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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 recognised 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.
