Views divided on treating MF investments in REITs as equity, says SEBI member Amarjeet Singh
Amarjeet Singh, Whole Time Member, Securities and Exchange Board of India (SEBI).
Mutual fund investments in Real Estate Investment Trusts (REITs) are treated as equity globally but in India it is a “divided house” though the regulator is looking into this matter, said Amarjeet Singh, Whole Time Member, Securities and Exchange Board of India (SEBI).
“… we are even looking at today you have flexibility of treating investments into REITs as equity or debt or hybrid. So we are looking can we make it equity. There is a divided house,” said Singh while speaking at the Moneycontrol Mutual Fund Summit.
“(One can) just treat it as equity as it is done globally. If you do it, if you classify as equity, lot of passive money can come. There are arguments on both sides. But these are the issues that we keep discussing and evaluating,” he added.
Globally, many jurisdictions classify REITs and InvITs as equity, and form part of equity indices. Indian REITs also form part of some of the global equity indices such as MSCI India Small Cap Index, FTSE India Index etc.
REITs and InvITs industry had sought classification as equity on the basis that, these units have features like equity — unitholders are owners of assets of REITs and InvITs.
Incidentally, mutual fund industry body AMFI is of the view that REITs and InvITs should be classified as hybrid securities rather than as equity or debt securities. As per a SEBI consultation paper, AMFI was of the view that, due to difference in the structure related to cash flows, dividends, half-yearly Net Asset Value (NAV) calculation based on valuation, voting rights limited to certain operational decisions etc.
Meanwhile, the SEBI consultation paper also proposed higher investment by mutual funds in REITs and InvITs . SEBI has proposed raising equity funds net asset value in REITs and InvITs to 20 percent from existing 10 percent while keeping the exposure of debt funds at 10%. The single issuer limit has also been proposed to be increased to 10 percent from the earlier 5 percent.