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 Sebi. 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 (AMCs) 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.