As expected, commodity market regulator Forward Markets Commission (FMC) has allowed mutual funds to enter futures trading in bullion and crude, but it is still early days for them to truly become key players in this sphere.The reason is that mutual funds’ entry into the commodity futures space still needs to be cleared by FMC’s capital market counterpart Securities and Exchange Board of India (Sebi). “As of now, mutual funds are not allowed to invest, other than in securities. The government has to first clear the FMC’s proposal, Sebi then has to amend the requisite law, in this case, the Mutual Fund Regulation Act, 1996, before something concrete happens,” Association of Mutual Funds in India (AMFI) Chairman AP Kurien said.But even that may not be enough. “Sebi also has to work out detailed regulations on a host of issues like valuation, pricing, schemes, disclosure and even the commodities,” Kurien told The Indian Express.But Kurien welcomed FMC’s move, saying it was a step in the right direction. “Mutual funds provide opportunities for small investors in the commodity space,” he said.Adds Executive Director of Benchmark Asset Management Fund Rajan Mehta: “Mutual funds, by entering commodity futures, give small investors the option to diversify their portfolio in an efficient manner.”Mutual funds have never shied away from declaring their upbeat intentions about the commodity futures market, understandably so, considering its tremendous potential. The Indian commodity market is estimated to be around Rs 11,00,000 crore while analysts peg commodities-related industries to constitute about 58 per cent of the country’s GDP.This, despite concerns that they have limited knowledge about the working of the futures market. However, AMFI’s Kurien brushes aside such fears.“Mutual funds have the ability to understand the dynamics of the commodity market, enough to bring out schemes that will serve the interests of the small investor.”Benchmark’s Mehta agrees. “Fears of a limited knowledge are unfounded. In any case, mutual funds have the wherewithal to hire talent. They also know that small investors will be interested in investing in commodity futures through mutual funds, as being a financial instrument, they needn’t worry about other factors such as liquidity,” he said.But not everyone shares the same enthusiasm. “Exchanges have reason to be excited as mutual funds, being large players, add liquidity and drive along other such investments. But I can’t say the same about small investors, as there are many price risks involved,” said a trader who didn’t wish to be identified.
