Mutual funds can now invest in exchange traded commodity derivatives, except those on sensitive commodities, according to Sebi.
To boost participation of mutual funds in the commodities market, the watchdog has allowed them to invest in Exchange Traded Commodity Derivatives (ETCDs) with certain restrictions.
In a circular, the regulator said that no mutual fund schemes can invest in physical goods except in 'gold' through Gold Exchange Traded Funds (ETFs).
ETCDs having gold as the underlying, shall also be considered as 'gold related instrument' for Gold ETFs.
Mutual funds can make the investments in ETCDs through hybrid schemes and Gold ETFs.
"... as 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 commencement of participation 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 (NAV) without any exit load charges.
Regarding investment limit, Sebi said mutual funds can participate in ETCDs of a particular goods (single), not exceeding 10 per cent of NAV of the scheme.
However, the limit of 10 per cent is not applicable for investments through Gold ETFs in ETCDs having gold as underlying asset.
In case of multi-assets allocation schemes, the exposure to ETCDs should not be more than 30 per cent of the NAV of the scheme.
For other hybrid schemes excluding multi assets allocation, the participation in ETCDs cannot exceed 10 per cent of NAV of the scheme, Sebi said.
The cumulative gross exposure through equity, debt and derivative positions, including commodity derivatives, should not exceed 100 per cent NAV of the scheme.
Prior to participation in ETCDs, the regulator said asset management companies should a dedicated fund manager with requisite skill and experience in commodities market, including commodity derivatives market.
They should also appoint a custodian registered with the board for custody of the underlying goods, arising due to physical settlement of contracts. Besides, the companies should have written down investment policy for participation in ETCDs.
For disclosures, Sebi said NAV value of the scheme has to be updated on a daily basis on the websites of the asset management company concerned and the Association of Mutual Fund of India (AMFI).
Further, total exposure to ETCDs is required to be disclosed in the monthly cumulative report submitted by mutual funds, Sebi noted.
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