REITs vs Real Estate Mutual Funds vs Fractional Ownership : A Clear Guide for Indian Investors

There’s a misconception going around about real estate investment, i.e. you need to have lots of money or take a huge loan to buy a real estate property. What if we tell you, you can start investing in real estate with a small amount. Yes! You can do so by investing in REITs (Real Estate Investment Trusts), Fractional Ownership, and Real Estate Mutual Funds. These investment tools allow you to take advantage of the fast-growing real estate market without having to break your bank. 

Let’s explore REITs, Fractional Ownership, and Real Estate Mutual Funds and understand which one is the perfect investment option for you. 

What Are REITs?

Real Estate Investment Trusts (REITs) are professionally managed trusts that own and operate income-generating properties, like office buildings, shopping malls, or warehouses. They’re traded on stock exchanges and must distribute at least 90% of their distributable income to investors, offering transparency and asset-backed exposure without direct property ownership.

Why It Appeals to Indian Investors

• Easy liquidity, just like stocks, though volumes may be modest.
• Regular dividend income plus potential capital growth.
• Entry is relatively affordable, starting around ₹10,000–15,000 per unit.

Recent Developments & Outlook

SEBI has proposed increasing mutual funds’ exposure to REITs and InvITs from 10% to 20%, underlining growing institutional interest. There’s also talk of reclassifying REITs as equity instruments and possible inclusion in equity indices, a move that could further boost their appeal.

What Are Real Estate Mutual Funds?

These are mutual funds that invest in the stocks of real estate developers, REITs, property management firms, and other related companies. Rather than owning property directly, investors hold a diversified basket of real estate–linked equities.

Advantages

• Start small: SIPs often begin at ₹1,000–5,000/month.
• Professionally managed and diversified.
• Easy to redeem within 2-3 business days.

Tax Treatment (India)

• Equity-oriented funds: 15% STCG, and 10% LTCG on gains above ₹1 lakh.
• Debt or hybrid real estate funds may attract different taxation, potentially including indexation benefits.

These offer indirect exposure with low entry and high flexibility.

What Is Fractional Ownership?

This newer model allows investors to own a tangible “slice” of a physical property (such as an office, warehouse, or even vacation home) via digital platforms. You invest in an SPV, own a percentage of the property, and share rental income and appreciation.

Why Does It Matters?

• Allows access to premium commercial real estate with investments as low as ₹5–25 lakhs.
  
• It has offered rental yields around 7–8% annually and IRRs (Internal Rate of Return) of around 12–14% (pre-tax).

Growth & Regulation

• The fractional real estate market in India is estimated at around $500 million today, expected to grow more than 10× by 2030, potentially surpassing $5 billion.
  
• SEBI has introduced a Small and Medium REIT (SM REIT) framework to formally regulate fractional ownership platforms (FOPs), enhancing transparency and investor safety.

Risks to Consider

• Limited liquidity: Exiting may require finding a buyer or relying on a secondary market.
  
• Regulatory gaps remain: Platform credibility varies, so due diligence is essential.
  
• Shared control: Major decisions often lie with the platform or co-owners.

Side‑by‑Side Comparison

Feature	REITs	Real Estate Mutual Funds	Fractional Ownership
Entry Amount	Rs.10K-Rs.15K per unit	SIPs from Rs. 1K onwards	Rs. 5L- Rs. 25 L. onwards
Liquidity	High	High	Low to Moderate
Income Source	Rental Income, Dividends, Gains	Capital Gains, Dividends from holdings	Rental Income + Appreciation
Investment Management	REIT Manager	Fund Manager	FOP (Fractional Ownership Platform
Diversification	Across properties	Across real estate firms/sectors	Depends on platform’s offerings
Applicable Tax	Dividend may be tax-free; STCG- 15%-20%; LTCG- 10%-12.5%	Based on Equity vs Debt Rules and as per tax slab	Depends on SPV (Special Purpose Vehicle) Structure
Liquidity Risk	Low	Low	Mid to High
Regulatory Body	SEBI	SEBI	SEBI- Via SM (Small-Medium) REIT Framework

Which Option Suits Which Investor?

Go for REITs if you want:

• Regular, passive income with high liquidity.
  
• Low hassle and transparent, regulated exposure to real estate.

Choose Real Estate Mutual Funds if you prefer:

• Small, easy investments via SIPs.
• Professional diversification in real estate-linked equities.
  

Opt for Fractional Ownership if you seek:

• Tangible property exposure and higher potential returns.
• Willingness to invest more and take on some liquidity and regulatory risk.

Final Thoughts

For Indian investors, the choice between REITs, Real Estate Mutual Funds, and Fractional Ownership boils down to your priorities:

• Want liquidity and passive income? Go for REITs.
  
• Prefer low-cost SIPs and sector diversification? Choose Real Estate Mutual Funds.
  
• Seeking direct real estate exposure and higher returns with acceptable risk? Consider Fractional Ownership, but do your homework and stick to regulated platforms.

As regulatory reforms continue to strengthen these markets, now is an exciting time to explore real estate investing, across whichever path aligns with your goals and risk-appetite. 

For more such informational blogs, keep reading Inframantra. Inframantra is one of the best real estate companies in Gurgaon that offers top-notch home-buying services without any brokerage. With us, you can avail services like free consultation and site visits, and enjoy a seamless home-buying experience.     

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