REITs may not be discussed often, but they offer one of the easiest ways for everyday investors to participate in India’s growing real estate market. Just like mutual funds, REITs allow you to invest with small amounts while gaining exposure to large commercial properties that would otherwise be out of reach.
Recently, SEBI has introduced important changes to the REIT framework. These reforms have the potential to significantly reshape how investors participate in real estate through REITs in the coming years. This makes it the right time to understand what has changed and how these updates can benefit you as an investor.
What’s Happening?
SEBI has announced a major update for the REIT market. Starting January 1, 2026, any investment made by mutual funds and specialised investment funds in REITs will be classified as equity-related instruments. This change follows SEBI’s amendment to the Mutual Fund Regulations to encourage broader participation in the REIT space.
In its circular dated November 28, SEBI confirmed that REITs will also become eligible for inclusion in equity indices from July 1, 2026. The six-month window gives funds sufficient time to adjust their portfolios. It is important to note that Infrastructure Investment Trusts will continue to be treated as hybrid instruments and will not fall under the equity category for now.
SEBI’s Guideline on Existing Investments
SEBI has clarified that all REIT investments already held by debt mutual fund schemes and SIF strategies as of December 31, 2025, will be grandfathered. This means these holdings will not be required to comply with the new rules immediately. Grandfathering protects existing portfolios from abrupt changes and helps avoid unnecessary disruption.
However, SEBI has advised asset management companies to gradually reduce REIT exposure in their debt schemes over time. This reduction should be planned carefully, keeping market liquidity in mind, to ensure that investors are not adversely affected.
According to SEBI, these changes have been introduced to safeguard investor interests, support market development, and strengthen regulatory oversight.
What Does This Mean for Investors?
SEBI’s decision opens the door for much larger participation from mutual funds and specialised investment funds in the REIT market. Since equity mutual funds must invest at least 65% of their assets in equity or equity-related instruments, reclassifying REITs as equity now allows these funds to allocate more towards real estate through REITs without breaching regulatory limits. Many equity schemes already invest well above the 65% minimum, which means the shift could meaningfully influence how portfolios are diversified and how risks are managed.
For mutual fund investors, this creates an indirect and convenient way to gain exposure to India’s growing real estate sector. Investors who have never invested in REITs directly may now benefit from them through their existing equity funds. However, this shift may also affect fund returns depending on how fund managers balance traditional equities with REIT allocations.
What’s Next?
India’s REIT market is on track for strong expansion in the coming years. A recent JLL report estimates a growth opportunity of nearly Rs 10.8 trillion across office and retail assets in the top seven cities by 2029. Office properties are expected to contribute more than 65% of this growth, highlighting how swiftly the commercial real estate segment is becoming more structured and institutionalised.
The market has already crossed a major milestone. REIT market capitalisation has grown from Rs 26,400 crore in FY20 to Rs 1.6 trillion by September 2025, a sharp six-fold rise in just a few years. Listed REITs have also expanded their commercial space from 33 million square feet in 2019 to 174 million square feet across five REITs, with office occupancy levels holding strong at around 91%.
With SEBI’s new rules and the rapid growth of commercial real estate, the REIT market is expected to attract even wider participation and open new opportunities for investors in the years ahead.
*The article is for information purposes only. This is not investment advice.
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