Sebi proposes higher mutual fund investment limits in Reits, InvITs

The Securities and Exchange Board of India (Sebi), in a consultation paper on Thursday, proposed to enhance investment limits for mutual funds (MFs) in Real Estate Investment Trusts (Reits) and Infrastructure Investment Trusts (InvITs).

 

The move aims to provide greater diversification opportunities for mutual fund schemes while increasing capital inflows and liquidity in these relatively new instruments.

 

Currently, Sebi regulations cap mutual fund investments in Reits and InvITs at 10 per cent of a scheme’s net asset value (NAV), with a maximum of 5 per cent in a single issuer.

 

Globally, Reits and InvITs are often classified as equities and included in indices like the MSCI India Small Cap Index and FTSE India Index.

 

However, Sebi’s Mutual Fund Advisory Committee (MFAC) and the Association of Mutual Funds in India (Amfi) currently view them as hybrid instruments due to their unique cash flow structures and valuation methods.

 

The market regulator has sought comments from the public and industry players on whether Reits and InvITs should be classified as ‘equity’, and thus be allowed inclusion in equity indices for MF investments.

 

Further, Sebi has proposed increasing the single issuer limit from 5 per cent to 10 per cent of a fund’s NAV. Additionally, the overall exposure limit of 10 per cent for Reits and InvITs may be revised to 20 per cent for equity and hybrid schemes.

 

“However, for debt schemes, the same may be kept limited to 10 per cent, considering Reits and InvITs being relatively riskier than debt instruments and perpetual in nature,” said Sebi.

 

At present, there are four Reits listed on the stock exchanges, while there are 17 InvITs listed. One more InvIT is to be listed soon. However, apart from eight InvITs, others have not seen any trading.

 

As of December 31, 2024, mutual funds held Rs 20,087 crore in Reits and InvITs, with equity schemes averaging 2.1 per cent exposure, debt schemes averaging 3.7 per cent, and hybrid schemes at 2.4 per cent. 

MORE OPPORTUNITY

 

- The move aims to provide greater diversification opportunities for MF schemes 

 

- Current Sebi rules limit MF investment to 10% of NAV, with 5% per issuer

 

- Globally, Reits/Invits are often classified as equities and included in major indices

 

-  MFAC and AMFI view Reits/Invits as hybrid due to cash flow and valuation