Will REITs soon join market indices? SEBI to chart ‘appropriate glide path’

SEBI chairman Tuhin Kanta Pandey on Friday said the markets regulator will work closely with all stakeholders to include Real Estate Investment Trusts (REITs) in market indices, as part of efforts to deepen India’s infrastructure financing ecosystem through capital markets.

Speaking at the National Conclave on REITs and InvITs, Pandey said SEBI is committed to strengthening the bridge between infrastructure and markets, and would pursue an “appropriate glide path” for index inclusion of REITs.

He said the regulator was engaging with institutional investors, sector bodies and government departments to greater participation in the asset class.

“We are actively engaging with institutional investors to deepen their participation in REITs and InvITs… SEBI will work with all stakeholders to facilitate the inclusion of REITs in indices, through an appropriate glide path,” Pandey said.

The SEBI chief noted that the combined assets managed by REITs, Infrastructure Investment Trusts (InvITs) and Small and Medium REITs had risen to about ₹9.25 lakh crore as of October. He added that the products, however, remained vastly under-penetrated compared with global markets.

He pointed out that while REITs accounted for nearly 57% of the global listed real estate market capitalisation, India’s share remained modest.

Retail participation is still low, with awareness at around 10% and penetration under 1%, he said.

"This must change," he said, stressing that retail investors should begin viewing REITs and InvITs as natural additions to their portfolios, alongside equities, mutual funds, bonds and bank deposits.

Pandey said SEBI had already undertaken several developmental and governance reforms to make REITs and InvITs more attractive and accessible to retail investors.

He added that SEBI was examining further ease-of-doing-business measures, including expanding the pool of liquid mutual fund schemes in which REITs and InvITs can invest, and evaluating whether private InvITs could be allowed to invest in greenfield projects with proper safeguards.

Pandey also highlighted the growing role of public-asset monetisation, citing Maharashtra’s decision to set up a state-level Infrastructure Investment Trust and the National Highways Authority of India’s plan to launch a public InvIT that will be open to retail investors.

“This ushers in a new era of public involvement in building India’s highways,” he said.

A major step in this direction came in September, when the SEBI board approved classifying REITs as equity, while retaining the 'hybrid' classification for InvITs.

With this reclassification, mutual fund investments in REITs will now fall within their equity allocation limits, making REITs eligible for inclusion in equity indices. This is expected to pave the way for enhanced investment flows from mutual fund schemes.

"The reclassification as equity will enable equity mutual funds to allocate more meaningfully and facilitate index inclusion and passive flows," Pandey said, adding that it would also create more room for funds to invest in InvITs on the hybrid side.

Pandey urged industry sponsors, managers, advisors and intermediaries to build a deep and trusted market.

“SEBI will provide the enabling framework and guardrails, but it is the industry... that must believe in its own potential,” he said.