SEBI Plans to Raise Mutual Fund Caps in REITs and InvITs

The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing changes to investment limits for mutual funds in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). The is aimed at expanding investment scope and adjusting current regulatory caps.

Existing and Proposed Limits

Under the existing framework, mutual funds can invest a maximum of 10% of a scheme’s Net Asset Value (NAV) in REITs and InvITs, with a limit of 5% per single issuer.

SEBI has proposed the following changes:

• Single issuer limit: To be raised from 5% to 10% of the scheme’s NAV.
• Overall exposure limit: To be increased from 10% to 20% for equity and hybrid schemes.
• Debt schemes: To retain the existing 10% cap, citing the higher risk and perpetual nature of REITs and InvITs.

Current Exposure

As of December 31, 2024, mutual funds had invested ₹20,087 crore in REITs and InvITs. The average exposure across different types of schemes was:

• Equity schemes: 2.1%
• Debt schemes: 3.7%
• Hybrid schemes: 2.4%

There are currently four REITs and 17 InvITs listed on Indian stock exchanges.

Market Classification and Liquidity

Globally, REITs and InvITs are included in major indices such as the MSCI India Small Cap Index and the FTSE India Index, and are typically classified as equity instruments. In India, however, they are still treated as hybrid instruments due to differences in structure, cash flow, and valuation.

SEBI has also asked for feedback on whether REITs and InvITs in India should be reclassified as equity instruments for index inclusion.

Read More: SEBI Proposes Key Reforms for Angel Funds to Boost Capital Flow to Start-Ups

Conclusion

SEBI’s proposal is under review and open to public and industry feedback. If implemented, the new limits could alter how mutual funds allocate investments in infrastructure and real estate-related instruments.

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.