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SEBI Reclassifies REITs as Equity- What it Means for SIFS, MFs and Real Estate Investment in India in 2026

SEBI’s Real Estate Investment Trusts (REITs) reclassification has emerged as an essential link between property and capital markets, providing individual investors with exposure to income‑generating real estate without directly owning such properties. In India, REITs have grown steadily as a preferred route for portfolio diversification and introducing transparency into real estate investment. 

In a significant regulatory move, the Securities and Exchange Board of India announced on November 28, 2025, that REITs will be treated as equity-related instruments starting January 1, 2026. This step is aimed at encouraging active participation by mutual funds and SIFs, increasing liquidity, and aligning India’s system with international standards. 

This article explains the change, its implications for mutual funds, SIFs, investors, and the real estate market. It shows how Enterslice supports businesses with REIT structuring, compliance, and transaction advisory to understand this evolving landscape. 

What are REITs, and How were they Classified Earlier? 

REITs stand for Real Estate Investment Trusts, which involve owning and operating income‑generating real estate assets, such as office buildings, malls, and commercial complexes. They enable investors to gain exposure to real estate markets without directly purchasing property, offering transparency, diversification, and regular income streams. 

The Earlier Classification 

• Both the REITs and Infrastructure Investment Trusts (InvITs) are classified as “hybrid” or “other” instruments under the mutual fund regulations. 

• Their mainstream appeal was limited, and because of this classification, they were differentiated from equity instruments. 

Implications of the Previous Framework 

• Compared with equity securities, liquidity in REIT units is low. 

• For equity-oriented mutual funds, involvement is restricted. 

• In India’s capital markets, the expansion of the REIT universe is limited, and the growth is slower. 

What Changed: SEBI’s REIT Reclassification Decision 

On November 28 2025, the Securities and Exchange Board of India (SEBI) issued a key circular reclassifying Real Estate Investment Trusts (REITs) as equity-related instruments for investment purposes by mutual funds (MFs) and specialised investment funds (SIFs). 

The new classification came into effect on January 1, 2026. From this date, REITs in fund portfolios are to be treated on par with equity instruments. This represents a significant shift in regulations, aimed at deepening participation and further aligning the Indian framework with global practice. If you have completed REIT registration, you must know about these changes.  

• Treatment of Existing Holdings: As of December 31, 2025, the units of REITs already held by the debt‑scheme MFs or SIFs strategies would be grandfathered and remain in the existing structures. 

• Index Inclusion Timeline: REITs will be included in equity indices after a six‑month buffer period, starting from July 1, 2026. 

• Operational Changes for AMCs: To update scheme documents, AMC shall issue addenda. To reflect the new equity treatment, the Association of Mutual Funds in India (AMFI) will revise the lists of scrip classifications. 

Why SEBI Introduced this Reclassification: Rationale and Expected Benefits 

The SEBI’s REIT reclassification notification in November 2025 reflects a strategic effort to further strengthen the capital markets in India, besides aligning the country with international best practices. REITs will be treated as equity instruments to unlock broader participation and enhance market depth. 

Consistency with International Standards 

REITs are treated as either equity or fixed income, depending on their strategy, in many global markets. This new SEBI REIT reclassification brings Indian practice closer to international standards, particularly in terms of liquidity, tradability, and growth potential. 

Increasing Participation 

It is now possible for Equity-oriented mutual funds and SIFs to invest directly, therefore increasing mutual fund investments in REITs in India. 

This reclassification is expected to boost demand and widen the investor base. 

Market Deepening & Liquidity 

More money coming into REITs will improve liquidity and trading volumes. To both institutional and retail investors, improving viability will make REITs more attractive. 

Freeing Investment Limits 

The earlier joint limits applied to REITs and InvITs. With REITs shifted to equity, the InvITs’ limit can be fully availed of, thereby increasing infrastructure investments. 

Administrative Rationalisation 

Reducing classification complexity simplifies AMC operations. This update improves transparency and investor confidence by providing clearer scheme documents and updated scrip lists. 

Implications for Different Stakeholders 

SEBI’s REIT reclassification, effective January 1, 2026, has far-reaching implications across mutual funds, SIFs, the real estate market, and retail investors. Indeed, with SEBI making REITs equity instruments, the way portfolio strategy, liquidity, and investor participation are framed has changed. 

For Mutual Funds & SIFs 

• Debt fund adjustments: Schemes holding REITs in their debt portfolios will unwind their positions in a phased manner, since grandfathering is only a temporary provision and the fund manager needs to rebalance the portfolio. 

• Diversification avenues: Equity-oriented mutual funds can now invest in REITs, thereby increasing exposure to real estate and optimising portfolio diversification. 

• Risk-return dynamics: REITs offer rental yields and appreciation potential, but their equity classification acknowledges higher volatility and growth orientation. 

• Clearer regulatory treatment: SIFs, which often adopt hybrid strategies, now have defined rules under SEBI’s new REIT reclassification. 

For REITs / Real Estate Sector 

• Institutional inflows: once REITs gain entry into the indices commencing July 2026, active equity funds and passive/index-linked funds will route investments. 

• Market expansion: Increased demand could trigger the formation of new REITs and further build on India’s real estate investment ecosystem. 

• Liquidity boost: With improved trading volumes, REITs have become attractive to investors who previously avoided “illiquid” real estate products. 

For Retail / Individual Investors 

Indirect benefits: With increased stability, liquidity, and valuation transparency, REITs are safer and more mainstream. 

Diversified Exposure: Mutual funds invest in REITs in India, thereby providing diversified exposure to real estate with minimal capital requirements and limited illiquidity. 

Awareness required: Investors should be aware that an equity classification can make REITs behave more like equities, which tend to be more volatile compared to debt or hybrid funds. 

Potential Challenges to Consider Going Forward 

While the SEBI REIT reclassification has opened new opportunities, stakeholders need to remain vigilant about potential risks and transition issues. Treating REITs as equity instruments alters their behaviour in portfolios, and this requires careful monitoring. 

Both institutional and retail participants can approach mutual fund investments in REITs in India with greater caution and informed strategies by recognising the challenges outlined below: 

Transition by Debt-Scheme Funds 

• Temporary relief can be provided through Grandfathering, but debt funds holding REITs will eventually divest. 

• This change would shift demand and supply, possibly affecting short-term liquidity and pricing. 

Volatility Considerations 

• REITs could now reflect broader equity-market swings rather than just real estate fundamentals. 

• Investors should avoid viewing them solely as “fixed income + real estate yield.” 

Tax and Regulatory Impact 

• The AMCs will have to revise the scheme documents and mandates. 

• During compliance adjustments, operational friction can occur. 

Overconcentration Risk 

• Equity funds might surge into REITs, forcing valuations higher. 

• There is a risk of a bubble forming if one disregards fundamentals. 

• Investors should look into individual REIT performance rather than just momentum. 

Conclusion 

The SEBI REITs reclassification, effective January 1, 2026, is a landmark regulatory change. By treating REITs as equity instruments, India aligns with global norms and enables greater institutional participation, deeper liquidity, and faster growth in the REIT ecosystem. For mutual funds, SIFs, and real‑estate companies, this shift in classification could redefine portfolio strategies and market dynamics. Yet, opportunity requires caution: investors must apply due diligence, manage volatility, and plan strategically.  

Greater mutual fund investment in REITs will mean increased access for India, but awareness of risk will be essential. 

Interested in how these regulatory changes affect your portfolio or real estate investments? Reach out to Enterslice for bespoke advisory on REIT structuring, compliance, and strategic investment planning. 

All You Need About SEBI reclassification of REITs as equity in India