Fund Radar: Should you invest in REITs for diversification?

Promoted as stable, income-generating assets, REITs promise inflation protection and low correlation with equities. But how do they hold up in real market conditions? We dug into their performance, yields, taxation and risks. For investors building a well-rounded portfolio, the idea of a third asset class is compelling. You already have equity for growth and debt for stability—what next? Enter REITs, or Real Estate Investment Trusts. These are pitched as the perfect diversifier: offering stable income, a hedge against inflation and low correlation with stocks (they don’t usually move in the same direction as equity markets). Sounds ideal, but do they actually work that way in practice? Let’s put these promises to the test. Quality of diversification On paper, real estate should behave differently from equity. But in reality, listed REITs often move in tandem with the stock market. India has four publicly traded REITs—Embassy Office Parks, Mindspace Business Parks, Brookfield India and Nexus Select. During the September 2024 to March 2025 correction, when the Nifty 50 dropped nearly 16 per cent, Embassy fell 7.4 per cent, Nexus 9 per cent, while Mindspace and Brookfield posted small gains of 4.5 and 3.8 per cent, respectively. Back in the Covid crash of 2020, Embassy REIT—the only one listed then—fell over 18 per cent, against Nifty’s 38.4 per cent fall. So yes, REITs fall less than equities, providing some downside protection, but