New Delhi: Markets regulator Sebi on Thursday proposed to allow mutual funds and portfolio managers to invest in commodity derivatives market in its attempt to widen investments in this asset class. Sebi has been taking several steps to deepen the commodity derivatives market with necessary safeguards ever since it came under its regulatory jurisdiction nearly two years ago and it allowed certain alternative investment funds earlier this year to participate in this segment.
The participants of commodities derivatives market, which was regulated by the Forward Markets Commission (FMC) before it was merged with Sebi, has been requesting for long for various institutional investors to be allowed to invest. Floating a paper on permitting MF and portfolio managers to participate in commodities, Sebi on Thursday invited comments from all concerned stakeholders in this regard till the month-end.
However, the paper, which also aims to determine an ideal regulatory framework for such investments, was silent on whether these investors would be allowed in agriculture as well as non-agri commodities. The commodity derivatives market has been running without any institutional participation thereby lacking the desired liquidity and depth, which is one of the key elements for the efficient price discovery and price risk management.
In past, various panels have recommended allowing domestic and foreign institutional investors in commodities in a phased manner to help in improving the price discovery process. Sebi has already held a series of meetings with various stakeholders to discuss issues relating to allowing MFs and PMs in the market.
It said commodity derivatives provide a new asset class to the investors, thereby may benefit them with effective portfolio diversification. “Adding commodities in the portfolio would typically increase some risk, but the overall risk adjusted return of the portfolio may improve,” Sebi said, while noting that a substantial number of investors are not able to directly access the commodity derivatives market due to lack of knowledge and expertise.