The Reserve Bank of India recently approved foreign participation in debt securities issued by REITs and InvITs. To accommodate the modifications, the regulations governing foreign investment in these trusts were revised appropriately.
The proposal to enable FII money into these trusts was stated in the Budget for 2021-22 earlier this year. Since the first quarter of 2021, adjustments have been expected.
As a result, international portfolio investors will be able to invest in these real estate and infrastructure trusts' debt securities. The funds can be invested in a mid-term framework with a voluntary retention option, according to the terms and conditions.
Understanding InvITs and REITs
InvITs and REITs are trusts that first appeared in India in 2014, but they only started operating in 2017. There have been five InvITs and two REITs in the last four years. They both work in a similar way to mutual funds, but they differ in structure, revenue, risk, and liquidity.
Infrastructure Investment Trust (InvIT) is a term that refers to a trust that invests in infrastructure. The way they operate is very similar to how mutual funds operate. They collect funds from those who want to invest and utilize them to construct and operate highways, storage facilities, power plants, supply lines, and other infrastructure.
The term REIT, on the other hand, refers to a real estate investment trust. They are similar to InvITs, but instead of infrastructure, they create revenue by developing and operating real estate. Both of these trusts provide their investors with both revenue and capital income. Dividends are a form of revenue income, whereas asset appreciation is a form of capital income.
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The amendment was made to the First Schedule of the Foreign Exchange Management Regulations, according to the announcement. Foreign money can now be invested in debt issued by real estate and infrastructure investment trusts, according to changes to the legislation governing debt instruments.
The anticipated modification, which was announced at the start of 2021, was implemented in October. These rules make foreign trading and payments in the Indian debt market easier and more regulated. It establishes the mechanism for dealing with foreign exchange.
This change was necessary since the government was unable to deposit abroad cash in these trusts due to the lack of these regulations governing international investments.
Foreign investors can now participate in REITs and InvITs thanks to changes to the regulations governing the entry of foreign capital into the debt market. The goal of the central bank's decision to let foreign investment into real estate and infrastructure trusts is to stimulate an industry that has been in decline for several years. The Securities and Market Board of India (SEBI) recently approved the listing of international real estate and infrastructure trusts on the exchange in India's International Financial Services Center (IFSC). The government is making moves to welcome foreign trusts and foreign funds invested in Indian trusts.
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