MUMBAI (Reuters) - India's capital markets regulator is likely to allow mutual funds to trade in commodity derivatives and a decision is expected within six months, a senior official said on Tuesday.
Such a move would help deepen the market and provide hedging opportunities to large companies that trade overseas due to limited liquidity at local exchanges.
Portfolio management services and foreign trading houses that export or import from India could also be allowed to participate in commodity futures, said S.K. Mohanty, an executive director with the Securities and Exchange Board of India.
"The participation (of mutual funds) is in an advanced stage of examination," Mohanty told reporters on the sidelines of an industry conference.
"We have taken the feedback. On the basis of that we will finalise the regulatory mechanism," he said.
Asia's third-biggest economy allowed commodity futures trading in 2003, but has so far kept out foreign investors, banks and mutual funds, among others.
In June, SEBI for the first time allowed institutional investors to trade in commodity derivatives as it said hedge funds registered as category III Alternative Investment Funds (AIFs) can invest in the segment.
(Reporting by Rajendra Jadhav; Editing by Devidutta Tripathy and Subhranshu Sahu)
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