Listed real estate fund in India

What it is

A listed company or fund that owns income-producing property and is required by law to pay out most of its rental income as dividends, in exchange for paying little or no corporate tax. It exists so ordinary people can own a slice of commercial property without buying a building.

Brazil's FIIs, Mexico's FIBRAs, Japan's J-REITs and the US originals all follow the same idea with local twists on tax. The income is real and often higher than shares pay; the price is set by the stock market, so in a crash it falls with everything else even if the tenants keep paying.

It is also a bet on interest rates. Property values fall when rates rise, and REITs borrow to buy buildings, so rate shocks hit them twice.

How it works

The REIT buys and manages buildings, collects rent, and must distribute most of it to shareholders on a schedule.
You buy shares on the exchange through your broker, in any amount.
Distributions arrive like dividends, taxed according to local REIT rules, sometimes favourably.
The share price reflects both the buildings' value and the market's mood, and can sit far from either.

The honest pros and cons

For

Property income without a mortgage, tenants or a leaking roof.
High and regular payouts, sometimes with favourable tax treatment.
Liquid: you can sell in seconds, unlike a building.
Spreads a property holding across many buildings and tenants.

Against

Falls with the stock market in a crash, whatever the buildings are doing.
Very sensitive to interest rates, which hit both property values and the REIT's borrowing.
Sector concentration: an office REIT lives and dies with office demand.
The payout is not guaranteed and is cut when tenants leave.

Getting it in India

Listed real estate fund available

Account type: Demat and trading account (listed equity gains are taxed at 20 percent short term and 12.5 percent long term above 125,000 rupees a year; interest is taxed as income)

Wherever you are

Decide which kind of property you want exposure to, or pick a diversified REIT fund to own them all.
Check the borrowing level and the occupancy rate; both are published quarterly.
Buy through your broker, inside a tax shelter if your country lets REIT income sit there.

Try it

Go deeper

Also called

REITs, FIIs, FIBRAs, J-REITs, A-REITs, property trusts

Often confused with

Domestic shares: Part ownership of a company listed in your own country.
Closed-end fund: A fund with a fixed number of shares that trades on an exchange like a company; its price can drift from what it holds.