The InvIT Market Through Lens of CFA

Every country has a life-cycle. Some countries are emerging countries (like India, Brazil, etc.) and some are Developed Nations (like the USA, the UK, etc.) In Emerging countries, let’s say India with 1.5 billion population, only 70-80 million people are invested in stock market either directly or indirectly, whereas in developed nation like the USA, almost 92% of the population is investing in stock market either directly or indirectly. When it comes to investing, there are 2 ways viz. one is traditional way( like stocks, bonds, etc) and other is Alternative investments. And as a country progresses from an emerging market to developed market, the popularity of alternative investments increase. And one news caught my attention. That news was NHAI-backed Raajmarg Infra Investment Trust's Rs 6,000-crore IPO to open on Mar 11 at Rs 99-100 per unit.

Raajmarg Infra Investment Trust (RIIT) is planning to raise an IPO. Wait but in IPO, you get allotment of shares right. But this IPO is different as we are getting units of this InvIT from this IPO in same way as you get units in a mutual fund.

So What is InvITs?

An Infrastructure Investment Trust or InvITs, are like a crowfunding platform for a completed infrastructure projects. They are like a mutual fund, but instead of buying stocks on your behalf, InvIT invest that money into completed infrastructure projects like highways, power transmission lines, telecom fibre, renewable energy plants, etc.

How does this work? Gets say Government wants to set up a power plant in a remote region. But building only a power plant is not enough, because proper transmission of this generated power to required region is necessary. So they call an industrialist and explain him the situation. Government is ready to build a power plant but transmission part is to be taken care by the industrialist. Now this industrialist invests his own money in building this transmission infrastructure to the required regions. Now project is completed and cash flows has started. But generated cash flows is very small compared to the large investment made by the industrialist. So, he takes the transmission project to the public and raises funds equivalent to his own investment and gets his cash free from this project to invest in another and common public owns the units of this project.

Money is raised by the InvITs but at least 80% of the funds are to be invested in completed and revenue-generating infrastructure projects. Rest 20% can be invested in under-construction projects, listed or unlisted debt of the companies in infrastructure sector and Equity of listed companies.

Conclusion:

And this is exactly where the recent news about NHAI-backed Raajmarg Infra Investment Trust becomes relevant. Through its ₹6,000-crore IPO priced at around ₹99–₹100 per unit, the government is essentially inviting the public to participate in the cash flows generated from operational national highways.  In simple terms, instead of infrastructure projects being funded only by governments or large corporations, InvITs allow common investors to become a small owner of large national assets like toll roads and transmission networks. As India gradually moves from an emerging market towards a developed economy, such instruments will play a crucial role in deepening capital markets while simultaneously funding the country’s massive infrastructure needs.