SEBI allows liquid and overnight mutual funds for compliance deposits; announces one-time relief scheme for delayed VCF closures

The decision aims to address long-standing procedural challenges faced by IAs and RAs in creating lien-marked fixed deposits with scheduled banks, a mandatory step under existing regulations.

Mutual fund units to ease procedural bottlenecks

Industry associations had earlier highlighted inconsistent lien-marking procedures across bank branches and the difficulty of opening fixed deposit accounts.

In response, SEBI has now permitted lien-marked units of liquid and overnight mutual funds, citing their low-risk and low-volatility nature.

The regulator noted that mutual fund units—held either digitally or in dematerialised form—can be easily managed within the existing market infrastructure.

SEBI said this flexibility would not only enhance compliance efficiency but also encourage a digital-first approach, given that most asset management companies now offer secure online access through mobile apps and websites.

Wider reform push continues

This move aligns with SEBI’s broader reforms initiated in December 2024, which had included replacing traditional net worth-based eligibility criteria with a deposit-based system for IAs and RAs.

The reforms also introduced the option of certification through continuing professional education, reflecting a more inclusive and flexible regulatory approach.

The mutual fund deposit provision had first been floated as part of a consultation paper issued by SEBI in May.