Small ticket, big assets: Are Reits worth adding to your portfolio?

Reits let you invest in commercial realty for ₹100-500; experts suggest limiting exposure to 5-10% of portfolio.

- Maulik.M.

Commercial real estate may seem like a game reserved for investors with deep pockets, but that's not true anymore.

You can invest as little as ₹100-500 in commercial property through a real estate investment trust (Reit).

On 12 September, Securities and Exchange Board of India allowed Reits, previously considered hybrid instruments, to be classified as equity assets by mutual funds. It aims to deepen the market and align it with global standards. It is likely to boost demand for Reits from both active and passive funds, as they become part of benchmark equity indices.

Reits are gaining traction in mutual fund industry for their ability to provide regular cash flows. "We invest in Reits due to consistent operational cash flows from rental income. These rental agreements have builtin escalations, which help mitigate inflation," said Raj Mehta, executive vice president and fund manager, equity, PPFAS Mutual Fund.

With potential capital gains, REITs are appealing, but proper asset allocation is essential since the underlying asset is real estate. Kalpesh Ashar, a certified financial planner, said, "I don't recommend allocation to real estate as part of an investment portfolio. But if someone wants exposure to realty, Reits are a good option. One way to do it is to invest in multi-asset allocation funds that invest in Reits." Read on to know more.

What is a Reit?

Think of a Reit as a mutual fund, but one that invests in real estate rather than stocks or bonds. At least 80% of the real estate it invests in must be rent-generating. Most Reits in India primarily own grade-A office spaces, with the exception of Nexus Select Trust, which mainly owns shopping malls.