The Securities and Exchange Board of India is expected to shortly release a circular asking mutual fund houses not to park more than 15 per cent of their corpus as bank deposits at any point of time.

The amendment to mutual fund regulations, which will curb deployment of their funds as short-term deposits, is being made to introduce standard and healthy practices in the industry.

Sebi will define the time-frame of short-term deposits as 90 days. The regulator is also planning to restrict investments by a fund house in its associate bank to 10 per cent of the Net Asset Value.

The 15 per cent limit for short-term deposits, however, could be enhanced to 20 per cent with the approval of trustees.

There are currently no detailed guidelines on how much money mutual funds can keep with banks or a definition of the time limit. The rules only say that mutual funds can keep their money in bank deposits.

As a result, fund houses have varying policies on parking their funds in short-term deposits. Some fund houses may park 60 per cent of their corpus for 60 days while others may park only 20 per cent of their corpus in deposits for only seven days.