CHIEF GENERAL MANAGER
MUTUAL FUNDS DEPARTMENT
SEBI/MFD/CIR No. 03/ 158 /03
June 10, 2003
Association of Mutual Funds in India (AMFI)
Dear Sirs,
Re : Investment in Interest Rate Derivatives.
As you are aware, Reserve Bank of India had permitted mutual funds to undertake transactions in forward rate agreements / interest rate swaps with banks, primary dealers and financial institutions vide their Circular dated November 01, 1999.
Accordingly, the mutual funds have been disclosing in their scheme offer documents that they may invest in these instruments. Further, the risk management manual issued vide SEBI Circular No. MFD/CIR/15/19133/2002 dated September 30, 2002 also recommends that in view of interest rate movements, mutual funds may consider using interest rate derivatives to manage risk and rebalance portfolios.
Recently, SEBI has permitted trading of interest rate derivatives through stock exchanges which is expected to commence in the near future. It is clarified that mutual funds can trade in these instruments subject to disclosures made in the offer documents.
This clarification is issued in accordance with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996.
Yours faithfully,
P.K. Nagpal