REIT inclusion in indices to mainstream asset class

KS Badri Narayanan Chennai | Updated on August 30, 2021

Regulator, exchanges should view InVIT as a separate product

The string of steps taken to develop REITs and InVITs as a mainstream asset class will help diversify asset classes for investors and also help underlying companies raise capital.

SEBI has recently amended REIT and InvIT regulations to bring them within the reach of a larger set of investors. The minimum application amount in a REIT has been reduced from ₹50,000 to ₹10,000-₹15,000 and the trading lot size of REITs has been reduced from around 200 units to 1 unit.

The National Stock Exchange has also been announcing a few small steps to attract retail investors and boost liquidity through increased trading volumes into these sophisticated products.

Following SEBI’s tweaks, the NSE last month reduced the trading lot size of REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) listed on the exchange from six to just one.

Last week, it went one step further and revised the eligibility crietria to accommodate REITs/InVITs in its indices. “All equity shares , REITs and InVITs, that are traded (listed and traded & and not listed but permitted to trade) at the National Stock Exchange are eligible for inclusion in the NIfty Indices,” it said.

Based on this criterion, the NSE has included Brookfield India Real Estate Trust, Embassy Office Parks REIT and Mindspace Business Parks REIT in its Nifty 500 index. Other indices that feature REITs include Nifty Midcap 150, Nifty Smallcap 250, NIfty LargeMidCap 250, Nifty MidSmallCap 400 and Nifty Realty. These changes will come into effect from September 30.

Welcome step

Including REIT in indices is a welcome step, and going forward, once the economy revives to the pre-Covid era, these products will definitely add strength to the performance of the indices. Though REITs and InVITs are a hybrid between mutual funds and equity shares, regulators and exchanges should distinguish between them while formulating regulations and strategies. All along, both REITs and InVITs have been viewed with the same perspective.

REITs, which collect money from a pool of investors and invest in a portfolio of real estate assets generate a regular income (through rental) also offer the possibility of capital appreciation through property. Whereas InVITs provide stable, predictable, and relatively low-risk cash flows like pure debt instruments. InVITs are thus ideal to be a part of bond indices. If exchanges include InVITs in equity index, it will force passively managed pure equity funds to invest in them.

Sadly, till now, the big problem for InVIT is a lack of awareness among the common public.

The many Central Government ministries that are readying asset monetisation need to join hands to popularise InVITs. This bears mention because recently the Union Government unveiled the National Infrastructure Pipeline and Asset Monetisation Plan with an estimated funding requirement of over ₹100 lakh crore. Clearly market regulator SEBI and the exchanges are doing their bit to making fund-raising easy.

Published on August 27, 2021

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