What is REIT? here's all you want to know

'Disclaimer: This story is for informational purposes only and should not be taken as investment advice.'

Everybody wants to lead a comfortable life with a good lifestyle, but few persons are fortunate enough to manage the life as they wish.

If you aspire to have a better living, you need to plan you investments. There are different investment avenues, and one such option is REIT or Real Estate Investment Trust.

Before exploring the reasons to invest in REITs, let us first understand the basics of REIT and its types.

According to India Infoline, REIT which stands for Real Estate Investment Trust is similar to that of a mutual fund, but instead of investing in stocks or bonds, it tends to invest in the real estate.

"The trust owns, operates or even finances income-producing real estate as per their needs. These like other securities trades on major stock exchanges and provide liquid stakes in real estate to the investors," India Infoline adds.

There are two types of REITs namely, Equity REITs and Mortgage REITs:

Equity REITs: This type of REITs own large commercial buildings, retails storefronts, hotels, or apartment buildings. The returns are earned by giving these buildings on lease and subsequently dividends are paid to the investors.

Mortgage REITs: This type of REITs do not own the properties themselves, but the debt on the properties. These own mortgages against the properties and collect payments.

India Infoline cites few reasons to invest in REITs, as it finds investing in REITs can be a very fruitful and beneficial investment for you.

Diversification
The concept of diversification in the portfolio is very popular, as it allows you not to keep all your eggs in a single basket. Your portfolio is structured in such a manner that the investment amount is divided into various portions and invested in different assets and securities. This helps in diversifying risk quotient. Suppose, a particular stock or sector witnesses a rough patch then you lose on only a part of your investment which could have been a loss on full investment in an otherwise case.

REITs, therefore, offers competitive returns and is not dependent on other sectors.

Good Returns
In the wake of massive construction activities across the country, real estate is prospering. This has resulted in the returns from the REITs to be good and very competitive than other traditional investments.

Stable Income
REITs has so far been very popular among the retired personals due to the stable income it provides. REITs are less volatile than corporate profits and thus offers safer dividends. These stable dividends out of the lease/rental income have made REIT a favourite investment avenue among common investors.

Tax Efficiency
Dividends of REITs are non-taxable at the corporate level. It means unlike other securities which pay tax at the corporate level which could be as high as 35%, REITs save that taxation at the corporate level which would mean extra dividends for the shareholders.

While on the shareholder’s level, you are subjected to pay 15% to 20% tax depending on the tax bracket, but for REIT dividends, which are usually not qualified, you tend to pay the marginal tax rate. This makes REIT tax efficient in nature.

Democratic in nature
Since REITs pay the dividends regularly and often have to get involved in raising funds for new projects via new debt/equity offerings, they are far more disciplined and democratic in their operations.