Investing in Infrastructure Investment Trusts (InvITs) has become a popular option for investors in India, offering a unique opportunity to participate in the country’s growing infrastructure sector. InvITs allow individuals to invest in a diversified portfolio of infrastructure assets, such as roads, bridges, and energy projects, providing a stable source of income and potential long-term capital appreciation. In this article, we will delve into the world of InvITs in India, exploring the benefits, types, and process of investing in these investment vehicles.
Understanding InvITs in India
InvITs are a type of investment trust that allows individuals to invest in a portfolio of infrastructure assets. These trusts are established under the Indian Trusts Act, 1882, and are regulated by the Securities and Exchange Board of India (SEBI). InvITs provide a platform for infrastructure developers to raise funds from the public, which are then used to finance infrastructure projects.
Benefits of Investing in InvITs
InvITs offer several benefits to investors, including:
- Regular Income: InvITs provide a regular source of income in the form of dividends, which are distributed to investors from the rental income generated by the underlying infrastructure assets.
- Diversification: InvITs allow investors to diversify their portfolio by investing in a range of infrastructure assets, reducing their dependence on any one particular asset class.
- Long-term Capital Appreciation: InvITs offer the potential for long-term capital appreciation, as the value of the underlying infrastructure assets appreciates over time.
- Low Risk: InvITs are considered a relatively low-risk investment option, as the underlying infrastructure assets are typically backed by long-term contracts and government guarantees.
Types of InvITs in India
There are two main types of InvITs in India:
Publicly Traded InvITs
Publicly traded InvITs are listed on stock exchanges, such as the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). These InvITs are open to the public and can be bought and sold on the stock exchange.
Private InvITs
Private InvITs are not listed on stock exchanges and are typically available only to institutional investors, such as pension funds and insurance companies.
How to Invest in InvITs in India
Investing in InvITs in India is a relatively straightforward process. Here are the steps to follow:
Step 1: Choose a Broker
To invest in InvITs, you will need to open a demat account with a registered broker. You can choose from a range of brokers, such as ICICI Direct, HDFC Securities, and Kotak Securities.
Step 2: Select an InvIT
Once you have opened a demat account, you can select the InvIT you wish to invest in. You can choose from a range of publicly traded InvITs, such as IRB InvIT Fund, IndiGrid InvIT Fund, and PowerGrid InvIT Fund.
Step 3: Place an Order
To invest in an InvIT, you will need to place an order through your broker’s online trading platform or mobile app. You can choose to invest a lump sum or opt for a systematic investment plan (SIP).
Step 4: Monitor Your Investment
Once you have invested in an InvIT, it is essential to monitor your investment regularly. You can track the performance of your InvIT on the stock exchange website or through your broker’s online platform.
Taxation of InvITs in India
The taxation of InvITs in India is relatively straightforward. The income earned from InvITs is taxed as dividend income, which is exempt from tax in the hands of the investor. However, the InvIT is required to pay a dividend distribution tax (DDT) of 10% on the dividend distributed to investors.
Risks Associated with InvITs in India
While InvITs are considered a relatively low-risk investment option, there are some risks associated with investing in these trusts. Some of the key risks include:
- Interest Rate Risk: InvITs are sensitive to interest rate changes, which can affect the value of the underlying infrastructure assets.
- Credit Risk: InvITs are exposed to credit risk, which can arise if the borrower defaults on the loan.
- Regulatory Risk: InvITs are subject to regulatory risk, which can arise if there are changes in government policies or regulations.
Conclusion
Investing in InvITs in India can be a lucrative option for investors looking to diversify their portfolio and earn regular income. With the Indian government’s focus on infrastructure development, the demand for InvITs is likely to increase in the coming years. However, it is essential to understand the risks associated with InvITs and to invest wisely. By following the steps outlined in this article, you can unlock the potential of InvITs in India and achieve your investment goals.
| InvIT | Listing Date | Underlying Assets |
|---|---|---|
| IRB InvIT Fund | May 2017 | Roads and highways |
| IndiGrid InvIT Fund | June 2017 | Power transmission assets |
| PowerGrid InvIT Fund | May 2019 | Power transmission assets |
Note: The table above provides a list of some of the publicly traded InvITs in India, along with their listing date and underlying assets.
What are InvITs and how do they work in India?
InvITs, or Infrastructure Investment Trusts, are a type of investment vehicle that allows individuals and institutions to invest in infrastructure projects in India. They work by pooling funds from various investors and using them to invest in a portfolio of infrastructure assets, such as roads, bridges, and power plants. This allows investors to benefit from the income generated by these assets, while also providing a way for infrastructure developers to raise capital.
InvITs are regulated by the Securities and Exchange Board of India (SEBI) and are required to meet certain criteria, such as having a minimum of 80% of their assets invested in infrastructure projects. They are also required to distribute at least 90% of their net distributable cash flows to their unit holders, providing a regular income stream for investors.
What are the benefits of investing in InvITs?
Investing in InvITs offers several benefits, including a regular income stream, diversification, and the potential for long-term capital appreciation. InvITs also provide a way for individual investors to participate in the growth of India’s infrastructure sector, which is expected to continue to grow rapidly in the coming years. Additionally, InvITs are a relatively low-risk investment option, as they are backed by tangible assets and have a predictable income stream.
InvITs also offer a way for investors to benefit from the government’s focus on infrastructure development, which is a key priority for the Indian government. By investing in InvITs, investors can participate in the growth of the infrastructure sector and benefit from the government’s initiatives to promote infrastructure development.
What types of infrastructure assets can InvITs invest in?
InvITs can invest in a wide range of infrastructure assets, including roads, bridges, power plants, transmission lines, and renewable energy projects. They can also invest in other types of infrastructure assets, such as airports, seaports, and logistics facilities. The specific types of assets that an InvIT can invest in are determined by its investment strategy and objectives.
InvITs can also invest in a combination of operational and under-construction projects, providing a mix of immediate income and long-term growth potential. This allows investors to benefit from the income generated by operational projects, while also participating in the growth potential of under-construction projects.
How do I invest in InvITs?
Investing in InvITs is a relatively straightforward process. Investors can purchase units of an InvIT through a public offer, or they can buy and sell units on the stock exchange. InvITs are listed on the major stock exchanges in India, including the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
To invest in an InvIT, investors will typically need to open a demat account with a brokerage firm and fund their account. They can then place an order to buy units of the InvIT through their online trading platform or mobile app. Investors can also invest in InvITs through a mutual fund or exchange-traded fund (ETF) that invests in InvITs.
What are the risks associated with investing in InvITs?
As with any investment, there are risks associated with investing in InvITs. One of the main risks is the risk of default by the underlying infrastructure project, which could impact the income generated by the InvIT. There is also a risk that the InvIT may not be able to distribute its net distributable cash flows to unit holders, which could impact the income stream for investors.
Additionally, InvITs are subject to regulatory risks, as changes in government policies or regulations could impact the underlying infrastructure projects. There is also a risk that the InvIT may not be able to raise sufficient capital to invest in new projects, which could impact its growth potential.
How are InvITs taxed in India?
InvITs are taxed as pass-through entities, which means that the income generated by the InvIT is taxed at the unit holder level. The income generated by an InvIT is considered to be a combination of interest income, dividend income, and capital gains, and is taxed accordingly.
Unit holders are required to pay tax on the income distributed by the InvIT, and are also required to pay tax on any capital gains realized on the sale of their units. The tax implications of investing in an InvIT will depend on the individual investor’s tax status and the specific tax laws in force at the time.
What is the future outlook for InvITs in India?
The future outlook for InvITs in India is positive, driven by the government’s focus on infrastructure development and the growing demand for infrastructure financing. The Indian government has set ambitious targets for infrastructure development, and InvITs are expected to play a key role in financing these projects.
As the infrastructure sector continues to grow, InvITs are expected to provide a attractive investment opportunity for individual and institutional investors. With their predictable income stream and potential for long-term capital appreciation, InvITs are likely to remain a popular investment option in India for the foreseeable future.