Investing in InvITs (Infrastructure Investment Trusts) has gained significant attention in recent years, especially among individual investors looking to diversify their portfolios. However, many are still unaware of the benefits and process involved in investing in InvITs. In this article, we’ll delve into the world of InvITs, exploring what they are, their benefits, and most importantly, how to invest in them.
What are InvITs?
InvITs are investment vehicles that enable individuals to invest in infrastructure projects, such as roads, bridges, and energy transmission lines. They are designed to provide a platform for infrastructure developers to raise funds from a wide range of investors, thereby reducing their dependence on traditional funding sources like banks and financial institutions.
InvITs are similar to mutual funds, but instead of investing in shares or stocks, they invest in infrastructure projects. This allows individual investors to participate in the growth of infrastructure development in the country, while earning returns through dividends, interest, or capital appreciation.
Benefits of InvITs
InvITs offer several benefits to individual investors, including:
- Diversification: InvITs provide an opportunity to diversify your portfolio by investing in a different asset class, reducing dependence on traditional stocks and bonds.
- Regular Income: InvITs offer a regular stream of income through dividends, interest, or rental yields, providing a predictable source of revenue.
- Low Risk: InvITs are relatively low-risk investments, as they are backed by tangible assets like infrastructure projects.
- Long-term Growth: InvITs have the potential for long-term growth, as infrastructure projects appreciate in value over time.
How to Invest in InvITs
Investing in InvITs is relatively straightforward, but it’s essential to understand the process and requirements before getting started.
Eligibility Criteria
To invest in InvITs, you must meet the following eligibility criteria:
- Residency: You must be a resident of India or a non-resident Indian (NRI) with a valid PAN card.
- Age: You must be at least 18 years old.
- KYC: You must complete the Know Your Customer (KYC) process, which involves submitting identification and address proof documents.
Types of InvITs
There are two types of InvITs: public InvITs and private InvITs.
- Public InvITs: These are listed on stock exchanges, allowing investors to buy and sell units on the market.
- Private InvITs: These are not listed on stock exchanges and are typically available to institutional investors.
Investment Options
You can invest in InvITs through various channels, including:
- Stock Exchanges: You can buy InvIT units directly from stock exchanges, such as the Bombay Stock Exchange (BSE) or National Stock Exchange of India (NSE).
- Brokerages: You can invest in InvITs through brokerages, which offer online platforms for buying and selling InvIT units.
- Mutual Funds: Some mutual funds offer InvIT schemes, which allow you to invest in a diversified portfolio of InvITs.
Minimum Investment Requirement
The minimum investment requirement for InvITs varies depending on the trust, but it’s typically around ₹10,000 to ₹50,000.
Taxation and Returns
InvITs are subject to taxation, and the returns are taxed as per the Income-tax Act, 1961. The tax implications depend on the type of InvIT and the holding period.
- Dividend Income: Dividend income from InvITs is taxable in the hands of the investor.
- Capital Gains: Capital gains from InvITs are taxed based on the holding period. If you hold InvIT units for less than 12 months, the gains are considered short-term capital gains, and if you hold them for more than 12 months, they are considered long-term capital gains.
Risks Associated with InvITs
While InvITs are considered a relatively low-risk investment, there are some risks associated with them, including:
- Credit Risk: The risk of default by the borrowers or the underlying infrastructure projects.
- Interest Rate Risk: Changes in interest rates can affect the returns from InvITs.
- Liquidity Risk: The risk of not being able to sell InvIT units quickly or at a fair price.
Conclusion
Investing in InvITs can be a lucrative option for individual investors looking to diversify their portfolios and earn regular income. However, it’s essential to understand the benefits, risks, and process involved in investing in InvITs. By following the steps outlined in this article, you can make an informed decision about investing in InvITs and start building a diversified portfolio.
Remember, it’s always important to consult with a financial advisor or investment professional before making any investment decisions.
What is an InvIT?
An InvIT, or Infrastructure Investment Trust, is a trust that enables individuals to invest in infrastructure projects in India, such as roads, bridges, and energy plants. InvITs are similar to mutual funds, but instead of investing in stocks or bonds, they invest in infrastructure projects. This allows individuals to benefit from the income generated by these projects, providing a steady stream of revenue.
InvITs are regulated by the Securities and Exchange Board of India (SEBI) and are listed on stock exchanges, making it easy for investors to buy and sell units. InvITs provide a unique opportunity for individuals to invest in large-scale infrastructure projects that were previously only accessible to institutional investors.
Why should I invest in InvITs?
InvITs offer a unique combination of income generation and capital appreciation. As an investor, you can benefit from the regular income generated by the infrastructure projects, as well as the potential increase in value of the projects over time. Additionally, InvITs provide a diversification benefit, as they are not directly correlated with the stock market or other asset classes.
Investing in InvITs can also provide a sense of social responsibility, as you will be contributing to the development of critical infrastructure projects that are essential for the growth and development of the economy. Furthermore, InvITs are typically managed by experienced professionals with a deep understanding of the infrastructure sector, ensuring that your investment is in good hands.
How do InvITs generate income?
InvITs generate income through a variety of sources, including tolls, user fees, and rental income. For example, an InvIT that owns a road project may collect tolls from drivers using the road, while an InvIT that owns a wind farm may generate income from selling electricity to power companies.
The income generated by InvITs is typically distributed to unit holders in the form of dividends, providing a regular stream of revenue. Additionally, InvITs may also benefit from capital appreciation, as the value of the underlying infrastructure projects increases over time.
What are the risks associated with investing in InvITs?
As with any investment, there are risks associated with investing in InvITs. One of the main risks is project risk, which refers to the risk that the infrastructure project may not generate the expected income or may be subject to unforeseen delays or cost overruns.
Other risks associated with InvITs include interest rate risk, which refers to the risk that changes in interest rates may affect the value of the units, and regulatory risk, which refers to the risk that changes in government regulations may affect the operation of the infrastructure project.
How do I invest in InvITs?
Investing in InvITs is similar to investing in mutual funds. You can purchase units of an InvIT through a brokerage firm, online trading platform, or directly from the InvIT. You will need to open a demat account and a trading account with a brokerage firm to hold and trade InvIT units.
Before investing, it is essential to research the InvIT and understand its investment strategy, risk profile, and fees. You should also read the offer document and consult with a financial advisor if necessary.
What are the tax implications of investing in InvITs?
The tax implications of investing in InvITs are favorable. The income generated by InvITs is taxed at the hands of the InvIT, and the unit holder is not required to pay any tax on the dividends received. Additionally, long-term capital gains (i.e., gains made after holding the units for more than three years) are taxed at a rate of 10% plus surcharge and cess.
However, short-term capital gains (i.e., gains made within three years) are taxed as per the tax slab of the individual. It is essential to consult with a tax advisor to understand the specific tax implications of investing in InvITs.
Is investing in InvITs suitable for me?
Investing in InvITs may be suitable for individuals who are looking for a stable source of income and are willing to take a long-term view. InvITs are ideal for those who are seeking diversification benefits and are willing to invest in a relatively low-risk asset class.
However, InvITs may not be suitable for everyone, particularly those who are looking for high returns or are willing to take on high levels of risk. It is essential to assess your individual financial goals, risk tolerance, and investment horizon before investing in InvITs.