As per SEBI Regulations, “Infrastructure fund” means an AIF which invests primarily in unlisted securities or partnership interest or listed debt or securitized debt instruments of investee companies or special purpose vehicles engaged in or formed for the purpose of operating, developing, or holding infrastructure projects.

Infrastructure funds are a Category I AIF that raises cash by aggregating assets from private participants and invests largely in businesses that create infrastructure projects. Infrastructure funds invest in the development of public infrastructure like roads, airport, renewable energy, water, railways, transmissions, and municipal solid waste. The Indian Government has incentives and concessions in order to encourage infrastructure funds, since they help positively impact the Indian economy. 

Infrastructure Funds provide investors with steady and consistent returns, mainly because demand for infrastructural services remain constant, or are constantly on the rise, even when the country’s economic growth is slow. Compared with other investments, these funds potentially offer more security against volatile stocks, and hence better at risk-management.

• A high risk-high return investment
• Low liquidity
• Long investment horizon
• A chance to invest in high-potential sector 
• They can be listed on stock exchanges because of their minimum trade amount of 1 crore.
• AIF cannot invest more than 25% in a single infrastructure company.
• At least 75% of the investible funds shall be invested in unlisted equity shares or equity instruments of a venture capital undertaking or in companies listed or proposed to be included on the SME segment of an exchange or a SME exchange.
• The unit holder can choose to invest in other Category I AIF subcategories, but not in Funds of Funds (FoFs).
• Infrastructure bonds refrain from taking out loans, either directly or indirectly, to finance their operations.
• Infrastructure fund allows only 1,000 investors per scheme.

Since Infrastructure Funds come under Category I, these are close-ended and come with a minimum tenure of more than three years, which could be extended by additional two years. Liquidate within a year of the fund's tenure ending.

The category I AIF are given pass-through status, whereby the responsibility for taxation shifts from the fund to the individual investor, even if the investor hasn't redeemed their investment. Investors are required to pay taxes on their interest income in accordance with their respective tax brackets. To ensure compliance with tax regulations, the fund houses deduct Tax Deducted at Source (TDS) from the interest payments distributed to investors. Moreover, the possibility of capital gains tax may arise in certain scenarios, and the fund will provide details on this in its quarterly reports and statements.

• Renewable Energy
• Oil and Gas
• Stressed thermal power
• Roads and highways
• Data centres
• Digital Infrastructure
• Warehouse
• Transportation and Logistics
• Urban Infrastructure

• NHAI (National Highways Authority of India): Oversees the development, maintenance, and management of India's national highways, ensuring efficient transportation infrastructure and implementation of road policies.
• NTPC (National Thermal Power Corporation): Responsible for electricity generation and distribution in India, focusing on thermal power. NTPC plays a crucial role in national energy policy and sustainable power development.
• Ministry of Road Transport and Highways (MoRTH): While not a regulatory body per se, MoRTH plays a crucial role in formulating and implementing policies related to road transport and highways.

Sustained Focus: The Finance Minister's emphasis on inclusive development in the northeast and increased capital investment outlay signal a sustained commitment to infrastructure.

Opportunity for Private Investment: Budget initiatives, including the establishment of the Infrastructure Finance Secretariat, create opportunities for increased private investment in infrastructure.

Upcoming Assets for Sale: In the next four years, 400 small road assets and 300-400 solar assets are expected to come up for sale, presenting lucrative investment opportunities.

Investing in Indian infrastructure offers a unique blend of surging demand, government support, attractive opportunities, and a conducive policy environment, making it a compelling prospect for investors. 

Robust Demand:

• Essential for achieving the 2025 economic growth target of US$5 trillion.
• Population growth and economic development necessitate investments in roads, railways, aviation, shipping, and inland waterways.

Attractive Opportunities:

• Infrastructure development has a multiplier effect on transport efficiency and entrepreneurial opportunities.
• Notable projects, such as the opening of 15 national highway projects in Bihar and the collaboration with Dubai for infrastructure in Jammu and Kashmir, showcase the scale of opportunities.

Policy Support:

• Budget 2023-24 includes a 50-year interest-free loan extension to state governments, encouraging infrastructure investment.
• National Infrastructure Pipeline (NIP) projects worth Rs. 108 trillion (US$ 1.3 trillion) are at various implementation stages.

Increasing Investments:

• The Budget 2023–24 saw a 33% rise in capital investment expenditure for infrastructure, reaching Rs. 10 lakh crore (US$ 122 billion).
• Establishment of the Infrastructure Finance Secretariat to enhance private investment opportunities in railways, roads, urban infrastructure, and power.

Urban Indian Real Estate:

• Digitalization and economic opportunities in Tier II and III cities are blurring the divide between metros and non-metros, fostering infrastructure growth.
• Exponential demand for commercial real estate in Tier II & III cities due to decentralization by IT, IT-enabled services, and BFSI-focused organizations.
• Robust sales and uptick in residential launches with projections exceeding 360,000 units in the top-7 cities in 2022.

National Infrastructure Pipeline (NIP):

• Initiated with 6,835 projects, NIP now encompasses 9,142 projects across 34 sub-sectors.
• 2,476 projects under development with an estimated investment of US$1.9 trillion, prominently in transportation and roads/bridges sub-sectors.

Government Initiatives:

• Significant acceleration in national highway construction, increasing from an average of 12 km/day in 2014-15 to around 29 km/day in 2021-22.
• Establishment of the National Investment and Infrastructure Fund (NIIF) to facilitate investments in various sectors through collaboration.
• Opening of national highway projects in Bihar, Rajasthan, and Haryana, along with a contract signed with Dubai for infrastructure development in Jammu and Kashmir.

• The Railways have been given a capital outlay of Rs 2.6 lakh crore (US$ 31.61 billion) for 2023–2024. This is the largest outlay to date and nearly nine times the budget for 2013–2014.
• To increase prospects for private investment in infrastructure, including power, roads, trains, and urban infrastructure, the Infrastructure Finance Secretariat is being established. This will benefit all parties in the infrastructure investment process.
• With a significantly increased expenditure of Rs 1.3 lakh crore (US$16 billion), the government has chosen to extend the 50-year interest-free loan to state governments for an additional year in order to encourage infrastructure investment and to reward them for complementary policy initiatives.