SEBI Reclassifies REITs as Equity Instruments – Here’s What Investors Should Know

Written by Jainam Resources

Last Updated on: January 9, 2026

On November 28, 2025, SEBI issued a major circular that could reshape real estate-based investing in India. The regulatory body has officially reclassified Real Estate Investment Trusts (REITs) as equity-related instruments to encourage wider participation from Mutual Funds and Specialized Investment Funds (SIFs).

This change is meant to make the market more liquid, provide more investors access, and give people more exposure to real estate through equity-linked options instead of debt-driven frameworks.

Here is a simple summary of what this entails for AMC houses, mutual fund schemes, and investors.

What Has SEBI Changed? Summary of the New REIT Classification Rules

The Mutual Fund Regulations, 1996 have been changed by SEBI’s most recent amendment, which is called SEBI/LAD-NRO/GN/2025/272. With this change:

1. REITs will now be treated as Equity Instruments

Starting on January 1, 2026, all investments made by Mutual Funds and SIFs in REITs will be considered equity-related securities.

• This new classification makes people more likely to take part.
  
• REITs are moving away from being classified as debt-oriented and more towards being classified as equity-risk.

But InvITs will still be hybrid instruments.

2. Existing REIT Investments in Debt Schemes Will Be Grandfathered

• As of December 31, 2025, any REIT holdings that are part of mutual fund debt schemes will stay the same (grandfathered).
  
• But AMCs are urged to slowly sell down their REIT holdings in debt portfolios, depending on how much money is available and how the market is doing.

This makes sure that investors can transfer smoothly without any unexpected changes to the fund’s structure or NAV.

3. REITs Will Be Included in Market-Cap Based Classification

According to Para 2.7 of the Mutual Fund Master Circular (June 27, 2024) 

• AMFI will henceforth group REITs into groups based on their market capitalisation, similarly like equities companies.
  

This makes things more clear, easier to compare, and allows for better fund allocation.

4. Scheme Documents to be Updated (No Fundamental Attribute Change)

All AMCs must send out an amendment to show that the REIT classification has changed.

Important:
This change will NOT be seen as a major change to the scheme, thus investors do not have to approve it or have an exit window. 

5. REITs to Enter Equity Indices Only After July 1, 2026

• REITs won’t be added to equity market indexes right away.
  
• After a six-month period of calming down and getting used to things, commencing on July 1, 2026, inclusion in the index may happen.
  

This gradual change decreases systemic risk and gives the market time to stabilize.

Why This Shift Matters for Investors

This change in regulations might have a big effect on how portfolios are divided up in 2026 and thereafter. Here’s why: 

What Investors May Expect

• Higher fund inflow into REITs
  
• Increased liquidity over time
  
• Better price discovery once index inclusion begins
  
• More visibility in equity-linked research and tracking
  

Debt scheme exposure will gradually reduce, while equity-led REIT participation will expand.

Impact on Mutual Funds & AMCs

Mutual Funds may now:

✔ Increase the weight of REITs in equity schemes 

✔ Change how they allocate real estate

✔ Have clearer ways to set benchmarks and value things

Debt schemes that invest in REITs must regularly check their portfolios and sell off assets slowly, according to how interested investors are and how liquid the market is. 

Ending Note 

It is a big change for the Indian financial landscape that SEBI has reclassified REITs as equity instruments. The regulator wants to get more people involved, make the real estate market deeper, and give mutual fund investors more options by putting REITs closer to equities.

Starting in July 2026, REITs may be included in indices , which might make them more apparent in diversified equities portfolios over the next few years. This is an essential trend to keep an eye on.