What is TREPS in Mutual Funds?
- 16th September 2025
- 11:00:00 AM
- 6 min read
TREPS or Treasury Bills Repurchase Agreements allow investors to earn returns on idle cash. Mutual funds sometimes invest your money in ultra-saving funds to generate higher returns for you. Just like you carry some cash in hand to clear daily expenses, mutual funds also use TREPS to ensure liquidity and smooth transactions.
This blog explains TREPS in mutual funds, its benefits and limitations, and its regulatory framework.
TREPS in Mutual Funds Explained
TREPS is a short-term market tool that helps investors earn returns on their idle cash. Along with the mutual funds, financial institutions and banks use this short-term financial instrument for quick investments.
TREPS in mutual funds are sold using an agreement and repurchased at a predetermined price on a particular date. These instruments are considered safe because they are backed by government securities.
TREPS is an efficient liquidity management tool that provides mutual funds a safe option for investing additional funds or availing quick returns without selling assets permanently.
Why Mutual Funds Invest in TREPS?
Since you have understood what is TREPS in mutual fund portfolio, it is also crucial for you to know why mutual funds invest in TREPS. Below are the key reasons highlighted in the pointers:
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Safety and Security
TREPS in mutual funds are highly secure since government securities back them. This reduces the loss probability for investors putting money in mutual funds.
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Liquidity Management
Mutual funds should have enough cash to facilitate investor withdrawals. TREPS can help by providing quick access to funds, which facilitates smooth redemptions.
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Enhancing Returns for Investors
TREPS also boost returns for investors by allowing them to earn additional income while maintaining the integrity of their investment portfolio.
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Meeting Regulatory Requirements
Investing in TREPS also helps mutual funds maintain liquidity ratios and comply with the regulations. This ensures mutual funds have enough liquid assets on hand.
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Portfolio Diversification
TREPS also allows investors to diversify their investment portfolio by reducing market volatility and exposure to fluctuations.
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How Does TREPS Impact Mutual Funds?
TREPS mutual funds impact mutual funds differently. TREPS impact differently on the net asset value (NAV), risk levels, and returns of mutual funds. Here is the detailed analysis:
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Portfolio Stabilisation
Investing in TREPS can protect investors from market changes. The portion which a mutual fund invests in TREPS is unaffected by stock market downturns. This reduces the overall performance volatility of the mutual fund.
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Positive Impact on the NAV
Mutual funds that invest in TREPS get modest but consistent returns. The share price of the mutual fund rises as a result of these returns, which also increase its NAV, making it more appealing to investors.
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Impact on Returns
Although it is a low-risk investment, TREPS investment in mutual funds yields lower returns than corporate bonds or equities. A mutual fund’s potential for generating returns may be lowered if it makes excessive TREPS investments.
Benefits of Investing in TREPS
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Accessing Short-Term Gains
Due to its high liquidity, TREPS in mutual funds facilitates easy access to the money market. For institutional investors wanting to park funds temporarily, this tool is perfect. It also makes purchasing and selling simple.
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Attractive Returns
TREPS also offer attractive returns that adjust with market conditions. They enable investors to make more money on their idle cash, which is especially beneficial when interest rates are high.
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Operational Flexibility
Mutual funds can better manage their cash flows due to the operational flexibility provided by TREPS transactions. This flexibility enables funds to react quickly to liquidity requirements by temporarily moving funds in or out of TREPS without changing their strategic asset allocation.
Limitations of Investing in TREPS
Despite being considered low risk, counterparty risk, liquidity risk, and interest rate volatility can affect the profitability and feasibility of TREPS investments. Here are some other limitations of investing in TREPS:
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Market Dependency
The liquidity needs and current market circumstances determine the availability and appeal of TREPS.
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Operational Complexity
When many parties participate in TREPS transactions, operational complexity and expenses rise.
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Limited Returns
TREPS may yield lower returns than other options, despite being a safe instrument.
Regulatory Framework of TREPS
The regulatory framework of TREPS in mutual funds is overseen by the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), which ensures transparency, security, and efficiency in transactions.
Here is the detailed summary of the regulatory framework of TREPS:
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Execution Only Platform
The SEBI has established a regulatory framework for Execution Only Platforms that enable transactions in direct plans of mutual fund schemes. This framework promotes transparency and efficiency in the execution process.
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RBI’s Regulations
The RBI has also released Master Directions on Information Technology (IT) Governance, Risk, Controls, and Assurance Practices. These guidelines offer recommendations for controlling IT risks and guaranteeing strong controls in the financial industry.
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Minimum Investment in Liquid Assets
SEBI has mandated that mutual funds should allocate at least 5% of their assets to liquid assets, such as TREPS.
Final Thought
TREPS in mutual funds are beneficial because of their stability, safety, and liquidity. The regulators also mandated that mutual funds must incorporate TREPS into their portfolios. TREPS results can raise unit prices and increase the mutual fund’s net asset value. However, investors must comprehend the risks and how TREPS impact mutual funds.
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Frequently Asked Questions
1. Are TREPS investments safe in mutual funds?
Yes, TREPS are safe investment options in mutual funds as government securities back them.
2. How are TREPS regulated in India?
The RBI and the SEBI regulate TREPS. They ensure transparency, efficiency, and security of these transactions. Mutual funds must adhere to these regulations to participate in TREPS.
3. What is the role CCIL plays in TREPS?
The Clearing Corporation of India Limited (CCIL) plays a crucial role in facilitating the transactions of TREPS by acting as the third party. It serves as the central counterparty and tri-party agent, which also manages the settlement, trading platform, and custody of securities.
4. Can retail investors invest directly in mutual fund TREPS?
No, retail investors cannot directly invest in mutual fund TREPS. TREPS can only be directly invested in by mutual funds.
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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
