The Securities and Exchange Board of India (SEBI) has allowed Investment Advisers (IAs) and Research Analysts (RAs) to use liquid mutual funds and overnight funds—along with bank fixed deposits—to meet their regulatory deposit requirements.
This move is aimed at easing operational challenges faced by IAs and RAs and enhancing the ease of doing business. Under current rules, IAs and RAs are required to maintain a lien-marked deposit with a scheduled bank in favour of the Administration and Supervisory Body (ASB).
Industry associations had flagged difficulties in opening fixed deposit accounts and inconsistencies in procedures for lien marking across bank branches. They proposed allowing lien-marked units of liquid mutual funds as an alternative.
SEBI’s board approved the proposal on Wednesday, noting that liquid and overnight funds are low-risk instruments with relatively low volatility. It also acknowledged that liens on mutual fund units can be effectively implemented within the securities market infrastructure, improving efficiency.
The regulator highlighted that mutual fund folios can be operated digitally or in demat form and that many asset management companies now offer seamless online access through apps and websites.
This update follows a May consultation paper floated by SEBI proposing the use of liquid mutual funds for deposit compliance. It is also in line with SEBI’s broader reforms introduced in December 2024, which included easing eligibility criteria, replacing net-worth requirements with a deposit system, and allowing certification via continuing professional education.
Separately, SEBI also approved a one-time settlement scheme for Venture Capital Funds (VCFs) that failed to wind up their schemes within prescribed timelines. This scheme applies to VCFs that have completed migration to SEBI’s Alternative Investment Funds (AIF) Regulations.
The settlement amount ranges from ₹1 lakh for delays up to one year and ₹50,000 for each additional year, with an additional slab-based fee of ₹1–6 lakh depending on unliquidated investments. The last date to apply for the scheme is 19 January 2025.
SEBI clarified that migration to AIF Regulations will allow more time for liquidation, but will not absolve past delays. The settlement scheme only covers tenure-related non-compliance and does not impose any extra burden on investors. Application modalities will be announced in due course.