- Date : 31/12/2022
- Read: 3 mins
Understanding InvIT and the advantages of investing in it
You must have heard of REITs (real estate investment trusts), popular among investors looking to invest in the real estate industry. InvITs are similar, except that it focuses on infrastructure investments instead of real estate. InvIT stands for Infrastructure Investment Trusts.
Let us understand InvITs in India in a little more detail.
Infrastructure Investment Funds
InvITs are trusts that build a pool of money from investors and invest it in infrastructure projects. This includes roads and expressways, environmental projects, power and renewable energy projects etc. The idea is to make the income generated out of these projects more accessible to private investors and retail participants.
InvITs generally have a minimum subscription amount of Rs 10,000 to Rs 15,000. Most of the pooled InvIT money is invested in long-term infrastructure contracts, thus maintaining the stability of return. While mutual funds are similar to InvITs, mutual funds invest in a wide range of equity and debt instruments.
InvITs are listed in stock exchanges which facilitate retail participation. The Securities and Exchange Board of India (SEBI) requires InvITs to invest at least 80% of their funds in completed infrastructure projects that are already generating profit. Besides, the SEBI requires InvITs to distribute at least 90% of their earnings among the InvIT unit holders. This makes retail investment in InvITs less risky, compared to investment options in listed infrastructure companies.
Why Invest in InvITs?
- As mentioned above, InvITs are required to invest in completed and profit-generating projects. They are also required to distribute the profit among unitholders. This makes them a better option than a direct investment in infrastructure stocks and mutual funds while allowing diversification into India’s infrastructure sector.
- InvIT investments are professionally managed and revenue generating infrastructure assets and projects. This further reduces the investment risks.
- The assets held by the InvITs distribute their profits among the InvIT investors. So, you get a dividend income from your InvIT investments.
- When the InvIT holds assets through a Special Purpose Vehicle (SPV), it can disburse loans to the SPV for purchasing and maintaining these infrastructure assets. The InvIT and its investors also earn interest income on such loans.
- If the assets perform well the unit prices of the InvIT appreciate. So, the investor can earn capital gain by selling the InvIT units.
- Being listed in the stock exchanges, InvIT units can be easily bought and sold. Thus, it offers liquidity to retail investors.
Add Best InvITs to invest - minimum investment amount, returns generated in 3, 5 yrs
Thus, InvITs offer a regular income source for investors. It is a liquid form of investment and is less risky than direct investments. The government is increasingly relying on InvITs to monetise government infrastructure assets. InvITs are emerging as a new asset class and investors can allocate a portion of their debt investments to it. It will help them diversify their investment portfolio and track how InvITs are developing in India.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.