The Hindu Business Line : Escorts Mutual Fund to rework proposal

THE Securities and Exchange Board of India's decision to allow equity funds take up to 50 per cent exposure to derivatives is prompting Escorts MF, which had mooted a special derivatives-based product last year, to take a fresh look at its proposal.

The fund had worked out a scheme that proposed to use derivatives in an efficient manner and had sent the offer document to the regulator for approval. It, however, did not materialise at that juncture, given SEBI's earlier stand on the subject of allocating to derivatives by equity schemes.

Mr K.K. Mittal, in-charge of Escorts MF, said the asset management company would now discuss the proposal in view of the new guidelines. The idea is to weigh the possibility of restructuring the initial offer document in line with the latest changes.

"We will have to see if some of its features can be reworked. However, at the moment there is no guarantee that the scheme would actually be introduced in a new format," he clarified.

The scheme, which could have been a first of sorts in the realm of MFs in India, was expected to generate returns mainly through equity/equity-linked instruments and hedge against market risks. It was supposed to utilise derivatives in order to derive current income and minimise volatility.

Escorts MFhas been an earnest believer in derivatives for enhancing the performance of its schemes. It has also worked out a few interesting concepts in the recent past. These have included a product based on the concept of high dividend yield stocks.

MF sources, reacting to the SEBI move, have underlined the functional aspects of the new guidelines, which they said come with considerable potential and can be leveraged to create advantages for their investors. A fund will be required to consider the total of all positions on individual stocks plus positions on indices in order to compute its overall exposure to derivatives.

Multiple derivative positions on the same underlying security have been permitted. The regulator has kept an eye on disclosure standards as well, it is pointed out.