SEBI Reclassifies REITs as Equity Instruments – Changes & Impact

On November 28, 2025, SEBI released a major circular that could reshape the future of real estate investing in India. The regulator has officially reclassified REITs as equity instruments to encourage wider participation from Mutual Funds and Specialized Investment Funds (SIFs).

This change aims to boost liquidity, improve access and give investors more opportunities to participate in real estate through equity-linked structures instead of debt-heavy formats.

Here is a simple, clear explanation of what this move means for AMCs, mutual fund schemes and everyday investors.

What Has SEBI Changed? A Simple Summary of the New REIT Rules

The changes stem from an amendment to the Mutual Fund Regulations, 1996 under circular SEBI/LAD-NRO/GN/2025/272.

Here are the key updates.

1. REITs Will Now Be Treated as Equity Instruments

Effective from January 1, 2026:

• All investments by mutual funds and SIFs in REITs will be classified as equity-related.
• REITs are being shifted away from their earlier debt-oriented treatment.
• This encourages more participation from equity fund managers.
• InvITs will not change and will continue to be treated as hybrid instruments.

Why this matters:

REITs now fit naturally into equity portfolios which opens the door for more institutional money.

2. Existing REIT Investments in Debt Schemes Will Be Grandfathered

• All REIT holdings already present in debt schemes (as of December 31, 2025) will remain as they are.
• AMCs have been encouraged to slowly reduce their REIT exposure in debt schemes depending on liquidity and market conditions.

This ensures:

• No sudden NAV impact
• No forced selling
• A smooth transition for debt-fund investors

3. REITs Will Now Be Classified Using Market Cap Buckets

According to Para 2.7 of the Mutual Fund Master Circular (June 27, 2024):

• AMFI will group REITs by market capitalisation just like listed equity companies.
• This improves transparency and makes comparisons easier.
• Fund managers will have clearer guidelines for portfolio allocation.

4. Scheme Documents Must Be Updated (No Investor Approval Needed)

All AMCs must:

• Update scheme documents to reflect the new REIT classification.

Important note:

• This will not be treated as a fundamental attribute change.
• No investor approval or exit window is required.

This keeps the process simple and non-disruptive.

5. REITs May Enter Equity Indices Only After July 1, 2026

• REITs will not be added to equity indices immediately.
• Index inclusion may happen after a six-month stabilisation window starting July 1, 2026.

Why this delay?

• It gives the market time to adjust.
• It reduces systemic risk.
• It prevents sudden inflows that could distort prices.

Why this Change Matters for Investors?

This reclassification could significantly impact portfolio strategies starting 2026.

Here’s how the landscape shifts:

Before	After
Treated closer to debt	Treated as equity
Moderate return expectations	Potential for higher equity-linked returns
Limited participation from mutual funds	Wider participation by MFs & SIFs
Lower visibility	More research coverage and index visibility

What Investors Can Expect Going Forward?

You can expect the following trends:

• Higher fund inflows into REITs as equity schemes gain freedom to buy them
• Improved liquidity over the next few years
• Better price discovery once REITs get added to indices
• More visibility and tracking since equity analysts will now cover REITs
• Reduced REIT allocation in debt schemes as AMCs divest gradually

Impact on Mutual Funds and AMCs

Mutual Funds may now:

• Increase REIT weightage in equity schemes
• Redesign how they allocate real estate exposure
• Set clearer benchmarks for REITs
• Evaluate REITs with equity risk frameworks

Debt schemes that currently hold REITs will:

• Review exposure more frequently
• Divest in a phased manner based on liquidity and market demand

This ensures a smooth and predictable shift from debt-led REIT holdings to equity-led participation.

What This Means for the Indian Market?

Reclassifying REITs as equity instruments is a big structural improvement. It helps:

• Deepen the real estate investment market
• Align India with global standards
• Give mutual fund investors more access to diversified real estate exposure
• Encourage more REIT listings over time

From July 2026 onwards, once index inclusion begins, REITs may become a regular part of diversified equity portfolios just like other large listed companies.

Conclusion

SEBI’s reclassification of REITs as equity-linked instruments is a positive step for investors, AMCs and the overall real estate market. It brings clarity, widens participation and allows REITs to grow into a mainstream equity category.

For long-term investors looking for stable yield-based equity exposure, REITs may become a more visible and popular option in the coming years.

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FAQs

1. From when will REITs be treated as equity instruments?

From January 1, 2026, for all new mutual fund and SIF investments.

2. What happens to existing REITs in debt mutual funds?

They remain grandfathered until December 31, 2025. After that, AMCs may reduce exposure gradually.

3. Are InvITs also classified as equity?

No. InvITs continue to be treated as hybrid instruments.

4. Will REITs join equity indices immediately?

No. Inclusion may begin only after July 1, 2026.

5. Do AMCs need investor approval to update documents?

No. The change is not considered a fundamental attribute change, so no investor approval or exit window is needed.