Real Estate Investment Trusts (REITs) should be understood as equity investments rather than substitutes for debt or fixed-income products, according to Radhika Gupta, Managing Director and CEO of Edelweiss Asset Management Company. Despite their characteristic regular income payouts, Gupta emphasizes that REITs possess risk and return profiles far more akin to traditional equities.
REITs: An Equity Asset Class
Gupta highlighted that the Securities and Exchange Board of India (SEBI) categorizes REITs as equity instruments for a fundamental reason. “Too many investors still think of REITs as fixed income. They aren't. They're an equity asset class with cash flow-generating real estate underneath,” she stated in a recent post on X. This classification underscores their true nature as vehicles for investing in commercial real estate that generates income.
Volatility Closer to Equities
A key indicator of REITs' equity nature is their volatility. Historically, equity markets in India have shown an annual volatility of approximately 14-16%. In comparison, a pure-play REIT index has exhibited volatility around 10-11%. While slightly lower than broader equities, this figure remains significantly higher than that of debt funds, arbitrage funds, or many hybrid schemes, firmly placing REITs outside the fixed-income category.
Globally, listed REITs have also demonstrated behavior similar to equities, with a long-term beta of around 0.6-0.7 relative to broader equity markets. However, their performance drivers differ, being primarily influenced by interest rates, commercial property demand, occupancy levels, and rental income, rather than corporate earnings growth.
Income Generation and Diversification
While classified as equity, REITs' return profiles diverge from traditional stocks in one significant aspect: a larger portion of their returns comes from recurring rental income and cash flows. REITs typically offer yields of 5-6%, which is considerably higher than the dividend yield found in the broader equity market. In contrast, conventional equity investments rely more on earnings growth and capital appreciation.
Gupta stresses that the primary rationale for including REITs in a portfolio is diversification, not income replacement. They grant investors access to cash flow-generating commercial real estate through exchange-listed securities, providing liquidity often absent in direct property investments. She compares their role to that of a Gold ETF, introducing exposure to a distinct underlying asset class.
Edelweiss Launches Nifty REITs & Realty Index Fund
Gupta's comments coincide with the launch of the Edelweiss Nifty REITs & Realty Index Fund, India's inaugural index fund tracking a REIT-focused index. The New Fund Offer (NFO) opened on August 5 and will conclude on August 19, 2026. This passive scheme aims to replicate the Nifty REITs & Realty Total Return Index (TRI), providing investors with exposure to both listed REITs and real estate companies via a single investment product.
The fund seeks to streamline investment in REITs, addressing challenges associated with direct purchases. While direct investors face taxation on periodic distributions (interest, rent, dividends) at their income-tax slab rate, distributions received by the mutual fund are not taxed at the fund level. Investors are taxed only upon redeeming their units. Long-term capital gains (after a two-year holding period) are taxed at 12.5%, while short-term gains are subject to the investor's slab rate, as the scheme is not classified as an equity-oriented fund for tax purposes.
The fund's underlying index currently allocates approximately 60% to listed REITs and 40% to listed real estate stocks. This composition reinforces the view that such funds are equity-oriented diversification products, rather than alternatives for debt or fixed-income investments, aligning with Gupta's core message.