The board of the Securities and Exchange Board of India (SEBI) has approved the classification of Real Estate Investment Trusts (REITs) as equity while retaining the hybrid status for and Infrastructure Investment Trusts (InvITs).
"The Board approved the amendments to SEBI (Mutual Funds) Regulations, 1996 for inter-alia re-classifying REITs as “equity” and retaining the “hybrid” classification for the InvITs, for the purpose of investments by Mutual Funds and Specialized Investment Funds," stated the SEBI release.
"The re-classification was proposed, inter-alia considering the characteristics of REITs i.e., being more inclined towards equity, relatively more liquid, and to ensure alignment with global practices. InvITs, on the other hand being products primarily privately placed with more stable cash flows and having lesser liquidity, the hybrid classification was proposed to be retained," it added.
More importantly, pursuant to the re-classification of REITs, investment by mutual funds will 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.
"Further, as a result of equity classification of REITs, the existing investment limit applicable for both REITs and InvITs would now be exclusively available for InvITs, thereby facilitating growth in this segment also," added the SEBI release.
Earlier, REITs and InvITs were categorised as hybrid funds because they blend characteristics of both equity and debt investments, and offer a unique combination of income generation and potential capital appreciation.
REITs are companies that own, operate, or finance income-producing real estate. Instead of buying individual properties, an investor buys units (shares) in a REIT, which then invests in a portfolio of real estate assets. InvITs, meanwhile, are similar to REITs but focus on infrastructure projects. They pool money from investors to invest in a portfolio of operational infrastructure assets.
Expanding the scope of “Strategic Investor” for InvITs, REITs to facilitate wider investor participation
SEBI has also approved amendments to widen the investor base for applying under the Strategic Investor category in a public issue of units of the InvIT / REIT.
Post the amendment, Strategic Investor will additionally include the following entities: all qualified institutional buyers, which, inter-alia, include public financial institutions; provident funds and PFRDA registered pension funds with minimum corpus of Rs. 25 crore, alternative investment fund, state industrial development corporation, etc; family trust and intermediaries registered with board with a net worth of more than Rs. 500 crore; and Middle layer, Upper layer & Top layer Non-Banking Finance Companies (NBFCs) registered with the Reserve Bank of India.
“We welcome SEBI’s decision to reclassify REITs as equity instruments, a progressive step that will unlock deeper pools of capital for India’s real estate sectors. 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," said Shirish Godbole, CEO of Knowledge Realty Trust - India's largest and most recent REIT.
"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.
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