SEBI has opened a new growth lane for mutual fund investors by classifying REITs as equity instruments from January 1, 2026. This move allows equity schemes to tap into real estate-backed income streams, potentially adding diversification and long-term growth to MF portfolios—without investors needing to buy property.

Your MF portfolio may soon hold more real estate after THIS move by SEBI - Details here

SEBI Reclassifies REITs as Equity-Related Instruments for Mutual Funds and SIFs

The Securities and Exchange Board of India (SEBI) has made a significant move to boost participation in India's growing real estate investment market by reclassifying Real Estate Investment Trusts (REITs) as equity-related instruments for mutual funds and Specialized Investment Funds (SIFs).

The change follows a gazette notification issued on October 31, 2025, and will come into effect from January 1, 2026.

Key Changes for Mutual Funds and Investors

Any investment made by mutual funds and SIFs in REITs from 2026 onwards will now be treated like an equity investment.
This could potentially increase exposure to real estate assets across equity-oriented schemes.
InvITs (Infrastructure Investment Trusts) will continue to remain classified as hybrid instruments.
Existing REIT holdings lying inside debt schemes as of December 31, 2025, will be grandfathered.
AMCs (Asset Management Companies) have been nudged to gradually divest these REIT units from debt schemes, keeping investor interest, liquidity, and market conditions in mind.

Impact on Scheme Documents and Equity Indices

AMCs will issue addendums to reflect the new classification in scheme documents.
SEBI has clarified that this will not be treated as a “fundamental attribute” change, meaning investors won’t face any mandatory exit window or consent requirements.
REITs can be added to equity indices only after July 1, 2026—a six-month buffer to let the market adjust to the new framework.

Regulatory Fine-Tuning

Mutual funds can now hold up to 15% of REIT units issued by a single issuer, aligning with existing limits on equity ownership.
Corresponding limits for SIFs have been adjusted to ensure that combined holdings of mutual funds and SIFs in a single REIT stay within defined boundaries.

The regulator said the changes were made to protect investor interest and promote the orderly development of the securities market.