{"id":374,"date":"2019-05-29T04:46:52","date_gmt":"2019-05-29T04:46:52","guid":{"rendered":"http:\/\/blog.certifiedfinancialguardian.com\/?p=374"},"modified":"2019-05-29T05:02:27","modified_gmt":"2019-05-29T05:02:27","slug":"heres-what-the-regulators-new-circular-allowing-mutual-funds-to-invest-in-commodities-says","status":"publish","type":"post","link":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/2019\/05\/29\/heres-what-the-regulators-new-circular-allowing-mutual-funds-to-invest-in-commodities-says\/","title":{"rendered":"Here\u2019s What The Regulator\u2019s New Circular Allowing Mutual Funds To Invest In Commodities Says"},"content":{"rendered":"\n<p>You will soon be able to invest in commodity derivatives through <a href=\"https:\/\/www.personalfn.com\/mutual-fund\/what-is-mutual-fund\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">mutual funds<\/a>.<\/p>\n\n\n\n<p>The capital market regulator has been\ntrying to encourage institutional investors to increase their participation in\nthe commodities derivatives market for the past 2-3 years. <\/p>\n\n\n\n<p>Finally, it\u2019s ready with the\nframework. <\/p>\n\n\n\n<p>SEBI has already permitted Alternative\nInvestment Funds, Eligible Foreign Entities, and PMSs to invest in commodity\nderivatives. <\/p>\n\n\n\n<p>In a <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.sebi.gov.in\/legal\/circulars\/may-2019\/participation-of-mutual-funds-in-commodity-derivatives-market-in-india_43046.html\" target=\"_blank\">circular dated 21 May \u00a02019<\/a>, the <a href=\"https:\/\/www.sebi.gov.in\/about.html\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">Securities and Exchange Board of India (SEBI)<\/a> laid out the blueprint for mutual funds to invest in Exchange Traded Commodity Derivatives (ETCDs). <\/p>\n\n\n\n<p><strong>Can\nany mutual fund scheme invest in ETCDs?<\/strong><\/p>\n\n\n\n<p>No. The capital market regulator has permitted only hybrid schemes including multi-asset allocation schemes to invest in ETCDs. Hence, Conservative Hybrid Funds, <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.personalfn.com\/fns\/balanced-hybrid-funds-a-solution-for-tactical-asset-allocation\" target=\"_blank\">Balanced Hybrid Funds<\/a>, <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.personalfn.com\/mutual-fund\/looking-for-the-best-aggressive-hybrid-funds-for-2019-read-this\" target=\"_blank\">Aggressive Hybrid Funds<\/a>, <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.personalfn.com\/fund-category\/Hybrid-Dynamic-Asset-Allocation\" target=\"_blank\">Dynamic Asset Allocation Funds<\/a>, <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.personalfn.com\/fns\/should-you-invest-in-multi-asset-fund\" target=\"_blank\">Multi-Asset Allocation Funds<\/a>, <a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.personalfn.com\/fns\/do-arbitrage-funds-have-an-edge-over-short-term-debt-funds-know-here\" target=\"_blank\">Arbitrage Funds<\/a>, and <a href=\"https:\/\/www.personalfn.com\/mutual-fund\/best-equity-savings-fund-for-2019\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">Equity Savings Funds<\/a> will be able to invest in ETCDs. <\/p>\n\n\n\n<p>If the existing schemes decide to\ninvest in ETCDs, that will be considered a change in the fundamental attributes.\nIn this case, the concerned mutual fund scheme will have to allow an exit window\nof 30 days to investors at the prevailing NAV without charging any exit load\nfee. <\/p>\n\n\n\n<p>Moreover, mutual fund schemes\ninvesting in ETCDs will have to benchmark their performance against the\nappropriate benchmark. <\/p>\n\n\n\n<p><strong>Essence\nof the SEBI guidelines\u2026<\/strong><\/p>\n\n\n\n<ul><li>Mutual funds shouldn\u2019t invest in sensitive commodities. <\/li><li>Except <a href=\"https:\/\/www.personalfn.com\/fns\/why-you-should-allocate-some-portion-to-gold-etfs\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">Gold ETFs<\/a> investing in gold, no other mutual fund scheme should invest in physical goods.<\/li><li>If a mutual fund scheme decides to go in for a physical settlement of ETCDs and as a result holds goods on its books, it shall dispose of the same within 30 days from the date of holding the physical goods. <\/li><li>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.<\/li><li>Except for gold ETFs investing in ETCDs, all other schemes will cap their single goods exposure to 10% while investing in ETCDs. <\/li><li>Except for multi-asset allocation schemes which are allowed to invest upto 30% of their net assets in ETCDs, other hybrid schemes will have to restrict their overall ETCD exposure to 10% of their net assets. <\/li><li>In the case of Gold ETFs, the cumulative exposure to gold related instruments, i.e. Gold Deposit Scheme (GDS) of banks, Gold Monetization Scheme (GMS), and ETCD having gold as the underlying should not exceed 50% of net asset value of the scheme. <\/li><li>Mutual funds must appoint a dedicated fund manager having required skills and experience in commodities market, including commodities derivative market. <\/li><li>Investments of mutual funds are subject to the board approved investment and valuation policies in writing. Board of AMC and the board of trustee have to approve it. <\/li><\/ul>\n\n\n\n<p><strong>Are\nmutual funds keen to invest in ETCDs is a moot question<\/strong><\/p>\n\n\n\n<p>&nbsp;Compliance norms might add to the schemes\u2019\ncosts. If mutual funds don\u2019t find investment opportunities attractive enough to\nlaunch New Fund Offers (NFOs) or to make changes in the fundamental attributes\nof the existing funds, they may not be enthused about investing in ETCDs. <\/p>\n\n\n\n<p>Reactions coming from the mutual fund\nindustry are quite suggestive.<\/p>\n\n\n\n<p><em>\u201cCommodity\nderivatives is a volatile space on a standalone basis. So depending on the kind\nof appetite in the market for commodity exposure, mutual funds will decide to\nlaunch commodity-dedicated schemes\u201d<\/em>\u2014Chirag Mehta, Senior Fund Manager,\nQuantum Mutual Fund (Source: moneycontrol.com)<\/p>\n\n\n\n<p>Other experts believe, constraints on\nthe physical delivery might deter mutual funds from launching NFOs focused on\nETCDs. Nonetheless, some experts feel SEBI allowing mutual funds to invest in\nETCDs is a welcome step from the diversification point of view. <\/p>\n\n\n\n<p><strong>What\ncan investors do?<\/strong><\/p>\n\n\n\n<p>If you are a mutual fund investor, you must consider your\u00a0<a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.personalfn.com\/fns\/heres-what-could-make-or-break-your-financial-goals\" target=\"_blank\">financial goals<\/a>, time horizon, and\u00a0<a rel=\"noreferrer noopener\" href=\"https:\/\/www.personalfn.com\/fns\/how-to-evaluate-your-risk-appetite-and-risk-tolerance-level\" target=\"_blank\">risk appetite<\/a>\u00a0before investing in mutual funds. Do not get carried away by the developments in the mutual fund industry. More than the asset allocation of mutual funds, your <a href=\"https:\/\/www.personalfn.com\/fns\/essence-of-successful-investing\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">personalised asset allocation<\/a> will decide how successful you are as an investor.<\/p>\n\n\n\n<p>If the hybrid fund you have invested\nin decides to invest in ETCDs, carefully analyse if it has offered any clarity\non the process it will follow and risk management practices it may employ.\nUnless you are satisfied with scheme\u2019s disclosures in this regard, blindly\ncontinuing with the scheme even after the fundamental changes in the attributes\ncan be detrimental to your portfolio. <\/p>\n\n\n\n<p>Follow the same approach while\ninvesting in NFOs focused on investing in ETCDs. Only multi-asset allocation\nhybrid funds can help you diversify in a meaningful way since they are allowed\nto have a higher exposure to ETCDs, as compared to other hybrid schemes. <\/p>\n\n\n\n<p>When selecting a mutual fund scheme for your portfolio, analyse all the available options on various  quantitative  and qualitative parameters. <\/p>\n\n\n\n<p> This article first appeared on PersonalFN <a href=\"https:\/\/www.personalfn.com\/fns\/are-mutual-funds-enthused-to-invest-in-commodity-derivatives\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"here. (opens in a new tab)\">here.<\/a> <br><\/p>\n","protected":false},"excerpt":{"rendered":"<p>You will soon be able to invest in commodity derivatives through mutual funds. The capital market regulator has been trying to encourage institutional investors to increase their participation in the commodities derivatives market for the past 2-3 years. Finally, it\u2019s ready with the framework. SEBI has already permitted Alternative Investment Funds, Eligible Foreign Entities, and&hellip;<\/p>\n","protected":false},"author":3,"featured_media":377,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"cybocfi_hide_featured_image":""},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/374"}],"collection":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/comments?post=374"}],"version-history":[{"count":3,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/374\/revisions"}],"predecessor-version":[{"id":381,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/posts\/374\/revisions\/381"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media\/377"}],"wp:attachment":[{"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/media?parent=374"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/categories?post=374"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/wp-json\/wp\/v2\/tags?post=374"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}