Will commercial real estate investing get easier with India's first REIT-focused index fund?

Retail investors looking to participate in India's commercial real estate story without buying an office space or commercial property now have a new option. Edelweiss Mutual Fund has launched the Edelweiss Nifty REITs & Realty Index Fund, with its New Fund Offer (NFO) opening on August 5, marking what the fund house describes as India's first REIT-based index fund.

The open-ended passive scheme seeks to replicate the performance of the Nifty REITs & Realty Total Return Index, subject to tracking error, by investing primarily in the securities that form part of the benchmark. A small portion of the portfolio may be invested in debt and money market instruments for liquidity and operational purposes. Like other index funds, it aims to mirror the benchmark rather than outperform it through active stock selection.

A diversified real estate portfolio

Unlike investing directly in commercial property, the fund offers diversified exposure through a single mutual fund. The underlying index currently allocates around 60% to listed Indian REITs and 40% to real estate stocks, providing investors exposure to both income-generating commercial assets and listed property developers. As more REITs are listed in India, the allocation to REITs is expected to increase in line with the index methodology.

The benchmark currently comprises 15 securities, including Embassy Office Parks REIT, Brookfield India Real Estate Trust, Nexus Select Trust, Mindspace Business Parks REIT and Knowledge Realty Trust, along with developers such as DLF, Godrej Properties, Lodha Developers, Phoenix Mills and Prestige Estates. The index also caps the weight of any single constituent at 15%, helping reduce concentration risk.

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Why isn't it a pure REIT fund?

One question investors may ask is why the fund also owns shares of real estate companies instead of investing exclusively in REITs.

The answer lies in the current size of India's REIT market. The country has only a handful of listed REITs, making it difficult to build a diversified portfolio using REITs alone. The Nifty REITs & Realty Index therefore combines REITs with listed real estate companies. According to Edelweiss, as more REITs enter the market over the coming years, the benchmark has the potential to gradually evolve into a predominantly—or even entirely—REIT-based index.

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Why REITs are attracting attention

India's listed REIT market has expanded rapidly in recent years. The six listed REITs together own around ₹3.1 lakh crore of commercial assets, have a combined market capitalisation of over ₹2.1 lakh crore, maintain occupancy levels of 90-99%, and have distributed more than ₹31,700 crore to investors since 2019.

Yet the sector is still at an early stage. Only about 13% of India's Grade-A office stock has been listed through REITs, suggesting substantial room for future growth as developers monetise more commercial assets. The presentation also highlights structural drivers such as urbanisation, infrastructure development, expansion of Global Capability Centres (GCCs), manufacturing growth and rising institutional investment as long-term tailwinds for the sector.

Why no InvITs?

Another obvious question is why the fund excludes Infrastructure Investment Trusts (InvITs). Edelweiss says the current SEBI framework treats REITs and InvITs differently for passive funds. While REITs are classified as equity instruments, InvITs have a hybrid character. Combining them would create a hybrid index fund, which is not permitted under the existing regulations for passive schemes.

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Who should consider investing?

Unlike traditional real estate mutual funds that primarily invest in shares of property developers, this fund provides meaningful exposure to listed commercial real estate through REITs while also investing in real estate companies because of the benchmark's current composition.

According to the Scheme Information Document, the scheme is designed for investors seeking long-term capital appreciation through passive exposure to the REIT and real estate sectors. As with any equity-oriented mutual fund, returns are market-linked, there is no guarantee of achieving the investment objective, and investors should be prepared for market volatility. For those looking to diversify beyond conventional equity funds without directly buying property, however, the new index fund offers one of the simplest ways yet to participate in India's growing commercial real estate market.