Chapter 45: Real Estate Investment Funds / Infrastructure Investment Fund (concept) (JAIIB - MODULE D)

1. What is the primary objective of a Real Estate Investment Trust (REIT)?

• A. To provide mortgage loans to homebuyers
• B. To regulate housing prices in urban areas
• C. To pool money from investors and invest in income-generating real estate
• D. To act as a housing finance company

REITs collect funds from investors and invest in real estate properties that generate rental income or capital gains.

2. Which country introduced the concept of REITs for the first time in 1960?

• A. United States of America
• B. United Kingdom
• C. Singapore
• D. India

REITs were first established in the USA in 1960 to allow small investors to participate in real estate investment.

3. In India, REITs are regulated by which authority?

• A. Reserve Bank of India (RBI)
• B. Ministry of Finance
• C. Insurance Regulatory and Development Authority (IRDAI)
• D. Securities and Exchange Board of India (SEBI)

In India, SEBI regulates REITs and issued the SEBI (REIT) Regulations in 2014.

4. Which of the following is NOT a type of REIT?

• A. Equity REITs
• B. Mutual REITs
• C. Mortgage REITs
• D. Hybrid REITs

The three main types of REITs are Equity REITs, Mortgage REITs, and Hybrid REITs. "Mutual REITs" do not exist.

5. In the organisational structure of a REIT, who is primarily responsible for managing the assets and operations?

• A. REIT Manager
• B. Trustee
• C. Sponsor
• D. Unit Holders

The REIT Manager handles day-to-day operations, asset management, and ensures compliance with SEBI guidelines.

6. Which of the following best differentiates REITs from Real Estate Mutual Funds?

• A. REITs invest in stocks of real estate companies, while Real Estate Mutual Funds invest directly in property
• B. REITs are regulated by RBI, while Real Estate Mutual Funds are regulated by SEBI
• C. Both REITs and Real Estate Mutual Funds provide guaranteed returns
• D. REITs directly own and manage income-generating properties, while Real Estate Mutual Funds invest in shares of companies related to real estate

REITs directly invest in physical properties generating rental income, whereas Real Estate Mutual Funds primarily invest in equity/debt instruments of real estate companies.

7. Which of the following is an advantage of investing in REITs?

• A. Provides liquidity as units can be traded on stock exchanges
• B. Guaranteed fixed returns to investors
• C. Not subject to market risks
• D. Requires very high minimum investment

REITs are listed on stock exchanges, which makes them more liquid compared to direct real estate investments.

8. Which of the following is a disadvantage of investing in REITs?

• A. Provides portfolio diversification
• B. Professional management of properties
• C. Sensitive to interest rate changes and market volatility
• D. Offers regular income through dividends

REITs are highly influenced by interest rate movements and economic cycles, which can impact property values and returns.

9. In India, what is the minimum percentage of distributable cash flow that a REIT must distribute to its investors?

• A. 50%
• B. 90%
• C. 75%
• D. 100%

SEBI regulations mandate that REITs must distribute at least 90% of their net distributable cash flows to unit holders.

10. Which of the following best explains why small investors prefer REITs over direct property investment?

• A. REITs guarantee higher rental yields than physical property
• B. REITs are completely risk-free investments
• C. REITs require large capital like direct real estate
• D. REITs allow fractional investment, liquidity, and professional management

REITs are accessible to small investors as they require lower capital, offer tradable units, and provide income from professionally managed properties.

11. Which of the following is an advantage of investing through REITs compared to direct real estate ownership?

• A. Direct ownership provides higher liquidity
• B. Direct ownership requires lower capital
• C. REITs offer higher liquidity and lower capital requirement
• D. REITs allow unlimited construction rights

Direct real estate requires large investment and has low liquidity, while REITs are affordable and can be traded easily on stock exchanges.

12. In comparison to Real Estate Mutual Funds, REITs primarily provide returns in the form of:

• A. Capital appreciation only
• B. Rental income distribution and capital appreciation
• C. Fixed guaranteed interest income
• D. Tax-free dividends

REITs generate regular rental income from properties and potential capital gains from appreciation, while mutual funds depend mainly on equity/debt market performance.

13. As per Indian taxation rules, income distributed by a REIT in the form of interest is taxable in the hands of:

• A. The investors, as per their applicable slab rates
• B. The REIT, at corporate tax rate
• C. Exempted completely from tax
• D. Only taxed if investor’s income exceeds ₹10 lakh

Interest income distributed by REITs is taxable directly in the hands of unit holders at their respective income tax slab rates.

14. What is the tax treatment of dividend income received from a REIT in India?

• A. Always tax-free for all investors
• B. Always taxable at 10% flat rate
• C. Taxed at corporate level and not in investor’s hands
• D. Taxable in the hands of investors if the SPV (special purpose vehicle) has opted for concessional tax regime

Dividend from REITs is taxable in the hands of investors if the underlying SPV opts for lower corporate tax regime (u/s 115BAA).

15. According to SEBI guidelines, what is the minimum public holding requirement for a listed REIT in India?

• A. 25% within 1 year of listing
• B. 25% within 3 years of listing
• C. 50% within 5 years of listing
• D. 10% within 2 years of listing

SEBI mandates that REITs must ensure at least 25% public shareholding within 3 years of listing to ensure wider participation and liquidity.

16. What is the primary purpose of an Infrastructure Investment Trust (InvIT)?

• A. To pool money from investors and invest in infrastructure projects such as roads, power, and telecom
• B. To provide housing loans to individuals
• C. To regulate the construction industry in India
• D. To act as a mutual fund for equities

InvITs are collective investment vehicles that channel funds into infrastructure projects like highways, power transmission lines, and telecom towers to provide regular income and capital appreciation.

17. In the organisational structure of an InvIT, who is responsible for ensuring compliance with SEBI regulations and protecting investor interests?

• A. Sponsor
• B. Project Manager
• C. InvIT Manager
• D. Trustee

The Trustee in an InvIT ensures that the InvIT functions as per SEBI regulations and safeguards the interests of investors.

18. Who plays the key role in managing the assets and operations of an InvIT?

• A. Trustee
• B. InvIT Manager
• C. Project Contractor
• D. Unit Holders

The InvIT Manager is responsible for day-to-day management, investment decisions, and operation of infrastructure assets within the trust.

19. Which of the following is a key rationale behind setting up InvITs in India?

• A. To provide tax-free investments for retail investors
• B. To replace the role of banks in financing infrastructure
• C. To unlock capital of infrastructure developers and attract long-term investors
• D. To act as a regulator for infrastructure companies

InvITs help infrastructure developers recycle their capital by monetising completed projects, while providing investors with stable income and exposure to infrastructure assets.

20. Which regulatory body introduced the InvIT framework in India in 2014?

• A. Reserve Bank of India (RBI)
• B. Ministry of Corporate Affairs
• C. IRDAI
• D. Securities and Exchange Board of India (SEBI)

SEBI introduced the InvIT framework in 2014 to create a regulated platform for infrastructure investment in India.

21. Which sector has seen the maximum use of InvITs in India?

• A. Real estate housing projects
• B. FMCG and retail
• C. Roads, highways, and power transmission
• D. Telecom and IT services

In India, InvITs have primarily been used in the infrastructure sector, especially in roads, highways, and power transmission projects.

22. Which of the following is a type of InvIT?

• A. Public InvIT
• B. Hybrid InvIT
• C. Corporate InvIT
• D. Exchange-listed InvIT

InvITs are classified mainly as Public InvITs (listed and open to all investors) and Private InvITs (for institutional investors only).

23. Which of the following is NOT an advantage of InvITs?

• A. Liquidity through listing on stock exchanges
• B. Stable cash flow from infrastructure projects
• C. Diversification for investors
• D. Guaranteed returns regardless of project performance

InvITs offer diversification, liquidity, and stable cash flows, but they do not guarantee returns since performance depends on the underlying projects.

24. What is the primary source of revenue for InvITs?

• A. Speculative trading in infrastructure stocks
• B. Toll collections, power transmission charges, and lease rentals
• C. Equity trading profits
• D. Short-term loans to contractors

InvITs generate revenue from the cash flows of infrastructure assets like toll collections, power transmission tariffs, and lease rentals.

25. How is dividend income from InvITs taxed in the hands of investors?

• A. Exempt if the InvIT has not opted for concessional tax regime
• B. Always taxed at 30% flat
• C. Tax-free for institutional investors only
• D. Always taxed as per investor’s slab rate

Dividend income from InvITs is exempt in the hands of investors if the InvIT has not opted for the concessional corporate tax regime under Section 115BAA. Otherwise, it is taxable as per investor’s applicable rates.