New Delhi: With returns from traditional debt instruments falling to multi-year lows, wealth managers are advising their HNI clients to buy InvITs, which could return 8-10% on an annualised basis.
InvITs allow companies to monetise revenue-generating real infrastructure assets such as roads, bridges, power grids. Investors put money in their units without owning them but get the money generated from these assets.
“InvITs offer predictable and stable cash flow from infra assets with limited commissioning, or operational, or counterparty risks as the majority of the assets are already completed and commissioned,” the Economic Times quoted Nishant Agarwal, managing partner, ASK Wealth Advisors as saying. “A portion of cash flow in some cases is also structured as tax-free dividends, making it further attractive.”
Two publicly-listed InvITs — India Grid Trust and IRB InvIT — have given returns of 56% and 83%, respectively, in the past year. Power-Grid InvIT, which was listed in May this year, has given over 20% returns so far, the publication mentioned. There are six other InvITs listed privately.
“Today, investors are more comfortable with the power transmission InvITs that provide a pre-tax return of 8-9.3%, and these kinds of pre-tax returns are not available in the debt markets even if you go down the risk curve to AA/AA- segments,” the ET report quoted Shravan Sreenivasula, ED, Avendus Wealth Management as saying. “The quarterly distributions provide certainty of cash flows to investors, and liquidity is easily available as they are traded on the exchange, just like stocks.”
As per existing regulations, InvITs are required to distribute more than 90% of the income generated to its unitholders. Further, the government and regulators have provided several incentives like tax benefits to boost investments in InvITs.
The government is now planning to launch InvIT for its road assets owned by NHAI.
At least half a dozen InvITs such as MEP, Roadstar, Shrem, Virescent Renewable Energy, and the Indian Highway Concessions Trust, among others, are planning to list on Indian bourses in the coming months, the business daily mentioned.
“In addition to portfolio diversification, InvITs can provide regular income to investors with some visibility on the indicative cash flows. Returns are in 8-10% range, and are currently yielding higher than traditional fixed income products,” said Satheesh Krishnamurthy, head – private Banking, Axis Bank. “However, these investments are not without risk, and hence the higher yield.” The biggest risk to InvITs is one linked to operations; a sharp slowdown or drop in revenues could impact gains.
Instruments like InvITs and Real Estate Investment Trusts (REITs) have gained popularity in the last couple of years mainly because of the drop in returns from fixed income instruments. Most top-rated fixed deposits offer 4-5% annualised returns.
“With a significant drop in interest rates, investors are looking at alternatives, and InvITs offer an interesting option, though cash flows are not crystallized like other debt instruments, but are in a very narrow range,” the ET report quoted as saying Vaibhav Porwal, co-founder of dezerv., a wealth management technology platform. "Investors should expect 7-9% post-tax returns from these investments.”
InvITs are unsuitable to investors with a time horizon of less than three years as they are exposed to short-term price fluctuations due to changes in the interest rates and expected yields.
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