Why WhiteOak CIO Ramesh Mantri prefers REITs, InvITs over high dividend yield stocks

WhiteOak Capital Mutual Fund is betting on REITs and InvITs over traditional high-yield stocks for its new Dividend Yield Fund, citing their higher yields, predictable cash flows and lower volatility. The fund expects to allocate 60-70% of its portfolio to these instruments, while dividend-paying equities will provide growth potential, CIO Ramesh Mantri said.

Edited excerpts from a chat:

WhiteOak Capital Dividend Yield Fund has the flexibility to hold as much as 60% in REITs and 10% in InvITs. While both instruments are dividend plays, what will be the fund's primary return driver? Is it going to be a mix of both yields and capital appreciation?


While yield will be the primary driver of returns for this Fund, capital appreciation is also expected to play a significant role. REITs and InvITs are required to distribute at least 90% of their net distributable cash flows to unitholders, so a large slice of the portfolio's return is contractual, rent- or toll-linked income rather than sentiment-driven. We expect capital appreciation in REITs and InvITs to come from rental and toll escalations, occupancy gains, and the re-rating of these securities as this market deepens.

What will the portfolio look like at launch? Can you provide an indicative allocation across REITs, InvITs, dividend-paying equities, arbitrage and cash, and explain what would trigger material changes to that mix?

We expect REITs and InvITs to make up about 60-70% of the portfolio, with dividend-paying equities and equity arbitrage together accounting for 25-30%, arbitrage forming the significant portion of that. The residual exposure would be held in cash equivalents and commodity arbitrage if returns are attractive.

How does WhiteOak define a dividend-yielding company? What weight do you assign to current yield, dividend growth, free cash flow, pay-out history, leverage and capital-allocation discipline?

We define a dividend-yielding company as one that has paid a dividend in any of the last three years, and we expect our dividend-yielding portfolio to carry a higher dividend yield than the market. However, the objective of the equity portfolio is to maximise total return, not the dividend yield itself. The sustainability of the dividend and its long-term growth potential are therefore key decision-making criteria, alongside attractive valuation.

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A high dividend yield can reflect a collapsing share price or an unsustainable pay-out. What is your framework for separating durable income compounders from dividend traps?

A high dividend yield funded by debt or asset sales, or a rising payout ratio when free-cash-flow growth has stalled, is often a sign of a value trap. We avoid such investments by understanding the sustainability of underlying cash flows and steering clear of cyclical cash flows or high balance-sheet leverage. The objective remains to maximise the total returns of the equity portfolio, not the dividend yield.

India has six listed REITs and nine publicly listed InvITs. With potential exposure of as much as 70% to these instruments, how will the fund manage concentration, liquidity and capacity risks as its assets grow?

The total market cap of listed REITs and InvITs already exceeds ₹4 lakh crore. More InvITs are expected to list publicly over time, and the Fund can also invest in privately held InvITs. The concentration issue should ease further as more REITs and InvITs go public over the next few years — the FY26-27 Union Budget, for instance, announced plans for a PSU REIT listing. Most listed REITs and InvITs also have significant plans to scale up their assets over time. Given the size of the Fund, and since this asset class is still at an early stage in the public markets, we do not expect any challenge in managing liquidity or capacity as assets grow over the next few years. The Fund's significant allocation to equity arbitrage and cash equivalents will also ensure liquidity for investors.

WhiteOak has invested close to ₹2,300 crore in REITs and InvITs across its funds. What has that experience taught you about occupancy, refinancing, leverage and distribution risks, and where do you currently see the best risk-adjusted opportunities across dividend equities, REITs and InvITs?

That experience shows that occupancy and rental trends matter more than headline yield for REITs, while refinancing and distribution risk stays manageable when these vehicles carry long-dated, well-laddered debt and have financial flexibility built into their capital structure. Similarly, for InvITs, the certainty and trajectory of revenues matter most. As things stand, we see attractive opportunities across dividend equities, REITs and InvITs, though REITs and InvITs clearly exhibit much lower volatility than equities.

Are REITs and InvITs better dividend plays than any other regular listed stock in India with a high yield? Would you also consider going beyond the two instruments to pick other stocks as well?

REITs and InvITs are significantly superior to dividend equities in terms of both the quantum of yield and its certainty. They offer contractual, more predictable cash flows with limited operating leverage, whereas high-yield stocks add a call option on earnings growth alongside the dividend, at the cost of greater volatility. The two play different roles in the portfolio: REITs and InvITs anchor it in terms of volatility, while dividend equities provide the growth potential. The portfolio will therefore have exposure to both, but exposure to dividend equities is capped so that overall portfolio volatility is kept at a reasonably low level.