InvITs or Infrastructure Investment Trusts is an institution that enables investment into infrastructure ensuring profits in shares to those who invested in either small amounts or a large amount for those infrastructural projects. The profit given away to the unit holders is after deducting the expenditures from the profit earned. It is gaining popularity among investors like mutual funds investment.
SPV or Special Purpose Vehicle is another way apart from a direct investment that InvITs can invest in infrastructure. Unlike other projects, for PPP or Public Private Partnership, investment is done through SPV only.
The body that regulates InvITs in India is Securities and Exchange Board of India. SEBI also stated that InvITs is one of the most popular ways of investing in infrastructure in the country allowing an individual or companies to earn more in the long run.
InvITs are available in two types: one is for those complex and high-end infrastructure projects while the second one is for simple projects that are under construction.
Let us understand the structure
InvITs is a body that is governed by SEBI or Securities and Exchange Board of India. There are four parties in the Trust.
Trustee: It is that party that looks after the overall functioning of InvITs and it cannot be associated with any other party of the Trust. In this case, SEBI is the trustee.
Sponsor: The name itself suggests of the body or company that shows interest in the promotion of the trust. It may be an LLP or Limited Liability Partnership company that has a net worth of Rs 100 crore and applies to the SEBI or it may be SVP in case of projects under PPP or Public Private Partnership. It is mandatory for the sponsors to have at least 25% of the investment for not less than three years.
Investment Manager: The body that has the responsibility of managing important things like assets and investments are known as investment managers.
Project Manager: The person or a company responsible for executing the functioning of InvITs by following the policies laid down is known as a project manager.
Apart from the four parties that are important parts of InvITs, the infrastructure investment institute should be listed on the stock exchange. Without being listed, it will be deemed null and void.
Investment Policies that should be adhered to by InvITs
It depends on how much assets is going to be invested by InvITs. The rules and regulations for more than80% investment and for more than 10% investment differ in a huge manner.
If the InvITs is planning to invest 80% of the value, then it has to abide by the following checkpoints.
•It cannot raise funds through any other means but through public issued units
•The public float should be at least 25% and the number of investors should not be less than 20
•The subscription size should be at least Rs 10 lakh while the trading lot should be Rs 5 lakh
•The cash flow that is distributable should be distributed in amount not less than 90%
•The valuation of the assets invested should be done yearly together with the regular update bi-yearly
•The part remaining that is 20% can be invested in other permissible investment like under construction projects. One point to keep in mind is that such investments can’t exceed 10% of the asset value
If the InvITs is planning to invest 10% of the asset value in the projects under construction, then it has to abide by the following checkpoints.
•Unlike the 80% investment, InvITs can raise funds from qualified and dignified institutional buyers or bodies and it is done through private placement
•The minimum investment can’t be less than Rs 1 crore. The same goes for trading lot
•There should be at least five investors not as big as the investment of 80% where one needs to have at least 20 investors
•The distribution of distributable cash flow is the same which is 90%
•The assets need to be valued on a yearly basis without a default
It should be noted that all public and private InvITs need to be listed.
Advantages of InvITs
It is one of the high-dividends yielding investments that can be great if you are considering the security of finance. It ensures a stable flow of cash for a longer duration compared to other investments. The income from the dividend is exempted from tax. What can one investor ask for?
It is a great way to relax the burden on banking institutions making funds available for investors into infrastructural projects. Pooling of money from various investors make way for more profits as all come together for a common cause. The profit earned is shared depending on the investment done.
Although there are benefits that can lure anyone, like mutual funds, InvITs do have shortfalls. When the stock exchange dips, InvITs also show a dip in returns. Investors’ investments depend on the functioning of the stock exchange without any span of control by those investors. Nevertheless, InvITs is making news for its more positives than negatives.