SEBI has by way of its circular dated June 21, 2017, permitted Category III Alternative Investment Funds to participate in the commodities derivatives market subject to the following conditions:

i. to participate on the commodity derivatives exchanges as ‘clients’, subject to compliance of all SEBI rules, regulations, position limit norms issued by SEBI / stock exchanges etc., as applicable to clients;

ii. to not invest more than 10% of the investable funds in one underlying commodity;

iii. leveraging or borrowing subject to consent from the investors and maximum limit specified by SEBI (presently capped at 2 times the net asset value of the fund);

iv. disclosures to be made in the private placement memorandum of intent to invest in commodity derivatives, consent of existing investors to be taken and exit opportunities to be provided to the dissenting investors; and

v. to comply with SEBI reporting requirements.