SEBI Notifies Key Amendments to REIT and InvIT Regulations to Strengthen Governance and Increase Investment Flexibility

The Securities and Exchange Board of India (SEBI) has notified the SEBI (Infrastructure Investment Trusts) (Amendment) Regulations, 2025, which came into effect on April 1, 2025 (InvIT Amendment Regulations), and the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2025 (REIT Amendment Regulations), which became effective from April 22, 2025. These amendments have introduced the following key changes to the regulatory framework governing infrastructure investment trusts (InvITs) and real estate investment trusts (REITs):

• Expanded Trustee Responsibilities and Governance Standards

SEBI has introduced new provisions outlining the core principles and specific responsibilities for trustees of both InvITs and REITs. Trustees are now expressly required to uphold transparency, accountability, due diligence, and ensure compliance with applicable regulations. In their fiduciary capacity, trustees must act impartially, prioritize the interests of unitholders and ensure management oversight over managers.

To provide operational clarity, schedules detailing the roles and responsibilities of the trustees (Schedule X in InvIT Amendment Regulations and Schedule XII in REIT Amendment Regulations) have been inserted. These responsibilities include regular asset inspections, supervising the maintenance of assets, ensuring robust information flow and record-keeping. These provisions will come into force 180 days from the date of notification.

Trustees may also engage external consultants for a period of 18 months from the date of notification of these amendments to ensure compliance with these enhanced obligations.

• Transfers of Locked-in Units

Locked-in units held by a sponsor or its group entities may only be transferred among the sponsor and its own group entities. However, the lock-in period will continue to apply to the transferee for the remainder of the original term. In cases where InvITs/REITs have multiple sponsors, locked-in units can only be transferred within each sponsor’s own group and cannot be transferred to another sponsor or their group entities.

In the event of a change in sponsor or conversion to a self-sponsored manager structure, the regulations allow locked-in units held by the outgoing sponsor or its group entities to be transferred to the incoming sponsor/self-sponsored manager or its group or its shareholders (only in cases of conversion to self-sponsored management structure). This transfer is permitted only if the transferee continues to meet the minimum unitholding requirements after the transfer.

• Permissible Investments

Publicly offered InvITs and REITs are now permitted to invest in unlisted equity shares of companies that exclusively provide project management/property management/property maintenance/housekeeping and incidental services, as applicable, to the investment trusts, their holding companies (HoldCos) and special purpose vehicles (SPVs), provided that the investment trusts directly or through their HoldCos or SPVs hold the entire shareholding in such entities.

In the case of business parks, townships and other real estate projects, a REIT’s investee company may provide such services to other entities within the project subject to the conditions such as revenue earned from other entities shall not exceed 20% of its total revenue, and that the fees charged to these entities are identical and uniform to those charged to the REIT, its HoldCo, or SPV.

The amendments also allow investment in liquid mutual funds, provided these funds have a minimum credit risk value of 12 and fall under Class A-I of the potential risk class matrix specified by SEBI. Further, investments in interest rate derivatives are now permitted, subject to compliance with additional conditions and disclosure requirements such as such investments can only be undertaken solely to hedge an underlying interest rate risk in existing borrowings, and adequate disclosures being made in the annual report.

Additionally, a REIT is permitted to invest, either directly or through its HoldCo or SPV, in infrastructure assets if these assets are held for generating fixed rental income through leasing and the REIT does not assume any risk or reward arising out of operation of such assets.

• Vacancy in the Office of Independent Directors and Other Directors

Specific timelines have been prescribed for filling vacancies in the office of independent directors or other directors on the board of the manager. If a vacancy arises due to the expiry of a director’s term, the manager must fill the vacancy by the date the office is vacated. For vacancies arising for any other reason, the manager is required to fill the position at the earliest, but no later than three months from the date the vacancy occurs.

Separately, the following key changes have been introduced to the SEBI (REITs) Regulations, 2014:

• Definition of Common Infrastructure

The definition of common infrastructure for REITs has been introduced to include facilities such as power plants, district or retail heating/cooling systems, water/waste treatment or processing plants, and any other amenities incidental to real estate business that exclusively serve the REIT or its HoldCo or SPV, regardless of whether these facilities are located within any specific REIT project. Additionally, any excess production or capacity from these facilities that is not consumed by the REIT, HoldCo or SPV, may be sold to government grid or utility in accordance with applicable laws and compliance with conditions specified.

• Guidelines for Small and Medium REITs
• A Scheme of small and medium REITs (SM REITs) must make its initial offer within one year from the date SEBI issues its observations on the draft offer document. If the offer is not made within this timeframe, a fresh draft scheme offer document must be filed for SEBI’s review. Additionally, for SM REITs opting to utilize leverage, minimum subscription amount is 90% of the fresh issue size as specified in the key information of the scheme (KIS), and for SM REITs not utilizing leverage, the minimum subscription amount is 100%. Furthermore, to meet the minimum unitholding requirement, the investment manager is required to deposit the specified amount into a cash escrow account two working days prior to opening of the offer.
• The Scheme offer document will consist of two parts: (A) key information of the trust (KIT), which will contain details of the SM REIT, investment manager, trustee and other trust level details; and (B) KIS, which will capture scheme specific and asset-related disclosures. For the initial offer of the first scheme of an SM REIT, the investment manager must file both the draft KIT (common for all schemes) and the draft KIS for SEBI’s observations, and SEBI may issue observations on both the documents. However, for subsequent schemes, if KIT remains unchanged and a declaration to that effect is submitted, only the draft KIS is filed for SEBI’s observations. However, if there are any changes to the KIT, both the updated KIT and draft KIS must be filed for SEBI’s review.
• Proceeds from the issue must only be utilized for the acquisition of assets specified in the scheme offer documents. If the SM REIT is unable to acquire any of the disclosed assets, the entire amount raised from the offer must be refunded to the investors in the manner and time specified by SEBI.
• Any material changes to the KIT (including litigation and regulatory action) must be made by the investment manager on an ongoing basis by way of an addendum. The addendum must be disclosed on the website of SM REIT and filed with SEBI and relevant stock exchanges within seven days of the material event. Additionally, the investment manager must ensure that KIT is updated every six months, and the revised version is available on the website of SM REIT and filed with SEBI and stock exchanges within 30 days from the end of the half-year.
• The investment conditions specified in Regulation 26T(2) are to be monitored on a half yearly basis and at the time of acquiring an asset. If investment conditions are breached due to market movements in the price of underlying assets and securities, changes in tenants, lease expirations or sale of properties, trustee must be informed, and SM REIT must comply with the investment conditions within six months of such breach. With the approval of the unitholders, the compliance period may be extended by another six months. If compliance is not achieved within this timeframe, SM REIT will be prohibited from launching any new scheme, and non-compliant scheme must be delisted.

Conclusion:

The InvIT Regulation Amendment and REIT Regulation Amendment are in furtherance of SEBI’s objective of promoting ease of doing business and enhancing investor protection for InvITs, REITs and SM REITs. These changes are expected to increase market participation, improve transparency and foster greater investor confidence.