Nitan Chhatwal, MD, Shrem InvIT
At a time when most traditional investment fields are yielding low returns, InvITs are emerging as a brilliant investment option for people looking for a diverse portfolio and who wish to stay invested for the long term.
Nitan Chhatwal, MD, Shrem InvIT

At a time when most investors are figuring out the best places to invest in, when rates of most investment avenues have plummeted, an answer crops up in the form of InvITs. These too-big-to-fail banks of the financial world are tailored to the infrastructure sector’s unique needs. What’s more, it allows them to become a part of the rapid nation-building process that India finds itself in now.

What are InvITs?
Infrastructure Investment Trust (InvITs) is a platform that enables investment into operational infrastructure assets with a robust regulatory framework provided by the SEBI. It was started by the government with the goal of promoting and providing extra funding for infrastructure investments in India and giving unit holders an opportunity to make a pooled investment in large infrastructure projects.

Indian investors have been active in this space; these include mutual funds, insurance companies, family wealth offices, and ultra-high net worth individuals (HNIs).

InvITs are a new asset class that provides a consistent long-term return in the range of 9-10% while avoiding the risk of equity. InvITs involve a dividend income, which is paid either quarterly or bi-annually on a per-unit basis, and capital gains, where the price of InvIT units is subject to change based on its performance. Similar to dividends, the interest pay-outs can be made by an InvIT on a quarterly or bi-annual basis. The amount paid out as interest to unit holders is calculated after deduction of withholding tax by the InvIT.

Annuity InvITs
Annuity InvITs predominantly have predetermined annuity income for which they largely depend on hybrid annuity model (HAM) projects of NHAI. Shrem InvIT is an example of Annuity InvIT. Under the HAM, 40% of the project cost is paid by the Government or concessioning authority as construction support or grant to the private developer, and the balance 60% is to be arranged by the successful bidder during the construction period. The concessionaire is paid back the amount of 60% along with interest and O&M payment in the form of annuities during the operation period.

While the concessionaire is responsible for the operation and maintenance during the concession period, the traffic risk is taken by the project concessioning authority. Tolling rights during the O&M period are vested with the concessioning authority after the declaration of commercial operation of the developed section.

Investing options in InvITs
InvITs are classified into 5 categories based on the type of infrastructure in which they operate:
  • Energy: (e.g. power generation and distribution)
  • Transport & Logistics (e.g. operating highways and other toll roads) Communications (e.g. optical fibre networks and telecom towers)
  • Social and Commercial Infrastructure (e.g. parks)
  • Water and Sanitation (e.g. irrigation networks).
Furthermore, InvITs are divided into 3 categories based on their funding sources:
  • privately-held InvITs
  • public-listed InvITs
  • private-listed InvITs.
Advantages of InvITs
With alternatives in InvITs from private financing, public and private equity, and direct investment, they form a class of asset-intensive investments and create predictable and steady cash flows over time, making them a good fit for insurers’ liabilities-driven investment strategies. While they have low liquidity and regulatory risks, InvIT units can still be purchased and sold on the stock market.

InvITs cannot invest more than 10% of their assets in under-construction projects. This lowers the risk for investors as this reduces the biggest risk associated with the infrastructure sector i.e., delay in completion due to lack of regulatory approvals, and financial closure. Also, all the revenues of the InvITs are received in an Escrow account, and till pay-out to the unit holder, it moves from one escrow to another.

All revenue received by InvIT from SPVs (Special Purpose Vehicles) in the form of dividends, interest, and capital returns, is not taxable thanks to its pass-through structure. With Tax on Interest Income, any interest you get from an InvIT is fully taxable at the marginal rate of taxation, while Tax on Dividend is fully exempted if the SPVs under InvIT have not availed concessional rate of tax under the new regime. Tax on Capital Gains applies solely when you sell your InvITs units. It thus breaks off as a safe form of investment that also has tax dividends, especially for big businesses and corporates that rake in all-encompassing profits, a taxed component of which is payable to the government.

What the future holds?
The current Indian economy has a sizeable dependence on infrastructure as a vehicle of growth. Infrastructure-based sectors such as roads, highways, and ports, along with the power and real estate sectors have witnessed a growing demand for capital in recent times. As a result, Infrastructure Investment Trusts (InvITs) have attained importance in furthering the economy’s infrastructure needs. The Government of India launched InvITs to bring long-term yield capital into the country and to increase private participation in infrastructure development.
Launched in October 2021, the GIS- based Gati Shakti platform captures all utilities and network linkages in making it possible for various infrastructure focused ministries and departments to come together and take a coordinated approach towards faster

Read more ...

According to the latest Infrastructure report by Motilal Oswal Financial Services, 1H FY23 has been muted with only 810 kms of projects awarded till date. Owing to the weak 1H, NHAI would have to accelerate project awarding in 2H FY23 in order to meet its

Read more ...

Development of Gabion Wall (700m length, max height of 34m, and average height 25m Length) on east side of East Cell Red Mud Pond (RMP), including Design, Vetting, and SPCB Approval for Vedanta, Odisha. Due to space constraint, client wanted to construct soil

Read more ...

The National Logistics Policy (NLP) aimed at developing a technologically enabled, integrated, cost-efficient, resilient, sustainable, and trusted ecosystem for accelerated and inclusive growth, is giving a push to real estate and infrastructure

Read more ...

CBRE South Asia released its ‘Indian Realty – charting the growth roadmap for 2022’ report at CII Realty 2022 - 18th Edition of Conference Real Estate. The CBRE-CII joint report highlights key trends and projections for the Indian Real Estate sector for 2022

Read more ...

ICRA has conducted a study of 1201 Build-Operate-Transfer (BOT) road projects which have defaulted during the period FY2011 – FY2022. Out of the 120 projects, 86 have defaulted during the operational phase while 34 projects defaulted during

Read more ...

The post-covid residential sales momentum is set to get a further boost in this festive season, notwithstanding headwinds in the form of rising interest rates and increase in home prices. Here are the Top 10 trends that will help drive festive home demand

Read more ...

Over the last 75 years of India’s Independence, the real estate sector has come a long way from an unorganised, unregulated family business to a corporatized, well-regulated, reformed, transparent, responsible, and future-ready industry. Vinod Behl

Read more ...

Real estate investments register strong capital inflows, reach USD 3.4 billion in H1 2022. Foreign investors accounted for over 67% of total investment volume in Q2 2022. Office sector dominated investment activity with a share of about 57%

Read more ...

A mega land monetisation plan through sale of surplus government and PSUs’ land is a part of Modi government’s ambitious National Monetisation Programme (NMP) to generate Rs 6 lakh crore of revenue over FY 2022-25. The success of this programme will depend

Read more ...

Buildings offer a huge opportunity to minimize energy consumption by merely changing the manner in which they are planned, constructed and operated. Jit Kumar Gupta, Retired Urban Planner, Advisor Town Planning, Punjab Urban Development Authority

Read more ...

The recent headwinds in the form of higher cost of construction and interest rates may only have some short-term impact on the recovery of the real estate sector, post-covid. The mid to long-term growth prospects, however, remain intact due to strong fundamentals

Read more ...

India’s infrastructure outlook over the next decade presents a bright picture. It is lined with attractive government schemes and a pipeline of major projects - supported by significant funding and financing. For construction equipment manufacturers

Read more ...

Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE, elaborates on what is re-igniting the growth of India’s real estate industry, which is being driven by demand in the residential, commercial, and warehousing space

Read more ...

In FY 23, strong and favourable developments are anticipated to continue in the Indian real estate market, supported by a strong structural base, increased demand, and decreased house loan rates, says Harsh Vardhan Patodia, National President, CREDAI

Read more ...

Increasing demand across residential, commercial, warehouse and office spaces, is driving sales, even as developers contend with the upsurge in construction costs due to the hike in raw material costs. Developers are also going digital - from project conceptualisation and designing

Read more ...

The real estate sector, especially the residential segment, which showed great resilience against the Covid pandemic to register a smart recovery, is now facing a double whammy. The long-drawn Ukraine-Russia war has led to a sharp increase in

Read more ...

Cities are a product of interactive life forms; they have multi-pronged dimensions involving people and other life forms, with dynamic interactions. Due to such dynamics and the complexity of ever-changing interactions, smart cities cannot be

Read more ...

Er. Vivek Abhyankar writes on the amazing architecture and planning, structural design, and performance, of many forts in India, along with their brief history, type, components, functioning, planning, and construction methodology

Read more ...

×
Sign-up for Free Subscription
'India Construction Week'
Weekly e-Newsletter on Construction Industry
Get the latest news, product launches, projects announced / awarded, government policies, investments, and expert views.
Click here to subscribe.