SEBI Reclassifies REITs as Equity for Mutual Funds from 1 January 2026

In short: From 1 January 2026, the Securities and Exchange Board of India treats any investment by mutual funds and Specialised Investment Funds (SIFs) in Real Estate Investment Trusts (REITs) as an investment in “equity / equity-related instruments.” Earlier, REITs sat in the hybrid bucket. Infrastructure Investment Trusts (InvITs) continue to be classified as hybrid. This is a back-office reclassification under the SEBI (Mutual Funds) Regulations, 1996, not a change to the fundamental attributes of your scheme, so you do not need to redeem or sign anything.

The change was approved by the SEBI board on 12 September 2025, notified through the Gazette by SEBI (Mutual Funds) (Amendment) Regulations, 2025 (notification SEBI/LAD-NRO/GN/2025/272 dated 31 October 2025), and operationalised by SEBI circular HO/24/13/12(1)2025-IMD-POD-2/I/157/2025 dated 28 November 2025.

Imagine you hold units of an equity mutual fund that, among other things, owns a listed REIT.

1. Before 1 January 2026: That REIT holding counted as a hybrid instrument. A pure debt scheme could also hold it. The same SEBI exposure limit applied jointly to REITs and InvITs.
2. From 1 January 2026: The REIT holding counts as equity. It now sits inside your fund's equity allocation and equity exposure limits, alongside listed shares. A debt-only scheme can no longer treat a fresh REIT purchase as a debt or hybrid asset.

For you as a unit holder, the day-to-day experience does not change: your NAV, your units, and your folio stay exactly the same. What changes is how the fund house labels the asset for regulatory reporting, category compliance, and future index eligibility. Your tax treatment of REIT distributions is governed by the Income-tax Act, 1961 and is unaffected by this SEBI reclassification.

On exposure caps, the implementing framework moves the existing single-issuer and aggregate investment limits that earlier applied jointly to REITs and InvITs. From 2026, those hybrid limits apply only to InvITs, while REIT exposure is governed by the equity-scheme limits already prescribed under the SEBI (Mutual Funds) Regulations, 1996. We have not stated a specific single-REIT percentage here because the exact caps for equity schemes should be confirmed from the SEBI circular and your scheme document before you rely on a number.

1. Do nothing urgent. SEBI has clarified this is not a change in the fundamental attributes of your scheme, so there is no exit window to act on and no fresh consent needed.
2. Re-read your fund's category. A hybrid or debt fund that held REITs may show a slightly different asset mix from January 2026. Check the latest factsheet to see how the fund classifies its REIT exposure.
3. Watch for index inclusion after 1 July 2026. If REITs enter equity indices, passive and index funds may start buying them. This can change demand for REIT units over time.
4. Separate this from fractional real estate. This change is about how MFs label REIT holdings. It is different from buying small-ticket REIT units yourself. See our guide on SM REITs and fractional real estate.
5. Keep an eye on costs. Reclassification does not change your fund's expense structure, but it is always worth reviewing the mutual fund expense ratio BER and TER.

The reclassification is administrative, but it has second-order effects. Treating REITs as equity can nudge fund houses to hold more of them in equity schemes, which may slightly raise the equity-like volatility of a portfolio that previously parked REITs on the hybrid side. Grandfathering protects existing debt-scheme holdings as on 31 December 2025, but SEBI has encouraged AMCs to divest gradually, so some debt funds may trim REIT positions over months. Finally, index inclusion is permitted only after 1 July 2026, so any passive-flow boost to REIT prices is a 2026 second-half story, not a January event. None of this overrides the protection of your existing units, and any genuine mis-selling or grievance can still be escalated through SEBI SCORES and SMARTODR grievance.

Dr. Shrawan Kumar Pathak, a retired professor in Lucknow, held units of a hybrid mutual fund that included a small listed REIT position worth about ₹40,000 in his ₹6,00,000 folio. In December 2025 he worried the 1 January 2026 change would force a sale or a tax event. His distributor confirmed that the reclassification only changed how the fund reported the REIT internally, that his units, NAV and folio were untouched, and that SEBI had expressly said this was not a change in fundamental attributes. Dr. Pathak took no action and simply noted the new equity label in his January 2026 factsheet.

No. SEBI has clarified the reclassification is not a change in the fundamental attributes of the scheme, so there is no exit window and no action is required from you.

No. Only REITs move to the equity / equity-related category for mutual funds and SIFs from 1 January 2026. InvITs remain classified as hybrid instruments.

REIT holdings in debt schemes and SIF strategies as on 31 December 2025 are grandfathered. AMCs are encouraged to divest these gradually, but the holdings are not forced out on day one.

Only after a six-month cooling period, that is, from 1 July 2026. The reclassification itself takes effect on 1 January 2026.

No. Your tax on REIT distributions and capital gains is governed by the Income-tax Act, 1961 and is not altered by this SEBI classification change. Confirm specifics with a tax adviser.

Read SEBI (Mutual Funds) (Amendment) Regulations, 2025 and the implementing circular dated 28 November 2025 on sebi.gov.in, linked in Sources below.

If a fund house or distributor gives you conflicting information about your REIT-linked scheme, you can demand clarity in writing. Our AI RTI Drafter helps you frame a precise query to a public authority, and The RTI Playbook explains how to push a request to a clear answer.

1. SEBI, “Reclassification of Real Estate Investment Trusts (REITs) as equity related instruments for facilitating enhanced participation by Mutual Funds and Specialized Investment Funds (SIFs),” Circular HO/24/13/12(1)2025-IMD-POD-2/I/157/2025, 28 November 2025, sebi.gov.in.
2. SEBI (Mutual Funds) (Amendment) Regulations, 2025, Gazette notification SEBI/LAD-NRO/GN/2025/272, 31 October 2025, sebi.gov.in.
3. SEBI board meeting decisions, 12 September 2025, sebi.gov.in.
4. Business Standard, “Sebi reclassifies Reits as equity for mutual fund investments,” 28 November 2025.
5. SEBI (Mutual Funds) Regulations, 1996, sebi.gov.in.