What is TREPS in Mutual Funds? Meaning & Full Form

Can a simple financial tool help mutual funds maximise returns and manage risk?  To achieve these, mutual funds employ various tools; one such tool is TREPS, which allows mutual funds to manage liquidity, enhance returns, and optimize portfolio performance. TREPS offers a secure and efficient way to sell or buy funds on a short-term basis with the support of government securities. This article will explore how TREPS works, its benefits, and why it is an efficient tool for mutual funds.

What is TREPS?

TREPS, or Treasury Bills Repurchase, is a short-term market instrument designed to help investors earn returns on idle funds.  Banks, financial institutions, and mutual funds widely use it to generate higher returns.  

A transaction under TREPS will be a sale of Treasury Bills by one party to another party with an agreement to repurchase them at a future specified price and date. This transaction remains backed by government assets and is considered a low-risk investment. 

Suppose a mutual fund has more idle cash and is looking to invest quickly. Instead of letting the money remain idle, the mutual fund could use TREPS to earn interest returns while maintaining liquidity.

How Does TREPS Work in Mutual Funds?

If a mutual fund needs a large amount of cash quickly due to sudden withdrawals, it can use TREPS instead of selling its long-term assets at a loss. Since TREPS investments are backed by government securities, they are considered risk-free. 

TREPS also helps mutual funds diversify their portfolios and reduce reliance on a single investment type, making their financial strategy stronger. To ensure stability, SEBI requires mutual funds to invest at least 5% of their total liquid assets in TREPS.

What are the Benefits of TREPS?

Among mutual fund investors, TREPS gives the edge over other options to balance safety, liquidity, and returns. Some of the benefits of investing involve:

1. Increasing Returns to Investors

The returns of TREPS movement are related to the immediate price movement of the market. Investors will likely earn the maximum return from their idle cash when the interest rates are high. 

2. Regulatory Compliance

SEBI regulation has directed that mutual funds set a part of their liquid assets into TREPS. This regulation is to reassure the investors of the safety and compliance framework.

3.  Fast Liquidity

Fast liquidity is one of the essential features of TREPS, which helps mutual funds to quickly access cash to meet redemption requests, buy or sell assets, or handle other financial needs within a short time.

4. Diversification

Diversifying a mutual fund's portfolio helps reduce overall risk and ensures stability during market fluctuations. TREPS contributes to this by creating a balanced portfolio, offering protection against potential risks.

Final Thoughts

TREPS offers mutual funds a place for higher returns, improving the overall portfolio and assuring asset protection. Planning your investment is necessary, but choosing reliable platforms becomes equally important. 

With Tata Capital Moneyfy, you gain access to a seamless and secure investment platform that offers a wide range of mutual funds, SIPs, and financial tools to help you build wealth efficiently. To start your investment journey, visit the Tata Capital Moneyfy website or download our app today!