Portfolio Diversification: Property has long been considered a great investment option. With the changing times, the methods of investing in it are also changing. Now there is no need to raise a lot of capital to buy a property, rather you can invest in real estate only with the amount of capital you have. Instead of investing in real estate directly, you can also get the benefit of more liquidity by investing indirectly. At present the income in the form of rent from residential properties is decreasing but income is still coming from commercial properties, so you can take advantage of it indirectly by investing in real estate.
Real Estate Investment Trust (REIT)
Investing in real estate is done by raising money from investors through REIT. In this, investors get units in the ratio of money which are listed on the exchange and they are bought and sold like equity shares. In this way, REITs are similar to Exchange Traded Funds (ETFs) whose money is invested in real estate. However, this entire money is invested by dividing it into several parts. As a special purpose vehicle, each part belongs to a different property.
According to the rules, 90 per cent of the taxable income of REIT is distributed among the investors as dividend. Income in REIT comes from the rent received from the properties owned by them and to some extent from the increase in their prices. In such a situation, the fund manager invests money in such properties in which the income from rent is more. The advantage of REIT is that you can also buy a unit in it, that is, even if you do not have much capital, in a way you can invest in real estate.
Fractional real estate
REIT is regulated by market regulator SEBI. In contrast, Fractional Real Estate (FRE) is an informal structure in which a company engaged in real estate business or real estate services invests in a property by raising money from multiple investors through legal documentation. It looks similar to REIT but the difference between the two is that under FRE the units are not listed on the exchange, which leads to liquidity problems. An investor can exit from this scheme only when another investor is ready to buy his share. However, in FRE, there is more opportunity to know the property than in REIT.
Mutual fund: Fund-of-funds
Mutual fund-of-funds money is invested in REITs in the Asia-Pacific region. Most of its money is invested in the real estate of Singapore and Australia in the Asia-Pacific region. This means that through this, investors get exposure to REIT markets outside the country which is more developed.