In the ever-evolving landscape of financial markets, fund managers constantly seek secure and liquid avenues to park surplus funds. One such tool that has gained prominence in India, particularly among mutual funds, is TREPS — Tri-party Repo. This blog explores what TREPS is, how it works, and why mutual funds actively use it in their portfolio management strategies.

🌎 What is TREPS?

TREPS (Tri-party Repo) is a money market instrument that allows entities to lend or borrow funds against collateral — usually government securities — with the involvement of a third-party clearing agent. In India, the Clearing Corporation of India Ltd. (CCIL) acts as the tri-party agent, ensuring settlement, collateral selection, custody, and overall operational efficiency.

🔄 How TREPS Works:

Think of TREPS like a pawnshop transaction: a borrower temporarily exchanges valuable collateral (G-Secs) for cash, promising to buy it back the next day with a slight premium. The third party, CCIL, ensures both sides fulfill their obligations.

Steps in a TREPS Transaction:

1. Borrower sells government securities to the lender.

2. CCIL acts as intermediary, ensuring safe collateral management.

3. The borrower repurchases the securities the next day at a slightly higher price (interest).

🚀 Why Do Mutual Funds Invest in TREPS?

✅ 1. Safety and Minimal Credit Risk

TREPS transactions are backed by government securities and guaranteed by CCIL. This makes them virtually risk-free — a top priority for mutual funds in liquid and overnight categories.

🔍 Example: Funds like Nippon India Overnight Fund and ICICI Prudential Liquid Fund allocate large portions to TREPS for capital preservation.

⚖️ 2. High Liquidity

Since TREPS are mostly overnight deals, they provide excellent liquidity. Mutual funds can access funds quickly to meet redemption requests or invest in better opportunities.

⟳ Scenario: A fund receives late-day inflows and needs to deploy the money overnight. TREPS offer a secure place to earn modest returns instead of letting cash sit idle.

🔒 3. Regulatory Compliance

SEBI guidelines require liquid and ultra-short-term funds to invest in low-risk, high-liquidity instruments. TREPS fit perfectly, helping funds maintain compliance.

📈 4. Yield Optimization

Even though returns are modest, they’re better than holding cash. Fund managers can enhance short-term yields using TREPS without taking on risk.

📉 Example: Investing ₹500 crore in TREPS at 4% annualized overnight could generate ₹5.47 lakh in one day.

💰 5. Efficient Cash Management

TREPS help manage short-term cash efficiently. They act as a temporary parking option until funds can be deployed into longer-term assets.

🧳️ TREPS vs Repo vs Call Money

📅 TREPS in Mutual Fund Portfolios: Real Data

As per April 2025 fund disclosures:

• SBI Liquid Fund: ₹5,000 crore allocated to TREPS

• HDFC Overnight Fund: Over 90% invested in TREPS

This demonstrates how critical TREPS is to short-term liquidity strategy.

1. ICICI Prudential Bluechip Fund

• TREPS Allocation: Approximately 10%

• Investment Focus: Predominantly large-cap equities, with a portion allocated to TREPS for liquidity management.

• Performance Highlights:

  • Annualized returns since inception: 16.5%

  • 5-year SIP returns: 23.1%

• Suitability: Ideal for investors seeking exposure to large-cap stocks with a moderate allocation to liquid assets for risk mitigation.

2. Canara Robeco Bluechip Equity Fund

• TREPS Allocation: Approximately 4%

• Investment Focus: Primarily large-cap equities, complemented by TREPS to enhance liquidity.

• Performance Highlights:

  • Annualized returns since inception: 15.7%

  • 5-year SIP returns: 20.5%

• Suitability: Suitable for investors aiming for steady growth with a conservative approach to liquidity management.

3. Nippon India Large Cap Fund

• TREPS Allocation: Approximately 1%

• Investment Focus: Diversified large-cap equities with a minimal allocation to TREPS for short-term liquidity.

• Performance Highlights:

  • Annualized returns since inception: 17.0%

  • 5-year SIP returns: 25.8%

• Suitability: Best suited for investors seeking aggressive growth through large-cap investments, with minimal liquidity allocation.

4. Invesco India Largecap Fund

• TREPS Allocation: Approximately 1%

• Investment Focus: Balanced portfolio with a mix of large-cap equities and a small portion in TREPS.

• Performance Highlights:

  • Annualized returns since inception: 16.3%

  • 5-year SIP returns: 22.4%

• Suitability: Ideal for investors looking for a balanced approach between growth and liquidity.

5. HDFC Top 100 Fund

• TREPS Allocation: Approximately 2%

• Investment Focus: Focuses on top 100 companies by market capitalization, with a small allocation to TREPS.

• Performance Highlights:

  • Annualized returns since inception: 14.8%

  • 5-year SIP returns: 16.8%

• Suitability: Suitable for investors seeking exposure to leading companies with a conservative liquidity buffer.

Note: The TREPS allocations mentioned are approximate and based on available data. For the most current and detailed portfolio allocations, it's advisable to refer to the respective fund's fact sheet or consult with a financial advisor.

⚠️ Are There Any Limitations?

While TREPS are secure and liquid, they do have a few limitations:

• Returns are very modest; not suitable for growth-focused goals.

• Rates vary daily; yield predictability is low.

• Dependence on CCIL operations (though minimal risk).

❌ Common Misconceptions

• "TREPS offer high returns." ❌ Not true. They are meant for safety and liquidity, not growth.

• "Only banks use TREPS." ❌ False. Mutual funds are major players in the TREPS market.

🔍 Where Can Investors See TREPS Allocation?

You can check a mutual fund’s fact sheet or platforms like:

• AMFI India

• Value Research Online

These will show TREPS allocation under portfolio holdings.

📖 Final Takeaways

• ✅ TREPS is a secure, overnight instrument backed by government securities.

• ✅ Perfect for cash management and liquidity maintenance.

• ✅ Actively used by mutual funds to optimize returns on short-term surpluses.

❓ FAQs

Q: Are TREPS safe?
A: Yes. TREPS are backed by government securities and settled via CCIL, minimizing default risk.

Q: Which funds use TREPS?
A: Mostly overnight, liquid, and ultra-short-term mutual funds.

Q: Can retail investors invest directly in TREPS?
A: No. Retail investors can access TREPS exposure indirectly through mutual fund investments.