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FPI and InvITs

  • IASbaba
  • November 9, 2021
  • 0
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FPI and InvITs

Part of: Prelims and GS-III – Economy

Context The Reserve Bank on Monday said FPIs had been permitted to invest in debt securities issued by Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs).

Key takeaways 

  • Necessary amendments to Foreign Exchange Management (Debt Instruments) Regulations, 2019, had been notified in October so that debt financing of InvITs and REITs by Foreign Portfolio Investors (FPIs) could be enabled.
  • “FPIs can acquire debt securities issued by InvITs and REITs under the Medium-Term Framework (MTF) or the Voluntary Retention Route (VRR)
  • Such investments shall be reckoned within the limits and shall be subject to the terms and conditions for investments by FPIs in debt securities under the respective regulations.

About Foreign Portfolio Investment

  • Foreign portfolio investment (FPI) consists of securities and other financial assets passively held by foreign investors. 
  • It does not provide the investor with direct ownership of financial assets 
  • Examples: Stocks, bonds, mutual funds, exchange traded funds, American Depositary Receipts (ADRs), and Global Depositary Receipts (GDRs).
  • FPI and FDI are both important sources of funding for most economies.
  • FPI is part of a country’s capital account and is shown on its Balance of Payments (BOP).
  • FPI is more liquid and less risky than FDI.

What are Infrastructure Investment Trusts?

  • InvITs are instruments that work like mutual funds. 
  • They are designed to pool small sums of money from a number of investors to invest in assets that give cash flow over a period of time. Part of this cash flow would be distributed as dividend back to investors.
  • InvITs are listed on exchanges just like stocks — through IPOs.
    • The InvITs listed on the stock exchange are IRB InvIT Fund and India Grid Trust.
  • InvITs are regulated by the Securities and Exchange Board of India (SEBI) (Infrastructure Investment Trusts) Regulations, 2014.
  • Real Estate Investment Trusts (REITs) are similar to InvITs but they are present only in Real estate sector.

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