Mutual fund (MF) investments in real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) have increased significantly after the pandemic, with many newer schemes ensuring some allocation to these new asset classes, a report by Business Standard stated.
Quoting data from PRIME Mutual Funds Database, the market daily noted that MF exposure to REITs and InvITs has surged many times over in the aftermath of the Covid-19 pandemic taking hold.
The value of holdings, which was at ₹734 crore at the end of March 2020, has advanced to ₹5,200 crore by the end of March 2023, informed the report.
It further highlighted that MF exposure to listed REITs and InvITs is likely to rise to seven (from the present-day six), with the ₹3,200-crore Nexus Select Trust REIT's initial public offering scheduled to open this week for subscription.
The number of fund houses investing in REITs and InvITs has risen to 18, up from seven in 2020, added BS.
The report mentioned that ICICI Prudential MF and HDFC MF had the highest exposure at the end of March 2023, with investments worth ₹2,002 crore and ₹1,459 crore, respectively.
Notwithstanding a sevenfold surge, MF exposure to the two asset classes is just 0.13 percent of the total assets under management of ₹40 lakh crore. REITs and InvITs are gaining traction in India, similar to other developed countries, noted the report.
Analysts told BS that the surge in MF investments coincides with improving financial metrics of commercial real estate and the government’s thrust on infrastructure.
“In the case of REITs, the underlying asset is mostly commercial real estate. If you see the past few years, the yields of such properties have improved significantly, with businesses slowly limping back to the work-from-office mode and a surge in mall foot traffic,” Nirav Karkera, head-research, Fisdom, was quoted as saying in the report.
It is important to note that MF regulations allow schemes (including equity, debt, and hybrid funds) to invest up to 10 percent of their portfolios in REITs and InvITs.