SEBI Offers Compliance Relief to Investment Advisers and Research Analysts, Approves Use of Liquid MFs for Deposit Requirement

Moneylife Digital Team 19 June 2025

Investor Interest

Securities and Exchange Board of India (SEBI) has approved a key reform allowing investment advisers (IAs) and research analysts (RAs) to use liquid mutual funds (MFs) and overnight funds for fulfilling their regulatory deposit obligations. This marks a major ease-of-doing-business initiative intended to address long-standing operational difficulties faced by these market professionals.

As per SEBI’s regulations, IAs and RAs are required to maintain a deposit with a scheduled commercial bank. This deposit must be lien-marked in favour of the administration and supervisory body (ASB) overseeing the compliance of IAs and RAs. However, industry representatives have flagged challenges such as inconsistent interpretation of third-party fixed deposit procedures across various bank branches and issues with lien marking in favour of the ASB.

In response to these concerns, SEBI has now approved the use of units of liquid MFs and overnight funds as an alternative to traditional bank fixed deposits (FDs). These instruments are considered low-risk and highly liquid, and importantly, the lien on such mutual fund units can be marked within the securities market ecosystem, enabling more efficient compliance management, SEBI says.

The market regulator noted that MF folios can be opened and operated digitally, either in demat or non-demat mode, with facilities provided by asset management companies (AMCs) via their websites and mobile apps.

The new move is expected to simplify procedures and reduce dependency on banking infrastructure which has proved cumbersome for many IAs and RAs.

The decision follows a consultation paper released by SEBI on 9 May 2025 which had invited public comments on the proposed use of mutual funds for regulatory deposit compliance. SEBI considered the public feedback before finalising the measure.

This initiative is part of a broader set of reforms aimed at supporting IAs and RAs. In December 2024, SEBI had already introduced several changes to ease entry into the profession. These included lowering the minimum qualification requirement from post-graduation to graduation, allowing continuing professional education as a means of certification, and eliminating prior work experience requirements. Additionally, the earlier net-worth requirement was replaced with the current deposit mechanism to simplify regulatory entry.

Further, in March 2025, SEBI relaxed the rules on fee collection by IAs and RAs, allowing them to charge fees in advance for up to one year. The latest decision to include liquid and overnight mutual funds as valid instruments for meeting deposit requirements is seen as another important step in making the compliance framework more flexible and in tune with current market realities.

Comments