REITs and InVits have emerged as new-age assets that are fulfilling the lifelong dreams of many individuals who want to own a piece of real estate in any form. They are also removing one of the major roadblocks for any real estate purchase i.e. the requirement of a lot of initial capital.
Further, both of these investment options provide a good diversification to your portfolio. But you may be wondering which of the two options is more suitable for you. Let’s figure this out by understanding the difference between REITs and InVits.
What are REITs?
An organisation that owns, manages, or funds income-producing real estate is known as a real estate investment trust (REIT). Like mutual funds, REITs combine the money of several investors.
You can profit from real estate investments without having to fund, manage, or purchase any real estate yourself.
It helps you generate income from rent or capital appreciation of the underlying real estate assets, which are distributed among the investors in the form of dividends.
How do REITs Work?
What are InvITs?
Infrastructure Investment Trusts (InvITs) offer you partial ownership of infrastructure projects.
They are trusts that hold, manage, and make investments in both finished and ongoing infrastructure projects.
These trusts provide income through dividends, interest, and capital gains.
The infrastructure projects include telephone towers, electricity distribution networks, public roads, highways etc.
InvITs invest in infrastructure projects by pooling modest sums from different people and institutional investors, much like mutual funds.
Additionally, the appointed managers oversee InvITs in the same manner as fund managers oversee mutual funds.
How do InvITs Work?
What’s The Difference: REITs Vs InVits?
In comparison, the basic structure and operations of REITs and InvITs are similar, but they are not the same thing.
| Factor | REITs | InvITs |
| Sector | Invests in corporate offices, retail malls, data centres, shopping malls, etc. | Invests in roads, highways, power plants, environmental, transmission and renewable energy projects, etc. |
| Return | Rents paid by tenants of the real estate properties. | Income from the operational status of the infrastructure projects. E.g. Toll collection from roads etc. |
| Risk | Reputable corporate office buildings and residential complexes are investments made by REITs. Thus, there are few risks. | Due to their primary investment in current public benefit programmes, they carry a higher risk. |
| Liquidity | Higher liquidity due to lower entry price for buying units. | Lower liquidity due to less participation among the investors. |
| Growth Opportunity | Given that the properties they invest in may be renovated or rebuilt, REITs have great growth potential. | Only when income rises and they can take on more projects at reduced bids will InvITs be able to expand. |
Also Read: Is investing in REIT a good idea?
Conclusion
REITs may be a better option for investors looking for stable, low-risk investments.
Whereas, InVITs may be a better option for income-seeking investors willing to take on more risk for potentially higher returns.
Both investments have their advantages and disadvantages. The suitability of each investment depends on your purpose.
Disclaimer: The above content is for informational purposes only. You should consult a SEBI-registered Investment Advisor before investing in REITs and InVits.
