Participation of Mutual Funds in Commodity Derivatives market in India

May 22, 2019 | by Avantis RegTech Legal Research Team

The Securities and Exchange Board of India (SEBI) on May 21, 2019, permits the Mutual Funds (MF) to participate in Exchange Traded Commodity Derivatives (ETCDs) in order to promote institutional participation. 

The participation of Mutual Funds in ETCDs would be subject to the following:

1.The Mutual Funds are permitted to participate in ETCDs in India, except in commodity derivatives on “Sensitive Commodities”. The Mutual Funds can only participate through Hybrid schemes and Gold ETFs.

2.It has been decided that the ETCDs having gold shall also be considered as ‘gold related instrument’ for Gold Exchange Traded Funds (Gold ETFs). No Mutual Fund schemes shall invest in physical goods except in ‘gold’ through Gold ETFs.

3.The 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 possible, not exceeding thirty days from the date of holding of the physical goods.

4.No Mutual Fund scheme shall have net short positions in ETCDs on any particular good, considering its positions in physical goods as well as ETCDs at any point of time.

5.Mutual Fund schemes may participate as ‘clients’ and shall adhere to all the rules, regulations and instructions, position limit norms issued by SEBI and Exchanges from time to time.

SEBI has also prescribed the investments limits and the list of disclosures to be made for the Mutual Funds participating in ETCDs.

[Circular No. SEBI/HO/IMD/DF2/CIR/P/2019/65]

Click here to download the Circular.



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