The Securities and Exchange Board of India (SEBI) may open the door of commodity derivative market to domestic institutional investors like mutual funds and portfolio managers services (PMS) in its board meeting scheduled on Friday in New Delhi.

The market regulator may insert a word 'goods' in the final amendment of Mutual Fund Regulation, 1996. After which, funds could hold the underlying goods in case of physical settlement of such contracts.

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"Mutual fund will have dedicated fund managers who have experience in the commodity markets," sources told India Today on condition of anonymity.

However, the mutual fund may need a custodian who will have to register with SEBI. SEBI is likely to come out with a circular after the decision at the board meeting on Friday.

PMS may also be allowed in commodity derivative market with a few riders. Currently, PMSs are exempt from having a custodian if the asset they manage is less than Rs 500 crore. They will need a custodian if they operate in the commodity derivative market.

Earlier, SEBI had constituted a specialised expert committee Commodity Derivative Advisory Committee (CDAC) which suggested that the commodity derivative market be open to institutional inverters.

According to the expert group, most of the investors including retail investors are not able to directly hit the commodity derivative market. It believes institutional investors like the mutual fund and PMS will provide such investors a tool to access the market.

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