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Why Should You Diversify Your Investment Portfolio With REITs?


If you are looking for investment destinations other than stock and mutual with good returns you may miss one of the hot investment destinations, REIT! What is REIT? REITs or Real Estate Investment Trusts is combining funds from many investors and invest the resulting fund in income-producing real estate assets.


REITs are similar to mutual funds in that they expose you to income-producing properties like office buildings and commercial buildings. You may profit from India's growing real estate market by investing small sums of money in REITs.

Should you invest in REIT and diversify your portfolio?

Should you invest in REIT and diversify your portfolio?

REITs allow you to invest in high-quality commercial real estate that you would not otherwise be able to afford. REITs are an appealing investment choice that provides consistent income and dividends. You also benefit from the rising value of the underlying commodity, which is commercial real estate. It allows you to diversify your investment portfolio by allowing you to invest in non-traditional ways.

REITs generate money from their rental holdings and properties, which they transfer to their shareholders in the form of interest and dividends. Furthermore, they are exchanged on the stock exchange in the same way as stocks are, and the price of units rises when market demand is high. You can profitably sell these units and benefit from capital gains from your REIT investment.

Benefits of REITs

Benefits of REITs

Investing in REITs can benefit you in following ways mentioned below:

  • A steady capital appreciation: REITs are supposed to deliver significant dividend income as well as stable capital appreciation over time.
  • Diversification opportunity: Because most REITS are exchanged regularly on stock exchanges, investors may diversify their real estate holdings.
  • Transparent: REITs are obliged to produce financial reports that have been audited by specialists, as they are regulated by the SEBI (Security Exchange Board of India). It allows investors to obtain information on topics such as ownership, zoning, and taxation, making the entire process more open.
  • Obtains risk-adjusted returns: Investing in REITs provides individuals with risk-adjusted returns while also assisting in the generation of consistent cash flow. It allows people to have a consistent stream of income to rely on, even when inflation is strong.
  • Liquidity: Because most REITs trade on stock exchanges around the world, they are simple to purchase and sell, adding to their liquidity.
Pro and Cons of Investing in REITS

Pro and Cons of Investing in REITS

Nothing comes with almost no risk or cons. REITs also have some cons, which run parallel to the pros. It's better to have an idea about the pro and cons before you decide on investing in a REIT.

Liquidity OptionsLack of tax benefits
Allows you to diversifyMarket risk involve
TransparentLow growth prospect
You get Risk-adjusted returnsMaintenance fees are high
Steady dividend incomeOther additional charges

Understand REITs Before Investment

Understand REITs Before Investment

While it's a smart way to diversify your investment portfolio with REITs investments, it's also vital to understand that REITs aren't for everyone. REIT yields may be comparable to those of post office plans. REITs are having difficulty finding qualified tenants to rent out their buildings, which raises the financial risk. In simple words, you can invest in REITs if you have a good understanding of the investment and the dangers involved.

Story first published: Friday, December 17, 2021, 11:42 [IST]
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