Infrastructure Investment Trusts (InvITs)

Infrastructure Investment Trusts (InvITs) are market-based investment vehicles introduced to facilitate the financing of infrastructure assets in India by pooling capital from a wide range of investors. They allow infrastructure developers to monetise completed and revenue-generating assets while providing investors with access to stable, long-term cash flows. In the context of banking, finance and the Indian economy, InvITs represent a major structural reform aimed at deepening capital markets, reducing pressure on banks and supporting sustained infrastructure investment.
InvITs combine elements of mutual funds, trusts and infrastructure finance, creating an institutional bridge between infrastructure assets and capital market investors.

Concept and basic structure of InvITs

An InvIT is a trust-based structure that owns, operates and manages infrastructure assets such as roads, power transmission lines, pipelines and renewable energy projects. Investors purchase units of the InvIT, similar to shares, and receive returns in the form of periodic distributions derived from the cash flows of the underlying assets.
Typically, an InvIT structure includes:

• A sponsor, usually the original infrastructure developer
• A trustee, responsible for oversight and protection of investor interests
• An investment manager, which manages assets and investments
• A project manager, which oversees operations and maintenance

This structure separates ownership, management and oversight, improving governance and transparency.

Regulatory framework in India

InvITs in India are regulated by the Securities and Exchange Board of India. The regulatory framework prescribes eligibility criteria, leverage limits, distribution requirements and disclosure standards to protect investors and ensure market integrity.
InvITs are required to distribute a substantial portion of their net distributable cash flows to unit holders, reinforcing their income-generating character. This makes them particularly attractive to long-term investors seeking stable returns.

Rationale for introducing InvITs

India’s infrastructure sector requires massive and continuous investment, but traditional financing through banks has faced limitations due to asset–liability mismatches and rising stress in infrastructure loans. InvITs were introduced to address these challenges by shifting mature infrastructure assets from bank balance sheets to capital markets.
By monetising operational assets, infrastructure developers can release capital locked in completed projects and redeploy it into new infrastructure creation. This recycling of capital enhances efficiency and accelerates infrastructure development.

Role in banking and financial intermediation

InvITs play an important role in reducing the banking system’s exposure to long-term infrastructure assets. Banks that initially financed projects can exit or reduce exposure once assets are transferred to InvITs, improving balance sheet flexibility and risk management.
From a financial system perspective, InvITs help reallocate long-term risks from banks to investors better suited to absorb them, such as pension funds and insurance companies.

Investor base and capital market impact

InvITs attract a diverse investor base, including domestic institutional investors, foreign portfolio investors and retail investors. For long-term institutions, InvITs provide predictable cash flows aligned with long-duration liabilities.
The growth of InvITs contributes to capital market deepening by expanding the range of infrastructure-linked investment products. It also supports the development of India’s bond and equity markets by creating liquid, listed instruments backed by real assets.

Cash flow stability and return profile

A key feature of InvITs is their focus on operational infrastructure assets with established revenue streams. These may include toll collections, transmission tariffs or long-term power purchase agreements.
Such predictable cash flows reduce revenue volatility and support regular distributions to investors. This income-oriented structure differentiates InvITs from traditional equity investments and enhances their appeal as a quasi-fixed-income asset.

Macroeconomic significance for the Indian economy

Infrastructure investment has strong multiplier effects on growth, employment and productivity. By facilitating efficient financing and asset monetisation, InvITs support sustained infrastructure creation without excessive reliance on public finances or bank credit.
At the macroeconomic level, InvITs contribute to financial stability by diversifying funding sources and reducing concentration risks in the banking system. They also support fiscal efficiency by enabling private capital participation in infrastructure.

Relationship with other infrastructure financing instruments

InvITs complement other infrastructure financing mechanisms such as Infrastructure Finance Companies, Infrastructure Debt Funds and public–private partnerships. While banks and NBFCs focus on project development and early-stage financing, InvITs are particularly suited for holding mature, revenue-generating assets.
This layered financing approach strengthens the overall infrastructure financing ecosystem and aligns different funding instruments with appropriate risk profiles.