SEBI revises derivative investment norms for mutual funds

The Securities and Exchange Board of India (SEBI) has revised prudential limits for derivative investments by mutual funds, in a bid to bring transparency and clarity in the disclosure to investors.

As per the revised norms, the cumulative gross exposure through equity, debt and derivative positions of mutual funds should not exceed 100 per cent of the net assets of the scheme.

Mutual funds should not write options or purchase instruments with embedded written options and the total exposure related to option premium paid must not exceed 20 per cent of the net assets of the scheme.

However, cash or cash equivalents with residual maturity of less than 91 days may be treated as not creating any exposure, SEBI said.

Exposure due to hedging positions may not be included in the limits provided that:

* Hedging positions are the derivative positions that reduce possible losses on an existing position in securities and till the existing position remains;