IndiGrid InVIT: What are these and why should you consider them?

On 12th May 2023, Indigrid InvIT declared its fourth quarter results. For FY 2024, the company gave a guidance of Rs. 13.80 DPU (distribution per unit). Many people commonly refer to the DPU as a dividend per share.

The company share price was trading at Rs. 139 on 12th May (the day of quarterly results). So, the Indigrid InvIT is giving a yield of around 10%, which is a good yield.

Let us discuss what InvITs are, the SEBI guidelines, how they make money and declare DPU, how investors can make money, the listed InvITs in India, and whether you should invest in them.

What is an InvIT?

An investment trust or InvIT, as it is commonly referred to, as the name suggests, is a trust that works like a mutual fund. It purchases various revenue-generating infrastructure projects like roadways, power transmission lines, mobile towers, etc. and generates regular income. It has a sponsor, trustee, investment manager, project manager, etc., to run it. An InvIT can be privately or publicly listed on the stock exchanges such as the BSE and NSE.

An InvIT going for a public listing on a stock exchange raises money from investors by issuing them units in proportion to the money invested. Post listing, the units are traded on the stock exchange among buyers and sellers, just like shares. The unit price depends on factors such as the financial performance of the InvIT, the demand and supply of units, etc.

SEBI guidelines for InvITs

The SEBI (Infrastructure Investment Trusts) Regulations, 2014, lays down the regulations to be followed by InvITs. Some important regulations include:

Investment in revenue-generating infrastructure projects: An InvIT has to invest at least 80% of the total money in completed and revenue-generating infrastructure projects. Up to 20% of the remaining money can be invested in under-construction infrastructure projects or debt securities, such as Government securities, money market securities, etc.

As most of the money is invested in completed and revenue-generating infrastructure projects, it protects the investors from project execution risks and stuck projects.

Borrowing: The InvIT’s aggregate consolidated borrowings cannot exceed 74% of the total value of its assets.

It prevents the InvIT from over-leveraging.

Pay-out policy: InvITs must distribute at least 90% of their net distributable cash flows (NDCF) to the unitholders. The distribution has to be done at least once every 6 months in a financial year.

It ensures the unit holders get the DPU regularly, at least once every 6 months. However, most listed InvITs declare the DPU every quarter along with their quarterly results.

How do InvITs make money?

As discussed earlier, InvITs invest most of their money in completed and income-generating infrastructure projects. Some of these include power transmission lines, roadways, mobile towers, renewable energy projects, data centres, digital fibre infrastructure, etc.

They make money by collecting:

• Toll from road projects
• Rent from mobile towers, or
• Fees for power transmission, etc.

After deducting expenses, the remaining income from these assets forms the NDCF. The NDCF is further used for declaring DPUs to unitholders.

How can investors make money from InvITs?

Investors can make money from InvITs in 2 ways:

Distribution Per Unit: The InvITs declare DPU every quarter, along with their financial results. The payment is made within 15 days of the declaration. So, DPUs form a source of quarterly cash flow/income for the unitholders.

Capital gains: Depending on the financial performance of the InvITs, their unit price may go up or down, just like shares. When the InvIT units are sold at a higher price than the purchase price, the profit is known as a capital gain. So, depending on the purchase price, future financial performance, and movement in the share price, the investor may make a capital gain or loss.

Which InvITs are listed in India?

Currently, 3 InvITs are listed in India:

1. Powergrid Infrastructure Investment Trust
2. India Grid Trust
3. IRB InvIT Fund

IndiGrid came out with their IPO in May 2017 with a price band of Rs. 98 to Rs. 100. The units were issued to investors at Rs. 100. In May 2023, the share price was trading around Rs. 140. So, the InvIT has given a capital gain of 40% for its investors. During the last 6 years since listing, the InvIT has distributed Rs. 71.86/unit in the form of DPUs.

So, IndiGrid has given total returns of Rs. 111.86 in the last 6 years since its listing. It translates into a total return of 112% or an annualised return of 13%, which is a good return. For Financial Year 2024, IndiGrid has given a guidance of Rs. 13.80 DPU. With the current share price trading around Rs. 140; the annual yield comes to 10%, which is a good yield.

PowerGrid InvIT came out with an IPO in May 2021 with a price band of Rs. 99 to Rs. 100. The units were issued to investors at Rs. 100. In May 2023, the share price was trading around Rs. 125, giving a capital gain of 25% for investors. During the last 2 years since listing, the InvIT has distributed Rs. 19.5/unit as DPUs.

So, PowerGrid InvIT has given total returns of Rs. 44.5 in the last 2 years since its listing. It translates into a total return of 44.5% or an annualised return of 20%, which is a good return.

Should you invest in InvITs, and how much?

As discussed in the earlier section, 2 of the 3 listed InvITs have given good returns to investors. They declare regular DPUs, thus giving quarterly cash flows to investors, which can be a good source of passive income. They have also given decent capital appreciation to investors.

Thus, the overall returns (DPUs plus capital appreciation) from InvITs have been decent. Investors may allocate a small part of their overall investment portfolio to InvITs. You may deploy money in a staggered manner accumulating some units every month just like a SIP.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.