Understanding what REITs are, how they generate returns and why they deserve a place in a modern investment portfolio

 Real Estate has always been an aspirational asset class in India. For decades, investors associated wealth creation with owning property whether it was a home, a commercial shop or a piece of land. But traditional real estate also comes with high entry costs, lack of liquidity, low transparency and the hassle of property management. This is where REITs - Real Estate Investment Trusts have emerged as a practical, regulated, and highly accessible way to invest in income-generating commercial real estate without needing crores of rupees.

India’s REIT market, though still young has matured rapidly in the last five years. With yields stabilising, stronger institutional participation and a growing pool of Grade-A office assets, REITs are becoming a core component of diversified portfolios especially for investors seeking steady rental income and long term compounding.

 

What Are REITs?

A Real Estate Investment Trust (REIT) is a listed entity that owns, manages, and operates income-generating real estate. These properties typically include: Grade-A office parks, IT campuses, Warehouses and Logistics hubs and Retail malls and commercial complexes. REITs pool money from investors and use it to acquire and manage commercial real estate. The rental income earned from tenants (usually large corporates, MNCs, IT companies, and global capability centers) is then distributed to investors as dividends or interest.

A REIT is similar to a Mutual Fund but instead of equity or debt, the underlying asset is real estate. By regulation, Indian REITs must distribute at least 90% of their net distributable cash flow (NDCF) to investors, usually on a quarterly basis. This ensures steady income.

 

How REITs Work: The Business Model in Simple Terms

An Indian REIT typically earns money from:

Rental Income: The largest component tenants pay rental fees for using commercial space.

Lease Escalations: Most leases include annual escalation clauses (usually 5–15%), providing predictable growth.

Occupancy Levels: Higher occupancy improves cash flows. Grade-A office parks in major cities often operate above 85–90%.

New Acquisitions and Portfolio Expansion: Many REITs expand by purchasing additional office parks, increasing their rental base over time.

Interest Income: Depending on structure, REITs may earn interest on loans given to SPVs (Special Purpose Vehicles).

Capital Appreciation: Over time, the value of their underlying assets increases.

Because they are listed on stock exchanges, REIT units trade like shares offering liquidity unavailable in physical real estate.

 

Why REITs Deserve a Place in Your Portfolio

Low Entry Cost: With units priced around Rs 250–400, investors can access real estate that would otherwise require crores of rupees.

Stable Income Streams: REITs distribute a significant portion of cash flows. Most Indian REITs currently provide 6–8% annual distribution yield, making them attractive for: Conservative investors, Retirees and Those seeking passive income

High-Quality Institutional Real Estate: REITs own large office parks leased to global firms like: Google, Accenture, Infosys, Amazon, Microsoft, JP Morgan, Deloitte and etc. This reduces default risk and enhances long-term stability.

Liquidity and Transparency: Being listed on NSE/BSE, REIT units can be bought or sold instantly. They are regulated by: SEBI (for structure and governance) and Indian trusts laws (for asset protection). This transparency stands in stark contrast to physical real estate.

Hedge Against Inflation: Commercial leases typically include escalation clauses, which allow REIT income to keep pace with inflation.

Diversification Benefits: REITs add a non -correlated asset class to portfolios. While equities can be volatile and bonds offer limited growth, real estate provides stability and steady income.

Professional Management: Properties are run by top global and domestic real-estate managers. Investors benefit without worrying about tenants, maintenance, or property disputes.

 

REITs Listed on the Indian Stock Exchanges

As of 2025, India has four listed REITs, each with a strong underlying asset portfolio:

1. Embassy Office Parks REIT

India’s first and largest REIT

• Backed by Embassy Group and Blackstone
• Portfolio: 42.4 msf (million square feet) across Mumbai, Bengaluru, NCR, Pune
• Tenants include Google, JP Morgan, Wells Fargo
• Strong distribution track record

 

2. Mindspace Business Parks REIT

• Backed by K Raheja Corp
• Portfolio: 32 msf across Hyderabad, Mumbai, Pune, Chennai
• Strong occupancy and multinational tenant base
• High-quality suburban business districts (SBDs)

 

3. Brookfield India REIT

• Backed by Brookfield Asset Management (global real estate powerhouse)
• Portfolio: 27.6 msf across Mumbai, Gurugram, Noida, Kolkata
• Known for resilient occupancy and steady cash flow
• Strong acquisition pipeline

 

4. Nexus Select Trust REIT

India’s first retail-focused REIT

• Owns leading malls across Delhi, Mumbai, Hyderabad, Bengaluru
• Houses brands like Zara, H&M, Apple, Starbucks
• Benefits from India’s rising consumption and premiumisation trend

 

These four REITs provide exposure to both office and retail real estate, helping investors diversify within the category.

 

How REITs Can Strengthen Your Portfolio

Ideal for a Core Income Strategy: If your portfolio relies mainly on equities, adding 10–20% allocation to REITs can stabilise returns.

Great Hedge During Volatile Markets: Unlike stocks, REITs derive income from long-term leases, which remain unaffected by market volatility.

Enhances Overall Risk-Adjusted Return: REITs produce: steady cash yields,moderate long-term capital appreciation and low volatility. This improves the Sharpe ratio of diversified portfolios.

Suited for SIP or Lump-Sum Investing: REITs work well for both: Systematic buying at monthly intervals and Large lump sum allocations to create passive income streams.

Useful for Retirement Planning: A portfolio of REITs can generate regular quarterly distributions helpful during retirement or for conservative investors.

 

Key Risks to Consider

Office Demand Slowdowns: Tech sector hiring cycles and global recession fears may impact office absorption.

Interest-Rate Sensitivity: REIT valuations often move opposite interest rates, similar to bonds.

Occupancy Risks: Vacancy in large office parks may temporarily affect cash flows.

Regulatory Changes: Tax or lease regulations could change, though REITs remain one of SEBI’s priority instruments.

 

The Future of REITs in India

The next decade will likely witness:

• More REIT listings (warehousing, hospitality, data centers)
• Consolidation of Grade-A commercial assets
• Higher retail participation
• Stronger FII and pension-fund inflows
• Growth in distribution yields as portfolios scale

With India becoming a global services hub, Grade-A office demand is expected to rise. This directly strengthens the long-term prospects of REITs.

 

Conclusion

REITs bring together the best of both worlds the stability of real estate and the liquidity of stock markets. They offer predictable income, transparency, professional management, and easy access to India’s top commercial properties. For investors looking to diversify beyond equities and debt, REITs deserve a strategic allocation in any long-term portfolio whether the goal is income generation, stability, or wealth compounding.

MAHESH PV

9895135301

FinCARE PORTFOLIO

XIRR ,Real return calcualator for SIP investor?

 Most mutual fund investors would have come across the term XIRR at some point, especially when checking their systematic investment plan (SIP) returns. And yet, very few actually understand what it means. 

Extended internal rate of return (XIRR) is simply a way to calculate annualised returns when your money does not go in or come out at once. In real life, we invest through SIPs, redeem partially, pause investments, restart, make occasional lump sums, basically the cash flows are all over the place. XIRR is a way to calculate the real returns after taking into

.Why XIRR Works Better Than CAGR in case of SIP

Compounded annualised growth rate (CAGR) works only for a single investment made once and held for a defined period. Most investors do not follow this pattern. 

Money goes in every month (SIP), sometimes comes out  through systematic withdrawal plans (SWPs) or redemptions, and the dates vary. CAGR cannot handle these irregularities because it assumes a clean, fixed timeline. XIRR, on the other hand, reads the exact date and amount of every cash flow and tells you your actual return based on how you invested. It is a far more personalised number. Most importantly, it shows what you actually earned, not what the fund delivered in theory.

Where XIRR Really Helps: SIPs, SWPs and Staggered Investing

If you run SIPs, XIRR is the only sensible way to measure returns. Every instalment is invested at a different price (net asset value, or NAV) and on a different date, so the final performance depends on this staggered flow of money. The same applies to SWPs, where small sums are withdrawn regularly. Even if you do multiple lump sums at different times, XIRR pieces it all together into one annualised return that actually reflects your journey, not just the start and end values.

When CAGR Still Works?

CAGR works well when you invest once and hold throughout, for instance, a single lump sum invested for years. But the moment there is a second cash flow, big or small, CAGR loses meaning. 

SIPs, SWPs, staggered lump sums, partial redemptions — all of these require XIRR

Limitations Investors Should Keep in Mind

XIRR is only as accurate as the dates and entries you put in. Incorrect sequences, missing entries, or large one-time inflows/outflows can distort the result. It also assumes reinvestment at the same rate, which may not always be true. For very short periods or highly volatile patterns, even XIRR can look odd.

Should the wealth managers/investment advisors start divorce planning for their clients?

 A recent survey done by 1 Finance indicates that divorce in India is no longer just a social and emotional rupture, rather, it is fast emerging as a financial event that reshapes lives, assets, and long-term security.

The survey is based on 1,258 divorced or divorcing individuals across Tier 1 and Tier 2 cities. It throws light on the financial fault lines of separation, while financial planners argue that the real challenges often lie beyond statistics, in courtroom realities and cultural taboos.

The Survey Findings

The study revealed some stark gendered patterns:

• Heavy Costs: 19% of women and 49% of men spent more than Rs. 5 lakh on divorce proceedings
• Debt Stress: 42% of men borrowed to pay alimony or legal fees; nearly 30% of those paying alimony had a negative net worth
• Income Drain: On average, men reported 38% of their annual income going towards maintenance
• Alimony Gains: 53% of women received over 50% of their husband’s net worth as alimony, and in 26% of cases, it exceeded the husband’s entire net worth
• Workforce Exit: 46% of women reduced work intensity or quit jobs post-marriage, making them financially vulnerable at separation

While talking about the survey, Keval Bhanushali, CEO and Co-Founder, 1 Finance said, “Financial incompatibility is among the leading causes of divorce. Two-thirds of respondents reported frequent money-related arguments, and the costs of divorce only deepen the strain.”

Kanan Bahl, Editor-in-Chief, 1 Finance Magazine, added: “Finances remain taboo in Indian households. But 43% of respondents cited money disputes as a reason for divorce—proof that clarity on debts, family obligations, and lifestyle standards must be agreed upon at the outset of marriage.”

Numbers Don’t Tell the Whole Story

Despite the numbers and the results of the survey, financial planners caution that data needs to be understood alongside real-world practices.

Kavitha Menon, Founder, Probitus Wealth, pointed out that many men restructure assets before divorce. “They move property to parents or relatives, while retaining loans. Courts are aware of this and demand years of financial records. Most genuine distress cases arise when jobs are lost or incomes shrink and not because men lack assets,” she said.

She also added that Indian courts are rarely unfair and “Alimony is decided based on earning capacity. In fact, many claims get reduced or rejected if the court sees misuse.”

Menon stressed unlike predictable goals like child education, divorce is almost impossible to pre-plan financially. But she urged couples, especially HNIs, to consider prenuptial agreements, which are slowly gaining acceptance in India.

Financial Planning Meets Reality

Apurva Bhat, Managing Partner, Aniram, recounted how one client’s divorce turned into a financial tug-of-war, with disputes over gold, joint investments, and claims on ancestral rental income.

She explained that divorce planning is still taboo. Most couples are focused on aspirational goals like schooling, early retirement which is why alimony never enters the picture until it hits.

Bhat suggests practical steps:

• Maintain separate investment accounts to simplify division
• Use ‘what if’ scenarios of planning during financial advisory sessions
• Encourage regular wills and estate planning to avoid post-separation disputes

She admitted that even with planning, complications won’t vanish. Divorce is too sensitive and full of unknowns. The best long-term solution is prenups and better financial awareness.

An Insurance for Divorce?

Saravanan S., Co-promoter, Purplepond Financial Planners, proposed a bold idea: marriage insurance.

“Just as doctors buy indemnity cover, couples could insure their marriage. If divorce occurs under specified conditions, the policy could cover alimony payments,” he suggested.

Alternatively, he also advised building of an alimony corpus. He suggested to create a pool of funds earmarked for separation that, if unused, becomes retirement wealth.

Saravanan also pointed out the role of estate tools like trusts to ring-fence parental property from alimony claims, and the need for structured cashflow planning for single mothers’ post-divorce.

Conclusion

The consensus is clear, while divorce-related financial planning is still rare in India, rising cases mean the conversation cannot be avoided. Prenups, estate planning, and better financial disclosure may slowly replace today’s secrecy and improvisation.

As Bhanushali of 1 Finance put it, “Money talk before marriage may feel uncomfortable, but it is far cheaper than money talk after marriage.”