Infrastructure Debt Funds

Infrastructure Debt Funds are investment vehicles which can be sponsored by commercial banks and NBFCs in India in which domestic/offshore institutional investors, specially insurance and pension funds can invest through units and bonds issued by the IDFs. IDFs would essentially act as vehicles for refinancing existing debt of infrastructure companies, thereby creating fresh headroom for banks to lend to fresh infrastructure projects.

Infrastructure Debt Funds (IDFs), can be set up either as a Trust or as a Company. A trust based IDF would normally be a Mutual Fund (MF), regulated by SEBI, while a company based IDF would normally be a NBFC regulated by the Reserve Bank.

IDF-MFs can be sponsored by banks and NBFCs while on the other hand Only banks and Infrastructure Finance companies can sponsor IDF-NBFCs.

India needs investment of USD 1 trillion in new infrastructure between 2012-17. Approximately half of this is to come through private funding. In this direction IDFs can be handy instrument.To promote it Government has provided an attractive environment for both alternatives: IDF income is exempt from Income Tax, Withholding tax on interest payments on the borrowings by the IDFs reduced to 5% from earlier 20%.

2 IDF-NBFCs (Infradebt, L&T) and 3 IDF-MFs (IIFCL, IL&FS & SREI) have already commenced operations in India.

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