and others. Above all, before making an investment, we strongly advise investors to take the time to learn about these options. 

Assetmonk recognizes that our investors have a variety of investment options in addition to real estate. Only outperforming real estate assets will make it onto our list after our professional asset management team compares them to other similar financial instruments, ensuring that investors receive higher returns as well as consistent monthly income. Only assets that meet our high-potential, secure-asset criteria will be accepted onto our platform.

Our primary expertise lies in offering individualized guidance and carefully curated fixed-income investment opportunities supported by real estate assets. We remain dedicated to our passion for guiding investors through this transformative journey and helping new and veteran investors realize the full potential of alternative investment in commercial real estate.

FAQs

Q1. How are REITs and InVITs regulated?

A. Both REITs and InVITs are regulated by the Securities and Exchange Board of India (SEBI).

Q2. What are the income sources for REITs and InVITs?

A. REITs generate income through rental/lease income and capital appreciation of real estate properties. InVITs generate income through a stable cash flow from revenue-generating infrastructure projects.

Q3. How do entry and exit work for REITs and InVITs?

A. Units of both REITs and InVITs are listed and traded on stock exchanges, providing liquidity for investors. However, the liquidity may vary depending on market demand.

Q4. What are the tax implications for investing in REITs and InVITs?

A. Dividends received by investors in REITs are subject to individual income tax rates. In the case of InVITs, dividends at the Special Purpose Vehicle (SPV) level are tax-free, but tax implications apply at the investor level.