SEBI Allows Mutual Funds to Invest in REITs, Raises Minimum Investment in Govt Securities [Read Notification]
SEBI has amended mutual fund rules allowing investments in REITs, raising the minimum holding in government securities to 97%, and tightening investment limits
The Securities and Exchange Board of India (SEBI) issued the Securities and Exchange Board of India (Mutual Funds) (Second Amendment) Regulations, 2025, through Notification dated October 31, 2025, making several important changes to the existing SEBI (Mutual Funds) Regulations, 1996. The new rules came into effect immediately after publication in the Gazette of India.
Key Highlights
1. Mutual Funds Can Now Invest in REITs
SEBI has now allowed mutual funds to invest in Real Estate Investment Trusts (REITs). This change adds REITs to the list of instruments that mutual funds can buy under the rules. It means fund managers will have more options to diversify their portfolios and investors can get indirect exposure to the real estate market.
2. Higher Investment in Safe Government Securities
The minimum investment that certain mutual fund schemes must keep in government securities and other approved safe assets has been increased from 95 percent to 97 percent. This change ensures a larger share of investor funds is invested in secure, high-quality instruments, offering better protection for investors.
3. New Limits for Specialized Investment Funds (SIFs)
SEBI has set new limits on how much Specialized Investment Funds can invest in a single company or REIT:
- A fund cannot invest more than 15 percent of the total capital of any one company or REIT.
- If a mutual fund already holds 10 percent or more in a company or REIT, the SIF managed by the same fund house can invest only up to 5 percent in that same entity. These rules help prevent too much money being concentrated in a single investment, reducing risk and encouraging diversification.
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4. Broader Definition of “Entity”
The term “company” has been replaced with “entity” in many parts of the regulations. This change makes the rules broader so that they also apply to trusts, REITs, and other non-company investment structures.
5. Removal of Repeated REIT References
SEBI has removed duplicate mentions of REITs and InvITs (Infrastructure Investment Trusts) from some sections of the regulations to make them clearer and easier to follow.
6. Deletion of a Clause on Expenses
Clause (b) in Regulation 52(6A) has been removed. This clause was related to how mutual funds calculate their expense ratios or certain operational costs. Its removal is likely part of SEBI’s effort to simplify and streamline cost-related rules for mutual funds.
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