The Securities and Exchange Board of India (Sebi) allowed mutual funds (MFs) to participate in exchange-traded commodity derivatives (ETCD). However, the regulator has decided to keep away MFs from trading in derivatives of sensitive commodities. The mutual fund schemes cannot invest in physical goods except in ‘gold’ through ETFs.
“No mutual fund scheme shall have net short positions in ETCD on any particular good, considering its positions in physical goods as well as ETCDs, at any point of time,” the markets regulator said in a release. Mutual funds are permitted to participate in ETCDs through hybrid schemes, which include multi-asset scheme and gold ETFs. Prior to trading in ETCDs, Sebi asked AMCs to appoint a dedicated fund manager with requisite skills and experience in the commodities market (including commodity derivatives market). They should also appoint a custodian registered with the board for custody of the underlying goods, arising due to a physical settlement of contracts.
Asset management companies shall not onboard foreign portfolio investors (FPIs) in schemes investing in ETCDs until FPIs are permitted to participate in ETCDs, Sebi said.
Mutual fund schemes shall participate in ETCDs of particular goods (single), not exceeding 10 per cent of net asset value of the scheme. However, the limit of 10% is not applicable for investments through gold ETFs in ETCDs having gold as underlying. In case of multi-asset allocation schemes, the exposure to ETCDs shall not be more than 30% of the net asset value (NAV) of the scheme. The regulator also said that other hybrid schemes excluding multi-assets allocation scheme, the participation in ETCDs shall not exceed 10% of NAV.