SEBI Explores Strategic Reforms to Expand REITs and InvITs Investment Framework

The Securities and Exchange Board of India is reportedly considering a comprehensive set of regulatory enhancements aimed at deepening market participation and broadening investment opportunities in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). SEBI Chairman Tuhin Kanta Pandey outlined these potential reforms during the National Conclave on REITs & InvITs held in New Delhi on Friday.

Proposed Regulatory Enhancements Under Consideration

Inclusion in Benchmark Market Indices

According to industry sources, SEBI is exploring the possibility of including REITs in mainstream benchmark market indices through a phased approach. This move could potentially unlock significant liquidity and attract heightened institutional interest to the sector, which has been operating on the periphery of traditional investment vehicles.

Expanded Mutual Fund Participation

The regulator is reportedly examining proposals to allow REITs and InvITs to invest in a wider array of liquid mutual fund schemes. However, sources indicate that such expansion would come with stringent investor protection norms to safeguard retail participants.

Private InvITs Access to Greenfield Projects

In what could mark a significant shift from current practices, SEBI is considering permitting private InvITs to deploy capital in greenfield infrastructure projects. Currently, these investment vehicles primarily focus on operational assets. Industry experts suggest that adequate safeguards would be implemented to manage the inherent risks associated with new infrastructure developments.

Multi-Agency Coordination for Market Development

To accelerate public asset monetization and increase institutional investment flows, SEBI is engaging in discussions with multiple government bodies and financial regulators. These include the Finance Ministry, various State Governments, the Insurance Regulatory and Development Authority of India (IRDAI), Pension Fund Regulatory and Development Authority (PFRDA), and the Employees' Provident Fund Organisation (EPFO).

This coordinated approach aims to create an ecosystem conducive to larger capital raising activities and facilitate smoother participation by long-term institutional investors in real estate and infrastructure-backed securities.

Addressing Awareness and Participation Gaps

Pandey acknowledged that despite growing regulatory support, the market for REITs and InvITs remains underdeveloped compared to traditional asset classes. He highlighted concerning statistics showing that only approximately 10 percent of retail investors are aware of these investment instruments, with actual participation levels falling below 1 percent.

The SEBI Chairman emphasized the need for a paradigm shift in perception, stating that REITs and InvITs should be viewed as mainstream investment options alongside equities, mutual funds, and bonds, particularly given their stable income-generating characteristics.

Broader Capital Markets Simplification Agenda

Beyond REITs and InvITs, SEBI reiterated its commitment to simplifying capital-raising frameworks across multiple instruments. This includes streamlining processes for Initial Public Offerings (IPOs), Rights Issues, Qualified Institutional Placements (QIPs), and bond market access. These initiatives are designed to reduce compliance burdens and facilitate greater access to capital for infrastructure and real estate-focused investment vehicles.

Industry Implications and Future Outlook

SEBI's renewed focus on reforming the REIT and InvIT ecosystem comes at a critical juncture when India is scaling up infrastructure development and urban expansion. The proposed changes could potentially unlock substantial new capital inflows, particularly from long-term institutional investors, and diversify funding sources for large-scale public and private infrastructure projects.

However, the regulator made it clear that while regulatory frameworks will continue to be strengthened, the onus remains on industry stakeholders to build credibility, enhance liquidity, and achieve the scale necessary to establish these instruments as a mature asset class. The success of these reforms will depend on coordinated efforts between regulators, government agencies, and market participants to transform REITs and InvITs from niche products into mainstream investment vehicles accessible to a broader spectrum of Indian investors.