SEBI Provides Clarity On Mutual Fund Investments In Short-Term Bank Deposits

Mutual fund houses should ensure that banks —where a scheme has parked funds in the lender's short-term deposits—do not invest in that particular scheme, according to the Securities and Exchange Board of India.

The markets watchdog has issued a clarification regarding 'parking of funds in short-term deposits of scheduled commercial banks by mutual funds— pending deployment'.

"Trustees/asset management companies shall ensure that no funds of a scheme is parked in STD (short-term deposit) of a bank which has invested in that scheme," SEBI said in a circular on Friday.

Further, it said trustees and AMCs should ensure that the banks in which a scheme has STD do not invest in the same scheme until the scheme has STD with such banks.

As per regulations, a mutual fund may invest funds in short-term deposits of schedule commercial banks, subject to certain conditions.