So far, Sebi
has allowed Category-3 alternative investment funds, or hedge funds, and Eligible Foreign Entities
(EFE) having actual exposure to Indian commodity markets, to participate in commodity derivatives.
Foreign Portfolio Investors are still not allowed in this space.
Interestingly gold ETFs
have also been allowed to participate in Gold Deposit Schemes
and Gold Monetisation Scheme.
GMS is operative but GDS is expected to be announced in future. This permission to them was given by the RBI under a relevant notification for GMS, but for the first time, Sebi
has cleared the way for gold ETFs
by amending the respective circular.
Investment in commodities without physical delivery is defined vide Sebi
circular no. SEBI/HO/CDMRD/DMP/CIR/P/2017/84 dated July 25, 2017. In partial modification to paragraph 3 of Sebi
Circular No. CIR/IMD/DF/11/2015 dated December 31, 2015, it has been decided that ETCDs having gold as the underlying asset, shall also be considered as ‘gold related instruments’ for Gold Exchange Traded Funds
No mutual fund schemes shall invest in physical goods except in ‘gold’ through Gold ETFs.
Further, as mutual fund schemes participating in ETCDs may hold the underlying goods, in case of physical settlement of contracts, 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 the physical goods.
Mutual fund have been barred from becoming net sellers or holding net short positions at the scheme level in commodities and for this they have to take into account their positions in physical goods.
To allow funds to participate early, they are permitted to enter commodities through hybrid schemes, which include multi-asset schemes and Gold ETFs.
MFs have represented that only commodity-dedicated schemes will not help if they have to abide by the 10 per cent commodities specific cap, as there are hardly 10 such commodities which are very liquid, considering the non-sensitive nature of farm commodities.
In case of existing schemes deciding to participate in commodities, Sebi
has asked funds to give all unit holders a time period of at least 30 days to exercise the option to exit at prevailing NAVs without charging any exit load.
Game of Trades
Funds not allowed to take physical delivery, hold net short positions
Existing schemes — hybrid or multi-assets — also permitted
Gold ETFs given nod to participate in derivatives of gold and GMS
Scheme investment will attract client-level position limits
At MF level, ‘trading member’ position limit will apply
For multi-asset schemes, 30% limit for commodities; for other hybrids, 10 per cent exposure limit prescribed