Difference Between REIT and InvIT

Real estate is a popular investment option as it provides both capital appreciation and regular income through rent or lease payments. Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are two instruments that allow investors to invest in real estate without actually owning physical properties. REITs and InvITs were launched in India in 2014.

Though both REITs and InvITs have many similarities, there are also certain significant differences between them. Let us look at the key difference between REIT and InvIT.

What are REITs?

Real Estate Investment Trusts (REITs) are trusts that own and operate income-generating real estate properties. These properties include office buildings, shopping malls, hotels, residential apartments and warehouses. These trusts pool money from investors and allow them to invest in real estate assets without owning physical property by purchasing shares in the REIT.

REITs work like mutual funds as they pool money from multiple investors and these assets are managed by professional fund managers. The underlying assets in REITs are several real estate properties.

REITs are required to distribute most of their income to shareholders as dividends, which makes them an attractive investment option for investors looking for regular income. Additionally, investors also benefit from the long-term capital appreciation of the units of REITs they hold.

The REITs have to mandatorily make 80% of their total investments in rental income generating commercial properties. The remaining 20% of the assets of the trust can be held in cash, stocks, bonds or commercial properties that are under construction.

What are InvITs?

Infrastructure Investment Trusts (InvITs) are business trusts similar to REITs. However, InvITs invest in infrastructure assets such as roads, highways, power plants, airports, and telecommunication towers, rather than real estate properties. The income generated by InVITs is from the fees paid by users of these infrastructure assets.

These assets generate cash flows for InvITs which are then distributed to the unitholders. The unitholders of InVITs receive a steady stream of income through dividends along with the long-term capital appreciation of their units.

Difference between REIT and InvIT

The two investment vehicles REITs and InvITs allow investors to invest in real estate and infrastructure properties, respectively, in an affordable and more convenient way. Let us check out the key difference between REIT and InvIT:

InvIT and REIT have very similar structures. Both of them are investment vehicles that pool money from multiple investors and have a sponsor or a trustee. While REITs invest in completed and under-construction real estate projects, InvITs invest in infrastructure projects such as highways, power plants, roads and warehouses, among others.

REITs are required to invest at least 80% of their assets in completed and income-generating real estate properties. They are not allowed to invest more than 20% of their assets in under-construction commercial properties or shares and bonds. Meanwhile, InvITs have to invest at least 80% of their assets in completed and income-generating infrastructure projects. 

REITs typically invest in properties that generate stable income streams such as rental income. On the other hand, InVITs invest in assets that generate cash flows from usage fees, tolls, or tariffs.

REITs typically hold ownership of the real estate properties they invest in, while in some cases they may lease these properties on a long-term basis. In contrast, InVITs invest in infrastructure projects that are either handed back to the relevant authorities upon completion or subject to a rebidding process at the conclusion of the contract period.

REITs are governed by the SEBI (Real Estate Investment Trusts) Regulations, 2014. InVITs are governed by the SEBI (Infrastructure Investment Trusts) Regulations, 2014.

REITs provide a diversified portfolio of properties and hence are considered to be less risky than direct real estate investments. Meanwhile, InVITs invest in infrastructure projects which may be subject to various operational and regulatory risks. Therefore, they are considered riskier.

The minimum subscription amount for REITs was Rs 50,000 earlier, while that for InvITs was Rs 1 lakh. However, this amount now has been reduced to Rs 10,000 – 15,000 for both of these.

REIT vs InVIT: Which is better?

The answer to the question of which is better – REITS or InvITs – depends on the investors’ investment objectives and risk appetite. Both REITs and InvITs provide attractive investment opportunities to investors looking for regular income and long-term capital appreciation. They get to benefit from the growth in the real estate and infrastructure sector without incurring the high costs of acquiring any real estate asset.

REITs may be a better option for investors looking for stable, low-risk investments as they invest in a diversified portfolio of income-generating real estate properties offering stable income streams and capital appreciation potential.

On the other hand, InVITs may be a better option for income-seeking investors willing to take on more risk for potentially higher returns as they offer higher yields than REITs. 

Both investment vehicles have their own advantages and disadvantages. The suitability of each investment depends on the individual investor’s investment objectives, risk tolerance, and financial situation.

ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Ms. Mamta Shetty, Contact number: 022-40701022, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.