Difference Between REIT & REMF
Many of you may not have heard the terms REIT & REMF. Both are related to the Real Estate. Both are the Financial products related to the Real Estate Investment.
REIT – Real Estate Investment Trust
REMF – Real Estate Mutual Fund
What are REITs & REMFs & How they Work? -
Well, both of these are the Financial Products for Real Estate Investors. In countries like India, this is a totally new concept but in developed countries like USA, it is an age old concept. I will explain you in Layman’s Language that, What is REIT & REMF & How they Work?
Scenario: 1 All of you know that Real Estate is one of the Best Asset Class to own because it appreciates much faster and gives its investors excellent returns right? Now, suppose you have Rs.10,000 in your pocket and you want to invest in Real Estate. You want to take the advantage of this Asset Class But How will you invest Rs.10,000 in Real Estate? Because Rs.10,000 is such a low amount that, you can’t buy a square foot of land out of this much amount of money. All the Lucrative Real Estate are well above Rs.1 Crore.
Scenario: 2 Now, Let us discuss another Scenario. You have Rs.10 Crores in your Bank Account. You have made this Money by selling your Fortune. You are a Techie & you were doing an Internet Business since last 5 years. And Now, you have sell your Internet Business for Whooping Rs.10 Crores ($ 2 Millions..!!). Now, you want to invest this money in the Real Estate. But as you have ZERO experience of investing in Real Estate. You even don’t know that what is 7/12 Abstract of the property. You even don’t know that How to do Big Real Estate Transactions and still you want to invest in the Real Estate. Than What?…..
Here, Comes the Concept of REITs & REMF. REITs & REMF are the financial products which pulls the money from literally hundreds of thousands of people like Scenario 1 and 2. And after that, they take position into large Commercial, Residential & Rental Properties. They Buy, Develop, Rent or Sell properties and distribute the profit among the Investors. The main aim of REITs and REMF is to provide Capital Appreciation to its Investors.
There is a major different between REITs & REMFs. Even though both work exactly like same, there is a difference. The difference is that, REITs can only invest in Finished Real Estate Projects only. REITs can not invest in under construction real estate projects. While REMFs has to invest MINIMUM 35% in Finished Projects while rest of the funds can be invested in under construction projects also. In short, REMFs can invest into REITs also but REITs can not invest in REMFs.
So the understanding of both of these financial products will help you to take informed investment decisions……!!!!!!!