In a circular dated 16 August, the Securities and Exchange Board of India (SEBI) provided clarification on investments of banks in mutual fund schemes that have parked money in the lender's short-term deposits (STD).

The circular, titled "Parking of funds in short-term deposits of scheduled commercial banks by mutual funds - pending deployment," the markets' regulator said, "it is clarified that Trustees/Asset Management Companies (AMCs)shall ensure that no funds of a scheme is parked in STD of a bank which has invested in that scheme."

"Trustees/AMCs shall also ensure that the bank in which a scheme has STD do not invest in the said scheme until the scheme has STD with such bank," it added.

The regulations allow a mutual fund to invest funds in short-term deposits of schedule commercial banks, subject to certain conditions.