After SEBI allowed fund houses to invest in real estate investment trusts (REITs) and infrastructure investments trusts (InvITs) earlier this year, three fund houses modified their scheme information documents of their hybrid funds to gain exposure to these instruments.
REITs invest in rent yielding commercial and residential properties to generate regular income while InvITs invest in infrastructure projects to generate income by way of toll.
While Birla Sun Life MF made changes in 12 hybrid funds, ICICI Prudential MF altered fundamental attributes of three hybrid funds. Similarly, DSP BlackRock MF incorporated changes in two schemes. Hybrid funds include balanced funds, debt oriented hybrid funds and monthly income funds.
Sharing the rationale for adding REITs and InvITs in the investment basket, Mahesh Patil, CIO (Equities), Birla Sun Life MF, says, “If one is able to do proper due diligence of the underlying assets and project the cash flows after making reasonable growth assumptions, investing in these investment trusts at this point in time can give attractive yields. If the economy grows faster, then the underlying cash flows or growth assumptions may also surprise us positively. Looking at the current yields in the market even from a near-term perspective there is decent upside to it.”
Dwijendra Srivastava, CIO (Debt), of Sundaram Mutual Fund says, “REITs and InvITs can only invest in completed projects. I do not see there will be any problem in cash flows.”
Anup Maheswari, Head (Equities), DSP BlackRock Mutual Fund, too thinks these trusts hold promise. “Currently, prices are attractive to invest in these trusts. Moreover, these instruments can provide higher yields than traditional fixed income markets. Going forward, these instruments may prove to be good investments considering the improving macro-economic indicators,” he says.
There are a number of risks associated with these instruments, but liquidity concerns could daunt such investments. “Liquidity can be an issue as these are long-tenure investments. However, if the entry price is right, there is a margin of safety and one can hold it long term with good returns. In order to reduce the risks associated with these investments, we would maintain a limit on the percentage of exposure that we have with a single issuer in the fund,” says Mahesh, of Birla Sun Life MF.
As these instruments are relatively new and not known to many investors, SEBI directed fund houses to give a 15-day window to exit the scheme. Fund houses cannot entail exit loads during this period; however, capital gains tax would be applicable.
“Initially when we made the modifications, investors were bit sceptical as these instruments were unknown to them. However gradually investors have understood the concept and there haven’t been any major negative surprises," Mahesh says.
Anup says that many investors stayed put with the scheme despite the change in the fundamental attribute. “Investors understand that fund house will do what is best for them. Currently, we have made changes in two schemes, i.e., DSP Blackrock Equity Savings Fund and DSP BlackRock Monthly Income Plan. We may look to add these instruments in other schemes once we see a demand.”
SEBI rule mandated fund houses to invest up to 10% of NAV in REITs and InvITs. Fund houses can invest up to 5% in single issuer.
IRB Infrastructure is the first company in the country to launch InvITs. A number of firms, including Reliance Infrastructure and India Grid Trust, have filed draft offer document with SEBI to launch InvITs. A few more players like Sterlite Power Transmission, IL&FS Transportation Network and MEP Infrastructure development, are in process to file draft offer documents with SEBI to launch InvITs.
REITs are yet to be launched in India. Media reports say that Blackstone Group, in collaboration with the Embassy Group of Bengaluru, would launch its REIT soon.
