TREPS in Mutual Funds: A Powerful Tool for Safer Short-Term Returns

Mutual funds rely on a mix of instruments to balance risk, meet redemption requests, and generate steady returns—even during volatile market phases. One such financial tool often overlooked by investors is TREPS in Mutual Funds. But what exactly is TREPS, and why is it gaining importance, especially among funds managed for NRIs and liquid-focused investors? Let’s explore this critical yet simple concept in detail.

What is TREPS in Mutual Funds?

TREPS, or Tri-Party Repo, is a short-term borrowing and lending tool in the money market. Managed by the Clearing Corporation of India Ltd. (CCIL), TREPS allows mutual funds and other institutions to park idle cash safely while earning small, stable returns.

In a TREPS transaction, one party sells government-backed securities (like treasury bills or G-secs) with a simultaneous agreement to buy them back at a predetermined date and price. The “repo” part represents the repurchase, while the “tri-party” refers to the CCIL ensuring smooth and risk-free clearing between both parties.

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Because TREPS are backed by approved government securities and cleared via CCIL, they’re considered one of the safest short-term investments.

Why Do Mutual Funds Use TREPS?

Mutual funds, whether they manage long-term equity portfolios or ultra-short-term debt, regularly face the challenge of maintaining liquidity while ensuring returns. Here’s how TREPS in Mutual Funds helps solve that:

• Liquidity Management: TREPS ensure funds have enough liquid cash to meet redemption requests without disturbing core portfolio assets.
• Safety First: Since TREPS are backed by government securities, the risk of default is negligible, offering a secure avenue for idle funds.
• Low-Risk Diversification: They add a stable, low-volatility component to the mutual fund portfolio, particularly useful during uncertain markets.
• Short-Term Return Enhancement: Even a few days’ worth of idle cash can generate returns through TREPS, improving overall fund performance.
• Regulatory Compliance: SEBI mandates funds to hold at least 5% of their assets in liquid instruments—TREPS fulfill this condition efficiently.

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How TREPS Affects NRI Investments in Mutual Funds

For NRIs investing in Indian mutual funds, liquidity and fund stability are especially important—given repatriation needs, time zone differences, and long-term wealth goals. TREPS benefit NRIs in several ways:

• Timely Redemptions: TREPS-backed liquidity ensures smooth and fast repatriation during redemption.
• Stable NAVs: By avoiding sudden asset sales, fund NAVs remain steady—an attractive trait for risk-averse NRI investors.
• Reduced Volatility: TREPS cushions the portfolio during market downturns by adding stable, non-market-linked income.
• Balanced Exposure: However, too much allocation to TREPS may reduce a fund’s growth potential. A balanced approach by fund managers is critical.

Pros and Cons of TREPS in Mutual Funds

✅ Benefits:

• Assured Liquidity: Great for funds with frequent withdrawals.
• Risk-Free Returns: Government-backed securities mean high security.
• Efficient Cash Usage: Idle capital gets optimized without compromising safety.
• Smooth Transactions: CCIL ensures reduced counterparty and settlement risk.

❌ Drawbacks:

• Limited Return Potential: Safe instruments often yield lower returns than equity or longer-term debt options.
• Opportunity Cost: Overexposure may cause funds to miss out on high-growth opportunities in bullish markets.

Also Read: Demat Account vs Statement of Account: Which One Is Right for Your Mutual Fund Investments?

How Can NRIs Start Investing in Mutual Funds?

To invest in Indian mutual funds, NRIs must open NRE/NRO accounts and complete their KYC as an NRI.

Here’s how to begin:

1. Open an NRE/NRO Account – Required for all mutual fund transactions.
2. Complete Mutual Fund KYC – Ensure your KYC is updated as an NRI investor.
3. Choose a Fund Platform – Platforms help simplify and fast-track the process for NRIs with online onboarding and investments via SOA (Statement of Accounts) route.

TREPS in Mutual Funds serve as a reliable liquidity tool, offering safety and efficiency in managing short-term cash. Whether you’re a retail investor seeking capital protection or an NRI wanting smooth redemptions and stable returns, understanding TREPS can help you better assess a fund’s risk-reward profile.

While they may not generate high returns, their value lies in preserving liquidity, reducing volatility, and supporting compliance, making them an essential part of modern mutual fund strategy.

FAQs: TREPS in Mutual Funds

What is TREPS in Mutual Funds?
TREPS are short-term instruments where mutual funds lend money backed by government securities and earn safe interest while ensuring liquidity.

Are TREPS risky?
TREPS are considered low-risk since they are backed by government securities and settled through CCIL.

How long is the TREPS duration?
They are usually very short-term—ranging from overnight to a few weeks.

Do all mutual funds invest in TREPS?
Yes, especially liquid, money market, and ultra-short duration funds, due to SEBI’s liquidity requirements.

Can TREPS affect NAV?
Yes. By generating small but stable returns and ensuring liquidity, they help in maintaining steady NAV growth.