REITs Can Bridge The Gap Between Debt And Equity, Says Mindspace REIT CFO Preeti Chheda

Real estate investment trusts (REITs) can offer investors a combination of regular income, capital appreciation and diversification, making them an additional asset class to consider alongside equities and fixed income, Preeti Chheda, CFO of Mindspace Business Parks REIT and Executive Committee Member of the Indian REITs Association, said.

Speaking at The Money Question event in Mumbai hosted by Outlook Money, Chheda said REITs make income-generating real estate accessible to investors without the hassles of owning and managing physical properties. Similar to mutual funds in their structure, Indian REITs operate through a trust model, with a trustee, manager and special purpose vehicles (SPVs) holding the underlying assets. Investors can buy and sell units on stock exchanges, with the minimum investment being one unit.

Chheda said REITs bridge the gap between debt and equity by combining regular distributions with the potential for capital appreciation. Unlike debt instruments, however, REIT returns are not guaranteed. She described REITs as an investment offering moderate risk and return, while cautioning that they should complement, rather than replace, investors’ equity and fixed-income allocations.

The presentation showed that Indian REITs delivered an average annualised total return of 16.1 per cent over five years as of August 12, 2026. The average return was 20.9 per cent over one year. The figures comprise distributions and capital appreciation, with some recently listed REITs excluded from longer-period calculations because of insufficient trading history.

Chheda said professional management, diversification across properties and locations, and liquidity are among the key advantages of REITs. Investors can gain exposure to commercial offices and retail properties without having to manage tenants, maintenance or vacancies. Rental escalations and property appreciation can also help protect returns against inflation, although this depends on market conditions.

She highlighted the tax treatment of REIT distributions as another consideration. According to the presentation, dividends can be exempt in the hands of unitholders, subject to applicable provisions, while interest income is taxable at the investor’s applicable rate. Amortisation of SPV debt is not taxed when received, but reduces the acquisition cost of units.

Under Securities and Exchange Board of India (Sebi) regulations, at least 80 per cent of a REIT’s assets must be invested in completed, income-generating properties. At least 90 per cent of net distributable cash flows must be distributed to unitholders. Net consolidated borrowings are capped at 49 per cent of asset value, with public unitholder approval required under the applicable framework. The structure also provides for independent valuations and periodic disclosures.

India has six listed REITs, with a combined gross asset value of more than Rs 3.15 lakh crore and market capitalisation exceeding Rs 2.15 lakh crore, according to the presentation. Their portfolios span 214 million square feet across the country’s leading commercial and retail markets. Chheda said the sector has attracted domestic and foreign institutional investors, while retail participation has also expanded.

On the possibility of REIT-based exchange-traded funds (ETFs), Chheda said Sebi’s decision to classify REITs as equity for mutual fund investments, effective July 1, 2026, has opened the way for such products.

She said investors looking to compare REITs should examine factors such as sponsors, rental growth, asset quality, geographical and tenant diversification, occupancy and return performance. On liquidity, she said smaller transactions can be accommodated on exchanges, while very large trades may face constraints. REIT units are traded on exchanges rather than redeemed directly like units of an open-ended mutual fund.

Chheda added that discounts to net asset value can reflect factors such as governance, growth prospects and performance, much as they do for listed companies. She also explained that equity-oriented mutual funds cannot invest more than 65 per cent in REITs under the applicable allocation limit, with the balance invested in other asset classes.

With REITs established in India only in 2019, Chheda said the market remains at an early stage. Beyond offices and shopping centres, she said income-generating assets such as warehouses, data centres, senior living facilities, student housing and hospitality properties could offer avenues for future growth.