REITs, InvITs, PMS and AIFs: The Competitive Landscape for NISM V-C

The Competitive Landscape unit of NISM Series V-C is about the products a distributor's client might buy instead of a mutual fund — and the exam tests it almost entirely through structures and thresholds. This guide puts every number in one place.

Portfolio Management Services

A PMS offers a customised portfolio to each investor — the opposite of a mutual fund's one-portfolio-for-all. Three forms:

• Discretionary — the manager decides and executes for each client independently.
• Non-discretionary — the manager acts on the client's instructions.
• Advisory — the manager only advises; the client executes.

Minimum ticket: Rs 50 lakh. That threshold, and the three types, are the two facts asked.

Alternative Investment Funds

An AIF pools money from sophisticated investors into strategies outside the mutual fund framework. Minimum investment: Rs 1 crore. Three categories:

• Category I — funds with a socially or economically desirable purpose: venture capital funds (including angel funds, which back start-ups), SME funds, social venture and infrastructure funds.
• Category II — funds that are neither I nor III and do not use leverage beyond operational needs: private equity funds and debt funds.
• Category III — funds that may use leverage and complex strategies: hedge-fund-type vehicles.

Venture capital invests primarily in unlisted securities of start-ups and early-stage ventures; private equity invests in equity or equity-linked instruments of companies that are typically further along, listed or unlisted. Both are illiquid and long-horizon, and both are Category I or II AIFs, not mutual funds.

Real Estate Investment Trusts

A REIT lets an investor own a slice of income-producing commercial real estate — office parks, malls — without buying property. Its structure mirrors a mutual fund's: a sponsor, a manager and a trustee.

The rules the exam tests:

• At least 80% of assets in completed and revenue-generating property.
• At least 90% of net distributable cash flows paid out to unit holders, at least half-yearly.
• Units are listed and traded; since SEBI's 2021 decision the minimum market lot has been brought down to the Rs 10,000–15,000 range, from lakhs before.

The contrast with a real estate mutual fund, which is a SEBI mutual fund scheme with no payout mandate, is a standard question.

Infrastructure Investment Trusts

An InvIT is the same idea applied to infrastructure — roads, power transmission, pipelines — letting developers release capital from completed projects. Structure: sponsor, investment manager, project manager (a constituent a REIT does not have), trustee.

Two types: one invests in completed, revenue-generating projects and raises money by public offer; the other may hold under-construction projects and raises money by private placement. Same 90% payout rule as REITs; same reduced lot size.

International funds

An Indian scheme may invest abroad within limits — through ADRs and GDRs, and in foreign debt only in countries with fully convertible currencies. The investor takes on currency risk on top of market risk: a rupee that weakens adds to the rupee return, a rupee that strengthens subtracts. The arithmetic (convert both the cost and the value at the exchange rate of the day) is a standard 2-mark question.

Why the unit exists

A Level 2 distributor is expected to know when a client is better served by a REIT than a real estate fund, why a Rs 20 lakh investor cannot be put into a PMS, and what a Category III AIF can do that a mutual fund cannot. The questions are factual; the judgement behind them is what the certification is for.

The numbers, once more

Practise the unit free, and the related legal and regulatory unit that covers how REITs and InvITs are regulated.