WHAT IS INVITs

 

What are InvITs 

InviTs stands for Infrastructure Investment Trust (InvIT). It is a SEBI-regulated investment vehicle that received money from investors and puts it in operational infrastructure-related assets that generate regular cash flows. 

It is very similar to a mutual fund, but it focused to  invests in infrastructure projects only such as:

• Highways
• Power transmission lines
• Renewable energy projects
• Telecom towers
• Power Plants
• Gas pipelines, etc

InvITs are listed on stock exchanges(NSE &BSE), making them accessible to retail investors similar to stocks and REITs. There is no lock-in period required or any holding period. Individual can buy and sell at their own discretion and as per requirement.

Types of InvITs in India

In India there are various  InvIT trusts available, which are further categorized into Public and Private. 

1. Publicly Listed InvITs

These trusts are listed on stock exchanges and can be bought or sold by retail investors through a demat account.

2. Privately Placed InvITs

These are generally available only to institutional investors and high-net-worth individuals (HNIs).

Function of InvITs (Infrastructure Investment Trust) 

An InvIT structure generally involves:

1. Sponsor – Sets up the InvIT and transfers infrastructure assets into it.
2. Trustee – Holds the InvIT’s assets for the benefit of unit holders.
3. Investment Manager – Manages investments and takes operational and financial decisions.
4. Project Manager – Responsible for execution, operations, and maintenance of infrastructure projects.

Based on their roles, they completely manage the investors investment in InvIT.

Stage 1 - Investors Invest in InvIT Units 

Investors can invest in the InvIT by purchasing its units through an IPO or from the stock exchange through their demat account.

Stage 2 - InvIT Invests in Infrastructure Assets 

The InvIT invests in various infrastructure projects such as-

• Operational highways
• Power transmission assets
• Renewable energy projects
• Telecom towers
• Gas pipelines, etc.
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InvITs may also invest a limited portion in:

• Under-construction infrastructure projects
• Debt instruments of infrastructure companies
• Government securities
• Money market instruments
• Liquid mutual funds or cash equivalents

Publicly listed InvITs are generally required to invest the majority of their assets in completed and revenue-generating infrastructure projects.

Stage 3 - Income Distribution to Investors 

The infrastructure assets generate revenue through toll collections, transmission charges, lease rentals, power purchase agreements etc.

A substantial portion of this income is distributed periodically to unit holders in the form of interest, dividends, or repayment of capital.

How InvITs Generate Income

Most InvITs in India earn revenue through undermentioned pprovision.

• Toll collections
• Power transmission charges
• Lease rentals
• Usage (gas or electricity) fees
• Long-term infrastructure contracts

Since these assets typically generate stable cash flows, InvITs are often considered income-generating investment options. This income earned by the InvIT is then distributed to unitholders. 

As per SEBI guidelines, at least 90% of the net distributable cash flow (NDCF) must be distributed to unitholders in the form of Dividends, Interest, & Return of Capital.

Benefits of Investing in InvITs

Here are some benefits of investing in InvITs.

• Lower Investment Barrier

Retail investors can participate in large-scale infrastructure projects with relatively smaller investments. Small investors whose income in less and they are keen to invest in major infrastructure projects it is good platform to invest.

• Exposure to Infrastructure 

Investors get access to sectors like transportation, renewable energy, and utilities without directly owning infrastructure assets.

• Regular Income Potential

InvITs distribute a significant portion of revenue generated to investors. Investment in  InvITs  is good for generating passive income.

• Portfolio Diversification

They build diversify investment portfolios beyond traditional asset classes such as equities, fixed income, and mutual funds.

• Liquidity

Listed InvITs are traded on stock exchanges and it has good liquidity. Food liquidity facilitate the investors to redeem theirs unit in case fund is required.