Sources told Chillicious that capital and commodities markets regulator SEBI has told the Finance Ministry that it is comfortable with opening up the commodities markets to institutional investors.
SEBI had proposed that Foreign Portfolio Investor (FPI) categories I and II, and also domestic mutual funds be allowed to invest in commodities.
Category-I includes government and government-related investors such as central banks, governmental agencies, sovereign wealth funds and international or multilateral organizations or agencies.
Category-II includes regulated funds such as mutual funds, investment trusts and insurance companies. It also includes regulated investors such as banks, asset management companies, investment managers or advisors and portfolio managers.
Recently, SEBI wrote to the Reserve Bank of India seeking its views on allowing hedge funds to invest in commodities. Hedge funds fall under category-III of Alternative Invest Funds (AIFs), and are known to take leveraged bets, unlike category I and II FPIs.
According to the sources, approval for domestic mutual funds is likely to come ahead of approval for foreign portfolio investors, since SEBI oversees the regulations for mutual funds. Where foreign institutional investors are involved, SEBI has to consult with the RBI and the Finance Ministry as well.