Real estate investments and Mutual funds have dominated the market since the beginning. Recent reforms have made Trusts as one of the alternative investing options. In the ever-changing real estate and construction sector, investing in infrastructure trusts is emerging as the new trend. The government is making all possible efforts to bring in advancements and improvements in the economy of the country. Infrastructure projects are one such focus area of the government for which it has collaborated with the private sector as well. There are various reasons for which an infrastructure project gets delayed. The major factors include alarming increase of debt finance costs, global economic slowdown, and cost overruns. Along with this, lack of both equities of private investors and international finance flows add further delays and stress to the market. This prevents the builders, service providers and investors from undertaking any new infrastructure projects. Infrastructure Investment Trusts (InvITs) have been introduced to produce enough security, trust and able businesses to meet the funding requirements.
What is Infrastructure Investment Trusts?
These trusts are similar to mutual funds, which helps to collect funds from investors and invest them into infrastructure assets for revenue generation. In simple words, InvITs enable direct investment of small amounts from possible individuals/investors in the infrastructure sector of the country to earn a return on investments. Real estate investment trusts (REITs) have similar features to InvITs. However, InvITs are specific to the infrastructure sector.
What is the structure of InvITs?
These trusts come under the SEBIs registration and regulations policies. An InvIT consists of 4 elements namely Trustee, Sponsor(s), Investment Manager and the Project Manager. The parties involved in this must adhere to the statutory code of conduct which requires them to refrain from conflicts of interest. This helps to maintain high standards of integrity and certainty in these trusts.
Trustee: is a SEBI (Security and Exchange Board of India) registered certified trustee who administers the InvITs. A trustee cannot be an associate of the Sponsor or the Manager.
Sponsor(s): are the companies or corporate bodies or Limited Liability Partnership (LLP )which sets up these trusts. These promoters should have net-worth of Rs. 100 crore and have to hold at least 25% in the InvIT collectively for at least 3 years. The sponsors and promoters also include infrastructure developers or special purpose vehicles (SPVs).
Investment Manager: is a company or LLP or corporate bodies that manage the assets and investments of the InvITs. The manager owns the responsibility to undertake the activities of an InvIT.
Project Manager: is the person or the entity responsible for achieving the execution of the projects. They responsible for the project milestones in accordance with the agreement (concession) or any other project-related document.
REITs and InvITs are the innovative vehicles that allow developers to legitimize the revenue-generating real estate and infrastructure assets. They enable investors or unitholders to invest in these assets without actually owning them. These benefits the developers by providing funding for the new infrastructure/real estate projects and liquidity to investors or unitholders as the units of the trust are listed on exchanges. Apart from these, REITs and InvITs enjoy favorable tax treatment, including exemption from dividend distribution tax and relaxation of capital gains tax.