Dividends out of realised gains: Sebi

In a move aimed at increasing transparency among mutual funds, the Securities and Exchange Board of India (Sebi) has in a recent directive asked mutual funds to distribute dividends out of realised gains only, and not out of unit premium reserve.

What does this mean? Imagine that the face value of a fund is Rs 10, and over time its NAV rises to Rs 50. The Rs 40 (the gain in NAV) is the unit premium reserve.

Earlier, fund houses would pay dividends out of the unit premium reserve. In effect, they were ‘rewarding’ investors by paying them out of their purchase price itself.

Now Sebi has stipulated that mutual funds must pay dividends out of realised gains (money made by the funds from the sale of the shares held by it).

Earlier, fund houses were using dividend declarations as a sales ploy (effectively saying, “Invest in our fund because we declare higher dividends and we declare them more often.”)

If Sebi is able to implement this ruling tightly, fund houses will increasingly find it difficult to declare high rates of dividends, or to declare dividends frequently.

Two, in the same circular (dated March 15) Sebi has issued a directive regarding the fee charged by no-load funds. Earlier, when you had schemes that charged an entry load and others that were no-load, the no-load schemes were allowed to charge an additional management fee of 25 basis points. Since Sebi’s August 2009 all funds have become no-load. Sebi has now asked no-load funds to stop charging the additional 25 basis points as fee.

Three, earlier open-ended fund could have an NFO period of up to 30 days while close-ended funds could have an NFO period of up to 45 days. Now Sebi has reduced the NFO period for all funds (the sole exception being ELSS funds) to 15 days. Effectively this means that fund houses have less time to garner funds during an NFO and will have to work harder.

Four, earlier a fund housing launching fund-of funds would get some commission from the underlying scheme. Now Sebi has stipulated that any commission or brokerage which the Indian fund house issuing the fund-of-funds receives must be added to the scheme’s account.

And finally, any brokerage or commission paid to the fund’s sponsor, its associates or related people must be disclosed in the fund house’s half-yearly report.

Source: http://new.valueresearchonline.com/story/h2_storyview.asp?str=101308

Hang Seng BeES India’s First International ETF Open for Trading

From today onwards Indian investors can invest in China with India’s First International ETF-Hang Seng BeES listed on the NSE with symbol HNGSNGBEES. The fund was open for public subscription last month from 15-24 Feb.

ETFs are mutual fund units and comprise baskets of securities from the underlying Index, it trades like individual stocks on an exchange and unlike regular open-ended mutual funds, can be bought and sold throughout the trading hours like any stock and charge lower annual expenses than any open-ended index mutual fund.

The fund is first international ETF promoted by Benchmark Mutual Fund and tracks Hang Seng Index that comprises of 42 companies including HSBC Holdings, China Mobile, Bank of China, Cathay Pacific Airways and China Construction Bank Corporation and represents approximately 60% of the total market capitalisation of Hong Kong stock Exchange.

The asset allocation under this scheme will be 90-100% in securities constituting Hang Seng Index and; 0-10% in money market instruments, G-Secs, bonds, debt instruments and cash at call, mutual fund schemes / overseas exchange traded funds based on Hang Seng Index.

Hang Seng BeES is design to take care of the foreign exchange conversions and investors in India can invest in Rupee terms through their Dmat and Trading account or through a NSE member who can execute the order.

The fund is ideal for investors who want to have international exposure and are bullish on China, which even in the face of a global recession has been a source of interest for investors around the world.

Fund Name: Hang Seng Benchmark Exchange Traded Scheme (Hang Seng BeES)

Benchmark Index: Hang Seng Index

Investment Objective: The investment objective of the Scheme is to provide returns that, before expenses, closely correspond to the total returns of securities as represented by Hang Seng Index of Hang Seng Data Services Limited, by investing in the securities in the same proportion as in the Index

Option: The Scheme offers only Growth Option

Load: Entry Load: NIL ; Exit Load: NIL

Source: http://www.businesswireindia.com/PressRelease.asp?b2mid=21972

Remain invested, growth should be back on track

Vinay Kulkarni, senior fund manager, HDFC Asset Management Co Ltd addresses questions about larger issues in the economy as well as those related to his fund. Log on next Wednesday to meet another fund manager.

KEA: Do you think markets are overheated? If yes, then should we book profits?
Kulkarni: Valuations are reasonable. Growth should be back on track in FY11. So, I think one should remain invested.

KEA: I think in 2007 your HDFC Taxsaver’s performance went down sharply compared with many other funds. What was the reason?
Kulkarni: Discomfort with high valuations kept us away from sectors, such as real estate, power utilities and NBFCs. These sectors outperformed the market. Since HDFC TaxSaver was underweight in these sectors, it underperformed in 2007.

Pine: Which sectors do you think would outperform the market in the coming six months and why?
Kulkarni: Currently, we see good prospects for the banking sector, led by robust credit growth in FY11, engineering and infrastructure sector based on revival of the capital expenditure

cycle, IT sector as a play on global economic recovery, pharmaceutical sector based on company-specific positive drivers and the fast-moving consumer goods sector based on the Budget which has left more disposable income in the hands of the salaried class.

Kusum: Post Budget, how do you see the investment environment shaping up?
Kulkarni: The Budget has given a boost to consumption by increasing disposable income in the hands of the salaried class. Also, the return of fiscal discipline should cap inflation expectations. The government’s intention to be an enabler and ensure the right environment for private enterprise is also a boost for private sector entrepreneurs.

Source: http://www.livemint.com/2010/03/17213021/Remain-invested-growth-should.html

Don’t have a demat to invest in ETFs? Go through other funds

If you have not been able to invest in a gold exchange-traded fund (ETF) yet because you do not have a demat account, help is on your way. Mutual fund houses will soon start launching gold fund of funds (FoF) that will invest your money in gold ETFs.

Easy route

Investing in gold has caught the fancy of many investors of late, thanks to the surging price of the yellow metal over the past year.

At present, there are seven gold ETFs in India. However, to be able to invest in them, you need a demat account as they are listed on the stock exchanges. Most investors, especially who do not like to invest in stock markets, do not have demat account and hesitate in opening one and gold FoFs are meant for them.

Gold FoFs will be made available to the public through usual distribution channels, such as agents. To invest, fill up a form the good old way, write a cheque and give it your agent or fund house.

“It also allows investors to invest systematically through systematic investment plans, which is not possible through ETFs. Else, you get lost in price calls and miss out on opportunities,” says Chirag Mehta, fund manager, Quantum Asset Management Co. Ltd.

Could be costly

The convenience comes at a cost, however. As per the Securities and Exchange Board of India (Sebi), FoFs can charge a maximum of 0.75% a year. This is in addition to the charges of underlying schemes (in this case, gold ETFs) that will eventually be passed on to you.

However, some MFs such as Quantum and Benchmark schemes do not intend to charge annual expenses. Investors will only have to bear the expenses of the underlying ETF in which the FoF will invest.

It remains to be seen what the final structure of gold FoFs would be when they are finally launched.

Source: http://www.livemint.com/2010/03/14213349/Don8217t-have-a-demat-to-in.html