Understanding InvITs

cInfrastructure Investment Trusts, or InvITs, offer investors a way to participate in India’s infrastructure sector — from highways and power lines to renewable energy and digital networks. These trusts combine revenue-generating assets and package them into investible units. Because many of these assets operate under long-term contracts or regulated tariffs, InvITs may potentially provide more stable cash flows and lower volatility compared to traditional equities.

Table of contents

• What are InvITs?
• Types of InvITs
• Structure of InvITs in India
• What is the purpose of InvITs?
• What are the advantages of InvITs?
• What are the disadvantages of InvITs?
• Who should invest in InvITs?
• Prospects of InvITs in India
• InvIT vs REITs

What are InvITs?

Infrastructure Investment Trusts (InvITs) are collective investment vehicles regulated by SEBI under the SEBI (Infrastructure Investment Trusts) Regulations, 2014. They own income-generating infrastructure projects through Special Purpose Vehicles (SPVs). Cash generated at the project level—through tolls, tariff revenues, availability payments, or user charges—flows to the trust and may be periodically distributed to unit holders as per regulatory and trust policies.

InvIT units are listed and traded on stock exchanges, offering market-linked liquidity. As per SEBI norms, InvITs must distribute at least 90% of net distributable cash flows, aligning them toward regular income generation rather than retained earnings.

Read Also: Exploring Specialised Investment Funds in India

Types of InvITs

SEBI classifies InvITs based on how they raise funds and whether they list on stock exchanges:

1. Public InvITs:
   • Offer units to all classes of investors through a public issue.
   • Must be listed on a recognised stock exchange.
2. Private listed InvITs:
   • Raise funds through private placement (typically to institutional investors and corporates).
   • Units are listed on recognised stock exchanges, but participation is restricted to qualified investors.
3. Private unlisted InvITs:
   • Also raise funds through private placement, but their units are not listed on any exchange.
   • These operate under Chapter VIA of the InvIT Regulations and are usually structured for specific institutional or strategic investors (e.g., pension funds, sovereign funds).

Other than that, InvITs may invest in only completed, income-generating projects or a hybrid of operating assets with under-construction projects. For the latter, potential returns may be higher, but construction and ramp-up risks may introduce uncertainty.

Structure of InvITs in India

The InvIT structure is designed to help ring-fence cash flows and assign clear accountability:

• Sponsor seeds the platform and provides a pipeline of assets.
• Trustee acts as an independent fiduciary safeguarding unit-holder interests.
• Investment manager (similar to an AMC) formulates the strategy, evaluates acquisitions, manages capital structure, and oversees performance.
• Project manager or O&M contractor operates assets day to day under defined service agreements.
• SPVs (typically limited-liability entities) hold concessions, licenses, and contracts with counterparties such as NHAI, state utilities, or corporates.

Each role operates within SEBI’s governance and disclosure framework. This structure spreads responsibilities, reduces conflicts, and supports standardised reporting on traffic, availability, collections, leverage, and distributions.

What is the purpose of InvITs?

InvITs help unlock capital tied up in completed projects, allowing developers to recycle funds into new infrastructure builds. Public investors gain access to infrastructure yields that were earlier limited to institutional investors such as banks, insurers, and private funds. Governments and concessioning authorities may also benefit through faster project delivery and reduced system-level leverage owing to the existence of an alternative funding route.

The result is a market-linked instrument that aligns policy objectives (capital recycling) with investor interests (relatively stable, transparent distributions).

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What are the advantages of InvITs?

• Potential for income: Regulatory payout ratios help convert operating cash flows into periodic income.
• Visibility of cash flows: Long-dated concessions, regulated returns, or contracted PPAs may improve forecasting.
• Relatively lower correlation to equities: Returns tend to be driven more by availability and tariff frameworks than by corporate earnings cycles.
• Professional oversight: Independent trustees and investment managers monitor operations, leverage, and compliance.
• Liquidity and access: Exchange-listed units allow entry and exit without private negotiations.
• Portfolio diversification: Exposure to real assets may help reduce overall portfolio volatility and add an inflation-linked component where tariff formulas include escalators.

These potential advantages depend on asset quality, regulatory stability, and operational efficiency.

What are the disadvantages of InvITs?

• Interest-rate sensitivity: Rising rates may increase funding costs and affect valuations.
• Regulatory and policy risk: Changes in concession rules, tariff methodologies, or taxation may impact cash flows.
• Traffic and counterparty risk: Toll roads may face volume variability, while transmission and renewable platforms depend on counterparties honouring contracts and making timely payments.
• Concentration risk: Small portfolios or single-state exposure can elevate idiosyncratic risk.
• Refinancing risk: Debt maturities require prudent planning, especially during tight credit conditions.
• Acquisition execution: Growth depends on disciplined acquisitions at suitable yields; overpaying may dilute potential returns.

Who should invest in InvITs?

InvITs may be suitable for investors seeking the potential for regular income and moderate growth, rather than aggressive capital appreciation. This may include retirees, income-oriented households, and investors adding a real-asset yield component to diversified portfolios. A multi-year holding horizon is generally suitable, as distributions and asset recycling occur over time. Investors must have tolerance for interest-rate and policy fluctuations and be able to hold through market cycles.

Read Also: Transform Your Future with Infrastructure Mutual Funds

Prospects of InvITs in India

With India in a growing stage, the development of regard to roads, power transmission, renewables, and digital infrastructure is expected to expand. Asset monetisation programs, bank deleveraging, and private capital requirements may support ongoing InvIT formation. Improvements in disclosure templates, insurance and pension participation, and potential index inclusion may deepen liquidity.

Over the medium term, platforms that diversify by geography and counterparty, maintain prudent leverage, and secure long-tenure funding may remain relatively favourably positioned to tap into potential opportunities. The potential growth in green energy and city gas networks can broaden opportunities beyond roads and transmission.

InvIT vs REITs

• Underlying assets: InvITs hold infrastructure projects with concession or contract-linked cash flows, while REITs hold income-generating real estate such as offices, retail, or warehouses.
• Cash-flow drivers: InvIT payouts depend on availability, regulated tariffs, traffic, or PPAs; REIT payouts depend on occupancy, rentals, and lease escalations.
• Risk mix: InvITs carry policy, concession, and counterparty risks; REITs face tenant, market-rent, and property-cycle risks.
• Sensitivity: InvITs are influenced by interest rates and regulatory changes; REITs by leasing cycles and new supply.
• Growth path: InvITs expand through asset drop-downs and operational efficiencies; REITs through acquisitions, development, and re-leasing spreads.

Both are SEBI-regulated vehicles that must distribute at least 90% of net distributable cash flows. They provide investors with market-linked exposure to real assets, though each carries distinct risk drivers.

Conclusion

A well-managed InvIT may convert mature infrastructure projects into a relatively transparent, exchange-listed income stream. Long-term concessions, contracted revenues, and regulated tariff frameworks may help stabilise payouts and reduce volatility. Sensible leverage, disciplined acquisitions, and clear disclosures remain essential. For diversified portfolios, InvITs may add a relatively steady, real-asset yield component while maintaining liquidity and governance standards associated with listed securities.

FAQs

What is InvIT?

An Infrastructure Investment Trust (InvIT) is a SEBI-regulated listed trust that owns income-generating infrastructure, such as roads, transmission lines, renewables, or pipelines, through SPVs and distributes most of its net cash flows to unit holders at periodic intervals.

How to invest in InvIT?

Investments may be made during public issues (IPOs or follow-on offerings) or through the secondary market using a demat and brokerage account. Due diligence should cover the portfolio mix, concession terms, leverage, distribution policy, and the track record of the sponsor and investment manager. Post-listing, units trade like listed securities, and distributions are credited as announced.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.

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