Why Infrastructure Investment Trusts (InvITs) are becoming Popular among Investors? | ETMONEY

Infrastructure Investment Trusts or InvITs provide the general public to invest in Infrastructure projects typically involving roadways, highways, electricity generation, irrigation projects, communication, etc.

InvITs being new to the country can be a bit difficult to understand. So in this video, we will tell you everything you need to know about them.

Topics Covered:
00:00 Introduction
01:06 WHAT ARE InvITs?
03:38 HOW ARE InvITs STRUCTURED?
05:37 HOW InvITs GENERATE RETURNS FOR INVESTORS?
09:02 TAXATION RULES OF InvITs
11:04 SHOULD YOU INVEST IN InvITs?


👉 WHAT IS AN INFRASTRUCTURE INVESTMENT TRUST (InvIT)?
InvITs are trusts that are sponsored by infrastructure developers .. that own, operate, and invest in completed as well as under-construction infrastructure projects



👉 HOW IS AN InvIT STRUCTURED?
While an InvIT might operate as a stock, the construct of an InvIT is a lot like a mutual funds. InvITs and mutuals funds allow multiple investors to pool in their investments both instruments have assets managed by a designated manager .. and both follow a three-tiered management structure consisting of the sponsor, trustee, and manager
InvITs are allowed in only 5 main heads which can broadly be classified as Energy, Transport & Logistics, Communications, Social & Commercial Infrastructure and Water & Sanitation. From a funding perspective, InvITs have the option to be publicly-listed or privately held



👉 HOW InvITs GENERATE RETURNS FOR INVESTORS?
An InvIT earns revenue by operating one or many infrastructure projects. Income after deducting expenses like depreciation, maintenance, cost of operations etc is available for the distribution for investors.This remaining balance is formally called “net distributable cash flow” or NDCF

How is this money going to be distributed?
Option 1 - Distribute the money as dividends
Option 2 - Distribute as interest
Option 3- InvITs distribute the cash flow is through the buy back of units which is also called “return of capital”



👉 TAXATION RULES OF InvITs
Returns in the form of interest are taxable and its taxed as per your income tax slab
Returns are dividends and in this case the taxation depends on whether the InvIT took some tax concession from the government. Because if it did then as per present law .. any dividends passed on to investors are taxable and shall be taxed per the individual’s Income Tax slab rate.However, if the InvIT did not take the concessional tax rate and paid the entire tax on the project then in that case, the investor will not be required to pay any taxes on the dividend received

Taxation on Capital Gains - taxes on capital gains are applicable only if you sell your units. If you sell your units at a profit within 36 months, then short term capital gains is applied and if it is sold over 36 months, then it is long term capital gains.
The short term capital gain tax rate is 15%
The long term capital gain tax rate is 10% for any amount exceeding 1 lakh rupees



👉 SHOULD YOU INVEST IN InvITS?
Like every financial product, InvITs too have some advantages and shortcomings

Advantages:
1.They are a wonderful diversification tool in a completely new asset class
2. InvITs offer regular income in the form of dividends and interest payouts
3. The assets i.e. the infrastructure projects are professionally managed
4. The units are tradeable and hence, have the potential to be sold at a profit

Limitations:
1. The cash flows can be unpredictable
2. Limited choices
3. No InvIT dedicated mutual funds in the country


So our opinion everyday investors should keep away from this asset class until this market matures

Resources:
Blog: https://www.etmoney.com/blog/all-you-...
https://archives.nseindia.com/corpora...

Literature on InvITS
https://forum.valuepickr.com/t/irb-in...
https://www.irbinvit.co.in/fact-sheet...
https://www.irbinvit.co.in/wp-content...
https://www.bseindia.com/bseplus/Annu...


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