Sebi allows hedge funds in commodity derivatives

Regulator Sebi on Wednesday allowed hedge funds to invest in commodity derivatives, in a move to deepen the market and boost liquidity. However, this is subject to certain conditions, including that Category-III alternative investment funds (AIFs) or hedge funds should not invest more than 10 per cent of the investible funds in one underlying commodity.

Besides, they should make disclosure in private placement memorandum issued to investors about investment in commodity derivatives and should take consent of the existing investors if such AIFs intend to invest in such derivatives. These AIFs can participate in all commodity derivatives products being traded in exchanges as 'clients'. They should have position limits as applicable to clients. At present, institutional participants are not allowed to participate in the commodity derivatives market in India.