What Reits’ inclusion in Nifty indices means for you

Real estate investment trusts (Reits) and infrastructure investment trusts (InvITs) will be part of Nifty indices from 30 September. The National Stock Exchange (NSE) has included Reits and InvITs in the most popular indices such as NSE 500, Nifty Midcap 150 and Nifty Smallcap 250.

Currently, there are three Reits listed on Indian bourses—Embassy Office Parks, Brookfield India Real Estate Trust and Mindspace Business Park Reits. Also, there are two InvITs—India Grid Trust and IRB InvIT. Recently, the Securities and Exchange Board of India (Sebi) had brought in certain regulatory changes, which have made this possible.

In July, the regulator revised the regulations to reduce the trading lot size of Reits from 200 units to 1 unit, bringing them on a par with equities. The inclusion of Reits in the indices will enable greater participation in Reits.

“With approximately more than ₹16,500 crore of primary Reit equity having listed in India in the last two years, and the recent trading lot reduction announcement, the Reit asset class gives access for retail investors to the Indian commercial office space growth story. The Nifty index inclusion gives additional momentum through passive funds further diversifying the sources of investor capital,” said Mike Holland, chief executive officer, Embassy REIT.

“We believe that the Reit framework, with high levels of transparency and governance, together with Embassy REIT’s proven record on regular distributions and total return, will continue to appeal to investors and index inclusion with NSE is a welcome recognition of the Reit asset class in India,” added Holland.

This would enable wider investor participation in Reits and consequently increased volumes, liquidity and better price discovery.

“Reits merit to be on the Nifty indices, and this move will assist in widening investor participation for Reits at par with other equity options in India,” said Vinod Rohira, CEO, Mindspace Business Parks REIT.

Reits are a good product for someone looking for exposure in commercial real estate and is willing to remain invested for long. By investing in Reits, the investor can get some predictable returns in terms of dividend and also benefit from the appreciation of share price.

Sebi regulations require Reits to invest 80% of their assets in developed and income-generating assets. Currently, Reits are allowed to invest only in commercial real estate and office spaces.

They need to distribute 90% of the rental income as dividends. Reits also receive interest income from special purpose vehicles (SPVs) through which they hold properties. They lend money to SPVs and distribute the interest income among unitholders.

Reits are a good portfolio diversifier.

“Their comparatively low correlation with other assets makes Reits an excellent portfolio diversifier, which can help in increasing returns and reducing overall portfolio risk. Their inclusion in Nifty indices will assist in widening investor’s participation and will consequently increase volumes, liquidity and better price discovery,” said Palka Chopra, senior vice president, Master Capital Services.