REITs and InvITs Are No Longer a Niche Bet — Here's Why India's Mutual Funds Are Pouring ₹55,000 Crore Into Them

A few years ago, REITs and InvITs were the asset classes that financial advisors would mention at the end of a conversation, almost as an afterthought. Interesting structure. Decent yield. Not really mainstream. That description is now outdated.

25 fund houses have invested approximately ₹55,000 crore in InvITs and REITs as of end-2025 — a dramatic increase from the handful of fund houses that were participating just three years ago. The acceleration is not accidental. It is the product of regulatory changes, market performance, and a growing recognition that infrastructure and real estate trusts offer something that is genuinely scarce in equity-dominated portfolios: predictable, inflation-linked income.

WHAT CHANGED STRUCTURALLY

The most consequential development is a regulatory one. Effective January 1, 2026, SEBI reclassified REITs as equity-related instruments for mutual funds and specialised investment funds. Under the new SEBI rules, equity funds can invest up to 35% of their non-core allocation in InvITs, REITs, gold funds, silver funds, and debt instruments — giving fund managers significantly more flexibility to include these assets.

Before this reclassification, REITs and InvITs sat in an awkward regulatory category that created allocation constraints for many fund types. Moving REITs to equity classification removes those constraints — and the parity in treatment of InvITs with REITs as equity instruments can allow mutual funds to include them within their equity allocation limits, indirectly boosting liquidity and improving market participation.

WHY THE RETURNS JUSTIFY THE INTEREST

The Nifty REITs and InvITs index delivered a total return of 25.48% for the year — compared with the Nifty 50's return of 11.88% during the same period. That outperformance, delivered during a period of broader market volatility, is the kind of data that makes allocation committees take notice.

The InvIT structure requires distribution of at least 90% of net distributable cash flows to unit holders throughout the life of the trust. Toll revenues from road InvITs increase annually based on the Wholesale Price Index — providing built-in inflation protection that few other asset classes offer.

For mutual funds managing hybrid and balanced portfolios, that combination of high mandatory distribution and inflation-linked growth is genuinely difficult to replicate through other instruments. A 10-year government bond gives you fixed income without inflation protection. Equity gives you inflation protection without predictable income. REITs and InvITs offer both — at the cost of lower liquidity.

THE MACRO TAILWIND

India has allocated ₹11.21 lakh crore for infrastructure in Union Budget 2025-26, representing 3.1% of GDP. Global pension funds including Canada Pension Plan, Ontario Teachers' Pension, and KKR have already invested billions through InvITs, recognising the long-term infrastructure growth story.

The government's Asset Monetization Plan 2025–30 outlines leveraging existing public infrastructure assets across roads, railways, power, and telecom to fund new projects — a programme that will create a pipeline of InvIT-eligible assets for years to come.

The simple version: India is building infrastructure at an unprecedented pace, generating reliable toll, power transmission, and rental income streams that are now accessible to retail investors through mutual funds. The funds that are increasing their REIT and InvIT allocations are not making a speculative bet. They are following the cash flows.