An Infrastructure Investment Trust (InvIT) is a trust regulated by SEBI is the statutory regulator of India's securities market, with the legal duty to protect investors and to promote and regulate that market. Read the full meaning of SEBI that raises money by issuing units to investors and invests it in special purpose vehicles (SPVs) owning infrastructure assets such as roads or towers. Unitholders receive the cash these assets generate as distributions, paid as A dividend is a part of a company's profit that the board decides to pay to shareholders, usually in cash, in proportion to the shares held. Read the full meaning of Dividend, interest or return of capital.
To understand what an InvIT is in practice, it helps to look at who puts in the money. Many investors place their money together in one trust and each of them receives units in proportion to the amount invested.
The trust then holds assets that earn revenue, for example toll collections from a road or usage payments for a telecom tower. The cash earned by these assets flows back to the unitholders from time to time.
Where an InvIT can invest and how much it must pay out
SEBI has fixed rules on where a public InvIT can invest its money. At least 80% of its value has to be in completed projects that already earn revenue. The remaining part, up to 20%, can go into projects under construction or into the debt of infrastructure companies.
The trust has to pay at least 90% of its net distributable cash flow (NDCF) to the unitholders, and the same minimum applies at the level of the holding company (HoldCo) and the SPVs. In a two tier structure, the HoldCo passes on 100% of the cash it receives from the project SPVs.
As a hypothetical case, if the SPVs of a trust generate Rs 100 of distributable cash in a year, at least Rs 90 has to be paid out. Of this payout, interest is taxed in the hands of the unitholders, and repayment of debt is taxed as income from other sources after the cost of the units is taken into account.
How InvIT payouts are taxed and InvIT vs REIT
The cash an InvIT pays comes from infrastructure assets, so the payout depends on their performance and is not guaranteed.
SEBI's investor material says the payout arrives in three parts, each taxed differently for the unitholders.
Under SEBI rules revised in 2021, the minimum application value for a public InvIT is Rs 10,000 to Rs 15,000, down from Rs 1 lakh earlier.
An InvIT is sometimes mixed up with a real estate investment trust (REIT). Both are SEBI-regulated trusts with units but an InvIT holds infrastructure such as roads and telecom towers, while a REIT holds real estate such as offices. The payout and structure rules are not identical.