Should you invest in REITS, InvITs to diversify portfolio?

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I am 33 and have earned a bonus of 25 lakh. I am looking to invest the bonus in the stock market. However, I have a very conservative stance and thus, I am want to park this money in debt and allied products. My goal is to invest the corpus gained over the next 3-4 years in a house.

Therefore, I want to invest in various products such as debt funds, corporate bonds, FDs, etc. I don’t want to invest in equities, but I want to invest in products that offer an enhanced return potential of 8-9% with minimum risk.

One of my friends suggested me to invest in REITs and InvITs. Should I go ahead with the same?

– Krish

Answer by Tarun Birani, founder and CEO, TBNG Capital Advisors. 

InvITs are special trusts created for individual and institutional investors to invest in infrastructure projects and earn a small portion of the income as returns.

These InvITs are exchange-traded and normally quarterly or half-yearly investments; they distribute income to the unitholders in the form of either interest or dividend income. Apart from that, the unitholder can also earn returns if there is an increase in the price of the InvITs on the exchange from his/her purchase price. Although, this could be minimal in value. Ideally, the rationale behind investing in InvITs is to have a “Fixed Income+” kind of structure from a steady and well-known sponsor who will help us earn consistent and stable after-tax returns.

REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across a range of property sectors. Even they are exchange-traded. In terms of return generating potential, they have a similar return potential compared to InvITs. Normally these trusts hold commercial real estate in their portfolio, and their primary source of income is rent. So, the occupancy of their assets matters, unlike InvITs. InvITs invest in either road toll projects or power projects, etc., where there is more stability of cash flows. Due to the Work-from-Home Situation during Covid induced lockdowns, many of these REITs struggled to fill occupancy and had challenges helping investors earn yields. However, now that occupancy in offices seems to be returning to normalcy, these options can again be looked at from a “debt+” income-generating perspective. Apart from the above, if there is property appreciation, that too benefits these REITs positively.

Thus, while these InvITs and REITs are a great set of opportunities to earn “Debt + 1 to 2 Percent” kind of returns with reasonable certainty, each of these InvITs and REITs will have an idiosyncratic risk which needs to be fully analyzed along with taking cognizance of the purchase price and the cash flow cycle that we are entering into.

(Please send queries and views at [email protected])

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