SEBI May Reclassify REITs And InvITs As Equity From Hybrid: Report
REITs and InvITs may be classified as equity if Sebi accepts the Finance Ministry's proposal, boosting their visibility in mutual funds' equity schemes.
Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) would soon be classified as 'equity" if the market regulator Sebi accepts the Finance Ministry's proposal in the upcoming board meeting, likely in the next two months, as per MoneyControl report. The move is set to increase the visibility and acceptability of these two instruments, giving mutual funds the option to include in their equtiy-oriented schemes, the MoneyControl report added.
Currently, these two instruments are classified as hybrid.
REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) are investment vehicles that allow individuals to invest in real estate and infrastructure assets, respectively, without owning them directly.
REITs invest in income-generating properties like office buildings and malls, earning rental income, which is distributed to investors as dividends. InvITs, on the other hand, invest in infrastructure projects such as highways, power transmission lines, and pipelines, generating income through tolls or usage charges, which is shared with investors as interest or dividends.
A hybrid fund unlike equity-oriented scheme adds different asset class in a single portfolio such as equity and debt (Bond/fixed-income securities), or gold or real estate.
These instruments are listed and traded on stock exchanges like equity shares but have a unique feature—they are required to distribute a large portion (typically 90%) of their net distributable cash flow to unitholders, providing a stable income stream similar to debt instruments.
Despite their benefits, officials note to MoneyControl that mutual fund exposure to REITs and InvITs remains below 1%, a figure they believe should rise given the potential of these instruments to deliver steady returns and support investments in the real estate and infrastructure sectors.
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