Reit mutual funds to be reality soon as NSE rolls out dedicated index

Fund houses eye passive schemes tracking Nifty REITs & Realty Index

The launch of the NSE Nifty Reits & Realty Index earlier this month has brought India’s first mutual fund (MF) schemes focused on real estate investment trusts (Reits) closer to reality.

 

And, with this, several fund houses are evaluating passive products linked to the benchmark.

 

The first such schemes are likely to be launched in the second half of 2026, when regulations permit fund houses to roll out dedicated Reit-oriented offerings.

 

Senior executives across asset management companies said they are exploring passive funds that track the newly-introduced index.

 

“While we cannot comment on immediate filings, we are closely evaluating the index as it aligns with our objective of expanding asset allocation avenues for retail investors,” said Aditya Mulki, chief executive officer (CEO), Navi AMC.

 

Anil Ghelani, head of passive investments and products at DSP Investment Managers, said the fund house is also studying the index.

 

The move follows the Securities and Exchange Board of India’s (Sebi’s) decision to classify Reits as equity in January 2026, allowing their inclusion in equity indices from July 1. 

 

Earlier treated as hybrid instruments, Reits had limited representation in equity schemes, with exposure capped at 10 per cent in active funds.

 

The reclassification, coupled with index inclusion, is expected to improve liquidity, enhance visibility and drive mutual fund participation in the asset class.

 

Passive inflows from index funds and exchange-traded funds (ETFs) could provide a steady demand base once Reits become part of broader benchmarks.

 

The Nifty Reits & Realty Index comprises a mix of Reits and real estate companies.

 

The five listed Reits account for nearly 64 per cent of the index weight, while realty stocks — led by DLF and Phoenix Mills — make up the remainder.

 

The 15-stock index is weighted by free-float market capitalisation, with a 15 per cent cap on individual constituents. It has delivered a return of 12.4 per cent over the past year (as of end-February) and offers a dividend yield of around 3.3 per cent.

 

However, MF executives cautioned that the limited size of the Reit universe and relatively low liquidity could constrain the immediate viability of dedicated schemes.

 

Beyond passive strategies, the inclusion of Reits in equity indices is expected to give fund managers greater flexibility to increase exposure within active portfolios.

 

“Higher Reit allocation makes sense for sectoral and thematic funds focused on real estate and infrastructure. It could also suit dividend yield strategies, given the steady income profile of Reits,” said a senior MF executive.