From new year, REITs to count as equity for Mutual Funds, says SEBI

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The Securities and Exchange Board of India (SEBI) has reclassified Real Estate Investment Trusts (REITs) as equity-related instruments from January 1, to facilitate greater participation by Mutual Funds and Specialized Investment Funds (SIFs). Infrastructure Investment Trusts (InvITs), however, will continue to be categorized as hybrid instruments.

A SEBI circular issued on Friday, stated, “With effect from January 01, 2026, any investment made by Mutual Funds and SIFs in REITs shall be considered as investment in equity related instruments.”

SEBI has allowed grandfathering of REIT holdings currently held by debt schemes of Mutual Funds and SIF strategies as of December 31, 2025, though fund houses have been encouraged to gradually divest these positions depending on market conditions and investor interest. SEBI circular stated, that, “AMCs are encouraged to make efforts to divest REITs from respective portfolios of debt schemes considering the market conditions, liquidity and interest of investors”.

AMFI has been directed to incorporate REITs into its market-cap-based scrip classification framework, in line with the Mutual Fund Master Circular. Additionally, AMCs will issue addendums to update scheme documents; SEBI clarified that these changes will not be treated as fundamental attribute changes.

The regulator also stipulated that REITs may be included in equity indices only after July 1, 2026, providing a six-month transition window.

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In September, SEBI board had approved the amendments to SEBI (Mutual Funds) Regulations, 1996, for reclassifying REITs as "equity" and retaining the "hybrid" classification for the InvITs, for the purpose of investments by mutual funds and specialised investment funds.

The SEBI note then said, pursuant to the re-classification of REITs, investment by Mutual Funds shall be considered within the investment allocation limit for equity instruments and also make them eligible for inclusion in equity indices, thereby enabling enhanced investment by Mutual Fund schemes in REITs.

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