Review of norms for investment and disclosure by Mutual Funds in derivatives

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.... mutual funds and to bring in transparency and clarity in the disclosure of the same to investors, it has been decided to bring in certain modification in the aforesaid circulars. Exposure Limits 3. The cumulative gross exposure through equity, debt and derivative positions should not exceed 100% of the net assets of the scheme. 4. Mutual Funds shall not write options or purchase instruments with embedded written options. 5. The total exposure related to option premium paid must not exceed 20% of the net assets of the scheme. 6. Cash or cash equivalents with residual maturity of less than 91 days may be treated as not creating any exposure. 7. Exposure due to hedging positions may not be included in the above mentioned lim....

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.... Exposure is the maximum possible loss that may occur on a position. However, certain derivative positions may theoretically have unlimited possible loss. Exposure in derivative positions shall be computed as follows: Position Exposure Long Future Futures Price * Lot Size * Number of Contracts Short Future Futures Price * Lot Size * Number of Contracts Option bought Option Premium Paid * Lot Size * Number of Contracts. Disclosure of derivatives in Half Yearly Portfolios 11. The manner of disclosure of derivatives position in half yearly portfolio disclosure reports has not been specified in the SEBI (Mutual Funds) Regulations, 1996 and the disclosures being currently made are not uniform across the industry. Th....

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....        Total exposure due to futures (non hedging positions) as a %age of net assets For the period ended ... specify the following for non-hedging transactions through futures which have been squared off/expired Total Number of contracts where futures were bought Total Number of contracts where futures were sold Gross Notional Value of contracts where futures were bought Gross Notional Value of contracts where futures were sold Net Profit/Loss Value on all contracts combined Hedging Positions through Put Options as on ... Underlying Number of Contracts Option Price when purchased Current Option Price         Total %age of existing assets he....