Sebi Reclassifies REITs as Equity, Boosting Market Participation

India’s five listed Real Estate Investment Trusts (REITs) rallied on September 16, 2025, after the Securities and Exchange Board of India (Sebi) approved a major regulatory reform. REITs will now be classified as equity instruments, a move that is expected to improve liquidity, attract greater mutual fund participation, and pave the way for their inclusion in major indices.

Market Reaction to Sebi’s Move

Following the announcement, all five REITs registered gains:

• Embassy Office Parks REIT rose 1.11%
• Mindspace Business Parks REIT gained 1.59%
• Brookfield India Real Estate Trust REIT advanced 1.25%
• Nexus Select Trust REIT increased 2.03%
• Knowledge Realty Trust REIT added 1.74%

The rally reflects investor optimism that the reclassification will unlock stronger institutional participation and broader market acceptance.

Details of Sebi’s Approval

The Sebi board, in its meeting held on September 12, 2025, approved amendments to the Mutual Fund Regulations, 1996. The decision formally reclassifies REITs as equity while retaining the “hybrid” category for Infrastructure Investment Trusts (InvITs).

Sebi explained that REITs share closer characteristics with equity in terms of structure, transparency, and liquidity. This alignment with global norms ensures India’s market remains attractive to domestic and international investors.

Impact on Mutual Funds and Indices

The new classification means mutual fund allocations to REITs will now be recognised under equity exposure. This is likely to encourage higher participation from mutual funds, which were earlier restricted by hybrid categorisation rules.

Furthermore, the move opens the door for REITs to be considered for inclusion in equity indices. Such inclusion could attract passive fund flows, boosting liquidity and visibility for the sector.

Benefits for InvITs

At the same time, Sebi has ensured that Infrastructure Investment Trusts also benefit indirectly. Since investment limits that previously applied to both REITs and InvITs will now apply only to InvITs, additional room has been created for investments into infrastructure trusts, supporting growth in that segment.

Read More: Sebi chief urges banks to boost compliance to curb insider trading risks

Conclusion

Sebi’s landmark decision to reclassify REITs as equity marks a turning point for India’s real estate investment market. With stronger mutual fund participation, improved liquidity, and potential index inclusion on the horizon, REITs are set to become a more integral part of equity portfolios. The parallel support for InvITs also ensures balanced development across both asset classes.

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