Welcome new retail investment avenues

Welcome new retail investment avenues

Let retail investors in on InvITs and REITs.

The finance minister’s interim budget speech last week rightly mentioned infrastructure as the top governmental priority over the next decade, and it is significant that the capital markets regulator Sebi has put out a timely consultation paper that seeks to proactively shore up retail participation in investment vehicles such as Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs). The instruments have huge potential, and it is true that three InvITs have issued and listed their units, raising about ₹10,000 crore, while one REIT is in the process of making a public offer since the rules were notified in 2014. The Sebi paper calls for lowering the investment threshold for InvITs and REITs very substantially, for a big retail push. This is most welcome.

The existing norms for InvITs specify a minimum subscription amount of ₹10 lakh and trading in their units in lots of at least ₹5 lakh, while for REITs, the corresponding minimum threshold is ₹2 lakh and ₹1 lakh. This clearly discourages large-scale participation of retail investors. And the paper proposes reducing the initial/follow-on investment requirement for both Inv-ITs and REITs to the range of ₹15,000-20,000 for lots of 100 units, which does make perfect sense. We do need to popularise alternate investments like Inv-ITs and REITs among retail investors. Abroad, in the mature capital markets, large pension funds have been gainfully raising their asset allocations in such investment vehicles for years. Note that dividend returns from Inv-ITs and REITs in the mature markets are double and even triple those from stocks. And in India’s maturing stock markets with limited upside, stepped up retail investments in InvITs and REITs would better allocate resources and provide attractive multi-year returns.

The proposed new norms call for InvITs to raise debt beyond 49%, which also makes sense as infrastructure projects typically have 70:30 debt-to-equity ratios, and the requirement for having a mix of completed and under construction projects can be liberalised too, with due vetting. It would benefit investors and infrastructure.