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Allow MFs in commodity futures: NCDEX

Suresh P. Iyengar

Mumbai June 20 Participation of banks, mutual funds and financial institutions will help bring down volatility in the commodity futures trading, according to Mr P.H. Ravikumar, Managing Director of NCDEX.

Speaking at the CII Mutual Fund Summit 2007 on Wednesday, Mr Ravikumar urged the SEBI to allow mutual funds investment in commodity trading.

"Over two years ago, an Association of Mutual Funds in India committee had submitted its report to the SEBI on allowing mutual funds in commodities. I hope the SEBI will clear the proposal at the earliest."

Mutual funds could come in as members and clients, he said.

"The commodity markets regulator, FMC, is on record that the SEBI can continue to regulate MF investments in commodities and that it will provide all support."

Mutual funds, financial institutions, banks and foreign institutions are currently barred from investing in commodities. Their participation would catapult commodity trading to a trillion-dollar business, he added.

Emphasising the need to acquire domain expertise before investing, he said: "Often, retail investors take positions without having prior knowledge in commodity trading. Mutual funds can provide the tool for retail investment in commodities."

Volatility

Mr Ravikumar said that commodity futures market was as volatile as the stock markets and more volatile than Government securities.

The volatility in the commodity market would come down substantially if the investor base widens.

He was also for strengthening commodity research to attract retail investors and present commodity investment as an asset class.

"According to a Barclays report, hedge funds investment in commodities the world over is around $100 billion and total commodity investments around $200-250 billion. Some 10-15 per cent of wheat traded on US exchanges is held by pension funds," he said.

The commodity exchanges are awaiting Government approval for introducing options trading, carbon credit and weather indices.

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