MFs plan to increase headcount as they gear up for commodity play

Some fund houses are also planning AIFs that can take exposure to commodity derivatives

Mutual fund (MF) players are reviewing their bench strength as they plan new launches in the commodity-linked products space. The development follows Sebi's opening up of the commodity derivatives segment to the Rs 27-trillion MF industry.

"We will look at hiring more analysts and fund managers given the diverse basket of commodities available after Sebi gave the go-ahead to MFs," said Aurobinda Gayan, head-commodities strategy, Tata MF.

The fund house has recently floated Tata Multi Asset Opportunities Fund, which can take 10-25 per cent exposure to commodity derivatives.

According to industry sources, some of the fund houses are also planning alternate investment funds, or AIFs, that can take exposure to commodity derivatives.

Last year, the market regulator allowed MFs to participate in exchange-traded commodity derivatives, but kept them out of 'sensitive commodities'. This effectively gives MFs access to 20-25 commodities to trade with.

Nippon Life India MF is another fund house that is looking at building a product portfolio linked to commodity derivatives.

"Besides portfolio diversification, commodity markets also throw up medium- to long-term investment opportunities in individual commodities. We intend to offer products that allow investors to participate in such opportunities -- both in active and passive spaces," said Sundeep Sikka, executive director and chief executive officer (CEO), Nippon Life India MF

"Commodity arbitrage is an interesting space that will evolve as we move forward. We will increase our team strength and resources as we arrive there," he added.

The fund house has also filed for a multi-asset fund, which can allocate 10-30 per cent of its funds to commodity derivatives.

Among other players, Edelweiss MF and PGIM India MF are also mulling launching a commodity-linked product.

"This opens up avenue for further diversification to help investors deal with volatility, which tends to be part of most investment outcomes. We are exploring such offerings, but it is important to build the right expertise around this," said Ajit Menon, CEO of PGIM India MF.

"We are evaluating the opportunity and would wait for a suitable time to launch such a fund," said Radhika Gupta, CEO at Edelweiss MF.

Industry participants say that globally, commodities have emerged as a popular investment for MFs. According to estimates, about $1 trillion is held globally by various fund houses.

Experts say that Indian MF investors may take time to warm-up to commodity as an asset class. "Investors have traditionally considered only gold for their commodity allocation. Even though a multi-asset fund can be important for asset allocation, investors are likely to stick to plain-vanilla debt or equity fund for their core allocations," said Amol Joshi, founder of Plan Rupee Investment Services.

Even as market watchdog has allowed MFs to invest in commodities, it has put certain restrictions on the investment limits.

For instance, an MF scheme cannot have more than 10 per cent of its assets exposed to single good or commodity at any point of time.

The overall exposure to commodities cannot exceed more than 30 per cent in case of multi-asset schemes. In the case of a hybrid scheme (or any scheme apart from multi-assets), overall exposure cannot be more than ten per cent.

Further, given the longer market hours for the commodity markets, MFs will have to report the net asset value of the commodity-linked scheme by 9am on the following day.