Entry load waiver: Investors get to bargain-hunt

Business Line Research Bureau Investors can look forward to lower costs on their mutual fund purchases and greater bargaining power with their advisors, after SEBI’s Thursday move to do away with entry loads charged by fund houses for their open-end schemes.
MFs currently levy a uniform 2.5 per cent entry load (on the prevailing NAV) on all equity funds sold to retail investors.
This entry load is usually passed on by the fund house, almost in its entirety, to the distributor who marketed the fund, be it an individual financial planner, distribution house, online portal or brokerage house. The entry load effectively reduces the initial investment a person makes in a fund.
For every Rs 100 invested, only Rs.97.5 would actually be deployed, with the rest pocketed by the distributor.

More choice

With no entry loads, it will now be up to the distributor to levy a separate (and transparent) commission for the services he renders to his clients.
Distributors will be free to compete with each other, offering lower commissions to lure investors into their fold.
An investor will have greater choice — either hunt for a bargain if he doesn’t need advice, or pay a higher commission if he values the quality of advice given.
Currently, neither of the parties had this flexibility, as entry loads of 2.5 per cent are “bundled” into every equity fund (debt funds usually charge no entry loads) bought through an agent.

Competition may trim costs

Having said this, will the entry load waiver actually reduce costs for investors, given that a commission still has to be paid? Much will depend on how intermediaries actually react to this move. If all of them decide to retain commissions at 2.5 per cent for every equity fund purchase, investors may not have much of a choice in the matter.
However, two factors may actually help in bringing down costs for investors over the medium-term. One, the mutual fund distribution industry is fragmented and made up of many participants — ranging from banks and financial services firms (such as Bajaj Capital and Birla Sun Life Distribution), to the many individual financial advisors. Online stock trading portals also offer facilities for transacting in mutual fund units. Given this backdrop, there is healthy competition between participants to ramp up volumes; that makes it quite likely that one or more of the participants will eventually offer lower fees, as a key differentiator.
The deep cuts in brokerage charged on stock market transactions over the past three years, is evidence enough of this. Two, as SEBI has already waived entry loads for direct walk-ins and purchases by investors in mutual fund schemes last year, investors do have the choice of completely circumventing the distributor to purchase MF units. That too may keep up pressure on distributor commissions, trimming costs for investors.

Source: http://www.thehindubusinessline.com/2009/06/19/stories/2009061951891000.htm

Anchor investors in; MF entry load out

Sebi measures to curb price volatility after IPOs

The Securities and Exchange Board of India (Sebi) today announced a series of measures to boost investor confidence in the primary market and mutual funds and reduce transaction costs.
A Sebi board meeting held today allowed the introduction of anchor investors — a practice that is common abroad — under which a buyer can subscribe up to 30 per cent of the institutional investors’ quota in an initial public offering.
These investors will have to invest a minimum of Rs 10 crore and bring in 25 per cent of the margin on application and another 75 per cent within two days of the closure. The lock-in period for anchor investors will be 30 days.
The allotment to such investors will take place through competitive bidding a day before the public issue opens. No person related to promoters, the promoter group and book-running lead managers can apply.

CREDIBLE AND CHEAPER

MOVE & IMPACT

* Anchor investors in IPOs — This will help bring high-quality investors by using discretionary quota. Lock-in will ensure less volatility when an issue is listed

* No superior voting rights in preferential and rights issues — This will prevent promoters from issuing to themselves shares that carry more than one per cent vote per share without offering minority shareholders a similar option

* No entry load for mutual fund investors — Investors can negotiate a lower rate with distributors

* Fee for market players reduced by 50% — Transaction costs go down; FIIs’ entry costs will be lower

By introducing anchor investors, the market regular wants to ensure 100 per cent payment within two days of the closure of the issue by institutional investors who are allotted shares on a discretionary basis.
“This is a good move and will help attract high-quality investors by using discretionary quota, and the lock-in will ensure less volatility on listing,” said Abhay Bhalerao, Director, Equirus capital.
In another significant decision, Sebi has removed the entry load on investors for current or new mutual fund schemes. Sebi Chairman C B Bhave told reporters here today that investors could pay the commission separately to distributors on mutual understanding, which can also be an advisory fees.
“However, the distributors will now have to disclose the commission they get from mutual funds whose schemes they are selling and also reveal how many other schemes they are distributing,” said Bhave.
The market regulator has also curbed the issue of shares with superior voting rights for both preferential and rights issues. Analysts said this would prevent promoters from issuing to themselves shares that carry more than one per cent vote per share without offering minority shareholders a similar option.
For example, the Bombay Stock Exchange recently declined to list shares with superior voting rights issued by Jagatjit Industries on grounds that there were no clear guidelines on the issue. However, it will not impact the differential voting rights shares that were issued by companies like the Tatas because those shares had inferior rights.
“Non-issuance of shares with superior voting rights means that companies cannot issue shares that have rights of more than one share. But it can issue a share that has a right of less than a share or a fraction of share. Thus the differential rights will continue,” said Somasekhar Sundaresan, partner at JSA, Advocates & Solicitors.
In another decision, Sebi said under the current guidelines, a shareholder can make an offer for sale of equity shares if he has held them for a period of at least one year. The board decided that if equity shares that are received on the conversion of fully paid compulsorily convertible securities, including depository receipts, are being offered for sale, the holding period of such convertible securities as well as that of resultant equity shares together would be taken into account for the purpose of eligibility.
The market regulator has also reduced the fees for market players by 50 per cent and more. For stock brokers, the fees have been brought down to Rs 10 per crore turnover (sale and purchase combined) from the earlier Rs 20 per crore. Similarly, in debt, the fees have been reduced from Rs 5 per crore to Rs 2.5 per crore.
The registration fees for foreign institutional investors (FIIs) have been halved from $10,000 to $5,000 and sub-accounts of FIIs, from $2,000 to $1,000.
For foreign venture capital, the application and registration fees are down from $5,000 and $20,000 to $2,500 and $10,000 respectively.
Further, Sebi made it mandatory for companies coming out with IPOs to list their stock in at least one stock exchange that has a nationwide presence of trading terminals, the idea being to ensure a liquid trading platform to investors.
Earlier this year, the regulator had amended rules for declaring the price band of initial public issues, reduced timeline for bonus issues and changed its rules on mandatory open offers in a drive to make the capital markets more investor-friendly.

Source: http://www.business-standard.com/india/news/anchor-investors-in-mf-entry-load-out/361531/

Equity funds revise loads to deter early investor exit

Money managers in India are revising the load structure of their equity funds to discourage investors from early redemptions after a recent surge in equity markets boosted their unit values.
While some equity funds have introduced an exit charge, others which already had such a fee are extending the time period after which an exit doesn't draw charges.
"The fund house would like the investor to come into the equity funds for long-term," said Chintamani Dagade, senior research analyst at Morningstar India, adding that discouraging redemptions will help fund managers take longer-term bets.
The BSE Sensex has risen by more than three quarters since early March, boosted by foreign inflows and a revival in investor risk appetite.
As many as seven fund houses have revised their load structure since April, data from ICRA Online and official fund websites showed.
ICICI Prudential Asset Management revised the exit load pattern in over 10 of their equity oriented funds in June, including their latest offering -- ICICI Prudential Target Returns.
Investors in seven stock funds managed by DBS Cholamandalam would now have to pay an exit fee if they redeem their units within a year, instead of the earlier six-month period.
In India, most equity funds charge an entry-level fee of 2.25 percent on investments routed via a distributor and have a varied exit load structure.

Source: http://in.reuters.com/article/personalFinance/idINIndia-40416920090618

Equity mutual funds dole out dividends

Equity schemes are giving back goodies to their investors. In the last one month, more than 30 equity schemes have declared dividends up to 40%, with schemes from SBI MF, Principal MF, UTI MF and Sundaram BNP Paribas MF leading from the front.
After a disappointing performance in 2008 due to the stock market downturn, around 100 equity funds have gained over 50% in the last six months helping asset management companies to share profits with investors.
By declaring dividend, fund houses hope to reward patient investors as well as attract new investors as the sentiment surrounding the stock market improves, say experts. Down in the dumps at around 8,000-point level in March, the benchmark sensex has now risen to 15,000-point level in a matter of 3 months helping equity funds to gain from their investments.
Principal MF has recently approved the declaration of dividend under Principal Emerging Bluechip Fund - Dividend Option for which June 19 is the record date. The quantum of dividend is 40% or Rs 4 per unit. SBI Magnum Tax Gain, one of the oldest schemes in the country, has declared 28% dividend i.e. Rs 2.80 per unit on the face value of Rs 10 for the open-ended equity linked savings scheme.
UTI Mutual Fund has also announced dividends in its three open-end equity schemes - UTI Master Value, UTI Mid Cap and UTI Transportation and Logistics. The quantum of the declaration under all the schemes is 20% or Rs 2 per unit. Others such as Sundaram BNP Paribas CAPEX Opportunity Fund - Dividend Option, FT India Balanced Fund - Dividend Option, DSPBR India T.I.G.E.R. Fund - Regular Plan have all declared 20% dividends.
While equity mutual fund schemes do pay dividends, fund-houses for the last few months had to wait for sometime before rewarding investors. "If we look at the market performance even five months ago, it was not great. But after this remarkable recovery in markets, it became easier for fund-houses to pay out dividends.

Source: http://timesofindia.indiatimes.com/Business/Equity-mutual-funds-dole-out-dividends/articleshow/4664405.cms

Sebi approves concept of anchor investor in IPOs

Market regulator Sebi today asked mutual funds to focus on retail customers and stop chasing corporate clients who were known to scoop money out of funds at short notice and deploy it somewhere else.
Sebi chairman C.B. Bhave today told fund managers and other bigwigs in the industry that they should look for more investor participation, particularly from individuals since they imparted stability to a mutual fund.
Last year, when the chips were down, corporate clients pushed the redemption buttons and put a huge strain on fund houses.
Unlike corporate investors, individuals do not pull out their money, and prefer to ride out the storm. Often, they are deterred by the charges on early redemptions.
“There was no queue of investors to withdraw from equity-oriented schemes when the markets tumbled from their highs,” he said.
“If the mutual fund industry wants diversity, the importance of non-corporate investors should be realised. It is in the interest of the industry to have increased investor participation,” Bhave told delegates at a mutual fund summit organised by the Confederation of Indian Industry here today.
Bhave was, however, quick to add that fund houses should not ignore corporate clients entirely. “I’m not saying that corporate houses should be driven away,” he said. According to Sebi data, corporates/institutions still are the largest investors in mutual funds.

Source: http://www.telegraphindia.com/1090618/jsp/business/story_11127512.jsp

Union Bank of India to foray into Mutual Fund business

Union Bank of India would make a foray into the mutual fund business by December, a top bank official said today.The bank had already received approval from Reserve Bank of India and was awaiting nod from SEBI, Union Bank of India Chairman and Managing Director M V Nair told PTI here.
"We have already got the approval from RBI. We should get the approval from SEBI by next two months,"he said." After getting the approval the product should be launched by December 2009".
Nair was here to officially announce the bank&aposs mobile banking facility under the brand&aposUMOBILE&aposunder which one can make bill payments, purchase movie tickets and transfer funds apart from other banking services.
He said that the Bank&aposs vision was to achieve Most Preferred Bank status by 2012.
The Bank currently has 2,650 branches and 1,950 ATMs across the country.

Source: http://www.indopia.in/India-usa-uk-news/latest-news/602278/Business/4/20/4