InvITs Look at a Bigger Slice of India’s Household Savings

Why in news?

Investors in listed InvITs rose to 6.53 lakh in Q1 FY27, with assets under management touching ₹7.3 lakh crore.

UPSC Relevance

Prelims – InvITs, REITs, SEBI regulations.

Mains GS3 – Infrastructure (energy, ports, roads, airports, railways); mobilisation of resources; investment models.

What is an InvIT?

An Infrastructure Investment Trust (InvIT) is like a mutual fund for infrastructure. It pools money from investors and puts it into completed, income-generating infrastructure projects such as toll roads, power transmission lines, gas pipelines or telecom towers. Investors buy units of the trust and receive a regular share of the income earned from these assets.

• Legal form – Set up as a trust under the Indian Trusts Act, 1882 and registered with SEBI.
• Regulator – SEBI, under the SEBI (Infrastructure Investment Trusts) Regulations, 2014.
• Tax status – Treated as a business trust under the Income Tax Act, which gives it pass-through status for certain incomes.
• Examples – PowerGrid InvIT (first public InvIT sponsored by a PSU, 2021), National Highways Infra Trust (NHAI-sponsored), IndiGrid, IRB InvIT, Vertis Infrastructure Trust.

How an InvIT works – the four parties

Projects are usually held through Special Purpose Vehicles (SPVs) or holding companies. The InvIT must hold a controlling interest in them. Income flows from the assets to the SPVs, then to the InvIT, and finally to unitholders.

Important rules under SEBI InvIT Regulations

• Asset allocation – At least 80% of the value of InvIT assets must be in completed and revenue-generating infrastructure projects. Public InvITs can put up to 10% in under-construction projects.
• Income distribution – At least 90% of Net Distributable Cash Flow (NDCF) must be distributed to unitholders. This is why InvITs give steady payouts.
• Borrowing limit – Consolidated borrowings are capped at 49% of asset value. They can go up to 70% only with a AAA credit rating, a track record of distributions and unitholder approval.
• Sponsor’s skin in the game – Sponsor must hold a minimum percentage of units with a lock-in after listing, so that it remains committed to the assets.
• Public issue – For an initial offer, the value of assets must be at least ₹500 crore and the issue size at least ₹250 crore, with a minimum number of public unitholders.
• Retail access – SEBI has cut the minimum application to ₹10,000-15,000 and the trading lot to one unit, so small investors can enter easily.
• Valuation – An independent valuer must value the assets regularly (full valuation yearly, with half-yearly updates) and NAV is disclosed.
• October 2026 amendment – SEBI permitted the issue of Depository Receipts on InvIT units, opening the door to listing at IFSC (GIFT City) and foreign exchanges.

Types of InvITs

InvIT vs REIT

Note: Small and Medium REITs (SM REITs) were introduced by SEBI in 2024 for assets worth ₹50-500 crore.

Why InvITs matter for India

• Asset monetisation – Developers and government bodies sell completed assets to InvITs and use the money for new projects. This is the “recycling of capital” model behind the National Monetisation Pipeline (₹6 lakh crore, FY22-25) and NMP 2.0 announced in Budget 2025-26.
• Long-term finance – Infrastructure needs patient capital. InvITs attract pension funds, insurers and foreign funds (e.g., CPPIB, OTPP) that prefer stable, long-duration returns.
• Financialisation of savings – Households keep much of their savings in gold, real estate and bank deposits. InvITs offer a regulated option linked to the real economy.
• Reduced burden on banks – Shifts long-term infrastructure risk away from banks, which faced high NPAs from infrastructure loans after 2015.
• Stable income – Regular distributions make them attractive to retirees and income-seeking investors.

Concerns and challenges

• Low retail awareness – Despite growth, 6.53 lakh investors is small compared to over 11 crore demat accounts.
• Interest rate and traffic risk – Unit prices fall when interest rates rise; toll income depends on traffic, and power line income on regulated tariffs.
• Thin trading – Many InvIT units have low liquidity on exchanges, making exit difficult.
• Concession risk – Road and power concessions have fixed tenures; income stops when the concession ends.
• Governance – Sponsor-related transactions and conflicts of interest need close watch.
• Complex taxation – Different tax treatment for interest, dividend and debt repayment confuses small investors.

Way forward

• Investor awareness campaigns by SEBI, exchanges and BIA, similar to “Mutual Funds Sahi Hai”.
• Inclusion of InvITs in index products and higher limits for pension and provident funds.
• Simplified and stable tax rules to build long-term confidence.
• Bring more sectors (airports, railways, warehousing, renewable energy) into the InvIT fold.
• Use Depository Receipts and GIFT City listing to tap global capital.

Practice MCQ

Q1. Consider the following statements regarding Infrastructure Investment Trusts (InvITs) in India:

1. They are regulated by the Reserve Bank of India.
2. At least 80% of the value of InvIT assets must be invested in completed and revenue-generating infrastructure projects.
3. An InvIT must distribute at least 90% of its net distributable cash flows to unitholders.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (b)

Explanation: Statement 1 is incorrect. InvITs are regulated by SEBI under the SEBI (Infrastructure Investment Trusts) Regulations, 2014.

Q2. With reference to InvITs and REITs, consider the following statements:

Statement I: From January 2026, SEBI classifies units of both REITs and InvITs as equity instruments for mutual fund investment.

Statement II: Both REITs and InvITs are set up as trusts and their units can be listed on stock exchanges.

Which one of the following is correct in respect of the above statements?

(a) Both Statement I and Statement II are correct and Statement II explains Statement I

(b) Both Statement I and Statement II are correct and Statement II does not explain Statement I

(c) Statement I is correct but Statement II is incorrect

(d) Statement I is incorrect but Statement II is correct

Answer: (d)

Explanation: Only REIT units are classified as equity from January 2026. InvIT units continue to be treated as hybrid instruments. Statement II is correct.

Mains Practice Question

Q. “Infrastructure Investment Trusts can bridge India’s infrastructure financing gap by linking household savings to operational assets.” Examine the role of InvITs in asset monetisation and discuss the challenges in widening their investor base. (15 marks, 250 words)

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