Sebi move to classify Reits as equity draws strong industry support

Sebi's equity classification for Reits and expanded definition of strategic investor expected to deepen the market, boost liquidity, and widen participation

The Securities and Exchange Board of India’s (Sebi’s) decision to classify real estate investment trusts (Reits) as equity instruments has drawn strong support from industry leaders.

 

The Indian Reits Association (IRA) called it a progressive step. “This marks a significant milestone in strengthening the Reit ecosystem in India and aligns with global best practices where Reits are part of equity indices,” IRA said in a statement.

 

Industry experts expect the move to broaden investor participation, boost liquidity, and deepen the Reit market. They are also hopeful that stock exchanges will revise index eligibility norms to enable Reits’ inclusion.

 

Amit Shetty, chief executive officer of Embassy Reit, India’s first publicly listed Reit, said: “We welcome Sebi’s landmark move. It will act as a catalyst to widen investor participation, enhance liquidity, and strengthen Reits as a mainstream asset class.”

 

The classification is also set to facilitate greater investments by mutual funds and other institutional investors. Sebi noted that Reits share the characteristics of equities—higher liquidity and closer alignment with global market practices.

 

Currently, a mutual fund scheme can invest up to 10 per cent of its net asset value (NAV) in Reits and infrastructure investment trusts (InvITs), with a cap of 5 per cent for units issued by a single entity. For a fund to qualify as equity-oriented, Sebi requires at least 65 per cent of its assets to be invested in equities. 

 

“Following the reclassification, investments in Reits by mutual funds will be considered within the equity allocation limit and make them eligible for inclusion in equity indices. This will enable enhanced participation from mutual fund schemes,” Sebi said.

 

The Reit lobby also welcomed the regulator’s decision to expand the scope of ‘strategic investor’ for Reits to facilitate wider participation. Prior to the amendment, many regulated institutional investors — such as public financial institutions, insurance funds, provident funds and pension funds — were unable to participate as strategic investors.

 

After the amendment, ‘strategic investor’ will also include all Qualified Institutional Buyers (QIBs), such as public financial institutions, provident funds and Pension Fund Regulatory and Development Authority (PFRDA)-registered pension funds with at least Rs 25 crore corpus, alternative investment funds, state industrial development corporations, family trusts and Sebi-registered intermediaries with a net worth above Rs 500 crore, as well as middle, upper and top layer Non-Banking Finance Companies (NBFCs) registered with the Reserve Bank of India.

 

Shirish Godbole, chief executive officer of Knowledge Realty Trust, India’s largest and most recent Reit, said Sebi’s move would unlock deeper pools of capital for the real estate sector. “This long-awaited move brings regulatory clarity, simplifies fund flows, and aligns India with global practices, making real estate far more attractive to both domestic and international investors. For the Indian economy, this is more than a technical change — it is a confidence booster. Greater participation through equity indices and mutual funds will not only improve liquidity but also reduce the cost of capital for developers,” he added.