SEBI Reclassifies Real Estate Investment Trusts as Equity Instruments, Aims to Boost Mutual Fund & SIF Participation [Read Circular]
The communication concludes with directions for dissemination on AMCs’ websites and through broker channels to ensure investor awareness.
The Securities and Exchange Board of India (SEBI) has undertaken an initiative to reclassify RealEstate Investment Trusts (REITs) as equity-related instruments. The board has announced that the move would enhance investments made by Mutual Funds and Specialized Investment Funds (SIFs) into the same.
The reclassification shall be effective from January 1, 2026, and flows from amendments to the SEBI (Mutual Funds) Regulations, 1996 issued pursuant to Gazette Notification No. SEBI/LAD-NRO/GN/2025/272 from October 31, 2025.
As per the latest circular, Mutual Funds and SIFs will treat any investment in REITs made on or after January 1, 2026 as investments in equity-related instruments. The circular further draws a distinction for Infrastructure Investment Trusts (InvITs) which will continue to be classified as hybrid instruments for the purposes of investment categorisation by these funds.
SEBI has specified that existing REIT investments held by debt schemes of Mutual Funds and by SIF strategies as on December 31, 2025 will be grandfathered and shall not be subjected to immediate reclassification.
However, Asset Management Companies (AMCs) have been encouraged to “make efforts to divest REITs from the respective portfolios of debt schemes considering the market conditions, liquidity and interest of investors”.
Further, SEBI directed the Association of Mutual Funds in India (AMFI) to include REITs in the scrip classification framework in terms of para 2.7 of the Master Circular for Mutual Funds dated June 27, 2024, ensuring uniform implementation across the industry.
Essentially, the regulatory update provides clarity to Mutual Fund managers and SIF operators, particularly in the context of portfolio construction, compliance and scheme categorisation norms. With reclassification as equity instruments, REITs are now expected to be more seamlessly incorporated into equity-oriented schemes, potentially improving liquidity and participation in the segment.
The effects of the circular shall come into force immediately, while the operational reclassification will take effect from January 1, 2026.
The circular has been addressed to all Mutual Funds, AMCs, Trustee Companies, AMFI and Registrar & Transfer Agents.
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