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Novice help, what is an infrastructure debt fund?
In general, infrastructure debt fund refers to an investment pool that invests in the debt securities of a company. However, an infrastructure Debt fund refers to a trust or company constituted to invest in debt security of infrastructure companies. In contrast to the basic understanding of the term, IDF does not refer to a scheme floated by mutual fund or other organizations, but to a company that is investing in debt securities. An IDF can float wide range of schemes for financing infrastructural projects.
Unique and different
The United States finances infrastructure debt in a very unique and different way. Most countries use private, central or multilateral banks such as International Monetary Fund as major lenders for large projects. However, majority of states in America go to citizens directly for their borrowing needs.
States originate either tax exempt bonds or taxable that is sold ultimately to private individuals. The outstanding debts issued by cities are owned directly or indirectly, primarily through municipal bond fund by American households. Over the past years, United States has experienced variety of subsidy and incentive programs in order to help lower borrowing costs for local governments and state, to provide flexibility to get projects completed.
Need for infrastructure
Demand for good infrastructure, that includes rail, power, road, water and telecommunications will continue to expand significantly in the coming years thanks to global economic growth, technological progress, changes in public policy, climate change, growing population, urbanization and congestion. Many parts of the infrastructure system in countries are aging rapidly,
is becoming complex and certain economies are confronting increased fiscal deficits. It is expected that opportunities to acquire infrastructure assets from both public and private owners is going to increase.
The infrastructure debt fund targets defensive assets with high barriers to enter high visible cash flows, regulated environment and strong industry position. The diligence process takes into consideration tax, legal, industrial and environmental issues. Equity sponsors and management are interviewed at length and detailed financial model is built upon the cash flow forecasts for business and incorporates economic considerations.
Though Americans pay very little attention to public finance and AFF bonds they have the potential to affect the lives of the people. These infrastructure debt fund programs when enacted have the capability to introduce stability and diversity into people’s portfolio. They help deliver reliable, resilient and safe infrastructure that the country needs to keep its economic engine running.
However, it is important for a prospective investor to refer and consider factors related to investment risks beforehand. As a result of risk factors an investment in the fund is not recommended for all kinds of investors. There is no assurance on the investment objective or that investors would receive a return of their capital. Prospective investors need to consult their advisors
Prospective investors need to consult their advisors
before deciding on investing in infrastructure debt fund.