Millennium Post

Mutual Funds’ share in derivatives comes down

Equity mutual funds' investment in derivative products has dipped to a meagre 0.92 per cent, the lowest since August 2011, amid regulatory pressure on them against making profits through futures and options segments.

As per the latest data available with the market regulator Sebi, various equity mutual funds had deployed a total of Rs 1,719 crore in derivatives at the end of August 2012.

This accounted for just 0.92 per cent of the equity funds' total assets of Rs 1.87 lakh crore. This is the lowest derivative exposure of stock funds since August 2011, when they had deployed Rs 1,657 crore, or 0.88 per cent of Rs 1.88 lakh crore worth assets managed by equity MFs at that time. These funds use equity derivatives to hedge the risk associated with positions in cash equity market.

Some schemes like arbitrage funds also aim to generate income through opportunities arising out of pricing differential of a stock in cash and derivative segments. Besides index futures, many individual stock futures and options are also available in derivative segment. Unlike direct stock investments in the cash market, F&O products allows the investors to take positions based on future price and upward or downward movement of an index or individual stocks.

So far in 2012, the month-end exposure of equity MFs to derivatives has stayed between Rs 1,700 crore and Rs 2,500 crore.
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