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REITs vs InvITs: Which One is Better & Why?

REITs vs InvITs

REITs and InvITs let investors diversify portfolios by adding new asset classes (i.e., real estate and infrastructure projects) respectively.

But between REITs vs InvITs, which is better for which type of investor? We did some investigating, and here are our findings.

What Are REITs and InvITs

Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) pool investor money and use it to invest in the real estate and infrastructure sector, respectively.

Both offer regular dividend income, a chance for long-term capital appreciation, and are less risky than securities.

These financial instruments were introduced in the ’60s to let retail investors get into the infrastructure and real estate sector

Until then, these two sectors were only available for institutional investors such as hedge funds and foreign portfolio investors since they require huge capital investment.

Let’s understand these two financial instruments and their benefits.

What Is a REIT?


A real estate investment trust owns, operates, or finances income-generating assets, such as residential or commercial properties.

In a way, REITs are like mutual funds.

They pool money to invest in a certain investment strategy, which, in this case, is to seek opportunities in income-generating real estate assets.

REITs are traded over the stock exchanges just like other securities.

They are governed by the Securities and Exchange Board and follow regulations as per the Securities Act.

Some of these regulations include:

  • Regular financial disclosures,
  • A minimum of 90% of earnings is distributed back to unitholders
  • At least 80% investment in completed and income-generating properties

These regulations set REITs apart from other securities because they ensure that the investments of these trusts are only in “safe” projects.

Moreover, they also ensure that REITs redistribute most of their earnings back to the unitholders, which makes them a reliable source of steady income.

These safeguards were built into the structure of REITs to ensure that they became a source of passive income and were beneficial for small investors.

How Do REITs Make Money

Equity REITs make money through rental incomes, whereas mortgage REITs do it by creating or buying mortgages and mortgage-backed securities that yield interest.

The first type of REIT owns and operates properties such as malls, retail spaces, housing projects, and so on.

When tenants take up units in these assets, they start generating rentals. This becomes the primary source of earnings for these trusts.

Mortgage REITs create or purchase mortgages, which buyers use to purchase real estate assets.

When the buyers pay back the mortgage, the interest generated becomes the income of the trust.

At the same time, mREITs borrow money to create mortgages, which they have to pay back to their debtors with interest.

The difference between the interest they earn and what they pay back becomes their net earnings.

What Is an InvIT?


Infrastructure investment trusts (InvITs) pool investor money to finance infrastructure projects such as roads, railways, pipelines, and power transmission lines.

There are several similarities between REITs and InvITs.

The key difference is that their underlying assets are infrastructure investments rather than real estate ones.

InvITs are business trusts, just like REITs.

They are under the control of the market regulator and are traded on stock markets like securities.

Additionally, 90% of the net income of the InvITs must be paid out to its unitholders, another commonality that they share with their real estate-focused siblings.

Moreover, there are strict regulations linked to where InvITs can invest their money.

At least 80% of their investment must go into ready and revenue-generating infrastructure projects.

This is also similar to how real estate investment trusts are governed.

These controls are implemented to ensure that InvITs generate steady cash flows for their unitholders without taking too much risk.

However, InvITs are slightly riskier than REITs due to the nature of their underlying asset.

Infrastructure projects are often prone to cost overruns and delays.

Moreover, such projects are also susceptible to regulatory changes, governmental controls, and so on. Both of these factors can lead to lower incomes for an InvIT.

How Do InvITs Make Money

InvITs own and manage operational infrastructure assets.

These assets generate cash flows which the trust distributes back to unitholders.

For example, a highway project would generate toll revenue. A power plant can make money through the electricity bills that it charges to customers.

InvITs provide the benefits of both debt and equity instruments.

They offer regular income due to dividend distribution, but at the same time, it is possible for the unitholders to gain capital appreciation in the long term.

For example, if the InvIT puts its money into an infrastructure project to build a highway and the toll collection exceeds expectations, then the InvIT can significantly appreciate in value.

REITs vs InvITs: Which One to Choose?

Earlier, we looked at several similarities between REITs and InvITs, such as their regulation, the way they provide income, how they are traded, and so on.

Below, we look at some differences between these two asset classes.

Growth Potential

REITs have more potential for growth because they are flexible in the way they manage their real estate assets.

They can remodel existing assets, acquire new ones, or even build new properties.

They can also adjust rentals to accommodate inflation and market expense.

InvITs acquire infrastructure projects, so there are only two ways for them to grow

One way is for them to get projects at low bids. Another possibility for income growth is if the project generates higher-than-expected revenues.

Both of these factors are beyond the InvITs’ control and, therefore, cannot be guaranteed.


REIT securities usually have a lower unit price, and their minimum trading investment is also lower.

InvITs come in bigger lot sizes and are usually more expensive.

Hence, InvITs are overall less liquid than REITs.

Assets Invested In

REITs invest in real estate facilities like offices, warehouses, housing projects, retail spaces, malls, industrial parks, etc.

On the other hand, InvITs focus on infrastructure projects such as roadways, pipelines, highways, power plants, electricity transmission projects, and so on.


REITs are more stable than InvITs, even though both invest at least 80% of their money in operational and income-generating assets.

Infrastructure projects are inherently riskier because they have regulatory, governmental, and political influence on them. We’ll discuss some of these points in the next section.


InvITs are riskier than REITs. There may be several political influences that can cause delays to infrastructure projects and cause the InvIT significant losses.

InvITs that work on public welfare projects like highways and utilities might be subject to several regulatory approvals that can cause a project to get delayed.

Another risk is governmental regulation.

Let’s take the example of an infrastructure project on highway development. In a highway project, the key earning is from toll collection.

If the government brings in regulations to cap the maximum chargeable toll, then it could cause a lot of harm to the InvITs’ earnings.

Environmentalist protests are another cause of timeline overruns.

For example, if an InvIT takes over a project to construct a dam, and green activists start a protest on the ecological impact of the dam, then it can cause significant delays and litigation.

REITs, on the other hand, do not have to contend with such risks.

Once they acquire a lease or freehold ownership, they are free to do as they please with the space.

Dividend Disbursement

While REITs are required to pay dividends at least once a year, InvITs need to pay them every six months at the least.

However, most REIT dividends are paid monthly or quarterly, so this factor does not create much of a difference.

Should I Invest in REITs?

REITs are good investment vehicles for those looking for regular incomes and moderate capital appreciation.

They are also an excellent way to protect your portfolio against market shocks, since real estate market prices are usually not correlated to stock market movements.

Moreover, inflation impacts real estate projects positively because their rental incomes grow with it. On the other hand, inflation has a negative impact on securities.

This makes REITs a good inflation hedge.

InvITs are also a good source of regular income for retail investors and might offer price appreciation in the long term.

However, as compared to InvITs, REITs are safer because they are less prone to political and regulatory risks and require a lower investment.

Should I Invest in InvITs?

InvITs are also a good instrument for investors who are looking for steady incomes and long-term capital appreciation.

However, unlike REITs, they are less liquid and require a higher minimum investment. Moreover, InvITs are slightly riskier because they are prone to regulatory risks.

Changes in regulation or government policies regarding their infrastructure projects could impact them adversely.

Final Thoughts

Both REITs and InvITs are good assets for long-term capital appreciation and regular dividend income.

While the former is focused on real estate projects and lease rentals, the latter invests money in infrastructure-related investments such as roads, highways, power transmission, and so on.

REITs require a lower minimum investment and are slightly safer than InvITs because they are not subject to regulatory or political risk. They also have a higher potential for growth.

While InvITs are slightly less safe, they offer a chance to add a different kind of asset to your portfolio and therefore increase diversification.


Ritesh is an experienced copywriter who brings his decade-long work in corporate strategy and finance to bring analysis and insight into his writing.