In the news
Jul 17, 2023
Infrastructure Investment Trusts (InvITs) have gained prominence as an investment avenue in the infrastructure sector, offering investors an opportunity to participate in income-generating infrastructure projects. To fully grasp the workings of InvITs, it is essential to understand their structure and the key components that constitute these investment vehicles. Let’s delve into the structure and components of InvITs, unraveling the building blocks that make them unique and attractive investment instruments.
Every InvIT is established by a sponsor, which can be a company or entity with experience and expertise in infrastructure projects. The sponsor identifies suitable projects, holds a significant stake in the InvIT, and plays a vital role in the overall management and administration of the InvIT.
The investment manager is responsible for managing the InvIT's assets and operations. They oversee day-to-day activities, project selection, and investment decisions. The investment manager's expertise ensures effective management and optimization of the InvIT's portfolio, enhancing its performance and generating returns for the unit holders.
The trustee acts as the custodian of the InvIT and ensures compliance with regulations and trust deeds. They safeguard the interests of the unit holders by monitoring the operations of the InvIT, overseeing the activities of the investment manager, and ensuring transparency and accountability in the functioning of the trust.
The unit holders are the investors who hold units in the InvIT. They contribute funds to the InvIT and receive returns in the form of dividends or distributions from the income generated by the underlying infrastructure projects. Unit holders have a proportional right to the income, assets, and voting rights of the InvIT.
The InvIT is structured as a trust, governed by the Indian Trusts Act, 1882. The trust owns and operates the infrastructure assets, and its primary objective is to distribute the income generated from these assets to the unit holders.
InvITs issue an offering document, which includes a prospectus or an information memorandum, providing comprehensive details about the InvIT, its structure, investment objectives, financial information, risk factors, and other essential information. Investors should thoroughly review the offering document before making investment decisions.
Understanding the structure and components of InvITs is crucial for investors seeking to participate in the infrastructure sector. The sponsor, investment manager, trustee, unit holders, and the trust itself form the fundamental building blocks of an InvIT. Together, they establish a framework that facilitates investment, management, and distribution of income from infrastructure projects. By comprehending the roles and responsibilities of each component, investors can make informed decisions and gain a deeper insight into the functioning of InvITs. With a strong foundation in the structure of InvITs, investors can explore the potential benefits and consider adding these unique investment instruments to their portfolio.