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Commodity funds allowed

October 23, 2012

ISLAMABAD, Oct 23: The Securities and Exchange Commission of Pakistan (SECP) has allowed asset management companies (AMCs) to offer commodity schemes to investors.

The introduction of the scheme as particular class of collective investment schemes (mutual funds) was the longstanding demand of the local market.

The introduction of new class of commodity funds would facilitate asset management companies to broaden their product range by offering commodity schemes to investors in addition to their conventional equity, money market and income funds.

Official said the move would also enable small investors to take potential advantage of gains promised by the commodity market, such as gold through pooled investment being managed by professional fund managers.

Commodities as an asset class was available on a limited basis through investment in mutual funds as some funds offered up to 20 per cent exposure to gold through investment in gold future contract.

However, no dedicated commodity fund could be launched to cater to growing demand for commodity trading through mutual funds.

The SECP also devised minimum requirements for a commodity scheme after thorough consultations with market participants and in accordance with the best international practices.

Investment in commodities by a fund can only be made through future contracts which are traded on an organised exchange, such as Pakistan Mercantile Exchange and having commodities as the underlying assets.

The commodity funds are required to invest at least 70 per cent of their assets in commodity future contracts which include both cash settled as well as deliverable contracts.

The deliverable contracts for the time being have only been allowed in gold as mechanism in place with exchange in terms of physical delivery. In order to ensure sufficient liquidity, commodity schemes must maintain at least 10pc of their net assets in cash and near cash instruments.

Such schemes as in case of other mutual funds that attract investment from the general public have been prohibited from gearing or leveraging.

For managing commodity scheme, fund managers are required to have in place requisite infrastructure and skilled human resources.

The launch of commodity funds are expected to encourage savings culture in Pakistan by allowing investors to choose from a more diverse range of investment options and contribute to development of capital market.