SEBI proposes higher MF exposure in Reits, InvITs — investors may gain from new diversification window
As per the current regulations, mutual funds can invest up to 10% of a scheme’s net asset value (NAV) in Reits and InvITs, with a cap of 5% in a single issuer.
- Apr 17, 2025,
- Updated Apr 17, 2025 9:09 PM IST
In a move aimed at boosting capital flows and broadening diversification for investors, the Securities and Exchange Board of India (SEBI) has proposed to raise mutual fund (MF) investment limits in Real Estate Investment Trusts (Reits) and Infrastructure Investment Trusts (InvITs).
As per the current regulations, mutual funds can invest up to 10% of a scheme’s net asset value (NAV) in Reits and InvITs, with a cap of 5% in a single issuer. The new proposal recommends raising the single issuer limit to 10% and overall exposure to 20% for equity and hybrid schemes. Debt schemes, however, will retain the 10% limit, considering the relatively higher risk and perpetual nature of these instruments.
The move could open up new return avenues for mutual fund investors, especially in equity and hybrid categories, and enhance the visibility of Reits and InvITs — which have seen limited traction in India despite global popularity.
Globally, Reits and InvITs are treated as equity instruments and included in indices like the MSCI India Small Cap Index and FTSE India Index. However, in India, they are still considered hybrid instruments, due to their unique cash flow patterns and valuation complexities. SEBI has sought public and industry feedback on whether Reits and InvITs should be reclassified as equity for index inclusion.
As of December 31, 2024, mutual fund exposure to these instruments stood at ₹20,087 crore, with average allocations of 2.1% in equity schemes, 3.7% in debt schemes, and 2.4% in hybrid schemes. There are currently four Reits and 17 InvITs listed on Indian exchanges — though many remain illiquid.
If implemented, the proposed changes could significantly enhance mutual fund participation in India’s growing infrastructure and real estate segments — potentially creating better long-term wealth opportunities for investors through diversification and stable cash flows.
In a move aimed at boosting capital flows and broadening diversification for investors, the Securities and Exchange Board of India (SEBI) has proposed to raise mutual fund (MF) investment limits in Real Estate Investment Trusts (Reits) and Infrastructure Investment Trusts (InvITs).
As per the current regulations, mutual funds can invest up to 10% of a scheme’s net asset value (NAV) in Reits and InvITs, with a cap of 5% in a single issuer. The new proposal recommends raising the single issuer limit to 10% and overall exposure to 20% for equity and hybrid schemes. Debt schemes, however, will retain the 10% limit, considering the relatively higher risk and perpetual nature of these instruments.
The move could open up new return avenues for mutual fund investors, especially in equity and hybrid categories, and enhance the visibility of Reits and InvITs — which have seen limited traction in India despite global popularity.
Globally, Reits and InvITs are treated as equity instruments and included in indices like the MSCI India Small Cap Index and FTSE India Index. However, in India, they are still considered hybrid instruments, due to their unique cash flow patterns and valuation complexities. SEBI has sought public and industry feedback on whether Reits and InvITs should be reclassified as equity for index inclusion.
As of December 31, 2024, mutual fund exposure to these instruments stood at ₹20,087 crore, with average allocations of 2.1% in equity schemes, 3.7% in debt schemes, and 2.4% in hybrid schemes. There are currently four Reits and 17 InvITs listed on Indian exchanges — though many remain illiquid.
If implemented, the proposed changes could significantly enhance mutual fund participation in India’s growing infrastructure and real estate segments — potentially creating better long-term wealth opportunities for investors through diversification and stable cash flows.