Public Infrastructure Investment Trust (InvIT)

A Public Infrastructure Investment Trust (InvIT) is a structured investment vehicle designed to facilitate investment in infrastructure assets, allowing both institutional and retail investors to participate in income-generating infrastructure projects. It provides a framework through which developers can monetise operational infrastructure assets while offering investors stable, long-term returns. In India, InvITs have emerged as a vital tool for financing infrastructure growth, especially in sectors such as roads, power transmission, telecom towers, and gas pipelines.

Concept and Definition

An Infrastructure Investment Trust (InvIT) operates on the lines of mutual funds but focuses on infrastructure projects instead of securities. Investors contribute funds to the trust, which are then used to acquire or manage operational infrastructure assets. The trust earns income through user charges, tolls, tariffs, or annuities from these assets, which are distributed as regular dividends or interest payments to investors.
The Securities and Exchange Board of India (SEBI) introduced the InvIT framework in 2014 under the SEBI (Infrastructure Investment Trusts) Regulations, aiming to deepen capital markets and reduce developers’ dependence on traditional bank financing. A Public InvIT refers specifically to InvITs that are listed and traded on recognised stock exchanges, allowing the public to invest and trade units similar to equity shares.

Structure and Participants

A Public InvIT is structured as a trust registered with SEBI and involves four key participants:

1. Sponsor: The entity that sets up the InvIT, usually an infrastructure developer or public sector undertaking (PSU) owning operational projects.
2. Trustee: An independent entity that oversees compliance and holds the assets on behalf of investors.
3. Investment Manager: Responsible for managing assets, investments, and distribution of income.
4. Project Manager: Handles day-to-day operations and maintenance of the underlying projects.

The trust typically holds a portfolio of completed, revenue-generating projects, ensuring predictable cash flows. Units of the Public InvIT are listed on exchanges such as the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), enabling liquidity for investors.

Objectives and Significance

The primary purpose of a Public InvIT is to mobilise long-term capital for infrastructure development by attracting both domestic and foreign investment. It serves several objectives:

• Asset monetisation: Developers can sell part of their stake in operational assets to raise capital for new projects.
• Investor access: Provides retail and institutional investors exposure to stable infrastructure assets.
• Liquidity creation: Allows infrastructure investments to be traded on public exchanges.
• Debt reduction: Helps developers reduce leverage by converting physical assets into financial instruments.
• Economic efficiency: Encourages private sector participation in public infrastructure without direct government expenditure.

Regulatory Framework and Governance

Public InvITs are governed by SEBI regulations, which prescribe strict norms for transparency, valuation, and distribution. Key regulatory provisions include:

• At least 80% of the InvIT’s assets must be in completed and revenue-generating projects.
• No more than 20% may be invested in under-construction projects or other permissible investments.
• A minimum of 90% of net distributable cash flows must be distributed to investors, ensuring regular income.
• Periodic independent valuation of assets is mandatory, generally every six months.
• Public InvITs must maintain a minimum public unitholding and comply with corporate governance standards similar to listed companies.

These measures are designed to maintain investor confidence, promote accountability, and ensure the stability of the InvIT structure.

Public InvITs in India

India has witnessed significant growth in InvITs since their introduction, with both public sector enterprises and private developers using them to monetise infrastructure. Notable Public InvITs include:

• NHAI InvIT: Launched by the National Highways Authority of India (NHAI) in 2021, this InvIT monetises operational toll road assets. It was among the first major government-backed InvITs and attracted strong institutional participation from pension and sovereign funds.
• PowerGrid InvIT: Sponsored by Power Grid Corporation of India Ltd., this InvIT manages power transmission assets across the country and was listed in 2021. It represents a model for public sector monetisation of power infrastructure.
• IRB InvIT Fund: India’s first private sector InvIT, sponsored by IRB Infrastructure Developers Ltd., primarily manages toll road projects.
• IndiGrid InvIT: Focused on power transmission assets, IndiGrid was the first InvIT to be registered under SEBI and later listed publicly.

The success of these InvITs has encouraged other sectors, including gas pipelines, telecom towers, and renewable energy, to explore similar investment vehicles.

Economic and Financial Benefits

Public InvITs have introduced a new dimension to India’s infrastructure financing model by bridging the gap between project developers and capital markets. The benefits include:

• For Developers: Enables capital recycling by converting mature assets into liquid financial resources for new projects.
• For Investors: Offers steady income through periodic distributions and potential capital appreciation.
• For the Economy: Reduces government borrowing requirements and promotes private investment in infrastructure.
• For Financial Markets: Deepens bond and equity markets by creating new classes of tradable instruments.

Additionally, Public InvITs offer tax efficiency, as income distributed from interest and dividends enjoys favourable tax treatment under certain conditions.

Challenges and Limitations

Despite their advantages, Public InvITs face several operational and regulatory challenges:

• Complex valuation: Infrastructure assets have long lifecycles, making accurate valuation and yield forecasting difficult.
• Liquidity constraints: Although listed, trading volumes in InvIT units remain limited compared to equity shares.
• Regulatory compliance: Continuous adherence to SEBI’s detailed reporting and audit requirements increases administrative costs.
• Market perception: Retail investor awareness remains low, and many perceive InvITs as complex or illiquid instruments.
• Interest rate sensitivity: Rising interest rates can reduce investor appetite, as fixed-income alternatives become more attractive.

In addition, the success of a Public InvIT depends heavily on the quality of its underlying assets and the stability of government policies affecting tolls, tariffs, and user charges.

Role in National Infrastructure Monetisation and Growth

Public InvITs have become a cornerstone of India’s National Monetisation Pipeline (NMP), a government initiative launched in 2021 to unlock value from public infrastructure. By transferring revenue-generating assets to InvITs, the government aims to free up capital for new greenfield projects without privatising ownership entirely.
Sectors identified under the NMP for InvIT-based monetisation include:

• National highways and expressways.
• Power transmission networks.
• Natural gas pipelines.
• Telecommunications and optical fibre networks.
• Railway freight corridors and stations.

This model provides a sustainable financing mechanism while retaining long-term control and oversight over strategic assets.

Global Context and Comparison

Globally, InvITs or similar instruments have been successfully used in countries such as Singapore, Australia, Canada, and the United States, where they are often referred to as Infrastructure Real Estate Investment Trusts (Infra-REITs). These jurisdictions offer lessons in investor protection, taxation, and asset diversification that India continues to adapt.
In mature markets, infrastructure trusts are a common component of pension and sovereign fund portfolios due to their low volatility and stable yield profile. India’s Public InvITs are gradually moving in this direction, attracting foreign institutional investors such as the Canadian Pension Plan Investment Board (CPPIB) and GIC of Singapore.

Future Outlook

The outlook for Public InvITs in India is highly positive, supported by the government’s emphasis on infrastructure expansion and fiscal prudence. As India targets multi-trillion-dollar investments under initiatives like Gati Shakti and Bharatmala, InvITs are expected to play a central role in mobilising private capital.