INVIT (Infrastructure Investment Trust)
Learn what is INVIT, how to invest in it and generate passive income.
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6/11/20263 min read
What is INVIT?
INVIT (Infrastructure Investment Trust), it allows people to invest in country's infrastructure projects such as toll plazas, power lines, airports, etc.
Investing in INVIT is like investing in mutual funds. In mutual funds group of people invest money in a fund and the fund manager manages the money by investing in stocks, gold and other asset classes that can give good returns in future. Similarly, in INVIT group of people invest their money in an Infrastructure Trust which is managed by the investment manager who invests in infrastructure projects.
How it Works?
INVIT has three main players in the game
Sponsors: These are the big companies for example Power Grid and IRB Infrastructure.
Trust: It legally holds the infrastructure assets.
Investment Manager: He manages the investments, and handles the day to day operations like collection of revenue and maintaining infrastructure.
How and Where they Invest Money?
According to regulations 80% of funds has to invested in completed projects that generates revenue and 20% of funds can be invested in under construction projects.
These are the types of projects in which INVIT invest money
Highways (toll plazas)
Airports
Ports
Railways
Power transmission lines
Oil & gas infrastructure
Digital & communication infrastructure
How Much Return INVIT Deliver?
INVIT generally pays the higher interest on your investment, the interest rate is around 8 to 12% per annum. It pays the high interest because according to SEBI regulations INVIT has to distribute 90% of their Net Distributable Cash Flow (NDCF) to investors in each quarter.
Also, when the INVIT acquire new assets or the users of the infrastructure increases, this increases the revenue for the trust, which contributes to unit price increased
Why to Invest in INVIT?
Passive Income: It allows you to earn passive income on your investment with high interest.
Capital Appreciation: When the revenue of the trust increases the unit price of trust on stock exchange will increase as well.
How to Invest in it?
Step1: Open a demat account with a SEBI registered broker such as AngelOne.
Step2: Choose the INVIT in which you want to invest in.
How to Find the Right INVIT for Investment?
Check these important details
Sponsor: If the INVIT is sponsored by the government it is a considered as the safest option. You can also invest in INVITs of large companies for better returns but avoid investing in small company's INVIT to minimize the risk.
Distribution Yield: It is important to know how much distribution yield trust pays, generally the yield is between 8-12% per annum. There can be trusts with more yield but those are small in size and usually carry more investment risk.
Asset Quality: If the trust hold assets like toll plazas, airports, ports, power transmission lines, then it can be considered as a good quality assets but also keep in mind if the asset is in high demand.
Concession Period: Assets like tolls plazas has the concession of 15-30 years, while power lines have 35 years of concession period. The more years remaining ahead means more income ahead.
NDFC: Net distribution cash flow (NDFC) is the actual flow in the trust which is left after paying all the expenses, debt, and taxes. After that it is distributed to unit holders in every quarter.
Debt Level: According to SEBI rule, the debt to AUM should be less than 49%. If you want to invest safely then invest in trust who's debt to AUM is between 30-35% or below.
Historical Distribution Track Record: Check if the trust is constantly paying the yield or not. Also, keep an eye on if the distribution per unit (DPU) is stable or growing.
Here are the list of top 3 safest and high distribution yield INVITs.
Power Grid Corp.: It owns and operates power transmission assets across India. It provides stable cash distributions to investors and currently offers a distribution yield of around 12–13% per annum.
Indus Infra Trust: It owns and manages infrastructure assets in India and distributes regular cash income to investors. It currently offers a distribution yield of around 10–11% per annum.
IRB InvIT Fund: It owns and operates toll road and highway assets across India. It earns revenue from toll collections and distributes regular cash income to investors. It currently offers a distribution yield of around 10–12% per annum.
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