SEBI mulls enhancing mutual funds' investment limit in REITs, InvITs

Markets regulator SEBI on Thursday proposed enhancing limits for investments by mutual funds in REITs and InvITs in a bid to provide more investment avenues and further diversification of such schemes.

The proposal, if implemented, is also expected to increase the capital inflow into the instruments — real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) — broadening their market base and liquidity.

In its consultation paper, SEBI noted that the current single issuer and overall limits of 5% and 10%, respectively, in REITs and InvITs restrict mutual funds desirous of taking exposure in REITs and InvITs as an asset class.
Accordingly, it has proposed relaxing investment restrictions in REITs and InvITs for MF schemes. The single issuer limit should be revised to similar limits applicable to investments in equity or debt instruments — 10 % of the NAV (net asset value) of the fund.

With regard to the current overall 10% exposure limit for REITs and InvITs in funds’ NAV, SEBI said the same should be revised to 20% for equity and hybrid schemes.

However, for debt schemes, the same should be kept limited to 10%, considering REITs and InvITs being relatively riskier than debt instruments and perpetual in nature.

The regulator has proposed to enhance the investment limits, keeping in view the actual number of listed REITs and InvITs, their volumes and features.

Currently, REITs and InvITs form part of investments by both equity and debt mutual fund schemes. The Securities and Exchange Board of India (SEBI) has sought public comments on the proposal till May 11