SEBI lets IAs & RAs park regulatory deposits in liquid/overnight MFs: what changes, how to comply

What’s new: SEBI now allows Investment Advisers (IAs) and Research Analysts (RAs) to meet their mandatory deposit requirement not just via bank fixed deposits but also through units of liquid mutual funds or overnight mutual funds. These units (or the bank FD) must be lien-marked in favour of IAASB/RAASB (BSE Ltd.), and entities must be compliant by September 30, 2025.

Why this matters

• Cash efficiency: Keeping the deposit in liquid/overnight funds should earn a modest money-market yield (vs. an FD choice only), improving the carrying cost of a mandatory, idle-ish buffer. The option exists in addition to bank deposits - firms can choose what fits their treasury policy and compliance comfort.
• Ease of doing business: This change stems from SEBI’s June Board approval aimed at reducing friction costs for smaller advisories/research shops. It builds on the 2024–25 revamp of IA/RA frameworks.
• Operational clarity: SEBI has directed BSE (as IAASB/RAASB) to roll out the workflow to implement this - so expect templates for lien marking, confirmations, and ongoing checks.

Quick refresher: who needs to keep how much?

Under Regulation 8 of the IA and RA Regulations, the deposit size scales with client count. Latest guidelines show the following slab (same structure used for IA and RA frameworks):

• Up to 150 clients: ₹1 lakh
• 151–300: ₹2 lakh
• 301–1,000: ₹5 lakh
• 1,001+ clients: ₹10 lakh

Why the deposit exists: It’s a prudential buffer, lien-marked to the supervisory body, and can be invoked to settle eligible dues arising out of dispute-resolution outcomes where an entity fails to pay.

The new rule - key points you can quote to clients & auditors

• What counts as “deposit”: Units of a liquid MF or an overnight MF, or a scheduled-bank deposit.
• Lien marking: Must be marked in favour of IAASB/RAASB (BSE).
• Deadline: September 30, 2025 for IAs/RAs to align (new and existing, as applicable).
• Effective immediately: Circular is effective from Aug 12, 2025; BSE to publish the operational steps.
• Backstory: Change approved at SEBI’s June 2025 Board meeting; allied amendments to IA/RA Regulations were notified Aug 6–7, 2025.

Practical implications (and a few gotchas)

1. NAV moves vs. fixed rupee obligation: Your regulatory obligation is a rupee amount (₹1–10 lakh slab). If you use MF units, the NAV can fluctuate day-to-day. Build a small buffer (e.g., 2–5%) so you don’t fall short after a minor NAV dip. (Expect IAASB/RAASB’s operational notes to clarify top-ups.)
2. Lien means “parked,” not freely tradable: Once lien-marked to IAASB/RAASB, units aren’t redeemable until the lien is lifted/modified. Treat it like a ring-fenced safety buffer, just with a money-market-style return instead of an FD’s.
3. Scheme selection: Stick to true liquid/overnight categories to match the regulator’s language. Overnight funds hold one-day securities; credit risk is low but not zero. Keep the objective strictly compliance (not yield-chasing).
4. Audit trail & annual confirmations: Document the board/partner resolution, lien letters, ISIN/unit statements, and any top-up steps. Keep them ready for compliance audit and IAASB/RAASB checks (the bodies are explicitly tasked to implement systems).

Step-by-step: move from an FD to MF-units (or set up fresh)

1. Decide the slab amount based on last year’s max clients in a day (₹1–10 lakh). Record the computation.
2. Choose scheme type: Overnight (pure T-bill/tri-party overnight book) or Liquid (up to 91-day instruments). Prepare an Internal Note: “Regulatory deposit—no return targeting.”
3. Open/confirm folio in the entity’s name (same as registered IA/RA) and invest slightly above the slab (buffer for NAV drift).
4. Get lien-marking executed in favour of IAASB/RAASB (BSE) as per the workflow BSE will publish - expect a lien request form, AMC/RTA acknowledgement, and IAASB/RAASB confirmation.
5. File & update: Save the lien letter, statement of holding, and cover letter to BSE. Note the next review date (e.g., April 30 after counting the prior FY’s max clients).
6. Policy tweak: Update your Compliance Manual to reflect “deposit may be held via MF units or bank deposit,” and add monitoring triggers (NAV dip, client-count change).

FAQs

1. Can I split the deposit - part FD, part liquid fund?

SEBI allows either units of liquid/overnight MF or a bank deposit. The circular doesn’t bar a combination; expect IAASB/RAASB workflow to confirm operational handling.

2. What if my client count crosses a slab mid-year?

Regulation 8 ties the slab to max clients on any day in the previous FY; review annually (and top up if needed).

3. Why is BSE involved?

SEBI designated BSE Ltd. as IAASB/RAASB; lien is in favour of these bodies. They must implement the system and notify all registered entities.

Disclaimer: This article is for general information on the SEBI circular dated Aug 12, 2025; it is not a recommendation, solicitation, legal opinion, or compliance directive. Please rely on official SEBI/BSE documents and your compliance team before acting.