Edited excerpts from a chat:
What are the benefits of investing in a REIT?
India’s investment landscape is undergoing a significant transformation, with Real Estate Investment Trusts (REITs) emerging as an attractive option for retail investors. A REIT is a regulated investment vehicle that owns or operates income-generating real estate, with at least 80% of its assets deployed in rent-yielding properties. In accordance with SEBI regulations, Indian REITs are required to distribute a minimum of 90% of their net distributable cash flows to unitholders on a semi-annual basis.
REITs offer investors a way to earn regular income alongside the potential for capital appreciation, without the operational challenges typically associated with owning physical real estate. As India’s commercial real estate market matures, REITs are gaining traction among retail investors—especially those seeking stable, low-entry investment opportunities. Presently, there are five publicly listed REITs in India – Brookfield India Real Estate Trust, Embassy Office Parks REIT, Mindspace Business Parks REIT, Nexus Select Trust and Knowledge Realty Trust.
Can first-time investors start small with REITs? How does this compare to purchasing a residential flat for rental income?
Yes absolutely. In fact, one of the major advantages of REITs is Accessibility. Any investor, whether first-time, can start investing in REITs with a modest sum via their demat accounts as even a single unit can be purchased. As of Sep 11, the unit prices of India’s five listed REITs range between ₹100 and ₹450. This makes REITs significantly more accessible compared to directly investing in real estate assets including residential property, which typically demands a large upfront investment.
Investments in flats for rental income, involves the hassles of property management, dealing with middleman, ongoing tenant management, society charges, legal procedures, limited liquidity, huge investment size, vacancy risk, low return, high transaction cost, no possibility of partial withdrawal etc. In contrast, REITs provide passive investment opportunity to access high-quality commercial real estate—such as Grade A office spaces and premium shopping centres along with liquidity to transact anytime. Additionally, REITs are professionally managed and offer regular quarterly distributions alongside potential capital appreciation, making them a practical and accessible entry point into real estate investment.
How are REITs taxed in India? Are unitholders liable to pay tax on income or capital gains?
Indian REITs operate under a pass-through taxation framework. Taxation in the hands of unitholders varies based on the components of distribution. Distributions to unitholders comprise four components: dividends, interest, amortisation of debt (from Special Purpose Vehicles), and other income.
- Dividends and other income are typically tax-free in the hands of unitholders.
- Interest income, however, is taxable at the investor’s applicable rate.
- The amortisation of debt component is non-taxable upon receipt but is adjusted against the acquisition cost when calculating capital gains on sale.
For capital gains:
- Units held for over 12 months are treated as long-term capital assets and are taxed at 12.5%.
- Units sold within 12 months are classified as short-term and attract tax at 20%.
- Hence you see that REITs are more tax efficient compared to rental income, FDs and bonds.
Can REITs be included in a retirement portfolio as part of a diversified investment strategy?
Yes, REITs are well-suited to retirement portfolios. Retirement portfolios benefit from predictable and regular income and REITs fit this brief well. They offer a relatively stable income stream, as Indian REITs are mandated to distribute at least 90% of their net distributable cash flow. In practice, all Indian REITs distribute income quarterly, which aligns well with retirement income planning.
Although REITs are linked to market performance, they tend to be less volatile than equities. While distributions are not guaranteed, they have historically offered better yields and capital growth compared to fixed-income instruments. However, as with any investment, REITs carry certain risks and should be complemented with more conservative assets for a balanced retirement portfolio.
Are REITs in India suitable for SIP-style investments, or are they better for lump-sum allocations?
While the term SIP is mostly associated with mutual funds, REITs can be purchased periodically in small quantities through the stock market, making them suitable for a Systematic Investment Plan (SIP) like approach. This helps investors in averaging their cost and build investment discipline. Further, lump-sum investments may also be advantageous when REIT valuations are attractive or when investors have a larger corpus to deploy. Both approaches can be strategically employed based on market conditions and individual financial goals.
How can investors monitor the performance of Indian REITs? What indicators should they track?
Investors should track more than just the unit prices. They can monitor the performance of Indian REITs by closely tracking several key financial and operational indicators like.
Distribution yield – measures the income received by unitholders vs the unit price – provides an indication of the return investors can expect.
Net Asset Value (NAV) – Reflects the fair value of the underlying portfolio i.e. value of the property held by the REIT.
Additionally, factors such as occupancy rates and tenant quality are essential, as they directly impact rental income and the stability of cash flows. The duration of lease agreements also matters, with longer leases typically indicating more stable revenues. Finally, investors should assess the REIT’s debt levels and leverage ratios, as high levels of borrowing can pose financial risks, especially in changing interest rate environments.
Since Indian REITs are publicly listed, they are obligated to release quarterly and annual reports that provide detailed updates on these performance indicators, along with financial results, property valuations, and future strategies. This information is readily available through stock exchange filings and financial media platforms, enabling investors to make informed decisions based on current data and market outlooks.
Could REITs be a suitable alternative for investors currently relying on Fixed Deposits (FDs)?
Yes, REITs can be a compelling alternative for FD and bond investors seeking a balance between income and capital growth. Unlike fixed deposits, REITs are more tax-efficient, particularly in the treatment of interest income. They also offer better liquidity, as units can be bought and sold on the stock exchange via a demat account.
While FDs offer guaranteed returns with fixed tenures, REITs provide exposure to real estate with the potential for higher income and appreciation—though with some element of market risk. As such, they can serve as an effective tool for diversification in a conservative investor’s portfolio. In summary the comparison of various features would stack as per the table below:
For risk-aware investors seeking higher post-tax income and some capital growth, REITs can be a good fit—especially within a diversified portfolio.
How will SEBI’s equity classification of REITs benefit retail investors?
By reclassifying Real Estate Investment Trusts (REITs) as equity instruments, the Securities and Exchange Board of India (SEBI) has made them more accessible and attractive for retail investors. Until now, REITs were categorised as “hybrid” products, which limited mutual funds’ ability to invest in them.
With the new classification, equity mutual funds can allocate more freely to REITs, encouraging greater institutional participation and improving market liquidity. REITs will also become eligible for inclusion in major equity indices, drawing additional passive investment through index funds and ETFs.
For retail investors, this is a significant development. They can now gain indirect exposure to high-quality, income-generating commercial real estate through their existing mutual fund investments. This offers a simpler, more diversified route into property investment—without the high capital outlay and complexities of direct ownership.
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