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In a notification issued today, the Securities and Exchange Board of India (Sebi) excluded hedging activities by mutual funds from the limit on commodity derivatives laid down by it. In May 2019, Sebi allowed mutual funds to take exposure to Exchange Traded Commodity Derivatives (ETCDs) up to 30% of scheme assets in the multi asset category and 10% in any other category. Exposure to a single commodity was also capped at 10% (50% for gold ETFs in gold ETCDs). In addition, total cumulative gross exposure through equity, debt and derivatives was capped at 100% of scheme assets. This last provision has been clarified by the regulator in the circular issued today.

Cases in which the exposure is a short position, offsetting an underlying long position or actual underlying commodities received in settlement of ETCDs, will not be double counted as per the new circular. A short position gains when the price of an instrument falls and vice versa for a long position. However mutual funds will not be permitted to write commodity options or purchase instruments with embedded written options in goods or commodity futures, the regulator clarified. "The Sebi circular has brought clarity and aligned the rules for commodity and equity trading for mutual funds, more or less. We take exposure to not just gold but also silver, energy and agri commodities in our multi asset fund," said Aurobinda Prasad Gayan, Head – Commodities Strategy, Tata Asset Management

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