SEBI Reclassifies REITs as Equity-Related Instruments
Introduction
The Securities and Exchange Board of India (“SEBI”) has issued a circular dated 28 November 2025 titled “Reclassification of Real Estate Investment Trusts (“REITs”) as Equity-Related Instruments for Facilitating Enhanced Participation by Mutual Funds (“MF”) and Specialised Investment Funds (“SIFs”). This regulatory change will take effect on 1 January 2026.
Under the revised framework:
- All fresh investments by Mutual Funds and SIFs in REITs made on or after 1 January 2026 shall be classified as equity-related instruments.
- Existing investments in REITs made by debt schemes before 31 December 2025 shall be grandfathered, and such holdings may continue under the earlier classification.
- Mutual Funds and SIFs are required to issue an addendum to their respective Scheme Information Documents (“SIDs”) to reflect this reclassification.
- SEBI has clarified that this reclassification shall not be treated as a change in the fundamental attributes of the schemes.
This marks a significant shift in the regulatory treatment of REITs, positioning them alongside equity instruments rather than debt or hybrid assets.
Implications and Way Forward
- Regulatory Significance and Market Rationale
The reclassification of REITs as equity-related instruments represents a significant step towards deepening institutional participation in India’s real estate investment ecosystem. By aligning REITs with the equity framework, SEBI seeks to enhance liquidity, broaden investor access, and strengthen the overall market structure for REITs. This regulatory shift is expected to provide greater flexibility for fund managers, encourage capital inflows into the real estate sector, and support long-term market development.
- Impact on Investment Behaviour and Market Dynamics
The reclassification is expected to materially reshape investment behaviour across mutual funds, SIFs, and the broader real estate capital market. By bringing REITs within the equity framework, fund managers can increase allocations without breaching debt exposure limits, thereby unlocking greater institutional participation and improving portfolio flexibility. For investors, this enhances access to income-generating real estate assets through equity-oriented schemes with clearer risk classification and long-term return potential. The move is also likely to improve liquidity, price discovery, and valuation efficiency in the REIT market, while lowering the cost of capital for REIT issuers and supporting the formalisation of real estate financing in India.
- Legal and Compliance Considerations
From a legal and compliance standpoint, stakeholders should engage counsel to review scheme documentation and investment mandates, draft and vet SID addenda, assess alignment with SEBI MF and SIF regulations, update internal governance and compliance frameworks, and advise fund boards and trustees on implementation ahead of the 1 January 2026 effective date to ensure seamless and defensible regulatory compliance.
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