Hello Readers! 

In the last few years, Mutual funds have been allocating a part of their investment in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trust (InvITs). Reports and data of ACE MF show that the equity, debt, and even multi-asset funds have been investing a very small part of their portfolio in these asset classes.

With the recent public issue of Brookfield India REITs, currently, there are five REITs and InvITs available in the exchanges.

Now here the matter of discussion is, does this new asset allocation strategy is working out for these mutual funds? Let us have a look!


Small And Slow Allocation!

If we talk about the funds that have their allocated portion in REITs and InvITs, then currently there are 20 schemes from 10 fund houses, that have invested in REITs and InvITs, as per their January 2021 portfolios. Among these funds, ICICI Prudential MF with a holding of around Rs 1,142 crore worth of such assets, is on the top of the list. Following it is Aditya Birla Sun Life MF that held investments worth Rs 186 crore in these instruments.

After all this scenario, now the regulator of Mutual Fund Industry in India, SEBI (Security Exchange Board of India) has allowed the launching of dedicated schemes that predominantly hold Indian REITs and InvITs. It has allowed other schemes like Equity, Debt, and multi-asset funds to invest up to 10% of their portfolio in REITs and InvITs.

After this announcement by SEBI, Kotak Mahindra announced that soon it will launch a fund of funds NFO which will invest its entire corpus in an international scheme that will invest in REITs across the Asia Pacific region.

The data prepared by ACEMF, have shown that MF’s allocation to REITs and InvITs has grown to 45% over the last year to Rs 1495 crores (till December 20, 2020). Well, this data clearly shows that this new experiment with their asset allocation strategy has completely worked out for the mutual fund schemes.


REIT’s And InvITs!

It is important to understand what is actually, REITs and InvITs. REITs are designed just like mutual funds, which means when you invest in REITs, you can own, operate and lease multiple properties. It is a convenient way to add real estate to your portfolio and earn a good interest from it that too without holding it.

 While InvITs are somewhat similar to REITs but they hold a portfolio of infrastructure assets (or projects). In this, the returns better say income produced from these projects like highway toll collection or rental income from properties, are simply passed on to investors.

These assets are listed and traded on exchanges that mean individual investors and mutual can easily have their allocations in these asset classes.


What Do Experts Have To Say?  

As per experts the trending low-interest rate regime, the good rental yield, and an efficient listing framework after the COVID disruption, these all are the reasons that attracted MF allocator towards REITs and InVITs.

Ravi Saraogi, Co-founder - Samasthiti Advisors says, “Earlier, MFs used to go down the rating curve to bolster yields, but with the credit funds fiasco, there is an increased preference for looking at alternative debt-like exposures such as REITs and InvITs that have seen yields pick-up and where the structured rating is high”.


Returns From REITs and InvITs!

To date in India, both the asset class, REITs and InvITs, do not have a high-track record in the long-term, so it’s hard to expect a good return from these asset classes for right now. If we talk about the current returns or trends in these asset classes, then two REITs have given an expecting return so far, is Embassy Office Parks REIT, Mindspace REIT. While another REIT that is India Grid Trust outperformed peers and the relative indices including the S&P BSE India Infrastructure Index and S&P BSE Realty Index since being listed on the exchanges.

Currently, most of the mutual fund schemes have their allocation to Embassy Office Parks REIT (Rs 678 crore), India Infrastructure Trust (Rs 512 crore), and IRB InvIT Fund (Rs 219 crore).

Keep reading for more updates on Mutual Fund Investment!!

For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.


Happy Investing!


(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).