Hybrid securities, Real Estate Investment Trust (REIT) & Infrastructure Investment Trust (InvIT)

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Hybrid securities are securities that have a combination of debt and equity characteristics. The original hybrid security was preferred stock, representing ownership in a company (like equity) but having fixed payments (like bonds). Since then, companies have structured securities in many different ways. Many are structured in ways similar to debt, allowing the owner to receive a cash flow (floating or fixed) with a periodic rate of return, but also have options for conversion to equity. 

Hybrid securities are beneficial to investors because they provide investors with protection during bankruptcy as compared to common stock. That is, hybrid investors are eligible to be paid before common stockholders in bankruptcy. Additionally, hybrid securities generally provide a higher rate of return then the typical debt instruments. Hybrids can also be tailored to meet their individual investor’s needs. The complexity of some of these new structures can cause reporting institutions to be inconsistent in reporting data on hybrid securities, which is a significant issue for data compilers.

REIT or Real Estate Investment Trust is a trust registered with SEBI to carry out the activity prescribed under SEBI (Real Estate Investment Trusts) Regulations, 2014. A REIT raises funds by issuing units to investors and invest those funds primarily in assets in real estate sector. The investment in such assets can be made directly or through SPV/Holding Company. The investors who hold units in a REIT are called unit holders. The income generated from the underlying assets of the REIT are regularly distributed to the unit holders.

InvIT of Infrastructure Investment Trust is a trust registered with SEBI to carry out the activity prescribed under SEBI (Infrastructure Investment Trusts) Regulations, 2014. An InvIT raises funds by issuing units to investors and invests those funds primarily in assets in infrastructure sector. The investment in such assets can be made directly or through SPV/Holding Company by the InvIT. Investors who hold units in an InvIT are called unit holders. The income generated from the underlying assets of the InvIT are regularly distributed to the unit holders.

https://www.bis.org/ifc/publ/ifcb29n.pdf

https://www.sebi.gov.in/sebi_data/faqfiles/may-2022/1652868284191.pdf

https://www.sebi.gov.in/sebi_data/faqfiles/may-2022/1652868425346.pdf

https://indianexpress.com/article/business/market/sebi-advisory-committee-kv-kamath-finance-ministry-reits-invits-hybrid-securities-7980124

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