Sebi's Equity Classification for Reits Boosts Real Estate Market
The Securities and Exchange Board of India's (Sebi) decision to classify real estate investment trusts (Reits) as equity instruments has received widespread industry support, promising to deepen the market and enhance liquidity.
SebiReitsEquity ClassificationReal EstateLiquidityReal Estate MumbaiSep 12, 2025
The Indian Reits Association (IRA) called it a progressive step. “This marks a significant milestone in strengthening the Reit ecosystem in India and aligns with global best practices where Reits are part of equity indices,” IRA said in a statement.
Industry experts are optimistic that stock exchanges will revise index eligibility norms to enable Reits’ inclusion. Amit Shetty, chief executive officer of Embassy Reit, India’s first publicly listed Reit, said: “We welcome Sebi’s landmark move. It will act as a catalyst to widen investor participation, enhance liquidity, and strengthen Reits as a mainstream asset class.”
The classification is also set to facilitate greater investments by mutual funds and other institutional investors. Sebi noted that Reits share the characteristics of equities—higher liquidity and closer alignment with global market practices. Currently, a mutual fund scheme can invest up to 10 per cent of its net asset value (NAV) in Reits and infrastructure investment trusts (InvITs), with a cap of 5 per cent for units issued by a single entity. For a fund to qualify as equity-oriented, Sebi requires at least 65 per cent of its assets to be invested in equities.
Following the reclassification, investments in Reits by mutual funds will be considered within the equity allocation limit and make them eligible for inclusion in equity indices. This will enable enhanced participation from mutual fund schemes, according to Sebi.
The Reit lobby also welcomed the regulator’s decision to expand the scope of ‘strategic investor’ for Reits to facilitate wider participation. Prior to the amendment, many regulated institutional investors—such as public financial institutions, insurance funds, provident funds, and pension funds—were unable to participate as strategic investors.
After the amendment, ‘strategic investor’ will also include all Qualified Institutional Buyers (QIBs), such as public financial institutions, provident funds, and Pension Fund Regulatory and Development Authority (PFRDA)-registered pension funds with at least Rs 25 crore corpus, alternative investment funds, state industrial development corporations, family trusts, and Sebi-registered intermediaries with a net worth above Rs 500 crore, as well as middle, upper, and top layer Non-Banking Finance Companies (NBFCs) registered with the Reserve Bank of India.
Shirish Godbole, chief executive officer of Knowledge Realty Trust, India’s largest and most recent Reit, said Sebi’s move would unlock deeper pools of capital for the real estate sector. “This long-awaited move brings regulatory clarity, simplifies fund flows, and aligns India with global practices, making real estate far more attractive to both domestic and international investors. For the Indian economy, this is more than a technical change—it is a confidence booster. Greater participation through equity indices and mutual funds will not only improve liquidity but also reduce the cost of capital for developers,” he added.
The move is expected to have a significant impact on the real estate sector, making it more accessible and attractive to a broader range of investors. This could lead to increased investment in real estate projects, thereby driving growth and development in the sector.
Frequently Asked Questions
What is the significance of Sebi's decision to classify Reits as equity instruments?
Sebi's decision to classify Reits as equity instruments is significant because it aligns with global best practices, broadens investor participation, enhances liquidity, and deepens the Reit market. It also facilitates greater investments by mutual funds and other institutional investors.
How will this move affect mutual fund investments in Reits?
Following the reclassification, investments in Reits by mutual funds will be considered within the equity allocation limit, making Reits eligible for inclusion in equity indices. This will enable enhanced participation from mutual fund schemes.
What are the new criteria for 'strategic investors' in Reits?
The new criteria for 'strategic investors' in Reits include all Qualified Institutional Buyers (QIBs), such as public financial institutions, provident funds, and PFRDA-registered pension funds with at least Rs 25 crore corpus, alternative investment funds, state industrial development corporations, family trusts, and Sebi-registered intermediaries with a net worth above Rs 500 crore, as well as middle, upper, and top layer NBFCs.
How will this decision impact the real estate sector?
This decision is expected to unlock deeper pools of capital for the real estate sector, bring regulatory clarity, simplify fund flows, and align India with global practices. It will make real estate more attractive to both domestic and international investors, driving growth and development in the sector.
What are the potential benefits for the Indian economy from this move?
The potential benefits for the Indian economy include a confidence booster, improved liquidity, reduced cost of capital for developers, and increased investment in real estate projects. This could lead to overall economic growth and development.
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