Investments by Mutual Funds, SIFs in REITs Now Classified as Equity Effective January 2026

The Securities and Exchange Board of India (SEBI) has announced that, starting January 1, 2026, investments by mutual funds and Specialised Investment Funds (SIFs) in Real Estate Investment Trusts (REITs) will be treated as equity.  

This regulatory move aims to enhance participation in REITs and align India's treatment of these instruments with international practices. 

SEBI’s Equity Classification for REIT Investments 

According to the SEBI circular released on November 28, 2025, mutual funds and SIFs will now treat investments in REITs as equity-related instruments from January 1, 2026. This decision is intended to expand investment opportunities within the mutual fund space and support increased liquidity.  

REITs, given their structure and cash flow characteristics, are closer to equity instruments than traditional debt assets. 

Separately, Infrastructure Investment Trusts (InvITs) will continue to be treated as hybrid instruments due to their relatively stable cash flows and lower liquidity. 

Grandfathering and Scheme Document Changes 

SEBI has clarified that existing REIT investments under debt schemes held as of December 31, 2025, will be grandfathered. However, Asset Management Companies (AMCs) have been asked to make efforts to divest such holdings considering investor interest and overall market conditions.  

AMCs must also update scheme documents to reflect the classification change, although this will not be deemed a fundamental attribute change. 

Read More: SEBI Creates New AIF Class for Accredited Investors, Eases LVF and Compliance Norms! 

Market Capitalisation and Index Inclusion 

To support this transition, the Association of Mutual Funds in India (AMFI) has been directed to include REITs in the classification of equity scrips by market capitalisation.  

Additionally, REITs may be included in equity indices starting July 1, 2026, ensuring a phased and smooth implementation. 

Enhanced Incentives for Distributors 

SEBI has also revamped the mutual fund distributor incentive structure to incentivise outreach in B-30 cities and among women investors. From February 1, 2026, distributors can earn up to ₹2,000 per new eligible investor, funded through AMCs’ investor education allocation. 

Conclusion 

SEBI’s move to reclassify REIT investments by mutual funds and SIFs as equity from January 1, 2026, highlights its intent to align with international norms and facilitate broader investor participation. This change, alongside updates to the distributor incentive framework, is expected to support the development of alternative investment avenues in Indian markets. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or 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. 

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.