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The Securities and Exchange Board of India (Sebi) has proposed to allow mutual funds and portfolio managers to invest in commodity derivatives market in its latest attempt to widen investments in this asset class.
In a consultation paper, Sebi 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, stating that a substantial number of investors (including retail investors) are not able to directly access the commodity derivatives market due to lack of knowledge and expertise. MFs and PMs can act as conduits to commodities markets for such investors.
Sebi has sought to know if MFs can invest part of funds in hybrid or multi-asset schemes in commodity derivatives and whether gold ETFs can be permitted to invest in exchange- traded commodity derivatives with gold as underlying as part of gold related instruments to a certain extent. Another proposal is whether MFs, in case of gold fund of fund schemes, can be permitted to invest certain percentage of the asset under management in commodity derivatives. Sebi said that while investing in commodity derivatives, the cumulative gross exposure through equity, debt and derivative positions should not exceed 100 per cent of the net assets of the scheme.