InvITs

Infrastructure Investment Trusts, InviTs are financial instruments that are like mutual funds in the
way that they involve pooling small amounts of funds from a number of investors and invest it in
assets that provide cash flows for a period of time. These cash flows are also used to pay off
dividends to the investors.

The infrastructure projects take some time to generate steady cash flows. Meanwhile, the
infrastructure companies have debt obligations in the form of regular interest payments and
principal repayment. These InvITs which provide them steady cash flows are used by them to meet
their debt obligations

4 important parties to an InvIT

 Sponsors
 Investment managers
 Project managers
 Trustees
Governed by SEBI Infrastructure Investment Trust Regulations, 2014
Infrastructure company forms the trust according the SEBI guidelines and appoints an investment
manager who is responsible for managing the assets and investments in the InvITs. Project managers
oversees the execution of the projects. A trustee is assigned to oversee the functioning of the InvIT,
and that the investment manager and project manager follow the SEBI rules.

Rules for the InvIT issuer –

 Issuer has to hold 15% of the InvIT with a lock in period of 3 years.
 InvITs have to distribute 90% of the net cash flows to the investors.
 The trust has to invest a minimum of 80% in revenue generating infrastructure assets.

No dividend distribution tax on dividends from InvITs.

InvITs are listed on exchanges just like stocks through IPOs. Since the minimum investment in an IPO
is Rs 10 lakhs, InvITs is suitable for high net worth individuals, institutional and non-institutional
investors such as pension funds, foreign portfolio investors, banks, mutual funds and insurance
firms.
If an investor exits an InvIT before three years, he has to pay STCG of 15%, there is no LTCG on an
InvIT.

Reason behind InvITs not becoming popular

 InvITs were perceived by the investors as sort of equity instruments. While they are hybrid
instruments which are closer to debt instruments rather than equity instruments. While the
investors expect a higher IRR from an equity investment, the InvITs, being closer to debt, cannot
satisfy their IRR requirements. The InvITs may become popular when the investors reduce their
IRR requirements from 13-14% to 11-12%.
 Equity are medium risk high return securities while the InvITs are low risk medium return
instruments. InvITs are more suited to longer term patient capital rather than “Hot money”.
 The minimum investment limit of Rs10 lakh might have acted as a deterrent for the non-
institutional investors as they might find it to be a huge sum in perspective to be blocked in one
asset for a long period of time.
 Investors consider the prevailing interest rates while investing in InvITs. They compare the yield
of government bonds, corporate bonds etc to that of InvITs. An increase in the interest rates
could reduce the spread between the yield of InvITs and that of these other securities.