How to Invest in REITs: A Beginner’s Guide to Real Estate Investment Trusts in India

Over the last few years, Real Estate Investment Trusts (REITs) have democratized real estate investing in India, empowering millions of small and medium investors. In the past, acquiring real estate demanded significant capital, expertise in property management, and a substantial time commitment. REITs, in contrast, deliver a way to benefit from real estate markets that is accessible, liquid, and regulated—allowing you to profit from property income without the burden of direct ownership.

If you’ve ever considered how to incorporate REITs into your portfolio, this guide is for you. We will clarify the structure and function of REITs, outline the advantages and potential downsides, and provide a clear, step-by-step procedure for beginning your REIT investment journey in India.

What Are REITs?

REITs, or Real Estate Investment Trusts, are corporate entities that acquire, manage, and finance income-producing real estate. Their portfolios can include a diverse range of assets, from office complexes and shopping centers to industrial warehouses and data storage facilities. In the Indian market, REITs predominantly concentrate on commercial properties, particularly leased office spaces located in major metropolitan areas.

REITs derive their income mainly from rental and lease payments, which they are mandated by law to pay out to shareholders in dividend form. This structure enables everyday investors to receive income from real estate similar to how they earn interest from fixed deposits or dividends from equity holdings.  

In India, SEBI (Securities and Exchange Board of India) oversees REITs, requiring them to adhere to rigorous standards on transparency, asset quality, and income distribution. As a result, they are considered a relatively secure vehicle for many investors.  

Reasons to Consider REIT Investment  

Before exploring the mechanics of investing in Real Estate Investment Trusts, it is useful to understand their growing appeal:  

• Low Minimum Investment: You can enter the REIT market with as little as ₹100–₹500, especially through REIT mutual funds or ETFs.  
• Diversified Exposure: REITs typically hold a range of properties spread across various cities and sectors, which helps to dilute risk.  
• Liquidity: Unlike direct real estate, REITs are traded on stock exchanges, allowing for quick buying and selling.  
• Recurring Income: Distributions of rental income provide a steady stream of dividends, appealing to those seeking passive earnings.  

Favourable Tax Treatment: In specific circumstances, dividend income from REITs can be tax-exempt, depending on how the income is categorized during distribution.

Types of REITs in India

India’s regulatory framework permits three distinct REIT structures:

1. Equity REITs – These entities own and oversee a portfolio of income-generating properties; this variant is the most prevalent in the country.

2. Mortgage REITs – Such vehicles allocate capital to loans or mortgages secured by real estate.

3. Hybrid REITs – These combine elements of equity and mortgage REITs by investing in both real assets and the related mortgage instruments.

How to Invest in Real Estate Investment Trusts – Step-by-Step Guide

To embark on investing in Indian REITs, follow this structured process:

Step 1: Clarify Your Investment Objectives

Initiate the process by reflecting on the following queries:

• Are you pursuing consistent income distributions or do you prioritise capital appreciation over the long horizon?

• What level of risk exposure aligns with your overall investment philosophy?

• Do you prefer to invest in REITs directly or opt for indirect exposure through mutual funds or ETFs?

• Answering these questions will guide you in selecting among the three vehicles: direct REITs, REIT-focused mutual funds, or REIT ETFs.

Step 2: Select the Appropriate REIT  

India currently offers three principal listed REITs:  

• Embassy Office Parks REIT   
• Mindspace Business Parks REIT   
• Brookfield India REIT  

All are traded on the NSE and BSE. When evaluating your options, examine the REIT's portfolio, dividend distribution history, tenant composition, lease agreements, occupancy percentages, and NAV (Net Asset Value).  

You may find the requisite information from:  

• Company websites  
• Brokerage platforms  
• SEBI filings  

Step 3: Establish a Demat and Trading Account  

To purchase units in listed REITs, you require:  

• A Demat account for safekeeping your REIT units  
• A trading account with an accredited broker for execution on the exchange  

You may initiate these accounts digitally through platforms such as Zerodha, Groww, Upstox, Angel One, or conventional banks such as ICICI or HDFC.  

Step 4: Submit Your Purchase Order  

Once your accounts are provisioned:  

• Access your trading application  
• Search the REIT by its name or ticker  
• Review the prevailing market price  
• Enter a buy order as you would for any equity  

The minimum capital commitment correlates with the lot size. Previously fixed at 200 units, the minimum was amended to 1 unit in 2021, significantly lowering the entry barrier for investors.

Step 5: Monitor and Maintain Your REIT Holdings

Once you own REIT units, you can:  

Receive periodic dividends, which are typically paid quarterly, Gain from capital appreciation as property values and investor demand increase, Assess performance through net asset value, trading price, occupancy levels, and quarterly earnings releases.  

REITs generally reward holding periods of three to five years or longer, as this time frame maximizes income from rents and increases in property values.

Alternative Routes to REIT Exposure

If you prefer to avoid purchasing individual REITs, consider these options:  

1. REIT Mutual Funds  

These pooled investment vehicles allocate capital to REITs and related securities. They are suitable for those who favor professional management and prefer not to conduct individual stock trades.  

2. REIT Exchange-Traded Funds  

These funds track REIT market indices or select portfolios of REIT securities. Trading on a stock exchange like individual shares, they offer built-in diversification across multiple REITs.

Potential Risks to Acknowledge

Although REITs typically carry less risk than direct real estate ownership, they remain exposed to certain dangers:  

Market Risk: Unit prices can vary with overall market sentiment.  

Occupancy Risk: Vacancies or tenant defaults can lead to reduced rental income.  

Dividend Risk: Distributions are not contractually mandated and are contingent on cash generated from property operations.

Macroeconomic Trends – Real estate cycles, interest rates, and inflation collectively shape the performance of Real Estate Investment Trusts (REITs).

Always review the prospectus documents, monitor historical and current performance, and maintain a diversified portfolio to mitigate investment risk.

Conclusion

REITs have revolutionized the Indian approach to real estate investing. By lowering the cost of entry, enhancing liquidity, and providing consistent returns, they cater to both experienced investors and those new to the asset class. A clear understanding of the investment process empowers individuals to gain real estate exposure without the complexities of direct ownership.

Whether your objective is to generate passive income, safeguard against inflation, or achieve portfolio diversification, REITs deliver a well-rounded combination of yield and capital appreciation, underpinned by SEBI’s regulatory framework.

Having acquired the requisite knowledge, you are well positioned to begin. Investigate listed REITs or REIT-focused mutual funds today, and allow your capital to participate intelligently in India’s expanding real estate market.

Frequently Asked Questions (FAQs)

1. What is the minimum investment threshold for REITs in India? 

Investment can commence with amounts ranging from ₹100 to ₹500, particularly through REIT mutual funds or exchange-traded funds (ETFs). Direct purchases on the stock exchange have also been simplified to the extent that a single REIT unit can be acquired.

2. How can I generate income from REITs?

Income arises primarily from regular dividends distributed from rental profits and may also include capital appreciation as the market value of the REIT units increases.  

3. How secure is an investment in REITs?  

REITs are governed by SEBI regulations and are accordingly deemed to carry a moderate safety profile. However, investors must remain aware of prevailing market fluctuations and risks inherent to specific property sectors.  

4. Is a Demat account necessary for REIT investments?  

To purchase shares of listed REITs on the stock exchange, investors must possess an active Demat account in conjunction with a trading account.  

5. Can I liquidate REIT holdings whenever I wish?  

Yes, units of listed REITs may be sold at any time during trading hours, offering liquidity that far exceeds that of direct real estate holdings.