Sebi Reclassifies REITs as Equity: Key Implications for Investors

In a landmark reform aimed at deepening India’s alternative investment market, the Securities and Exchange Board of India (Sebi) has approved a major reclassification of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). Under the revised framework, REITs will now be classified as “equity” instruments, while InvITs will continue to be treated as “hybrid” products.

This decision, approved under amendments to the Securities and Exchange Board of India (Sebi) (Mutual Funds) Regulations, 1996, is expected to enhance liquidity, widen mutual fund participation, and align India with global practices, where REITs are included in equity indices.

What Has Changed in Sebi’s Classification?

• REITs as Equity:
  REITs, being relatively more liquid and closely linked to equity markets, will now be treated as equity investments by mutual funds.

• InvITs Remain Hybrid:
  InvITs, which are largely structured around stable, predictable cash flows and privately placed, will retain their hybrid status.

• Joint Limit Separation:
  Previously, REITs and InvITs had a combined investment cap for mutual funds. Now, the joint investment limit will apply exclusively to InvITs, freeing up more space for REITs within equity allocations.

This reform effectively paves the way for REITs to be included in equity indices, thereby attracting higher institutional capital.

Why Did Sebi Introduce These Changes?

The reforms follow public consultation in April 2025 and discussions with industry stakeholders, including the Mutual Fund Advisory Committee. Sebi highlighted that the reclassification reflects the true market characteristics of REITs and will help bring India’s regulatory framework closer to international benchmarks.

Globally, REITs are treated as equity instruments and included in benchmark indices such as the S&P Global Property Index, improving their visibility and access to institutional investors.

Industry Reaction: A Progressive Step

The Indian REITs Association (IRA) welcomed Sebi’s move, calling it a “progressive step” that will significantly strengthen the REIT ecosystem.

• “This important step marks a significant milestone in strengthening the REIT ecosystem in India and aligns with global best practices where REITs are part of equity indices,” the association said.

IRA emphasized that the decision will:

• Expand investor participation.

• Improve liquidity in the REIT market.

• Accelerate growth, similar to the positive impact seen after Sebi reduced REIT lot sizes in 2021.

The association also applauded Sebi’s decision to broaden the definition of “strategic investors”, which will help attract more diverse institutional players.

• “With these forward-looking reforms, Sebi has paved the way for India to position itself as a progressive investment destination for institutional capital in yielding assets,” IRA noted.

The association expressed hope that stock exchanges will soon revise index eligibility criteria to include REITs, giving them greater visibility and access to equity-driven capital flows.

Impact on Mutual Funds and Investors

For Mutual Funds

• REITs will now count towards equity allocations, making them easier to include in diversified equity schemes.

• The removal of the joint REIT-InvIT limit provides more flexibility in portfolio construction.

For Investors

• Retail and institutional investors are likely to see greater exposure to REITs through mutual fund schemes.

• Inclusion of REITs in equity indices could increase transparency and provide more stable investment options.

• Better liquidity will make REITs a more attractive long-term investment tool, similar to global markets.

For the Market

• These reforms are expected to deepen the REIT and InvIT ecosystem, bringing more capital into India’s real estate and infrastructure-backed investment products.

Conclusion

Sebi’s decision to reclassify REITs as equity marks a pivotal shift in India’s alternative investment landscape. By aligning with global best practices, the regulator has unlocked new opportunities for mutual funds and institutional investors to participate in real estate-backed assets.

For investors, this change promises greater liquidity, transparency, and access to diversified portfolios, while for the market, it signals a stronger and more robust REIT and InvIT ecosystem.

As stock exchanges update their index eligibility norms and mutual funds recalibrate their allocations, REITs are poised to emerge as a mainstream equity investment class in India.