SEBI Provides Clarity On Mutual Fund’s Gross Exposure On Exchange Traded Commodity Derivatives

Markets regulator SEBI on Friday provided clarity on cumulative gross exposure taken by mutual funds on exchange-traded commodity derivatives.

The regulator in May 2019 permitted mutual funds to participate in ETCDs.

In a circular on Friday, SEBI said that the short positions that are not exceeding the holding of underlying goods received in physical settlement contracts would not be considered in the cumulative gross exposure taken by mutual funds on ETCDs.

It added that short positions not exceeding the long position on the same goods will also not be considered.

It further said mutual funds would not write options, or purchase instruments with embedded written options in goods or on commodity future.

"The point on exclusion of short position in ETCDs from the cumulative gross exposure can help multi-asset funds operationally," said MyWealthGrowth.com co-founder Harshad Chetanwala.

He added that earlier, the cumulative gross exposure across equity, debt and derivatives positions (including commodity derivatives) were not allowed to exceed over 100% of net asset .

Mutual funds taking derivative short as well as long positions on the same commodity would not be counted twice in the gross exposure limits as mentioned by Sebi in its earlier circulars, said Green Portfolio co-founder Divam Sharma.

He added that the regulator's move would give relief to the hybrid mutual fund schemes as they will now be able to take additional long exposures considering the clarity on gross exposure limits. They can also maintain hedge on their long positions to ensure capital protection and better returns.