SEBI Puts REITs in the Equity Bucket , What Changes for Investors?

The real estate market in India just got a regulatory upgrade. In its 211th board meeting (September 12, 2025), SEBI approved a landmark change: Real Estate Investment Trusts (REITs) will now be classified as equity instruments under the Mutual Fund Regulations.

On paper, this might look like a technical reclassification. In practice, it could change the way India’s $4 trillion capital market treats commercial real estate.

Why Did SEBI Make This Move?

REITs have always been listed and traded like shares, but for regulatory purposes they sat in the “hybrid” bucket alongside InvITs. That limited how much mutual funds could invest, since hybrid exposure has caps.

By moving REITs into the equity category, SEBI is aligning India with global practice. It acknowledges REITs’ equity-like nature: they are traded on exchanges, more liquid than InvITs, and their returns depend on both income distributions and market price movements.

InvITs, with their more stable cash flows and private placements, will remain in the hybrid classification.

What Changes for Mutual Funds?

This reclassification means:

• MF allocations open up: Mutual funds can now treat REITs within their equity exposure. That makes it easier for equity-oriented schemes to invest.
• Index inclusion becomes possible: Once classified as equity, REITs are eligible for equity indices. That matters because index funds and ETFs together manage about ₹12 lakh crore, but currently have almost no REIT exposure.
• More headroom for InvITs: Since REITs move out of the hybrid bucket, the existing limits will now apply only to InvITs, giving that market more breathing space.

So what? More flows, more visibility, and a bigger investor base for India’s young REIT market.

Industry Reaction

Amit Shetty, CEO of Embassy REIT, India’s first listed REIT, summed it up on their investor call:

*“We welcome and commend SEBI’s landmark move to re-classify REITs as equity. As pioneers of REITs in India and long-time champions of the asset class, we at Embassy REIT see this move as a catalyst for the next phase of growth.

Currently, mutual fund participation in REITs is less than 0.5%, but this reclassification can take that significantly higher.

Further, with potential index inclusion, REITs could see substantial passive inflows, given that index mutual funds together manage around ₹12 lakh crores of assets under management and today have virtually no exposure to the REIT space.”*

For context, Embassy, Mindspace, and Brookfield REITs together manage more than 100 million sq. ft. of office space. Greater institutional inflows could provide both stability and valuation support to these vehicles.

Strategic Investors Also Get a Boost

SEBI also broadened the Strategic Investor definition for both REITs and InvITs. The list now includes:

• All Qualified Institutional Buyers (QIBs), such as pension funds, provident funds, and public financial institutions.
• Family trusts and SEBI-registered intermediaries with net worth above ₹500 crore.
• NBFCs in the middle, upper, and top regulatory layers.

This expansion allows REITs and InvITs to tap deeper pools of capital during public issues, instilling more confidence in new listings.

The Bigger Picture

The move addresses one of the key hurdles for REITs in India: limited domestic institutional participation. With mutual funds and index funds now able to allocate meaningfully, REITs can move beyond being a niche play for HNIs and foreign investors.

That said, challenges remain. Liquidity in REIT units is still far lower than in large-cap equities, and awareness among retail investors is limited. But with regulatory recognition as equity, REITs could finally transition into the mainstream equity bucket — attracting both active and passive capital.

Takeaway

SEBI’s reclassification of REITs as equity is more than a label change. It sets the stage for higher mutual fund participation, potential index inclusion, and deeper institutional trust in the asset class.

For investors, that could mean more stable yields, better liquidity, and stronger long-term growth prospects for India’s REIT market.

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