Any mutual fund or specialized investment fund (SIF) investment in real estate investment trusts (REITs) will be considered an investment in equity-related instruments starting 1 January 2026.
The Securities and Exchange Board of India (Sebi), in a circular on Friday, however, exempted existing investments in REITs as of 31 December 2025 from the new rules.
“Asset management companies (AMCs) are encouraged to make efforts to divest REITs from respective portfolios of debt schemes considering the market conditions, liquidity and interest of investors,” according to the circular.
The market regulator on 12 September reclassified REITs, earlier tagged as hybrid instruments, as equity-related instruments, while retaining the “hybrid” tag for Infrastructure Investment Trusts (InvITs).
The change is designed to deepen the market and bring India closer to global classification norms. The re-tagging is also expected to boost demand for REITs, as both active equity schemes and passive funds increase their allocations once these instruments begin to enter benchmark equity indices.
The inclusion of REITs in equity indices is expected to begin by 1 July 2026.
More opportunities
“Classification of REITs as equity is good because they are related to the price of a property. It opens up opportunities for equity mutual funds and SIFs,” said Deepak Shenoy, chief executive of Capitalmind Mutual Fund.
“My estimation is that REITs are not big enough to be a part of large benchmark indices but can be included in dividend yield indices.”
The indices that include REITs will be determined by index providers in July, Shenoy added.
Sebi has asked the Association of Mutual Funds in India (Amfi) to start treating REITs like regular equity stocks for market-cap classification. This means REITs will now appear in Amfi’s large-cap, mid-cap, or small-cap lists based on their market value.
Mutual fund houses (AMCs) will now need to update their scheme documents to reflect this new equity classification for REITs. These updates can be made through a simple addendum and will not be treated as a “fundamental attribute change”, meaning funds won’t need to seek investor approval or trigger exit windows.
