Infrastructure Investment Trust (InvITs)

An Infrastructure Investment Trust (InvIT) is a collective investment vehicle designed to pool funds from multiple investors for direct investment in income-generating infrastructure assets. Modelled on the lines of Real Estate Investment Trusts (REITs), InvITs enable investors to participate in infrastructure projects and earn regular income and capital appreciation without directly owning or managing physical infrastructure assets.
In India, InvITs were introduced to address the growing demand for long-term infrastructure financing, improve liquidity in the sector, and allow infrastructure developers to recycle their capital for new projects.

Background and Introduction

Infrastructure projects in India—such as highways, power transmission lines, pipelines, and telecom towers—are capital intensive and have long gestation periods. Traditional financing sources like banks and financial institutions faced asset-liability mismatches when funding such projects.
To overcome these constraints, the Securities and Exchange Board of India (SEBI) introduced the InvIT Regulations in September 2014 under the SEBI (Infrastructure Investment Trusts) Regulations, 2014. These regulations provided the legal framework for the creation, registration, and governance of InvITs in India.
The concept aligns with global best practices, offering an alternative investment platform for institutional and retail investors to participate in India’s infrastructure growth.

Structure and Components of InvITs

An InvIT is structured as a trust registered with SEBI and typically comprises four key participants:

1. Sponsor(s):
   • Developer or promoter of infrastructure assets.
   • Responsible for establishing the InvIT and transferring eligible assets into it.
2. Trustee:
   • Holds the assets of the InvIT in trust for unit holders.
   • Ensures compliance with regulations and investor interests.
3. Investment Manager:
   • Manages investments and operations of the InvIT.
   • Makes decisions regarding asset management and distribution.
4. Project Manager:
   • Oversees the execution, operation, and maintenance of infrastructure projects.

The InvIT issues units to investors, similar to shares, and these units are listed and traded on recognised stock exchanges. Investors receive returns in the form of periodic distributions (dividends, interest, or capital gains).

Types of InvITs

SEBI regulations allow for two major categories of Infrastructure Investment Trusts:

1. Publicly Listed InvITs:
   • Units are listed on stock exchanges and traded like equities.
   • Open to both institutional and retail investors.
   • Required to hold at least 80 per cent of assets in completed and revenue-generating projects.
2. Privately Placed InvITs:
   • Units are privately placed with qualified institutional buyers.
   • More flexibility in structure and investment composition.
   • Can invest in under-construction projects up to 25 per cent of total assets.

Eligible Assets for Investment

InvITs can invest in a wide range of infrastructure sectors notified by the Government of India, including:

• Roads and highways
• Power generation and transmission
• Telecom towers and optical fibre networks
• Gas and oil pipelines
• Ports, airports, and logistics facilities
• Renewable energy (solar and wind)
• Urban infrastructure such as water supply and metro systems

Projects must typically have stable cash flows and long-term concession agreements to qualify for InvIT monetisation.

Regulatory and Tax Framework

The SEBI (Infrastructure Investment Trusts) Regulations, 2014 govern InvIT operations, ensuring transparency, investor protection, and accountability.
Key regulatory requirements include:

• Minimum asset size of ₹500 crore at the time of registration.
• Minimum offer size of ₹250 crore for public issues.
• Mandatory distributions of at least 90 per cent of net distributable cash flows (NDCF) to unit holders.
• Independent valuation of assets by a registered valuer.
• Regular disclosure and audit requirements.

From a taxation standpoint:

• Dividends received by investors are exempt in the hands of the unit holder if the InvIT has not opted for the lower corporate tax regime.
• Interest income and capital gains are taxable as per investor category.
• InvITs themselves enjoy a pass-through status, meaning income is taxed only at the investor level to avoid double taxation.

Objectives and Benefits

The introduction of InvITs aims to achieve multiple policy and financial objectives:

• Infrastructure Financing: Facilitates mobilisation of long-term capital for infrastructure development.
• Capital Recycling: Allows developers to monetise operational assets and reinvest proceeds in new projects.
• Investment Diversification: Provides investors exposure to stable, asset-backed returns.
• Liquidity and Transparency: Listing on exchanges offers liquidity and governance standards comparable to equities.
• Reduced Bank Dependence: Decreases reliance on bank lending and broadens the investor base.
• Foreign Investment Attraction: Enables participation by global pension funds, sovereign wealth funds, and insurance companies.

Major InvITs in India

Several prominent InvITs have been established across sectors, demonstrating the growing confidence in this model:

1. IRB InvIT Fund (IRB Infrastructure Developers Ltd.) – India’s first InvIT, launched in 2017 for road assets.
2. IndiGrid InvIT (India Grid Trust): Focused on power transmission assets, sponsored by Sterlite Power.
3. PowerGrid InvIT: Sponsored by Power Grid Corporation of India Ltd., monetising operational transmission assets.
4. NHAI InvIT: Sponsored by the National Highways Authority of India, aimed at mobilising funds for road infrastructure.
5. Brookfield India InvIT: Includes diversified infrastructure assets such as roads and energy.

These InvITs have attracted investments from domestic and international institutional investors, including pension funds and sovereign funds.

Role in Infrastructure Development

InvITs contribute significantly to India’s infrastructure ecosystem by:

• Unlocking value from operational assets: Helping developers generate liquidity without additional borrowing.
• Bridging the funding gap: Supplementing public finance and private investment.
• Encouraging private participation: Offering a regulated investment vehicle for institutional and retail investors.
• Improving asset quality: Mandating professional management, disclosure, and maintenance standards.

They are instrumental in achieving the goals of the National Infrastructure Pipeline (NIP) and the National Monetisation Pipeline (NMP), both of which aim to mobilise private capital for infrastructure creation and asset recycling.

Challenges and Constraints

Despite positive progress, InvITs in India face certain challenges:

• Limited retail participation due to lack of awareness and financial literacy.
• Regulatory complexities and valuation challenges in assessing long-term assets.
• Market volatility affecting unit prices and investor sentiment.
• Operational risks such as changes in government policies, concession agreements, and demand fluctuations.
• High initial costs of structuring, legal compliance, and listing.

Continuous regulatory refinement and investor education are needed to enhance their appeal and scalability.

Government Support and Policy Initiatives

The Government of India has actively encouraged the InvIT mechanism through policy and fiscal measures:

• Tax incentives and simplified regulations for foreign investors.
• Inclusion of InvITs under the Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI) routes.
• Institutional investment encouragement by allowing insurance companies and pension funds to invest in InvITs.
• Integration with infrastructure monetisation programmes to unlock government-owned asset value.

These initiatives aim to make InvITs a mainstream financing model for sustainable infrastructure growth.

Future Prospects

With India targeting over $1.5 trillion in infrastructure investment under the National Infrastructure Pipeline, InvITs are expected to play a crucial role in bridging the financing gap. Expanding their coverage to newer sectors such as renewable energy, digital infrastructure, and logistics parks is likely to enhance their contribution.
Improved investor confidence, regulatory stability, and deepening capital markets will further strengthen the InvIT ecosystem as a major pillar of India’s infrastructure financing strategy.