Infrastructure Investment Trusts (InVITs) gather funds from investors, which are subsequently directed into infrastructure projects. As pooled investment vehicles, they function similarly to mutual funds. However, while mutual funds predominantly invest in stocks and bonds, InVITs focus on infrastructure-related ventures. The returns generated by InVITs are distributed to investors through four primary methods: interest on capital, dividends, rental income, and repayment of capital. Previously, interest, dividends, and rental income earned by unit holders were taxable, but repayment of capital was exempt from tax. However, the Finance Act of 2023 introduced a provision to tax certain portions of capital repayment in specific cases, making Statement 1 incorrect. Additionally, the Finance Act of 2021 amended the SARFAESI Act of 2002 to recognize pooled investment vehicles, including REITs and InVITs, as borrowers under the Act, making Statement 2 correct.

Therefore, the correct answer is Statement-I is incorrect but Statement-II is correct.

In the recent post-pandemic period, central banks worldwide have raised interest rates to combat inflation, which surged due to heightened fiscal spending during COVID-19 and supply chain issues stemming from the Russia-Ukraine conflict. Therefore, Statement 1 is accurate.

The central banks’ decision to increase interest rates aims to raise borrowing costs, leading to a reduction in money supply and, consequently, a decrease in inflation rates. Thus, Statement 2 is also valid.

The rise in interest rates in advanced economies, particularly in the U.S., has negatively impacted the Indian economy, resulting in increased net Foreign Portfolio Investment (FPI) outflows, significant depreciation of the Rupee, declines in foreign exchange reserves, and rising yield rates. This negative impact on the Indian economy is commonly referred to as “Taper Tantrums.” Consequently, this question was posed within this context.

Therefore, the correct answer is Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I.