As National Highways Authority of India (NHAI) will launch its first public infrastructure investment trust (InvIT) soon, individuals can consider investing for diversification and regular cash flow.
The NHAI will raise Rs 9,500 crore through monetisation of five functional highways through Raajmarg Infra Investment Trust (RIIT). Retail investors can apply for the units with a minimum investment of Rs 10,000 going up to Rs 2 lakh.
With NHAI as the counterparty, there is strong oversight and maintenance of these assets, supporting stable returns for investors through regular distributions. The association with NHAI and alignment with the National Monetisation Pipeline will provide comfort to retail investors. The NHAI’s public InvIT will have toll-based revenues that are linked to traffic volumes.
Retail investors should view an InvIT IPO not as an equity growth story, but as an income-generating infrastructure asset class. The beta of InvITs is low compared to listed companies, which can help generate higher returns. Moreover, investing in InvITs is less risky than direct investment in infrastructure stocks.
NS Venkatesh, CEO, Bharat InvITs Association, says an InvIT serves as an effective diversification tool for investors seeking to grow their portfolios. “The NHAI InvIT is backed by operational road assets that generate stable and predictable cash flows through toll collections and annuity income,” he says.
As per Securities & Exchange Board of India norms, 90% of the net distributable cash flows after deducting operating expenses must be distributed to unitholders, making it an income-oriented investment option. However, in practice, most InvITs have made distributions on a quarterly basis. The process of investing is similar to applying for any equity IPO. The units are traded on the stock exchanges, investors can sell units for a profit and generate capital gains.
Regular payouts
The regular payouts by Reits and InvITs provide a steady income stream for investors and can be particularly beneficial for senior citizens. For retirees, InvITs can complement fixed-income instruments but should not fully replace them.
Rahul Jain, head of public markets, Alt, a tech-enabled alternative investment platform, says InvITs offer higher yield compared to fixed deposits but as residual value of each of the underlying project is nil, an InvIT needs to continue doing value accretive acquisitions regularly to maintain the yield. “Cash flows are not guaranteed like fixed deposits, since traffic volatility, regulatory changes, and maintenance costs can impact distributable cash,” he says.
What to consider
InvITs are designed as long-term investment vehicles. As their performance is largely driven by underlying asset cash flows rather than market volatility, returns tend to accrue steadily over time. “Accordingly, investors should consider holding them for at least five years or longer. Investors may expect XIRR returns of 9-12%,” says Venkatesh.
Retail investors must look at the past performance of InvITs in similar sectors, nature of underlying assets and cash flow visibility. Toll Road InvITs like RIIT depend on traffic volumes, which leads to more volatility but higher returns as compared with hybrid annuity model InvITs like capital infrastructure or power transmission InvITs.