Sebi allows IAs, RAs to use MFs, overnight funds to meet deposit norms

Business Standard

7 hours ago

Markets regulator Sebi has allowed Investment Advisers (IAs) and Research Analysts (RAs) to use liquid mutual funds and overnight funds as an additional option to the bank fixed deposit to meet their deposit requirements.
This would provide IAs and RAs an additional option, along with bank fixed deposits, to comply with regulatory requirements and help in promoting ease of doing business.
Under the current rule, IAs and RAs are required to maintain a deposit with a scheduled bank. Such a deposit is required to be lien-marked to the Administration and Supervisory Body (ASB) for IAs and RAs.
IAs and RAs, through their associations, have represented that they are facing certain operational difficulties in opening the FD accounts, such as non-uniform interpretation of third-party FD procedures across different bank branches and lien marking of the same in favour of ASB. They suggested that as an alternative to FD, units of a liquid mutual fund lien marked in favour of ASB may also be permitted.
Accordingly, the board of Sebi approved a proposal in this regard on Wednesday.
While approving the proposal, the Sebi's board noted that liquid mutual funds may be considered low-risk and less volatile instruments. Further, a lien can be marked on liquid mutual funds.
"The operation of lien and invocation of lien on units of liquid mutual fund remains within the securities market ecosystem, bringing in more efficiency," Sebi said.
Moreover, mutual fund folios can be opened and operated digitally as well as in demat mode and asset management companies provide such facilities on their websites and apps that can be accessed through the internet on mobile phones/computers.
Also, the board noted that similar to liquid mutual funds, overnight funds could also be a good alternative.
In May, Sebi floated a consultation paper proposing to allow 'use of liquid mutual funds for compliance with the deposit requirements'.
In December 2024, the regulator introduced various measures for ease of doing business for IAs and RAs. These measures include easing the eligibility criteria for qualification from post-graduation to graduation, allowing certification through a continuing professional education model, and removing the experience requirements. The net-worth requirement for IAs and RAs was also discontinued and was replaced with a requirement of deposit.
Furthermore, in the March board meeting, fee-related restrictions on IAs and RAs were relaxed to allow them to charge fees in advance up to a period of one year. The move was part of the continuous efforts of Sebi to address the genuine concerns of IAs and RAs.
Also, the board of Sebi noted the decision to introduce a one-time settlement scheme for Venture Capital Funds (VCFs) for not winding up their schemes within the prescribed time frames.
The scheme provides a settlement opportunity to VCFs who have completed the migration to the Sebi (Alternative Investment Funds) Regulations.
The settlement amount consists of two parts -- Rs 1 lakh for delay of up to 1 year in winding up the scheme and Rs 50,000 for every subsequent year of delay or part thereof and an amount (based on a slab-wise structure) ranging from Rs 1 lakh to Rs 6 lakh depending on the cost of unliquidated investments as on the date of application for migration.
Explaining the features of the scheme, Sebi said that prior to applying under the settlement scheme, VCFs should have completed the migration to AIF Regulations. The settlement amount and all expenses related to settlement will be borne by the Investment Manager/ Sponsor.
Last date for applying under this settlement scheme will be January 19, 2025.
"Migration to AIF Regulations would help the VCFs to secure an additional liquidation period to liquidate the assets and wind up the schemes. However, such migration would not absolve the VCFs from their past delays for winding up such schemes. The scheme is intended to provide expeditious settlement of the past non-compliance related to tenure of scheme only, without any additional burden to investors," Sebi said.