India’s listed Real Estate Investment Trusts (REITs) witnessed a sharp rally of up to 8% over the past two trading sessions following the Securities and Exchange Board of India’s (SEBI) decision to reclassify REITs as equity instruments. The move, announced on September 15, 2025, is being hailed as a landmark reform that could significantly boost mutual fund participation, improve liquidity, and pave the way for REITs’ inclusion in benchmark equity indices.
The reclassification aligns India with global standards, where REITs are treated as equity-like vehicles due to their capital appreciation potential, dividend payouts, and market volatility. SEBI’s decision is expected to deepen retail and institutional participation in India’s real estate-backed securities market.
Market Reaction: REITs Rally Across the Board
| REIT Name | Price Change (2 Days) | Latest Price (₹) | Market Cap (₹ crore) |
|---|---|---|---|
| Nexus Select Trust | +7.6% | ₹157.70 | ₹23,785.50 |
| Mindspace Business Parks REIT | +5.6% | ₹446.89 | ₹27,114.76 |
| Brookfield India REIT | +5.6% | ₹338.00 | ₹21,440.35 |
| Knowledge Realty Trust | +4.1% | ₹112.35 | ₹21,440.35 |
| Embassy Office Parks REIT | +3.8% | ₹413.99 | ₹39,199.20 |
The surge in REIT prices reflects investor optimism about the sector’s future, especially as mutual funds and index funds prepare to recalibrate their portfolios to include these instruments.
What SEBI’s Reclassification Means
SEBI’s decision to grant equity status to REITs is based on their equity-like characteristics, including:
- Price volatility and capital appreciation
- Regular dividend payouts
- Liquidity on stock exchanges
- Transparent governance and disclosures
| Classification Aspect | Previous Status | New Status |
|---|---|---|
| Regulatory Category | Hybrid | Equity |
| Mutual Fund Eligibility | Restricted | Expanded |
| Index Inclusion Potential | Limited | Enabled |
| Tax Treatment | Already equity-like | Unchanged |
Infrastructure Investment Trusts (InvITs), however, will continue to be classified as hybrid instruments due to their distinct cash flow structures and operational models.
Industry Response: A Watershed Moment
Industry stakeholders have welcomed SEBI’s move, calling it a game-changer for India’s real estate investment landscape.
| Expert Name | Comment |
|---|---|
| Vaibhav Agrawal, Motilal Oswal AMC | “REITs reclassified as equity will provide a safe investment avenue for mutual funds and retail investors.” |
| Mathew Thomas, Saraf & Partners | “This move aligns REITs with the broader equity market, enabling index inclusion and institutional participation.” |
| Taxmann Advisory & Research | “Reforms will empower mutual funds to tap into a broader spectrum of asset classes.” |
The Association of Mutual Funds in India (AMFI) and the Mutual Fund Advisory Committee (MFAC), however, had earlier expressed reservations, citing differences in cash flow structures and NAV calculations.
Implications for Mutual Funds and Index Inclusion
With REITs now classified as equity, mutual funds can include them in equity schemes without regulatory hurdles. This opens the door for:
- Inclusion in benchmark indices like Nifty and Sensex
- Greater exposure in large-cap and diversified equity funds
- Enhanced liquidity and price discovery
| Mutual Fund Impact | Outcome |
|---|---|
| Equity Scheme Eligibility | Expanded |
| Index Fund Rebalancing | Likely in Q4 FY25 |
| Retail Participation | Expected to rise |
| Institutional Allocation | Set to increase |
This could also lead to the launch of REIT-focused equity funds, giving retail investors more avenues to participate in India’s commercial real estate growth.
Global Context: Aligning with International Norms
Globally, REITs are part of major equity indices and are treated as equity instruments by regulators and fund managers. Examples include:
| Global REITs in Equity Indices | Index Inclusion |
|---|---|
| Prologis | S&P 500 |
| American Tower | Nasdaq 100 |
| Equinix | MSCI World |
| Digital Realty Trust | FTSE NAREIT |
| Simon Property Group | Dow Jones REIT Index |
India’s move brings its regulatory framework closer to these global standards, enhancing its appeal to foreign institutional investors.
Taxation and Investor Benefits
While SEBI’s reclassification does not alter the tax treatment of REITs, it reinforces their equity-like nature. Currently:
| Tax Type | Rate |
|---|---|
| Short-Term Capital Gains | 20% |
| Long-Term Capital Gains | 12.5% |
| Dividend Income | Taxable as per slab |
Investors benefit from regular income, potential capital appreciation, and diversification into real estate without direct property ownership.
Challenges and Considerations
Despite the positive outlook, some experts caution that REITs differ from traditional equities in key areas:
| Concern Area | Explanation |
|---|---|
| NAV Calculation | Semi-annual, not daily |
| Voting Rights | Limited to operational matters |
| Cash Flow Structure | Rental income-based |
| Dividend Mandate | 90% of net distributable income |
These factors may require mutual funds and index providers to adopt tailored strategies when integrating REITs.
Conclusion: SEBI’s Reform Sets Stage for REITs’ Next Growth Phase
SEBI’s decision to reclassify REITs as equity instruments is a transformative step for India’s capital markets. By unlocking mutual fund participation and paving the way for index inclusion, the move enhances liquidity, transparency, and investor access to real estate-backed securities.
As REITs continue to gain traction, this reform could catalyze a new wave of retail and institutional investment in India’s commercial real estate sector—making REITs not just a niche asset class, but a mainstream equity play.
—
Disclaimer: This article is based on publicly available regulatory announcements, verified market data, and expert commentary. It is intended for informational purposes only and does not constitute investment advice. All figures and developments are subject to change based on SEBI notifications and market conditions.
