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Fund houses file offer documents to launch infrastructure debt funds

Fund houses such as IDFC Mutual Fund, L&T Mutual Fund, Axis Mutual Fund and IDBI Mutual Fund have filed the draft offer documents with SEBI to launch IDFs

June 22, 2012 12:49 IST | India Infoline News Service
After the finance minister, in his budget speech for 2011-12, announced setting up of infrastructure debt funds (IDFs) to accelerate the flow of long-term debt in infra projects for funding the government’s programme of infrastructure development, many mutual funds are filing offer documents with SEBI (Securities and Exchange Board of India) to launch IDFs. Income of the IDFs has also been exempted from income tax by the government.

According to the guidelines, IDFs can mobilise money either through the mutual fund route or by forming a non-banking financial company (NBFC). Fund houses such as IDFC Mutual Fund, L&T Mutual Fund, Axis Mutual Fund and IDBI Mutual Fund have filed the draft offer documents with SEBI to launch IDFs.

IDF as a trust would have to invest minimum 90% of its assets in the debt securities of infrastructure companies or special purpose vehicles (SPVs) across all infrastructure sectors, project stages and project types. The returns on assets of the IDF will pass through to the investors directly, less the management fee. The credit risks associated with the underlying projects will be borne by the investors and not by the IDF.
 
Amar Ranu, senior manager-research & advisory (third party products), Motilal Oswal Wealth Management said, “On mutual fund format, IDFs are a good way to raise money for infrastructure space but it may be difficult to raise money from retail investors as they may not be comfortable in blocking their money for a longer period. At the same time, the lack of guaranteed return may disincentivise investors.”

The IDFs will be close-ended in nature with a five to 15-year tenure, which will be decided at the time of launch by the respective fund houses. The minimum investment amount is Rs. 10 million, and in multiples of Rs. 1 million, thereafter. So, the investor base will comprise institutions, high net worth individuals (HNIs) and ultra-HNIs.

Pankaj Maalde, head-financial planning, ApnaPaisa.com, said, “Till last year, infrastructure bonds were launched by IDFC, IFCI, PEC and REC and mutual funds were not allowed to offer infra bonds. We have to wait for the clarification whether these infra bonds can be issued by mutual funds or not—as there was no such mention in the Budget nor any such news has come thereafter.” Mr Maadle adds, “Most important from an investor’s point of view is the additional deduction up to Rs. 20,000 under section 80-CCF for investment in infra bond is not extended for current financial year.”
 
IDFC Mutual Fund has received SEBI approval for the launch of IDF. IDFC Infrastructure Debt Fund has a minimum tenor of five years and not greater than 15 years from the date of allotment of units. The investment objective of the scheme is to generate income and capital appreciation by investing primarily in a portfolio of infrastructure debt instruments. The corpus under the IDF will be invested in debt securities, bank loan and securitised debt instruments.

L&T Mutual Fund has also filed offer document with SEBI to launch IDF. The investment objective of the scheme is to generate appreciation in capital by investing in various permissible instruments/securities belonging to the infrastructure sector.

Axis Mutual Fund has filed offer document with SEBI to launch Axis Infrastructure Debt Fund-Series 1, a close ended debt scheme. The investment objective of the scheme is to generate returns primarily through a portfolio of debt instruments of companies engaged in infrastructure & infrastructure related sectors.

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