Investment Trusts: Clarity and Conciseness
Understanding Investment Trusts
An Investment Trust is a registered Real Estate Investment Trust (REIT) or Infrastructure Investment Trust (InvIT) under IFSCA (Fund Management) Regulations, 2022. It allows investors to pool funds in real estate or infrastructure projects, ensuring diversification and better returns.
Setting Up an Investment Trust in IFSC
Establishing an Investment Trust in IFSC is open to individuals or corporations from IFSC, India, or foreign jurisdictions, provided they register with the regulatory authority.
Raising Funds for Investment Trusts
Investment Trusts can raise funds through:
- Public issue with listed units on a recognized stock exchange
- Private placement with listed units on a recognized stock exchange
- Private placement with unlisted units
The Role of Holding Companies in Investment Trusts
Holding Companies, approved by IFSC authority, have the following characteristics:
- Hold controlling interest (at least 51% equity share capital) in Investment Trusts that invest in SPVs holding infrastructure assets or properties.
- Engage solely in activities related to holding underlying SPVs, real estate, properties, or infrastructure projects.
Sponsors of Investment Trusts
Sponsors, including companies, LLPs, or body corporates, play a crucial role in setting up and providing financial backing to an Investment Trust.
Eligibility Criteria for Investment Trust Sponsors
Sponsors must meet the following requirements:
- Hold or propose to hold at least 5% of the units of the Investment Trust post-initial offer.
- Possess a minimum net worth (depending on the type of Investment Trust).
- Have a track record of experience in real estate, infrastructure development, or fund management.
Investment Managers for Public Issues of Investment Trusts
Only Registered FME (Retail) can be appointed as Investment Managers for public issues involving Investment Trusts.
Minimum Offer and Allotment to the Public for Listed Investment Trusts
The minimum offer and allotment requirements for listed Investment Trusts vary based on the post-issue capital, ranging from 25% to 10%.
Foreign Investments and Lending Activities
Investment Trusts can invest in foreign jurisdictions, subject to compliance with local laws and regulations. Lending is not permitted, but investments in debt securities are allowed.
Listing Requirements and Sponsor Holding Periods
Units of Investment Trusts must be listed within a specified period after the initial public offer or private placement. Sponsors are required to hold at least 20% of the total units for a minimum of three years after listing.
Selling Units and Delisting
Unit holders, excluding sponsors, must hold units for at least six months post-listing before selling. Stock exchanges can delist Investment Trusts under specific circumstances.
Investment Trusts: Diversification and Risk Management
Advantages of Investing in Investment Trusts
Investment Trusts offer benefits such as:
- Diversification: Pooling funds allows for investments across sectors, properties, or infrastructure projects, reducing overall risk.
- Professional Management: Experienced professionals manage Investment Trusts, leading to better decision-making and higher returns.
- Liquidity: Units of listed Investment Trusts can be easily bought and sold on the stock exchange, providing easy access to funds.
- Transparency: Investment Trusts adhere to strict regulatory requirements, ensuring transparency and accountability.
- Income Generation: Investment Trusts distribute income generated from rental revenue or interest payments, providing regular income.
Conducting Due Diligence before Investing
Investors should conduct thorough due diligence, considering factors such as:
- Management expertise and experience
- Quality of assets and projects
- Market conditions and macroeconomic factors
- Fees and expense ratios
Taxation Implications of Investment Trusts
Investment Trusts may have varying tax implications based on jurisdiction, trust type, and income generated. Seeking expert advice is advisable to understand tax consequences.
Operating Procedures for Investment Trusts
Role of an Authorised FME
An Authorised FME has a vital role in the operations of Investment Trusts, ensuring regulatory compliance and operational integrity. Only a Registered FME (Retail) can manage the operations of Investment Trusts involving public issues.
Delisting of Investment Trusts from the Stock Exchange
Stock exchanges can delist Investment Trusts under specific circumstances. This includes instances where the trust has been suspended from trading for an extended period or is deemed ineligible for listing or trading.
Voluntary Delisting of Units
Investment Trusts or Foreign Market Entities themselves can request the IFSC stock exchange to delist units voluntarily, following defined processes and regulatory compliance.
In conclusion, Investment Trusts offer diversification benefits, professional management, and transparency. Investors must conduct due diligence and consider taxation implications. Understanding the operational elements of Investment Trusts helps investors make informed decisions and maximize their investment benefits.
Disclaimer:
The material in this article was compiled using the most recent Acts, Rules, Circulars, Notifications, Provisions, Press Releases, and material applicable at the time. The completeness and correctness of the material ensured with due diligence. It is required of users of this material to consult the relevant, applicable legislation. The data given may change without prior notice and does not constitute professional advice. As a result, Estabizz Fintech disclaims all liability for the results of using such material.
