In its board meeting, SEBI has proposed to reduce the minimum ticket in Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InvIT) to Rs.50,000 and Rs.1 lakh, respectively. The move is expected to attract retail participation in these instruments.
Here are some key proposals of SEBI on REIT and InvIT regulations.
Reduction in investment amount for publicly issued InvITs and REITs
Currently, investors have to invest a minimum of Rs. 10 lakh in the InvIT during the offer period and the minimum lot size for trading is Rs. 5 lakh.
In case of REITs, the minimum subscription amount is Rs. 2 lakh while transaction can happen in lots of Rs. 1 lakh.
As per revised regulations, investors can invest in these instruments in lot of 100 units. Each lot will be of Rs. 1 lakh (InvITs) and Rs.50,000 (REITs). At these levels, we may see some participation in these products from middle income investors.
Increase in the leverage limit for InvITs
InvITs can increase their leverage limit from 49% to 70% provided they fulfil certain compliance and disclosure requirements:
- Credit rating for the project is AAA
- The InvIT should have made at least six continuous distributions in financial years just preceding the financial year the InvIT asks for debt enhancement. The distributions need to be made post listing.
A separate framework for privately placed unlisted InvITs
SEBI has proposed a separate framework for privately placed unlisted InvITs which will give more flexibility to both investors and issuers.
As per the new structure:
- Minimum investment in these products will be Rs. 1 crore
- The issuer will determine the number of investors and single investor investment limit
- The issuer can decide the amount of leverage in consultation with the investor
- The assets can be under construction or completed or a mix of them both
Should you recommend these products to your clients?
According to Sunil Subramaniam, MD and CEO, Sundaram MF as mutual funds have the flexibility to invest in REIT and InvITs, investors can get some exposure to these products through the mutual fund route. Moreover, direct investment in these products requires relatively high minimum investment and long holding period. This makes these products more suitable for HNI investors who do not have near term cash requirement and want to invest in them for portfolio diversification, he said.
In essence, REITs and InvITs are an alternative type of fixed income investment, feels Manish Mehta, National Head Sales and Distribution Alliances, Kotak MF. However, the underlying structure of these products is relatively complex. This makes them more suitable for informed investors, he added.
