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Thursday, Jul 08, 2004

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AMFI for MF investments in gold, silver

Veena Venugopal

Mumbai , July 7

GOLD, silver and other metals will be the first commodities you will be able to invest in through the mutual fund route.

The Association of Mutual Funds in India (AMFI), which went into the possibility of mutual funds investing in commodities instead of debt and equity products, has recommended the initiation of commodity mutual funds with gold, silver and other metals.

The recommendations of the AMFI committee suggest that investing in commodities should not be effected by addendums to existing offer documents, and that commodity investments should be only for new funds, according to a source.

"Fund management of commodities would be a different league altogether and this should not be mixed up with the current structure of investing in paper," he said.

Also, the recommendations specify that mutual fund houses should be allowed to buy commodity futures only where they have warehouse receipts. This implies that asset management companies or mutual funds do not have to take delivery of commodities that they invest in.

National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX) will facilitate commodity trading by fund houses and the exchanges will monitor each deal to ensure that delivery will not be forced.

Fund houses that invest in commodities will be expected to have robust risk management systems in place. "Anyone buying gold, silver, metals and subsequently agricultural and other commodities on behalf of investors should be in a position to take sound risk-rewards judgments about buying and selling decisions. This is a specialised skill and would be the differentiating factor between mutual funds that offer commodity funds," said a source close to the commodity investment initiative of AMFI.

Once the systems and processes and feasibility of mutual funds investing in commodities is tested, fund houses can seamlessly upgrade to investments in more complicated commodities such as perishables.

"The recommendations of the committee would be circulated to all AMFI members, once their inputs and comments are incorporated. The AMFI board would approve the draft and post modifications, if any, this would be sent to Securities and Exchange Board of India (SEBI) for approval. We would take about two weeks for circulation among members and ten days after that for finalisation of the report that would be sent to SEBI," said Mr A.P. Kurien, Chairman, AMFI.

Incidentally, AMFI's report on investing in global mutual funds through the `feeder fund' route has been submitted and is currently under SEBI's perusal, confirmed Mr Kurien.

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