No, REITs are not mutual funds. A real estate investment trust and a mutual fund are two distinct legal structures: a REIT is a company organized under the Internal Revenue Code to own or finance income-producing real estate, while a mutual fund is a pooled investment vehicle regulated under the Investment Company Act of 1940. They can hold each other, and a real estate mutual fund may own dozens of REITs, but the wrapper you buy determines how the shares trade, what they cost, and how the income is taxed.
What a REIT Actually Is
A REIT is a company. To keep that tax status, it has to hold at least 75% of its assets in real estate, cash, or government securities, and at least 75% of its gross income has to come from rents, mortgage interest, or other real-estate sources. It also has to pay out at least 90% of its taxable income to shareholders each year. Meeting that payout threshold lets the trust deduct the dividends it pays, which is why REITs generally avoid corporate-level tax on distributed profits.
A REIT can be publicly listed on a stock exchange, publicly registered but non-traded, or private. The tax rules are the same across those forms; the way you buy and sell shares is not.
What a Mutual Fund Actually Is
A mutual fund is a registered investment company under the 1940 Act, codified at 15 U.S.C. §§ 80a-1 through 80a-64. It pools money from many investors, hires an investment adviser who owes fiduciary duties to shareholders, and holds its portfolio with a qualified third-party custodian rather than in-house.
A fund that calls itself diversified has to spread its holdings: at least 75% of assets structured so no more than 5% sits in any single issuer, and no more than 10% of any one company’s voting securities. Nothing in that framework requires real estate. A mutual fund can hold stocks, bonds, REITs, or a mix, and its category is defined by what the adviser buys, not by the wrapper itself.
How You Buy and Sell Them
This is where the difference shows up first for most investors.
Publicly Traded REITs
Shares of a listed REIT trade on a stock exchange like any other common stock. You can buy or sell during market hours at a price that moves in real time, and most major brokers charge no commission on listed trades.
Mutual Funds
Mutual fund shares don’t trade on an exchange. Under the SEC’s forward-pricing rule, your buy or sell order executes at the next net asset value the fund calculates — total assets minus liabilities, divided by shares outstanding — which happens once per business day after the exchanges close. You won’t know your exact price until that day’s NAV is struck. Mutual fund shares are redeemable, meaning you sell them back to the fund rather than to another investor, and the fund generally has to pay redemption proceeds within seven days.
Non-Traded REITs
Non-traded REITs qualify as REITs for tax purposes but don’t list their shares anywhere. There’s no public market, so you can only exit through a share-repurchase program run by the REIT’s management. Those programs typically cap redemptions at 2% to 5% of outstanding shares per year and can be suspended during heavy redemption periods. If you buy one, treat the money as illiquid for years.
What Each One Costs
A publicly traded REIT bought through a brokerage account usually costs nothing beyond the share price. The REIT has internal operating expenses, but those are absorbed inside the share price rather than billed to you.
Mutual funds can layer several charges. A front-end sales load on Class A shares typically runs 2% to 5% of your investment and comes off the top. Class C shares often carry a back-end charge around 1% if you sell within the first year. Many funds also assess a 12b-1 fee for distribution and marketing, capped by the SEC at 1% of fund assets annually (up to 0.75% for distribution and 0.25% for shareholder servicing), on top of the management fee. All of these come out of fund assets automatically and are disclosed in the prospectus.
Non-traded REITs sit at the expensive end. Commissions and organizational expenses can eat 10% to 15% of your initial investment before any of it is deployed into property, and ongoing acquisition, management, and back-end liquidation fees keep drawing on returns after that.
How the Distributions Are Taxed
REIT dividends are mostly taxed as ordinary income at your regular rate, not at the lower qualified-dividend rate that applies to many stock dividends. The Section 199A deduction, which lets eligible taxpayers deduct up to 20% of qualified REIT dividends, was made permanent by legislation signed in July 2025. Some of a REIT’s distribution can also be classified as capital gains or as a return of capital that reduces your cost basis instead of creating immediate tax. Your Form 1099-DIV breaks down the categories.
Mutual fund distributions pass through in several buckets. Ordinary dividends are taxed at your regular rate; qualified dividends get the lower capital-gains rate. When the fund’s manager sells holdings at a profit, the fund distributes capital gains to shareholders, and those are treated as long-term regardless of how long you personally owned the fund’s shares. The fund reports the split on Form 1099-DIV.
Where the Two Overlap
REITs and mutual funds are separate structures, but they meet in real estate mutual funds and real estate ETFs. A real estate mutual fund builds its portfolio by buying shares of individual REITs across sectors like healthcare, retail, industrial, and residential property, giving you diversified real estate exposure through one purchase. A real estate ETF does the same, trades on an exchange throughout the day, and typically reports holdings daily rather than quarterly.
So a fund that holds REITs is still a mutual fund. A REIT that a fund holds is still a REIT. The tax rules, the trading mechanics, and the fees all follow the wrapper you actually own, not the assets underneath it.