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Wednesday, July 24, 2024

Robust Growth in Funds Mobilized through REITs and InvITs in India

Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) have been successful in raising a substantial amount of funds in India from April to September 2023. This period saw a total mobilization of Rs 18,658 crore, driven by strong demand for infrastructure investments, attractive returns, and favorable government policies. While there was no collection through listed REITs, listed InvITs contributed Rs 2,596 crore for the entire fiscal year 2022-23, as per data from the Securities and Exchange Board of India (SEBI).

Industry experts believe that the positive trends observed in REITs and InvITs are likely to continue in the second half of the year. The focus on infrastructure development by both the central and state governments, along with the appeal of these investment vehicles, is expected to drive ongoing investor interest.

Himanshu Kohli, Co-founder of Client Associates, stated, “The fresh savings will continue similarly as has happened in the last six months, and the investments will continue to be towards InvITs as both the central government and the state governments continue to focus more on infrastructure development.” This indicates a positive outlook for the growth of these investment trusts.

According to SEBI data, the funds raised through REITs and InvITs in the April-September period of 2023-24 amounted to Rs 18,658 crore, with InvITs contributing Rs 12,753 crore, and REITs bringing in the remaining Rs 5,905 crore.

Several factors have contributed to the significant increase in fundraising through these investment trusts. Favorable government policies, a strong demand for real estate investments, a focus on urbanization and infrastructure development, and the regular income provided by REITs and InvITs, as they are required to distribute 90% of their income to investors regularly, are key factors. Additionally, these investment trusts offer diversification benefits, liquidity advantages due to trading on stock exchanges, and increased awareness and interest from investors.

The government and SEBI have played an active role in promoting and popularizing REITs and InvITs in India, further contributing to their growth.

Of the total Rs 18,658 crore investment, Rs 12,753 crore was raised through InvITs, while the remaining Rs 5,905 crore came from REITs. InvITs have been more popular due to their ability to invest in a wider range of assets, including roads, highways, bridges, railways, power transmission lines, renewable energy projects, and gas pipelines. Additionally, InvITs are exempt from paying income tax at the trust level, making them more attractive to investors.

Feroze Azeez, Deputy CEO of Anand Rathi Wealth, commented on these investment vehicles, stating, “The infrastructure sector in India is expected to grow significantly in the coming years, which is likely to drive the growth of InvITs.” This suggests a positive outlook for the InvIT market.

REITs and InvITs are relatively new investment instruments in India but are popular in global markets, especially among passive income investors, due to their attractive yields and potential for capital appreciation.

REITs typically consist of a portfolio of commercial real assets, a significant portion of which is already leased out. In contrast, InvITs comprise a portfolio of infrastructure assets, such as highways and power transmission assets. Both REITs and InvITs offer a way for infrastructure developers to monetize their assets and reinvest capital into upcoming projects.

As of August 8, 2023, SEBI data shows that there were only four registered REITs and 22 registered InvITs in India, indicating the growing potential for these investment trusts in the market.

The mutual fund exposure to REITs and InvITs stood at Rs 8,416 crore as of September 30, 2023. This suggests that even mutual funds recognize the potential and attractiveness of these investment vehicles as they continue to gain traction in the Indian financial landscape.

In conclusion, the rise in funds mobilized through REITs and InvITs in India in the April-September 2023 period demonstrates the growing popularity of these investment trusts. Favorable government policies, a strong demand for real estate and infrastructure investments, and the regular income and liquidity benefits offered by these investment trusts have driven their success. The continued focus on infrastructure development by both central and state governments is expected to sustain this positive trend. While REITs and InvITs are relatively new in the Indian market, their potential for growth and attractiveness to investors is evident, with mutual funds also recognizing their value in portfolios. As the infrastructure sector continues to expand, the future looks promising for these investment vehicles.

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