In today’s Finshots, we explain why SEBI is trying to make Indian real estate and infrastructure trusts accessible to international markets via depository receipts.
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Now onto today’s story.
The Story
Most retail investors understand how a stock works, and plenty are comfortable allocating money to equity or debt mutual funds. However, over the past few years, investment trusts such as REITs and InvITs (Real Estate Investment Trusts and Infrastructure Investment Trusts) have also steadily entered financial conversations.
Yet if you ask the average investor to explain what they are, chances are you will be met with a blank stare. That is somewhat surprising because they address one of the most critical challenges in infrastructure development and capital recycling.
To understand how this functions, it helps to start with a simple real estate analogy. Imagine you own a premium commercial office building that generates steady monthly rental income from corporate tenants. Instead of keeping that entire building on your own balance sheet, you could divide its ownership into thousands of small units and sell them to public investors. Each unit holder then receives a proportionate share of the net rental income generated by the property. That basic structure is precisely how a REIT operates.
If you’ve been reading Finshots for a while, you might remember that we wrote about REITs some time ago.
Now, take that same financial logic and apply it to large-scale infrastructure assets across the country. Replace the commercial office building with an operational toll highway, an electricity transmission grid, an interstate gas pipeline, a network of telecom towers, or a sprawling portfolio of solar power plants. These physical assets also generate highly predictable, long-term cash flows through toll collections, wheeling charges, capacity leases, or long-term power purchase agreements. When you bundle these income-generating physical assets into a trust structure and issue tradeable units to investors, you create an InvIT.
And unlike a traditional mutual fund, which holds paper assets like corporate shares or government bonds, REITs and InvITs hold tangible, revenue-generating ’real’ assets.
But there is another feature that makes REITs and InvITs particularly attractive. Under SEBI regulations, they are required to distribute at least 90% of their Net Distributable Cash Flow (NDCF) to unitholders. Think of NDCF as the actual cash left over after paying all operating expenses, interest, taxes, and other obligations that can be distributed to investors. In simple terms:
Net Distributable Cash Flow = Cash generated from the asset − Operating expenses − Interest − Taxes − Other mandatory payments
Since the underlying assets generate steady rental income, toll collections or transmission charges, investors receive regular cash distributions instead of relying solely on price appreciation.
That could make these trusts especially appealing for retirees and other income-focused investors who want a predictable stream of cash without having to sell their investments.
REITs, in particular, also solve one of the biggest problems associated with investing in real estate. You see, buying even a modest commercial property often requires tens of lakhs of rupees, not to mention registration costs, maintenance expenses, property taxes and the occasional headache of finding tenants.
Apart from this, every transaction happens through the securities market, making the investment far more transparent than India’s traditional real estate market, where cash transactions and opaque pricing have historically been common.
For project developers, these vehicles serve as an essential capital recycling mechanism. Once a power line or highway is fully constructed and producing stable operational revenues, the developer can transfer the asset into a trust, recover its original capital, and redeploy those funds into building the next generation of greenfield infrastructure.
Having successfully established these trust structures domestically, SEBI now wants to open them up to a global audience.
Today, if a foreign institutional investor, such as a Canadian pension fund or a Singaporean family office, wants to invest in an Indian REIT or InvIT, the process is far from straightforward. They must register under domestic investment frameworks, navigate Indian trading and settlement systems, manage currency conversions, and comply with local investment rules.
To simplify this, SEBI has proposed allowing international depository receipts to be issued against publicly listed Indian REITs and InvITs.
The way it works is that an overseas custodian bank would hold the actual Indian units in trust while issuing corresponding depository receipts that trade on international stock exchanges. It’s similar to the American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) that Indian companies have long used to raise capital overseas.
For a pension fund in Toronto or an asset manager in London, buying exposure to an Indian transmission grid or commercial office portfolio could become almost as simple as purchasing a locally traded security, even though the underlying cash flows continue to come from assets in India.
And this proposal comes at a time when India plans to invest trillions of rupees over the coming decades to expand highways, airports, renewable energy networks, logistics parks and urban infrastructure. But government spending and domestic bank lending alone are unlikely to meet these enormous funding needs. Meanwhile, global pension funds, sovereign wealth funds and insurance companies collectively manage vast pools of long-term capital that are well suited to financing infrastructure.
So by creating a formal framework for depository receipts, SEBI is signalling that Indian real assets are becoming easier for global investors to access. At the same time, the regulator has limited the proposal to publicly listed REITs and InvITs. Privately placed InvITs, which are meant only for institutional investors meeting specific eligibility requirements, have been left out because those restrictions would be difficult to enforce once certificates begin trading freely on overseas exchanges.
That said, easier market access alone won’t guarantee a flood of foreign money. Investors will still weigh factors such as regulatory stability, corporate governance and currency risk before committing capital. Nevertheless, the proposal marks an important shift in strategy. Rather than relying primarily on domestic savings, India is building a regulatory bridge that could connect its infrastructure projects with global pools of long-term capital.
Of course, none of this is final yet. SEBI is inviting public comments until August 25th. So if you have credible views on whether Indian REITs and InvITs should trade overseas through depository receipts, this is one of those opportunities to tell the regulator exactly what you think.
Now, we’ll just have to wait and see how the final framework shapes up.
Until then…
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Disclaimer: This story is intended purely for educational and informational purposes and should not be construed as investment advice or a recommendation to buy or sell REITs or InvITs. Every investment carries risks, and what may be suitable for one investor may not be suitable for another. So DYOR or consider consulting a SEBI-Registered Investment Advisor (RIA) or other qualified financial professional before making an investment decision.
