Look before you leap

After doing some research and investigation, I have come to realise that portfolio management is essential for every individual investor to create wealth. With a long-term investment horizon and balanced medium- to high-risk, I would like to seek an appropriate asset allocation strategy in my mutual fund portfolio. How should I do this allocation on a monthly basis? Can you suggest some other investment avenues apart from mutual funds?

Profile of the Investor Name: Sundara Kumar Age: 26 years Risk Appetite: Balanced Medium to High Investing Amount: Rs 22,500 per month
It's impressive to see that you have a pre-planned set of strategies before you set out. You are definitely headed towards the right direction in building a diversified portfolio.
So, first, we will highlight various investment avenues available for an investor. After that, we will discuss the model mutual fund portfolio we have designed for you. We will also highlight the appropriate allocation an investor like you should have in each of the various mutual fund categories available.
Investment in equities: If you want to directly invest in stocks, it would require some amount of knowledge of the market along with an in-depth understanding of the stock you wish to buy. You need to understand the fundamentals of the company, industry, sector and economy as a whole. The time and energy spent does not stop with the buying of the stock. You would also have to track it.

A more convenient option would be to consider the mutual fund route. Here you have plenty of schemes to choose from across the entire equity spectrum. There are diversified equity funds that invest across all sectors. And there are sector-specific funds that invest only in a single sector, such as banking or telecom. These funds, by their very nature, are more risky than diversified equity funds.
But a word of caution here. You must have a time horizon of at least five years when you consider an investment in equity. This holds for whichever route you take, directly into stocks or via an equity fund. And, don't park all your savings in equity. However, over the long term, do have some amount of exposure to debt.
Investment in debt: Here too, you can resort to the mutual fund route. There are long-term debt funds if you want to hold your money for two-three years or more, and short-term debt funds for shorter time-frames. There are also ultra short-term funds where you can park your money for very short periods.

Other than mutual funds, there are plenty of other options too. Fixed deposits in a bank or post office, the Public Provident Fund (PPF), National Savings Certificate (NSC), bonds issued by the Reserve Bank of India (RBI) or the National
Bank for Agriculture and Rural Development (Nabard).
Here is what you have to keep in mind when looking at such investments.
How safe is it? If it is a nationalised bank or post office where your fixed deposit is, it is safe. If it is backed by the government, as in the case of RBI bonds, Nabard bonds, PPF, NSC and Kisan Vikas Patra, then too it is risk-free.
What are the tax implications? If you invest in a five-year bank deposit or PPF, then you get a tax deduction under Section 80C.
What is the return? Is the rate of interest taxed? The interest earned on PPF is tax-free but in other cases, it is taxed. You must look at the tax implication because this will lower your overall return.
What is the tenure of the investment? PPF is the longest with a 15-year, lock-in period. NSC, on the other hand, is for just six years.
Making the right choice: As you can see, there are two asset classes: equity and debt. The former will include stocks and equity mutual funds. While debt would include all the fixed-return instruments in the market as well as debt mutual funds.

Both these assets are a must in every portfolio. But the exact allocation to each would depend on a number of factors such as the age of the investor, his income, his expenses, whether or not he is servicing loans, and his time frame (when he needs the money).

Morgan Stanley's India stock fund to turn open-end

The Indian fund arm of Morgan Stanley will convert its only listed close-end equity fund into an open-end scheme in January as it has received regulatory approval, the firm said in a statement on Friday.
Morgan Stanley Growth Fund MGST.BO, launched in 1994, had assets under management of about 19 billion rupees at the end of October, data from fund tracker ICRA Online showed.
The fund closed at 27.56 rupees on the Bombay Stock Exchange on Friday as compared to its net asset value of 29.34 rupees on Wednesday.

Source: http://in.reuters.com/article/fundsNews/idINBOM38838620081128

Templeton's 'Buy India' Call

As the Asian markets await full details on the plot behind Wednesday’s terrorism in India’s principal business city of Mumbai (aka Bombay), 5-year credit default swap spreads for 5-year government-owned State Bank of India widened to around 465 basis points, the cost of buying one US dollar breached the critical 50-rupee threshold and Indian equity futures quotes were dominated by selling interest in the Far East (the Indian stock markets were closed today).
In leading a recent charge to return to India, particularly after a 55%-plus drop Indian equity indexes, major mutual fund managers like Mark Mobius of Templeton Asset Management and Devan Kaloo of Aberdeen Asset Managers have been insisting that India’s democratic traditions are strong enough to withstand terrorism. But the crisis in Mumbai today cannot simply be explained away by the proposition that periodic acts of terrorism have only a limited and temporary impact on the Indian corporate spectrum.
On the contrary, the entire post-independence Indian social fabric is being gradually undermined by terrorism, separatist insurgencies, farm protests and far-left communist movements. It may be argued that India’s failure, over five decades, to make profound structural changes within its economy has now placed the country on the verge of a significant, and highly unsavoury, political transition in 2009.
The 2008 price lows in India-specific Exchange-traded funds (EPI, IFN, IIF, INP and PIN) are being widely touted as attractive buying opportunities given India’s 8% GDP outlook. And India ETFs did indeed hold up well in New York trading on Wednesday. But even before the Mumbai terrorist attacks, default risk perceptions on India have been rising; 5-year CDS coverage for sovereign risk is being priced at 310 basis points, and in the 800-900 bps range for ICICI and other Indian banks. The US$/Indian rupee “hawala” rate, the rate at which tens of millions of dollars worth of rupees are transferred in and out of India via non-banking channels on a daily basis, is edging towards 53.25. And US$/Indian rupee 5-year currency swaps are being priced at a whopping 42%-factor in favour of the dollar.
In the briefest of terms, the fundamental incompatibility between pockets of wealth on one hand and rampant poverty on the other has been held in check by 50 years of political promises backed by a series of 5-year national plans. Today, depending upon whom you ask, between 65 and 80 percent of Indians live below the poverty line, if the poverty line is calculated against a basket of living essentials. So, while the failure to remedy agrarian poverty has finally created powerful protest movements, urban unrest (and discontent) is being effectively translated into vote banks by religious extremists. On all present indications, a well-knit coalition of religious radicals will be in control of the New Delhi parliament within the space of a few short months.
History tells us that a government under the control and direction of religious extremists is not necessarily unfriendly to private capital (e.g. Iran and Sudan). But, in the case of India, the ascendancy of right-wing Hindu entities will be no smooth business-friendly transition by any means, since it will be met by a sharp spike in separatist activity, by more militancy in the countryside and, most importantly, by a steady spate of deadly terrorism from indigenous or foreign Islamic radicals.
What all this means for consumer demand and corporate profits in the midst of a worsening global recession is certainly not an open question, as some analysts would like to believe. The fact is that bullish calls by Templeton and Aberdeen do not incorporate inherent political risk; for the record, medium-term or long-term political risk insurance contracts (as distinct from CDS-type insurance) for India are unavailable below 5.50% (per annum) today.
This writer’s call on India remains unchanged: sell on healthy India-ETF rallies from current levels, and short the Indian rupee.

Source: http://seekingalpha.com/article/108326-mumbai-terrorism-clouds-templeton-s-buy-india-call

FUND VIEW-Fidelity likes emerging markets on valuations

Fidelity International favours emerging markets as recent sharp declines in their stock markets and tumbling commodities prices have produced cheap valuations, an executive of the mutual fund giant said on Thursday.
Shares of emerging markets, including China, India, Russia, eastern Europe and south Africa, dropped more than 56 percent in the 12 months to October, according to Fidelity International.
"The global economy is in a challenging downturn, but emerging markets still offer very attractive investment opportunities," Mark Hammond, product director for the U.S., global and emerging markets, told investors in Taiwan.
"We see growth in China and other emerging countries. Oil demand from China and India will rise in the future, the major driver to keep the global economy going," he said.
Among the stocks Hammond likes is Russia's Gazprom (GAZP.MM: Quote, Profile, Research), the world's largest gas producer. Its stock is trading at around 2.7 times forecast 2009 earnings after losing about two-thirds of its value since early this year, the U.S. money manager said.
Another one was South African supermarket chain operator Shoprite Holdings (SHPJ.J: Quote, Profile, Research), which is expected to post "explosive revenue growth" outside of its home market, the asset manager said.
Fidelity International is an affiliate of Boston-based Fidelity Investments, the world's biggest mutual fund company.

Source: http://in.reuters.com/article/domesticNews/idINTP33896720081127

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Axis Bank to open its Asset Management Company

Private lender, Axis Bank is soon going to foray into mutual fund business. The bank plans to commence this new venture in the coming six to eight months period.

The bank has received an approval from the Securities and Exchange Board of India (SEBI) to start its independent asset management firm and now it is waiting for the equity markets to stabilize before rolling out the first fund.
Siddharth Rath, the bank's senior vice-president and head of capital markets said, "We received Sebi's in-principle approval last month. The launch of our first fund will depend on the conditions of the markets, and investor confidence. We will have a balanced mix of equity, liquid and debt funds in our portfolio."
"The new company will be a wholly-owned subsidiary of the bank and will carry out asset management business," added Rath.
The bank received a green signal from the Reserve Bank of India for this new foray in the month of June. Until now the bank has been disturbing mutual funds of other asset management companies (AMCs) to its customers.
From the past one year, the asset management industry in the country is facing erosion in total assets under management (AUM). At the end of October 2008, the industry' AMU showed a fall of about 19% to Rs 432,000 crore against 532,000 crore, for the same period a year ago.
As per the SEBI instructions, a company needs to have a minimum capital base of Rs 10 crore to set up its own AMC. "We will invest as much capital as required to form our own fund house. Our initial investment will be Rs 25-30 crore," said Axis Bank Executive Director M M Agarwal.
In order to manage and distribute new funds across the country, the bank plans to employ up to 500 people. Rath confirmed that the bank has already decided on the important designations like CEO, chief investment officer, head of marketing, and other vertical heads. However he did not disclose the identities of these people stating that the business plans are still on the process.
Rath also told that in the starting, the bank plans to market and distribute these funds from its own branches without joining with any other bank. Axis Bank has about 750 branches across the country. With this entry, Axis Bank will become 36th AMC in the industry.
The bank also plans for a joint venture AMC with Banque Privee Edmond de Rothschild Europe. This European firm is a part of the LCF Rothschild Group and through this tie-up Axis Bank will offer the Indian customers with investment advisory services for private banking and wealth management.

Source:http://www.rupeetimes.com/news/personal_loan/axis_bank_to_open_its_asset_management_company_1879.html

Diversified debt mutual funds better deal

Do you think the concept of a diversified portfolio applies only to equity investors? Well, it is time to think different. According to financial experts, investors would do well if they diversify their debt mutual fund (MF) portfolio into liquid, income and gilt schemes.
‘‘There is clear indication that investors have to look at another class of funds other than liquid scheme,'' says Y Jawahar, V-P & head of distribution, Mata Securities. ‘‘A combination of 30-40% liquid scheme, 30% each in income and gilt schemes would serve them better.'
However, he quickly adds that unlike in a liquid scheme investors can't park money with a short-term investment horizon in an income or gilt scheme. ‘‘One should have a time horizon of one year or more to invest in an income or gilt scheme,'' he says. However, investment tenure is not the only factor that should determine the investment decision in these schemes.

One should always have a clear view on interest rate movement and risks associated with each scheme before parking money. For example, gilt funds, as the name denotes, invest mostly in government securities and carry little credit risk. Income schemes, on the other, are riskier as they invest in corporate bonds, which carry more credit risk.
‘‘Investors, who believe interest rates will go down further and don't want to take any credit risk should go for a gilt scheme,'' says Mukesh Dedhia, director, Ghalla & Bhansali Securities. ‘‘If you have a very competent fund manager who can excel during volatility, you can earn very good returns from gilt schemes.'' If you are ready for the plunge, you can hope to earn around 9-10% from a gilt scheme.

If you have a little more stomach for risk, you can opt for an income scheme.
‘‘The spread (interest rate difference) between corporate and government bonds have widened considerably. There is scope for contraction and that could enhance returns from income schemes,'' says Dedhia.
You can expect to pocket returns around 11-13% from an income scheme. Now, would you still be happy to keep the money in a liquid scheme and earn around 7%? Well, consider the above factors and take a call.

Principal Financial looking to acquire AMC in India

Principal Financial Group, a leading US based financial group is looking to acquire an asset management company (AMC) in India as it wants to scale up its fund unit operations in the high-potential market, reports Business Standard.
Investment bankers have already been told to look out for possible acquisitions especially those with large equity assets. The company feels that current market situation is best time to do an acquisition because of lower valuations commanded by the company.
Principal Financial has three way joint venture with Punjab National Bank and Vijaya Bank, managing about Rs 70 billion.
Since January, when the stock markets started losing steam, the Indian mutual fund industry has found itself losing their average assets under management (AAUM) every month. Due to current financial market turmoil a large number of smaller fund houses valuations have taken a serious hit. Earlier Lotus Mutual Fund was acquired by Reliagre Aegon.

Source:http://www.myiris.com/newsCentre/newsPopup.php?fileR=20081126151404196&dir=2008/11/26&secID=livenews

ABN AMRO MF is now Fortis Mutual Fund

ABN AMRO Mutual Fund today announced having changed its name to Fortis Mutual Fund with immediate effect. The name of the Investment Manager has been changed to Fortis Investment Management (India) Private Limited.

This follows the global integration of ABN AMRO Asset Management with Fortis Investments in the second quarter of 2008 and the completion of all regulatory processes and procuring necessary clearances in India.

As a result of the global merger, Fortis Investments now has expanded both its investment capabilities and its operational platforms. It manages assets of EUR 192.4 billion (as of September 30, 2008) making it one of the world's leading asset managers in terms of both size and investment offering. It has an extensive reach in terms of dominance and scale in Europe, a large presence in the Americas and a substantial position in Asia. Fortis Investments has a global network of 40 dedicated investment centres in over 30 countries.

Source:http://news.moneycontrol.com/india/news/pressmf/abn-amro-mf-is-now-fortis-mutual-fund/22/10/365509

Liquid funds likely to change investment norms from April

implement the proposal not to invest liquid scheme corpus in papers with maturity beyond 91 days from April 2009.
The decision was taken yesterday at a meeting of some of the heavyweights in the Association of Mutual Funds of India (Amfi). Initially, some members were of the view that this should be implemented with immediate effect. However, when a view emerged that implementing the proposal in a hurry may not serve the purpose, the members finally decided to make it effective from April next, said an industry source.
The mutual fund industry is fine-tuning its recommendations before submitting the same to the Securities and Exchange Board of India (Sebi). Amfi had issued the draft proposals in this regard last week.
There were lengthy discussions on the maturity of fixed maturity plans (FMPs). While some players favoured FMPs of three to six months, others advocated a minimum 12-month maturity. Efforts are on to sort out the differences with the help of Amfi. If there is no consensus, the decision may be left to Sebi.
Those favouring a three-month maturity argue that if the period is long, investors would go in for fixed deposits (FD) with banks.
They have also decided that all funds will have to mandatorily disclose their complete portfolio at least on their website. A transparent portfolio will help investors in taking informed decision in tough times when generally rumors rule. Already, some fund houses have been making full disclosure.
In next few days, these proposals would be finalised and submitted to the capital market regulator after which Sebi may come out with revised norms for mutual funds.
The industry is of the view that the proposals that Amfi is going to submit should give confidence to the market regulator that mutual funds are quite disciplined in their approach towards investors.

Source:http://www.business-standard.com/india/news/liquid-funds-likely-to-change-investment-normsapril/00/11/341341/

JM Emerging Leaders Fund Sensex Over Sponsored

JM Financial Mutual Fund is one of India's first private sector mutual funds-integral parts of the first wave that commenced operations in 1993-94. JM Financial Asset Management Private Limited, the Asset Management Company of JM Financial Mutual Fund, is not a part of this joint venture. Sponsored by J.M. Financial and Investment Consultancy Services Pvt. Ltd., and co-sponsored by JM Financial Ltd., JM Financial Asset Management Private Limited started operations in December 1994. The fund house manages assets worth Rs 8075.65 crore at the end of October 2008.
JM Emerging Leaders Fund (G) an open-ended equity scheme launched in June 2005.The objective of the scheme seeks to long-term capital appreciation from investment in a portfolio of stocks across all market capitalization range. The portfolio may include those companies operating in emerging sectors of the economy or companies, which exhibit potential to become leaders of tomorrow. The minimum investment amount is Rs.5000 and in multiples of Rs.1000 thereafter. The unit NAV of the scheme was Rs 3.70 as on 24 November 2008.
The total net assets of the scheme decreased by Rs 158.75 crore to Rs 163.03 crore in October 2008.JM Emerging Leaders Fund (G) took no fresh exposure to any stock in October 2008.
The scheme completely exited from Rajesh Exports by selling 28.85 lakh units (2.54%) and Praj Industries by selling 5.85 lakh units (2.26%) in October 2008.
Sector-wise, the scheme took no fresh exposure to any sector in October 2008.Sector-wise, the scheme had not exited completely from any sector in October 2008.
The scheme had highest exposure to MphasiS with 11.32 lakh units (10.61% of portfolio size) followed by Bartronics India with 15.45 lakh units (8.81%), 3i Infotech with 28.40 lakh units (7.31%) and Sintex Industries with 7.93 lakh units (7.15%) among others in October 2008.
It reduced its exposure to Bombay Rayon Fashions by selling 2.67 lakh units to 7.18 lakh units (by 2.45%), Sintex Industries by selling 2.79 lakh units to 7.93 lakh units (2.30%), Bharati Shipyard by selling 3.87 lakh units to 1.30 lakh units (by 2.29%) among others in October 2008.
Sector-wise, the scheme had highest exposure to Computers - Software - Large at 10.61% (9.61% in September 2008), followed by Trading at 8.81% (7.37%), Computers - Software - Medium / Small at 7.31% (6.10%) and Diversified - Large at 7.15% (9.45%) among others in October 2008.Sector wise, the scheme had reduced exposure Diamond Cutting / Jewellery to 6.16% (by 4.52%), Engineering to 5.21% (by 4.48%), Textiles - Products to 6.79% (by 2.45%) among others in October 2008.The scheme underperformed the category average over all the time periods. It has underperformed the Sensex over all the time periods.
Over three-month period ended as 24 November 2008, the scheme posted negative returns of 14.92% underperforming the category average that posted negative returns of 5.52%. It underperformed the Sensex that posted negative returns of 5.01% during the same period.
Since inception, the scheme posted negative returns of 77.76% underperforming the negative category average of 50.69%.

Mutuality Concerns of Mutual Funds

The regulations that govern the operations of mutual funds in India are about to undergo some significant changes. This was inevitable, considering the nature of the crisis that the industry has undergone. While the exact nature of the changes are not yet decided, the underlying theme will be that of protecting and enhancing the 'mutuality' of mutual funds. What exactly is this 'mutuality'? This is a concept that investors and - even fund professionals - do not recognize explicitly. However, it lies at the heart of the very concept of a mutual fund.
The principle is that all investors in a fund must be equal partners in it. There are two sides to this. One, the fund company must treat all of them equally. And two - and this one is harder to achieve in practice - funds must be run in such a manner that the actions of one investor can not harm another.
The crisis that funds faced over the last few weeks appears at first sight to be about funds being unable to make redemptions when asked for because of the credit crisis. However, at a more fundamental level, the problem was that of a massive breakdown of the mutuality of the funds. When some investors show up to ask for early redemptions in the midst of a massive credit freeze, then the only way to meet their demands was to sell of the more sellable investments at whatever desperate price they would fetch. In a crisis, it's always the better investments that are more sellable. Were this to be done, then the some investors-the early redeemers-would walk away with some of the returns that actually belong to the ones who stayed on.
This time around, the extraordinary and global nature of the crisis meant that the government made special, once-in-a-lifetime arrangements to enable funds to make redemptions without having to sell off investments at fire-sale prices. The government arranged for bridge loans that enabled funds to make redemptions and yet delay sale of investments. However, in more normal circumstances, many things can happen that lead to similar situations.
One of the solutions that have been proposed is the strict isolation of corporate and individual investors. The idea is that the two kinds of investors should not invest in the same funds-fund companies should run corporate and retail versions of the same funds. This is in fact already done in some funds although in those the motive seems more to protect corporates from the high cost of servicing individuals rather than to protect individuals from the adverse affect of corporate's sudden redemptions.
In principle, the idea of isolating the two kinds of investors is a sound one. The mutuality of mutual funds is easier to maintain if there is reasonable similarity in the nature and motives of investors. However, in practice there is a limit to how much such isolation can be achieved. There are plenty of differences of scale and goals even among corporates and individuals for this not to be a perfect solution. In fact, such issues have come up in the past too. As a result, there was a rule made a few years ago that no fund could have less than twenty investors or have more than a quarter of its assets from a single investor.
The main concern in all of the above is that when some investors redeem their money, then quick sales lead to the portfolio getting degraded. The ideal thrust of the new regulations should be to make sure that investors' investment and redemption cycles should reflect the actual liquidity of the underlying assets. If there's a mismatch between the two, then all the rules in the world will not prevent a breakdown of mutuality.

Source: http://valueresearchonline.com/story/h2_storyview.asp?str=12273

MFs can't take it anymore, cut staff to cope with funds strain

Large-scale redemptions across schemes and strained finances in the past couple of months are forcing mutual funds in India to cut employee costs as part of their attempts to survive in testing times. While the smaller funds by assets under management (AUM), who are fighting for just survival, have already resorted to such measures, industry officials say it’s just a question of time before the larger ones follow suit, unless financial markets stabilise.
According to people familiar with the matter, Fidelity Mutual Fund and Edelweiss Asset Management Company have asked a few of their employees to leave the firms. Fidelity, with AUM worth Rs 6,484 crore as on October 31 that forms 1.5% of the Indian mutual fund industry’s total managed assets of Rs 431,901 crore, is believed to have laid off at least three officials in its research department.
In response to an ET query on this matter, a Fidelity spokesperson confirmed the development, saying: “In common with all financial services companies, we too are affected by falling and volatile stock market levels, adverse investor sentiment and the economic slowdown. This has meant that we have had to reduce our costs and adapt our business to the new environment.
We have been reviewing all our costs and having taken up opportunities to cut cost in all other areas, we have regrettably had to reduce staff costs as well. We can confirm that three analysts have been let go, however, our team of investment professionals remains one of the largest in the local market.”

Edelweiss AMC, a new entrant to India’s competitive mutual fund industry, is also learnt to have opted this measure to trim costs. The entity, which managed assets worth Rs 228 crore as on October 31, has asked a few of its staff, including a top official in the institutional sales department, to resign.
An Edelweiss spokesperson responded to an ET query, saying: “As per regular process, performance reviews are conducted on a quarterly basis in order to maximise organisational culture & employee profile fit in keeping with the organisations’ overall goals and requirements. There have been no mass layoffs.”
Similarly, some of the other newcomers in the domestic mutual fund industry, including a couple that were criticised in the industry for their exorbitant marketing expenses at the time of their launch, are also looking at options to cut costs. Mirae Asset Global Investments India, which saw its assets fall by 56% in October, has cut salaries of its employees in its latest yearly review.
“We have rationalised salaries in line with the industry. This has been around 30% on an average,” said Mirae CEO Arindam Ghosh, adding that there have been no layoffs from the organisation, contrary to industry speculation that the fund has retrenched employees.
The situation is in stark contrast to the situation a few months ago when mutual funds were absorbing retrenchments in the financial services sector, mainly broking companies. But, with huge redemptions in most schemes in the past couple of months, amid a bear market in equities and tighter money supply situation, many firms in the industry have been left with little options. If business conditions deteriorate, jobs at larger mutual funds would also be in jeopardy, industry officials said.
“The situation is grim and even we would have to cut jobs to sustain ourselves,” said a top official at one of India’s top five mutual funds.

Source:http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/MF_News/MFs_cant_take_it_anymore_cut_staff_to_cope_with_funds_strain/articleshow/msid-3753115,curpg-2.cms

New UTI fund gets Rs 300 crore; bucks industry trend

A stock and gold fund from UTI Asset Management has collected about Rs 300 crore, Chief Marketing Officer Jaideep Bhattacharya said on Monday. The amount is nearly equal to the total assets mopped up by nine new funds from eight fund houses since August, surprising industry watchers.
The firm is still collating data but Bhattacharya said the figure was on its way to cross the 3-billion-rupee-mark from more than 100,000 investors. This is in contrast to the industry trend where monthly flows fell to a four-year low in October, dragged down by a 50 percent fall in the benchmark index this year.
New funds in October collected just 390 million rupees, data from the Association of Mutual Funds of India (AMFI) showed. "It's definitely better than what many people would have expected, may be better than what UTI themselves would have expected," said Krishnan Sitaraman, head of fund services and fixed income research at CRISIL.
UTI's large distribution network and the fund's objective of combining stock and gold investments would have appealed to a large section of the population, Sitaraman added. The fund used services of 5,000 'Dabbawalas,' a chain of Six Sigma certified workers who collect and deliver cooked food to Mumbai's office workers, as well as internet, mobile, cable TV advertising to attract investors, Bhattacharya said. This led advertising costs to fall 80 percent.

Source:http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/New_UTI_fund_gets_Rs_300_crore_bucks_industry_trend/rssarticleshow/3751492.cms

ICICI Pru MF enables MicroSIP facility

With effect from 12th November, 2008, ICICI Prudential Mutual Fund has enabled a Micro Systematic Investment Plan (Micro SIP) facility for ICICI Prudential Liquid Plan – Growth option. Under this scheme the facility would be available only for investments in ICICI prudential Liquid Plan – growth plan; it enables minimum installments Rs.100 only and in multiples of Rs.10 thereafter. It allows variable installments constrained to minimum of Rs.100 per installment. ICICI Prudential Mutual Fund states that the MicroSIP dates would be subject to agreement between the AMC & the authorized entities.

Benchmark Mutual Fund launches ‘Benchmark S&P CNX 500 Fund

Benchmark Mutual Fund introduces a new fund offer ‘Benchmark S&P CNX 500 Fund’ which opens on 17th November, 2008 and closes on 15th December, 2008.The investment objective of Benchmark S&P CNX 500 Fund is to generate capital appreciation through equity investments by investing in securities which are constituents of S&P CNX 500 index in the same proportion as in the index. The fund will charge no front end load and no exit load if investment is held for three years for investments less than Rs. 2 crs.

Religare and Aegon Joint Venture for Mutual Fund breaks up.

Dutch financial services major Aegon and Religare Enterprises have decided to call off their joint venture for setting up a mutual fund. They have taken the decision after 1 month of getting SEBI’s approval for setting up the AMC. Aegon is to take up control of Religare Aegon Mutual Fund, a joint venture with 50 per cent stake to both. Lotus India Mutual Fund, which was acquired by Religare Aegon two weeks ago, will be Religare’s asset management business in India. The Lotus acquisition, which is awaiting regulatory approval, Religare Aegon would have got access to six equity funds and a host of debt funds with combined assets under management of Rs 5,458 crore. The fresh proposal is subject to regulatory approval.

Source:http://mutualfundsindia.com/news_viwe.asp?news_headline=Religare+and+Aegon+Joint+Venture+for+Mutual+Fund+breaks+up%2E@

Smaller AMCs bleed like never before

Every fund house claims that the current market turmoil is not a cause for undue concern as they are here for the long haul. After all, ups and downs are part of a regular market cycle, they point out. This may be true for the top asset management companies. But the rate at which some of the smaller mutual funds are bleeding cash, the landscape of the Indian mutual fund industry may change dramatically before long.

Thanks to the dependence of fund houses on institutional investors and declining interest among investors for equity schemes, several middle and small fund houses are losing big money everyday. An ET study of the results recently announced by AMCs shows that for every Reliance Mutual Fund and UTI AMC that have seen their profits rise, there is a Principal or Kotak whose earnings are only shrinking. And with the equity markets showing no sign of recovering, the situation for middle- and small-tier AMCs is only expected to worsen in the coming days. This may just hasten the much-anticipated consolidation process in the industry, many experts predict, pointing out to the recent takeover of Lotus AMC by Religare as an instance.

The worst hit are AMCs that have begun their operations recently. Take for instance, Mirae Asset Management. The AMC said it had lost over Rs 47 crore in the financial year ended March, an amount that would have only shot up in the past few months. (All the numbers we quote are before taxes.) Its assets under management contracted by 57% in October, a trend seen at several other AMCs too as institutional investors moved their investments from MFs to bank fixed deposits. Mirae is now into cost-cutting mode; it had created a splash earlier when it took a bunch of scribes and distributors on a trip to South Korea last year.

Another recurring theme in the numbers is that of personnel costs. The three-year-old Fidelity AMC earned over Rs 80 crore as management fees, but spent close to Rs 50 crore of it on its personnel. It has accumulated close to Rs 160-crore losses, just in the past three years. Many others too have been accumulating losses year after year. In fact, AIG spent more on its personnel (Rs 16 crore) than what it earned through fees (Rs 12 crore). Abhay Aima, HDFC Bank country head of equity and private banking group, says in a relatively new industry AMCs have no option but to put up with high personnel costs.
A CEO of a fund house who requested that he not be quoted (fund managers usually fall over each other to be quoted when the discussion is about India’s long-term growth potential) said as AMCs build scale and their assets under management surge, personnel costs as a component of total expenses would fall.

But the situation is perhaps most alarming at middle-tier AMCs, who although are not running losses, are seeing their profits shrink. Principal’s profits fell from Rs 15 crore to Rs 10 crore till March 2008, largely due to a mysterious sounding entry— admin and other operating expenses. Birla Sun Life’s profits contracted to a fifth (Rs 4 crore), thanks to the fund house more than doubling its personnel cost. JM MF, a reasonably old fund house, in fact, managed to triple its losses to Rs 17 crore in the space of a year.

MF officials say these days their fund houses have been losing anywhere between Rs 5 and Rs 15 crore every month because of the slump in the sale of equity products. So MFs without a powerful financial backing or people who were here only for the valuation game are likely to sell out in the coming days, they suggest.

UTI is the most profitable AMC in the country, mostly due to its retail heavy assets, HDFC comes next; Reliance doubled its profits for the year.

Source:http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/Analysis/Smaller_AMCs_bleed_like_never_before/articleshow/msid-3724886,curpg-2.cms

An article on Gilt & Presentation

Whether it is returns across various time frames or rankings in the industry over various time periods both are literally unworthy of bringing up for mention to an investor.

However an interest rate call apparently has already been taken ( by the fund/ fund manager/ AMC) as is evident from the fact that the average maturity of the fund has moved up in recent weeks to over ten years from a low of couple of years. The smaller fund size has only helped in this aspect. Mid October onwards we have already been selectively pushing this product to select clients/ corporate/ HNIs/ bank distributors, which has yielded in some limited inflows as well.

All the macro and micro economic indicators in the environment indicate towards an imminent cut in the interest rates in the economy that too in the immediate future.
The expectation is that RBI would cut rates sharply and in good measure in quick succession to make any relevant impact in the economy. Any half hearted slow inadequate symbolic measure would fall flat in its attempt to make the desired impact.

Most importantly and interestingly there is an near term event which makes the whole exercise worth analysis. We all know that in the first week of January every year SDS ( special depository schemes ) money matures. So will this year ( jan09) but only to be compulsorily be reinvested in govt. securities by around end of third week - beginning of last week of January. what is eye propping is the sheer volume of this amount !! We are talking about approximately one lac thirty thousand crores of rupees, plus estimated 8% interest on this amount. This equals to Rs.145.8 or one lac forty six thousand crores approx. Last years policy changes allow 10% of this to be invested in equities. Assuming this happens & remaining chase the gilt papers guess what would happen to their prices.

Let's also take into consideration the fact that balance govt borrowings for remaining fiscal is to the tune of 35000 crores, which the the govt may not go ahead with considering the prevailing liquidity scenario. Even if it chooses to do so there will be a considerable mismatch between the supply of gilt papers and the money chasing it resulting in an increase in gilt prices ( thus gain in gilt fund NAVs ) . Any ( there wd be ) rate cuts is further going to accentuate the spike in the gilt prices making investment in long dated gilts or gilt funds with higher maturity an attractive investment option at this juncture.

Which means even if there is no rate cuts in the economy , still an investor can look forward to ATLEAST 12-15% return annualized from gilt funds by investing for next three months. It can go up depending on the extent & timings of rate cut (s).

Interest rate cut is a probability but SDS event a CERTAINITY !!

We all need agree in using this available window to market gilt fund more aggressively using this information / logic as a pitch.
We can afford to have a dis agreement on the extent of rate cut or timing of the same but we need a consensus on the direction of the same and subsequently the strategy to aggressively push this idea. Gilt_Nw

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India's market will be among the first to recover: Sebi chief

Stock market regulator Security and Exchange Board of India (Sebi) may introduce measures to restrict over-leveraged hedge funds in order to bring in more stability to the volatile market.
Speaking at a seminar in the Capital on Saturday, Sebi chairman C B Bhave said that "where the system is getting over-leveraged and the risk becomes too great, we must intervene and bring it down to ensure it does not lead to systemic risks." He said there is nothing to worry as the Indian stocks would be the first to bounce back in this global meltdown.
Bhave said the present turmoil in the financial markets has been mainly due to leveraged FIIs like hedge funds that are exiting the stock markets. He said, on the contrary, long-term investors like pension funds are buying equities at this moment. However, for the retail investors, the SEBI chief said they must not enter the market on borrowed money. He warned that people should avoid using their emergency funds to buy stocks, hinting that the present uncertain situation in the market may continue for some time.
"We have not found anything in the market that would give us suspicion that something had seriously gone wrong with the market itself," the SEBI chairman said while asserting that the stocks were actually wrongly priced in the bull run. "Pension fund investors stayed away from the market throughout 2007 because they felt it was wrongly priced, but they are investing now," he said.
Affirming his faith in the bounce back, Bhave said minimal selling has taken place since September 1. He said in comparison to FIIs stocks sales of Rs 22,000 crore and brokers Rs 700 crore in the last two-and-half months, mutual funds bought stocks worth Rs 1,000 crore, domestic institutional investors Rs 16,000 crore and other investors including retail Rs 5,600 crore.

Source:http://timesofindia.indiatimes.com/Business/India_Business/Indias_market_will_be_among_the_first_to_recover_Sebi_chief/articleshow/3746234.cms

Markets likely to remain volatile

Domestic markets are likely to remain volatile in the coming week even as expectations of further liquidity infusion measures from the Reserve Bank of India could boost investor sentiment amid worsening global economic scenario, analysts believe. Even though declining inflationary pressure presents a reason to cheer, a falling rupee coupled with fears of protracted economic slowdown could keep the bourses on tenterhooks.
"Volatility is likely to continue in the Indian markets. If the Reserve Bank of India comes up with any guideline or some positive announcements in the US could provide a boost to the investor sentiments."
Moreover, encouraging trends from the Asian and American markets could push the Indian bourses into the positive territory," Taurus Mutual Fund Managing Director R K Gupta said.
With the Finance Minister P Chidambaram calling for more rate cuts, the apex bank is widely anticipated to make an announcement in the coming days.
Meanwhile, Chidambaram in an interview to a private channel said, "The private sector banks should follow suit of public sector banks and cut their rates."
In recent times, the flight of Foreign Institutional Investors (FIIs) from the domestic markets has been a cause of concern and has resulted in depreciating rupee. Till November 21 this calendar year, FII outflow reached Rs 53,476.90 crore.
"Indian markets are waiting for a good trigger. The valuations are attractive now and the banking stocks are likely to continue with its recovery on expectations of a possible rate cut," SMC Global Vice President Rajesh Jain said.

Source:http://timesofindia.indiatimes.com/India_Business/Markets_likely_to_remain_volatile/articleshow/3746994.cms

Reliance Capital to set up Islamic fund management co in Malaysia

The Anil Ambani group-controlled Reliance Capital Asset Management Ltd (RCAML) said on Friday that it will establish an international Islamic fund management company in Malaysia.
The leading asset management company recently received an in-principle approval from the Securities Commission of Malaysia to establish the fund management firm.
Reliance Capital now holds the unique distinction of being the fifth company in the world and the first in India to be allotted the coveted mandate, a release said here.
"We are proud to be the first company from India and the fifth in the world to be given this opportunity. We are the No 1 mutual fund house in India and the new opportunity is in line with our ambition to be one of the leading players globally," Reliance Capital CEO Vikrant Gugnani said in a statement.
Reliance Capital is managing a corpus of over Rs 71,093 crore as on October 31 for over 70 lakh investors. It offers investors a well- rounded portfolio of products to meet varying investor requirements and has a presence in over 400 cities across the country.

Coming Soon: E-Trade of Mutual Funds

The Association for Mutual Funds in India (AMFI) is mulling over a proposal to start Web-based trading platform for mutual funds (MFs).
The platform will be a common channel for buying and selling of mutual funds and also to gel various schemes over the Internet, said A.P. Kurien, chairman of AMFI.
Terming the platform as a revolution in the financial sector, he said that the mutual fund industry has seen operational changes over the last few years. The changes were for a well functional trading-custodial system, which is also reflective of a tech-oriented market.
As the fastest growing segment of the Indian economy, the need of the hour is to have tech service standards for accounts, delivery and registration. This can be coupled with electronic movement of money across cities, and at the same time do away with paper flow. Fund flow will be electronically linked, and the platform will also be an online channel for data capture, said Kurien.
An AMFI committee is currently evaluating a platform that can be used by mutual funds to download statement, transfer from one scheme to another. It will then draft a matrix before scouting vendors for the project. At present, the mutual funds industry in US and the UK uses trades mutual funds over the Internet.

MFs bank on 'tax saving' season, line up ELSS

The debacle in the liquid and fixed maturity plan (FMP) may have put the brakes on the growth in assets under management of the mutual fund industry. But it has not dampened the spirits of fund houses, as far as scheme launches are concerned.
There are a host of new fund offers awaiting SEBI approval. Asset management companies seem to have made an early start to cash in on the ‘tax saving’ season. According to the SEBI website, as many as six AMCs have lined up equity-linked savings schemes (ELSS) for its approval last month. These include Religare Aegon, Quantum Mutual Fund, DBS Cholamandalam, Bharti AXA, Edelweiss and Tata Asset Management.
The number of ELSS applications filed this year is much higher than those in the past few years. While JM Financial was the only fund house to have launched an open–ended ELSS last year, DSP BlackRock, HSBC and Lotus were the only three fund houses to have launched similar schemes in 2006-07.
Most of the fund houses, which lined up equity-linked savings schemes this year, have been launched recently or are relatively new, and have a long way to go in establishing their identity in the highly-fragmented and competitive Indian mutual fund industry. The older ones — DBS Cholamandalam and Tata Asset Management — already have an open-ended tax-saving scheme each in their kitty and have now come up with close-ended funds.
This surge in the number of new fund offers (NFO) in the ELSS category should be viewed in the context of financial year 2008-09 drawing to a close. Around this time every year, tax-saving instruments see a mad rush of investors seeking to claim the deduction benefit under Section 80C of the Income-Tax Act. It seems that the mutual fund industry, where the fresh inflow of funds in equity schemes has almost dried up, is now trying to use ELSS as a carrot to woo back its (lost) investors.
ELSS schemes are pure-vanilla equity diversified schemes in structure, with the only added advantage of a tax benefit. These schemes are popular as investment in them — up to a maximum of Rs 1 lakh — is exempted from any tax payment. While this category has also faced the wrath of the market, investors can take relief from the fact that these schemes attract a lock-in period of three years. Thus, whatever the market scenario, redemptions are not possible before the expiry of the lock-in period.

Source:http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds_line_up_ELSS/articleshow/3738711.cms

Why you should prefer Gilt investments to FDs?

What is Gilt?

Gilt or G-Sec are instruments issued by the Reserve Bank of India (RBI) on behalf of the government and include central and state government securities, as well as short-term treasury bills issued as part of the central bank's open market operations.

How can we invest?

Gilt Mutual Funds: Retail investors can take exposure to Govt. bonds through Gilt funds - mutual funds that invest in G-Secs and money market instruments. Over the past one year, medium- and long-term gilt funds have been the best performing category among debt funds. Some top-rated gilt funds are giving a return of over 20 per cent.

What are the risks when investing in Gilts?

On any fixed income investment (Gilt, Corporate bond, or Fixed Deposit in a bank) there are three types of risks - Credit risk, Liquidity risk and Interest rate risk.
G-Sec has practically zero credit risk (guaranteed by Govt.) and good liquidity. However, they do have interest rate sensitivity like any other fixed instrument - there is an inverse relationship between interest rates and prices of securities. Therefore, if the interest rate goes down, the prices of bonds rise and vice versa. Interests on these bonds are normally paid semi-annually on the face value, and are one of the sources of earning from these papers.

Gilt Mutual Funds – Tax efficient than FDs

Gilt funds get the same treatment as debt funds and are thus, eligible for the benefit of indexation on capital appreciation. Dividend received, if any, is chargeable to tax at 14.16% (12.5% + 10% surcharge + 3% education cess). In bank FDs, one has to pay tax on the interest earned at the end of a financial year even if the interest would be paid at a later date, or maybe years later. For example -you have made an FD of Rs 50,000 for four years. You will have to pay tax on the liable interest for all the financial years it spans, even though the interest amount would come into your hands only at the end of the four-year tenure.
Also, if the interest on a particular fixed deposit exceeds Rs 10,000, you would be liable to tax deduction at source (TDS), which is applicable per financial year. The bank will compute your interest and will deduct an amount equivalent to the tax, if any, by making adjustments in the FD amount.

JM Basic Fund: Aggressive play, but lower returns

Launched in June 2005, JM Basic Fund is focussed on the industrial sector of the economy. The open-ended equity-diversified fund has an objective to provide capital appreciation through deployment in sectors categorised under “basic industry” in the normal parlance and in the context of the Indian economy. These include, but are not limited to, energy, petrochemicals, oil & gas, power generation & distribution, electrical equipment suppliers, metals and building material. The scheme has not been a star performer, but over a life span of three years, it is an average performer in the category. But the fund has raised eyebrows by showing a jump in returns since 2007. That year, it took the fifth position in overall equity-diversified schemes, by delivering 31.90% compounded annualised returns over a two-year timeframe. But the ranking slipped since the beginning of this year due to a major slump witnessed in the markets, so much so that its long-term trailing returns have also been negatively affected. The fund takes concentrated bets on stocks in the core and infrastructure sectors.

The scheme, under the management of Asit Bhandarkar, was earlier biased in favour of large-cap stocks. However, the entry of Sandip Sabharwal into the fund house in December 2006 as its chief investment officer — equity has brought many changes in the fund’s outlook. The scheme began to aggressively invest in mid-cap stocks. At present, 57.43% of assets are invested in stocks of companies with a market capitalisation of less than Rs 6,577 crore. The scheme, which used to invest its portfolio across fewer sectors, also increased the diversification to over 16 sectors. At present, the engineering & industrial machinery sector, housing & construction, steel and electricals & electrical equipment are the fund’s big holdings. It has not touched the energy and power sectors much. Apart from conventional core industries, JM Basic Fund has also held stocks in packaging, paper and sugar sectors. Also, the fund does not hesitate to put large sums in few sectors — currently, the Top 3 sectors account for about half of the fund’s assets. Recently, it has been hit hard by its continuous high allocation to housing and construction. The fund manager is also active in managing holdings. Thus, the portfolio has been churned every month. The scheme seemed to struggle over the years and enjoyed little popularity amongst investors. The rally in 2007 saw the fund take off, but that performance could not be sustained once the markets turned bearish, which is a point worth noting for investors. JM Basic Fund, due to its inconsistency in returns, is a risky choice.

Source: http://sify.com/finance/fullstory.php?id=14799211

Rupee ends weaker than 50/dlr for first time

The rupee closed weaker than 50 per dollar on Wednesday for the first time as it was sideswiped by a falling stock market and demand for dollars to arbitrage a gap to offshore non-deliverable forward rates.
The partially convertible rupee ended at 50.02/03 per dollar, 0.7 percent weaker than 49.66/67 at Tuesday's close. It hit a low of 50.03 in late trade, its weakest since Oct. 27 when it hit a record low of 50.29.
"I still feel there is very good room for the dollar-rupee to go up to 52," said V. Kumar, chief dealer with State Bank of Travancore.
One-month offshore non-deliverable forward contracts were quoting at 50.80/95, 1.5 percent weaker than the onshore spot rate, providing a good arbitrage opportunity.
Dealers said some banks were buying dollars in the onshore market to sell offshore and cash in on the price difference.
"We have closed above 50 for the first time, it is a very bullish close for the dollar-rupee," a senior dealer with a private bank said.
Losses in the share market also hurt sentiment. The share market fell 1.8 percent, and has now lost nearly 17 percent over the past six sessions.
Foreign funds have withdrawn more than $13 billion from Indian shares so far in 2008, after buying a record $17.4 billion last year.
Dealers said the central bank was seen selling dollars via state-run banks to try to halt the rupee's fall through the day, but said volumes were not large. They estimated the central bank sold about $200 to $250 million.

Source: http://in.reuters.com/article/topNews/idINIndia-36583120081119

India's New Rural Roads May Buffer Economy From World Recession

The 100 kilometers (62 miles) of rural roads India is adding each day may save Asia's third-largest economy from the worst of a global recession.
New roads built so far under the $27 billion program have brought urban markets within reach of 60 million village dwellers over the past five years, letting them earn money selling fruits, vegetables and milk that would have spoiled otherwise. They are now spending their cash just as the world economy falters.
``Rural demand is keeping the economy kicking along,'' said Shashanka Bhide, chief economist at the privately funded National Council of Applied Economic Research in New Delhi. ``Growth will slow in India, but not as dramatically as the rest of the world.''
Some of India's biggest companies are already benefiting: shares ofHindustan Unilever Ltd., the biggest maker of household products, and Hero Honda Motors Ltd., India's largest motorcycle maker, are up this year while the benchmark stock index has plunged 56 percent. Domestic spending will help cushion India from the worst global meltdown since the Great Depression, according to the Reserve Bank of India.
When the roads program is completed in two years, every village with 1,000 or more inhabitants will have access to all- weather roads, up from 40 percent when construction started in 2003. Spending on the project, run by the National Rural Roads Development Agency, was worth about 5 percent of gross domestic product when it was announced.
More to Come
Even at its current pace of investment, India still needs to spend more to buoy growth. The South Asian nation requires $100 billion annual investments in its highways, railways, power systems, ports and other infrastructure for the next five years, according to the government. Inadequate capacity shaves two percentage points off the nation's growtheach year, the finance ministry estimates.
Rural connectivity is increasing people's income and adding to domestic consumption, which makes up 55 percent of India's economy, compared with 37 percent of gross domestic product in China.
Hazari Lal Negi, 55, a farmer in the northern Indian state of Himachal Pradesh, says this year's crop of cabbages, potatoes, beans and cauliflower was his first not to perish on the way to market because of lack of transport.
``Earlier, we would have to haul our produce and walk all night to the nearest town to catch the early morning trucks,'' Negi said. ``We could sell only about a quarter of our produce and the rest got wasted. Now, we sell everything.'' Negi plans to expand into organic farming to boost his income.
`Consumer Boom'
``New markets are opening up for our products,'' said Pranay Dhabhai, chief operating officer at Haier Appliances (India) Ltd., the local unit of China's biggest home appliances maker. ``People's aspirations levels are rising with higher incomes. There's a huge consumer boom waiting to happen because penetration levels are so low in India.''
Haier, which opened its first factory in India last year, estimates that only 19.6 percent of Indian households have refrigerators, 27 percent own television sets and just 3 percent of homes have air-conditioners installed.
Sanjeev Chadha, chief executive officer of PepsiCo Inc.'s India unit, said the September-October period ``has been one of the best ever'' for sales.
``Buying power is coming,'' said Joerg Mueller, head of India operations for Volkswagen AG, which is building a 580 million euro ($730 million) car factory in the western Indian city of Pune. ``We are optimistic and happy to be here. We see a very positive future.''
Cushioning the Slowdown
The International Monetary Fund expects India's economic growth to slow to 6.3 percent in 2009 from an estimated 7.8 percent this year. That's still faster than the South Asian nation's average 4.5 percent expansion since 1947.
China may grow 8.5 percent in 2009, compared with 9.7 percent this year, according to the IMF. The U.S. and the Euro area may shrink by 0.7 percent and 0.5 percent in 2009, the Washington-based lender said.
``Overall, India is still poised to rank as the second- fastest growing major economy after China,'' said Rajeev Malik, regional economist at Macquarie Group Ltd. in Singapore. ``Consumption expenditure is poised to be resilient, but investment spending will be hit owing to scarce availability and higher cost of funding.''
Even though India has a domestic consumption-led economy, its growth may be hampered by slower investments by companies as borrowing options dry up in a global recession.
Lending Slips
Investor appetite in the stock market has waned, with overseas funds selling a record $12.7 billion of equities this year. Foreign lenders are shying away from emerging markets like India, as Europe and Japan last quarter slipped into recession.
The rural roads program is financed by the federal government using revenue from an additional tax imposed on the sale of diesel.
``India can't be fully insulated from what's happening in the rest of the world,'' said Rajat Nag, managing director at the Manila-based Asian Development Bank. ``Infrastructure financing will be tight for a while.''
Nag said India's banks are well capitalized and can afford to step up lending. They have just $1 billion of toxic Western assets out of a total loan portfolio of $510 billion, according to the central bank. The global credit crunch has seen financial institutions around the world write off or lose $965.8 billion.
To stimulate investments, India's central bank has slashed lenders' reserve requirement in cash and bonds by 3.5 percentage points and one percentage point respectively and cut interest rates by 1.5 percentage points in the past month.
``India is connected with the global crisis, but not as severely as other Asian countries,'' said K.V. Kamath, chief executive officer of ICICI Bank Ltd., the nation's second- biggest. ``We will have to get back to the consumers to get India back on a higher growth path.''

“This is the right time to invest”

People should invest in the equity market now through mutual funds because of the attractive valuation of stocks, but should not expect short-term gain, says Association of Mutual Funds of India (AMFI) Chairman, Mr A P Kurian.
“This is the right time to invest in the market through mutual funds as the valuations of stocks are now very attractive,” Mr A P Kurian told a programme organised by Dun & Bradstreet here.
Investors should not expect short-term gain from their investments. They are required to stay put for three years and beyond, Mr Kurian said.
The global economic meltdown and subsequently huge churn out by the Foreign Institutional Investors (FIIs) from the country's stock market have led to bear run with the sensitivity index falling from 21,000 points at the beginning of the current year to 9,385 on the last trading day on November14.
Mr Kurian said that highs and lows were not an unknown phenomenon in the stock market and that should keep the long-term investors to have faith in the market.
“The Indian story is strong and will remain strong for decades, because we are a demand-driven economy. We are sure to bounce back either in 2009 or in 2010. No business cycle remains a one-way traffic. This country is too strong to collapse,” he said.
Stating that the Indian corporate entities were of world-class standard, Mr Kurian asked, “Do you think Tata Steel, L&T and Reliance will close down?”

Source: http://www.thehindubusinessline.com/blnus/00161906.htm

3 MF schemes downgraded : CRISIL

The spate of downgrades of corporate debt papers by rating agencies has now hit the mutual fund industry. On Friday, Indian ratings major Crisil downgraded three liquid schemes and reaffirmed ratings on five others. All the eight schemes, belonging to five different fund houses, were given a month's notice to correct their portfolios to continue with the ratings which were assigned earlier, a release from Crisil said. ''Crisil has downgraded its credit quality ratings (CQRs) on three mutual fund schemes,'' the release said. ''The credit quality of these schemes' portfolios remains inconsistent with their previous rating of 'AAAf', even after the expiry of a curing period for correction of the mismatches,'' it added. The three schemes which were downgraded were DSP BlackRock Liquid Plus Scheme, downgraded from AAAf to AAf, ING Liquid Fund, downgraded from AAAf to Af and ING Liquid Plus Fund, downgraded from AAAf to A+f. An 'AAAf' rating on a scheme signifies that fund's portfolio provide strong protection against losses from credit defaults. An 'AAf' rating signal the portfolio provide protection against losses from credit defaults while an 'Af' means adequate protection against losses from credit defaults.

Mutual funds see value erosion of Rs 76k crore in seven months

The mutual fund industry has witnessed a value erosion of Rs 75,966 crore in equity-related schemes in the first seven months of the current financial year. This is primarily because of the slide in the equity market on account of the global financial turmoil.
According to the Association of Mutual Funds of India (Amfi) data, a major part of the value erosion, Rs 40,608 crore, has taken place in the month of October 2008 as the BSE Sensex and BSE-500 index recorded the biggest ever single-month decline of a 23.9 per cent and 27.1 per cent respectively in that month.
However, when markets were zooming in October last year, the market value of these funds had risen by a whopping Rs 80,984 crore.
In the first seven months of 2008-09, the Sensex has declined by 37.4 per cent and the BSE-500 index 42.02 per cent. In the first seven months of 2007-08, the Sensex and the BSE-500 index had gone up by 51.8 per cent and 57.1 per cent respectively.
The Amfi data also show that the mutual funds’ assets under management (AUM) in equity-related schemes has declined from Rs 189,025 crore as on March 31, 2008 to Rs 157,913 crore as on October 31, 2008. The fall is despite net inflows of Rs 4,246 crore in new as well as existing schemes.

According to the unaudited half-yearly financial data for September 2008, published by 29 fund houses, the total reserves of the equity schemes have declined by Rs 28,903 crore from Rs 75,059 crore in March 2008 to Rs 46,155 crore at the end of September 2008.
However, the fund houses faced very limited pressure on redemption as the total unit capital of these 29 mutual funds in equity schemes has declined by only Rs 1,947 crore from Rs 110,030 crore.

Except for Benchmark Mutual Fund (Rs 1 crore) and Deutsche Mutual Fund (Rs 57 crore), all the remaining 27 fund houses have reported a decline in their reserves and surplus during the first half. The reserves and surplus accounts of JM Financials, JP Morgan, AIG, LIC, Lotus, Fortis (formerly ABN Amro) and DBS Chola Mutual Fund have, in fact, turned negative.
Twelve fund houses have reported a decline of over Rs 1,000 crore in reserves and surplus, while nine others have posted a fall between Rs 100 crore and Rs 1,000 crore. Prominent among the 12 mutual funds that have registered a decline of over Rs 1,000 crore are Reliance Mutual Fund (Rs 4,358 crore), UTI Mutual Fund (Rs 3,758 crore), ICICI Prudential Mutual Fund (Rs 3,334 crore), SBI Mutual Fund (Rs 2,992 crore) and Franklin Templeton Mutual Fund (Rs 2,259 crore). The remaining six fund houses have reported a fall of below Rs 100 crore in reserves and surplus.
Source:http://www.business-standard.com/india/storypage.php?autono=340219

World Bank should help India, says Chidambaram

Frankfurt: Finance Minister P Chidambaram has said that the World Bank should enhance assistance to India to help tide over the fallout of the global financial crisis on his way to the G-20 summit in Washington.
''The World Bank can step up lending to India from the present level of three billion dollars a year for Central and State projects and programmes. It is very important that the few countries that are able to drive economic growth and other countries which are put on the bandwagon of development, should not suffer in the period during which we grapple with the world crisis. Resources must be made available to developing countries, including India, so that they can continue to grow,: Chidambaram said.
Chidambaram and Prime Minister Manmohan Singh made a brief stop in Frankfurt, on their way to Washington where the Finance Minister made the appeal.
World leaders are meeting in the Washington to discuss ways to tackle the global financial meltdown.
Manmohan Singh is likely to demand a bigger say for India in financial bodies such as the International Monetary Fund and the World Bank.
He is also likely to express India's desire to cooperate with China, South Africa, Mexico and Brazil with regard to monetary and fiscal policies.

Source: http://ibnlive.in.com/news/world-bank-should-help-india-says-chidambaram/78145-7.html

SIP it or leave it: Take stock of your investments

FALLING markets have turned investors jittery. Even those with systematic investment plans (SIPs) are stopping fresh investments and even redeeming units. Investors are confused over whether to make the best of an opportunity or to stop throwing good money after bad. According one of Mumbai-based certified financial planner, “Investment returns are a function of price and this could be the best price you could get. Any SIP works best when markets are going lower. So, if you have a good scheme, continue with the SIP.”
Although investors are worried about further losses, liquidating units is an absolutely wrong strategy in such situations. What you are essentially doing is buying low now (so you get more units and hence lower average cost). Your returns will be substantially higher when the market turns around. The periods that we are witnessing now are the best to just buy low as these are prices that one cannot expect everyday.
So, what would happen if you hold or quit your SIP? Let’s understand with an example. Let us assume you have been doing a SIP of Rs 2,000 per month through October 2007 to September 2008. The cost incurred by you would be Rs 24,000. But the market value (what you would get if you redeem the units) of these investments would be roughly Rs 15,000 as of now. That simply means you would lose Rs 9,000 or more if you were to divest immediately.
“If you stop the SIP but not divest, the holdings would be worth Rs 18,000 after a year (with 20% growth from here). Instead, if you continue investing through another one year, at the end of one year from now, the investments would be Rs 48,000 at cost and Rs 50,000 at market value. Hence, instead of a loss of Rs 6,000, you would be breaking even,” So, if you have decided to contribute Rs 1,000 for a goal on a monthly basis, and now that you can get more units for the same cost, why would you stop it or rather why should you stop it? Markets could test further lows in the coming days or weeks. However, one thing that we must do is to continue to buy during such tough times because the purchases done in such times deliver the best returns. In fact, this is the time to increase investments. If you are a first time buyer, you need to know your goals, time horizon, how much returns do you need and your risk profile. It’s far more important to know yourself first than to know the investment. Once you know yourself, then you should look out for schemes with a good track record and also the potential to do well. You should not look for a scheme with the highest return, but with a scheme which is consistent in its performance. Also, look at the fund management team and its stability.

ICICI Pru shows the way, ups exit load on FMPs

In order to plug redemptions, ICICI Prudential Mutual Fund has increased the exit load on some of its fixed maturity plan (FMP) schemes for prospective investors from two per cent to as much as five per cent.

Most debt fund managers, industry sources said, are likely to similarly increase the exit load on their FMPs in order to stem mass withdrawals in the future.
“We have done this to ensure that only genuine long term investors are attracted to our scheme and existing investors are protected,” ICICI Prudential Managing Director and CEO Nimesh Shah said.
According to existing regulations of the Securities & Exchange Board of India, fund houses cannot charge more than six per cent to investors who want to exit before the maturity of the scheme. Most of them had opted for an exit load of 2 per cent. The market regulator is also mulling steps to block exits from FMPs.
The move follows the heavy redemption pressure on the debt portfolios of mutual funds in October. The average assets under management (AAUM) of FMPs stood at Rs 1,27,080 crore at October-end, down Rs 10,718 crore since September. Over 25 per cent of the entire AAUM of mutual funds lie in FMPs.
According to another top debt fund manager, a high exit load can be effective in covering losses whenever there is mass withdrawal in any scheme. “Five per cent is enough for a fund manager to ensure that existing investors do not bear the brunt if he has to sell some debt papers at a discount in case of redemptions,” he added.
ICICI Prudential has increased exit load in its Annual Interval Plan series I, II, III and IV. Apart from this, it has also pushed up exit load to 4 per cent in its Half Yearly Interval Plan series I and II. Its Annual Interval Plan II (Institutional Dividend Option Scheme) and Annual Interval Plan II (Institutional Growth Option Plan) witnessed over 75 per cent redemption in the month of October.

Source: http://www.business-standard.com/india/storypage.php?autono=340166

The Rupee and your investments

For some time now, Indians have been warming up to the idea of investing overseas and diversifying their portfolios across geographies. Over the last few years, many international mutual funds were launched to cater to this growing market, which has a combined asset-size of Rs 6,598 crore. Besides, Indians already have a big appetite for universal commodities like gold and silver. And many investors are also increasingly dabbling in commodities such as crude oil and copper. While this is good for your portfolio as it gives you the benefit of diversification across asset classes, and across geographies, it also exposes you to the vagaries of the currency movements. In recent times, rupee-dollar rate has gained significance because of the rapid decline of the Indian currency against the greenback since the beginning of this year.
Says Ramchandran Krishnan, Director and Chief Investment Officer, Barclays Wealth: “When you invest overseas, a part of your returns is linked to currency movements. You can’t be indifferent to these fluctuations.”

The Rupee factor

Currency movements can adversely affect your returns even if your underlying investment has performed well. Here’s how the rupee movements can make a dent on your returns: Suppose, you invest in a US company that pays a dividend in US dollars. Also, assume that during the time you are holding the stock, the US dollar appreciates against the Indian rupee by 10 per cent. If the US-based company declares dividends, it will now be worth 10 per cent more in rupee terms, due to the appreciating dollar. Even if you assume that your company declares no dividend and its stock price remains constant during the same period, you will be richer by 10 per cent in rupee terms. Any appreciation of the foreign currency of the country that you are invested in increases the rupee rate of return. Likewise, any depreciation in the currency of the country that you are invested in, will result in a loss.
Since the beginning of this calendar year, the dollar has appreciated 23 per cent against the rupee as the demand for dollars has increased. Foreign investors began to sell their holdings, and higher crude prices forced oil companies to buy more dollars to fund their imports and repatriate their investments. Had you invested in a dollar-denominated investment (assuming its capital value was constant), your investments would have appreciated in rupee terms in the same period.
But, of course, predicting where the rupee will go against the dollar is a tricky business. Yet, the basic tenet about investing in other countries or international commodities, apart from the fact that the assets should have a strong future, is to be invested in an appreciating currency. If the rupee is going to be strong against the US dollar, it’s better to remain invested in rupee assets such as local stocks.

Twin-edged gain
If you invest in commodities that have universal demand like gold (either in physical form or through an exchange traded fund) or silver, your returns are linked not only to the price of the underlying asset but also to the rupee-dollar value. A depreciating rupee will increase your rupee returns on your gold investments. In fact, many investors have gained despite a fall in the price of gold. While the price of gold decreased 12.3 per cent from $846 per ounce on January 1, 2008 to $730 per ounce (London PM fix) on October 31, 2008, the rupee price actually increased from Rs 33,389 per ounce to Rs 36,136, due to the decline in the rupee against the dollar as per statistics from the World Gold Council.
But not many Indian investors are following the price of gold in international markets or comparing it to the rupee-dollar movements. That’s because Indians have held a traditional fancy for gold that extends beyond just investments—it’s also a sentimental buy. Besides, many Indian buyers are sensitive to the rupee rate of gold. Says Lakshmi Iyer, Head, Fixed Income & Products, Kotak Mutual Fund: “There’s a rupee correlation for gold prices. But Indians buy gold more due to its sentimental value. At very high prices, there’s a stiff resistance to buying gold.”

The overseas game plan

Overseas mutual funds, on the other hand, are mostly dollardenominated, and, hence, their returns are linked to the rupeedollar movement. While there has been a global sell-off in emerging market funds, international funds, too, were affected in the financial meltdown. But a back-ofthe-envelope calculation suggests that in the last one year (till November 3, 2008), the average returns of international funds (with an exposure of over 65 per cent in the overseas markets) were down 43 per cent. This is despite many foreign stock market indices being harder hit, when compared to the Sensex, which is down 47 per cent over the same period. The downside was in part cushioned by the dollar appreciating against the rupee.
The rupee-dollar rate may remain volatile till the global economic situation stabilises; so, investors will do well to keep an eye on the currency market. Savvy investors, particularly high-net worth investors and those who are clued in to currency movements, can also take a hedge against the dollar in the Indian market—which were recently allowed in the country— although currency futures is for the moment restricted only to the US dollar. Says Krishnan: “If you are comfortable with a currency, then you may want to take a hedge.”
However, investors should put on hold investments in foreign equity or other assets such as real estate for now. Says Krishnan: “The global slowdown will affect the performance of overseas asset classes. Investors can look at other emerging markets instead.”
Over the next few months, the currency markets could become more volatile as the global economy goes through the after-effects of the financial crisis. Your portfolio may not necessarily be directly affected if all your assets are denominated in rupees. If you have gold and other overseas assets in your portfolio, keep a close watch on currency movements, unless you are extremely confident of your asset class.

The paradox of rupee returnsHow rupee fluctuations affect your investment.
• If the rupee falls in value, the rupee returns on commodities such as gold increase, (assuming that international gold prices remain constant)
• If the rupee appreciates in value, the rupee returns on gold decline
• An investment in overseas assets will fall in value if the underlying currency depreciates, and investors will tend to lose out
• But a strengthening currency will result in gains for investors in overseas assets such as property and bonds (assuming that asset prices remain constant)

Suggested Portfolio as per current market condition

By considering global meltdown you can go for below mention suggested portfolio.

Portfolio for investment differs from person to person as per different need of different person.

There are total 3 portfolios as per Risk capacity, Time for investment and expected returns you can take a bet.

Note: If you have total Rs. 100 to invest than out of Rs. 100 you have some X amount for equity. Out of that X amount of equity portion you can go for below mention schemes of mutual fund.

Aggrasive Portfolio:
JM Emerging Leader Fund (Multicap Fund) 12%
Birla Sun Life Front Line Equity Fund (Large Cap Fund) 8%
Sundram BNP Paribas Select Focus Fund (Stock Picker Fund) 8%
JM Basic Fund (Infrastructure focus Fund) 10%
Reliance Regular Saving Fund (Stock Picker Fund) 10%
Fidelity Special Situation Fund (Stock picker Fund) 11%
Kotak Opportunity Fund (Diversified Equity Fund) 8%
HDFC TOP 200 Fund (Large Cap Fund) 13%
HDFC Prudence Fund (BalanceFund) 8%
IDFC Liquidity Manager Plus Fund (Liquid Fund) 6%
Kotak Flexi Fund (Liquid Fund) 6%

Moderate Portfolio:
IDFC Imperial Equity Fund (Large Cap Fund) 10%
JM Emerging Leader Fund (Multicap Fund) 10%
Fidelity Equity Fund (Large Cap Fund) 11%
Reliance Regular Saving Fund (Stock Picker Fund) 11%
JM Contra Fund (Diversified Equity Fund) 10%
DSP TIGER Fund (Sector Fund) 9%
Reliance Vision Fund (Large Cap Fund) 9%
HDFC Prudence Fund (Balance Fund) 9%
ICICI Prudential Dynamic Plan (Dynamic Fund) 9%
IDFC Liquidity Manager Plus Fund (Liquid Fund) 6%
Kotak Flexi Fund (Liquid Fund) 6%

Conservative Portfolio:
HDFC Prudence Fund (Balance Fund)
Fidelity Equity Fund (Large Cap Equity Fund)
Reliance Vison Fund (Largecap Fund)
JM Contra Fund (Diversified Equity Fund)
Birla Sun life 95 (Balance Fund)
Canara Robeco Balance Fund (Balance Fund)
IDFC Liquidity Manager Plus Fund (Liquid Fund)

Best SIP Fund For 10 Years:
IDFC Premier Equity Fund (Stock Picker Fund)
JM Emerging Leader Fund (Multicap Fund)
Reliance Growth Fund (Midcap- Smallcap Fund)
Reliance Regular Saving Fund (Multicap Fund)
Fidelity Special Situation Fund (Stock Picker Fund)
DSP TIGER Fund (Thematic Fund)
Franklin High Growth Fund (Midcap & Smallcap)
DSP Gold Fund (Sector Fund)

DLF Pramerica Mutual Fund

DLF Pramerica Mutual Fund is the latest one to receive an ‘in-principle approval’ from SEBI to start its mutual fund business in India. This is a joint venture between U.S. life insurance, Prudential Financial (PFI) and real estate company, DLF.

End of last month India Infoline received an in-principle nod from SEBI for sponsoring a mutual fund. Recruitments for the asset management business began a few months ago with the hiring of Deepesh Pandey, (ex-Deputy CIO of Mirae Asset, Singapore) and Manish Srivastava (ex-Fund Manager of Halbis - HSBC Global Asset Management- Singapore).

Ironically, the times could not have been worse. October recorded a massive liquidity and confidence crisis that sent fund houses reeling. Consequently, many fund houses are rethinking their strategy and business models.

The massive redemptions in liquid funds coupled with a tumbling equity market resulted in Assets Under Management (AUM) crumbling. Reliance Mutual Fund lost Rs 15,400 crore in its assets from the previous month (September), ICICI Prudential Mutual Fund, Rs 10,594 crore and HDFC Mutual Fund, Rs 6,519 crore. The highest percentage fall in assets was seen in Mirae Asset Mutual Fund (57%) and AIG Global Investment Group Mutual Fund (44%).