The new norms allow for the issuance of subordinate units by privately placed InvITs only to the sponsors on acquisition of an infrastructure project.
- The move aims to bridge the difference in valuation done by the sponsor (as a seller) for an asset and that by the InvIT (as a buyer).
About InvITs
- A type of investment vehicle similar to a mutual fund that allows investors to invest in infrastructure projects like toll roads, power lines and pipelines etc.
- The sponsors (infra companies) set up the InvITs through SEBI and are recognized as borrowers under the SARFAESI act 2002.
- Parties to an InvIT include its trustee, sponsor, investment manager and project manager.
- InviTS earn income through tolls, rents, interest or dividends from their investments, which in turn is distributed to the investors as their taxable earnings.
Significance of InvITs
- Low ticket size: The investor can invest small amounts
- Liquidity: Listed on stock exchanges and can be exit at any point
- Transparency: investors are informed about where their money is invested
- Low Risk: as the trusts are regulated by SEBI Challenges of investing in InvITs include operational risk, refinancing risk, return risk etc.
Challenges of investing in InvITs include operational risk, refinancing risk, return risk etc.