Reits as equity: What this now means for your investment portfolio

From niche hybrid to equity mainstream, Sebi's move makes Reits an active part of retail investors' portfolios

India’s market regulator Sebi has reclassified Real Estate Investment Trusts (Reits) as equity for mutual fund investments, a move that could reshape how investors view this asset class. While experts believe the underlying fundamentals remain the same, the shift has real implications for liquidity, volatility, and portfolio behaviour.

 

From hybrid to mainstream equity bucket

 

Ranjit Jha, managing director & chief executive officer of Rurash Financials, calls the move “a landmark decision that aligns Indian regulation with global practices.” He explains that Reits, while still offering stable rental yields like debt, will now be formally treated like equity. “This change has already boosted investor confidence, with units rallying on expectations of higher participation and stronger price discovery,” Jha says.

 

Amar Ranu, head – investment products & insights at Anand Rathi Shares and Stock Brokers, however, cautions that investors should still view Reits as a hybrid allocation. “The return expectation will continue to sit between debt and equity. While liquidity will improve, investors must be ready for greater correlation with equity markets,” Ranu notes.

 

Risk-return dynamics shift

 

Both experts agree that yields from Reits may compress as prices rise with higher demand. Jha points out that while Reits remain less volatile than stocks, they will now mirror equity market swings more closely. Ranu adds, “Volatility will increase compared with the earlier hybrid status, though not to the level of pure equity. The trade-off is the scope for capital appreciation.”

 

What about taxation?

 

On taxation, investors will see no change. “The reclassification primarily impacts how mutual funds allocate to Reits, not the tax liability of end investors,” Jha clarifies. Ranu echoes this, adding that the impact will be felt more in portfolio volatility than in tax outcomes.

 

A real-life portfolio impact

 

Consider a retail investor with 70 per cent in equity, 20 per cent in debt, and 10 per cent in Reits. Earlier, his Reit holdings behaved independently, paying steady dividends around 6 per cent and stabilising his portfolio.

 

·  Before reclassification: Low liquidity, steady yields, little price movement.

 

·  After reclassification: Reits count as equity in model allocations, meaning mutual funds may rebalance. Liquidity improves, price swings rise, and yields may compress, but capital appreciation opportunities grow.

 

As Jha sums it up: “Investors now get the best of both worlds, steady income from rents and the upside of being part of the equity market mainstream. The flip side is they must be ready to stomach more volatility.”