DR Ambedkar IAS Academy

InvITs (Infrastructure Investment Trust)

What are InvITs?

Infrastructure investment trusts are investment instruments that work like mutual funds and are regulated by the Securities and Exchange Board of India. Abbreviated as InvITs, their units are listed on different trading platforms like stock exchanges and are a wholesome combination of both equity and debt instruments.

The primary objective of InvITs is to promote the infrastructure sector of India by encouraging more individuals to invest in it and can be modified according to a given situation. Typically, such a tool is designed to pool money from several investors to be invested in income-generating assets. The cash flow thus generated is distributed among investors as dividend income. When compared to Real Estate Investment Trust or REITs, the structure and operation of both are quite similar.

Types of InvITs

Through InvITs, individuals can park their funds into infrastructure projects in two ways, i.e. either directly or through particular purpose vehicles, thus classifying them in two different types.

  • Investment in revenue-generating finished projects – 

One of the types allows investment in revenue-generating finished projects and tends to invite investors through a public offering.

  • Investment in projects under construction – 

Additionally, investors are also allowed to invest in projects that are under construction or have been finished. Notably, this type opts for a private placement of its units.

Structure of InvITs in India

An InvIT is established as a trust and is registered with the SEBI. Typically, infrastructure investment trust SEBI comprises 4 elements, namely –

  • Trustee:They are required to be registered with SEBI as debenture trustees. Also, they are required to invest at least 80% into infra assets that generate steady revenue.
  • Sponsor: Typically, a body corporate, LLP, promoter or a company with a net worth of at least Rs. 100 crore classifies as a sponsor. Further, they must hold at least 15% of the total InvITs with a minimum lock-in period of 3 years or as notified by any regulatory requirement. When it comes to a public-private partnership or PPP projects, sponsors serve as a Special Purpose Vehicle (SPV).
  • Investment manager: As a body corporate of LLP, an investment manager supervises all the operational activities surrounding InvITs.
  • Project manager: The authority is mostly responsible for executing projects. However, in the case of PPP projects, it serves as an entity that also supervises ancillary responsibilities.

The table below highlights the structure of infrastructure investment trust.

TrusteeInvest a minimum of 80% in infra assets.
Sponsor/sHolds 15% of the total InvITs.
Investment managerManages investment and supervises operational activities concerning InvIT.
Project managerExecutes projects.

What is the Purpose of InvITs?

The purpose of InvITs is to enable Infrastructure Companies to repay their debt obligation quickly and effectively. Since infrastructure-oriented projects tend to take time to generate substantial cash flow, InvITs come in handy for paying off loan interests and other expenses conveniently.