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

A Real Estate Investment Trust (REIT) distributes income to unitholders. A REIT's units are held by an investor who wants to understand the key rule. Which statement about SEBI's REIT framework is correct?

SEBI requires a REIT to distribute at least 90% of its net distributable cash flows to unitholders, and SPVs must likewise pass on at least 90% to the REIT. This high payout makes REITs income-oriented vehicles.

  1. AA REIT must distribute at least 90% of net distributable cash flows of the SPV and the REIT to unitholdersCorrect
  2. BA REIT must distribute only 10% of its net distributable cash flows
  3. CA REIT is not required to distribute any cash flows
  4. DA REIT must distribute 100% of its capital to unitholders each year

Explanation

Under SEBI REIT rules, at least 90% of the net distributable cash flows of the SPVs must be distributed to the REIT, and the REIT must distribute at least 90% of its net distributable cash flows to unitholders. The 10% and nil options contradict this. Distributing all capital annually is not required.

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