Sify- Hedge funds must be allowed to invest in commodity markets. The Forward Contracts Regulations Act has to be amended quickly as the benefit will reach more sections of the community. The banks and the financial institutions must be allowed to become members of commodity exchanges.
In the stock market, when FIIs, banks and others were allowed to operate, liquidity improved. The number of investors parking funds in the market has improved. Similarly, when banks and hedge funds are allowed to operate, better price discovery and hedging can take place.
Hedge funds have enjoyed a surge in popularity among investors who try to diversify their assets in order to maximise their returns. With more hedge funds accounting for trillions of dollars of investment worldwide, the hedge funds in India in equities are having a rousing business and have even beaten their counterparts in other countries in terms of performance. They give a specific return regardless of market conditions.
Hedge fund is a hedge against investment deterioration. These funds are mostly managed by portfolio managers, who adopt strategies such as short selling, arbitrage, hedging and leveraging.
The increased volatility in financial markets has provided tremendous opportunity for hedge funds to penetrate deep into the markets. Though the Indian commodity futures market has gained significant importance in the recent times, it is still in the infant stage. If the international hedge funds were given the opportunity to invest in commodity futures in the country, it would have encouraged domestic players as well.
