Diversification is the name of the investing game and there is an attractive form of investment in the nature of real estate investment trusts (Reits) or real estate mutual funds, which can add diversification to your portfolio. A large number of investors want to reap the benefits of a rising real estate market. However, there are constraints in terms of finance required, risk appetite and liquidity of investment, which may deter investors from making a direct investment in the realty sector. Real estate mutual funds, for which the draft guidelines are out, are ideal for taking an exposure in real estate. After all, it makes great sense that your investment portfolio should have an ideal mix of all forms of investment - including stocks, bonds, real estate and other assets.

History of Reits:
The concept of Reits originated in the USA. These products grew in popularity over a period of time, as the returns generated by these funds were much better than that from other forms of investments such as bonds, government savings schemes and the like. Now, such products will be soon available in India with SEBI having taken the first few steps to allow mutual funds to set up such funds.

Functioning of a Reit:
A typical real estate investment trust will be structured like a mutual fund. It will pool resources from investors and will invest in different forms of real estate such as commercial complexes, the housing sector, land bank and so on. It is also possible that such funds will have rental income from real estate owned by it. They will not be allowed to invest in equity and debt securities of real-estate companies; they must invest only in real estate directly. The income generated from these investments will be distributed amongst various investors who buy units of these funds or trusts. These are essentially income-earning rather than capital-growing instruments. These funds also have to declare their net asset values on a daily basis and the units are close ended and traded on the stock exchange.

Advantages of investing in Reits:
The benefit of real estate investments is long term appreciation, which can negate the ill effects of inflation on your income. In fact, research has proved that after stocks, real estate generates the highest real long term and sustainable returns. It is even better than gold and of course, way above the returns generated by debt instruments and similar investment tools. Stability of returns is also assured as the property market is relatively less volatile than the stock market. So, even those who do not have the nerve to see their investment gyrate up and down on a daily basis can invest in these funds.

Reits are a long term investment bet:
Real estate investments require patience and a longer time horizon to give you decent returns. This is because it takes time to buy a property, develop it, make it ready for generating income by way of rentals or resale, manage it, etc. Hence, it may take a longer time period for your fund to start generating income for you. However, the wait is worth all the efforts as you would be sitting on a good portfolio at the end of the day. So, if you are still thinking of what to do with that extra income which you want to invest, consider real estate investment for your benefit. It is bound to increase in the long run.