Finance Ministry Endorses Equity Status for REITs, InvITs Ahead of SEBI Meet

SEBI may consider reclassifying Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) as “equity” in its next board meeting, likely within the next 2 months, as per Moneycontrol report. This shift would allow mutual funds to include these instruments in their equity-oriented schemes.

Government Signals Support

According to reports, the Finance Ministry has expressed support for this reclassification and communicated its view to SEBI. This is expected to improve fund exposure and channel more investments into the real estate and infrastructure sectors.

REITs and InvITs are presently treated as hybrid instruments due to their mix of equity and debt features. Mutual funds are currently allowed to invest a maximum of 10% of scheme NAV in these instruments, with no more than 5% in a single issuer.

SEBI Reviewing Investment Caps

SEBI is also looking at raising the overall cap to 20%, and the single-issuer limit to 10%. These changes could be taken up in the same meeting. Officials say foreign mutual funds have shown interest in higher exposure limits.

Despite being listed on stock exchanges, mutual fund exposure to REITs and InvITs is below 1%. Factors include existing investment restrictions, liquidity issues, limited investor awareness, and their hybrid classification, keeping them out of most equity schemes.

How They Work?

REITs invest in commercial real estate assets and earn rental income. InvITs fund operational infrastructure projects and collect revenue from them. Both are required to distribute around 90% of net distributable cash flow to unitholders.

Some market bodies, including AMFI and MFAC, have suggested keeping the instruments under the hybrid category. Arguments include differences in dividend structure, NAV calculation methods, and limited voting rights compared to typical equity shares.

Read more: RBI Drives PSB NPA Reduction to 2.58% in 2025 from 9.11% in 2021!

Conclusion

With the Finance Ministry backing the shift, SEBI’s upcoming decision may lead to structural changes in mutual fund portfolios. The proposed changes are to expand participation and increase capital flow into real estate and infrastructure investment avenues.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.