In Reit and Invits, the market regulator must process with caution | Photo credit: Designer491
Real Estate Investment Trusts (Reit) and Infrastructure Investment Trusts (INVits), which allow investors to have a part of a commercial real estate or infrastructure project and receive a constant flow of tickets, have an important role in addressing the needs of the need for financing. But despite having spent more than a decade since the launch of the first Reit, the interest of investors in these values is quite warm. A recent consultation document published by the Bag and Exchange Board of India (Sebi) seeks to increase the demand for these instruments improving limits investments for the mutual fund (MF) in Reit and Invits. But given the high risk and low liquidity, it may not be a good idea to increase the exposure of MF to these instruments.
The Sebi consultation document has three proposals. One, classify these instruments as equity and include in capital indices so that passive funds automatically buy thesis values. The idea of classifying the reit and guests as equity had been rejected by the Sebi Board in 2017 and more recent by the Advisory Committee of the Mutual Fund of the Regulator. Both noticed that thesis instruments should be classified as hybrid values, since they have capital characteristics and debt titles. The holders of the thought have the heritage of the trusts, 90 percent of the net cash flow must be distributed among the owners of the unit, giving them the properties of a fixed income security. The voting rights of the unit holders are also limited to some operational decisions, unlike other capital values.
Adding Reit and Invits to capital indices is also a bad idea because: first, the price movement is different from another assets, since the value is derived in part of the capital appreciation and in part of the distributed tickets, the yields of the yields of the yields of the yields of the yields of the yields of the yields of the yields of the yields of the yields of the yields of the yields returns of the yields of the returns of the returns of the returns of the returns of the returns of the yields of the returns of the yields of the yields of the yields. Second, its market capitalization is very small; And third, liquidity is very thin, which makes them vulnerable to price manipulation. The second proposal in the consultation document on having a dedicated MF category for thesis values is also difficult to implement its extremely low volumes. MFS transactions will result in distorting the prices of these values. Such proposal can be consulted after a few years if the negotiation volume in instruments of thesis instruments significantly.
The third proposal in the consultation document refers to the increase in the investment limit for MFS in these schemes. According to current rules, an MF scheme cannot invest more than 10 percent of its active value in Reit and Invits, and no more than 5 percent can be invested in the values of a single issuer. These limits are appropriate, given the high risk in the flow of income of these values, especially in infrastructure investment trusts. Sebi’s proposal for double thesis limits exposure to small investors in MFS at a higher risk.
Posted on April 24, 2025