Chennai
Take the case of real estate and gold, asset classes where innovation and transformation have taken place. Real Estate investment in the current Indian context is quite complex. One has to identify a good property, register the sale deed, check the credentials of the builder / owner, if the property is meant for investment then look for a good tenant, property maintenance, illiquid in nature when it comes to selling the property, etc. are some of the obstacles that one has to cope with. But, in one stroke REITs has nullified the aforementioned hurdles and is offering a unique real estate investment opportunity.
What is REITs and how does it work?
SEBI, in 2017, has allowed Real Estate Investment Trusts (REITs) to raise capital by issuing securities to public and others. Companies into commercial real estate can now attach their rent yielding properties and issue them as securities. In simpler words, REITs are corporations that own and manage a portfolio of real estate properties and mortgages.
Anyone can buy shares in a publicly traded REIT. They offer the benefits of real estate ownership without the headache or expense of being a landlord. In India, currently, the Bengaluru-based Embassy Office Park is the only listed REIT available for investments, though there are quite a few companies in the pipeline to launch their REITs.
Embassy REITS came up with the IPO in March 2019 at an offer price of Rs 300 per share. Now, (after nine months) it trades around Rs. 415 (almost 40% appreciation from the IPO price). With REITS having commercial property as its underlying assets, it is mandated to distribute 90% of its earnings as dividend to investors. For the completed half year, the company has declared a dividend of Rs. 11.4/- per share. Considering the same dividend rate for the rest of the year (11.4x2=22.8), this would work out anywhere between 7.5-8% (22.8x100/300 = 7.6%). Embassy REITs offer the benefits of real estate – property appreciation and rental yield – besides offering the rate transparency and liquidity by trading in the stock exchange. Further, the physical assets cannot be sold in parts, whereas, REITs can be sold in parts (Embassy REITs shares can be sold/bought in a minimum lot of 200 units).
Sovereign Gold Bond
Gold is another asset class that glitters in the Indian household. According to reports, Indians hold 24,000 tonnes of the yellow metal in the form of jewels, coins and gold bars. This works out to $900 bn, which is struck unutilised for many years. The Centre, in a move to reduce the holding of physical gold and reduce the burden on foreign exchange, has started issuing Sovereign Gold Bond (SGB) under the Gold Monetisation scheme since 2015.
The SGBs are offered in tranches by RBI in consultation with the Centre. These bonds will be denominated in the multiples of a gram of gold with the minimum unit of 1 gram.
The interest for the gold bonds will be 2.50% per annum which is payable semi-annually on the nominal value. The tenure of the bond will be for a period of 8 years with an exit option available in the 5th, 6th and 7th year on the dates ofinterest payment.
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