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SEBI's decision on Wednesday to allow alternative investment funds (AIFs) to park excess cash in liquid debt pools is welcome. AIFs, which primarily invest in real estate, private equity and hedge funds, are not meant for everybody. Wealthy people and companies buy into AIFs to spike returns and diversify into high-risk turf. In a time of high churn, allowing AIFs to buy liquid funds — debt instruments that roll over every 91 days have no lock-in and yield more than bank fixed deposits — is a good idea. Equity, property and debt markets have become highly volatile, primarily due to investment and earnings slowdown, as well as incoherent policy. Unfortunately, the success of liquid funds seems to have made it a target of regulatory overreach, threatening the market for, and returns from, this class of paper. ET reports that Sebi might force liquid funds to invest some of the corpus in short-term government bonds, tighten investment norms and impose lock-ins. It should desist from trying to fix what isn’t broken. Creating an artificial market for short-term sovereign debt by driving liquid funds there, violates the freedom of fund managers to choose the most attractive instruments for their clients, within Sebi’s existing norms. The collapse of IL&FS, with significant liquid fund exposure, is apparently provoking the watchdog to curb the latter’s options. IL&FS and other non-banking financial companies (NBFCs) are regulated by the RBI. Why should Sebi butt in with curbs on liquid funds? Finally, any lock-in period, if imposed, will automatically make ‘liquid’ funds ‘illiquid’. It will also cripple an otherwise healthy and popular channel of investing.