InvITs explained: structure, cash flows, concentration and tax

What you will learn: what an infrastructure investment trust (InvIT) owns, the SEBI rules on payouts and borrowing, why a high distribution yield from an asset with a fixed end date is not the same as a high return, how the payout is taxed in tax year 2026–27, and where concentration risk hides.

Harish Shetty (an illustrative profile), 58, a bank officer in Mangaluru, retires in two years. He is looking for income and sees a listed InvIT owning toll roads with a distribution yield of about 13%, against 7% on a bank FD. His real question: is this simply a better-paying FD, and what is the catch?

InvITs use the same trust structure as REITs, so if you have not read REITs explained, start there for the basics of sponsors, managers, trustees and SPVs. This lesson focuses on what is different.

What an InvIT owns, and why it matters

An InvIT is a SEBI-registered trust that owns infrastructure projects through SPVs: roads, power transmission lines, gas pipelines, telecom towers and fibre, renewable power plants and similar assets. Unlike an office building, many of these assets come with a contract that ends. A toll road is usually operated under a concession that expires on a set date, after which the road goes back to the authority and the cash flow stops. Other assets, like transmission lines under long licences, have much longer lives but still depend on one main contract and one type of customer.

The rules that shape an InvIT

SEBI's InvIT Regulations, 2014, as amended up to 17 April 2026, set the framework. For a publicly offered InvIT, the minimum investment in a public issue is ₹10,000 to ₹15,000 and the trading lot is one unit. At least 80% of asset value must be in completed, revenue-generating projects. At least 90% of net distributable cash flows must be distributed, declared at least once every six months.

Borrowing can go much higher than for a REIT. Net borrowings may not exceed 70% of asset value. Above 25% the InvIT needs a credit rating and unit holder approval; above 49% it also needs a AAA rating, a record of at least six continuous distributions, unit holder approval, and must use the money for acquiring or developing projects.

Privately placed InvITs are aimed at large investors: their units trade in lots of ₹25 lakh and they need to distribute only once a year. Most individuals meet InvITs through public, listed units.

Worked example: a 13% yield is not a 13% return

Assumptions (illustrative, not any trust's actual figures): Harish buys a unit of a single-road InvIT for ₹100 at its issue price. The road's concession has 12 years left. The InvIT distributes ₹13 a unit every year until the concession ends, then nothing; the unit is worth nothing at the end. Tax is ignored for now.

The headline 13% is cash received divided by price. Because the asset winds down, part of every payment is Harish's own ₹100 coming back. Once that is accounted for, the base case earns 7.6% a year, about what the long-life asset earns with a much lower 9% yield. An 11.5% cut in yearly distributions takes the return down to 5.3%. The question to ask about any InvIT is: how long do these cash flows last, and what is left at the end? Most trusts acquire new assets over time, so the result depends heavily on the price paid for those acquisitions.

How the payout is taxed in tax year 2026–27

An InvIT distribution is split into components exactly as for a REIT, and the trust tells you the split. For a resident individual under the Income-tax Act, 2025: interest from SPV loans is taxed at your slab; dividend from SPV shares is generally exempt (a 2026 amendment removes an earlier exception, as explained in REITs explained; check the current law); and repayment of capital (often labelled repayment of SPV debt or "other income") is not taxed until the total of such amounts received on a unit exceeds the unit's original issue price, after which the excess is taxed as income from other sources. InvITs rarely have a rental component. Gains on selling listed units are short-term at 20% if held 12 months or less, and long-term at 12.5% above the ₹1.25 lakh yearly exemption after that, plus cess.

Continuing the example, assume each ₹13 is split into ₹4.50 interest and ₹8.50 repayment of capital, and Harish pays 30% plus cess (31.2%):

1. Years 1 to 11: tax is only on interest: ₹4.50 × 31.2% = ₹1.40, leaving ₹11.60 a unit.
2. Year 12: the running total of repayments reaches 12 × ₹8.50 = ₹102, which is ₹2 more than the ₹100 issue price. That ₹2 is taxed as well, so year 12 leaves ₹10.97.
3. Post-tax IRR: about 5.4% a year, against 7.6% before tax.

On ₹2.6 lakh (2,600 units), Harish would receive ₹33,800 a year and pay about ₹3,650 of tax on the interest part in each of the first 11 years. If the units end with little or no value, he may have a capital loss on them; a long-term capital loss can be set off only against long-term capital gains, and how the cost of units that have returned capital is treated is worth confirming with a tax professional. A 7% FD taxed at the same rate leaves 4.82% a year, but with the principal coming back intact at maturity; the InvIT's 5.4% comes with traffic, price and rule-change risk. Interest and distribution reporting in a return is covered in interest, distributions and TDS.

What happens as an asset nears its end

A trust with expiring assets has three broad choices: let the portfolio shrink and keep paying out, keep back some cash to buy new assets, or raise new money through more units or more borrowing to buy them. Each choice shows up in what unit holders receive. In a shrinking trust, distributions can stay high while the value of each unit falls year by year, so the unit price drifts down even if nothing has gone wrong. In a growing trust, the return depends on whether new assets are bought at sensible prices; an expensive acquisition funded by borrowing can lower future distributions. The net asset value per unit reported by the valuer, tracked over several years alongside the distributions, shows which pattern you are in. A single year's yield never does.

Concentration: where InvIT risk hides

• Single asset or single corridor. A trust with one or two roads depends on traffic in one region.
• Single customer. Pipelines, towers and some power assets may earn most of their revenue from one company or one type of state-owned buyer.
• Sponsor. The sponsor usually operates the assets and sells new ones to the trust, so the terms of those deals matter.
• Leverage. With borrowing allowed up to 70%, a rise in interest rates or a fall in cash flow hits distributions harder.
• Regulation and policy. Tariff orders, toll policy and concession disputes can change cash flows quickly.
• Interest-rate sensitivity of the price. Units are often priced against bond yields, so they tend to fall when rates rise.

Within a household, an InvIT holding also adds to whatever else depends on the same thing: an employer in the same sector, or a pension that relies on the same state utilities.

Try this: questions to answer before buying

• For each asset, how many years are left on the concession, licence or main contract?
• What share of revenue comes from the largest asset and the largest customer?
• Over the last two years, what was the split of distributions between interest, dividend and repayment of capital?
• What are net borrowings as a share of asset value, and what is the credit rating?
• Using the trust's cash-flow outlook, what IRR do you get if distributions are 10% lower and nothing is left at the end?
• How does the post-tax result compare with a deposit or bond of similar length, after accounting for the extra risk?

Common questions

Where to go next

• REITs explained: the trust structure and the tax on each distribution component.
• Real assets vs a liquid portfolio: where InvITs fit in a whole-household decision.
• Credit and interest-rate risk: why yield-based assets fall when rates rise.
• Further reading: retirement income for 25 years: pension, rent or SWP.