Islamabad, Nov 16: Infrastructure Investment Trusts (InvITs), similar to mutual funds, are regulated by the Securities and Exchange Board of India (SEBI).
These investment options allow both individual and institutional investors to directly participate in infrastructure projects and earn a share of the generated income.
Recently, SEBI proposed allowing Real Estate Investment Trusts (REITs), Small and Medium REITs (SM REITs), and InvITs to use interest rate derivatives for risk hedging.
Additionally, SEBI suggested permitting the transfer of locked-in units between sponsors and their groups for REITs and InvITs, in a manner similar to how promoters in listed companies can manage their stakes.
This change aims to help sponsors manage their holdings while maintaining their commitment to the trust.
SEBI also recommended recognizing fixed deposits as cash equivalents for leverage calculations in REITs and InvITs.
It plans to clarify the credit rating requirements for borrowing by these trusts, establish timelines for filling board vacancies, and expand the asset base for REITs and SM REITs.
Furthermore, SEBI proposed allowing REITs to invest in liquid mutual funds and introduced steps to streamline their operations while ensuring investor protection.
The consultation document also explores the use of derivatives, such as interest rate swaps, to manage interest rate fluctuations.
InvITs as an Investment Option
InvITs provide a way to diversify investments beyond traditional asset classes like stocks, bonds, and gold. Since their returns are often linked to cash flow from real infrastructure projects, InvITs show low correlation with the stock market, making them a good choice for reducing exposure to market volatility.
By investing in various types of InvITs—such as those in sectors like roads, energy, or telecom—investors can further diversify and minimize sector-specific risks.
Under Prime Minister Narendra Modi’s leadership, the government has prioritized infrastructure development, with significant investments in sectors such as roads, railways, energy, and telecom.
Experts suggest that by investing in InvITs, investors can gain exposure to these critical sectors, benefiting from India’s long-term infrastructure growth.
InvITs also provide retail investors with the chance to participate in large-scale infrastructure projects typically reserved for institutional investors, with low entry barriers.
“InvITs are increasingly becoming a vital investment option for individuals and institutions seeking regular income, diversification, long-term assets, and exposure to the infrastructure sector.
Their potential for yield generation, liquidity, tax benefits, and growth makes them a strong addition to both conservative and growth-focused portfolios,” said Jignesh Shah, partner and head of infrastructure at Alpha Alternatives, in a financial newspaper.
Tax Treatment of InvITs
InvITs offer tax benefits that make them more attractive compared to similar investment vehicles.
The income distributed by InvITs typically includes dividends, interest, and capital gains, and the tax treatment of these components is often more favorable than other income sources.
For example, dividends from InvITs are generally tax-exempt for investors, provided certain conditions are met. Additionally, capital gains are subject to long-term tax rates if the investment is held for more than a year.
