Background:
The investment conditions for Infrastructure Investment Trusts (INVIT) as well as for Real estate Investment Trusts (REIT) are comparatively stricter as compared to normal companies. The kind of entities in which they may invest, the business undertaken by investee entities or credit rating in case of investment in liquid assets like mutual funds etc. are all prescribed under SEBI INVIT regulations and SEBI REIT regulations and the investment has to be made in accordance with these conditions.
However, During practical implementation of these conditions, some difficulties were encountered, and hence some clarifications and relaxations were sought by the industry from the market regulator SEBI.
Introduction:
After taking in to consideration, the recommendations given by Bharat INVIT Association and Indian REIT Association, SEBI has come up with the consultation paper proposing changes in definition of special purpose vehicle (SPV), rating of eligible mutual funds and end use of borrowings etc. the public comments on the same are appreciated till 26th February 2026.
Key proposals and impact thereof.
- Change in definition of SPV.
As per the definition of SPV, a company or LLP qualifies as an SPV only if at least 90% of its assets are invested in infrastructure projects, typically held through concession agreements. It was observed that once a concession agreement expires or is terminated, the SPV may no longer meet the 90% asset requirement and thus ceases to qualify as an SPV. However, since the company/LLP continues as a going concern and the InvIT cannot divest its investment immediately, this creates a situation where the InvIT holds investment in an entity that no longer qualifies as an SPV, leading to potential non-compliance with InvIT Regulations.
Accordingly, clarification was sought from SEBI on this issue.
Considering the submissions received from industry, SEBI has proposed to insert a new proviso to the definition of SPV under regulation 2(zy) of INVIT regulations. As per this new proviso, the entity whose concession agreement has concluded or terminated, shall continue to be considered as SPV for specific period, within which the investment manager of INVIT has to either windup the SPV or merge it or acquire a new infrastructure project for the said SPV. Other then this, for the period during which the SPV will not have any infrastructure project, some additional disclosures with respect to such SPV will have to be made in the annual report of the INVIT.
If made effective, this amendment will resolve the non-compliance caused due to practical difficulties. Also, it will give some time to INVITs to deal with such SPVs whose concession agreements have terminated/ended. Further the disclosure related provisions will ensure transparency between INVIT and its unit holders of INVIT.
- Expansion of scope of liquid investments in mutual funds by INVIT and REIT.
As on date, the INVITs and REITs are allowed to invest only in such mutual funds whose credit risk value is at least 12 and which falls under the Class A-|l in the Potential Risk Class (“PRC”) matrix. However, it is observed that there are very less number of mutual fund schemes which satisfy this criteria. Therefore, REIT/INVIT are left with very less options and diversification becomes difficult. Hence IRA and BIA recommended easing of these criteria.
Post consideration of the recommendation, SEBI has proposed relaxation to these criteria. As per the new proposal, the INVIT/REIT will be allowed to invest in mutual fund schemes with credit risk value of at least 10 and which fall under the Class A-/ or Class B-I in the potential risk class matrix.
As a result of this change, the REIT/INVIT will be able to invest in more number of mutual funds resulting into diversification of investment and increased returns on investments while maintaining low or moderate risk.
- Alignment in investment conditions WRT investment in greenfield projects.
As per the INVIT regulations, public INVITs are allowed to invest an amount up to 10% of total INVIT assets, into under construction project (greenfield project). However private INVITs are not allowed to make investments in such greenfield projects. It was observed that, due to involvement of public funds through retail investors in public INVITs, the investments have to be done very cautiously and still investment in under construction projects is allowed. Whereas in case of private INVITs public money is not involved and only institutional investors make investments. But still investment in under construction projects is not allowed. Hence such investments by private INVITs in under construction projects should be allowed.
Considering the suggestion from market participants, SEBI has proposed to amend the appropriate InvIT regulation to allow investment up to 10% of total INVIT assets in under construction projects by private INVITs. This would open more investment opportunities for the private INVITs.
- Expanding the scope of use of borrowings.
As per regulation 20(3) of INVIT regulations, the amount borrowed by INVIT above 49% can be used only for acquiring or developing new infrastructure projects. in this regard, BIA had recommended that, SEBI should clarify that development includes refinancing of debts at SPV/hold co/INVIT level. After detailed consideration, SEBI proposes to insert an enabling provision in Regulation 20(3)(b)(i) of the InvIT Regulations which would read as, “utilize the funds only for acquisition or development of infrastructure projects or such other purpose as may be specified by the Board from time to time.”
Further, in accordance with the enabling provision mentioned above, the SEBI proposes to specify the following activities as permitted end use of borrowings under Regulation 20(3)(b)(ii)
- Capital expenditure made to enhance asset performance or for capacity augmentation;
- or maintenance expense in respect of Road Project, wherein –
- Major maintenance expense shall mean expenditure incurred on maintenance of road project which is not routine maintenance and is in accordance with the obligations and requirements specified in the concession agreement.
- Road Project shall mean a project in the ‘Roads and bridges’ infrastructure sub-sector as mentioned in the notification of the Ministry of Finance dated September 19, 2025 and shall include any amendments or additions made thereto.
- Re-financing of debt, by the InvIT, SPV or Holdco, which was originally availed for purposes permitted under Regulation 20(3)(b)(ii), subject to the following conditions:
”there is no increase in the aggregate consolidated borrowings and deferred payments of the InvIT, holdco and the SPV(s), net of cash and cash equivalents, due to such refinancing; and
only the principal portion of debt is refinanced (i.e. any accumulated interest or any charges or fees by whatever name called shall not be refinanced).”
Conclusion:
The proposed amendments reflect SEBI’s attempt to address practical challenges faced by InvITs and REITs while maintaining regulatory discipline. By clarifying the SPV definition, widening investment options, aligning greenfield investment norms, and expanding the permitted use of borrowings, the proposals aim to bring greater operational flexibility without diluting oversight. If implemented, these changes would reduce interpretational issues, enhance transparency, and provide InvITs with a more workable regulatory framework.