Infrastructure Investment Trusts (InvITs) are similar to Real Estate Investment Trusts (REITs) but they invest in infrastructure projects instead of real estate assets. InvITs allow retail and institutional investors to invest in income-generating infrastructure projects such as toll roads, power transmission lines, and other infrastructure assets.
InvITs are set up as trusts that manage income-generating infrastructure assets and issue units to investors in exchange for their investment. These units are traded on stock exchanges like shares of a company, making it easy for investors to buy and sell them.
In India, InvITs are regulated by the Securities and Exchange Board of India (SEBI) and can only invest in infrastructure projects that have been in operation for at least one year and generate a minimum annual revenue of Rs. 100 crores. The minimum size of an InvIT is Rs. 500 crores, and it must distribute at least 90% of its net distributable income to investors every year.
Investing in InvITs provides investors with several advantages, including:
- Regular income: InvITs distribute a significant portion of their income as dividends to unit holders, providing a regular source of income.
- Diversification: InvITs offer investors the opportunity to invest in a diversified portfolio of infrastructure projects, reducing the risk associated with investing in a single project.
- Professional management: InvITs are managed by professional managers who have the necessary expertise and experience to manage infrastructure projects effectively.
- Liquidity: InvITs are listed on stock exchanges, providing investors with the flexibility to buy and sell units whenever they want.
However, investing in InvITs also comes with some risks, such as:
- Interest rate risk: The income generated by InvITs is largely dependent on interest rates, and any change in interest rates could impact the performance of the InvIT.
- Business risk: Infrastructure projects are subject to various risks, including regulatory, operational, and business risks, which could impact the performance of the InvIT.
- Market risk: The market value of InvITs may fluctuate depending on market conditions, and investors may face losses if they sell their units at a lower price than they bought them.
Overall, InvITs are a relatively new investment option that provides investors with exposure to income-generating infrastructure projects. As with any investment, investors should carefully evaluate the risks and benefits before investing in InvITs.