Equity Status for REITs & InvITs: A Market Game-Changer

Default

23 Jul, 2025

Equity Status for REITs & InvITs: A Market Game-Changer

1. What’s Changing?

The Finance Ministry has formally supported SEBI’s proposed move to categorize Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) as equity instruments, not hybrid products. A decision is expected at SEBI’s next board meeting, likely within two months.
SEBI is also considering doubling mutual funds’ investment limits in these trusts—from 10% to 20% of scheme NAV, with issuer caps rising from 5% to 10%.

2. Why Does It Matter?

✅ Broader Mutual Fund Access

Equity classification lets equity mutual funds include REITs and InvITs in their portfolios, unlocking a new asset class previously out of reach due to hybrid restrictions.

Enhanced Capital Flow

Higher investment caps and equity status could trigger a surge in institutional allocations—including foreign funds and insurers—leading to significantly larger capital inflows.

Improved Liquidity & Visibility

More investor participation boosts trading volumes, reduces bid-ask spreads, and makes REITs/InvITs viable for inclusion in indices like Nifty/Sensex—enhancing market depth and stability.

3. Sector Impacts: What’s Likely to Move?

Sector	Impact
Listed REITs	Expect sharper rally due to fund inflows and index inclusion hopes
InvITs	Similar upside from increased fund interest and issuer-specific inflows
Real Estate / Infrastructure Stocks	Gains from heightened sector confidence and indirect investment flows
Mutual Funds	Equity MF NAVs may find added diversification and yield from REITs/InvITs

4. Broader Market Implications

Diversification boon: Equity funds gain exposure to real assets—income-generating real estate and infrastructure—especially valuable in low-interest regimes.
Income + growth upside: These vehicles blend stable cash flow (90%+ obligatory payout) with potential capital appreciation, combining equity and fixed-income advantages.
Attracting global investors: Equity classification and potential index inclusion could draw FTSE, MSCI, and global REIT investors, driving sustained inflows.

5. The Other Side: Risks & Reservations

Debate remains: Money market bodies like AMFI argue REITs/InvITs have structural nuances (e.g., restricted voting rights, NAV valuation, cash-flow mandates) that differ from pure equity.
Interest rate sensitivity: Rising interest rates may weigh on valuations, as income yields become less attractive relative to bonds.
Liquidity caution: For now, traded volumes remain limited—though equity classification is expected to improve this gradually.

Final Take

Giving REITs and InvITs equity status represents a major market milestone. It’s likely to:

Unlock massive capital inflows from mutual funds and institutional investors.
Improve liquidity and index visibility.
Diversify equity portfolios with real-asset income exposure.

For investors, this could mean access to stable, dividend-yielding, listed real estate/infrastructure options—right from their equity MF investments.

By Nehal Taparia

This content is for educational and knowledge purposes only and should not be considered as investment or Trading advice. Please consult a certified financial advisor before making any investment or Trading decisions.

Our Recent FAQS

Frequently Asked Question &
Answers Here

Q1: What exactly are REITs and InvITs?

REITs invest in income-generating real estate (like malls, offices); InvITs focus on infrastructure assets (like highways, power transmission), both listing units for public investment.

Q2: Why were they treated as hybrids earlier?

Their structure includes equity-like capital appreciation and debt-like stable payouts, coupled with NAV-based valuation and restricted voting—leading SEBI to tag them as hybrid.

Q3: How does equity status benefit mutual funds?

Equity funds can include these trusts and invest more (20% limit), increasing fund diversification and possible yields—bringing them on par with stocks.

Q4: What’s the market impact?

Expect sharp short-term rallies in listed trusts, improved volumes, index inclusion potential, and spillover gains for real estate/infrastructure stocks.

Q5: Are there risks?

Yes—interest rate sensitivity, liquidity constraints, and structural complexities remain concerns. Funds should evaluate catchment, yield stability, and trust governance before investing.

Q6: What’s the timeline?

SEBI’s next board meeting, expected within two months, may finalize both classification and limit increase.