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MF News SEBI looking at allowing covered calls in mutual funds

SEBI looking at allowing covered calls in mutual funds

MFAC has formed a sub-committee to see the pros and cons of covered calls.
Nishant Patnaik Aug 16, 2018

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.

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Dhanesh · 6 months ago
Very good move. Mutual funds ate predominantly long only funds. With this, they can earn some returns in sideway and bear market. It will add 2-3% CAGR.
Hunny · 6 months ago
Upside will be capped probably will allow writing deep out of the money calls
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