What Is TREPS in Mutual Funds and How Does It Work?
That Small Line You Keep Ignoring
If you’ve ever opened a mutual fund fact sheet, you may have noticed a curious line tucked somewhere in the portfolio holdings: TREPS. For most investors, it barely registers. It doesn’t sound as exciting as equity holdings or even corporate bonds. Some first-timers even wonder if it’s some exotic derivative sitting in their liquid fund.
But ask any fund manager running a liquid or overnight fund in 2025, and they’ll tell you TREPS is the invisible plumbing that keeps their schemes running smoothly. Without it, the day-to-day management of short-term cash in mutual funds would be a lot riskier.
So, What Exactly Is TREPS?
TREPS stands for Tri-Party Repo. At its core, it’s a borrowing and lending mechanism. One party needs funds for the very short term, another party has excess cash to deploy, and government securities act as collateral.
The “tri-party” part is important. Unlike a traditional repo where just the borrower and lender are involved, TREPS has a third player: the clearing corporation. Its job is to make sure collateral is transferred, trades are settled, and neither side gets stuck if the other defaults.
Think of it as an overnight parking arrangement, but with a professional valet ensuring your car (in this case, securities and cash) is safe, accounted for, and returned on time.
Why Do Mutual Funds Use TREPS?
If you’re putting money into liquid or overnight funds, the fund manager faces a simple challenge: how to keep the money both safe and accessible. That’s where TREPS comes in.
Safety: Since government securities back the borrowing, the credit risk is minimal.
Liquidity: TREPS transactions are usually overnight. This gives funds the flexibility to meet redemptions at short notice.
Operational ease: With a clearing corporation managing the collateral, settlement risks are much lower.
This is why when you look at liquid fund portfolios, you’ll often see 20–40% allocated to TREPS. It may not feel glamorous, but it’s practical.
TREPS wasn’t always around. It came into being when regulators wanted to make short-term money market transactions safer and more transparent. Before TREPS, mutual funds often parked cash in call money markets or with banks directly. That carried higher counterparty risks.
The Reserve Bank of India and clearing corporations introduced TREPS to formalise this market, with collateralised lending and robust systems in place. Over the years, it has become the default avenue for overnight deployment by funds.
How Investors Feel Its Impact
Now, you may ask, “Why should I care if my liquid fund is parking money in TREPS?”
Here’s how it plays out for you:
Stable NAVs: Since TREPS is low risk, your liquid or overnight fund’s NAV doesn’t swing wildly.
Assured liquidity: If you redeem today, the fund can meet your request without selling longer-term instruments at a loss.
Transparent returns: The returns may look modest, but they are predictable.
It’s essentially what allows liquid funds to do what they promise — provide better-than-savings-account yields without locking your money.
The difference between TREPS and a plain repo lies in risk management. In a traditional repo, it’s just the lender and borrower, and both must trust each other. In TREPS, the clearing corporation acts as referee, custodian, and manager all at once. That reduces the risk of settlement failures or disputes.
This “middleman” role has made TREPS the safer option, especially for regulated entities like mutual funds.
Why is TREPS still relevant in 2025? A few reasons stand out:
Rate volatility: Global interest rate cycles have been sharp. Fund managers prefer flexibility. TREPS, being overnight, lets them adjust daily.
Caution after past crises: Events like IL&FS and Franklin Templeton’s debt fund freeze left investors wary of risky short-term debt. TREPS became the go-to safe haven.
Scale: With retail inflows into liquid funds rising, the need for daily liquidity has grown. TREPS offers that without drama.
So while investors chase equities for excitement, the back-end machinery of debt funds quietly relies on TREPS to keep promises intact.
At Zebu, we believe most investors don’t need to understand the technicalities of how collateral shifts hands in TREPS. What matters is knowing why it shows up in your fund portfolio. It signals safety, liquidity, and reliability.
In investing, not every line in a fact sheet is a red flag. Some, like TREPS, are there to make sure your money is handled prudently. It may look boring, but boring is often exactly what you want for your short-term investments.
Multibaggers, IPOs, penny stocks — these grab headlines. TREPS never will. But if you’re an investor parking money in liquid or overnight funds, this quiet mechanism is one reason you sleep well at night.
