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India's market regulator reclassified Real Estate Investment Trusts as equity-related instruments earlier this week, aiming to widen institutional participation from mutual funds and specialised investment funds. The move follows the regulator's board decision taken in the past week to amend the SEBI (Mutual Funds) Regulations, 1996, formalising REITs under the 'equity' category while retaining Infrastructure Investment Trusts under the 'hybrid' bracket. Existing REIT exposures held by debt schemes and SIF strategies will remain grandfathered, though fund houses have been advised to pare these gradually based on market sentiment and investor preference.
SEBI recently announced that Real Estate Investment Trusts have been reclassified as equity-related instruments, a measure aimed at increasing participation from mutual funds and specialised investment funds. This shift is expected to broaden institutional exposure to the commercial real estate sector and aligns with global practices where REITs are largely treated as equity proxies owing to their income-distribution mandates and asset-backed structures. Advertisement
The regulator clarified that Infrastructure Investment Trusts would continue to remain within the hybrid category, maintaining the existing distinction between income-generating property assets and infrastructure-focused vehicles.
According to the circular, the regulator conveyed that, from the beginning of 2026, any investment made by mutual funds and specialised investment funds in REITs would be categorised as part of their equity-related allocation. It also specified that REIT holdings already present in debt schemes or SIF strategies at the close of this calendar year would be grandfathered. However, asset management companies had been encouraged to gradually reduce such positions depending on prevailing market conditions and investor appetite, rather than undertaking sudden portfolio reshuffles.
AMFI, the mutual fund industry body, will revise the scrip classification list to incorporate REITs under the relevant equity-linked category. AMCs were instructed to issue an addendum updating scheme documents, with the regulator emphasising that this administrative update would not constitute a fundamental change to any scheme's characteristics.
The regulator further indicated that REITs may be included in equity indices only after the second half of 2026, allowing index providers and fund managers time to realign methodologies, adjust portfolio constructs and assess the liquidity behaviour of listed REITs.
This regulatory move followed the board's approval earlier in the past month of amendments to the SEBI (Mutual Funds) Regulations, 1996, specifically to reclassify REITs as equity and to retain the hybrid status for InvITs for investment categorisation by mutual funds and specialised investment funds. The decision forms part of a broader effort in recent years to deepen India's REIT and InvIT markets, which have gained traction since the country's first such listing in 2019 and have since expanded their role in commercial real estate monetisation.
Source - PTI
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