MUMBAI, Feb. 13 -- Mutual funds remain cautious on real estate investment trusts (Reits) despite the Securities and Exchange Board of India's (Sebi) move to reclassify them as equity instruments, a step intended to deepen the market and align India with global standards.

The regulatory shift, effective 1 January, reclassified Reits as stocks from hybrid instruments. The change is expected to pave the way for their inclusion in equity indices by July 2026 and, eventually, attract larger institutional flows. But fund houses say the move has not materially altered their investment calculus.

Industry executives say liquidity constraints, scarce supply and limited upside in Reit prices still outweigh the regulatory tailwind. The reclassifica...