Share of companies catering to infrastructure and real estate surged in early trade on Monday as SEBI had on Sunday paved the way for listing of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts.

DLF was the biggest gainer among Nifty stocks, which gained 3.75 per cent at Rs 201.5. Among infra pack, L&T lead the gainers list. It gained 1.43 per cent at Rs 1,463.50. Among others, Indiabulls Real Estate, Unitech, HDIL and Godrej Properties scored handsome gains.

Meanwhile, the benchmarks BSE Sensex and NSE Nifty inched up by about 0.5 per cent.

Among infra pack, GMR Infra, JP Power, Adani Power, BHEL, Tata Power and Crompton Greaves also edged up in excess of one per cent.

Real estate investment trusts

The Securities and Exchange Board of India had on Sunday issued the guidelines under which REITs will be allowed to operate in India, thus paving the way for investors who wish to invest in property for the lucrative gains it offers.

An REIT operates a bit like a mutual fund, offering units to investors. The funds are invested in the assets owned, and usually operated by REIT. Investors stand to earn both dividends (from rental income of the property), as well as capital appreciation.

According to the guidelines, investors will have to put in a minimum of Rs 2 lakh for REITs and Rs 10 lakh for InvITs.

The units can be traded on stock exchanges once listed. The trading lot for REITs will be Rs 1 lakh.

Infrastructure investment trusts

InvITs are similar to REITs, but the focus is on investments in infrastructure, as announced in the Budget by the Finance Minister Arun Jaitley.

These instruments enjoy tax-pass through status, which means that the income generated will be taxed in the hands of the investors, and that the fund itself will not have to pay any tax on the same, eliminating the possibility of double taxation.

Listing of REIT, InvITs

Any REITs or InvITs entering the market will have to be listed. The minimum initial offer size should be Rs 250 crore. They can also borrow additional funds to acquire assets, but the borrowings cannot exceed 49 per cent of the value of the trust’s assets.

The minimum asset size has been reduced to Rs 500 crore from the Rs 1,000 crore initially proposed for REITs, which cannot have more than three sponsors, subject to each holding at least 5 per cent.

The minimum net worth of the manager has been increased to Rs 10 crore from the Rs 5 crore proposed in the draft norms.

At least, 80 per cent of the money mobilised by an REIT has to be invested in completed revenue-generating properties, while the rest can be put in developing properties, mortgaged-backed securities, shares of realty and G-secs, among others.

The approved minimum net worth of an InvIT sponsor is Rs 100 crore (against the Rs 10 crore proposed). The net worth of the investment manager has been doubled to Rs 10 crore. For investors, the minimum investment size for InvITs is Rs 10 lakh. Those managing the InvIT should mainly be independent directors.

To avoid a conflict of interest, associates of the trustee have been restrained from investing in the InvIT units.

For non-PPP (public-private partnership) projects, credit ratings have not been mandated. InvITs will invest in infrastructure projects, either directly or through a special purpose vehicle. The proposed holding of an InvIT in underlying assets cannot be less than Rs 500 crore.

A publicly offered InvIT will need to distribute at least 90 per cent of its net distributable cash flows to investors.

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