What to know about InvITs, investment choice for stable, long-term returns

InvITs hold a mix of infrastructure assets, enabling investors to diversify their portfolios

Investors who want stable and long-term returns beyond stocks and mutual funds may consider Infrastructure Investment Trusts (InvITs), “a natural hedge between debt and equity”.

 

What is InvIT?

 

It pools in money and invests in completed and income-generating infrastructure projects such as highways, power transmission lines, pipelines, and warehouses. Structured like mutual funds, InvITs are regulated by the Securities and Exchange Board of India (Sebi) under the Infrastructure Investment Trusts Regulations, 2014. They are listed on stock exchanges, allowing investors to buy and sell units with relative ease, thereby providing liquidity.

 

Advantages of InvITs

 

Portfolio diversification: InvITs that hold a mix of infrastructure assets enable investors to diversify their portfolios. This diversification reduces overall investment risk and helps in achieving consistent, long-term returns.

 

Steady income stream: InvITs serve as a reliable source of fixed income, making them especially suitable for retirees or individuals planning for retirement. They allow investors to spread risk while enjoying regular income from their investments.

 

High liquidity: One of the major perks of InvITs is the ease of buying and selling units, which enhances liquidity. However, individual investors may face challenges when trying to sell high-value properties quickly.  Calculate EMI: EMI Calculator Tool

 

Professional asset management: These trusts are managed by experienced professionals, ensuring optimal use of resources and efficient asset management. This also helps avoid the fragmentation of investments and promotes smoother operations.

 

Disadvantages of InvITs

 

Investing in InvITs has risks, like it is in other assets. It is important for investors to evaluate the risks to make informed decisions.

 

Changes in government policies, tax structure, or regulations for the infrastructure sector can influence the performance of InvITs.

 

High inflation can negatively impact the profitability of InvITs. It may lead to an increase in operational expenses. Additionally, any hike in toll rates or user fees could reduce usage, ultimately affecting the potential returns.

 

Infrastructure projects typically have long development periods, which can delay revenue generation. These delays may disrupt expected cash flows and affect profitability forecasts.

 

“InvIT is an infrastructure investment trust which is akin to a mutual fund. The difference being that an InvIT only invests in infrastructure projects. The product sits as a natural hedge between debt and equity,” said Manish Satnaliwala, chief executive officer at Capital Infra Trust.

 

“Few unique characteristic includes 80 per cent investment will need to be in revenue-generating asset which is cash flow backed, minimum 90 per cent distribution twice for public InvIT and once for private InvIT during the year, ring-fenced structure and value accretive to the unitholders,” he said.