Sebi grants equity status to REITs: Know how mutual funds are impacted

Kolkata: Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are two recent additions to the Indian capital market which are channelising household savings into the real estate and infrastructure sectors. The first REIT in India was Embassy Office Parks REIT -- a joint venture between Embassy Group and Blackstone Group -- which was launched in April 2019. The first InvIT in the country was IRB InvIT, which as listed in 2017. It was sponsored by IRB Infrastructure Developers and it used to focus on toll road assets.

The REIT and InvIT market got a shot in the arm, when, in a board meeting on September 12, market regulator Sebi reclassified investment in REITs as “equity” investments for mutual funds. InvITs have been retained as hybrid instruments. This is significant since so far mutual funds could treat REIT investment as hybrid investments. The schemes that could invest in REITs were balanced advantage, flexi cap, aggressive hybrid and multi asset allocation funds. Now pure equity funds can raise exposure to REIT units. Specialised Investment Funds can also treat REITs as equity instruments.

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According to reports, mutual funds had investments of Rs 17,674 crore in REITs and Rs 5,368 crore in InvITs. Hybrid funds could invest in these. REIT units of Rs 10,336 crore were held by hybrid funds, Rs 5,845 crore by equity funds and Rs 1,307 crore by debt funds. Data indicate that MFs have varying degrees of holdings in all EITs -- Embassy Office Parks at Rs 8,943 crore, Nexus Select Trust units at Rs 3,481 crore, Brookfield India units at Rs 3,414 crore), Mindspace Business Parks units at Rs 1,302 crore and Knowledge Realty units at Rs 535 crore. 

Additionally, with REITs moving to equity, the existing 10 per cent joint investment limit for mutual funds will now apply solely to InvITs, paving the way for further growth in the infrastructure trust segment.

Both REITs and InvITs pool investments from common people and channelise the money into real estate projects and infrastructure projects respectively. While REITs put their money in commercial, residential, and retail real estate projects, InvITs invest in projects such as roads, power and other infrastructure projects like telecom networks. Both can offer stable and growing prospects of income. Five REITs and 17 InvITs are listed in India now. Indian REITs Association has welcomed the Sebi decision and said that it could trigger more REITs listing in the country.