SEBI Reclassifies Real Estate Investment Trusts as Equity Instruments to Boost Mutual Fund Investments
The Securities and Exchange Board of India (SEBI) has undertaken a significant initiative to reclassify Real Estate Investment Trusts (REITs) as equity-related instruments. The board has announced that this move will enhance investments made by Mutual Funds and Specialized Investment Funds (SIFs) into REITs.
The reclassification will be effective from January 1, 2026, and follows amendments to the SEBI (Mutual Funds) Regulations, 1996, issued through Gazette Notification No. SEBI/LAD-NRO/GN/2025/272 on October 31, 2025.
As per the latest circular, Mutual Funds and SIFs will treat any investment in REITs made on or after January 1, 2026, as investments in equity-related instruments. However, Infrastructure Investment Trusts (InvITs) will continue to be classified as hybrid instruments for investment categorization purposes.
SEBI has specified that existing REIT investments held by debt schemes of Mutual Funds and by SIF strategies as of December 31, 2025, will be grandfathered and will not be subjected to immediate reclassification. However, Asset Management Companies (AMCs) have been encouraged to make efforts to divest REITs from the respective portfolios of debt schemes, considering market conditions, liquidity, and the interest of investors.
Further, SEBI directed the Association of Mutual Funds in India (AMFI) to include REITs in the scrip classification framework in accordance with para 2.7 of the Master Circular for Mutual Funds dated June 27, 2024. This ensures uniform implementation across the industry.
Essentially, the regulatory update provides clarity to Mutual Fund managers and SIF operators, particularly in the context of portfolio construction, compliance, and scheme categorization norms. With REITs reclassified as equity instruments, they are now expected to be more seamlessly incorporated into equity-oriented schemes, potentially improving liquidity and participation in the segment.
The effects of the circular will come into force immediately, while the operational reclassification will take effect from January 1, 2026. The circular has been addressed to all Mutual Funds, AMCs, Trustee Companies, AMFI, and Registrar & Transfer Agents.
This move by SEBI is expected to have a positive impact on the real estate sector, as it will attract more institutional and retail investors to REITs, thereby enhancing the overall market liquidity and stability.
