Sebi Reclassifies REITs as Equity: A Boost for Mutual Fund Investments

The Securities and Exchange Board of India (Sebi), the market regulator, has taken a significant step by reclassifying Real Estate Investment Trusts (REITs) as equity. This decision, approved during a Sebi board meeting chaired by Chairman Tuhin Kanta Pandey, is set to boost mutual fund investments in REITs. The meeting, Pandey's third since taking over in March, also retained the 'hybrid' classification for Infrastructure Investment Trusts (InvITs).

The reclassification of REITs as equity was proposed due to their characteristics, which align more closely with equity instruments and are relatively more liquid. This move aligns with global best practices, making REITs more attractive to investors. On the other hand, InvITs, which are primarily privately placed and have more stable cash flows with lesser liquidity, will retain their hybrid classification.

The reclassification of REITs as equity means that mutual fund investments in these instruments will now be considered within the investment allocation limit for equity. This change will also make REITs eligible for inclusion in equity indices, enhancing their visibility and appeal to a broader range of investors. According to Sebi, this decision will facilitate enhanced investment by mutual fund schemes in REITs.

Moreover, the existing investment limit applicable for both REITs and InvITs will now be exclusively available for InvITs. This adjustment is expected to foster growth in the InvIT segment as well, creating a more balanced and dynamic market.

The decision follows feedback received during a public consultation in April 2025 and subsequent deliberations with the Mutual Fund Advisory Committee (MFAC), concerned industry associations, and stakeholders. The Indian REITs Association has welcomed this move, calling it a 'progressive step' that strengthens the REIT ecosystem in India. They noted that this decision aligns with global best practices, where REITs are part of equity indices, and will contribute to enhancing the depth of the REIT market and accelerating the growth of these instruments in India.

By enabling this reclassification, Sebi has paved the way for wider investor participation in REITs, improving liquidity and overall market depth. This move is expected to have a positive impact on the Indian real estate and investment landscape, making it more robust and attractive for both domestic and international investors.