26 Apr, 2025
4 mins read
If you've ever checked the portfolio of a debt mutual fund, you might have seen the term TREPS. But what exactly is TREPS in mutual funds, and why is it important? Let’s break it down in a simple way to help you understand its meaning, how it works, and its role in mutual fund investments.
TREPS stands for Tri-Party Repo , and it is a short-term instrument used by mutual funds to park their surplus cash. The full form of TREPS is Treasury Bills Repurchase.
So, what is TREPS in mutual funds? It is essentially an agreement where one party sells securities to another with a promise to repurchase them at a later date, typically the next day. A third-party clearing corporation manages the transaction, ensuring transparency and security.
In simpler words, TREPS is a way for mutual funds to lend money for a very short time (usually overnight) and earn interest in return, with very low risk.
Here’s how tri-party repo in mutual funds works:
A mutual fund has extra cash that it doesn’t want to leave idle.
It enters into a TREPS deal where it lends this money to another party.
That party provides approved government securities as collateral.
The third party (usually the Clearing Corporation of India or CCIL) ensures both sides of the deal are secured and completed.
The borrower repurchases the securities the next day, and the mutual fund earns interest.
This system is operated by the Reserve Bank of India and is considered one of the safest ways for mutual funds to manage liquidity.
You may wonder, why mutual funds invest in TREPS when they could use other options. Here’s why:
Liquidity Management: Funds often receive investor money that isn’t deployed immediately. TREPS helps earn some return on that cash until it’s invested fully.
Low Risk: Since these are backed by government securities and managed by a third party, the risk of default is minimal.
Regulatory Compliance: SEBI (the Securities and Exchange Board of India) requires liquid funds to hold a portion of their assets in very low-risk instruments like TREPS.
So, what is TREPS in mutual fund portfolio? It is a short-term, low-risk asset that helps manage daily cash flow and ensures returns without locking up the money.
Here are some key benefits of TREPS in mutual funds:
High Safety: Because the securities are government-backed and the deal is regulated by a third party, it’s very secure.
Short Duration: Most TREPS transactions last only one day, which means the fund’s liquidity isn’t affected.
Decent Returns: Compared to keeping cash idle, TREPS offer better short-term returns.
Efficient Use of Cash: It ensures that no investor money lies unutilised.
Meets Regulatory Norms: TREPS help funds meet SEBI’s liquidity norms, especially for liquid and overnight funds.
While TREPS are mostly safe, they do come with a few minor concerns:
Lower Returns: Since TREPS are meant for safety and liquidity, their returns are usually lower compared to other instruments.
Short-Term Only: These are not suitable for long-term parking of funds.
Limited Growth: Investors looking for high returns won’t benefit much directly from TREPS holdings.
Despite these, the benefits generally outweigh the limitations, especially for debt and liquid fund categories.
TREPS have a small but important impact on fund performance. Since they earn interest even on idle cash, they slightly improve overall fund returns. This is especially helpful for liquid mutual funds and overnight funds, where even a fraction of a percent makes a difference.
So, how does TREPS impact mutual fund returns? It boosts the fund’s ability to earn a return on every rupee, which adds to the fund’s daily net asset value (NAV), even if only slightly.
TREPS in mutual funds play a quiet but critical role. While you may not directly see their impact, they help fund managers efficiently handle short-term cash. They’re low-risk, SEBI-regulated, and enhance fund liquidity.
To summarise:
TREPS is a tri-party repo agreement that earns interest on surplus cash.
It is widely used by debt and liquid funds.
Though it doesn’t deliver high returns, it ensures safety, liquidity, and efficiency.
Understanding what is TREPS in mutual funds helps you become a smarter investor, especially when analysing a fund’s portfolio.
TREPS stands for Tri-Party Repo or Treasury Bills Repurchase, a short-term borrowing and lending arrangement where mutual funds lend money overnight in exchange for government securities as collateral. A third-party entity like the Clearing Corporation ensures the deal is secure.
Yes, TREPS is considered very safe. It is backed by government securities and regulated by the RBI and SEBI. The presence of a third-party custodian adds another layer of security.
TREPS help generate returns on idle cash in a fund’s portfolio. While the returns are small, they add up over time and slightly improve a fund’s NAV, especially in liquid and debt funds.
CBLO (Collateralized Borrowing and Lending Obligation) was the earlier version of TREPS. It served a similar purpose but lacked some of the transparency and efficiency of TREPS. CBLO was phased out in favor of TREPS, which is more secure and standardised under the RBI’s framework.
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