India’s infrastructure financing
ecosystem just received a major regulatory boost. On April 1, 2025, the Securities
and Exchange Board of India (SEBI) officially rolled out the InvIT
Amendment Regulations, 2025, designed to modernize Infrastructure
Investment Trusts (InvITs) while strengthening governance and protecting
investors.
If you’re an investor, sponsor, or
financial professional, these changes could impact how you invest, manage, or
monitor InvITs. Let’s dive deep into what the amendments mean, why they matter,
and how they are set to transform India’s infrastructure finance landscape.
Understanding
InvITs: The Backbone of Infrastructure Investment
Before we get into the amendments,
it’s essential to understand what InvITs are and why they exist.
Infrastructure Investment Trusts
(InvITs) are investment vehicles that pool capital
from both institutional and retail investors to fund
infrastructure projects such as:
- Highways and toll roads
- Power transmission and renewable energy projects
- Commercial real estate
Investors earn regular income
through dividends and interest generated by these assets. Think of it as a
mutual fund for infrastructure projects—it allows smaller investors to
participate in large-scale infrastructure without directly managing the assets.
A brief history:
SEBI introduced InvIT regulations in 2014 to bring structure to this
relatively new investment class. While the initial framework provided a
foundation for governance, trustees, and investment norms, industry
participants often highlighted challenges such as:
- Rigid governance structures: Limited clarity for trustees and independent directors
sometimes led to inconsistent oversight.
- Restricted investment avenues: Narrow investment options prevented InvITs from
optimizing returns or managing risk effectively.
- Sponsor lock-in restrictions: Sponsors’ units were heavily restricted, complicating
corporate restructuring.
Recognizing these issues, SEBI set
up the Hybrid Securities Advisory Committee (HySAC), conducted a consultation
in October 2024, and finalized the amendments in December 2024, which
were officially gazetted on April 1–2, 2025.
Key
Amendments in InvIT Regulations 2025
The 2025 amendments touch nearly
every aspect of InvIT governance, operations, and investor protection. Let’s
break them down in detail.
1.
Independent Director Vacancies Must Be Filled Promptly
Independent directors play a
critical role in safeguarding investor interests. The new rules clarify
timelines for filling vacancies:
- Term expiry:
Vacancies must be filled immediately.
- Resignation or unforeseen exits: Must be filled within three months.
This ensures continuity in oversight
and reduces the governance gaps that smaller or newer InvITs often experience.
Why it matters: Investors can now rely on consistent supervision, which
strengthens confidence, especially for those who are risk-averse.
2.
Trustee Responsibilities: A Governance Overhaul
Trustees have historically acted as
watchdogs for InvITs, but the new amendments provide them clear authority
and responsibilities. Regulation 9, sub-regulation (23) (effective October
2025) outlines these duties.
Key trustee responsibilities
include:
- Maintaining transparency and accountability at
every step
- Acting impartially, prioritizing the interests
of unitholders
- Conducting due diligence on the investment
manager and overall governance framework
Additionally, Schedule X
provides a non-exhaustive list of specific duties:
- Physical inspections
of assets to ensure operational and safety standards
- Confirming to SEBI that trustees are not involved in
InvIT unit transactions they manage
- Ensuring compliance with safety, maintenance, and
operational norms
Expert perspective: Legal firms such as Malathi Associates term this a
“governance leap forward,” empowering trustees to intervene proactively if
standards slip.
3.
Expanded Investment Universe
One of the most significant changes
allows InvITs to invest in a wider range of assets, offering strategic
flexibility:
- Equity investments:
Unlisted shares of project management or infrastructure service providers,
provided the InvIT wholly owns the entity.
- Liquid mutual fund units: Only those with a minimum credit risk rating of 12
(Class A-I) under SEBI’s risk framework.
- Interest rate derivatives: Futures, forwards, and swaps are now allowed, strictly
for hedging borrowing costs. Speculative trading remains prohibited.
Investor takeaway: Managers can now hedge risks and optimize returns
without deviating from regulatory compliance, improving portfolio stability.
4.
Sponsor Lock-In Flexibility
Previously, sponsors could not
transfer locked-in units during the lock-in period. The amendments now allow
conditional transfers:
- Within sponsor or sponsor-group entities,
maintaining original lock-in duration
- To incoming sponsors or groups, provided minimum
unitholding requirements are met
- Transfers during a transition to a self-sponsored
investment manager are allowed under specific rules
Why this is significant: It addresses corporate restructuring challenges while
maintaining investor protection, a win-win for sponsors and unitholders.
Expert
Opinions on the Amendments
Industry reactions have been largely
positive:
- Nishith Desai Associates called the changes “pivotal” for easing sponsor
transfer restrictions without compromising safety.
- Malathi Associates
highlighted enhanced trustee obligations as a critical step toward
robust unitholder protection.
The overarching sentiment: SEBI has
achieved a balance between operational freedom and strong governance.
Practical
Implications for Stakeholders
The 2025 amendments impact various
aspects of InvIT operations:
Enhanced Governance: Trustees now have explicit oversight duties, improving
transparency.
Operational Flexibility: Managers can diversify portfolios
strategically; sponsor lock-in relaxations help corporate transitions.
Investor Confidence: Strong governance measures are expected to attract
risk-averse retail investors.
Market Depth: New investment tools, such as mutual fund units and
hedging instruments, enhance liquidity.
Compliance Load: Trustees and managers must implement new reporting
structures, inspection routines, and internal audits.
Note: Smaller InvITs may face operational strain due to these
expanded compliance requirements.
Case
Studies and Emerging Trends
Early signs indicate a positive
trajectory:
- June 2025:
SEBI aligned disclosure norms between REITs and InvITs, lowered minimum
investment thresholds, and broadened merchant banker roles.
- April 2025:
Proposed higher mutual fund exposure limits to attract capital inflows and
improve liquidity.
- August 2025:
SEBI explored including institutional investors like insurance
companies and pension funds as strategic InvIT participants.
These initiatives signal increasing
confidence in the InvIT structure, strengthened by governance and flexibility
enhancements.
Debunking
Common Misconceptions
Even experienced investors sometimes
misinterpret the amendments:
- Myth:
Trustees now control InvIT investment decisions.
Fact: Trustees only oversee compliance and governance, not day-to-day asset management. - Myth:
Sponsors can freely transfer locked-in units.
Fact: Transfers are strictly regulated within the sponsor group and must meet specific conditions. - Myth:
InvITs can trade derivatives freely.
Fact: Derivatives are limited to hedging borrowing costs and must comply with disclosure norms.
Understanding these nuances is key
for both investors and managers.
Advantages
and Challenges
Advantages
- Stronger governance ensures better accountability
- Expanded investment instruments enable smarter
portfolio management
- Sponsor unit transfers facilitate corporate
restructuring
- Improved oversight reduces operational gaps,
boosting investor protection
Challenges
- Expanded duties increase operational complexity
- Mismanagement of hedging instruments can raise
financial risk
- Smaller InvITs may struggle with resource allocation
for Schedule X compliance
Looking
Ahead: The Future of InvITs
The 2025 amendments mark a turning
point in India’s infrastructure financing:
- Stricter adherence to Schedule X: Trustees are expected to implement systematic
inspections, reporting, and compliance tools.
- Increased fundraising: Clear governance and flexible investment options could
attract both institutional and retail investors.
- Regulatory refinements: SEBI is likely to continue fine-tuning the framework
to solidify InvITs as robust financing tools.
Pro Tip: Investment managers and trustees should use the transition
period to set up asset dashboards, compliance calendars, and internal
reporting systems for smooth adaptation.
Conclusion
The InvIT Amendment Regulations,
2025 are more than just a regulatory update—they’re a strategic roadmap for
India’s infrastructure financing ecosystem. By clarifying trustee responsibilities,
broadening investment avenues, and easing sponsor constraints, SEBI has created
a more dynamic, transparent, and investor-friendly framework.
For investors, this translates into safer
participation and stronger trust. For the market, it means better operational
agility, enhanced governance, and deeper capital market engagement. As
these rules take full effect, the coming months will reveal the long-term
impact on fundraising, investor confidence, and portfolio strategies across
the InvIT sector.
At Manika TaxWise, we
encourage investors and stakeholders to stay informed, comply proactively,
and leverage these regulatory changes for long-term growth in India’s
infrastructure sector.
Author Bio:
Manoj Kumar, Founder of Manika TaxWise, has over 11 years of experience in
accounting, taxation, and financial analysis. He specializes in regulatory
compliance, infrastructure finance, and investor advisory services in India.