At its September 12 board meeting, capital market regulator SEBI reclassified Real Estate Investment Trusts (REITs) as “equity” investments for mutual funds. Until now, both REITs and InvITs (Infrastructure Investment Trusts) were treated as hybrid instruments for mutual fund investments.
So far, MFs were allowed a combined exposure of up to 10 per cent in REITs and InvITs. With the reclassification, REITs can now be freely included in equity and hybrid schemes, while their share in debt funds will be phased out.
REITs and InvITs are pooled investment vehicles that provide exposure to real estate and infrastructure assets without direct ownership. REITs largely invest in commercial, residential, and retail properties, while InvITs focus on roads, power, and telecom networks. Both offer stable income and growth prospects. Currently, five REITs and 17 InvITs are listed in India.
How MF invested in REITs and InvITs
As of August 2025, MFs held ₹17,674 crore in REITs and ₹5,368 crore in InvITs. Hybrid funds accounted for the largest REIT allocation at ₹10,336 crore, followed by equity funds at ₹5,845 crore and debt funds at ₹1,307 crore. All five listed REITs feature in MF portfolios—Embassy Office Parks (₹8,943 crore), Nexus Select Trust (₹3,481 crore), Brookfield India (₹3,414 crore), Mindspace Business Parks (₹1,302 crore), and Knowledge Realty (₹535 crore).
While REITs now enjoy equity status, their moderate risk–reward profile may still appeal most to balanced fund categories. Deepak Agrawal, CIO – Debt, Kotak Mahindra AMC, noted, “This may lead to increased participation from mutual funds, particularly hybrid schemes.” Currently, Balanced Advantage, Flexi Cap, Aggressive Hybrid, and Multi Asset Allocation funds hold the highest REIT exposure.
Debt funds to exit REIT exposure
On the other hand, debt fund categories are set to pare down holdings. Credit Risk Funds (₹554 crore), Medium Duration (₹543 crore), and Dynamic Bond Funds (₹199 crore) are the top allocators, with schemes such as 360 ONE Dynamic Bond (7.1 per cent), Kotak Medium Term (7 per cent), and ICICI Pru Credit Risk Fund (6.6 per cent) carrying higher REIT weights.
Additionally, with REITs moving to equity, the existing 10 per cent joint investment limit for mutual funds will now apply solely to InvITs, paving the way for further growth in the infrastructure trust segment.
Published on September 15, 2025