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SEBI Permits Mutual Funds to Trade Commodity Derivatives

SEBI Permits Mutual Funds to Trade Commodity Derivatives

Thu May 23 2019


Mutual funds will be allowed to trade exchange-traded commodity derivatives, but cannot invest in physical goods, except through gold ETFs.


SEBI (the Securities and Exchange Board of India) has granted permission to mutual funds to participate in ETCDs (exchange-traded commodity derivatives).


In a circular, SEBI said mutual funds can trade in ETCDs except those defined as ‘sensitive commodities.’


Mutual funds cannot invest in physical goods except for gold, through gold ETFs.


They will also not be allowed to hold net short positions in the ETCDs of any particular good.


Exposure to a particular good shall not exceed 10 percent of a scheme’s NAV. However, this limit is not applicable for investments through gold ETFs in ETCDs having gold as underlying asset.


In case of multi-asset allocation schemes, the exposure to ETCDs shall not be more than 30 percent of a scheme’s NAV.


Fund houses have been directed to appoint a dedicated fund manager with requisite skill and experience in commodities markets before they participate in ETCDs.


They should also appoint a custodian for custody of the underlying goods, arising from physical settlement of contracts. However, any underlying goods owned as a result of physical settlement must be disposed of within 30 days.


Asset managers may not onboard FPIs (foreign portfolio investors) in schemes that trade ETCDs, until FPIs are permitted to participate in these markets, SEBI said.


Source: https://www.regulationasia.com/