Mutual funds can invest in REITs as equity shares from January 1, 2026: 5 points for investors

The Securities and Exchange Board of India (SEBI) has decided to reclassify Real Estate Investment Trusts (REITs) as equity-related instruments for investments by mutual funds and SIFs. This decision will be effective from the New Year, January 1, 2026.

However, InvITs will continue to be treated as hybrid instruments for investments by mutual funds and SIFs.

"With effect from January 1, 2026, any investment made by mutual funds and SIFs in REITs shall be considered as investment in equity-related instruments. InvITs shall continue to be classified as hybrid instruments for the purpose of investments by mutual funds and SIFs," the regulator said in a circular dated November 28, 2025.

But what does SEBI's decision mean for investors? Here are five points to help you understand:

The regulator has made this move to increase the participation of mutual funds and specialised investment funds (SIFs) in REITS. Currently, equity mutual funds have to invest a minimum of 65% of their assets into equity or equity-related instruments. Many equity funds invest more than 65% of their portfolio into equity.

From the New Year, equity mutual funds will be able to allocate more towards REITs, potentially changing their portfolio diversification and risk management. For mutual fund investors, this means they would be able to gain exposure to real estate assets indirectly. But this could also impact returns.

The treatment of REITs as equity may also lead to the introduction of REIT-focused equity mutual funds and exchange-traded funds (ETFs) in the near future. However, we need to wait and watch how this SEBI decision pans out.

SEBI said that the existing investments in REITs held by debt schemes of mutual funds and investment strategies of SIFs as on December 31, 2025, shall be grandfathered. However, the regulator has directed AMCs to make efforts to divest REITs from their respective portfolios of debt schemes, considering market conditions, liquidity, and investor interests.

SEBI has said that the Association of Mutual Funds in India (AMFI) shall include REITs in the list of classification of scrips as per their market capitalisation. Mutual Fund asset management companies (AMCs) will also issue an addendum to make necessary changes in the scheme documents. However, these changes shall not be considered as a fundamental attribute change for the scheme.

Yes. REITs can be included in equity indices from July 1, 2026.

India's first REIT IPO was launched in 2019, leading to the listing of Embassy Office Parks REIT. The second listed REIT was Mindspace REIT, listed in 2020, followed by Brookfield REIT in 2021, Nexus Select Trust REIT in 2023, and KRT REIT in 2025.

In just six years, the market cap of REITs in India has surpassed several mature global markets. However, according to a report by Anarock Research, only 32% (166 Mn sq. ft.) of the 520 Mn sq. ft. REIT-worthy office stock across the top 7 cities is listed under the three REITs — Embassy Office Parks, Mindspace Business Parks, Brookfield India & Knowledge Realty, offering a vast growth potential. Bengaluru, Hyderabad and Chennai hold 313 Mn sq. ft. of this stock, with just 31% currently listed.