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Registration of Infrastructure Investment Trusts
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- Individuals can diversify their investment portfolio by investing in invITs with diverse assets. Such a feature directly reduces associated risks while also allowing investors to produce consistent long-term returns.
- Redistribution of risks and accrual of a fixed income is a powerful strategy for earning fixed income, especially for retirees.
- In general, infrastructure investment trusts are simple to enter and exit, which improves their liquidity. Small investors, on the other hand, may find it difficult to sell a high-valued property quickly.
- InvITs give investors the option of having their assets professionally managed. It not only enables good resource management and distribution, but it also helps to prevent holdings fragmentation.
- Promoters could drastically reduce their debt burden by investing in InvITs and selling assets.
Sponsor
In order to form an InvIT, the first step is to become a sponsor. Any Infrastructure Development Company can take the role of the sponsor. After this sponsor, is required to appoint a Trustee. The sponsor finds a pool of income-generating infrastructure assets.
Setting up an InvIT
The sponsor establishes a trust, often in the form of a special purpose vehicle (SPV), to hold the infrastructure assets. This SPV becomes the InvIT and is registered as a trust under the Indian Trusts Act, 1882.
Appointment of Trustee
After the sponsor appoints a Trustee, the Trustee takes over control of the assets that will be part of the Infrastructure Investment Trust. After the Trustee assumes control, the Sponsor can no longer control or operate the assets of the InvIT. The Trust now owns these assets and can be controlled directly.
Appointment of Managers
The next step in the formation of an InvIT is the appointment of the manager by the Trustee. In the case of an InvIT, two managers are appointed – an investment manager and a project manager. The investment manager of the InvIT is primarily responsible for ensuring that optimal returns are generated by existing investments of the Trust. Project Manager of the InvIT is responsible for managing the infrastructure assets on behalf of the Trust and ensuring the timely completion of under-construction infrastructure projects. After the Trustee assumes control, the Sponsor can no longer control or operate the assets of the InvIT. The Trust now owns these assets and can be controlled directly.
Appointment of Managers
After the appointment of the managers, the InvIT can be registered. After registration, the InvIT can choose to get listed on stock exchanges and raise money by selling its units to the general public.
Regarding sponsor
- The sponsor and the instrument of trust should be registered in India under the provisions of the Registration Act, 1908.
- The sponsor (Corporate or Company) should have a net worth of Rs.100 crore for registering Infrastructure project as InvIT.
- In case a sponsor is a limited liability partnership firms the net tangible assets should be Rs.10 core to get the certificate.
- For getting a certificate of registration, the sponsor or its associate should have a soundtrack record in the development of infrastructure or fund management in the infrastructure sector.
Regarding Investment Manager
- The Investment Manager (Corporate or Company) should have a net worth of Rs.10 crore for registering Infrastructure project as InvIT.
- In case an Investment Manager is a limited liability partnership firms the net tangible assets should be Rs.100 core to get the certificate.
- The investment manager should have five years of experience in fund management or advisory services development in the infrastructure sector
- The investment manager should have more than two employees who have at least five years experience each, in fund management or advisory services or development in the infrastructure sector
- The investment manager should have at least one employee who has at least five years experience in the relevant sub-sectors in which the InvIT has invested or proposes to invest
- the investment manager should have an office in India from where the operations of the InvIT is proposed to be conducted
- The investment manager should be entered into an investment management agreement with the trustee
Regarding Trustee
- The trustee should be registered with the Board under Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993.
- We provide expert guidance. Helping on tax planning, structuring, and reporting for infrastructure projects. Helping companies identify and claim applicable tax benefits, minimize tax liabilities, and ensure compliance with complex tax laws and regulations.
- Assist infrastructure companies in preparing accurate and compliant financial statements, ensuring adherence to accounting standards and regulatory requirements.
- Review and advise on complex infrastructure contracts, ensuring that companies understand the commercial and legal implications of their contractual obligations.
- Provide expert advice on project financing, including structuring and negotiating financing arrangements, evaluating project feasibility, and managing financial risks.
- Help infrastructure companies establish and maintain sound corporate governance practices, ensuring transparency, accountability, and adherence to regulatory requirements.
- Get expert guidance in navigating complex regulatory frameworks and obtaining necessary approvals for their projects.
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COO at VSERV Infosystems & Founder VSERV Academy
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Managing Director AMR FINANCE PVT LTD
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Founder & CEO - Eagabriz Shipping Pvt Ltd
An Infrastructure Investment Trust (InvIT) is similar to a mutual fund in that it allows individual and institutional investors to invest directly in infrastructure projects and get a piece of the revenue as a return. The InvIT is set up in a tiered structure, with the Sponsor establishing the InvIT, which then invests directly or through special purpose companies in qualified infrastructure projects (SPV). The SEBI (Infrastructure Investment Trusts) Regulations, 2014 govern InvITs.
Under the SEBI (Infrastructure Investment Trusts) Regulations 2014, no one may function as an InvIT unless they have secured a certificate of registration from the Board. The sponsor on behalf of the trust must submit an application for a certificate of registration as an InvIT in Form A as stated in Schedule I of the SEBI (Infrastructure Investment Trusts) Regulations 2014, together with a non-refundable application fee as provided in Schedule II. When the Board is satisfied that the applicant meets the requirements, it will notify the applicant, and upon receipt of the registration fees as indicated in Schedule II, it will issue a certificate of registration in Form B under Schedule I.
The key difference between REITs and InvIT is their underlying assets. REIT invests in real estate properties like commercial and residential properties and earns income through rentals. InvITs invest in infrastructure projects such as highways, power plants, transmissions, bridges, etc., and earn income from tolls, tariffs, etc.
The choice depends on your individual risk tolerance level and investment objective. If you want to invest in real estate properties, you can prefer REITs. However, if you are interested in investment in infrastructural projects, then InvITs are an option.
As InvITs invest in infrastructural projects that require regular maintenance, they are exposed to operational risk. Also, changes in regulatory or tax laws can affect the return on InvITs.
Government laws and regulations are subject to change over the period, which can impact the operational and financial aspects of infrastructure projects, as well as the performance of the InvIT.
You can invest in InvIT through the stock market with a demat account. You can also invest through mutual funds, but they can allocate only up to 5% of the assets towards InvITs, so your exposure to infrastructure may be limited this way.
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