The Securities and Exchanges Board of India is planning to take a re-look on the existing cap of Rs 50 crore (Rs 500 million) that can be invested on any individual stock by mutual funds in the derivatives segment.
According to sources, Sebi officials are learnt to have assured a committee by the Association of Mutual Funds in India to review the existing norms.
"Sebi officials were receptive to our requests. They have promised to review the parameters that impede mutual funds from launching more schemes on derivative products. The committee had detailed how the existing cap is hindering the launch of new schemes."
At present, a fund house can only invest up to Rs 50 crore in any individual stock futures and options. Fund houses that already manage arbitrage funds say the ceiling is too low.
The norm means that an arbitrage fund holding Rs 50 crore in, say, Reliance Industries cannot play with the same scrip in any new derivative scheme or in any existing fund scheme for the purpose of hedging.
If any derivative fund's asset base is as big as Rs 1,000 crore (Rs 10 billion) or Rs 2,000 crore (Rs 20 billion), not many good stocks will be available for another derivatives-based scheme.
The industry expects the cap to be increased to around Rs 250 crore (Rs 2.5 billion) to Rs 300 crore (Rs 3 billion) and arbitrage funds to be excluded for the purpose of computing the position limits for the fund house.
Sebi chairman M Damodaran, in an investor meet in Chennai, has said the regulator would increase the overall position limit in derivatives.
"These position limits for FIIs were scripted at an early stage when the market was trading at much lower levels. Now with a change in time and scenario there ought to be change in regulatory norms as well," a fund manager said.
Sebi had placed domestic mutual funds on par with the FIIs in respect of position limits in index futures, index options, stock options and stock futures contracts while their schemes would be treated as clients or sub-accounts of FIIs.