An infrastructure trust is a type of investment vehicle that allows individuals and institutional investors to invest in infrastructure projects, such as roads, bridges, airports, and energy facilities. These trusts typically generate revenue through user fees or long-term contracts with governments or other entities, and can provide investors with a steady stream of income. They are typically structured as a public-private partnership, with the trust holding a long-term lease on the assets and taking on the responsibility for their operation and maintenance. Infrastructure trusts can be traded on stock exchanges or sold to institutional investors, making them a liquid investment.
InviTs have been a major driver in India’s push for robust infrastructure across the country with a total equity of Rs. 550 Billion in FY 2021 and Rs. 220 Billion in FY2022 raised through these instruments. InvITs allow public ownership of infrastructure assets, while also allowing for efficient price discovery and professional management of such long-term assets via AAA-rated entities.
More recently, National Infrastructure Pipeline (NIP), a mega policy initiative by the Indian government that envisages investments across the infrastructure and other sub-sectors also foresees InviTs to play a major role in this capital allocation, thus, increasing the total assets under the InviT blanket. Moreover, with the ongoing National Monetization Pipeline (NMP) of around Rs. 6 Trillion of brownfield assets, there is an increased playing field where InvITs will have an important role in monetization of these assets.
Stable and predictable income: Infrastructure trusts generate revenue through long-term contracts or user fees, providing investors with a steady stream of income.
Low correlation to traditional assets: Infrastructure trusts are not closely tied to the performance of the stock market or other traditional assets, which can help diversify an investment portfolio.
Inflation protection: The revenues of infrastructure trusts are often linked to inflation, which can help protect investments from losing value over time.
Long-term growth potential: Infrastructure trusts typically hold assets for long periods of time, providing opportunities for long-term capital appreciation.
Social and economic benefits: Investing in infrastructure trusts can contribute to the development of essential public assets and promote economic growth.
Liquidity: Some infrastructure trusts are publicly traded, making them more liquid than other types of infrastructure investments.
There are various cons as well
Limited diversification: Infrastructure trusts typically invest in a small number of assets, which can limit diversification and increase risk.
Complex structure: Infrastructure trusts can have complex ownership and governance structures, making them difficult for investors to understand and manage.
Lack of control: Investors in infrastructure trusts have limited control over the assets and operations of the trust, which can be a disadvantage for some investors.
Dependence on government: Many infrastructure trusts rely on government contracts or subsidies, which can be subject to change or cancellation.
High fees: Some infrastructure trusts charge high management and administrative fees, which can eat into returns for investors.
Political Risk: Some infrastructure projects may be subject to change, delay or cancellation due to political reasons.
Long-term investment horizon: The nature of infrastructure investments often means a longer investment horizon, which may not suit all investors.
Limited Liquidity: Not all infrastructure trusts are publicly traded, and the ones that are may not have a large trading volume, making it difficult to buy or sell shares quickly.
Investing in InvIT’s is definitely not for novice,proper research about assets under trust,income generated and other factors must be carried ,trust will depend on the underlying assets of the trust, the terms of the trust, and the creditworthiness of the trust’s sponsors. As with any investment, it’s important to conduct thorough research and seek professional advice before investing in an infrastructure trust.
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