Infrastructure Debt Fund

A debt fund means an investment pool in which core holdings are fixed income investments. The Infrastructure Debt Funds are meant to infuse funds into the infrastructure sector. The importance of these funds lies in the fact that the infrastructure funding is not only different but also difficult in comparison to other types of funding because of its huge requirement, long gestation period and long term requirements.

In India, an IDF can be set up either as a trust or as a company. If the IDF is set up as a trust, it would be a mutual fund, regulated by SEBI. Such funds would be called IDF-MF. The mutual fund would issue rupee-denominated units of five years’ maturity to raise funds for the infrastructure projects.

If the IDF is set up as a company, it would be an NBFC; it will be regulated by the RBI. The IDF guidelines of the RBI came in September 2011. According to these guidelines, such companies would be called IDF-NBFC.

The guidelines require that the IDFs sign a tripartite agreement between the lender, the concessionaire and the IDF. Concessionaire means a party which has entered into an agreement called ‘Concession Agreement’ with a Project Authority, for developing infrastructure. “Project Authority” means an authority constituted by a statute for the development of infrastructure in the country.

According to the RBI guidelines, the “Infrastructure Debt Fund-Non-Banking Financial Company” or “IDF-NBFC” means a non-deposit taking NBFC that has Net Owned Fund of Rs 300 crores or more and which invests only in Public Private Partnerships (PPP) and post commencement operations date (COD) infrastructure projects which have completed at least one year of satisfactory commercial operation and becomes a party to a Tripartite Agreement.

We should here note that the format of the tripartite agreement was not firmed up till now. Recently, on 4 October 2012 the format of tripartite agreement was finalised. With this, possibly, SEBI and RBI will give green signal to the IDFs, for which several applications are currently pending.

Who can invest?

Reserve Bank of India (RBI) has allowed Indians as well as foreign investors to invest in debt instruments floated by infrastructure debt funds (IDF) set up as non-banking financial companies (NBFCs) or mutual funds (MFs).

The debt instrument would include foreign currency and rupee bonds.

Eligible foreign investors include high net worth individuals registered with the Securities and Exchange Board of India (Sebi) and high net worth individuals registered with Sebi as sub-accounts of Sebi-registered foreign institutional investors (FIIs). Non-residents who fall under foreign exchange management regulations, 2000, are also eligible to invest.

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