Edelweiss Mutual Fund is preparing to launch a new index fund tracking the Nifty REITs & Realty Index following new SEBI regulations. This move allows retail investors to gain diversified exposure to commercial real estate and property developers through a single mutual fund. The strategy aims to simplify real estate investing while offering potential tax advantages over direct REIT holdings.
Indian mutual fund houses are set to expand their product offerings as regulators allow Real Estate Investment Trusts (REITs) to be included in equity indices. This change, effective as of July 2026, follows a decision by the Securities and Exchange Board of India (SEBI) to classify REITs as equity instruments. Edelweiss Mutual Fund is expected to be the first to introduce a passive index fund tracking the Nifty REITs & Realty Index, providing a new way for investors to access the commercial real estate sector.
Accessing Real Estate Through Passive Funds
Currently, investors interested in professional real estate management often navigate direct REIT investments, which can involve complex tax compliance. By launching an index fund, asset management companies aim to provide a more streamlined and tax-efficient structure. These funds combine the income-generating nature of REITs—which derive revenue from rent-yielding properties—with the capital growth potential of listed real estate development companies. For many investors, this product may serve as a proxy for the commercial real estate market, potentially allowing for the use of tools like systematic withdrawal plans (SWP) to generate regular cash flow.
Index Composition and Market Participation
The Nifty REITs & Realty Index and the BSE REITs and Commercial Real Estate Index currently serve as the primary benchmarks for these passive products. The index weightings are structured to include both established REITs and major real estate developers. Currently, REITs such as Embassy Office Parks REIT, Brookfield India Real Estate Trust, and Nexus Select Trust account for approximately 60% to 65% of these indices. The remaining portion consists of leading property developers, including DLF, Lodha Developers, Prestige Estates Projects, Godrej Properties, and The Phoenix Mills.
While the current composition is heavily influenced by a limited number of listed REITs, officials from various fund houses anticipate that the weightage of REITs within these indices will increase as more trusts go public in the future. The BSE has also confirmed it is in discussions with several asset management companies to offer funds tracking its specific REIT-based indices, citing growing investor awareness as a catalyst for growth.
Considerations for Investors
Investors should note that while these funds offer diversification across multiple assets, their performance is tied to the underlying real estate market and the occupancy rates of the commercial spaces managed by the REITs. Additionally, because these are index funds, they do not aim to outperform the market but rather mirror the returns of the chosen index. The long-term success of these products will depend on the liquidity of the underlying REITs and the ability of the index to capture the cyclical nature of the real estate sector. Prospective investors may want to track the expense ratios of these upcoming funds and the specific allocation between commercial property trusts and residential or commercial developers to understand the level of risk and growth potential involved.