Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) are two types of investment vehicles that allow investors to participate in the income and capital appreciation of real estate and infrastructure assets, respectively.
Both REITs and InvITs are listed on stock exchanges and offer regular dividends to their unit holders. However, there are also some key differences between them that investors should be aware of before investing.
Understanding the Risk-Return Profile of REITs and InvITs
One of the main differences between REITs and InvITs is the type of assets they hold.
REITs typically own and operate income-generating properties such as office buildings, shopping malls, hotels, warehouses, etc.
InvITs, on the other hand, own and operate infrastructure assets such as roads, bridges, power plants, telecom towers, etc.
These assets have different risk-return profiles and cash flow patterns. For example, REITs may face higher vacancy rates, tenant defaults, or regulatory changes that affect their rental income.
InvITs may face lower demand, operational issues, or contractual disputes that affect their toll or tariff income.
Regulations and Tax Benefits of REITs and InvITs in India
Both are governed by the Securities and Exchange Board of India (SEBI), which has issued separate regulations for each of them.
REITs and InvITs have to comply with certain conditions such as minimum asset size, minimum public float, minimum distribution ratio, etc. to be eligible for listing and trading.
REITs and InvITs also enjoy certain tax benefits such as pass-through status, which means they do not have to pay corporate tax on their income if they distribute at least 90% of it to their unit holders.
However, unit holders have to pay tax on the dividends and capital gains they receive from REITs and InvITs.
Performance and Valuation Metrics of REITs and InvITs in India
REITs and InvITs is the performance and valuation metrics they use. REITs and InvITs are usually valued based on their net asset value (NAV), which is the difference between their total assets and total liabilities.
However, NAV may not capture the true value of their assets, which may appreciate or depreciate over time. Therefore, other metrics such as dividend yield, price-to-earnings ratio, price-to-book value ratio, etc. are also used to assess their attractiveness and potential returns.
REITs and InvITs also report their earnings based on different accounting standards.
REITs use Indian Accounting Standards (Ind AS), which allow them to recognize fair value changes in their assets as part of their income.
InvITs use Indian GAAP (IGAAP), which do not allow them to recognize fair value changes in their assets as part of their income.
In conclusion, REITs and InvITs are both attractive investment options for investors who want to diversify their portfolio and earn regular income from real estate and infrastructure assets.
However, they also have different characteristics that require careful analysis and comparison before investing.