Securities and Exchanges Board of India (Sebi) Chief Madhabi Puri Buch on March 13, 2024, said that investors should take a positive view of assets such as Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and municipal bonds. Buch said these are crucial asset classes for the nation's development. To facilitate a diverse holding of REITs, InvITs, and municipal bonds, the regulator will reduce minimum investment sizes for these products, Buch said. “We have brought down the minimum investment size of these products to make them affordable. We will bring down the ticket size even further and facilitate innovation and digitization within this space,” Buch said. Buch said just like how retail investors are the strength of India’s equity market, represented as the fractional ownership of companies, the fractional ownership of real estate and infrastructure holds the key to this country's future.
Sebi is asking investors to trust these asset classes seeing how these asset classes are governed and disclosed, she said adding the way InvITs were being structured prompted retail and foreign investors to invest in these asset classes. The entire market value of the equity market is as much as the nation's GDP, and REITs, InvITs, and municipal bonds could also grow as big last offering significant growth potential, she said.
What Are These Asset Classes?
REITs: Real Estate Investment Trusts, function just like mutual funds, offering investors shares in real estate holdings and dividends based on earnings from these holdings such as rental earnings. They are also listed on the stock exchanges. However, the minimum investment for erstwhile larger REITs was often unaffordable for retail investors. To address this, Sebi released new regulations on March 8, 2024, creating a new route called Small and Medium (SM) REITs that can issue units to at least 200 investors, where each one can make a minimum investment of Rs 10 lakh.
InvITs: Infrastructure Investment Trusts (InvITs) are similar to REITs but invest in infrastructure assets such as roads, power plants, airports, telecommunication projects, dams, irrigation projects etc. They generate income from user fees, tolls etc and also have long-term capital appreciation prospects which are reflected in dividends or the price of units.
Municipal Bonds: Municipal bonds are debt securities issued by local governments or municipal bodies to finance urban infrastructure projects like parks, libraries, community centres and schools. They offer investors a predetermined rate of interest over a fixed period. Investors generally favour municipal bonds for their higher coupon rates over conventional Public Sector Units (PSU) bonds.
