REIT AND INVIT (Syllabus: GS Paper 3 - Economy)

Context:  For the expansion of market for emerging investment instruments, Sebi is mulling over to bring in norms for follow-on offers by real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).

• The two trusts were launched in India with an aim to provide exposure to investors to real estate and infrastructure projects. This will also help them diversify their risks through pooling arrangements.

Infrastructure Investment Trusts (InvIT)

• It is like a mutual fund, which enables direct investment of small amounts of money from possible individual/institutional investors in infrastructure to earn a small portion of the income as return.
• InvITs can be treated as the modified version of REITs designed to suit the specific circumstances of the infrastructure sector.
• They are similar to REIT but invest in infrastructure projects such as roads or highways which take some time to generate steady cash flows.

Real Estate Investment Trusts (REIT)

• A REIT is roughly like a mutual fund that invests in real estate although the similarity doesn’t go much further.
• The basic deal on REITs is that you own a share of property, and so an appropriate share of the income from it will come to you, after deducting an appropriate share of expenses.
• Essentially, it’s like a group of people pooling their money together and buying real estate except that it’s on a large scale and is regulated.