MFs can use interest rate futures to hedge risks: Regulator

MFs are permitted to resort to imperfect hedging, without it being considered under the gross exposure limits

Providing more leeway, the Securities and Exchange Board of India (Sebi) on Wednesday allowed mutual funds (MF) to use interest rate futures (IRF) contracts to hedge risks from volatility in interest rates.
 
An IRF provides for future delivery of an interest- bearing security such as government bonds and such contracts provide an avenue to hedge against risks arising from fluctuations in interest rates.
 
“To reduce interest rate risk in a debt portfolio, mutual funds may hedge the portfolio or part of the portfolio (including one or more securities) on weighted average modified duration basis by using IRFs,” Sebi