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  • Harshal Chhabra, Shaswat Kashyap

Navigating SEBI’s Financial Seas: Standardizing NDCF for REITs and InvITs

[Harshal and Shaswat are students at Gujarat National Law University.]

In a noteworthy stride towards fostering ease of doing business, the Securities and Exchange Board of India (SEBI) issued two circular papers on 6 December 2023, standardizing the framework for calculating net distributable cash flows (NDCF) by real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). The circulars also mention how respective holding companies of these trusts should calculate their NDCF.

This regulatory development, effective from 1 April 2024, supersedes the previous framework outlined in the master circular for InvITs and REITs dated 6 July 2023. SEBI’s proactive role in shaping financial regulations continues to evolve, and the recent focus on NDCF, signify a strategic move towards enhancing transparency and efficiency in the functioning of these investment vehicles.

This article delves into the intricacies of SEBI’s consultation paper released on 6 December 2023, shedding light on the proposed changes to the calculation of  NDCF by REITs and their respective holding companies (HoldCos) or special purpose vehicles (SPVs). The aim of this post is to dissect the revisions introduced by SEBI, providing insights into the implications and challenges that these changes pose for various stakeholders within the dynamic landscape of REITs and InvITs.

NDCF: Current Framework and the Proposed Changes

Investors engaging with InvITs or REITs are typically drawn by the prospect of a steady and predictable stream of returns across a diversified portfolio of assets. The primary motivator for these investors lies in the security of dividends or returns, complemented by the assurance of protection of their capital. Consequently, the distribution of a substantial portion of income in the form of returns, to the investors, emerge as a critical selling point for the investment manager of an InvIT or a REIT.

NDCF is a pivotal concept within the framework of InvITs and REITs, serving as a key determinant for the distribution of profits to investors. As an investor-focused metric, NDCF reflects the surplus cash amount available for distribution, subsequent to covering the operational costs and expenses associated with an InvIT or a REIT. By deducting the incurred costs from the overall cash generated, NDCF crystallizes as the net available cash for distribution.

Currently, the regulations governing REITs and InvITs require the calculation of NDFCs at the HoldCo/SPV level. However, these regulations lack a standardized framework for NDFC calculation. The proposed framework is outlined in two distinct circulars issued by the SEBI. As per the stipulated regulations, a mandatory minimum distribution of 90% of the NDFC is required at both the trust level and the HoldCo/SPV level. This distribution is contingent upon the provisions outlined in the Companies Act 2013 or the Limited Liability Partnership Act 2008.

An InvIT is mandated to distribute a minimum of 90% of its net distributable cash flows to unitholders. Simultaneously, Project SPVs are required to allocate at least 90% of their net distributable cash flows to the InvIT, or if applicable, to the Holdco. In scenarios involving a two-tiered structure of an InvIT, the Holdco must distribute (i) 100% of the cash flows received from the Project SPVs and (ii) 90% of the net distributable cash flows generated by it to the InvIT. These distributions are scheduled to be declared and executed once every 6 months in each financial year for publicly offered InvITs and annually for privately placed InvITs. The stipulated time for completing distributions is no later than 15 days from the date of declaration, in accordance with the method specified in the offer document or the placement memorandum. In addition to the regular distributions mentioned earlier, if the InvIT sells any infrastructure asset, at least 90% of the proceeds from the sale must be disseminated to unitholders. However, in cases where there are intentions to reinvest these proceeds in other infrastructure assets, such reinvestment must occur within a one-year timeframe.

This stringent distribution framework serves several critical purposes. First, it ensures that unitholders receive a significant portion of the profits generated by the InvIT and its associated SPVs, enhancing investor trust. Second, the structured distribution schedule, tailored to the nature of the InvIT, provides transparency and predictability for unitholders, contributing to a stable investment environment. Third, linking unitholders directly to the benefits of infrastructure asset sales aligns with the goal of providing tangible returns on investment. Finally, allowing a one-year window for reinvestment offers flexibility to the InvIT while promoting continued investment in the infrastructure sector. In essence, these distribution regulations aim to balance the interests of unitholders and facilitate responsible fund management within the broader scope of InvIT operations.

SEBI underscores that the calculation for retaining 10% of the distribution must consider both the retention made at the SPV level and the trust level. Moreover, SEBI has provided a clear method for calculating the 10% retention, considering the NDFC at both the SPV and the trust levels.

The circulars also offer clarification on the treatment of proceeds from the sale of assets earmarked for reinvestment. These funds can be temporarily held in overdraft accounts or used to settle additional/unrelated debts. However, if such proceeds are not intended for reinvestment, they must be distributed back to the unitholders.

In the previous guidelines, the computation of NDCF was bifurcated, taking into account both the REIT and the HoldCo/SPV levels. This dual-level approach continues in the revised framework, aligning with Regulation 18(16). The minimum distribution requirement, set at 90% of NDCF at both the REIT and the HoldCo/SPV levels, remains consistent with the Companies Act 2013 or the Limited Liability Partnership Act 2008.

SEBI’s Standardization of NDCF for REITs and Holding Entities

The revision of the framework for the calculation of NDCF by REITs and their HoldCos or SPVs by the SEBI marks a strategic move aimed at enhancing the ease of doing business in the real estate investment landscape. The primary objective behind this standardization, as outlined in the consultation paper, is to streamline and simplify the computation of NDCF, thereby reducing complexity and providing a consistent framework for reporting. This initiative directly addresses challenges that stakeholders may face in navigating intricate financial regulations, fostering a business environment that is more transparent, accessible, and conducive to growth.

Standardization brings about several advantages in the context of ease of doing business. First, by establishing a uniform methodology for calculating NDCF, market participants, including REITs, HoldCos, and SPVs, benefit from increased clarity and predictability in financial reporting. This consistency facilitates a more straightforward understanding of financial performance, fostering confidence among investors and other stakeholders. Moreover, a standardized framework helps mitigate the compliance burden, enabling entities to allocate resources more efficiently towards strategic business activities rather than grappling with complex and divergent calculation methodologies.

Furthermore, the revision aligns with global best practices, making Indian real estate investments more attractive to international investors. A standardized approach not only enhances the comparability of financial metrics across different REITs but also simplifies cross-border investment decision-making. This, in turn, contributes to positioning India as a favourable destination for real estate investments and aligns with SEBI’s broader vision of creating a robust and investor-friendly regulatory framework.


This move follows SEBI’s recent introduction of detailed procedures addressing unclaimed funds of investors held by entities with listed non-convertible securities, REITs, and InvITs. The standardization not only brings clarity and predictability to the calculation of NDCF but also aligns with global best practices, making Indian real estate investments more appealing to international investors. By fostering a transparent and consistent framework, SEBI aims to create a business environment that is accessible, transparent, and conducive to growth. This regulatory initiative, coupled with recent measures addressing unclaimed funds, underlines SEBI’s commitment to enhancing efficiency and accountability in capital markets and investment instruments.


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