Sebi reclassifies Reits as 'equity' for mutual fund investments

Equity index inclusion allowed after July 2026

Don't want to miss the best from Business Standard?

The Securities and Exchange Board of India (Sebi) on Friday reclassified real estate investment trusts (Reits) as equity-related instruments to encourage greater participation from mutual funds (MFs) and specialised investment funds (SIFs). Infrastructure investment trusts (Invits), however, will continue to be treated as hybrid instruments.

 

The regulator said that from January 1, 2026, any investment made by MFs or SIFs in Reits will be counted as an equity investment. However, inclusion of Reits in equity indices will be permitted only from July 1, 2026.

 

With Reits becoming an equity asset, debt funds will no longer be able to invest in them. Sebi said their holdings as of December 31, 2025 will be grandfathered, while nudging them to liquidate the holding over a period of time.

 

"Asset management companies (AMCs) are encouraged to make efforts to divest Reits from the respective portfolios of debt schemes, considering the market conditions, liquidity, and interest of investors," Sebi said.

 

The regulator has asked the Association of Mutual Funds in India (Amfi) to update the scrip classification list to reflect the change, and asset managers will need to issue an addendum to update scheme documents. Sebi clarified that this update won’t be treated as a fundamental change for MF schemes.

 

The circular also states that Reits can be added to equity indices only after July 1, 2026.

 

The reclassification is expected to boost demand and improve liquidity for Reits as the current limits will no longer be applicable. This could lead to steadier inflows, better price discovery and deeper institutional participation.