Sebi is planning to allow hedge funds to invest in Indian markets. This move will lead to increased liquidity in the markets, but may also lead to increased volatility.

Sebi is mulling to allow hedge funds to invest in Indian Markets. In the last week of May 2004, Sebi issued a press release that it has put up a report for the option to open a "limited FII-window to allow the well-managed alternative investment vehicles of the `above genre' to operate as direct investors in the Indian securities markets in a transparent and orderly manner". This will open the Indian markets to international hedge funds, which will be yet another move towards globalizing Indian capital markets.

What more can be said? There is no stated definition of the term "hedge fund". Hedge funds are essentially institutional investors that invest in all markets (equity, debt, commodities, currencies and derivatives of all these instruments). Hedge funds are usually partnerships of very high net worth individuals. Hedge funds, as the name suggests, do not necessarily go in for hedging to reduce risk. On the other hand, such funds invest borrowed monies so that they can maximize their gains.