InvITs and REITs: Regulatory actions for more enabling environment 

Simrat Singh | Finserv@vinodkothari.com 

SEBI has issued a Consultation Paper on 05.02.2026 proposing amendments to the InvIT Regulations related to end-use of borrowings, status of SPVs and investment in under-construction projects. Further, it has also proposed to enhance the investible options for both REITs and InvITs w.r.t liquid mutual funds. 

InvITs and REITs have continued on a strong upward growth trajectory. As of November 2025, the aggregate AUM of 27 InvITs stood at approximately ₹7,00,000 Crores after growing at a CAGR of approx 18% per annum since FY 21. The assets spann nine infrastructure sectors including roads, telecom, and power, as well as emerging asset classes such as warehouses and educational infrastructure. Reflecting their expanding scale and leverage capacity, aggregate borrowings of InvITs have crossed ₹2,03,000 Crores¹. In contrast, REITs continue to trail InvITs in terms of scale, with the combined AUM of the five listed REITs amounting to approximately ₹2,35,000 Crores during the same period.² May refer to our article “Roads to Riches: A Snapshot of InvITs in India”. 

SEBI has consistently sought to create a more enabling regulatory environment for these vehicles. A notable example is the classification of REIT units as equity for mutual funds (as discussed below), which sought to enhance institutional participation and liquidity. Complementing these regulatory efforts, the Union Budget 2026 introduced several targeted measures to deepen infrastructure financing, including the proposed Partial Credit Enhancement (PCE) framework and the creation of a dedicated infrastructure fund (see our write-up on the Budget 2026 here). Lastly, RBI in its Statement on Developmental and Regulatory Policies also allowed Banks to lend to REITs, putting them on same footing as InvITs (see our write-up on RBI’s Statement here). Taken together, these developments indicate that the growth trajectory of InvITs and REITs is expected to remain firmly positive.

In this context, the current Consultation Paper is also positioned as a enabling intervention, aimed at addressing operational constraints faced by InvITs. The key proposals outlined in the Consultation Paper are set out below:

For InvITs

Continuing Investment in SPVs post end of concession period

Background: In case of PPP projects, upon expiry/termination of concession agreements, infrastructure assets revert back to the concessioning authority. Consequently, SPVs lose ownership of infrastructure projects but must continue to exist in order to discharge statutory and contractual obligations such as tax assessments, litigation and defect liability obligations³. This creates a situation where InvITs are forced into a technical non-compliance with SPV eligibility norms.

Existing regulatory position: As per reg. 2(1)(zy) of InvIT Regulations, SPVs are required to hold at least 90% of their assets in ‘infrastructure projects’. Once concession rights end and the SPV’s rights in the infrastructure asset cease, such SPV will fail this asset-based eligibility test. Further, immediate winding up of such SPVs is not feasible due to factors stated above. [[not wasting time time]]]

Proposed amendment: It is proposed to allow SPVs holding PPP projects with expired or terminated concession agreements to continue to be treated as SPVs, for a specified period and subject to prescribed conditions. The conditions for recognizing such a SPV as a SPV as per reg. 2(1)(zy) would include 

1. Investment manager to either exit such SPV or acquire new infra project in such SPV within one year from the later of:

1. Completion of concession agreement;
2. Conclusion of pending litigations;
3. Completion of defect liability period.
4. Till such SPV is held by the InvIT, following disclosures shall be made in the annual report of the InvIT:
   1. At InvIT level: Break-up of value of investment in such SPV
   2. SPV level: Details of each such SPV wherein the concession has ended, including details of the project, date of conclusion, status of asset vesting, assets and liabilities including contingent liabilities, details of debt repayment, pending claims, balance defect liability period, whether SPV has sufficient assets to meet its liabilities, if not, how the IM plans to meet those, steps taken to exit the SPV or add another project with a clear plan of action for the same etc. 

Expanding permitted use of borrowings beyond 49% of asset value

Background: As discussed above, the aggregate borrowings of all InvITs are approximately 30% of their aggregate AUM, indicating a relatively moderate level of leverage across the InvIT ecosystem. InvITs with aggregate leverage and deferred payments exceeding 49% of the value of InvIT assets are currently restricted to using further borrowings only for the acquisition or development of infrastructure projects. In practice, InvITs often need additional debt for refinancing existing loans of the SPVs or undertaking major maintenance and capacity additions, which are essential to asset performance but such purposes are not explicitly recognised as permitted uses as ‘acquisition or development of infrastructure projects’.

Existing Regulatory Position: Reg. 20(3)(b)(ii) provides that where net consolidated borrowings of the InvIT, HoldCos and all SPVs exceed 49% of asset value, further borrowings are allowed only for ‘acquisition or development of infrastructure projects’, subject to enhanced rating, distribution history, and unitholder approval requirements. 

Borrowing-compliance matrix for InvIT (see reg. 20):

Borrowing limit	Up to 25% of InvIT assets	> 25% but up to 49% of InvIT assets	>49% but up to 70% of InvIT assets
Compliances	None	Obtain credit rating Seek approval of 50% of unitholders	Obtain AAA ratingHave track record of 6 distributionsSeek approval of 75% of unitholders Utilize the funds only for acquisition or development of infrastructure projects;

Proposed Amendment: SEBI proposes to explicitly permit the use of borrowings (beyond 49%) for:

• Capital expenditure aimed at enhancing asset performance or capacity;
• Major maintenance expenses for road projects. This will be non-routine expenditure, which is made as per the concession agreement; and
• Refinancing of debt which was originally raised for development of infra. However, there shall be no increase in aggregate consolidated InvIT-level borrowing and only the principal portion shall be refinanced and not any outstanding charges or fees.

This clarification recognises refinancing and major maintenance as analogous to infrastructure development.

Alignment of investment conditions for Private and Public InvITs in Greenfield Projects

Background of the Proposal: While publicly listed InvITs are allowed limited exposure to pure greenfield (under-construction) projects, privately listed InvITs, despite catering only to sophisticated investors, are prohibited from such investments. This asymmetry restricts capital deployment flexibility for private InvITs. The proposal is aimed at enhancing parity between private and public InvITs while maintaining prudent exposure limits, through alignment of the investment avenues available in relation to pure greenfield projects. 

Existing regulatory position and Proposed Amendments: As per reg. 18(4) public InvITs may invest up to 10% of asset value in under-construction infrastructure projects, whereas private InvITs are restricted to investment in eligible infrastructure projects meeting prescribed completion thresholds. A summary of investment conditions for both such InvITs is as follows:

	Existing regulatory provisions		Proposals in Consultation Paper
	Privately listed InvIT	Publicly listed InvIT	Privately listed InvIT	Publicly listed InvIT
80% of the value of InvIT Assets	Eligible Infrastructure Project	Completed and Revenue Generating Project4	Eligible Infrastructure Project	Completed and Revenue Generating Project
20% of the value of InvIT Assets	Other Eligible Investments5	Other Eligible Investments  Under construction projects (ceiling of 10%)	Other Eligible Investments Under construction projects (ceiling of 10%)	Other Eligible Investments Under construction projects (ceiling of 10%)

For both InvITs and REITs 

Expansion of eligible liquid mutual fund as investments

Background of the Proposal: REITs and InvITs are permitted to park temporary surplus funds in liquid mutual fund schemes; however, the current regulatory framework restricts the eligible universe since only a very limited number of liquid mutual fund schemes meet the prescribed credit risk criteria, resulting in concentration risk and limited diversification opportunities for REITs and InvITs. As of October 2025, while there are 38 liquid mutual fund schemes in the market, the majority fall under moderate credit risk categories. Only 9 out of 38 liquid mutual fund schemes qualify under the most conservative risk classification⁶ currently mandated for REITs and InvITs, and among these, several schemes have relatively low assets under management, further increasing concentration and liquidity risks for large REITs and InvITs. 

Note that earlier SEBI had classified investments in REITs as equity instruments w.e.f 1 January 2026. Earlier, both REITs and InvITs were classified as hybrid instruments and mutual funds invested in them within a common hybrid exposure limit. Post the classification, REITs would form part of a scheme’s equity exposure, while InvITs will continue to be treated as hybrid instruments. Consequently, debt and hybrid schemes will not be permitted to make fresh investments in REITs. The entire hybrid investment limit that was earlier shared between REITs and InvITs will now be fully available for investments in InvITs. Existing REIT investments held by schemes as on 31 December 2025 were however grandfathered. In our view, units of InvITs may also be classified as equity for MFs to give them additional MF participation.

Existing Regulatory Position v/s Proposed Amendment: 

Existing conditions for eligible MF scheme	Proposed relaxations for eligible MF scheme
Credit risk value of at least 12	Credit risk value of 10 or above
Fall under Class A-I of the Potential Risk Class (PRC) matrix prescribed by SEBI	Both Class A-I and Class B-I categories under the PRC matrix
Basically the above are AAA rated instruments	This would allow investments in schemes holding AA-rated and above instruments, increasing the number of eligible schemes

Measures announced in Budget 2026

The Budget 2026 also announced measures to strengthen infrastructure financing and attract private investment. An Infrastructure Risk Guarantee Fund will be set up to provide Partial Credit Enhancement to infrastructure lenders, with a focus on covering development and construction phase risks. In addition, real estate assets of CPSEs are proposed to be monetized through the REITs platform to recycle capital for new infrastructure projects. See our presentation on Budget 2026 here.

Construction risk is critical in infrastructure financing because projects have a long construction period followed by a relatively stable operational phase. During construction, projects face high risks such as delays, cost overruns, regulatory hurdles, litigation, and public opposition. Once operational, cash flows become predictable and risks reduce significantly, making lenders more comfortable.

A Partial Credit Guarantee is a form of liquidity support that helps address temporary shortfalls in servicing debt obligations. It usually covers only a part of the debt and is subordinated to lenders’ claims, thereby improving credit confidence without fully shifting risk. The impact of the proposed guarantee fund will depend on its design and scope. Typically, PCGs are more effective after a project achieves its Date of Commercial Operation, when revenues are stable. Their success in reducing construction-phase risk will hinge on whether the scheme is structured to genuinely address development-stage uncertainties.

1. Bharat InvIT Association Data ↩︎
2. Indian REIT Association Data ↩︎
3. Defect Liability Period is a contracted timeframe, typically 1 year to 5 years following project completion, during which the contractor/developer must fix, at their own cost, any defects, faults, or workmanship issues that may arise. ↩︎
4. For clarity, a completed and revenue-generating asset forms a subset of an eligible infrastructure asset. While eligible infrastructure assets may include projects at various stages of development subject to the 50-50 test, a completed and revenue-generating asset is limited to projects that have achieved commercial operations, obtained all operational approvals and generated revenue for a continuous period of at least one year. ↩︎
5. These include  money market instruments, liquid MFs, G-Secs etc ↩︎
6. SEBI Data ↩︎