The Securities and Exchange Board of India (SEBI) has proposed a major policy shift aimed at expanding the scope of mutual fund investments in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). If approved, this could allow mutual funds to take on higher exposure in REITs and InvITs, diversifying investor portfolios and potentially enhancing returns.
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What Are REITs and InvITs?
REITs (Real Estate Investment Trusts) are investment vehicles that pool investor money to own and operate income-generating real estate, such as commercial buildings, malls, and office spaces.
InvITs (Infrastructure Investment Trusts), similar in structure to REITs, are investment vehicles that invest in infrastructure assets like highways, power transmission lines, and telecom towers.
Both are market-linked instruments and offer dividend income + capital appreciation, making them attractive for income-focused investors.
What are the current SEBI Limits for Mutual Fund Investments?
- A mutual fund cannot invest more than 10% of its NAV in REITs/InvITs.
- Investment in a single issuer (REIT or InvIT) is capped at 5% of the NAV.
- A mutual fund house (across all schemes) cannot hold more than 10% of units issued by a single REIT/InvIT.
- Index funds and REIT/InvIT-specific sectoral funds are exempt from these limits.
SEBI’s Proposed Changes (as of April 17, 2025)
SEBI has released a consultation paper proposing the following revisions:
| Scheme Type | Single Issuer Limit (Current) | Single Issuer Limit (Proposed) | Overall Limit (Current) | Overall Limit (Proposed) |
| Equity Schemes | 5% | 10% | 10% | 20% |
| Hybrid Schemes | 5% | 10% | 10% | 20% |
| Debt Schemes | 5% | 10% | 10% | 10% |
Source: SEBI’s Consultation Paper
SEBI argues that current caps constrain mutual funds from effectively participating in REITs and InvITs as asset classes. The revised limits would provide fund managers more flexibility to diversify outside of equity and debt into REITs/INVITs.
Why This Matters to Mutual Fund Investors
If accepted these proposals will open the door to broader diversification and new income opportunities. Greater exposure to REITs and InvITs can help mutual funds diversify across both sectors and asset classes.
These instruments are also known for their steady dividend payouts, making them attractive to investors seeking passive income. Plus, with India’s real estate and infrastructure sectors on the rise, there’s potential for long-term capital growth.
That said, there are some risks to keep in mind. Returns from REITs and InvITs are market-linked and can fluctuate with cycles in the real estate and infrastructure sectors. Liquidity may also be a concern, as these trusts often have lower trading volumes compared to traditional stocks or bonds. And while SEBI has proposed higher exposure limits, it has sensibly retained a 10% cap for debt schemes, given the comparatively higher risk of these instruments versus standard bonds.
How Should Investors React?
If these changes are implemented:
- Review your fund portfolios – See how much REIT/InvIT exposure your current mutual funds already have. Make sure you’re not overexposed to a particular segment.
- Take decisions based on your Financial personality – While offering potential upside such as diversification, REITs and InvITs still carry market-linked risks hence before investing make sure it aligns with your investment style.
- Consult a financial advisor – Before making any financial decision, it’s important to consult a qualified financial advisor to ensure your choices align with your overall financial goals.
Conclusion
SEBI’s move to revise mutual fund exposure limits in REITs and InvITs signals growing institutional confidence in India’s real estate and infrastructure story. For investors, this opens up a new channel of diversified income-generation and capital growth—but with the need for cautious optimism and careful portfolio planning.
Got views on this? You can submit your opinion on SEBI’s consultation paper until May 11, 2025 by clicking here.
