Infrastructure Investment Trusts, or InvITs, is an investment option where money is invested into infrastructure assets like highway projects, warehouses, roads, pipelines, transmission, etc. They are akin to mutual funds. There are two types of InvITs: Listed and Unlisted. Listed
InvIT can be traded on a stock exchange where an investor can buy or sell units — like trading of shares of any listed company. In Unlisted InvITs, majorly large institutional investors can participate.
The purpose of InvIT: Infrastructure projects take time to complete and generate revenue due to which companies face difficulties pay-off loan interest and other expenses on time. To overcome this, InvITs come into the picture. InvITs provide funds to infrastructure companies to pay off their debt obligation.
Who can invest
Any individual can buy InvITs units. The minimum subscription amount is in the range of Rs 10,000 to Rs 15,000.
How to invest
An investor can own units of InvITs by subscribing to Initial Public Offer (IPO) or Follow-on Issue or through the stock exchange where they are listed.
Where it is invested
InvITs invest 80 per cent of the money in completed infrastructure projects, which are capable of generating income. The remaining amount can be invested in either of the following:
1. Government Securities, Money Market Instruments, Liquid Mutual Fund or cash equivalent
2. Equity of listed companies in India generating at least 80 per cent of their income from the infrastructure sector
3. Under construction infrastructure project
4. Listed or Unlisted debt of the companies in the infrastructure sector (other than the debt of the holding company)
However, privately placed InvITs can have a mix of under construction and completed infrastructure projects.
Why invest in InVits
Investing in InvITs can provide the following benefits to investors:
Stable cash flow: InvITs are required to distribute a minimum of 90 per cent of their earnings to investors in the form of a dividend, interest, and capital repayment. This makes them a suitable investment for mid to long-term stable cash flow.
Low risk: As per SEBI regulations, InvITs are required to invest 80 per cent of the money in completed and revenue-generating projects and the rest 20 per cent in under-construction projects, government securities, etc. This reduces the risk associated with the infrastructure project like delay in completion, financial risk, etc.
Quality assets: InvITs are managed by professionals who ensure that funds are invested in assets with superior credit quality, providing clear visibility on returns.
Liquidity: InvITs can be bought and sold via the stock exchange. Hence, it is easy to enter and exit from as per the convenience of the investor, thus providing a liquid aspect.
The risk involved
Although investing in InvITs is beneficial for the investor in many ways, there are certain risks involved.
Inflation: Increasing rate of inflation will have a significant impact on the performance of these trusts. Slightest changes, for example, an increase in operating costs, would lower the returns.
Operation: Delay in the collection and tariff risk, which can delay the return generated from the project, are covered under this.
Regulations: The infrastructure sector is highly regulated. Since InvITs are relatively new with evolving regulations, even the slightest change can have a ripple effect.
Returns: Many InvITs are publicly traded on the stock exchange. Thus, their price tends to fluctuate resulting in capital loss.
