SEBI boosts REIT market: Equity classification, wider strategic investor base

The Securities and Exchange Board of India (SEBI) has approved a significant change in the classification of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). Under the revised framework, REITs will now be treated as equity instruments, while InvITs will continue to be classified as hybrid instruments.

In its official release, SEBI explained that the move was aimed at aligning Indian markets with global practices. REITs, by nature, exhibit equity-like characteristics — they are relatively more liquid and provide opportunities for growth — making them better suited to equity classification. InvITs, in contrast, are largely privately placed, have more predictable cash flows, and lower liquidity, which justifies their continued classification as hybrid instruments.

A key implication of this change is that REIT investments by mutual funds will now fall under equity allocation limits. This opens the door for their inclusion in equity indices, which is expected to drive higher mutual fund participation and improve liquidity. Additionally, with REITs moving to the equity category, the existing investment cap that applied jointly to REITs and InvITs will now apply exclusively to InvITs, creating more room for growth in the infrastructure trust space.

Industry leaders have welcomed the decision. Amit Shetty, CEO of Embassy REIT, called it a “landmark move” that will broaden investor participation, enhance liquidity, and strengthen REITs as a mainstream asset class. The Indian REITs Association (IRA) echoed this view, noting that the reclassification will deepen the REIT market and accelerate its growth. The IRA also drew parallels to SEBI’s 2021 reform reducing lot sizes, highlighting that this change too will encourage wider participation and bolster India’s appeal as an investment destination.

SEBI also announced amendments to expand the definition of “Strategic Investor” in REITs and InvITs. The revised framework will now allow a broader set of entities to participate, including all qualified institutional buyers, provident and pension funds with a corpus of at least ₹25 crore, alternative investment funds, state industrial development corporations, family trusts, large NBFCs, and SEBI-registered intermediaries with net worth above ₹500 crore.

REITs and InvITs were earlier treated as hybrid products, given their blend of equity and debt features. REITs typically own or manage income-generating real estate, allowing investors to access diversified property portfolios, while InvITs channel investments into infrastructure projects. By revising classifications and widening access, SEBI aims to strengthen both segments and expand long-term participation in India’s capital markets.