Relief for IAs and RAs: SEBI May Allow Liquid Mutual Funds for Deposit Compliance

The capital market regulator SEBI has proposed permitting investment advisers (IAs) and research analysts (RAs) to use liquid mutual fund units, marked with a lien in SEBI’s favour, to meet their mandatory deposit requirements. This would serve as an alternative to the existing option of maintaining a bank deposit.

What Current Regulation Say?

Under current SEBI regulations, IAs and RAs must maintain a bank deposit with a lien marked in favour of their supervisory authority as a condition for registration. This requirement must be continuously met to maintain their registration status.

At present, they are expected to comply with this requirement by June 30, 2025.

However, SEBI has received feedback from IAs and RAs reporting challenges in opening fixed deposit accounts and establishing the required lien, due to inconsistent processes at bank branches, delays in documentation, confusion over lien procedures, and limited bank staff awareness of SEBI’s rules.

What is Going to Change for IA and RAs?

SEBI’s consultation paper proposes allowing lien-marked liquid mutual fund units to fulfill the deposit obligation under the IA and RA regulations. These liens would need to remain in place for at least one year.

SEBI pointed out that liquid mutual funds are typically low-risk and highly liquid. These units could be held in either Statement of Account (SOA) or dematerialised (demat) form. The deposit value would be calculated after applying the exit load and a specified haircut.

The value of the mutual fund units would be assessed annually. If it falls short of the required amount, or if the adviser or analyst’s client base grows, they would need to contribute additional units to meet the threshold.

Also Read: SEBI Allowed NSE to Launch Electricity Futures

Conclusion

SEBI’s proposal to allow lien-marked liquid mutual fund units as an alternative to traditional bank deposits aims to ease compliance for investment advisers and research analysts.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.