Discuss the role of Infrastructure Investment Trusts (InvITs) in financing infrastructure in India. How can greater participation by mutual funds deepen this market?

InvITs are trusts set up under the SEBI (InvIT) Regulations, 2014. They pool investors' money into operating infrastructure assets and must distribute 90% of net distributable cash flows [1]. This lets developers and the State recycle capital locked in completed projects. However, the market is still shallow, and mutual funds could help close that gap.

Role of InvITs in infrastructure financing

• Asset monetisation: The National Monetisation Pipeline uses InvITs as a key route [3]. NHAI's National Highways Infra Trust is the most traded InvIT [1].
• Capital recycling: Developers sell operating assets to InvITs and use the money for new projects, which reduces their reliance on bank debt.
• Stable yields: Annuity-based assets with government counterparties produce steady cash flows [1]. This suits long-term savers such as pension funds.
• Sectoral spread: InvITs cover toll roads, power transmission, renewables and telecom fibre [1].

Constraints

• Illiquidity: 17 of 22 InvITs are privately placed, and many do not trade for days [1].
• Uneven risk: Annuity projects are stable, but BOT toll roads depend on traffic [1].
• Classification: SEBI has treated InvITs as hybrid instruments since 2017, which limits where they fit in fund mandates [1].

How mutual funds can deepen the market

• Low base: Mutual funds hold only ₹5,409 crore in InvITs against industry AUM of ₹66 lakh crore. Equity schemes hold just ₹465 crore [1].
• More room to invest: SEBI's proposal to classify REITs as equity would free the 10% NAV cap for InvITs alone [1].
• New allocation route: Equity funds may now invest up to 35% of their residual portfolio in InvITs and gold or silver ETFs [2].
• Liquidity and price discovery: Steady institutional trading narrows spreads and draws in retail investors.
• Safeguards: The 5% single-issuer cap and the 10%-of-units limit per fund house [1] keep concentration risk in check. Clear disclosure in scheme documents protects investors.

InvITs turn completed assets into fresh investment, but thin trading holds them back. Gradual, well-regulated mutual fund participation can deepen this market without weakening investor protection. It would also support India's infrastructure-led growth and SDG 9 (resilient infrastructure).