By Piyush Gupta
Securities and Exchange Board of India (Sebi’s) current move to minimize the minimum subscription threshold and trading lot size in infrastructure investment trusts (InvITs) unlocks a new avenue for retail investors who have a lengthy-term investment horizon.
Sebi has, in its June 29 board meeting, decreased the minimum subscription for investment in InvITs to Rs 10,000-15,000 from Rs 1 lakh earlier and the trading lot size to one unit from one hundred units, therefore enhancing access to retail investors. The move also paves way to enhanced liquidity of the instruments and superior price tag discovery in the secondary marketplace.
Know InvITs from mutual funds
InvITs are capital marketplace merchandise that personal, operate, and invest in completed as nicely as below-building infrastructure projects such as roads and highways, energy distribution networks, telecom towers, and fiber optic networks.
In structure, these are related to mutual funds. But the two differ in terms of how the income is invested and earnings distributed. At least 80% of the monies with InvITs have to be invested in infrastructure assets that are completed and income-producing. Further, 90% of the net distributable money flow in InvITs has to be mandatorily distributed to unitholders at least as soon as in six months.
Interest or dividends received from InvITs is taxed as per the individual’s earnings tax slab, though capital gains are based on the holding period. For a holding period of much less than 3 years, brief-term capital gains tax of 15% is applied on the income, though for more than 3 years, lengthy-term capital gains of 10% is applied on appreciation of more than Rs 1 lakh.
A lengthy-term diversification chance
InvITs present investors with an in a position lengthy-term investment avenue in an option asset class such as infrastructure. The requirement of InvITs to allocate 80% of portfolio in income-producing assets, along with distribution of minimum 90% of income to investors, offers comfort of frequent earnings to its investors in addition to capital gains on account of modify in price tag of units traded on the exchange.
Three items to watch out for
One, distribution of earnings from InvITs, which is topic to earnings from the underlying infrastructure assets held in the portfolio and the sort/nature of these assets. Two, liquidity of listed InvITs is topic to their trading on stock exchanges. Third, investors have to have to look at the profile and track record of the Sponsor(s) and Investment Managers of the InvITs. The Sebi’s move to ease access to InvITs could emerge as a win-win for the infrastructure sector and investors. The solution feature to provide frequent earnings could come in handy for investors organizing their retirement portfolio.
That mentioned, superior awareness of these merchandise and their depth in the capital marketplace, as nicely as steady regulations, are crucial to the results of InvITs.
The writer is director, Funds and Fixed-Income, CRISIL Research