InvITs on Zerodha

Infrastructure Investment Trusts (InvITs) are SEBI-regulated investment vehicles that own and operate infrastructure assets such as toll roads, gas pipelines, power transmission networks, and renewable energy projects. InvITs pool investor capital, deploy it into infrastructure assets, and distribute a mandated portion of their cash flows to unitholders. Listed InvITs trade on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) and are accessible through Zerodha’s Kite platform.

InvITs were introduced in India under the SEBI (Infrastructure Investment Trusts) Regulations, 2014, mirroring the SEBI (Real Estate Investment Trusts) Regulations that govern REITs.

Regulatory framework

SEBI (InvIT) Regulations, 2014

Key structural requirements under the SEBI (InvIT) Regulations:

• A minimum asset size of Rs 500 crore for publicly listed InvITs.
• At least 80% of assets must be in completed and revenue-generating infrastructure projects.
• A minimum 90% of distributable cash flows must be distributed to unitholders quarterly.
• An InvIT must have a sponsor, an investment manager, a project manager, and a trustee.
• Publicly listed InvITs must have a minimum public float.

SEBI permits two types of InvITs:

1. Publicly listed InvITs: Listed on NSE and BSE; accessible to all categories of investors.
2. Privately placed InvITs: Available only to institutional and high-net-worth investors; minimum investment typically Rs 1 crore. These are not accessible through Zerodha’s retail platform.

Sectors covered

SEBI defines “infrastructure” broadly to include roads and highways, power (generation, transmission, distribution), ports, airports, railways, urban infrastructure, gas pipelines, telecom towers, and renewable energy. Most Indian InvITs have focused on roads (toll), gas pipelines, and power transmission.

Listed InvITs in India

Powergrid InvIT, backed by the government’s Power Grid Corporation, is considered one of the lowest-risk InvITs due to regulated tariff revenues. Road InvITs derive revenue from traffic-linked toll collections, introducing volume risk.

How InvITs trade on Zerodha

Listed InvIT units are traded on NSE and BSE exactly like equity shares. On Kite:

1. Search for the InvIT ticker (e.g., “INDIGRID” for India Grid Trust on NSE, “POWERGRID” for Powergrid InvIT).
2. Place CNC order for long-term delivery holding or MIS for intraday.
3. Units settle on T+1 and are held in the demat account at CDSL.

STT applies to InvIT trades (classified under equity for STT purposes). Brokerage structure is the same as equity: zero brokerage on CNC delivery, Rs 20 flat on MIS.

Distributions

InvITs must distribute at least 90% of distributable cash flow quarterly. Distributions from InvITs have three components:

1. Interest: From loans provided to the infrastructure SPVs. Taxable as “Income from Other Sources” at the investor’s slab rate.
2. Dividend: From dividends received by the InvIT from its SPVs. Exempt from tax for unit holders in certain cases; taxable in others depending on SPV tax status.
3. Return of capital: Reduces the cost of acquisition; not taxable when received.

The distribution notice from the InvIT manager specifies the breakdown per unit for each distribution event. Investors must correctly classify each component in their tax returns.

Revenue risk by asset type

InvITs with regulated asset revenue (power transmission, gas pipelines) are considered more predictable for distribution yields. Road InvITs with toll-dependent revenue can experience distribution volatility during economic downturns when vehicle traffic falls.

Tax treatment

Distributions

Same treatment as REITs:

• Interest component: Taxable at slab rate.
• Dividend component: Treatment depends on SPV’s tax election.
• Return of capital: Not taxable; reduces cost base.

Capital gains on InvIT unit sale

InvIT units are listed securities. Capital gains:

• Short-term (held less than 36 months): 15% flat tax (equity treatment under Section 111A, given InvIT units attract STT).
• Long-term (held 36 months or more): 10% under Section 112A.

The applicable holding period for LTCG treatment has been a point of interpretation. Investors should refer to the latest CBDT clarification or consult a tax adviser.

Comparison with REITs

Distribution yields

Listed InvITs in India have offered distribution yields of approximately 7% to 12% per annum based on recent distributions and market prices. Yields vary by asset quality, leverage levels, and market price. Higher-risk road InvITs have historically offered higher yields to compensate for traffic risk.

References

1. SEBI (Infrastructure Investment Trusts) Regulations, 2014, as amended.
2. SEBI Circular, Reduction of minimum investment in REITs and InvITs (2021).
3. Income Tax Act, 1961, Sections 111A, 112A.
4. Central Electricity Regulatory Commission (CERC), Power transmission tariff framework.
5. NSE, InvIT listing and trading guidelines.
6. India Grid Trust Annual Report (current year).