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The rise of Demat accounts is opening new doors every day with diverse options for investors in the investment landscape of India. The Real Estate Investment Trust (REIT) has emerged as a new desirable avenue for investors to broaden their portfolios. And the Demat account serves as the gateway for investors stepping into the Indian REIT market.
What are REITs?
Real Estate Investment Trusts are the companies that own, operate and manage income-generating real estate properties. It may include residential properties, commercial properties and infrastructure projects. Here, investors can try out funding in real estate without actually owning or managing it.
Real estate has always been a favourable investment option for people since early times. But one needs to make heavy investments in the traditional real estate sector. Unlike conventional real estate investments, individuals do not have to put a hefty amount into this. That’s the biggest boon that this kind of new avenue is offering the investors, supporting inclusion.
REIT pools money from investors and allots it into real estate assets. Consequently, individuals own shares of those assets without buying the entire asset. It provides a way for individual investors to earn returns in the form of dividends based on their shareholding in those assets. This is how it functions.
Types
In this case, commercial entities own and manage real estate properties like offices, shopping complexes that generate rental income. And this income is distributed among the shareholders according to their holdings.
- Mortgage REIT
These are investments in mortgage-backed securities that allow investors to earn income in the form of interest, proportionate to their holdings. This can back both commercial and residential opportunities.
Put more simply, mortgage REITs provide returns through interest revenue from financing real estate transactions, whereas equity REITs expose investors to rental income from directly held buildings.
Need of Demat account
REIT investments demand a Demat account, like investing in stocks. These are often listed on stock exchanges and investors can purchase them as stocks, mutual funds or ETFs. The first step is to open a brokerage account that has access to REIT.
Once your account is ready, do research on the possible options that best fit your financial and investment goals. When you are finalised with your choice, you can proceed to buy, keeping in mind the nature of the fees the broker may charge.
Benefits and risks
REIT offers a diversified portfolio where investors are subjected to the limited potential risk of investing in a single real estate asset. As mentioned before, for individuals who are deeply interested in the real estate sector but do not have a large sum of money to invest, this is a great way for them to explore.
As a shareholder, you will receive a regular income proportionate to your shareholdings in the asset, which will serve as passive income. The other benefits include liquidity. Unlike traditional real estate investments, it allows you to buy and sell shares by simply logging in to your brokerage account.
Like any other investment, REIT carries its own risks. It’s value depends on real estate market, so if there is a hike in the interest rate and the value of a property goes down, consequently, it may affect the value of your investment, thus lessening the return. Market volatility is another risk associated with it. But, there is often less short-term volatility with a REIT than with a stock
Conclusion
The investment domain of the country keeps evolving every day, offering new avenues for investors. REIT has put forth an opportunity in real estate investment along with the traditional method that adds some diversification to your portfolio. Consider all the pros and cons, research well and select an appropriate REIT option that aligns with your goal of wealth maximisation.
