Infrastructure Investment Trust (InvITs)

Infrastructure investment trusts are investment instruments that work like mutual funds and are regulated by the Securities and Exchange Board of India.
Infrastructure Investment Trust
3 min
11-June-2024<br><br>

Infrastructure Investment Trusts (InVITs) function similarly to mutual fund investments. They enable individuals or organizations to directly invest, thereby earning returns in the form of profits. One of the most reliable ways to grow your money is to identify high-growth sectors and invest your funds in assets related to these market segments. Speaking of high-growth sectors, the infrastructure industry is one of the most critical and fastest-growing areas in India’s economy.

Infrastructure Investment Trusts (InvITs) make it possible for you to leverage the growth opportunities in this sector. Not sure what the meaning of Infrastructure Investment Trusts is and how they work? In this article, you will find all the answers you are looking for.

What is an Infrastructure Investment Trust (InvIT)?

An Infrastructure Investment Trust (InvIT) is a special investment vehicle that allows retail and institutional investors to directly invest in specific infrastructure projects. They work similarly to mutual funds, and when you invest in InvITs, you can earn a part of the income from the infrastructure projects as your return on investments.

InvITs are similar to Real Estate Investment Trusts (REITs), which invest in real estate projects. While this sums up the meaning of Infrastructure Investment Trusts, you may still be worried about the safety of investing in these vehicles. The good news is that InvITs are regulated by the Securities and Exchange Board of India (SEBI), so you can rest assured that your investments are transparent and secure.

Types of InvITs

Although all InvITs have the common objective of investing in infrastructure projects, there are different types of InvITs based on the type of projects in focus. Broadly, you can choose from the following two types of Infrastructure Investment Trusts:

InvITs that invest in completed revenue-generating projects

As the name indicates, these Infrastructure Investment Trusts invest primarily in completed infrastructure projects that have started to generate revenue. These are relatively safe because they have an established source of income. Units in such InvITs are available to investors via a public offer.

InvITs that invest in projects under construction

These Infrastructure Investment Trusts primarily choose to invest in ongoing infrastructure projects that are still in progress or under construction. However, investors may have to opt for private investment channels to purchase units in such InvITs. Additionally, they carry a slightly higher risk due to the ongoing or incomplete nature of the projects concerned.

Structure of InvITs in India

Infrastructure Investment Trusts in India have a tiered organisational structure that consists of the following parties or entities:

Sponsor: The sponsor is typically an infrastructure development company that is responsible for setting up the InvIT, identifying suitable investment projects and appointing the trustees. The sponsor’s net worth must be at least Rs. 100 crores.

Investment manager: The investment manager is responsible for overseeing and managing the investments made by the InvIT in different infrastructure projects. They may also oversee any new investments made by the InvIT.

Project manager: The project manager of an Infrastructure Investment Trust is in charge of developing, managing, and operating the infrastructure projects in which the InvIT has invested.

Trustee: The trustee is a SEBI-approved and registered company that is responsible for safeguarding investor interest, supervising the InvIT managers and distributing dividends to investors.

What is the main purpose of InvITs?

The main purpose of Infrastructure Investment Trusts is to facilitate investment in infrastructure projects by pooling together resources from various investors. InvITs provide a platform where developers can monetise their infrastructure assets, generate capital for new projects and reduce debt. Investors also benefit from regular income distributions and potential capital appreciation.

Ultimately, InvITs contribute to the growth of the infrastructure sector by improving liquidity and providing a regulated and transparent investment avenue. They also attract long-term investments into the infrastructure sector, thus supporting economic development and creating a strong infrastructure framework in the country.

Advantages of InvITs

Infrastructure Investment Trusts offer various benefits to investors. Check out the top reasons to add InvITs to your portfolio.

Diversification

InvITs offer the unique opportunity to diversify your portfolio to include private and public infrastructure projects. This area of investment is otherwise not accessible to retail investors.

Fixed income

Infrastructure Investment Trusts generally invest in stable revenue-generating projects like roadways, highways, pipelines and transmission lines. The dividend paid by InvITs can serve as a reliable source of additional or alternate income.

Liquidity

Since the units of Infrastructure Investment Trusts are listed on stock exchanges, it is generally easy to buy or sell them. This makes InvITs fairly liquid investment options when compared to other schemes that have a lock-in period.

Reliable Asset Management

The assets under management in an InvIT are overseen by skilled experts who have years of experience in this field. By choosing Infrastructure Investment Trusts, you can also benefit from the professional expertise of these fund managers.

Investors

Infrastructure Investment Trusts also benefit investors by offering them fixed returns on their investments. Since InvITs are mandated to distribute at least 90% of their income via dividends, investors can enjoy a steady stream of alternative income from profitable infrastructure companies.

Promoters

Promoters of Infrastructure Investment Trusts are also benefited as they can reduce the burden of debt substantially. The proceeds can also be redirected to other projects and ventures.

Risks associated with InvITs

Infrastructure Investment Trusts also have some limitations that you should be aware of. These risks are outlined below.

Regulatory risk

Changes in regulations like tax laws and infrastructure-related policies can affect the revenue to infrastructure companies and, in turn, the returns from InvITs.

Inflation risk

Inflation may lead to increased operational costs for infrastructure companies. This could also affect the returns earned by infrastructure projects and, consequently, the returns for investors.

Asset risk

If the underlying infrastructure assets underperform, the potential for financial loss is compounded. This may arise due to operational issues, regulatory changes or economic downturns that affect revenue generation.

Who should invest in InvITs

If you are not sure whether InvITs may be suitable for your financial goals and risk tolerance levels, here are some pointers to help resolve your dilemma. Ideally, InvITs may be suitable for you if you:

  • Want to invest in the infrastructure sector
  • Aim for long-term growth with regular income
  • Desire portfolio diversification beyond stocks and bonds
  • Can handle the specific risks of infrastructure investments.
  • Want professional management and transparency in your investments
  • Have a moderate to high-risk tolerance.
  • Want to invest in the growth of the infrastructure sector
  • Prefer investments that are tradable on stock exchanges for liquidity

Prospects of InvITs in India

InvITs are becoming increasingly popular in India. The total fundraising via the 24 InvITs (and the REITs) in the country grew 14x in FY24. Looking ahead, Infrastructure Investment Trusts appear to have excellent prospects due to the following reasons:

  • Reliable refinancing for ongoing infrastructure projects
  • Freeing up developers’ capital so it can be redirected to new infrastructure schemes
  • Opening up the infrastructure sector to international investors

InvITs vs REITs

Infrastructure Investment Trusts and Real Estate Investment Trusts are quite similar in many ways. Nevertheless, they also come with certain differences, as outlined below.

Growth

The growth prospects of InvITs depend on the success and continuation of the infrastructure projects in the trust’s asset basket. For REITs, however, the growth prospects depend on the acquisition of new real estate properties.

Liquidity

Although both types of investments are fairly liquid, InvITs may be slightly more so. This is because of their higher trading ticket size, which tends to attract larger investors. However, REITs may be more accessible to small-time investors.

Stability of income

The income from InvITs depends on the usage of the infrastructure facilities and on how scalable the tariffs involved are. So, there is a degree of ambiguity involved in income from InvITs. On the other hand, REITs may offer stabler income due to the reliability and regularity of rental earnings.

Risks

Unlike REITs, InvITs are more exposed to regulatory and political risks. So, if you are choosing between InvITs and REITs, you need to keep this in mind.

Conclusion

Infrastructure Investment Trusts can be an excellent addition to your financial portfolio. If you are looking for more ways to diversify your investments into sectors beyond infrastructure, sectoral mutual fund schemes may be suitable options.

On the Bajaj Finserv Mutual Fund Platform, you can find over 1,000 mutual funds of different categories and varieties, including sectoral and thematic funds. All you need to do is compare the mutual funds on this platform, make a choice between lumpsum investment and SIP investments, and begin your investment journey with ease.

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Frequently asked questions

How many InvITs are in India?
As of March 27, 2024, there are 24 Infrastructure Investment Trusts in India that are registered with the SEBI.
What is the concept of InvIT?
The core concept of Infrastructure Investment Trusts is to make it possible for investors to directly benefit from the profits or the revenue earned by infrastructure projects.
Which InvIT is best in India?
There are over 20 Infrastructure Investment Trusts in India. To find the best InvIT for your portfolio, you can compare the underlying assets, loan-to-value ratio, dividend yield and other factors and make a decision.
Which is the first InvIT in India?
The first InvIT to be launched in India was the IRB InvIT Fund, which has been valid and in operation since March 14, 2016.
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Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.