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Informist, Thursday, Apr. 17, 2025

--SEBI floats consultation paper to up MF invest limit in InvITs, REITs

NEW DELHI – The Securities and Exchange Board of India Thursday released a consultation paper on a proposal to enhance the investment limits of mutual funds in Real Estate Investment Trusts and Infrastructure Investment Trusts. It has sought comments and suggestions by May 11.

After consulting with industry bodies, the regulator has proposed that the overall investment limits of equity and hybrid schemes of mutual funds be doubled to 20% of their net asset value. The investment limits for debt schemes of mutual funds are proposed to be retained at 10% as REITs and InvITs are riskier than debt instruments and perpetual in nature. However, the single-issuer limits for investment for all schemes was proposed to be doubled to 10% from the existing 5%.

While asking for feedback on this proposal, SEBI also asked stakeholders whether there is merit in classifying investments in these instruments as equity, including their inclusion in equity indices. The regulator also sought other suggestions on the proposal with rationale.

In 2017, SEBI had classified InvITs and REITs as hybrid instruments, but said it was open to reviewing the classification due to petitions from stakeholders. Both the Association of Mutual Funds in India and the Mutual Fund Advisory Committee were of the view that they should be classified as hybrid instruments, the consultation paper said.

"Pursuant to deliberations, AMFI and MFAC were of the view that the REITs and InvITs should be classified as hybrid securities rather than as equity or debt securities, inter alia, due to difference in the structure related to their cash flows, dividends, half-yearly Net Asset Value (NAV) calculation based on valuation, voting rights limited to certain operational decisions etc.," the paper said.

AMFI told SEBI that dedicated mutual fund schemes for REITs and InvITs may be considered in only the medium-to-long terms. The advisory committee said it may not be advisable to have a dedicated scheme for these instruments as they were limited in number and did not offer much liquidity. SEBI data as of Dec. 31 showed INR 200.87 billion of mutual fund investment into InvITs and REITs, out of assets under managements worth INR 9.01 trillion in schemes with mandates to invest in these instruments. On average, debt schemes had 3.7% of their investment in the instruments, followed by hybrid schemes at 2.4% and equity schemes at 2.1%.  End

Reported by Aaryan Khanna

Edited by Ashish Shirke

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