Why in the news
SEBI floated a consultation paper to loosen mutual fund (MF) investment rules for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), hoping for better diversification, liquidity and capital inflows.
Proposed limits
| Limit | Now | Proposed |
|---|
| Single issuer (of scheme NAV) | 5% | 10% |
| Overall, equity and hybrid schemes | 10% | 20% |
| Overall, debt schemes | 10% | 10% (unchanged, due to higher risk and perpetual nature) |
Key facts
- Currently MFAC and AMFI class them as hybrid instruments, given their cash flow models and valuation methods.
- SEBI wants feedback on treating them as equity, which would allow inclusion in equity indices for MF purposes.
- Globally they are often equity and sit in indices such as MSCI India Small Cap and FTSE India.
- Goals: align with global practice, add market depth and widen access via MFs. Public comments were invited.
REITs versus InvITs
| Aspect | REITs | InvITs |
|---|
| Assets | Commercial property such as offices, malls, hotels | Roads, power plants, telecom towers |
| Income | Rent | Tolls, tariffs, user fees |
| Payout rule | At least 90% of taxable income | At least 90% of net cash flows |
| Main risks | Market, property value, tenant default | Project, regulatory, demand |
Significance
- Deeper REIT and InvIT markets.
- More flexible portfolio building for fund managers.
- Retail investors gain real-asset exposure through MFs.
Exam angle
- Document type: consultation paper by SEBI.
- Full forms: REIT, InvIT, NAV, MFAC.
- Single-issuer limit: 5% to 10%.