New Delhi, March 1 (IANS): The Securities and Exchange Board of India (SEBI) on Friday allowed mutual funds (MFs) and portfolio managers to invest in commodity derivatives to strengthen the market offerings and attract more players.

"The Board deliberated and approved the proposal contained in the memorandum to enable the participation by mutual funds and portfolio managers in exchange traded commodity derivatives in India subject to certain safeguards," SEBI said after its board meeting here.

"Further, Category III alternative investment funds, which are already permitted to participate in commodity derivatives, have now been permitted to deal with goods received in delivery against physical settlement of such contracts, if any," the regulator added.

Currently, the commodity markets are dominated by retail level traders and a few corporate hedgers and speculators. The entry of mutual funds and portfolio managers will attract more hedgers to the market and lead to its overall development.

Market players said the SEBI move could offer structured and attractive products to deepen the commodity derivatives market. It would also lead to more participation from the funds.

Institutional participants like mutual funds and portfolio managers will add long-term liquidity to the markets, said the member of a commodity exchange.

The participants in the commodity derivatives market comprise retail and wholesale commodity traders and a few corporate clients and punters across asset classes.

The SEBI also allowed Category III alternative investment funds to trade. Foreign companies with exposure to Indian commodities not having presence in India were also allowed to trade recently.