REIT-focused mutual funds on the anvil as dedicated indices make debut

Mutual funds are gearing up to launch REIT-focused schemes after regulations allowing REITs in equity indices took effect, with Edelweiss MF likely to be the first mover

Mutual fund (MF) activity is gathering pace in the real estate investment trust (Reit) space after regulations permitting the inclusion of Reits in equity indices took effect in July, enabling fund houses to launch Reit-focused schemes.

 

Edelweiss MF is likely to launch the first such scheme. The fund house has received the regulatory approval for an index fund which will track the Nifty Reits & Realty Index. Few other fund houses are also considering launching passive Reit funds, tracking either the Nifty's index or the BSE Reits and Commercial Real Estate Index.

 

According to Ashutosh Singh, managing director and chief executive officer (MD&CEO) of BSE Index Services, the index is among the benchmark offerings that the firm has been discussing with asset management companies (AMCs) for potential passive fund launches.

 

"While we would not comment on any specific AMC’s product plans or launch timelines, we believe the BSE Reits and Commercial Real Estate Index is well-suited to support the development of passive funds — ETFs (exchange-traded funds) and index funds — and other targeted investment strategies as investor awareness and regulatory clarity around this asset class continue to improve," he said.

 

The inclusion in equity indices and the introduction of dedicated schemes are expected to deepen liquidity, attract more flows, and broaden investor participation in Reits. At the same time, it offers MF investors greater diversification and provides a more tax-efficient route to investing in Reits.

 

"The scheme (Edelweiss Nifty Reits & Realty Index Fund) will offer diversified exposure across multiple Reits and real estate stocks in a single investment. Direct investments in Reits can involve multiple layers of taxation, whereas investing through the fund provides a more tax-efficient structure. Investors also benefit from professional portfolio management and liquidity," said Niranjan Avasthi, President and Head of Product, Marketing and Digital, Edelweiss AMC. 

 

The inclusion of Reits in equity indices follows the Securities and Exchange Board of India’s (Sebi’s) decision to classify them as equity in January 2026.

 

The two Reit-focused indices currently include real estate stocks because of the limited number of listed Reits in India.

 

At present, Reits have around 60-65 per cent weight with Embassy Office Parks Reit, Brookfield India Real Estate Trust, and Nexus Select Trust being the major constituents. Developers such as DLF, Lodha Developers, Prestige Estates Projects, Godrej Properties, and The Phoenix Mills make up the rest. The Reit allocation, according to MF officials, is expected to rise as more Reits are listed.

 

According to Avasthi, the Nifty Reits & Realty Index Fund, in its current form, is ideal for investors looking for long-term exposure to commercial real estate.

 

"The fund can serve as a proxy for real estate investing by combining the income-generating characteristics of Reits with the growth potential of listed real estate companies. Investors seeking regular cash flows may also use a systematic withdrawal plan (SWP) to create an income stream," he said.