Infrastructure investment trusts (InvITs) are the same as mutual funds, which allows investors to invest small amounts of money in Infrastructure projects. InvIT is a mechanism that enables developers of infrastructure assets to monetise their assets by pooling multiple projects under a single entity. The primary objective of InvITs is to promote the infrastructure sector in India by encouraging more individuals to invest in the sector and can be modified according to a given situation
Infrastructure investment trusts (InvITs) are the same as mutual funds, which allows investors to invest small amounts of money in Infrastructure projects. InvIT is a mechanism that enables developers of infrastructure assets to monetise their assets by pooling multiple projects under a single entity. The primary objective of InvITs is to promote the infrastructure sector in India by encouraging more individuals to invest in the sector and can be modified according to a given situation.
Structure of InvIT
An InvIT is established as a trust and is registered with the SEBI. Typically, infrastructure investment trust comprises 4 elements as given below:
§ 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: A body corporate, LLP, promoter or a company with a net worth of at least Rs. 10 billion classifies as a sponsor.
§ 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.
Features of InvITs
InvITs must ensure they distribute 90% of their net cash flows to unit investors, there is leverage cap of 49% i.e InvITs are permitted to borrow 49% of the value of InvIT asset. The sponsor of InvIT must hold minimum 25% of the units issued with a lock-in period of 3 years from the date of issuance. InvIT regulations also require companies to maintain certain investment ratios, including 80% of investments in completed and revenue-generating assets.
Investment in InvIT
The minimum investment required to invest in InvITs is Rs 10 Lakhs. There is no minimum lock-in period for the investment.
InvITs must distribute regular dividends, they must distribute once in every 6 months. The amount of cash available for distribution depends upon the InvIT's own dividend or interest income and principal payments from its portfolio.
Ø Dividend offered by InvIT are tax exempted, however if unit holder sells InvIT units and earns capital gains then unit holder has to pay tax on it.
Ø Short-term (less than 36 months) capital gains made by a unit holder on the sale of InvIT units on the exchanges will be taxed at 15% and long-term capital gains will be tax exempt. For off-the-exchange transactions, short-term and long-term capital gains will be taxed at 40% and 20% respectively.
Ø Revenue generated by projects under InvIT will be treated as dividend income and dividend income is tax exempted. If any infrastructure asset is sold by the InvIT and proceeds are not invested in any other infrastructure asset, then proceeds from sale is to be distributed to the unit holders. Any capital gain, made by the InvIT on such sale that is distributed to the unit holders will not be taxed.
India Grid Trust
AAA-rated India Grid Trust is a power sector Invit. India Grid has Rs 139 billion AUM and the portfolio comprises of about 28 transmission lines and 9 substations, encompassing 68,280 circuit kilometres and 11,460 MVA capacity of transmission across 14-states.
India Grid is looking to focus on Solar projects with good quality plants, long contracts, financially strong counterparties like SECI, NTPC, GUVN as part of diversification strategy, while transmission projects will remain 75% to 80% of IndiGrid portfolio over longer term.
Recently India Grid Trust has acquired 74% stake in Parbati Koldam Transmission from Reliance Infra for Rs.6.6 billion. In August 2020 Sterlite power sold complete 14.7% share in India grid trust at Rs 8.4 billion.