NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Collective Investment Vehicles

REITs, InvITs and Venture Capital Funds Explained

Updated 11 October 2026 · Fact-checked

REITs hold income-producing real estate and InvITs hold infrastructure assets such as roads and transmission lines. Both are SEBI-regulated trusts, usually with exchange-listed units. They must pass on at least 90% of net distributable cash flows from their SPVs to the trust and on to unit holders. Venture capital funds are Category I AIFs investing in early-stage unlisted businesses.

Understand Other Vehicles: REITs, InvITs and Venture Capital Funds

A collective investment vehicle pools money from many investors and invests it in a set of assets. Mutual funds do this for securities. REITs, InvITs and venture capital funds do it for assets that a small investor cannot easily buy alone: office buildings, toll roads, power lines and young companies.

A REIT (Real Estate Investment Trust) owns income-producing real estate such as offices and malls. Rent flows to the trust and is passed on to unit holders. An InvIT (Infrastructure Investment Trust) works the same way but owns infrastructure assets such as roads, transmission lines and pipelines. Income comes from tolls, tariffs or similar revenue.

Both are set up as trusts under SEBI regulations. The main parties are the sponsor (who sets up the trust), the manager (called the investment manager in an InvIT, who runs the assets), and the trustee (a SEBI-registered entity that holds the assets for unit holders and supervises the manager). Investors hold units, not shares. Public REIT and InvIT units trade on stock exchanges, so you can buy and sell them through a demat account. Under SEBI rules, the trust must receive not less than 90% of the net distributable cash flows of its SPVs, and the trust must distribute not less than 90% of its own net distributable cash flows to unit holders. Distribution must be at least half-yearly. So these vehicles suit investors who want regular income.

A venture capital fund (VCF) is a pooled vehicle that invests in start-ups and early-stage unlisted companies. Under SEBI's rules it is a Category I Alternative Investment Fund (AIF). It is a private, closed-ended pool, not a listed unit. Returns come mainly from exits (sale or listing of the investee company), not regular income, and the risk is high. Private equity funds are also AIFs, but they sit in Category II.

For the PMS distributor exam, focus on what each vehicle invests in, how it is structured, how it is regulated, whether it is listed, and what kind of return it targets.

Key formulas to remember

Minimum distribution rule: Minimum distribution = 90% × net distributable cash flows (SPVs to the trust, and the trust to unit holders); Applies to both REITs and InvITs. The trust must receive not less than 90% of the SPVs' net distributable cash flows and distribute not less than 90% of its own to unit holders, at least half-yearly. It is a minimum payout requirement, not a guaranteed return.
Distribution per unit: Distribution per unit = total distribution ÷ number of units outstanding; Use this for simple numerical questions.
REIT asset focus: REIT = real estate, rent-generating; InvIT = infrastructure, tariff or toll-generating; The asset type is the quickest way to tell them apart.
Trust parties: REIT: sponsor, manager, trustee. InvIT: sponsor, investment manager, trustee; The trustee is SEBI-registered and holds assets for unit holders.
VCF classification: Venture capital fund = Category I AIF; private equity fund = Category II AIF; The old standalone venture capital fund regulations were replaced by the SEBI AIF Regulations, 2012.
AIF investor minimum: Minimum investment per investor in an AIF = ₹1 crore; The exception is ₹25 lakh for employees or directors of the AIF or its manager. Concessions for accredited investors are limited and apply only to certain AIF structures, so do not assume them. Read the question for any such condition.
AIF minimum corpus and tenure: Minimum corpus = ₹20 crore for each scheme; Category I and II AIFs are closed-ended with a minimum tenure of 3 years; Angel funds have a lower minimum corpus (₹5 crore). Category III funds can be open-ended.

How to solve Other Vehicles: REITs, InvITs and Venture Capital Funds questions

Most questions on this topic ask you to identify a vehicle, state a rule, or pick a correct or incorrect statement. Use the same method each time.

1Read the question and underline the asset described: real estate, infrastructure, or unlisted young companies.
2Map the asset to the vehicle: real estate to REIT, infrastructure to InvIT, start-ups to venture capital fund.
3Recall the legal form: REIT and InvIT are trusts with listed units for public issues; a VCF is a Category I AIF, privately pooled.
4Check the income pattern: regular distributions for REITs and InvITs, exit-based gains for VCFs.
5If a number appears, match it to a rule: 90% distribution, ₹1 crore minimum AIF investment (₹25 lakh for employees or directors of the AIF or its manager), ₹20 crore corpus for each AIF scheme (lower for angel funds), 3-year minimum tenure. Accredited investor concessions are limited and structure-specific.
6For distribution calculations, take 90% of net distributable cash flows, then divide by units outstanding.
7Eliminate options that mix features, such as calling a REIT a company or a VCF a listed trust.
8Choose the remaining option and move on. Do not over-think.

Quickest way: Asset, structure, income in 20 seconds

When to use it: Use for any identification or statement-based MCQ when time is short.

Asset: building means REIT, road or power line means InvIT, start-up means VCF.
Structure: trust with units (REIT, InvIT) or AIF (VCF).
Income: regular payout of at least 90% (REIT, InvIT) or capital gain on exit (VCF).
Pick the option that fits all three. Reject any option that breaks one.

Common mistakes in Other Vehicles: REITs, InvITs and Venture Capital Funds

Saying a REIT invests in infrastructure or an InvIT invests in real estate.
Both are trusts with similar structure, so students blur the line.
Fix: Tie the vehicle to its asset: REIT to rent-earning property, InvIT to infrastructure projects.
Treating the 90% distribution as a guaranteed return.
The word 'distribute' sounds like a promise of income.
Fix: Remember it is 90% of net distributable cash flows. If cash flows fall, the payout falls.
Calling a REIT or InvIT a company that issues shares.
Students link listing on an exchange with shares.
Fix: These are trusts. Investors hold units, and the trustee holds the assets for them.
Thinking a venture capital fund is regulated under its own separate regulations today.
Older books mention the earlier venture capital fund regulations.
Fix: VCFs now fall under the SEBI AIF Regulations, 2012, as Category I AIFs.
Placing private equity funds in Category I along with VCFs.
Both invest in unlisted companies, so they seem alike.
Fix: VCFs are Category I. Private equity funds and debt funds are Category II.
Assuming VCF units can be bought and sold on an exchange like REIT units.
Students generalise from listed REITs and InvITs.
Fix: VCFs are privately pooled and closed-ended. They are not traded daily and have a minimum tenure.

Worked examples

Example 1

A trust owns toll roads and power transmission lines, has a sponsor, an investment manager and a SEBI-registered trustee, and must pay out at least 90% of net distributable cash flows. Which vehicle is it? (A) REIT (B) InvIT (C) Venture capital fund (D) Portfolio management service

Show the solution

Asset: toll roads and transmission lines are infrastructure.
Structure: sponsor, investment manager and trustee point to a trust, not an AIF or a PMS.
Income: regular payout of at least 90% fits an InvIT.
A REIT holds real estate, a VCF holds start-ups, and a PMS is a discretionary or non-discretionary service, not a pooled trust.

Answer: (B) InvIT

Example 2

A REIT has net distributable cash flows of ₹40 crore for a year and 12 crore units outstanding. What is the minimum distribution per unit? (A) ₹2.50 (B) ₹3.00 (C) ₹3.33 (D) ₹4.00

Show the solution

Minimum distribution = 90% × ₹40 crore = ₹36 crore.
Distribution per unit = ₹36 crore ÷ 12 crore units = ₹3.00.
₹3.33 comes from 40 ÷ 12, which ignores the 90% rule. ₹2.50 and ₹4.00 do not follow from the data.

Answer: (B) ₹3.00 per unit

Exam tips

Learn the asset-to-vehicle mapping first. Many questions test only this.
Memorise 90% as the distribution rule for both REITs and InvITs, and do not confuse it with other percentage limits.
Remember that VCFs are Category I AIFs and private equity funds are Category II. Link this to the AIF topic.
In 'which is incorrect' questions, look for options that call these vehicles companies, guarantee returns, or mix up assets.
Check the negative marking rule for your exam slot. If unsure between two options, eliminate the clearly wrong ones before guessing.

Practice questions from Collective Investment Vehicles

Other Vehicles: REITs, InvITs and Venture Capital Funds: frequently asked questions

What is the difference between a REIT and an InvIT?

A REIT owns income-producing real estate such as offices and malls. An InvIT owns infrastructure assets such as roads and transmission lines. Both are SEBI-regulated trusts, with sponsor, manager and trustee, and both distribute at least 90% of net distributable cash flows.

How do REITs and InvITs work in India?

A sponsor sets up a trust, and a manager runs the assets. The trustee holds the assets for investors. Rent or tariff income is collected and most of it is passed on to unit holders. Public units are listed, so you can trade them through a demat account.

Are venture capital funds regulated by SEBI?

Yes. Venture capital funds are registered as Category I Alternative Investment Funds under the SEBI AIF Regulations, 2012. They pool money privately for early-stage unlisted businesses and are closed-ended.

Why does a PMS distributor need to know these vehicles?

Clients compare PMS with other pooled options such as mutual funds, AIFs, REITs and InvITs. A distributor must explain what each vehicle holds, how it is structured and what risk and return it offers. The exam tests this knowledge in the collective investment vehicles chapter.