Infrastructure Investment Trusts (InvITs) are financial instruments that are designed to mobilize funds from investors to invest in infrastructure assets. InvITs are set up as trusts under the Indian Trusts Act, 1882 and are regulated by the Securities and Exchange Board of India (SEBI). The primary objective of InvITs is to enable developers and infrastructure companies to monetize their operational infrastructure assets, thus enabling them to free up capital to invest in new projects.
The structure of an InvIT is similar to that of a REIT, where a sponsor or a developer creates a trust and transfers operational infrastructure assets to the trust. The trust then issues units to investors who invest in the trust. The sponsor or the developer retains a portion of the units as a sponsor’s share. The InvIT is managed by a trustee, who is responsible for managing the trust and the assets held by it.
The rationale for setting up InvITs is to enable infrastructure companies to monetize their operational assets and raise funds, which can be used to fund new infrastructure projects. InvITs enable investors to invest in infrastructure assets without the burden of managing these assets. Investors can enjoy regular income in the form of dividends, and capital appreciation in the form of an increase in the value of their units.
The key advantages of InvITs include the ability to invest in infrastructure assets without the burden of managing them, regular income in the form of dividends, and the potential for capital appreciation. InvITs also offer tax benefits to investors, as dividends received from InvITs are exempt from tax.
However, there are some potential drawbacks to investing in InvITs. One of the key drawbacks is the lack of liquidity, as units of InvITs are traded on the stock exchange and may not be easy to sell at a fair price. Another potential drawback is the high entry barrier, as InvITs require large amounts of capital to invest in infrastructure assets.
Overall, InvITs are a relatively new financial instrument in India, and their potential benefits and drawbacks are still being explored. However, they have the potential to play a significant role in financing infrastructure projects in the country.