InvITs in India: Meaning, Benefits, Structure & How to Invest?

Did you know there are 26 SEBI-registered Infrastructure Investment Trusts (InvITs) powering India’s highways, power grids, pipelines and telecom towers? InvITs have emerged as a smart way for investors to participate in India’s fast-growing infrastructure without the burden of constructing or operating it themselves. 

By pooling money from investors and deploying it into income-generating assets, InvITs offer regular cash flows and the potential for long-term wealth creation. 

But what are InvITs, and how do they work? Let us find out.   

What are InvITs?

Let’s first understand the meaning of infrastructure investment trust. InvITs or infrastructure investment trusts are collective investment vehicles similar to mutual funds. They pool money from individual and institutional investors and invest in infrastructure projects or assets such as roads, power plants, and pipelines.

An infrastructure investment trust in India owns, operates, and manages revenue-generating infrastructure projects and assets. 

InvITs help infrastructure developers unlock capital tied up in completed projects, allowing them to repay debt and reinvest in new developments. For investors, InvITs provide an avenue to earn a stable income through dividends and benefit from capital appreciation of the assets over time.

Structure of InvITs in India

SEBI (Infrastructure Investment Trusts) (Amendment) Regulations, 2014, in India governs InvITs. The structure is similar to trusts, and an independent trustee holds the income-generating assets on behalf of the unit holders. 

It consists of four elements: 

• Trustee: It is important for the trustee to register with SEBI as a debenture trustee and invest at least 80% in the income-generating infrastructure assets. A trustee also inspects the performance of the InvIT.
• Sponsor: A sponsor is a company, limited liability partnership (LLP), or corporate body with a net worth of at least ₹100 crore. They must hold at least 15% of the total assets in the InvIT with a lock-in period of three years. 
• Investment Manager: A LLP, company, or organisation that supervises the activities, assets, and investments of an InvIT. An investment manager must have a net worth of ₹10 crore to register an infrastructure project as an InvIT.
• Project Manager: A project manager is a person who is an authoriser to oversee the activities of a project and ensure its timely execution as per the agreement. 

Types of InvITs

Investors can invest in InvITs in two ways. One is directly or through special purpose vehicles, classifying them into two types. 

1. Finished Infrastructure Projects: Finished revenue-generating projects can be the underlying assets. They invite investors through a public offering. 
2. Under-Construction Infrastructure Projects: It can have under-construction projects as its assets. These pool money from investors through private placement. 

Features of InvITs

• These are long-term investments as the underlying assets have long-term contracts and offer a steady cash flow for 15-20 years.
• The growth is usually high for these instruments as they keep adding more operating projects to the trust, resulting in a high yield.
• The main purpose of InvIT’s investment is to mitigate under-construction risk in the infrastructure sector. This is because 80% of the investments must be made in completed or revenue-generating assets.
• These trusts distribute nearly 90% of their cash flows to investors, ensuring steady income.
• InvITs can trade on the stock exchange like equity stocks. The minimum investment amount is ₹10,000 – ₹15,000 with a minimum lot size of one unit. 

Advantages of InvITs

Here are some advantages of InvITs: 

• InvITs are low-risk investments. This is because, according to SEBI regulations, at least 80% of the investments must be made in completed or revenue-generating assets. Also, they must not invest more than 20% in under-construction assets. This reduces the biggest risk of construction – delay in completion. 
• InvITs offer steady and predictable cash flows. They have to distribute 90% of the cash flows generated by the assets to the investors. 
• The underlying assets of InvITs are of high quality. They also have low demand, hence low price-related risks. The assets are usually transmission projects, gas pipelines, telecom towers, etc. 
• InvITs can be easily traded on the stock exchange. One can sell them just like mutual fund units of open-ended funds. 
• InvITs are excellent tools for diversification. Investors looking to diversify their portfolio can consider them for investment as they do not have any price-related risks. 
• SEBI regulates InvITs. There are rules for underlying assets and cash flow distribution. Moreover, there are regulations with respect to independent trustees, valuation by independent valuers, leverage caps, and disclosure policies. All these ensure that investors’ interests are protected. 

Risks of InvITs

When investing in InvITs, investors must be cautious about the following risks.

• Operational Risks: There can be delays in collection, ad hoc expenses, or even tariff changes. All these factors affect the business’s cash flows. Hence, it is important to invest in them with quality assets.
• Refinancing Risk: Debt is the major source of funding for most infrastructure projects. Fluctuations in interest rates can pose a refinancing risk. Hence, it is important to choose assets with an AAA rating.
• Regulatory Risks: They are considerably new to the investing space and have strict regulations. Hence, any regulation changes can impact the cash flows.

How to Invest in InvITs? 

Here’s how you can invest in infrastructure investment trust in India: 

• Open a Demat & Trading Account: You need these to buy InvIT units on the stock exchange, just like shares. 
• Pick the Right InvIT: Compare yield history, sponsor reputation, asset quality and future growth pipeline. Read offer documents and performance reports carefully. 
• Place Your Order: Buy during an IPO or directly on the NSE/BSE if it’s already listed. 
• Monitor Performance: Track distributions, project additions and unit prices regularly to make informed buy/sell decisions. 

Conclusion

India’s infrastructure is growing rapidly, and InvITs are playing a pivotal role by attracting investment from individuals and institutions alike. With 26 SEBI-registered InvITs already funding highways, grids and towers, you too can participate in building the nation’s backbone while enjoying stable income and portfolio diversification. 

But, just like any investment, weigh the benefits and risks carefully and then decide. 

FAQs