In an office memo on Wednesday, the ministry allowed PSUs to invest in debt schemes of mutual funds.
The provisions limited central public sector enterprises CPSEs to investment in public sector mutual funds, in which the government held more than 50 per cent of the share.
The period of maturity of any instrument of investment shall not exceed a year from the date of investment, except in case of term deposits with banks and government securities, where it can extend up to three years, it added.
The department of investment and public enterprises DIPAM cited the liberalization of policies and introduction of new monetary instruments for trade in short-term funds in the official memo, which was based on proposals received by CPSEs, mutual funds and private sector banks.
It said that the proposals were examined by the Inter-Ministerial Committee for Monitoring of Capital Management and Dividend, which currently considers all capital restructuring matters of CPSEs.
Only Maharatna, Navratna and Miniratna are allowed to invest in debt-based mutual funds schemes, according to the communication by DIPAM.
These guidelines won't apply to state-owned banks and insurance companies. It also bans the involvement of a broker or agent in any form on either side.
The principles of safety of funds and due diligence would guide the investment of surplus funds. The provision defining public sector mutual funds has been removed.
The guidelines issued by DIPAM on investment of surplus funds supersede the earlier guidelines issued by department of public enterprises in 2017.
The memorandum said that eligible instruments that are available for investment of surplus funds include treasury bills, government securities, term deposits with scheduled commercial banks, commercial banks instruments, loans or deposits with CPSEs and mutual funds.