Sebi to Raise Mutual Fund Investment Ceilings in REITs and InvITs for More Diversification
The Securities and Exchange Board of India (Sebi) has mooted a major shift in the mutual fund investment framework by suggesting raising ceilings on investments in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). The aim is to provide mutual funds with more windows of diversification as well as enhance capital inflow into these assets.
Right now, schemes for mutual funds have some curbs limiting exposure to REITs and InvITs at a 5 per cent level on an issuer-specific basis and, collectively, not exceeding 10 per cent of the NAV of a fund. Such constraints have been perceived to hinder mutual fund access to investment opportunities for allocating capital in the space as an asset class different from stocks or bonds.
For this, Sebi has issued a consultation paper suggesting the easing of these restrictions. In the new suggestion, the limit for a single issuer would be tied with the limits placed on equity or debt securities, raising it to 10 per cent of the scheme’s NAV. The aggregate exposure limit for REITs and InvITs would also be increased from 10 per cent to 20 per cent in case of equity and hybrid mutual fund schemes.
But Sebi has suggested that the existing 10 per cent overall cap for debt-oriented mutual fund schemes should be maintained. This is because REITs and InvITs are comparatively riskier and everlasting in nature when compared with traditional debt securities.
The suggestion is made in view of the current number of listed REITs and InvITs, their volumes, and their structure. Currently, equity and debt mutual fund schemes both have REITs and InvITs in their schemes.
This move is likely to not only give more flexibility to fund managers but also deepen the market base and liquidity of REITs and InvITs. Sebi has sought public comments on the proposed amendments, with the window for submissions remaining open until May 11.
