Real Estate Alternative Investment Funds (AIFs)
Real estate AIFs can be handled actively or passively, like ordinary mutual funds. These AIFs, regulated by the SEBI (Alternative Investment Funds) Regulations, 2012, combine their funds to make investments in mixed-use, residential, and commercial real estate.
They also fund development initiatives. Over the past ten years, AIF investments in real estate have reached ₹75,500 crore, the biggest amount of any sector. AIFs need investors with less than a certain net worth to invest a minimum of ₹1 crore.
The payments are spaced out over a minimum of 18 months, and the return is in the form of interest. Moreover, investors can earn between 15 and 16 per cent, depending on the fee structure.
Real Estate Investment Trust (REIT)
REIT refers to a business that owns, manages, or funds real estate that generates revenue and raises money by selling shares. It makes investments in real estate that generate revenue and are traded like stocks.
REITs distribute at least 90% of their taxable revenue to shareholders as dividends every year. Individual investors can now profit from real estate without having to purchase or finance any properties themselves, owing to REITs.
Primary differences between Real Estate AIFs and REITs:
The minimum investment in real estate AIFs is higher, while REITs enable lower investment.
REITs make direct real estate investments. On the contrary, real estate AIFs make investments in stocks linked to real estate and REITs.
There’s a high-risk level associated with real estate funds. However, REITs involve moderate risk with income-generating properties.
Investors receive their money in the form of dividends, which account for 90% of a REIT’s taxable revenue.
Real estate AIFs may not be the best option if one is looking for short-term profit or passive income because they generate value through appreciation.
The bottom line is that one can choose REITs if they prefer stable income and higher liquidity as dividends from REITs can offer a consistent stream of income.
However, long-term investors find real estate AIFs appealing because they generate a large portion of their value through appreciation and high returns.
