MFs yet to warm up to InvITs; NHAI instrument may change the trend

More than two years since infrastructure investment trusts (InvITs) were first floated in India, mutual funds are yet to warm up to the idea in a big way. With the National Highways Authority of India (NHAI) expected to float an InvIT, some are hopeful the trend may change.
 
According to the Securities and Exchange Board of India (Sebi) November 2019 data, the amount deployed by mutual funds in InvITs stands at Rs 933 crore.
 
“Mutual funds have not invested in InvITs in a big way so far as good options in the listed space have been limited,” said Ratnam Raju, associate director (group head, infrastructure and project finance), CARE Ratings.
 
So far, there are two InvITs which are publicly listed — IRB Infrastructure Developers’ IRB InvIT fund and Sterlite Power’s India Grid Trust.
 
Reliance Industries’ two fibre and tower InvITs and L&T Infrastructure Development Projects’ (IDPL) IndInfravit are privately held.
 
“In the initial days, mutual funds were not investing in InvITs because they did not have the approvals. Now that is not the case,” said Nipun Mehta, founder and chief executive officer, BlueOcean Capital Advisors.
 
“Almost all the funds now have the required approvals, but there seem to be no convincing answers why we do not see them invest at least in credit risk funds. The YTM (yield to maturity) for a number of these funds is lower than the yields that InvITs offer, which makes it a good investment for funds,” he said.
 
Some fund houses attribute the lack of retail appetite for credit risk funds itself. “These products require long-term money, but retail appetite towards long-term funds such as credit risk funds has been weak. Flows coming into short-term funds cannot be used to deploy into these investment vehicles,” said the chief executive of a fund house.
 
According to the Bombay Stock Exchange data, mutual funds hold 11 per cent of the outstanding units in IRB’s InvIT fund. The share of mutual funds in Sterlite’s InvIT is negligible at 1 per cent.
 
Sachin Gupta, senior director, CRISIL Ratings, points out not just unit holding, mutual funds have stayed away from debt-based funding as well. “On the debt side, funds have so far not invested in a big way, which could be for the lack of adequately long tenures. Most InvITs look for a tenure debt of more than 10 years while mutual funds may look for a shorter period,” he said.
 
Few are hopeful the trend is likely to change. “In the case of the NHAI, though more details are awaited, MFs should be interested in investing in the InVits as it will provide a good long term yield asset,” said Gupta from CRISIL Ratings. On December 11, the NHAI received a cabinet nod to set up an InvIT for some of its road assets. Raju from CARE Ratings also expects the NHAI InvIT to attract interest, including from these funds.
 
Others expect mutual funds to step up investments once a history for such instruments is in place. “Given the fixed return and specialised nature of InvITs, it is likely to be suited to institutional investors initially, at least until some volume and history builds up,” said Manish Agarwal, leader, capital projects and infrastructure, PwC India.