REIT

Stands for Real Estate Investment Trust, Concept of REIT is similar to that of mutual funds investing in the real estate sector of India, But nature of institution in this case is the Trust which collects the capital from the Investor/Unit holder and invests it further in Real estate, REIT in India is regulated by SEBI-REIT regualtions 2014, SEBI Mandates that minimum 80% of the value of the REIT assets should be rent or interest generating properties & remaining 20% in other assets such as under construction properties, Listed or unlisted debt of companies, Mortgage backed securities etc.,

REIT units are listed on stock exchange like Exchange traded Funds (ETF’s)

Income distribution : REIT will distribute 90% of the income (Net cash flow) amoung their unit holders at least twice a year, Net cash flows are nothing but difference between cash inflows and outflows

Process : Investor > Invests in REIT>REIT Invests in Real estate sector

It is invested through a mode called special purpose vehicle, Now SPV (Special purpose vehicle) is usually formed to bring the parties involved in real estate together such as investor, developer etc.,

Example : Embassy REIT was run by embassy(Developer) and Blackstoneb(Asset Management company)

Income sources of REIT :
1.Rental Income from invested properties
2.Interest income or money given as loanbto real estate projects
3.Dividend income from money invested in Debt securities
4. Capital gain from invested properties

Out of these incomes Interest recieved is taxable according to your tax slab rate, Rental income remains non taxable, Dividend are exempt from taxation, Capital gains are taxable

Example : Mr Santosh Mangad Invests 4 lakhs  in REIT which has distributed the total dividend of 5,000 during the year, He sells off his units for 4.5 lakhs within the year

Tax treatment will be 5,000/- divident will not be included as its exempt, Only capital gain gets applied which is 4.5 lakh – 4 lakh = 50,000 on this 15% short term capital gain which is 7,500 + cess is the taxable amount

Comes with some concerns

Rental yields are still not that attractive, Capital gains can be a disadvantage in case of bearish outlook

Signing off ….

Having worked several years into Life Insurance, Health Insurance, Mutual Funds & Closely with people into financial planning i am now putting my first step in investment advisory

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