In the investment world we are all looking at newer ways to invest, always hoping that the next product coming across will hopefully give us better returns than our earlier ones. In this context the Infrastructure Investment trust bond issue from IRB Infra is now generating a lot of interest in the market. What is this and will it be a good idea to invest? Let me try and address it in this post.
To begin with, Infrastructure projects such as ports, roads and other kinds of construction are normally on a massive scale and need a lot of funding. These are also long gestation projects where the returns will only come after a certain number of years. If you look at NHAI for example, the several companies started by it for the different projects are all technically running at a loss, due to the high interest rates and depreciation that they have to deal with. Their loans are huge and though the marginal profits on EBITDA are very good, progress in some of these projects have been slow due to the adequate availability of cash at the right times.
The idea of an Infrastructure Investment Trust ( InvIT ) is to restructure these loans by paying it off with the investment they will get in the trust. The Trust will then have an arrangement with these companies to get returns from them through the profits generated. Investors in InvIT will get their returns through dividends, buyback etc. As all these companies are having pretty much assured revenue over a period of time, the returns are likely to be good.
Let us now look at the first issue of this kind by IRB Infra. The ticket size for investment will be between 10 lacs and 10.2 lacs, so if you are not having this kind of money you will not be able to invest now. This issue is opening for subscription today and will close on 5th May. Some information about the issue taken from ICICI Direct is as follows:-
|IRB InvIT Fund is backed by IRB Infrastructure Developers Limited (sponsor of the trust) and the trustee of IRB InvIT Fund is IDBI Trusteeship.|
|What are “InvITs”?|
|An InvIT is a new capital market product promoted by the Government to enable Infrastructure Developers to free up tied-up capital. InvITs are designed to attract low cost long term capital from FIIs, Insurance and Pension Funds and the DIIs (mutual funds, Banks) which will also benefit to other investors including HNI clients.|
|IRB InvIT – An Overview|
|The IRB InvIT is composed of six Special Purpose Vehicles (SPVs) consisting of NHAI toll-road assets aggregating to 3,645 lane kilometers of highways located across the states of Maharashtra, Gujarat, Rajasthan, Karnataka and Tamil Nadu.|
|As per InvIT regulations, at least 90% of available cash flow of the SPV shall be distributed to the InvIT in proportion to its holding in the SPV. The InvIT in turn is required to distribute at least 90% of its available cash flow to the unit holders on a semi-annual basis.|
Should you be investing in them? I think there are very high chances of the returns being significantly better than most MF schemes over long periods of time. The returns will be taxable, but even with that it seems to be an exciting investment. If you have surplus funds available, you should consider this seriously.
Personally, I am shifting some of my money that was there in Arbitrage funds to this issue. Returns in Arbitrage funds have been rather low and I do not see them faring any better in the near future.
There will of course be other such funds in the future, so keep on the look out for them, even if you cannot invest in this one.