Midcap, smallcap MFs zoom 130% since March

Midcap and smallcap mutual funds are zooming up on the returns chart, outperforming benchmark indices. The top performing funds have given 130% returns since March this year.

The midcap stocks and small cap stocks are buzzing and so are the midcap funds and small cap funds.
Srinivisan Iyer, Equity Fund Manager, SBI MF said, “When we talk about midcap as a group, we are talking about an index and within the index there will be standard deviation. As a group midcaps tend to outperform in a rising market, they tend to underperform in a falling mkt purely because the beta in a midcap is very high. So, your call on midcap is a function of what u think the market is going to do. If you catch the right stocks you can do pretty well compared to the benchmark or your peer set. We like the media space within consumer discretionary, we like specific sectors within consumer staples, we like midcap IT, we like midcap pharma.

Source: http://www.moneycontrol.com/india/news/mf-analysis/midcap-smallcap-mfs-zoom-130-since-march/413342

Time to cash out?

Though the stock markets continue to be volatile, they have recovered from the lows touched in March this year. The markets have posted a growth of around 93% (as on August 26, 2009) since March 8, 2009. Expectedly, many investors who have lost a huge chunk of their invested corpus in the stock market crash last year are now eager to recover whatever they can. Now the question is - is it the right time for you to cash out? While you would promptly say YES, we have a contrarian view on this.

Sensex: Rise of the fallen

Broadly, there could be two reasons for making investments. First, and the most ideal reason, is to invest for the purpose of meeting one or more of your future goals/objectives. Second, and unfortunately the most commonly practiced, is to make "quick bucks" by participating in market movements. The latter option amounts to timing the markets, something that many investors try to do, but rarely succeed. In our view, redeeming investments should not be a function of market movements, but rather a result of the following:

1. Redeem if you are sure that the fund in question has failed to meet its purpose in your financial plan. The reasons behind this could include poor performance or change in investment mandate of the fund, which makes it a misfit in your portfolio.
2. Redeem if you have to rebalance your asset allocation. Also,before you cash out, make sure that you have decided where to reinvest the redemtpion proceeds.
3. Redeem when you have achieved your investment objective.

Where to invest: Liquid Funds...Liquid Plus Funds...or Bank FDs

Liquid funds with no entry and exit loads and practically no credit risk, have not only been popular with banks and companies to park their short term money, but have also emerged as stiff competition to the savings bank a/c. For the past few years, post-tax returns from liquid funds have been in the range of 5%-6% p.a. making them a hit among individual investors especially the high net worth investors (HNIs). However, liquid funds are fast losing their edge over the savings bank a/c with average returns dropping to 3.5% p.a. This is mainly on account of the decline in short-term interest rates and the SEBI guideline restricting these funds from investing in any security having a residual maturity of more than 91 days. The average maturity period of most of these funds ranges from 50 to 60 days.

Is there an alternative to liquid funds? Yes, investors can consider investing their money in ultra short bond funds (erstwhile liquid plus funds). These funds can invest in securities with higher maturities and hence are able to generate returns which are 50-80 basis points higher than liquid funds. However, these extra returns come with slightly higher interest rate risk and credit risk. Most of these funds also have a lock-in period of at least 7 days. The average maturity period of these funds ranges from 140-150 days.

There is yet another option for individual investors. Of late banks have been offering a facility to transfer the money sitting idle in savings bank a/c to fixed deposits. The rate of fixed deposit is however, slightly less than the rate of a conventional FD for similar maturity.

The beauty of this facility is that the money lying in the fixed deposits is not subject to any kind of lock-in i.e. the investor can withdraw the money as and when required either through the ATM or by issuing a cheque without any penalty for premature withdrawal. Moreover, if the interest rates move up, money can be moved from lower interest rate FDs to higher interest rate FDs without any penalty. To top it up, the amount can be transferred either online or through simple instructions on the phone using the ATM/debit card number and the PIN. We urge investors to check with their bank for any such facility and if it does exist go for it NOW. After all, opportunity only knocks once!

Should you invest in Monthly Income Plans?

It's common for diversified equity funds to emerge as a top-of-the-mind investment when stock markets are booming. In such a scenario, hybrid funds like Balanced Funds and Monthly Income Plans (MIPs) are relegated to the sidelines. Investors can miss out on a very critical component in their portfolio by shutting out hybrid funds completely. Hybrid funds (powered by their flexibility to invest across asset classes) can add immense value to the investor's portfolio (especially during the down turn). While the role of balanced funds in the investor's portfolio has been well-documented, it is time for investors to sit up and recognise the value MIPs can add to their portfolio.

MIPs invest predominantly in debt instruments with a small portion of assets allocated to equities. The equity component provides MIPs with just the edge it needs to outperform conventional debt funds. The equity component usually varies between 5%-30% of assets. So under what circumstances would MIPs add value to an investor's portfolio? The graph below answers this question.

As is evident from the graph, during the crash in the stock markets last year, MIPs have fallen less as compared to the BSE Sensex indices. And this is where it adds value to an investor's portfolio. When the stock markets rally, they will lag conventional equity funds, but when the markets move down, they will limit the fall in an investor's portfolio.

Hence MIPs become important from an asset allocation perspective. Although, you can reach the desired asset allocation by allocating the assets in equity and debt; MIPs offer a convenient way of achieving the same.

ING Mutual Fund to convert ING C.U.B Fund into open-ended scheme

ING Mutual Fund has informed that ING C.U.B. (Competitive Upcoming Business) Fund will be converted into an open-ended scheme. The scheme was launched in August 2006 as a three years closed-ended scheme, to be subsequently converted into open-ended scheme.
Consequent to the change, for all the prospective investors, an exit load of 1% for redemptions within 365 days will apply.
The aforesaid conversion would come into effect from Sep.10, 2009.
ING Vysya C.U.B Fund seeks to provide long-term capital appreciation by investing pre-dominantly in a diversified portfolio of equity and equity-related securities of companies of small market capitalization.

Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20090827181220707&dir=2009/08/27&secID=mf

UTI MF declares dividend under Banking Sector Fund

UTI Mutual Fund has approved Sep. 4, 2009 as the record date for declaration of dividend under dividend option of UTI Banking Sector Fund.
The face value of per unit is Rs 10.
The quantum of dividend will be 22% or Rs 2.20 per unit on the face value as on the record date.
UTI Banking Sector Fund is an open end equity oriented scheme, which has the investment objective of capital appreciation through investments in the stocks of the companies / institutions engaged in the banking and financial services activities.

Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20090829122133707&dir=2009/08/29&secID=livenews

Ban on entry load may impact AMCs: McKinsey

The ban on entry load on mutual fund products could impact distributors and asset management companies (AMCs) in terms of profitability and reduce their reach beyond urban centres, according to a report by the management consulting firm, McKinsey & Company.

The Securities and Exchange Board of India (Sebi) has banned the entry load charge on mutual fund products from August 1. Now, distributors have to negotiate with customers for commission, which is to be paid through a different cheque.
During FY09, industry profitability dropped from approximately 22 basis points (bps) to 14 bps. One basis point is one-hundredth of one percentage point. "In short term, there will be a sharp decline in profits," the report said.
According to a chief executive officer of a foreign mutual fund, current profitability will certainly be around or below 10 bps. He further added that industry would have to work with a wafer-thin margin.
The commission paid by customers would depend on the channel of distribution, the report added. "The impact of the regulation may be the most severe on independent financial advisors (IFAs), especially the smaller ones, as they have the least ability to charge for advice. Unless compensated by higher volumes, IFAs may face a revenue loss of 30 per cent," it said.
Banks and national distributors, according to the report, might be better placed to charge customers approximately 100 bps for mutual fund transactions and advice. AMCs, to continue the sales push, might have to compensate distributors for reduced commissions to some extent.
The report also pointed out that a churn in equity assets was expected to come down with customers becoming completely aware of the commission to paid per transaction.
The recent regulatory changes were also likely to create potential for consolidation. "The industry is likely to witness consolidation as smaller AMCs may not be able to accommodate the acute profit and loss stress," said the report.
McKinsey has pointed out that various categories of mutual fund products might have differential growth. It said, "Within equity, the prevalence of closed-ended funds will increase, with AMCs driving for low churn ratios."
It added that the emergence of debt products within the retail segment might receive further impetus with the narrowing down of difference between equity and debt profitability due to higher payouts.
On poor penetration in the rural sector, the report said that with IFAs facing a major impact on profitability, penetration beyond top cities could slow down.

Source:http://www.business-standard.com/india/news/banentry-load-may-impact-amcs-mckinsey/368431/