Infrastructure Investment Trusts (InvITs) offer several advantages and disadvantages to investors. Here are some of them:
Advantages:
- Regular Income: InvITs provide regular income to investors through dividends distributed by the trusts from the income generated by the underlying infrastructure assets.
- Diversification: By investing in InvITs, investors can diversify their portfolios as InvITs invest in various infrastructure assets such as roads, power transmission lines, and airports, among others.
- Transparency: InvITs are regulated by the Securities and Exchange Board of India (SEBI), which ensures transparency in their functioning and disclosure norms.
- Tax Benefits: Investors in InvITs are eligible for tax benefits such as exemption from long-term capital gains tax and lower dividend distribution tax.
Disadvantages:
- Market Risk: Like any other investment, InvITs are also subject to market risks. The value of units of an InvIT can fluctuate depending on various factors such as interest rates, economic conditions, and regulatory changes.
- Concentration Risk: Although InvITs offer diversification benefits, they are still concentrated in a particular sector, i.e., infrastructure. Therefore, any adverse developments in the infrastructure sector can impact the performance of InvITs.
- Limited Liquidity: InvITs are listed on stock exchanges, but their trading volumes are generally low, which can make it difficult for investors to exit their investments quickly.
- Fees and Expenses: InvITs charge various fees and expenses, such as management fees, trustee fees, and performance fees, which can impact the returns earned by investors.
Overall, InvITs can be a good investment option for investors seeking regular income and diversification, but they also come with certain risks and limitations that investors should consider before investing.