Chennai: In a move that can broaden commodity market participation, the Securities and Exchange Board of India (Sebi) on Tuesday allowed mutual funds to invest in exchange traded commodity derivatives (ETCDs). However, they are not permitted to trade in the derivatives of sensitive commodities.
Sebi has also laid down a few riders for the mutual funds. The mutual fund schemes cannot invest in physical goods except in ‘gold’ through ETFs. They can investment in ETCDs through hybrid schemes and Gold ETFs.
Prior to trading in ETCDs, asset management companies (AMCs) have to appoint a dedicated and experienced fund manager for the commodities market. They should also appoint a registered custodian for custody of the underlying goods, arising due to a physical settlement of contracts. AMCs shall not onboard foreign portfolio investors (FPIs) in schemes investing in ETCDs until FPIs are permitted to do so.
“Allowing mutual funds to participate in exchange-traded commodity derivative is a progressive step taken by the regulator in the right direction. We believe the participation of mutual funds will add depth and liquidity to the Indian commodity derivatives market. The entire market eco-system will be immensely benefitted,’ said Sanjit Prasad, MD and CEO, ICEX.
“Mutual fund schemes participating in ETCDs may hold the underlying goods in case of physical settlement of contracts, in that case mutual funds shall dispose of such goods from the books of the scheme, at the earliest, not exceeding 30 days from the date of holding of the physical goods," Sebi said.
Prior to participating in ETCDs, the unit-holders of existing scheme would be given at least 30 days to exercise the option to exit at prevailing net asset value without exit load charges. MFs can participate in ETCDs of a good, not exceeding 10 per cent of NAV of the scheme.