Big relief for research analysts and investment advisors: SEBI board approves use of liquid and overnight funds for deposit requirements
The facility is expected to simplify the compliance burden, as mutual fund folios can be opened and managed digitally either through demat accounts or directly via asset management companies’ websites and mobile apps.
The Securities and Exchange Board of India (SEBI) board approved a proposal permitting Investment Advisers (IAs) and Research Analysts (RAs) to use units of liquid mutual funds and overnight funds, marked with a lien in SEBI’s favour, to meet their mandatory deposit requirements. This offers an alternative to the existing norm of maintaining a bank fixed deposit (FD).
Under current regulations, IAs and RAs are required to maintain a deposit with a scheduled bank, lien-marked in favour of the Administration and Supervisory Body (ASB), as a precondition for registration and continued compliance under the SEBI (Investment Advisers) Regulations, 2013, and SEBI (Research Analysts) Regulations, 2014. But stakeholders have flagged operational difficulties in this process, including inconsistent procedures across bank branches and challenges in lien marking.
Responding to these concerns, SEBI’s Board has allowed the use of liquid mutual funds and overnight funds as an additional route to fulfill deposit requirements. The regulator noted that these instruments are low-risk, highly liquid, and compatible with the securities market infrastructure, allowing for efficient lien marking and invocation within the ecosystem.
The facility is expected to simplify the compliance burden, as mutual fund folios can be opened and managed digitally either through demat accounts or directly via asset management companies’ websites and mobile apps.
The decision follows a public consultation process initiated by SEBI through a discussion paper issued on May 9, 2025. The final proposal incorporates feedback from market participants and industry stakeholders.
In December 2024, SEBI revised eligibility criteria for IAs and RAs by lowering the educational threshold from post-graduation to graduation, removing experience requirements, and replacing the net-worth mandate with a deposit-based model. In March 2025, further flexibility was granted by relaxing fee collection norms, allowing IAs and RAs to charge fees in advance for up to one year.
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