Sebi has released a new circular announcing the investment made by mutual funds and specialised investment funds in real estate investment trusts (REITs) to be reclassified as equity related instruments from 1 January 2026 onwards.
This is done to increase participation of mutual funds in REITs.
What is the key announcement made in circular?
Starting January 01, 2026, any investment made by Mutual Funds and SIFs in REITs will be considered as investment in equity related instruments. The Sebi circular reads that InvITs will continue to be classified as hybrid instruments for the purpose of investments by Mutual Funds and SIFs.
What will happen to REITs when held by debt funds
The change in rule (classifying investment in REITs as equity) will not impact debt mutual funds. Existing investment in REITs held by debt mutual funds and investment strategies of SIFs as on 31 December 2025 will be grandfathered, clarified the circular.
Has Sebi made any suggestion to debt funds going forward?
Yes, Sebi has advised mutual fund houses to divest REITs from debt schemes based on the prevailing market conditions.
“AMCs are encouraged to make efforts to divest REITs from respective portfolios of debt schemes considering the market conditions, liquidity and interest of investors,” reads the circular further.
Will it lead to any fundamental change in scheme documents for AMCs?
The Sebi circular says that mutual fund houses are supposed to issue an addendum to make necessary changes in the scheme documents and the same will not be considered as fundamental attribute change for the scheme.
Can AMCs add this investment to equity funds as well?
Yes but only from July onwards. Any inclusion of REITs in the equity indices will be carried out only after a period of six months i.e. 1 July 2026, the Sebi circular notes.
The circular also mentions that the move is aimed to facilitate enhanced participation by Mutual Funds and Specialized Investment Funds (SIFs) in Real Estate Investment Trusts (REITs)
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