Central Idea

The Securities and Exchange Board of India (SEBI) has recently approved crucial changes to the regulations governing real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), aimed at enhancing their appeal to investors.
These investment vehicles function similarly to mutual funds, pooling capital to invest in real estate or infrastructure projects.

What are REITs and InvITs?

	Real Estate Investment Trusts (REITs)	Infrastructure Investment Trusts (InvITs)
Structure	Investment trusts owning real estate properties	Investment trusts owning revenue-generating infrastructure projects
Regulation	Regulated by SEBI	Regulated by SEBI
Assets	Commercial real estate properties (no residential)	Operational infrastructure projects
Units	Units issued to investors, traded on stock exchanges	Units issued to investors, traded on stock exchanges
Distribution	Mandatory distribution of a significant portion of income as dividends	Mandatory distribution of a certain percentage of cash flows as dividends
Tax Benefits (Dividends)	Dividend distribution exempt from DDT	Dividend distribution exempt from DDT
Taxation (Investor’s Dividends)	Taxable as per investor’s income tax slab	Taxable as per investor’s income tax slab
Asset Focus	Commercial properties: office buildings, malls, etc.	Operational infrastructure projects
Purpose	Income generation and capital appreciation	Income generation and capital appreciation
Project Type	Income-generating properties	Operational brownfield projects
Examples in India	Embassy Office Parks REIT, Mindspace Business Parks REIT	IndiGrid Trust, IRB InvIT Fund, Sterlite Power Grid Ventures InvIT

Investment Pooling: REITs and InvITs operate as investment pooling vehicles, allowing sponsors to invest in real estate or infrastructure projects.
Affordable Ownership: REITs offer retail investors access to income-generating real estate properties that would otherwise be unaffordable.
Direct Investment: InvITs enable both individual and institutional investors to directly invest in infrastructure projects, spanning transport, energy, and communication sectors.

Growing Popularity: Since their launch in 2019, REITs have gained traction, demonstrating resilience during challenges such as the pandemic.
Rising Interest: InvITs have a broader scope, with multiple listings, including IRB InvIT Fund and Embassy Office Parks Reit.
Assets Under Management: As of the beginning of 2023, REITs and InvITs registered with Sebi managed assets exceeding ₹3.5 trillion.

Unit Holder Nomination Rights: Sebi has granted board nomination rights to unit holders of InvITs and REITs, allowing them greater influence.
Minimum Unit Holding Change: The minimum unit holding requirement for sponsors has been revised, enhancing flexibility.
“Self-Sponsored Investment Managers”: Sebi introduced the concept of self-sponsored investment managers, enabling them to assume Reit sponsor responsibilities.

Enhanced Corporate Governance: These amendments are designed to bolster corporate governance and streamline the functioning of InvITs and REITs.
Retail Unit Holder Rights: The changes empower retail unit holders by giving them a voice and ensuring accountability through the Stewardship Code.
Sponsor Commitment: Sponsors are now required to maintain a minimum number of units throughout the lifespan of the Reit or InvIT.
Self-Sponsored Investment Managers: This concept provides flexibility for Reit sponsors and potential exit options.