REITs vs FDs: Real Estate Investment Trusts (REITs) are increasingly emerging as a strong alternative to traditional fixed deposits (FDs), offering a combination of regular income, capital appreciation, and tax efficiency, according to Preeti Chheda, CFO of Mindspace Business Parks REIT and Executive Committee Member of the Indian REIT Association.

In a detailed discussion with Zee Business, Chheda explained how REITs differ fundamentally from FDs in terms of returns, taxation structure, risk profile, and suitability for long-term investors.

Chheda highlighted a clear difference in returns between the two instruments:

FDs typically offer around 5–6 per cent annual returns, where an investor earns fixed interest income that is fully taxable as per their income tax slab.

In contrast, Indian REITs have delivered average annual returns of 15–16 per cent over the past 5–6 years, driven by a combination of:

• Approximately 7 per cent income yield
• 7–8 per cent capital appreciation

This dual-return structure makes REITs significantly different from fixed-income instruments like FDs, which only provide interest-based returns without capital appreciation.

Explaining the payout mechanism, Chheda said REIT investors receive income in the form of ‘distributions’, which consist of three components:

• Dividend
• Interest income
• Return of capital

For example, in a total distribution of Rs 20:

• Rs 12 may be dividend
• Rs 2 interest income
• Rs 6 return of capital

She added that investors should focus on the total distribution amount, as it reflects the overall return generated by the REIT portfolio.

A major advantage of REITs over FDs lies in taxation efficiency.

While FD interest income is fully taxable based on an investor’s tax bracket, Chheda noted that dividend income from REIT distributions is tax-free, making REITs more efficient from a post-tax return perspective.

However, she clarified that taxation varies across different components of REIT distributions, which may include taxable elements depending on their classification.

REITs derive income from commercial real estate assets that are typically leased to large corporations on long-term contracts of 9–10 years.

These tenants often include global and domestic companies such as Google, Amazon, IBM, and other major corporates, ensuring predictable rental inflows.

According to Chheda, this structure provides stable and predictable cash flows, making REITs a relatively resilient investment instrument even during uncertain market conditions.

She also pointed out that during the COVID-19 period, office REITs maintained around 99.9 per cent income collection, despite broader disruptions in the economy.

Describing REITs as a ‘moderate-risk, moderate-return’ product, Chheda said they are not risk-free like FDs.

• Temporary vacancy in properties
• Time taken to replace tenants
• Normal business and occupancy-related fluctuations

However, she emphasised that risks are mitigated due to:

• Large and diversified property portfolios
• Pan-India asset distribution
• Long-term lease structures with reputed tenants

These factors reduce the probability of income disruption across the entire portfolio.

Chheda explained that investing in REITs is similar to buying listed equities.

REITs are traded on BSE and NSE, and investors can purchase them through brokerage platforms.

Selection can be based on:

• Type of asset (office spaces vs retail/shopping centres)
• Geographic exposure of the portfolio
• Investment preference and sector outlook

She also noted that India currently has five listed REITs, with a sixth expected to be listed in the coming months, expanding options for retail investors.

Chheda highlighted that REITs are particularly suitable for retirement planning due to their ability to provide consistent quarterly income distributions along with potential capital appreciation.

She said that in retirement, when active income stops, REITs can serve as a steady income-generating asset class, making them suitable for investors across age groups, especially those planning long-term financial security.

While fixed deposits continue to be preferred for capital safety and guaranteed returns, REITs offer a different investment proposition—higher return potential, tax efficiency, diversified real estate exposure, and regular income streams.

As Chheda summarised, REITs provide a structured and relatively stable cash-flow-based investment avenue, making them an increasingly relevant option for retail investors seeking long-term wealth creation beyond traditional fixed-income products.