Webinar :Register now for webinar on 'Trade BankNifty in just 15 minutes a day'
Last Updated : Feb 28, 2017 08:30 AM IST | Source: Moneycontrol.com

SEBI nod to commodities trading by mutual funds 6 months away

Outgoing SEBI Chairman UK Sinha had said that mutual funds would be able to trade in commodities in a couple of months.




The Securities and Exchange Board of India (SEBI) will take at least six months to let mutual funds invest in commodities. SEBI has just completed two rounds of initial discussions with asset management companies on direct exposure to commodities.


Outgoing SEBI Chairman UK Sinha had said that mutual funds would be able to trade in commodities in a couple of months.


“It will take a minimum of six months before the regulator takes a decision on the proposal (allowing mutual funds to trade in commodities),” a source familiar with the development told Moneycontrol.


In the stock market, mutual funds are allowed to trade in equity derivatives based on their exposure to the underlying stocks in their portfolio. SEBI will have to come up with a set of rules for exposure limit in commodities and also the commodities in which mutual funds can invest.

Close

According to Jimmy Patel, CEO, Quantum Mutual Fund, the regulator may allow a silver exchange traded fund (ETF) initially, as prices of silver are less volatile.


“However, there are only two registered custodians who keep non-agri commodities; also keeping silver is not easy as keeping gold,” he told Moneycontrol.


Large values of gold can be stored in less area given the price of gold. But for the same value of silver, copper and nickel, the storage area required will be much more.


“Also, warehouse service providers are not regulated by SEBI; that may also be a concern for mutual funds,” said a source.


Agri commodities have their own set of challenges. Since they are perishable, liquidity (the ease of buying and selling) and shelf life matter.


In the latest meeting with the regulator, the mutual funds have raised these concerns. A proposal to have indices for commodities, which then would allow diversification of risk, is also under consideration.

“Alternative investment fund category 3 will be first to be permitted trading in commodities,” said the source, adding that permission for banks was a long way off.

First Published on Feb 27, 2017 02:35 pm
Sections