SEBI introduces increased investment flexibility for REITs and InvITs

In a move to further strengthen the regulatory framework surrounding investment trusts, the Securities and Exchange Board of India (SEBI) has notified the Securities and Exchange Board of India (Real Estate Investment Trusts) (Amendment) Regulations, 2026 (REIT Amendment Regulations) and the Securities and Exchange Board of India (Infrastructure Investment Trusts) (Amendment) Regulations, 2026 (InvIT Amendment Regulations) on April 16, 2026.

REIT Amendment Regulations and InvIT Amendment Regulations shall collectively be referred as Amendment Regulations.

The Amendment Regulations introduce key provisions approved by SEBI at its 213^th meeting held on March 23, 2026 (which can be accessed here) including revisions to the minimum credit risk value threshold for investments in liquid mutual fund schemes by Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) and crucial modifications to the definition and operational continuity of a special purpose vehicle (SPV) under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 (InvIT Regulations).

Simultaneously, SEBI has issued two circulars dated May 15, 2026, operationalizing the amendments to: (i) Regulation 20(3)(b)(ii) of the InvIT Regulations, specifying the permissible uses of fresh borrowings where net borrowings exceed 49% of the value of InvIT assets (Borrowing Circular); and (ii) Regulation 2(1)(zy)(ii) of the InvIT Regulations, specifying the conditions for continuity of SPV status post conclusion or termination of concession agreements (SPV Circular).

Key highlights of the Amendment Regulations, the Borrowing Circular and the SPV Circular are outlined below:

1. Revision of criteria for investment in liquid mutual funds: 

• • The minimum credit risk value requirement for investments in units of liquid mutual fund schemes has been reduced from 12 to 10 for both REITs and InvITs. 

• • Additionally, such investments are now permitted in instruments falling under either ‘Class A-I’ or ‘Class B-I’ categories under the potential risk class matrix specified by SEBI as against investments being restricted to instruments falling within ‘Class A-I’ category.

• • The InvIT Amendment Regulations now separately recognise units of overnight mutual fund schemes and units of liquid mutual fund schemes (subject to the risk-based conditions above).

2. SPV framework and regulatory continuity for concession projects (InvITs):

• • Regulation 2(1)(zy) and Regulation 18(5)(b) of the InvIT Regulations have been refined to resolve operational ambiguities around SPVs, particularly in Public-Private Partnership (PPP) and concession-driven models.

• • A new proviso under Regulation 2(1)(zy)(ii) clarifies that where an SPV holds an infrastructure project, the natural conclusion or termination of the concession agreement will not automatically divest the entity of its SPV status. Such entities remain classified as SPVs, subject to conditions specified by SEBI. Consequentially, Regulation 18(5)(b)(ix) expressly permits InvITs to continue investing in such post-concession SPVs.

• • The definition of SPV has been tightened to clarify that SPVs must not engage in any activity “other than activities pertaining to” the underlying infrastructure projects.

• • These amendments would help maintain structural stability by preventing technical reclassification issues that could otherwise trigger forced exits or restructuring complications.

• • The SPV Circular specifies the following conditions to be fulfilled by the investment manager in this regard:

• • • The investment manager must either exit investment in such SPV (by way of sale, liquidation, winding-up or merger) or acquire a new infrastructure project in such SPV, within one year from: (A) completion or termination of the concession agreement (or agreement of similar nature); (B) conclusion of all pending claims, litigations, tax assessments and related appeals; or (C) completion of the defect liability period, whichever is later. The time taken to obtain relevant statutory or regulatory approvals for such exit shall be excluded from this one-year timeline.

• • • Till the time investment in such SPV is held by the InvIT, adequate disclosures must be made in the annual report, both at the InvIT level (detailed breakup of value of investments in post-concession SPVs on gross and net basis) and at the SPV level (including brief project details and status of handover, assets and liabilities, contingent liabilities, debt repayment schedule, sufficiency of assets to meet liabilities, exit strategy and timeline, and other material details relating to pending claims, litigations, assessments and statutory or contractual obligations).

3. Broadened flexibility in fund utilization: 

• • Regulation 20(3)(b)(ii) of the InvIT Regulations has been expanded. In addition to deploying funds for the “development of infrastructure projects”, InvITs are now permitted to utilise funds “for such other purposes as may be specified by the Board.”

• • This gives SEBI the statutory flexibility to notify additional permissible uses of capital over time without requiring further principal regulatory overhauls.

• • The Borrowing Circular specifies the following as permissible uses of borrowings above 49% under Regulation 20(3)(b)(ii) of the InvIT Regulations:

• • • Capital expenditure made to enhance asset performance or for capacity augmentation.

• • • Major maintenance expense in respect of ‘Road Projects’, wherein ‘major maintenance expense’ means expenditure incurred on maintenance of a road project which is not routine maintenance and is in accordance with the obligations and requirements specified in the concession agreement, and ‘Road Project’ means a project in the ‘Roads and bridges’ infrastructure sub-sector as mentioned in the notification of the Ministry of Finance dated September 19, 2025 (including any amendments or additions thereto).

• • • Refinancing of debt by the InvIT, SPV or holding company, subject to the conditions that: (A) the original debt being refinanced was utilized for purposes permitted under Regulation 20(3)(b)(ii) of the InvIT Regulations; and (B) only the principal portion of debt is refinanced (i.e., any accumulated interest, charges or fees shall not be refinanced)

Conclusion:

The Amendment Regulations, read with the Borrowing and SPV Circulars, provide key operational and treasury flexibility for InvITs and REITs. The SPV Circular ensures regulatory continuity for concession-based project vehicles post-concession expiry, establishing a structured one-year exit/re-deployment window and strict disclosure norms. Meanwhile, the Borrowing Circular clarifies permissible uses for leverage exceeding 49% specifically for capex, major maintenance, and refinancing giving InvITs a clear framework for deploying borrowed capital.