MFs, insurance cos may get nod for commodity futures
This follows a similar move to enable banks to enter the segment by amending the banking regulation law.
“We want to enable them (mutual funds and insurance companies to trade in commodity futures),” a senior finance ministry official told FE.
Commodity futures help in hedging risks involved in fluctuations in the commodity prices.
Participation of large institutional investors such as banks, insurance firms and mutual funds would help in deepening the commodity market. In taking this initiative, the government is banking on the suggestions of a parliamentary standing committee on consumer affairs, food and public distribution.
Apart from more teeth for the commodity market regulator Forward Markets Commission (FMC), the panel had also recommended permitting mutual funds, insurance companies as well as banks to enter the commodity futures markets to reduce the price fluctuations and ensure better price discovery and better price risk management.
The panel reckoned that the entry of financial sector entities into the futures segment would also bring in more liquidity into the markets and enable farmers and investors to fetch better returns. This was, however, subject to permission from the respective sectoral regulators and their detailed operational guidelines.
The department of consumer affairs had also said that participation of banks, insurance company and mutual funds in the commodity markets will lead to more credit flow to farmers for post-harvest marketing. It had
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