These are the numerous investment opportunities available to NRIs in India. This article helps the NRIs to understand the different methods where they can be able to create tax-smart portfolio with their investments.
REITS inclusion in Nifty for real estate investments- Everything you should know!
Reits are good portfolio diversifiers that can help enhance returns and minimise overall portfolio risk.
Real Estate Investment Trusts (REITs) are new investment concepts in India that are gaining traction in the COVID-19 era. This instrument refers to a company that owns and operates income-generating commercial real estate assets, allowing investors to buy shares to earn passive income and property appreciation profits. As of now, only 6 companies are recognized and listed on Indian exchanges. To boost the market, revised rules have been declared where all REITs that are listed and traded on the NSE will be included on NIFTY. This will result in more visibility and an increase in the investor pool. Earlier, the National Stock Exchange had reduced the lot sizes to one from what was 100 to 2,500 earlier, and as the new rule allows REITs to be listed in indices, the volumes are expected to increase drastically which will lead to better prices discovery.
How Do REITs Work?
Investment trusts that manage REITs pool funds from investors and offer them a liquid way to enter the real estate market and diversify their portfolios. This is a low-risk investment option as REITs have to mandatorily invest at least 80% of their assets in finished projects that generate income. Along with that, at least 90% of the revenue earned by them has to be distributed among their unitholders.
The three that have been listed so far are Embassy Office Parks REIT, Mindspace Business Parks REIT, and Brookfield India Real Estate Trust. In the market, REITs have witnessed a strong rental collection in the first quarter of FY22. Prolonged work-from-home due to COVID-19 has resulted in increased vacancy levels. In the second quarter, as the economy is opening up, this trend is expected to reverse.
Who Are REITs For?
REITs are known for proving high dividends and the potential to offer long-term capital appreciation gains. Against lower-risk bonds, long-term returns of REIT stocks are similar to the gains given by value stocks. This makes it an important investment asset for people who are planning their retirement and require a steady income stream to meet their daily expenses. The dividends offered by REITs come from a stable source of rents paid by the tenants who rent the properties.
What Do REITs Offer?
- Long-term performance: REITs have historically provided long-term returns similar to stocks.
- Dividend yields: These dividend yields are stable income sources that are generated by a variety of dynamic market conditions.
- Liquidity: Shares offered by public listed REITs are available to be traded on stock exchanges.
- Transparency: REITs’ performance and trends are monitored by market analysts to provide investors with insights into the REITs’ financial performance.
- Portfolio diversification: For investors who have an appetite for risk and want to diversify their investments into the commercial real estate segment, REITs offer a good gateway.
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REITs have generated excellent returns historically. They also bring several other benefits to investors, such as dividend income and diversity. This makes them a fantastic addition to the portfolio of any investor.
REIT or Real Estate Investment Trust means a company established solely for the aim of transferring investment capital into property that produces, owns or finances income.
In order to make retail investors’ access to valuable assets formerly reserved for larger institutional investors accessible, REITs will transform the nature of real estate investing. In addition, REITs will improve asset management capacities and reinforce organized immobilization structures.
REITs are classified into three basic categories: equities, mortgages, and hybrid REITs. Each category is divided into three sorts, namely publicly-traded REITs, public non-traded REITs, and private REITs which discuss how investment can be purchased.