Mutual fund managers are unlikely to aggressively invest in Real Estate Investment Trust (Reits) and Infrastructure Investment Trust (InvITs), despite the market regulator – the Securities and Exchange Board of India’s — proposal to double the existing limit to 20%.
The reason: Muted returns by these instruments. For example, in the past six months, the Nifty REITS and InvITs index have fallen by around 5%. The value of some of them have fallen up to 12%, with Powergrid InvIT, IRB InvIT Fund, and Nexus Select Trust falling the most. Only Mindspace Business Parks REIT and National Highways Infra have risen by around 2%. Even over a one year period, Nifty REITS and InvITs index has risen 3.95% against 8.44% rise in the benchmark 50-stock index.
Deepak Shenoy, founder of Capitalmind said that the proposed limit increase will not have an immediate impact on investment decisions as they have not given great returns. However, the proposal provides flexibility to invest in them in future when the risk-reward becomes favourable. He also expressed his worry about these instruments being riskier than debt due to an added regulatory risk.
However, Ajay Tyagi, head of equities at UTI Asset Management believes that the proposal to increase the investment limit for these instruments in equity and hybrid schemes to 20% from 10% earlier will provide flexibility, adding that it will help in better risk management of the portfolio..
Anthony Heredia, CEO of Mahindra Manulife Mutual Fund added that this option will help diversify into an asset that is likely to become relevant over time.
According to SEBI, this will provide more investment avenues and further diversification to schemes of Mutual Funds. “The proposal is also expected to increase the capital inflow into these instruments, broadening their market base and liquidity,” the consultation paper said.
In addition to the limit increase, SEBI has also asked for public comments on if there is a merit in classifying such securities as “equity” and their consequent inclusion in equity indices for the purpose of investment by Mutual Funds as REITs and InvITs combine the features of both equity and debt instruments.
It was also deliberated by the advisory committee whether the inclusion of these instruments as constituents of equity indices would be appropriate and fair to investors in schemes following such indices as benchmark.