SEBI is evaluating the introduction of covered calls in the Indian mutual fund industry.
In a recent meeting of mutual fund advisory committee (MFAC) held last week, SEBI has reportedly constituted a sub-committee to look at the pros and cons of introducing covered calls in mutual funds.
Covered calls are a complex strategy in which a fund manager can write a call option contract if he has neutral view on a particular stock. Unlike derivative strategies where volatility has a key role to play, covered calls work well in a flat market conditions. Through this strategy, the scheme can generate money to the extent of premium paid by traders.
A CEO who attended this meeting told Cafemutual that the committee wants to keep pace with the latest development in the fund management industry. “In my view, such a strategy is well suited for long term players like mutual funds. This would help investors generate marginal returns even during flat market conditions.”
The sub-committee is expected to submit their recommendations soon.
