Raj's Real Estate Dream

Imagine generating a steady ₹12,000 every month from real estate without owning a building, dealing with tenants, or handling maintenance. That was Raj’s thought when he heard people talk about passive income from commercial properties. He saved up some money, started looking, but quickly realized how much hassle direct real estate brings: crores of investment, long-term loans, tenant problems, legal delay etc. it started to feel more like a second job than “passive income.”

Then Raj’s financial planner suggested he should look at: REITs - Real Estate Investment Trusts which work like mutual funds, but for commercial real estate. Small ticket size to invest,  regular income, less headache. Raj invested about ₹2 lakh, and at the end of quarter got a dividend that made him believe this could actually work.

Intrigued? REITs and their infrastructure counterpart, Infrastructure Investment Trusts (InvITs), are democratizing access to high-value assets for retail investors. In this blog, we'll explore how they work, their performance, benefits for portfolio diversification, tax implications, strategies for high-net-worth individuals (HNIs), associated risks, and why they might fit your wealth-building strategy.

What Are REITs?

REITs allow investors to pool funds to own or finance income-producing real estate, primarily commercial properties. Regulated by the Securities and Exchange Board of India (SEBI), a REIT typically owns or leases assets like office spaces, retail malls, and business parks - either directly or through Special Purpose Vehicles (SPVs). A professional manager oversees operations, while an independent trustee protects investor interests

• Assets Eligible: Grade A commercial properties, offices, retail malls, business parks. Key metrics like occupancy, location, lease duration, tenant quality matter.
  

• Distributions: SEBI mandates that REITs distribute at least 90% of their net distributable cash flows to unitholders, ensuring a steady income flow - often quarterly.

Market Snapshot (Mid‑2025)

Metric	Data (FY25 / Q1 FY26)	Source / Notes
Total distributions by top 4 listed REITs in Q1 FY26	₹1,559 crore, distributed to over 2.7 lakh unitholders; ~13% YoY growth vs Q1 FY25.	Business Standard
Distributions in FY25	₹6,070 crore, up 13% from FY24 (₹5,366 crore)	IBEF
Cumulative distributions since inception	~ ₹24,300+ crore	Business Standard
Portfolio Size (Grade A Office + Retail)	~ 129‑175 million sq ft across the REITs’ properties (offices + malls)	ETRealty.com

Recent Boost: SEBI's Equity Reclassification - A Game-Changer for REITs

In a significant development last week, SEBI reclassified REITs as equity instruments, elevating them to mainstream status alongside stocks. This move is already sparking a surge in investor interest, particularly from HNIs and institutions, as it enhances liquidity, opens doors for mutual fund allocations, and paves the way for index inclusions. This reinforces REITs' role as low-beta, stable alternatives to volatile real estate developer stocks - offering rental income from assets like offices and malls without the earnings volatility of developers. For investors like Raj, this regulatory nod could mean easier access to broader capital pools, potentially amplifying returns and diversification benefits. (ET)

A quick look at their performance:

REIT	Listing Date	Last 1-Year Return(Sep 24 - Sep 25)	Current Dividend Yield
Brookfield India REIT (BIRET)	Feb 16, 2021	29%	~ 6.64 %
Embassy Office Parks REIT (EMBASSY)	April 1, 2019	13.34%	~ 6.51 %
Mindspace Business Parks REIT (MINDSPACE)	Aug 7, 2020	32.87%	~ 5.91 %
Nexus Select Trust (NXST)	May 19, 2023	4.52	~ 6.88 %

Source: NSE (Returns include capital appreciation and distributions; past performance is not indicative of future results.)*

Introducing InvITs: The Infrastructure Twin

While REITs target real estate, Infrastructure Investment Trusts (InvITs) focus on operational infrastructure assets like highways, power transmission lines, pipelines, and renewable energy projects. Also regulated by SEBI, InvITs must distribute at least 90% of net cash flows, offering similar passive income benefits.

Key Differences and Similarities:

• Assets: InvITs invest in revenue-generating infrastructure (e.g., toll roads, solar parks, power), while REITs emphasize commercial real estate.

• Market Growth: As of mid-2025, India's InvIT market has assets under management exceeding ₹1.5 lakh crore, with distributions growing at ~10-15% annually (source: CRISIL).

• Performance Example: IndiGrid InvIT (listed 2017) offers yields around 8-10%, with a 1-year return of ~15% (NSE data).

• Why Consider InvITs?: They provide exposure to India's booming infrastructure sector, backed by government initiatives like the National Infrastructure Pipeline.

Both REITs and InvITs trade on stock exchanges like NSE, offering liquidity and small-ticket investments starting from as low as ₹100-200 per unit.

Why REITs and InvITs Enhance Portfolio Diversification

In an era of interconnected markets, where equities often sync with global events and gold fluctuates with inflation - REITs and InvITs introduce genuine diversification. Real estate and infrastructure exhibit low correlation to equities (typically 0.22-0.34 for REITs, per NSE), meaning they may hold steady or even appreciate when stocks falter. Their regular distributions act as a buffer, stabilizing returns during volatility.

For Raj, incorporating REITs complemented his equity-heavy portfolio, delivering consistent income. A balanced allocation - e.g., 50% equities, 30% debt, 10% gold, and 10% REITs/InvITs-can reduce overall volatility while targeting 8-12% annualized returns.

Think of it as adding a resilient layer to your investment strategy.

For deeper insights on diversification, explore our guide here.

Tax Implications: Investor-Friendly Structure

REITs and InvITs benefit from a pass-through tax status, minimizing taxation at the entity level. Based on 2025 regulations:

Type of Return	Source	Tax Treatment
Interest Income	Debt funding for assets	Taxed at investor's marginal slab rate.
Rental/Operational Income	Leasing properties or infrastructure	Taxed at investor's marginal slab rate.
Dividend Income	Profits distributed	Taxed at investor's marginal slab rate (exempt if from SPV dividends).
Capital Gains	Sale of units	Short-term < 12 months = STCG @20%; > 12 m = LTCG @12.5%

Note: Consult a tax advisor for personalized advice, as rules may evolve.

The Risks: A Balanced Perspective

Key risks include:

• Market Risk: Economic downturns can depress property or infrastructure values, impacting unit prices (e.g., post-COVID dips).

• Interest Rate Risk: Rising rates increase borrowing costs, potentially reducing distributions.

• Liquidity Risk: While exchange-traded, lower volumes in niche InvITs may hinder quick exits during stress.

• Sector-Specific Risks: Overexposure to offices (REITs) or roads (InvITs)? Diversify across sub-sectors.

• Regulatory Risk: Changes in SEBI or tax policies could affect returns.

Mitigate by starting with Systematic Investment Plans (SIPs) in these instruments, adopting a long-term horizon (5+ years), and capping exposure at 5-10% of your portfolio. Always align with your risk tolerance and goals.

In Summary

REITs and InvITs bridge the divide between aspiring real estate/infrastructure owners and hassle-free investing. As Raj discovered, they offer liquidity, high yields (5-10%), and diversification-making premium assets accessible to all. Whether you're a retail investor starting small or an HNI scaling up via AIFs, these trusts can elevate your portfolio.

Ready to dive in? Research listed options on NSE, consult your financial advisor, or contact our team for tailored guidance. Share your thoughts in the comments below-what's holding you back from exploring REITs or InvITs?