REITs and what they are about
REITs are not exactly the real estate equivalent of equity mutual funds. Dhirendra Kumar explains what they are and why they hold the promise of a regular, inflation-adjusted income. After being discussed for a few years, Real Estate Investment Trusts (REITs) are finally getting off the ground.
In this year’s Budget, Finance Minister Arun Jaitley announced measures to make these tax-efficient for investors. Within a few weeks of the announcement, the Securities and Exchange Board of India (Sebi) came out with detailed regulations to govern the design and operation of REITs. However, before we get to the regulations, investors should understand exactly what REITs are and what they aren’t.
In their simplest form, REITs are the real estate equivalent of equity mutual funds. In the latter, the investor can buy into a diversified mutual fund and leave the actual investment management to the fund manager.
However, there is a catch. Equity mutual funds operate the way they do because the stocks they invest in are the ones that are traded in an active and liquid market and high-quality information about the underlying businesses is widely available. However, none of this is true for real estate.
Source: The Economic Times
Real Estate Investment Trusts, REITS, REITs and InvITs, Securities and Exchange Board of India
