A part of your provident fund (PF) money may soon begin to be invested in Infrastructure Investment Trusts (InvITs) as retirement fund manager Employees’ Provident Fund Organisation (EPFO) may start investing a portion of its annual deposits in these infrastructure investment trusts.
The move could not only help India boost investments in infrastructure but also expand the scope of EPFO’s investment basket beyond bonds, government securities, and exchange-traded funds (ETFs), two government officials told mint, requesting anonymity.
What are InvITs?
InvITs are investment vehicles housing infrastructure assets or projects of companies that allow investors to make small investments and receive regular income. It is an alternative investment fund (AIF) that works like mutual funds and is regulated by the Indian market regulator Securities and Exchange Board of India (Sebi).
The key features of InvITs are mandatory distribution of 90% of net distributable cash flows to the unit investors, leverage cap of 70% on the net asset value, and a cap on exposure to assets under construction (for publicly placed InvITs). InvITs are gaining popularity in a way as a preferred route for investors to monetize assets.
The InvIT is designed as a tiered structure with a sponsor setting up the InvIT which in turn invests into the eligible infrastructure projects either directly or via special purpose vehicles (SPVs).
“Among AIFs, InvITs are a good option. There is a demand for long-term funds in the larger infrastructure sector. It also offers a diverse mix to EPFO to look beyond its traditional investment vehicles,” said one of the two officials cited above.
Launched in 1952, Employee Provident Fund (EPF) has been a much-preferred investment avenue for salaried Indians as organizations with more than 20 employees have to mandatorily extend the benefits of the EPF scheme to its employees.
Eligible individuals contribute up to 12% of their monthly basic salary plus dearness allowance (DA), towards the EPF scheme. The individual then receives the total accumulated contribution as well as interest earned at the time of retirement.
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