How Do REITs Work?

While SEBI first conceptualized the idea of REIT in 2008, the first REIT was only launched in 2019. Investors who want to add real estate to their investment portfolio can now do so without even owning the property through REITs.Take a look at what these REITs are and how they work-

In many ways, REITs or Real Estate Investment Trusts are similar to mutual funds . Money is pooled from investors and invested in revenue-generating commercial properties. The income generated from the properties is then distributed among investors. Like mutual funds, you can purchase units of the REIT you want to invest in.Moreover, REITs are also allowed to go the IPO route and get listed on stock exchanges in India. So, in a way, REITs will enable you to generate income from real estate investments without even owning the property.

So, how do REITs work? Commercial entities that purchase, finance, or manage commercial real estate properties are allowed to launch REITs in India. Once a REIT is open for public investments, you can purchase units of the fund at a specified price. The money pooled from the investors is used for purchasing, development, or financing commercial properties.REITs generate income primarily through rental yields and capital appreciation. As a REIT investor, you will earn dividends from your investment.

The primary goal of the government behind launching REITs is to boost public investment in the real estate sector. For investors, this turns into an excellent opportunity as it allows them to generate profits from real estate investment without actually owning the property.You will earn the rental yields and even the capital appreciation without the responsibility of property ownership. If you want to add real estate to your investment portfolio, REITs sure are an excellent choice.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.