SEBI Proposes Liquid Mutual Funds for IAs and RAs Deposit Compliance

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  • Last Updated on 13 May, 2025

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SEBI liquid mutual fund deposit

Consultation Paper; Dated: 09.05.2025

The Securities and Exchange Board of India (SEBI) has proposed a significant relaxation for Investment Advisers (IAs) and Research Analysts (RAs) in relation to their registration deposit obligations. The proposal aims to address practical challenges faced by these entities in fulfilling current norms.

1. Current Requirement – Lien-Marked Bank Deposit

Under the existing regulatory framework, IAs and RAs are required to maintain a bank deposit with a lien marked in favour of SEBI or the concerned supervisory authority as a precondition for registration. This deposit serves as a safeguard to ensure regulatory compliance and protect client interests.

The deadline for compliance with this requirement is June 30, 2025.

2. Challenges Faced by IAs and RAs

SEBI has received feedback from several IAs and RAs regarding operational difficulties in:

  • Opening fixed deposit accounts, particularly for newly registered or smaller entities
  • Establishing the required lien in favour of SEBI or its designated supervisory authority

These challenges have led to delays and uncertainty in fulfilling the registration criteria.

3. Proposed Solution – Use of Liquid Mutual Fund Units

To address the concerns raised, SEBI has proposed to permit the use of lien-marked liquid mutual fund units as an alternate form of deposit.

  • These units must be specifically earmarked (lien-marked) in favour of the supervisory authority
  • The market value of such mutual fund units must be equivalent to the required deposit amount

This move is intended to provide greater flexibility and ease of compliance for IAs and RAs while maintaining adequate safeguards.

4. Expected Benefits of the Proposal

  • Enhanced Ease of Doing Business – Allows entities to meet deposit obligations without relying solely on fixed deposits
  • Better Liquidity Management – Enables more efficient capital deployment for advisers and analysts
  • Broader Financial Inclusion – Encourages participation by smaller firms and individual professionals in the advisory and research space

5. Next Steps

The proposal is currently open for public comments, and once finalized, it will likely be integrated into the SEBI (Investment Advisers) and SEBI (Research Analysts) Regulations. This reform aligns with SEBI’s broader efforts to streamline compliance and promote a more inclusive financial advisory ecosystem.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied