Is now the time to switch from direct Reit's to mutual funds?

Copyright © HT Digital Streams Limit all rights reserved. Should investors with SEBI’s update reconsider how they approach Reit’s? Shipra Singh 3 min read 16 Sept 2025, 01:38 pm ist Sebi agreed to reclassify the investment trusts (Reit’s) as stock exchanges. (Reuters) Summary Sebi’s reclassification of Reit’s as equity causes mutual funds to increase the allocation, but for retail investors, the decision to invest directly or through funds depends on tax benefits, goals and comfortable access. Last week, the Securities and Exchange Board of India (Sebi) agreed to reclassify the investment trusts (Reit’s) as equity stretching. This enables mutual funds to raise their award to Reit’s alone to 10% (single issuer -limit) from their net asset value. This change raises an important question- will it affect how small investors approach Reit’s? Should they invest directly or via mutual funds? At first glance, the move seems significant. With the broader allocation limit, hybrid equity funds such as balanced pre-freedom funds, Flexi-Cap funds and multi-asset allocation funds can increase their Reit exposure. Experts, however, believe that the choice between direct ownership and mutual funds for investment objectives, tax implications and ease of access depends on. Tax efficiency The reclassification does not change fundamentally how retail investors should decide between direct reit investments or mutual funds, says Abhishek Kumar, an investment adviser registered with Sebi and Sahajmoney founder. The main advantage of investing in Reit’s directly for small investors is the tax -free dividend income. A majority of the Reit Division comes in the form of dividends that are not taxable in the hands of unit holders. “That’s because corporate taxes have already been paid at the SPV level (SPV). That means investors can enjoy a tax-free return of about 5-7% annually, above the capital appreciation,” says Kumar. As of June 2025, the annual dividend yields for major Reit’s: Nexus Select Trust at 6.15%, Embassy Reit at 5.8%, and Brookfield Reit at 6.3%. In contrast, mutual fund distributions are treated as dividends and taxed against the investor’s plate rate, reducing the net returns. However, both routes attract the same capital gains treatment of 20% for short -term gains and 12.5% ​​for long -term profits above £ 1.25 Lakh. Niraj Murarka, CIO -Real Bates, 360 One asset, thinks direct participation is the better choice for retail investors. ‘If you want a significant exposure to Reit’s, you must invest directly. Mutual funds are expected to allocate only a small part of their assets, and returns will then be subject to market movements, ‘he said. Direct investments also offer greater flexibility. Investors can choose which Reit’s to support, assign a larger share if desired, and benefit from ordinary cash flow. The trading of Reit units is as simple as buying or selling shares. However, those looking for diversification across various Reit’s and lower access barriers through systematic investment plans (SIPs) can find mutual funds more suitable, Kumar added. “Although the reclassification mainly benefits mutual fund schemes by allowing higher assignments, it does not change the core of investors who face investors between direct ownership and investment via mutual funds,” Kumar noted. Challenges of direct reit investment The direct route has its disadvantages. Liquidity and concentration risks are the most important concern for Reit investors. “The Indian Reit market is still small, with limited choices and relatively thin trading volumes,” Kumar pointed out. In addition, direct Reit investors must actively monitor the performance of individual Reit’s, unlike mutual funds where professional managers handle it, he added. Murarka agreed and warned that investors should evaluate the Reit’s in more detail before investing to understand fair value and sectord dynamics. The Mutual Fund approach-a wait-and-watch game investors who choose the Mutual Fund route should watch funds adjust their award to Reit’s. Experts believe the impact of the increased limit will be modest. ‘Barely a fund house that has exhausted the previous 10% roof that covers both Reit’s and invitations. More than half of the industry had no assignment, and those who mostly awarded 3-8%, ‘an expert in the industry said. “While fund managers now have more flexibility, they are unlikely to transform their strategies,” he added. Business reports indicate that exposure to stock -subject funds, including hybrid funds, in Reit’s is less than 1% of total assets under management. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More topics #sebi #reits #mutual foss #retail investors read next story