Explained: What the inclusion of InvITs, REITs in Nifty indices means

25/08/2021

Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), two investment vehicle categories that have only been introduced in India over the last three years, will find their way into the Nifty indices from September 30. 

At present, only shares traded on the National Stock Exchangeare included in the Nifty indices. But the NSE, India’s largest bourse, has now decided to include REITs and InvITs that are traded on the bourse in its indices as well.

How will this impact InvITs and REITs?

In developed countries like the US and Europe, these investment vehicles are extremely popular. But in India, they were introduced only recently and are yet to gain traction among a significant proportion of the investor community. 

Indeed, most people who trade in shares and derivatives or access the capital markets via mutual funds do not fully understand REITs and InvITs, and what differentiates them from these more popular instruments. 

As a result, these instruments do not offer the same liquidity as shares and mutual funds. 
Analysts and managers of REITs and InvITs are, therefore, upbeat on the NSE’s decision and feel that this will enable greater participation by retail investors and help improve liquidity. 

Vinod Rohira, chief executive officer at Mindspace Business Parks REIT, told Moneycontrol.com that the move will put REITs on a par with other equity options available to investors in India. 
“REITs merit to be on the Nifty indices, and this move will assist in widening investor participation for REITs at par with other equity options in India," he said.

What really are REITs and InvITs?

REITs typically acquire commercial properties that are already leased out. Individual investors can then buy bite-sized portions of these trusts and generate regular and periodic returns on their investments out of the rental incomes that the trust earns. In the US and Europe, REITs are extremely popular, for instance, among retirees, who need regular incomes from their retirement corpus. 

InvITs, on the other hand, typically invest in infrastructure assets like roads, power transmission lines and renewable energy projects that help them generate regular, annuity-like returns. 

How many REITs and InvITs are registered in India?

As of the end of the last financial year, just four REITs and 15 InvITs were registered in India. Of these, three REITs and six InvITs were listed on the country’s stock markets. 

How much money have these vehicles raised?

These investment vehicles collectively raised close to Rs 55,000 crore in 2020-21, and manage net assets to Rs 1.64 lakh crore, as per Moneycontrol.
 

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