In recent years, the Indian investment landscape has broadened well beyond traditional choices like stocks, bonds, and gold. New asset classes such as Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are opening up fresh avenues for investors seeking diversification and steady income. While both REITs and InvITs are designed to offer exposure to real assets and regular cash flows, they differ significantly in the types of assets they own, the way returns are generated, and the risks they carry.
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For investors looking to tap into these emerging opportunities, understanding the differences is important.
What Are REITs?
REITs, or Real Estate Investment Trusts, are investment vehicles that own and manage income-producing commercial real estate. These can include office spaces, shopping malls, hotels, industrial warehouses, and, in some cases, even data centres.
The basic idea behind a REIT is straightforward: multiple investors pool their money, which the trust then uses to buy and manage large real estate assets. The rental income generated from these assets is collected and distributed among the investors, typically in the form of dividends.
In India, SEBI regulations mandate that at least 90% of the net distributable income must be paid out to investors, making REITs an attractive source of regular cash flow. Moreover, a minimum of 80% of the assets held by a REIT must be operational and revenue-generating, ensuring a certain degree of stability.
Since the listing of the Embassy Office Parks REIT in 2019, Indian investors have shown growing interest in this asset class, which until recently was accessible primarily to institutional players.
What Are InvITs?
InvITs, or Infrastructure Investment Trusts, operate under a concept similar to REITs but focus on infrastructure assets rather than real estate. Instead of investing in malls and offices, InvITs invest in projects such as highways, power transmission lines, renewable energy assets, and telecom towers. The revenue generated from these infrastructure projects—such as toll collections from highways or fees from power transmission services—constitutes the income that is eventually distributed among investors.
Like REITs, InvITs are required to distribute at least 90% of their net income.
InvITs are also regulated by SEBI, but the operating dynamics of infrastructure assets differ from those of real estate. For instance, an office building’s cash flow largely depends on occupancy and lease renewals, whereas a highway’s cash flow may rely on daily traffic volumes, government policies, and user charges. India’s first InvIT, the IRB InvIT Fund, was listed in 2017, and since then, several InvITs have emerged, offering retail investors an opportunity to participate in India’s massive infrastructure growth story.
REITs vs. InvITs: How Are They Different?
Although the structural concept of pooling investor money to generate income remains common to both, the fundamental difference lies in the nature of the underlying assets. REITs provide exposure to commercial real estate, while InvITs offer exposure to infrastructure projects.
The source of returns is another key difference. REITs earn primarily through rental income, which tends to be relatively stable as long as tenants are secured through long-term leases. In contrast, InvITs generate income through user fees, such as toll collections or transmission charges, which can fluctuate based on traffic volume, regulatory changes, or broader economic conditions.
Risk profiles also differ slightly. While REITs are influenced by factors such as occupancy rates, economic downturns, and property market cycles, InvITs face risks associated with infrastructure usage, regulatory interventions, and project maintenance.
Liquidity is generally better in listed REITs compared to listed InvITs. REITs attract a wider investor base, including retail and institutional investors, due to the familiarity of commercial real estate assets. This higher demand leads to greater trading volumes and easier buying and selling. InvITs, on the other hand, involve specialized assets like highways and power grids, appealing to a narrower set of investors and resulting in relatively lower liquidity. That said, liquidity for both REITs and InvITs has improved steadily in recent years as awareness grows.
Another important distinction is the potential for capital appreciation. REITs may benefit from rising property values in prime locations, while InvITs tend to offer relatively limited capital gains since infrastructure assets typically depreciate over time.
What is the Difference Between REITs and InVITs?
| Aspect | REITs (Real Estate Investment Trusts) | InvITs (Infrastructure Investment Trusts) |
| Primary Asset Focus | Commercial real estate like office spaces, malls, hotels, industrial parks | Infrastructure assets like highways, power transmission lines, renewable energy projects |
| Revenue Source | Rental income from leased properties | Usage-based income like toll collections, transmission service charges, annuity payments |
| Risk Factors | – Vacancy risks – Rental renegotiations – Economic downturns affecting occupancy and rental yields |
– Traffic volume fluctuations – Regulatory tariff changes – Operational risks like maintenance and usage patterns |
| Growth Drivers | Growth in demand for commercial property, rental escalations, appreciation in property values | Growth in infrastructure usage, stable regulatory frameworks, long-term government contracts |
| Capital Appreciation Potential | Moderate to High (property values can rise significantly over time) | Low to Moderate (infrastructure assets depreciate but generate steady cash flows) |
| Cash Flow Stability | Moderate to High (depends on tenant quality, lease terms) | High (if based on operational, mature assets with long-term contracts) |
| Minimum Investment (Public) | ₹10,000–₹15,000 (reduced after SEBI reforms) | ₹10,000–₹15,000 (for publicly listed InvITs) |
| Liquidity | High for listed REITs; actively traded on NSE and BSE | Moderate for listed InvITs; trading volumes are lower than REITs |
| Target Investors | Income-seeking investors, real estate enthusiasts, medium-risk appetite investors | Yield-focused investors, those seeking exposure to India’s infrastructure growth, slightly higher risk tolerance |
| Tax Treatment | Dividends tax-free if the REIT has paid DDT; otherwise taxable; capital gains apply based on holding period | Interest income taxable at investor’s slab rate; dividends taxed based on structure; capital gains apply |
| Regulatory Body | SEBI (Real Estate Investment Trusts Regulations, 2014) | SEBI (Infrastructure Investment Trusts Regulations, 2014) |
| Examples in India | Embassy Office Parks REIT, Mindspace Business Parks REIT, Brookfield India REIT | IRB InvIT Fund, PowerGrid InvIT, India Grid Trust |
| Portfolio Composition Rules | Minimum 80% in completed, income-generating real estate; max 20% in under-construction properties/equity | Minimum 80% in completed, revenue-generating infra assets; up to 20% in under-construction or loans |
| Ownership Structure | Trust holds property through SPVs or directly | Trust holds infra assets directly or via SPVs |
| Capital Recycling Ability | Can acquire, lease, or sell properties to optimize returns | Can acquire/divest infra assets as per trust objectives |
| Macroeconomic Sensitivity | Sensitive to interest rates, economic cycles, real estate conditions | Sensitive to government policies, usage rates, and infra performance |
| Investor Protection Mechanisms | Trustee oversight; SEBI-mandated disclosures | Trustee oversight; cash flow distribution rules; SEBI reporting |
REITs vs. InvITs: Where Should You Invest?
Choosing between REITs and InvITs ultimately depends on your life stage, generational profile, financial personality, and asset allocation.
If you are seeking steady rental income backed by prime real estate, along with relatively lower risk and potential for some property value appreciation, REITs may be the right fit for you.
However, if you are looking for slightly higher cash yields, are comfortable with the risks associated with infrastructure usage, and believe in India’s long-term need for improved roads, energy networks, and logistics, InvITs could present a compelling opportunity.
Both REITs and InvITs have lowered their minimum investment thresholds (₹10,000–₹15,000) following SEBI reforms, making them more accessible to retail investors than ever before. Yet, it is important to remember that both asset classes come with their own risks. Therefore, thorough research —or consultation with a qualified financial advisor—is critical before making any investment decisions.
