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Infrastructure Investment Trust

Topics Covered: Infrastructure- roadways.

Infrastructure Investment Trust

What to study?

For Prelims: Features of InvIT.

For Mains: Need for and significance of InvIT.

Context: Markets regulator SEBI has put in place a framework for the rights issue of units by listed REIT and InvITs.

These guidelines include:

  1. The issuer will have to disclose objects of the issue, related-party transactions, valuation, financial details, review of credit rating and grievance redressal mechanism in the placement document.
  2. Sebi has allowed listed REIT and InvIT to make a rights issue of units. This is subject to several conditions including these investment vehicles obtaining in-principle approval of the stock exchanges for listing of units proposed to be issued etc.
  3. With regard to pricing, the investment manager on behalf of the REIT and InvIT, in consultation with the lead merchant banker(s), will decide the issue price before determining the record date.
  4. With regard to manner of issuance of unit, units shall be allotted in the dematerialised form only and shall be listed on the stock exchange where the units of the REIT and InvIT are listed.

What are Infrastructure Investment Trusts (InvIT)?

It is like a mutual fund, which enables direct investment of small amounts of money from possible individual/institutional investors in infrastructure to earn a small portion of the income as return.

  1. InvITs can be treated as the modified version of REITs designed to suit the specific circumstances of the infrastructure sector.
  2. They are similar to REIT but invest in infrastructure projects such as roads or highways which take some time to generate steady cash flows.

What are Real Estate Investment Trusts (REIT)?

A REIT is roughly like a mutual fund that invests in real estate although the similarity doesn’t go much further.

  1. The basic deal on REITs is that you own a share of property, and so an appropriate share of the income from it will come to you, after deducting an appropriate share of expenses.
  2. Essentially, it’s like a group of people pooling their money together and buying real estate except that it’s on a large scale and is regulated.

Why need InvITs and REITs?

  1. Infrastructure and real estate are the two most critical sectors in any developing economy.
  2. A well-developed infrastructural set-up propels the overall development of a country.
  3. It also facilitates a steady inflow of private and foreign investments, and thereby augments the capital base available for the growth of key sectors in an economy, as well as its own growth, in a sustained manner.
  4. Given the importance of these two sectors in the country, and the paucity of public funds available to stimulate their growth, it is imperative that additional channels of financing are put in place.

Sources: the Hindu.