Capital market regulator Sebi is planning to ease entry barriers for domestic institutional investors like insurers and pension funds to encourage robust inflows into the Reits and InvITs markets.
"Sebi is sitting down with the Irdai and the PFRDA to evolve a set of guidelines to ensure that insurers and pension funds do not face much of an entry barriers into the Reits and InvITs. This is what we are working on now," Sebi whole-time member G Mahalingam said here today.
"This is definitely going to come through at some point in time. I am sure the norms will come out fast and I am also sure domestic institutional investors will start participating in the Reits and InvITs," he added.
An infrastructure investment trust (InvIT) is like a mutual fund that enables direct investment of small amounts from individual/institutional investors into infrastructure to earn a small portion of the income as return.
InvITs, notified by Sebi in September 2014, work like mutual funds or real estate investment trusts and can be treated as the modified version of Reits designed to suit the specific circumstances of the infrastructure sector.
A Reit, or real estate investment trust, is a company that owns or finances income-producing real estate assets.
Modelled after mutual funds, Reits provide investors regular income streams, diversification and long-term capital appreciation. Sebi notified it in November 2014.
Mahalingam was speaking at the Reits and InVits institutional investors seminar organised by the industry body CII.
Mahalingam said it can take up to a year for the Reits and InVits markets to become active which is estimated to be worth USD 20-25 billion.
"It may take a few months to a year to see industry more active. Once we cross the evolutionary phase then the development impetus could take it forward faster." Mahalingam noted that the markets watchdog Sebi has imposed investment caps on teatime investors as it does not want them to invest in a big way in Reits and InVits initially and burn their fingers.
"This is the evolutionary phase and in this phase we need to adopt a very careful phase of experimentation.
However, we will welcome any feedback from the industry and be receptive to the feedbacks," he said.
He noted that the new investment vehicles would be an important source to attract foreign investments.
At present though domestic institutional investors are allowed to participate in Reits and InVits, there are some grey areas which the regulator is looking to smoothen their participation.
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