Mutual funds see 2009 as year of active money management

Every equity scheme from every fund house took a beating in 2008; fund managers hope new year will be better

India’s mutual fund managers, after waging a losing battle through all of 2008, are hoping they can recoup some losses in 2009. “We look forward to 2009. It is the year where we’ll have to make amends for the past and the stage is set for the same,” insists Nilesh Shah, deputy managing director of ICICI Prudential Asset Management Co. Ltd, the third largest Indian mutual fund house by assets, managing about Rs37,055 crore at the end of November.

Equity funds in India followed the stock market’s dive even as investors rushed to cash out of their fixed income or debt funds in the months of September and October.Mutual fund assets under management shrank by more than 25% over the year, from Rs5.49 trillion at the beginning, to Rs4.05 trillion as on 30 November, the last date for which data is available. “In 2008, both regulators and fund managers failed in predicting the depth of the economic crisis. While they were talking about globalisation, in the same breath, they were also talking about decoupling,” said Shah. “It was an unprecedented year in terms of how things unfolded, and we are not going to see this kind of a year in the next 10-15 years,” predicts Sandip Sabharwal, chief investment officer (equity) at JM Financial Asset Management Pvt. Ltd, which managed Rs6,749 crore in fund assets at end-November, about half the Rs12,480 crore it was managing at the end of December 2007. Equity diversified funds as a category dropped 56.68% during the year, in line with the 54% fall in the Sensex, India’s most watched index on the Bombay Stock Exchange. Given that 2008 saw every equity scheme from every fund house take a beating, fund managers are desperately seeking to save face in 2009. Shah of ICICI Prudential likens 2009 to 2003, when stock markets rebounded for a five- year rally after being in the doldrums for three following the bursting of the dotcom bubble and 9/11. “2009 starts off negative, with most economies in the world slipping into negative growth, but I feel it will be a very different end,” claims JM Financial’s Sabharwal, betting that credit flows will restart, interest rates will fall further, and there will be no prolonged slowdown.During 2008, when active management failed, the ideal strategy that would have worked, said Sabharawal, was passive management of funds that tracked a key index, keeping a large chunk of the fund in cash. But he predicts that “It (2009) is going to be a year of active management with some very specific picks emerging in industries and sectors that will lead the climb up.”On the debt funds front, thanks largely to an easing in monetary policy by the Reserve Bank of India, mutual fund schemes have already started posting positive returns. As interest rates fall, the price of the paper in which these debt funds invest go up, effectively boosting the net asset value of the schemes. Data from Value Research India Pvt. Ltd, which tracks performance of mutual fund schemes, show that income, gilt and, liquid and liquid-plus schemes—the three broad classes of debt funds—have posted year-to-date returns of 11.93%, 21.44% and 8.55%, respectively. Such returns have likely made up for the crisis of confidence and erosion in value of these funds in late September and early October, resulting in net redemptions of at least Rs90,000 crore over those two months. The Securities and Exchange Board of India, which regulates mutual funds, has also chipped in to boost confidence, announcing earlier this month that it will not allow redemptions from close-ended schemes over the tenure of the scheme. It also said all new closed-ended funds should be listed on stock exchanges to provide liquidity to any investor who may want to sell in a financial emergency. But the bottomline for success in 2009 is consistency, says Krishnamurthy Vijayan, chief executive officer of JPMorgan Asset Management India Pvt . Ltd. “There should be consistent selling,” says Vijayan. “If fund houses were making 20 sales call a day in a good market, they need to do the same in a bad market. If they had one advertisement a week in a good market, they need to have at least one a fortnight now. If they talked about them being a process-driven fund house earlier, they need to do that now too.”

Source: http://www.livemint.com/2008/12/29223723/Mutual-funds-see-2009-as-year.html

Birla Sun Life adds new features to Tax Relief 96

BSL Tax Relief’96 with this novel feature, helps the investors avail of critical illness insurance of upto Rs. 10 Lac, till the age of 55 yrs against 9 critical illnesses.

Birla Sun Life Mutual Fund has added a new feature to one of its most consistently performing fund “Birla Sun Life Tax Relief’ 96”, by offering customers a unique critical illness insurance for 9 critical illnesses. The revised equity linked tax saving scheme opened on December 15, 2008. The fund aims to deliver value to the investors through long-term capital growth from a diversified portfolio of predominantly equity related securities.
BSL Tax Relief’96 with this novel feature, helps the investors avail of critical illness insurance of upto Rs. 10 Lac, till the age of 55 yrs against 9 critical illnesses.
Commenting on the launch of BSL Tax Relief’ 96 Fund with added feature,Anil Kumar, CEO, Birla Sun Life Asset Management Company Ltd, said, “Birla Sun Life Tax Relief’ 96 Fund is designed keeping in mind the requirements of investors. The fund will take care of their three financial planning priorities – tax management, wealth creation and their health needs with insurance for critical illness.”
Birla Sun Life Tax Relief’ 96 Fund offer investors the opportunity to save tax under section 80C, avail special critical illness insurance and also reap benefits of capital growth by investing in the world’s third best equity fund, as rated by Lipper. The scheme has till date declared an impressive 2160 % dividend since inception.

Every equity scheme from every fund house took a beating in 2008; fund managers hope new year will be better

The stock market downturn, beginning early in 2008, wiped off close to Rs150,000 cr this year, bringing its asset size to nearly Rs4,00,000 cr

They used to be an avenue of mutual gains for investors in both good and bad times for years, but incurred heavy losses in 2008, when mutual funds (MFs) became poorer by about Rs150,000 crore or about one-third of their total size.Such has been the impact of these losses, which accounted for nearly three-fourths of the overall gains in the previous year 2007.The mutual fund industry in India, with nearly 36 members, was regarded as a safe avenue of mutual gains for investors till 2007, when their total wealth grew by more than Rs230,000 crore to Rs550,000 crore.However, the stock market downturn, beginning early in 2008, wiped off close to Rs150,000 crore this year, bringing its asset size to nearly Rs4,00,000 crore and leaving the industry shattered with a huge liquidity crunch.But the industry, where players operate with catchlines like “We believe 2009 will be a better year and the mutual fund industry would bounce back with general improvement in liquidity and economy as government measures would promote growth, while the overall market sentiment is likely to change from January onwards,” Association of Mutual Funds chairman A P Kurien said.Mutual funds are likely to resume growing in a robust manner by April-June 2009 as equity markets are expected to improve by then, Kurien said, adding that the Rs20,000 crore support given by the government helped in avoiding a crisis situation for the industry.“We started the year on a extremely optimistic note and are ending it on an extremely pessimistic edge. It has been the worst calendar year for the market as the magnitude of losses have been huge,” mutual fund tracking firm ValueResearch Online CEO Dhirendra Kumar said.However, the weak close to the year could provide an excellent ground for rebuilding “as this is the appropriate time for investors to buy for the long term”, he added.Market regulator Sebi has issued guidelines to protect mutual funds and investors from sudden redemptions, like asking funds to list close-ended schemes and disallowing exit from schemes before maturity.The decision came in the wake of a liquidity crisis faced by the industry two months ago as investors pulled out from fixed-income funds fearing a liquidity crunch.Probably on account of this, the industry saw new fund houses entering or planning to enter the space this year. These included Bharti AXA, Edelweiss Mutual Fund, India Infoline, Religare, Aegon and Peerless.

Banks, insurers, MFs may soon manage your pension

The Pension Fund Regulatory and Development Authority (PFRDA) on Friday sought applications from entities wishing to float pension funds to manage retirement assets of all Indian citizens, other than government employees already covered under the existing pension scheme.
Indian banks, insurance companies and mutual funds will soon have the opportunity to manage pension funds. The Pension Fund Regulatory and Development Authority (PFRDA) on Friday sought applications from entities wishing to float pension funds to manage retirement assets of all Indian citizens, other than government employees already covered under the existing pension scheme.
Detailed criteria set out by PFRDA in its primary information memorandum (PIM) entitle government institutions, banks, insurance companies and mutual funds to sponsor a pension fund. One important criterion is that the sponsor must have at least five years of experience in running debt and equity funds and should have managed average monthly assets of Rs 8,000 crore for 12 months ended November 30, 2008.
“Insurance companies, being the only manager of long-term finance, are perhaps best suited to manage pension funds. We are very keen to participate in pension fund management,” said Puneet Nanda, chief investment officer, ICICI Prudential Life Insurance. Among private life insurers only a couple of companies, besides ICICI Pru, may be eligible given the requirement of minimum funds under management of Rs 8,000 crore. Among mutual funds, the number would be higher.
Joint ventures are eligible to apply. The selected sponsors shall be required to incorporate the pension fund as a separate company.
The selected sponsors shall be required to incorporate the pension fund as a separate company in which direct or indirect foreign investment should not exceed 26% of the paid-up share capital, according to the information memorandum on the regulator's website. Existing PFs regulated by the PFRDA are also eligible.
The details seem to indicate that the pension regulator has potentially opened the doors to several entities within a group. There are several financial conglomerates with a mutual fund, insurance and banking entity. If these entities meet the eligibility criteria of minimum funds under management and experience, each can apply separately.
Reliance Capital, which owns Reliance Mutual Fund and Reliance Life Insurance, is keen on applying through both companies, said Sam Ghosh, managing director, Reliance Capital. However, given the requirement of minimum funds under management of Rs 8,000 crore, the application is likely to be through the asset management company.
State-owned banks are also interested in the pension fund business. Many state-owned banks also have a mutual fund joint venture. Union Bank of India's chairman MV Nair said the bank is interested in managing pension funds. “A high-level team of the bank would go through the information memorandum issued by PFRDA before taking a decision on whether to apply,” Mr Nair said. The newly-incorporated pension fund management company must have a minimum net worth of Rs 10 crore.
The entry of private fund managers will enable all citizens, even those in the unorganised sector, to invest their retirement funds, however small, in assets of their choice - equity, debt or balanced. They will also have the freedom to shift their portfolio across licensed fund managers.
So far, the PFRDA has licensed pension funds sponsored by the State Bank of India, Life Insurance Corporation and Unit Trust of India to manage funds collected under the new pension scheme for government employees. These three existing pension fund managers will also be eligible to apply to manage retirement funds for individuals other than government employees. The PFRDA runs the new pension scheme which covers those who have joined central services excluding armed forces and some state services since January 1, 2004.
The seeking of expression of interest sets the stage for the second part of pension reforms. In the first stage, three pension funds promoted by SBI, LIC and UTI were given permission to manage the government's new pension scheme. In the second stage, individuals other than government employees will be allowed to invest in PFRDA-regulated funds.
Unlike in the case of mutual fund or insurance, the asset management company will play no role in marketing and distribution of products and will manage only bulk funds allocated to it. Individuals will open accounts through a central registering authority - a job undertaken by NSDL. The PFRDA plans to employ point of purchase outlets and these would include banks, post offices and perhaps insurance companies to distribute its products.
Those keen on applying will have to submit the EOI along with a request for qualification. The RFQ has to include the companies annual report for the past five years and information on corporate profile, reasons for interest in pension funds, and organisation and ownership structure of the sponsor. Once the eligible candidates are short-listed, they will be invited to submit their technical and financial proposals to sponsor a pension fund.
Source: http://www.indiainfoline.com/mf/innernews.asp?storyId=88506&lmn=7

UTI MF to divest 26% stake by March: report

Japan-based Shinsei, with which the fund house has tie-up with regard to global fund management, is being actively considered to be the strategic partner.
UTI Asset Management Company reportedly mulls offloading 26% stake to a strategic partner in the next three months. The negotiation is at the advance stage and the deal is expected to be closed by February or early March.
The report stated that Japan-based Shinsei, with which the fund house has tie-up with regard to global fund management, is being actively considered to be the strategic partner. Other US and European players, including the second largest fund house in the US America Vanguard Mutual Fund, have also shown interest in picking up strategic stake in the mutual fund, which has seen growth in its asset under management even when the sector is facing redemption pressure.
UTI Mutual Fund is promoted by State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation holding 25% each.

Source: http://www.indiainfoline.com/mf/innernews.asp?storyId=88561&lmn=7

SBI MF announces change in key personnel

SBI Mutual Fund has announced change in key personnel effective from 12 December 2008. Navneet Munot has been appointed Chief Investment Officer. Navneet Munot, 38 has done his M.com, C.A., C.F.A., and C.A.I.A. He has over 14 years of experience in the area of financial services. He has joined from Morgan Stanley Investment Management where he worked as executive director responsible for Multi-Strategy Funds. Before that he worked with Birla Sun Life AMC as CIO - Fixed Income and Hybrid Funds. He also worked with Birla Global Finance and Birla Sun Life Securities.

JPMorgan India Tax Advantage Fund floats on

JP Morgan Mutual Fund has begins initial offer period of JPMorgan India Tax Advantage Fund from 18 December 2008 till 16 January 2009. The Fund is an open-ended tax advantage fund.
The objective of the scheme is to generate income and long-term capital growth from a diversified portfolio of mainly equity and equity-related securities. Redemption of units can be made only after a period of three years (lock-in period) from the date of allotment of Units proposed to be redeemed as prescribed in the ELSS.

conversion of JM EnD Fund to JMNiftyPlus

Accordingly the following changes are proposed in JM Equity & Derivative Fund w.e.f. 2nd February, 2009
a) Change of name of the scheme to: JM Nifty Plus Fund
b) Change of investment objective of the Scheme
The Investment objective of the scheme will be to generate investment returns by predominantly investing in S & P CNX Nifty Stocks and Nifty and its 50 constituents in the same weightages as its composition and through deployment of surplus cash in debt and money market instruments and derivative instruments.
Consequent to the above change in the investment objective of the Scheme, the scheme will undergo a change from an income oriented interval scheme to an open ended equity scheme and will be subject to the provisions of Equity Scheme.

After conversion of the scheme to an Equity Scheme i.e on or after 3rd February, 2009
Investors are requested to indicate their preference while investing in the Scheme. In case an investor fails to specify his preference, he shall be deemed to have opted to select the Growth Option.
Dividend Option shall offer investors the facilities of : (a) Dividend Payout and (b) Dividend Reinvestment. Under dividend reinvestment, dividends declared will be reinvested into the Plan / Scheme. In case, an investor fails to specify his/her sub-option preference under dividend option, he/she shall be deemed to have opted to select the dividend reinvestment option. However, in case the dividend payable to any unit holder is below Rs. 100/-, then the same will be automatically reinvested.
Systematic Investment Plans (SIP)/ Systematic Transfer Plans (STP)/ Systematic Withdrawal Plans (SWP)
The existing requests for SIP/STP/SWP in JM Equity & Derivative scheme (An Income oriented scheme) will stand cancelled and investors will be exempted from adhering to the minimum specified criteria for valid SIPs/STPs/SWPs. The investors will have to make a fresh application for registering their SIPs/STPs/SWPs request in the converted equity Scheme i.e JM Nifty Plus Fund.
The scheme will adhere to the requirements of SEBI Circular no. SEBI/IMD/Circ. No. 10/22701/03 dated December 12, 2003 read with SEBI Circular no. SEBI/IMD/Circ. No. 1/42529/05 dated June 14, 2005 and subsequent relevant circulars issued on minimum number of investors and maximum permissible holding by single investors on the conversion date /within three month from the date of conversion or the end of the succeeding calendar quarter from the date of conversion, whichever is earlier.
d) Load structure – There will no entry load when the investors shift from the existing scheme to the converted scheme. However, after the conversion of the Scheme, the exit load as applicable on the date of conversion, will be charged, if the units are redeemed/switched out with in the applicable lock in period set out in the table below. The start date will be calculated w.e.f. 2nd February, 2009.
The normal load structure of equity schemes is as under and will also be applicable to the converted scheme.
In case of investments <> Entry Load: 2.25%. Exit Load: 1% if redeemed within 1 year of allotment / transfer/conversion of units.
In case of investments > = Rs. 3 crores:: Entry Load: Nil. Exit Load: 0.5% if redeemed within 3 months of allotment/transfer/conversion of units
In case of investments made through Systematic Investment Plan:: Entry Load: 2.25%. Exit Load: 1% if redeemed within 1 year of allotment / transfer/conversion of units
In case of Systematic Transfer Plan:: Entry Load: Nil. Exit Load: 2.25% if redeemed within 2 years of allotment/ transfer of units of respective installments.

Fitch assigns new credit rating to LIC Liquid Fund

Fitch Ratings has downgraded LIC Liquid Fund's bond fund credit rating to 'AA(ind)' from 'AA+(ind)'. The downgrade of LIC Liquid Fund's rating reflects the deterioration in the credit quality of the fund's portfolio. The fund is relatively diversified across industry sectors but exhibits some concentration in 'F1' rated securities (or equivalent). Fitch also took into account investment practices and management controls relating to credit quality in the asset management company when assessing the rating.
As of 30 November 2008, 33% of the portfolio was invested in assets rated 'F1+(ind)'/'AAA(ind)' or equivalent, while the minimum credit rating of securities held was 'A+', or equivalent. Fitch also notes that the portfolio management team intends to at least maintain the fund's credit quality.

HDFC Top 200 Fund (G) buys Hindustan Unilever

HDFC Top 200 Fund (G) in November 2008 took fresh exposure to only one stock. In November 2008, the scheme has purchased 20.00 lakh units (2.56%) of Hindustan Unilever while on the other hand the scheme completely exited from GAIL (India) by selling 7.50 lakh units (0.84%) along with this from Ranbaxy Laboratories by selling 4.42 lakh units (0.39%) and Suzlon Energy by selling 10.99 lakh units (0.26%) among others in November 2008.
The scheme sector-wise, took no fresh exposure to any sector in November 2008. Besides this, during the period the scheme did not exit completely from any sector. The scheme in November 2008 had highest exposure to Infosys Technologies with 8.95 lakh units (6.04% of Portfolio Size) followed by Reliance Industries with 8.39 lakh units (5.16%), ICICI Bank with 25.02 lakh units (4.77%) and State Bank of India with 7.83 lakh units (4.62%) among others.
However, it has reduced its exposure to Satyam Computer Services by selling 11.00 lakh units to 12.15 lakh units (by 2.10%), L&T by selling to 2.39 lakh units to 3.50 lakh units (by 1.11%), HDFC to 4.18 lakh units (0.53%) and Siemens by selling 2.94 lakh units to 7.15 lakh units (by 0.53%) among others in November 2008.
Sector-wise, the scheme had highest exposure to Computers - Software - at 11.34% (13.45% in October 2008) along with Refineries at 10.78% (8.52%), Banks - Private Sector at 10.04% (11.05%) and Banks - Public Sector at 8.54% (7.80%) among others in November 2008.
Where as sector wise, the scheme had reduced exposure to Computers - Software - Large at 11.34% (by 2.11%), Engineering-Turnkey Services to 1.38% (1.11%), Banks - Private Sector at 10.04% (by 1.01%) and Electric Equipment to 3.92% (0.74%) among others in November 2008.

ICICI MF introduces Quarterly SIP

ICICI Mutual fund has introduced Quarterly Systematic Investment Plan facility in additions to the Monthly SIP facility and this will be applicable from January 1, 2009. The Quarterly SIP will be having Rs 5000 as minimum amount of installments and will be minimum 4 quarterly installments.
However, all the terms and conditions (including load structure) of Monthly SIP will be applicable to Quartely SIP.

Peerless to set up asset management company

Peerless General Finance & Investment Company Limited (PGFI) has got preliminary in-principle approval from the Securities Exchange Board of India (Sebi) to set up an asset management company. It is the first financial services company in eastern India to have received Sebi's preliminary in-principle approval to enter the mutual fund business.

However, the company is waiting for a final approval from the regulator for foraying into the business.
Jayanta Roy, director, corporate planning and strategy, PGFI, said, "Based on an internal study, conducted by the three global firms, we understand that India will come out of the financial crisis by the last quarter of 2009. If we get Sebi's final approval by three-six months, the timing will be absolutely right for starting the business."
The company has appointed Akshay Gupta as the chief executive officer for the proposed company.
Gupta is a former senior executive from ICICI-Prudential Mutual Fund.
S K Roy, managing director, PGFI, said, “We are delighted to get the preliminary Sebi nod for setting up a mutual fund business, which will allow us to leverage our expertise in managing depositors’ money and offering investors a wide array of financial solutions to fulfill their diverse financial needs. This venture is consistent with our plan to emerge as the country’s leading financial supermarket for retail distribution of various financial products under one umbrella – Peerless Smart Money (PSM)”.
PGFI, a 75 year-old company, has a customer base of 40 million people, with assets secured approved investments and a high capital adequacy ratio.
It employs over 100,000 self employed financial advisors.
It has done maturity payment of over Rs 14,500 crore.
The company has a a network of offices in 148 towns and cities in 24 states and union territories, with total IT connectivity enables the company to achieve its vision of providing the common man with personal finance options and employment opportunities across India.

Source: http://www.business-standard.com/india/news/peerless-to-setasset-management-company/00/46/344067/

AMCs put 60% assets in just 10 stocks

Asset management companies (AMCs), which invest the pooled funds of retail investors in securities, are said to provide more diversification, liquidity, and professional management than individual investors can themselves manage. But a look at the stocks held by 28 asset management companies show that one-third of their assets is invested in only 10 stocks. Their favourite 10 being: RIL, SBI, Bharti, ONGC, ICICI Bank, Infosys, Bhel, L&T, HDFC Bank and HDFC.
AMCs of fund-houses such as Morgan Stanley Investment Management, Benchmark Asset Management, Deutsche Asset Management and LIC Mutual Fund Asset Management have invested funds to the tune of Rs 200 crore to Rs 1,100 crore in these 10 stocks.
This means that this type of top-heavy form of AMCs' equity portfolio could be affected by a swing in just a few stocks.
As per latest data, AMCs held maximum assets in form of shares in RIL (Rs 4,592 crore), followed by SBI (Rs 3,855 crore), Bharti (Rs 3,508 crore), ONGC (Rs 2,995 crore) and ICICI Bank (Rs 2,954 crore). While these pivotal stocks are a part of sensex, these stocks account for 7% to as high as 61% of AMC assets invested in stocks.
"A high concentration could mean a compromise. Though 30% is a good mark which shows diversification, anything above 50% can signal weakness," said Dhirendra Kumar of Value Research, a fund-tracking firm. He added that a portfolio concentration skewed towards large-caps is far better than one skewed towards mid-caps and small-caps.
Going by that 30% cut-off, AMCs of fund-houses such as Birla Sun Life, ICICI Prudential, Quantum MF, Canara Robeco, Tata MF, IDFC MF, Principal MF, ING MF and Sundaram BNP MF, among others will fall under the category. Still, its interesting to note most fund managers of AMCs agree that there are around 10 or 12 good investment opportunities available.
"These favourite 10 stocks are a play on the great Indian story that is set to play out in the next few years. Reliance's Jamnagar refinery, State bank of India solidarity, Bharti's retail as well as telecom growth or Infosys' IT prowess are all part of the economic superhouse story. However, with all of them making 70% to 80% of sensex, the downside always exists.

Source:http://timesofindia.indiatimes.com/India_Business/AMCs_put_60_assets_in_just_10_stocks/articleshow/3876221.cms

ING MF CEO resigns

Vineet Vohra, chief executive officer, ING Mutual Fund has resigned from his position for a new assignment in ING, reports Business Standard.
Vineet had joined ING Investment Management India in July 2007 and was CEO of both Optimix and ING Investment Management India.
He had an experience of over 20 years which included a 19 year experience with Citibank both in India and Singapore.
Vineet holds an MBA from Indian Institute of Management- Calcutta and a Chartered Financial Analyst (CFA) degree from CFA institute, USA.
Another key member of ING Investment Management, Paras Adenwala, it`s chief investment officer - equities, had also stepped down last week.

Source:http://www.myiris.com/newsCentre/newsPopup.php?fileR=20081222143106196&dir=2008/12/22&secID=livenews

Benefits of investing in debt funds

The decline in the Indian and global equities market has finally brought us to the conclusion: what had began as a global liquidity glut four years ago has eventually ended as a liquidity crisis in 2008!
In the current recessionary scenario, opportunities for investments are limited and fraught with risk.
In such a backdrop, an investor’s choices with regard to alternative investment avenues are restricted and involve considerable uncertainty. It is no surprise that a majority of the investors choose to switch into a much-safer investment class — debt oriented funds.
A debt fund is a diversified portfolio of assorted debt and money market instruments managed by professional managers of a mutual fund.
A stake in this is available to the general investor at an equally apportioned price of the ‘total portfolio value per unit’ .
This is also known as NAV(net asset value). So for all practical purposes, a debt fund is a simple proxy to investment into debt as an asset class.
Debt funds can be categorised into various sections based on the specificity of securities they invest in, timehorizon and the objective. These would be namely: income / bonds funds, liquid/ money market funds and gilt funds. The maturity of securities, which these debt schemes invest in, may vary according to the scheme objective and investment strategy.
But their investment universe largely ranges from treasury bills, commercial paper, corporate deposit and repos for the short-horizon funds to corporate bonds, gilts, debentures and fixed deposits for long-term debt funds. In this categorisation, the only break is gilt funds that invest in sovereign papers of central and state governments.
Another addition to the debt fund category is fixed maturity plans (FMPs), which are nothing but close-ended debt funds and invest according to the scheme maturity and investment pattern as provided by the scheme mandate. The key advantage of debt funds is the near assurance (not always) of the flow of periodic income to the investor by way of interest/ coupon payment (or on deepdiscount ) on a largely pre-fixed rate of return.This ‘pledge’ of ‘return’ ensures that the pricing of the future cash flow is largely accounted into.
This ensures a significantly reduced volatility (risk) in prices of the underlying debt assets (and thus the NAV) of the fund.
In the case of liquid funds, the risk associated with NAV volatility tends to be almost negligible.
To compare and contrast: the volatility in annualised returns (risk) of Crisil Liquid Fund Index was 0.60% as on November 30.
During the same period, the volatility in annualised returns (risk) of Nifty Junior, Nifty and Sensex was at 38.06%, 32.99% and 31.98%, respectively . The difference is stark!
In all fairness, debt-based investments face credit risk and interest rate risk.
But even here, in case of gilt based funds, the credit risk is absent, making it a near risk-free investment (however, interest rate risk remains prominent here).high quality debt-papers backed by an asset guarantee to ensure capital safety.
In sum, the cornerstone of debt funds is the nearly ascertained yield on investment with a satisfying protection to capital.
The comparably low risk attached with the debt fund investments may in-turn , invite a hypothesis that: “the commensurate return on debt funds too may be low, given the low risk” .
This is not entirely untrue! But debt funds do exhibit high return potential in a given set of circumstances.
Especially during a declining phase of the interest rate cycle, when the rally in the secondary gilt and bond market provides the majority of debt funds the opportunity to profit from high prices of the securities.
The debt funds thus find themselves in an advantageous position to benefit from the bond rally, and are potentially inclined to provide double digit returns.Debt mutual funds also gain significant tax arbitrage advantage against a very popular investment tool in Indian financial landscape — fixed deposits (FDs).
The returns on FDs are fully taxable to the extent of 33.99%. In comparison, income from debt funds is taxed according to the scheme’s characteristics.
The dividend income from liquid funds invites the tax incidence of 28.325%, whereas dividend income from all other debt funds are taxable at 14.1625%.
In case of growth schemes, where income accrues as short term capital gains, the tax incidence would be as per the tax slab.
Whereas in case of long-term capital gains from debt mutual funds, the incidence of taxation would be 10% flat or at 20% with application of indexation.
Thus, invariably in all cases, the investor stands to make a higher net return on investment vis-a-vis FDs due to tax arbitrage.
Given the scope, dimension and dynamism of investor needs, the investment in debt funds must be planned after realistic appreciation of the risk-reward trade-off and the investment horizon incumbent to such debt asset.
Yet, even in case of equity-oriented investor , the presence of a debt fund in their portfolio accords a stable grounding to the overall portfolio, and tends to restrict the downside of the investments during the market downturn.
I would thus like to reiterate that investors have been presented with a unique opportunity by the present Indian debt market, wherein the declining interest rate cycle has triggered a major rally in gilts.
However, the credit spread between gilt and commensurate corporate bond paper continues to linger in excess of 300 bps, and hints of a likely rally in the bond market as well.
This may prove to be a significant investment opportunity for an investor with a 6 month to 1-year timeline.
Sandesh Kirkire, CEO, Kotak Mahindra Mutual Fund

Source: http://economictimes.indiatimes.com/quickiearticleshow/msid-3868912.cms

Glide safe in a volatile market

In these uncertain and volatile market conditions, investors are flocking to invest in debt securities to ensure not only stable and certain returns but more importantly capital protection.
The Global Meltdown
Across the globe, financial and economic markets have taken a severe beating and there are expectations of recession in developed countries. In this backdrop, the Indian markets have also been affected but not as badly as the others.
Better Safe than Sorry
Investors have seen their wealth, especially in shares, erode faster than they would have imagined or liked. Thus, investors are now increasingly flocking to invest in debt securities. So what are their options and the pros and cons of each investment avenue. Let’s take a look at some of the attractive ones:
Government Securities : The bond yield on short term (1-year) government securities (g-secs) is currently approximately 8% to 9% p.a. Due to the inverse relationship between bond prices (carrying fixed interest rates) and interest rates, the current trend of rising interest rates have brought down the prices of bonds and gains thereon. On account of this, the returns on medium-long-term debt funds, including MIP, have been very low over the last year.
Thus, it is advisable for investors to maintain/invest in lower portfolio durations i.e. short-term products (directly in g-secs or through mutual funds in debt mutual funds discussed hereunder) to minimise the impact of rate increases. From a tax standpoint, interest/ short-term capital gains and long-term capital gains from g-secs is taxed at the regular and lower rate of income tax, respectively.
Bank Fixed Deposits: Banks are now offering higher rate of interest say 10.50% on a FD of a year. From a tax standpoint, interest on FD is also taxed at the regular rate of income-tax ranging from 10.30% to 33.99% and subject to tax deduction at source (TDS) provisions.
Debt Mutual Fund : Debt funds are tax-efficient for investment since dividend on debt funds is tax-free (however the debt fund would be liable to pay tax on distributed income [DDT] ranging from 14.1625% to 28.325% depending upon the type of holder and type of debt fund) and long-term capital gain (holding period of more than 12 months) is taxable at the rate of 10.30% (without indexation) or 20.60% (with indexation).
For an investor falling in the highest tax bracket of 33.99% planning to park funds in debt funds, for short-term investment (holding period not exceeding 1 year) dividend option and for long-term investment (holding period exceeding 1 year) growth option would be more tax-efficient.
Zero Coupon Bonds : National Bank for Agriculture and Rural Development (Nabard) is issuing ZCB as Bhavishya Nirman Bonds which a 10-year product having issue price of Rs 8,500, face (maturity) value of Rs 20,000 to be listed on the Stock Exchange implying a compounded annualised pre-tax yield of 8.9444%.
The table shows that the post-yield is different for each investment and one needs to decide as to invest in which debt instrument considering the pros and cons thereof and which tax bracket one falls in.

Source:http://economictimes.indiatimes.com/Features/The_Sunday_ET/Money__You/Glide_safe_in_a_volatile_market/articleshow/3868130.cms

Mr Deepak Arackal appointed as fund manager for ING Global Real Estate and ING Latin America Equity

Mr Paras Adenwala Vice President and Director-Research and Investment, has resigned from ING Investment Management. He has been replaced by Mr Deepak Arackal, who has been appointed as fund manager for ING Global Real Estate and ING Latin America Equity.
SBI Mutual Fund (a joint venture between State Bank of India and Societe Generale Asset Management) has appointed Mr Navneet Munot as Chief Investment Officer (CIO) with effect from December 12.
Bharti AXA Mutual Fund has launched Bharti AXA Tax Advantage Fund an open ended equity linked saving scheme. The face value is Rs 10 per unit. The fund offers two plan eco and regular with growth and dividend options. The fund will charge an entry load of 2.25 per cent. The fund will be managed by Mr Prateek Agarwal.
ICICI Prudential Mutual Fund has changed some fundamental attributes of its scheme, ICICI Prudential Technology Fund. The benchmark of the scheme will be changed to BSE IT from BSE Index and will now be categorised as a sectoral fund.
Investors who do not agree to the above change have the option of exiting the scheme till January 10 at applicable NAV. No load will be charged on such exit.

DBS Chola MF launches Tax Advantage Fund- Series 1

DBS Chola Mutual Fund on Friday launched DBS Chola Tax Advantage Fund – Series 1. The fund is a 10 - year close ended equity linked saving scheme, subject to a lock in for a period of three years from date of allotment. The fund which opened December 19, will close on March 19. The objective of the scheme is to seek to generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities and also enabling investors to get income tax rebate as per the prevailing Tax Laws and subject to applicable conditions. The fund, benchmarked against BSE 200 Index would invest between 80- 100% in Indian equities and equity related securities and 0% to 20% in money market instruments / debt securities instruments. Sanjay Sinha, chief executive officer, DBS Cholamandalam Asset Management said, "this fund will follow 'value investing strategy'. Current market conditions favour this strategy as it limits the downside potential of these stocks. In addition to the tax benefit, a 3 year lock-in allows investors to realise a better potential for their investment." The minimum amount for application during the new fund offering period will be Rs. 500 and in multiples of Rs. 500 thereafter. There is an entry load of 2.25% for investment less than Rs. 2 crore. No entry load will be charged for investment beyond Rs 2 crore.
Source:http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/DBS_Chola_MF_launches_Tax_Advantage_Fund-_Series_1/articleshow/3863299.cms

Debt funds provide highest returns in November: CRISIL

CRISIL FundMonitor, CRISIL’s monthly review of the mutual fund industry points out that debt funds provided investors the highest returns in November 2008. Within the debt fund category, the monthly returns of gilt funds were the highest (3.07 per cent), followed by long-term bond funds, short term bond funds and liquid funds in that order. Returns from equity funds were negative, as the downtrend in equity markets continued.

Summarising the trends in the industry, Krishnan Sitaraman, Head, CRISIL FundServices explained : “After two consecutive months of sharp declines, the month end industry AUM finally showed an increase to Rs. 4.05 trillion from Rs.3.95 trillion, due to significant inflows in the second fortnight of the month as liquidity in the economy improved and investors once again turned to mutual funds. Most of the accretions flowed to open-ended income funds and liquid funds.”

In November 2008, open ended income funds and liquid funds were the key beneficiaries with the former seeing net inflows of almost Rs.190 billion while close ended income schemes (largely Fixed Maturity Plans or FMPs) saw net outflows of a similar magnitude. AUMs of liquid funds increased by Rs.175 billion, a growth of nearly 25 per cent over the October-end AUM. The decline in equity AUM of around Rs.70 billion was largely on account of mark-to-market losses. The share of debt funds AUMs in the Indian mutual fund universe thus continued to rise in 2008 from 61 per cent in January 2008 to 71 per cent in November 2008.

Of the 35 mutual fund houses analysed as part of the CRISIL FundMonitor, only two saw a growth in average AUM in November 2008 - Tata Mutual Fund registered a little over 3 per cent growth in its average AUM followed by UTI Mutual Fund which saw a very marginal increase in its average AUM to Rs.384 billion in November from Rs.383 billion in October. Reliance Mutual Fund, ICICI Prudential Mutual Fund and HDFC Mutual Fund saw a decline in the range of 3-6 per cent while smaller fund houses like Taurus Mutual Fund (34 per cent), Edelweiss Mutual Fund (28 per cent) and Mirae Asset Mutual Fund (69 per cent) registered much sharper declines. Reliance Mutual Fund continued to be largest fund house with an average asset base of Rs.678 billion in November 2008, though down by nearly 5 per cent from the previous month.

On an overall basis, the environment of lower interest rates, lower inflation and the beginning of a slight easing in liquidity conditions, facilitated the improved performance of debt funds. Given falling interest rates, funds which had taken a higher duration call out-performed. This is because of the direct relationship between debt fund returns and duration in a declining interest rate scenario, i.e. when interest rates decline, funds which are invested in longer duration securities out-perform as such securities appreciate more in an environment of declining interest rates.

Differential load on MFs may be history

The Securities and Exchange Board of India (Sebi) is set to discontinue the differential
loads on high-value investments to provide a level playing field to mutual fund investors. This move will benefit the retail investors, who often end up subsidising their institutional counterparts.
A Sebi committee found it undesirable to have differential loads between corporates/high networth individuals (HNIs) and retail investors under the aegis of the same scheme. Retail investors subsidise large corporate investors as the latter are exempted from paying an entry load in return for putting huge money into the scheme.
There cannot be zero expenses for managing large investor funds, the Sebi committee concluded. The regulator is also looking at restricting the tenure of debt instruments held by liquid funds. In order to meet sudden redemption pressures, liquid funds may be disallowed from holding securities with a maturity exceeding 90 days.
Fixed maturity plans (FMPs) and liquid schemes were affected the most by a tsunami of redemption requests in October. A large chunk of portfolio was invested in papers with maturity ranging from six months to a year. The liquid schemes initially used their cash reserves to meet the redemption pressures. However, when cash reserves proved insufficient, mutual funds resorted to fire-sale of assets (largely money market instruments).
This, in turn, resulted in huge losses to the remaining investors. Sebi is mulling a ban on the tendency of fixed maturity plans to promise indicative returns/yields. Fund houses currently differentiate themselves by assuring indicative returns. This leads to mis-selling of these products as definite returns based instruments.
The market regulator may impose a sectoral cap of 20-25 % on the portfolio investments of mutual funds to enable risk-diversification. A recent analysis revealed that fund houses restrict investments to the banking, finance, telecom and construction sectors.
In a move that will bring cheer to the retail investors, the regulator may soon approve variable entry load. The application form will have an option for distributor commission to be paid by the investor. The draft standard form will be submitted by Amfi to Sebi shortly.

Source: http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/MF_News/Differential_load_on_MFs_may_be_history/articleshow/3849162.cms

Funds pump cash into CDs

Mutual funds On Tuesday stepped up investments in one-year certificates of deposit (CDs) as they received inflows in their fixed maturity plans (FMPs) and on expectations that short-term rates may fall further, dealers said.

Mutual funds had avoided purchasing short-term papers since last week due to outflows on corporate advance tax payments.
On Tuesday, banks placed around Rs 2,300 crore through CDs, while none was placed on Monday.
Mutual funds expect short-term rates to fall as the Reserve Bank of India (RBI) may cut interest rates by January.
The rates on CDs and commercial papers (CPs) have fallen by 100 basis points in the past two weeks after RBI cut the reverse repo rate and repo rate by 100 bps each.
Three-month CPs were quoted at 13-14 per cent On Tuesday, unchanged from Monday, while three-month CDs were quoted at 7.40-7.60 per cent compared with 7.20-7.30 per cent.
On Monday, Adlabs had placed Rs 10 crore of three-month commercial papers at 14 per cent.
CDs maturing in December were dealt at 5.75-6.00 per cent, unchanged from Monday. CDs maturing in March were quoted at 7.75-7.95 per cent.
Corporate bonds riseMutual funds continued purchasing corporate bond papers On Tuesday due to inflows in their income funds, dealers said.
Insurance companies and a few banks were also seen buying papers on expectation that rates would ease further, while primary dealers were selling papers to book profits.
Power Finance Corporation’s 10-year bonds were traded at 9.15-9.20 per cent On Tuesday compared with 9.05-9.15 per cent on Monday.
Mutual funds have been investing heavily in corporate bonds in the secondary market for more than two weeks as they have been receiving inflows in their income fund schemes, dealers said.
Corporate bond yields fell by 5 basis points On Tuesday tracking government securities. The benchmark 8.24 per cent, 2018 government paper ended at 5.9854 per cent compared with 6.1672 per cent on Monday.

Source: http://www.business-standard.com/india/storypage.php?autono=343471

Global giants eye 26% in UTI Asset Management Company

UTI Asset Management Company (AMC), the oldest fund house inthe country, is in advanced talks with top global players for offeringa 26% Global Mktsstrategic stake.
The AMC is understood to have shortlisted four international players.Among the names under consideration are the US firm T Rowe Price,Shinsei Bank of Japan and two European firms, according to a personfamiliar with the negotiations.
According to plans approved by the finance ministry, the four sponsorsof UTI AMC — State Bank of India, Life Insurance Corporation of India,Bank of Baroda and Punjab National Bank, will offload part of theirholdings to the strategic partner. The four state-owned entitiescurrently hold 25% each in the asset management company. UTI AMC’sCMD, UK Sinha, was not available for comment.
The plan to induct a strategic partner was announced a few months agoby the then finance minister P Chidambaram , while addressing the AMCboard at its Mumbai headquarters.

LIC MF gets mega bailout from parent

Insurance firm picks up illiquid realty bonds worth Rs1,755 crore from mutual fund arm amid a credit crunch

State-owned Life Insurance Corp. of India Ltd (LIC) may have bought illiquid debt paper, largely of real estate firms, worth at least Rs1,755 crore from its unit LIC Mutual Fund Asset Management Ltd (LIC MF) in October, according to people familiar with the matter.The off-market deal was effected to provide liquidity to LIC MF to meet redemption pressure without resorting to distress sale of assets, an option not readily available to other mutual funds.LIC, India’s largest insurer, had assets under management of Rs5.59 trillion at the end of fiscal 2007, the latest period for which figures were available from the Insurance Regulatory and Development Authority, more than the sum of assets managed by the entire mutual fund industry in India.The acquired debt included bonds worth Rs650 crore sold by BPTP Ltd, Rs543 crore by Housing Development and Infrastructure Ltd, Rs195 crore by Unitech Ltd and Rs117 crore by Sobha Developers Ltd, among others, said at least three people with knowledge of the matter who didn’t want to be named.At the end of September, LIC MF held bonds of realty firms worth about Rs2,180 crore in its so-called liquid and liquid-plus funds, which are popular debt schemes among corporate investors and bank treasuries for parking surplus funds.By October-end, when a liquidity crunch had taken a firm hold on the markets, the liquid and liquid-plus funds only had about Rs425 crore of real estate paper, suggesting that LIC MF had disposed of assets worth Rs1,755 crore in an illiquid market. A transaction between LIC and LIC MF would have been off the market and not reflected on the corporate bond market.Neither Thomas Mathew, managing director of LIC, nor Sushobhan Sarker, chief executive of LIC MF, responded to emails and phone calls.Large-scale early withdrawals since mid-September, after the collapse of investment bank Lehman Brothers Holdings Inc., plunged the global financial system into an unprecedented liquidity crisis which also hit Indian fund houses hard. Mutual fund investors redeemed at least Rs96,000 crore from debt schemes in September and October.The turnover in the corporate bond market dipped to Rs7,803 crore in October compared to an average of at least Rs11,000 crore in the first nine months of 2008, according to data on the website of the capital market regulator Securities and Exchange Board of India.“Lack of liquidity and risk aversion killed the (corporate bond) market then,” said J. Moses Harding, vice-president, wholesale banking, IndusInd Bank Ltd. “It has not improved since.”A flight to safety among investors further sucked liquidity out of the system. Despite the central bank extending a Rs60,000 crore credit line for banks to lend to mutual funds, debt managers working in an illiquid corporate bond market had a tough time selling bonds to meet redemption demands.LIC is not the only firm to bail out its mutual fund unit. Housing Development Finance Corp. Ltd, India’s largest home loan company, and its partner Standard Life Plc. have taken a similar route. Standard Life holds a 40% stake in HDFC Asset Management Co. Ltd.“The fund has certain property assets owned by Indian property companies and those assets have now turned out to be not as good quality as we thought they would be,” said Gerry Grimstone, chairman of Standard Life, in a recent interview with Mint.“The promoters have found a way of removing those assets from the fund to the benefit of the investors in the fund,” Grimstone said, explaining that the firm has “substituted some of the assets of the fund which have a longer duration with high-quality short-term assets to make sure that the fund’s liquidity is preserved”.

Source: http://www.livemint.com/2008/12/14234611/LIC-MF-gets-mega-bailout-from.html

FMPs lose vogue as investors shy away

Fixed Maturity Plans (FMPs) are in the news again with the regulator looking at further tightening norms, but investors may be losing interest.

FMPs remain on top of the mind for Securities Exchange Board of India (SEBI). The market regulator's Mutual Fund Advisory committee met on Friday to debate the further tightening of asset-liability norms, but amongst investors, interest in the product is waning. 

AP Kurien, Chairman, Association of Mutual Funds of India, said, “The New guidelines will bring discipline among fund managers to structure their products almost perfectly." 

SEBI is leaving no stone unturned to ensure that the recent run on FMPs remains a distant memory.

On Friday, keeping the FMPs on the top of its agenda, the SEBI meet discussed about a compulsory alignment of portfolio with scheme tenure, making trustees more accountable and segregating funds of corporate and retail investors. 

Even with this, interest in FMPs is coming down. The more popular are income funds, as markets expect a further softening on interest rates and FMPs don't offer the upside. 

Parijat Agrawal, Head of Fixed Income of SBI MF, said, "In a falling interest rate scene, the FMP rates are not attractive. Today the 90-day rate is at 7-7.25 per cent, which is not attractive. So there will be a slight slowdown in FMPs and people will move to open ended income funds." 

Clearly, the market regulator is doing what it should, but a large section of investors believe that the FMP boom may be on its last leg.

Hence, the only lifeline now is the tax advantage and who knows when that might go.

Source: http://profit.ndtv.com/2008/12/13002932/FMPs-lose-vogue-as-investors-s.html

Fiscal Deficit

What is fiscal deficit?
Fiscal deficit is essentially the difference between what the government spends and what it earns. It is expressed as a percentage of GDP.
When the net amount received (revenues less expenditures) falls short of the projected net amount to be received. This occurs when the actual amount of revenue received and/or the actual amount of expenditures do not correspond with predicted revenue and expenditure figures. This is the opposite of a revenue surplus, which occurs when the actual amount exceeds the projected amount.
For example, consider an organization with budgeted revenue of $325,000 and budgeted expenditures of $200,000, which equates to a net amount of $125,000. During the fiscal year, the organization's total revenue is actually $300,000, while its total expenditure is $195,000. The net amount received by the organization is $105,000, which is $20,000 less than the projected receipt of $125,000. Therefore, although the organization generated a positive net amount of proceeds, it fell short of the projected amount, creating a revenue deficit.
India's fiscal deficit was brought down to 3.17% (Rs 1, 43,653 crores) of the gross domestic product in 2007-08 from 3.8% in 2006-07. The government has promised to cut the deficit further to 2.5% of GDP (Rs 1,33,287 crores) by the end of 2008-09, but looking at the way things are going, economists say, it is unlikely the government will meet its target
India's fiscal deficit continues to be among the highest in the world and underlying pressures are not entirely showing up in headline fiscal numbers, Reserve Bank of India Governor Y. V. Reddy said on Monday.
Earlier in the Budget document, the government's revenue expectations are realistic, but expenditure appears to be underestimated. This may be because expenditure to the tune of 2.0-2.5 per cent of GDP remains off budget. There is no provision in the budget for the loan waiver of $16.8 billion to the farmers (earlier Rs.60,000 crores and now it is increased to Rs.71,680 crores) and huge amount of $6.36 billion arrears to the Central Government employees (Rs.27145 crores for the Central sixth pay commission recommendations), which is expected to 1.85 per cent of the official GDP for 2008-09. The loan waiver scheme will benefit 3.69 crore small and marginal farmers and 59.75 lakh other farmers. This is the vote bank for the next 2009 general elections to the Congress Party.
The budget document also says that the Plan expenditure is going to rise by around Rs 38,000 crores or around 19 per cent. Non-plan expenditure will rise by a much smaller amount, by Rs 64,806 crore or 17 per cent. The actual figure may be much higher.
The fiscal deficit for 2008-09 is forecast at 2.5 per cent of GDP, lower than the deficit for 2007-08 of 3.1 per cent of GDP for 2007-08, and also lower than the 3 per cent of GDP mandated by the Fiscal Responsibility and Budget Management (FRBM) Act. It is highly unlikely that the government will achieve its forecast.
While net borrowings for 2008-09 have been budgeted at Rs 1 trillion and the gross borrowing estimate is at Rs 1.45 trillion. Critically, it does not include oil bond redemptions of Rs 13000 crores. It remains to be seen how the government finances maturing oil bonds. Therefore there appears to be a considerable upside risk to market borrowings for 2008-09. Though aimed populist in nature, many of the announcements made could fuel inflation and put pressure on the fiscal deficit in 2008-09.
Economists point out that all oil bonds and a part of fertilizer bonds are not accounted for in the Budget. This means that the government does not have to include these expenses while calculating the surplus or deficit for the year.
SO IF WE INCLUDE THIS WHAT CAN BE THE FISCAL DEFICIT……..
Tax collections were at a record Rs 5, 88,000 crores in 2007-08 helped by robust economic growth and corporate profitability. However, with growth likely to slow down in 2008-09, it remains to be seen whether the same buoyancy will be maintained.
Also, not every expert believes fiscal deficit is worrisome. Dr Ashima Goyal, professor at Indira Gandhi Institute of Development Research, believes a high fiscal deficit is an indication that the government is spending more on "productive expenditures."
India aims to bring down its fiscal deficit to 2.5 percent of GDP for the 2008-09 financial year, compared to 3.1 percent in 2007-08, but financial analysts fear a $17 billion scheme to write off the debts of millions of small farmers and tax cuts could trip up efforts. According to the Fiscal Responsibility and the Budget Management Act operationalised in 2004-05, the government must reduce its fiscal deficit to 3 pct of GDP and wipe out its revenue deficit by 2008-09.
But it has already missed its revenue deficit target and expects it to be 1 percent of GDP in the year to end March 2009. Reddy said the fiscal deficit as a percentage of gross domestic product continues to be among the highest in the world.
Market borrowings finance more than half of the gross fiscal deficit and the rest of the gap is filled by small savings, provident funds, reserve funds and deposits and advances.
The gross fiscal deficit covering both state and central government is estimated at 5.5 percent in 2007-08, according to official estimates, down from 9.5 percent in 2002-03.

ING MF files papers for US Opportunistic Equity Fund

ING Mutual Fund (MF) has filed papers with Securities and Exchange Board of India (SEBI) for ING US Opportunistic Equity Fund, an open-ended fund of fund scheme. The units of the scheme will be available at Rs 10 per unit.
Objective
ING US Opportunistic Equity Fund`s primary investment objective is to seek capital appreciation by investing predominantly in ING (L) Invest US Opportunistic Equity Fund. The scheme may, at the discretion of the investment manager, also invest in the units of other similar overseas mutual fund schemes, which may constitute a significant part of its corpus. The scheme may also invest a certain portion of its corpus in money market securities, in order to meet liquidity requirements from time to time.
What is Inside?
The minimum application amount is Rs 900 and Rs 1 thereafter.
The scheme offers growth option and dividend option. The dividend option shall have payout and reinvestment facility.
The scheme will offer for redemption of units at daily intervals at NAV based prices.
The scheme will charge an entry load of 2.5% and exit load of 2% if redeemed within and including 365 days from date of investment and 1% if redeemed after 365 days but before 2 years.
Asset Allocation
The scheme aims at investing 65% to 100% in ING (L) Invest US Opportunistic Equity Fund, 0% to 20% in money market instruments including reverse repo and 0% to 35% in other overseas mutual fund schemes.
Investment Strategy
The ING US Opportunistic Equity Fund in India will act as a feeder fund into the Luxembourg based ING (L) Invest US Opportunistic Equity Fund.
The investment strategy of the Luxembourg based fund is to identify and invest primarily in a diversified portfolio of big capitalisations issued by companies established, listed or traded or which have a major portion of their business activity in the United States of America. The fund`s approach encompasses bottom-up investment process supported by top-down macroeconomic analysis and quantitative screening. The investment process will aim to add value by also following theme based approach which shall enable to capture all relevant long term growth drivers. Up to 50% of the portfolio`s foreign currency exposures may be hedged back into the USD as and when permitted by RBI and SEBI from time to time.
Performance and Management
The performance of the scheme will be measured against S&P 500 Index and the fund manager is Jasmina Parekh.

ING India fund unit investment director quits

ING Group's Indian mutual fund unit director for research and investment Paras Adenwala has left the Dutch money manager after more than three years of service.
"Yesterday was my last day," Adenwala told Reuters on Friday, adding he was yet to take a decision on his next job.
"I am weighing options. First I am taking some kind of sabbatical and may be after sometime we will decide where to join," he said.
Adenwala, who has nearly two decades of experience in the financial services sector, joined the firm in mid-2005 as chief investment officer for equity funds.
Previously, he worked with a fund venture of India's Aditya Birla Group and Canadian insurer Sun Life Financial.

Source: http://in.reuters.com/article/businessNews/idINIndia-36995620081212

ICICI Prud Technology Fund change In Fundamental Attributes

ICICI Prudential Mutual Fund has approved the changes in fundamental attributes of the ICICI Prudential Technology Fund and the scheme shall be considered as sectoral fund with effect from 12 January 2009.Change in Type of Scheme,According to the addendum, the benchmark index will be changed to BSE IT from existing BSE Tech Index, and will classify the scheme as sectoral fund Change in Investment Strategy.
The primary investment objective of the funds is to look to generate long term capital appreciation by clearing a portfolio that is invested in equity and equity related securities of technology and technology dependent companies.

A large share of the asset under management would be invested in the stocks under the Benchmark Index, BSE IT. However, the scheme may also invest in companies outside the companies listed in BSE IT but which form part of information technology services industry.

Quantum Tax Savings Fund NFO

Quantum Mutual Fund has launched its first open-end equity-linked savings scheme – Quantum Tax Savings Fund.
Investment Strategy:

The fund will maintain a diversified portfolio of stocks picked up from the BSE 200 index on the basis of attractive valuations. The fund can fully allocate its assets in equity and up to 20 per cent in debt and money market instruments.
Fund Manager:

Atul Kumar is the fund manager of the scheme. He has eight years of experience in the equity market. Currently, he is the Fund Manager –Equity at Quantum AMC and manages Quantum Long Term Equity Fund. The fund has generated a negative return of 51.61 per cent as against its benchmark BSE TRI Sensex which fell by 54.5 per cent (Jan 2008-Nov 2008).

Basic Details:

NFO Opens: December 10, 2008

NFO Closes: December 13, 2008

Benchmark: BSE 30

Plans: Growth & Dividend

Options: Dividend Payout & Dividend Re-investment

Load Structure: Entry Load - Nil, Exit Load – Nil

Minimum Application Amount: Rs500

Lock In Period: 3 years

Fund Manager: Mr. Atul Kumar

King of Good Times

Due to its concentrated bets in growth stocks, the returns of JM Financial's funds can deviate substantially from category norms. In a bull run, it may have some of the savviest skippers going. But its dramatic fall in slumps is a turn off.
If you find that hard to believe, consider JM Emerging Leaders and JM Basic. Both these funds were amongst the top 5 performers of 2007, JM Basic bagging the coveted No. 1 slot. In this market slump, Emerging Leaders fell by 72.46 per cent and Basic, 66.17 per cent, when the category average was a 49.74 per cent fall (Year-to-date return as on October 13). As for JM Equity, it makes for no comparison with its siblings. It actually underperformed the category average in 2007, when the other two were on a roll, and fell harder than the average when the market slumped. Make no mistake. We think Sandip Sabharwal, Chief Investment Officer-Equity, is a skilled manager who has the courage to ride his convictions. But that said, we think this fund house is only appropriate for aggressive investors. And even then, they may want to limit their exposure, given the high risk and performance fluctuations.
When JM Financial Mutual Fund started in 1994, its first products were a complete basket of a diversified equity, balanced and income fund. But over time, it became recognised as a debt fund house.
The fund house historically maintained a very aggressive posture in managing its debt funds, which was evident from the high average maturity profiles most of the time. This, coupled with a relatively lower expense ratio for the short-term funds, held it in good stead. But over the years, the performance of its debt funds have faltered.
In two years they launched a slew of thematic and sector funds. One of Sabharwal's first moves was to revamp the portfolio of JM Basic. The fund soared and was India's best performing equity fund in 2007.
All in all, this is an opportunistic fund company which bets on momentum and growth stocks and sports high beta equity portfolios.

Debt funds, gilts in demand

Banks are investing their surplus funds in government securities and debt mutual funds as credit demand from companies has dried up in the face of the economic slowdown.
Data available with the Reserve Bank of India show that barring on the first day no bank has borrowed from the apex bank through its repo auction in this month. All bids were in the reverse repo counter.
Under the repo auction, the RBI lends money to banks. Under the reverse repo auction, the RBI borrows money for the short term from banks against government securities.
The reverse repo auctions of the RBI had attracted many banks since the first week of November.
The average daily volume of transaction rose sharply from the beginning of this month.
However, after the RBI cut the reverse repo rate to 5 per cent from 6 per cent on Saturday, the auction volume fell steeply to Rs 1,070 crore on Monday from a daily average of more than Rs 25,000 crore in the first five days of the month.
In the face of a tight liquidity condition in the economy in September that led to a redemption crisis in the mutual fund industry, the RBI reduced the cash reserve ratio (CRR) steeply from 9 per cent to 5.5 per cent between October 6 and November 2.
The CRR is the percentage of deposits that banks compulsorily keep with the apex bank.
The CRR cut was followed by a reduction in the statutory liquidity ratio (the percentage of deposits that banks have to invest in government securities) to 24 per cent from 25 per cent and repo and reverse repo rates to 5 per cent and 6.5 per cent, respectively.
Liquidity in the banking system was so tight that there was very little reverse repo auction throughout October. All banks turned borrowers in the repo market.
After the cash reserve ratio was cut on October 6, the daily volume of transactions fell from Rs 70,295 crore on October 1 to Rs 550 crore on November 3.
Banks became lenders in the reverse repo market for the most part of last month, when the average daily volume in the reverse repo market far exceeded the volume in the repo market.
In the current month, there was repo trading only on one day, and the daily average volume shot up in excess of Rs 25,000 crore from Rs 4,000 crore in November.
According to a senior official in a private sector bank, “Banks would rather prefer to park their excess liquidity in short-term investments rather than reduce lending rates when the demand for credit itself is going down.”
Source: http://www.telegraphindia.com/1081210/jsp/business/story_10231853.jsp

Mutual Funds to see heavy redemption in coming days

Mutual Fund houses which saw their asset under management fall by nearly 18% in month of October are getting ready for another round of redemption which could see an outflow of Rs 360 billion from their corpuses, reports Business Standard.
About 720 schemes which are going to mature by March 2009, will witness an outflow of over Rs 360 billion. Many debt schemes such as fixed maturity plans (FMPs), quarterly and monthly interval plans, fixed horizon plans and money market-related schemes are set to mature during the coming months.
In December itself, there will be an redemption as a result of maturity of debt and money market schemes which will amount to around Rs 150 billion, while redemption in January will be to the tune of Rs 60 billion. February may see the largest round of redemption, with around Rs 130 billion flowing out of the mutual fund industry, mainly from the maturing quarterly interval plans launched in November.

Debt funds suffer from single entity exposure: Crisil

While the portfolio credit quality of most Indian mutual fund (MF) schemes is strong, a majority of the schemes have single industry or company concentration, says a latest release from ratings agency Crisil.
Funds with large and illiquid single company exposures could be affected by redemption pressures. The single company exposures of these funds could increase as they sell more liquid assets to meet redemptions. The high credit quality of most debt funds’ investments partly offsets the risk arising from concentrated holdings, the release said.
Crisil defines portfolios with more than 25 per cent of assets under management (AUM) in a single company or industry as “significantly exposed”.
The agency conducted a study where they analysed 860 schemes, which covered 96 per cent of AUM of debt mutual funds.
The study revealed that investments that are rated AAA and P1+, the highest rating categories, constituted 82 per cent of the portfolios analysed. The AA category adds another 6 per cent to this figure.
Roopa Kudva, managing director & chief executive officer, Crisil, said, “Most debt funds have not compromised on credit quality in search of returns. Investors, therefore, have little reason to fear defaults eroding the value of their investments. Nevertheless, lack of adequate portfolio diversification remains an issue.”
Half of the schemes have significant exposure to the banking sector and 38 per cent have a significant exposure to non-banking finance companies (NBFCs) . Exposure to the real estate sector is only 5 per cent of debt funds AUMs. More importantly, not more than 3 per cent of debt mutual funds have significant exposure to the real estate sector.
Of the 58 debt schemes that have AUMs of Rs 1,000 crore and above, only two are significantly exposed to single companies.
Of the remaining 802 schemes in the study, 249 have significant exposure to at least one company. This indicates that while larger schemes are well-diversified as far as single-company exposure is concerned, 30 per cent of the smaller schemes have significant single-company exposure.
These concentration levels reflect the limited investment opportunities in the Indian debt market. “Over the years, banks and NBFCs have largely been the issuers. Manufacturing companies have preferred to raise funds abroad because it was cheaper there and also it was more difficult in India procedurally.
However, the procedure to raise funds in India through issuances has eased considerably. The liquidity crisis globally has also led to more manufacturing companies coming to the Indian market to raise funds. The issuer base is thus widening,” said Kudva.

Source: http://www.business-standard.com/india/storypage.php?autono=342735

Small debt funds face concentration risk: CRISIL

CRISIL`s analysis reveals that the portfolio credit quality of most Indian debt mutual fund schemes is strong. However, a majority of schemes have single-industry concentration, and many small schemes have single-company concentration. Funds with large and illiquid single-company exposures could be affected by redemption pressure: single-company exposures could increase as these funds sell the more liquid assets in their portfolios to meet redemptions. The high credit quality of most debt funds` investments, though, partly offsets the risks arising from concentrated holdings.
The 860 schemes analyzed cover 96% of the assets under management (AUM) of Indian debt mutual funds; gilt schemes are excluded, since they do not have sector or company exposure. Investments that are rated `AAA` and `P1+`, the highest rating categories, constitute 82% of the portfolios analyzed for the study; the `AA` category adds another 6% to this figure.
``Most debt funds have not compromised on credit quality in search of returns, and investors therefore have little reason to fear defaults eroding the value of their investments. Nevertheless, lack of adequate portfolio diversification does remain an issue,`` said Roopa Kudva, managing director and chief executive officer, CRISIL.
A concentrated portfolio increases the risk of investors losing a large chunk of their capital in the event of a single default. CRISIL has defined portfolios where more than 25% of AUM is exposed to a single industry or company as `significantly exposed`. By this definition, almost all debt schemes have significant exposure to at least one sector. Half of the schemes have a significant exposure to the banking sector, and 38% have a significant exposure to the non-bank financial company (NBFC) sector. Contrary to widespread perception, exposure to the real estate sector is relatively low.
``We estimate that only 5% of debt mutual funds` AUM consists of real estate sector debt. More importantly, not more than 3% of debt mutual funds have significant exposure to the real estate sector,`` said Tarun Bhatia, head, financial sector ratings, CRISIL.
More risky than single-industry exposure is single-company exposure, because it implies even lower diversity. Of the 58 debt schemes that have AUMs of Rs 10 billion and above, only two are significantly exposed to single companies. However, of the remaining 802 schemes in the study, 249 have significant exposure to at least one company. This means that, while the larger schemes are well diversified as far as single-company exposure is concerned, 30% of the smaller schemes have significant single-company exposure.
These concentration levels reflect the limited investment opportunities in the Indian debt market. Most funds have worked towards mitigating concentration risk by investing in highly-rated credits as the rating distribution statistics above indicate.
``Over the longer term, the solution to concentration risk lies in having a more vibrant debt market with a much wider issuer base than exists in the country today,`` Kudva added.

Source:http://www.myiris.com/rss_index.php?fileR=2008%2F12%2F09%2F20081209162347121

Investors flock to big, PSU MFs for investment safety

After a tumultuous time during the October liquidity crisis, investors might just be taking a “flight to safety”, banking on public sector mutual funds and the bigger names in the industry.

Corporate investors are shifting preferences in their choice of fund houses instead of chasing returns, distributors and officials said.
Investors are rushing to invest in public sector entity-sponsored fund houses with a view government may come to rescue and bail out in case of any unforeseen circumstances.
While PSU-sponsored fund houses are cashing-in on money, top mutual funds are also benefiting due to their brand name, expertise and fund management skills, industry officials said. “There has been a complete shift in the choice of investors. People have begun associating more with the bigger names. Choice of fund house has become the first criteria for investment followed by better fund managers and lastly, returns,” a senior official at a distribution house said.
October witnessed unprecedented redemption in liquid, short-term debt, and fixed maturity plans amid acute liquidity crisis that pushed interbank call money rate close to 22 per cent.
Doubts over FMP portfolios further added to the pressure leading to the investor sentiment taking a rough bruise. In the course of events, a study by Mumbai-based distribution house, which is famous for corporate reach, notes how only the big players have been consistent with their inflows.
According to this study, fund houses that have garnered sizeable business in November include Birla Sun Life Mutual Fund, ICICI Prudential Mutual Fund, HDFC Mutual Fund, Tata Mutual Fund and Reliance Mutual Fund.
What must be noted that the fund houses listed are among the top ten of the country and that in spite of witnessing a drop in their monthly average assets have remained in the good books of investors.
In November, average assets under management of the 35 fund houses in India fell by 6.91% to Rs 4.02 lakh crore over the previous month. The top 10 mutual funds’ average assets dropped 4.46% to Rs 3.074 lakh crore. Barring UTI Mutual and Tata Mutual, rest all fund houses suffered fall in average assets.
UTI Mutual Fund, LIC Mutual Fund and SBI Mutual that are among the public sector fund houses have seen sizeable inflows, a distributor said. An example of which would be the last quarterly FMP launched by SBI Mutual Fund that garnered Rs 1,700 crore in its new fund offer (November 20-25).
This huge success comes at a time when investors shunned FMPs due to a lack of clarity on likely norms. The crisis faced by the industry led to Securities and Exchange Board of India getting into the act and revising norms for close-ended mutual fund schemes.
“The mindset might be changing. Investors are sticking to Indian mutual funds while new money is definitely going to big names,” said the executive director of an investment advisory firm.
On Thursday, the regulator banned premature exits in close-ended schemes and made listing of such schemes compulsory. Among the other fund houses that held fort were JP Morgan Mutual Fund, DWS Mutual Fund, Kotak Mahindra Mutual Fund and Canara Robeco Mutual Fund, a distributor said. “Smaller fund houses will face problems,” said Juzer Gabajiwala, head, mutual fund distribution, Ventura Securities.

Source: http://www.business-standard.com/india/news/investors-flock-to-big-psu-mfs-for-investment-safety/00/21/342631/

Primary CP issues take a back seat

Primary issuances in the commercial paper (CP) market were absent as mutual funds preferred to remain on the sidelines due to the uncertainty regarding rates, dealers said.

Rates also fell 50 basis points after the Reserve Bank of India (RBI) on Saturday lopped 100 basis points off its reverse repo and repo rates to 5 per cent and 6.5 per cent respectively.
“Mutual funds are receiving inflows from banks, but are refraining from investing and are preferring to hold on to cash,” said a dealer at a private mutual fund.
Corporate advance tax payments on December 15 have made mutual funds wary about investing as they expect redemptions from banks and companies.
Banks were offering certificates of deposit (CDs), but there were no buyers in the market On Monday, dealers said.
Banks are also not keen on issuing papers as they expect rates to fall further in the coming weeks.
“Mutual funds are not seen investing in papers for a week or so until redemption pressure eases,” said a dealer at a mutual fund.
Non-convertible debentures (NCDs) with put/call option were also not dealt in the market On Monday, dealers said.
Three-month CPs were quoted at 12-13 per cent, unchanged from Friday, while three-month CDs were at 7.50-7.75 per cent versus 8.10-8.30 per cent.
Secondary marketVolumes were subdued in the secondary market too as most mutual funds were seen investing in secondary corporate bonds, dealers said.
“Mutual funds and banks were selling papers in the secondary market to book profits,” said a dealer at an insurance company.
CDs maturing in December were dealt at 6-6.10 per cent compared with 6.50-6.60 per cent on Friday.
CDs maturing in March were dealt at 7.40-7.60 per cent compared with 7.75-8 per cent.
Vijaya Bank’s March maturity CDs were dealt at 7.41 per cent On Monday.

Source: http://www.business-standard.com/india/storypage.php?autono=342619

Markets see another dose of incentives soon

Fund managers see sale of domestic stock by FIIs peaking by the month-end; inflation also to continue falling............

The combination of a Rs32,000 crore economic stimulus package, a 10% cut in retail fuel prices and big cuts in rates by the Reserve Bank of India (RBI) saw Indian stock markets rise modestly even as key Asian markets soared in anticipation of more such announcements in China as well as US President-elect Barack Obama’s plans for a large infrastructure-building national works programme. The Bombay Stock Exchange’s bellwether index Sensex surrendered early gains as investors chose to book profits and closed at 9,162.62, up 197 points, or 2.2%. The broader 50-stock index, Nifty, gained 2.56% or 69.60 points to close at 2784 points.Earlier, among the Asian indices, the Hang Seng was the biggest gainer with 8.66% while the Kospi index gained 7.48%. In Japan, the Nikkei rose 5.20%.

RBI cut both its policy rates by 100 basis points each on Saturday and the government followed it up by announcing a stimulus package worth 0.5% of the country’s gross domestic products.Brokers, analysts and fund managers that Mint spoke to on Monday maintained that the overall impact of policy measures on the stock market is positive, mainly on sentiments, though marginal. They also said they expect more such booster shots from the Indian government as well as more rate cuts by RBI. Rashesh Shah, chairman and chief executive of institutional brokerage Edelweiss Capital Ltd, said while the current package helps, it wouldn’t be the last such measure. Echoing the sentiment, Sanjay Sinha, chief executive of domestic mutual fund DBS Cholamandalam Asset Management Ltd, which manages Rs150 crore worth of equities, said the government’s announcements should translate to the companies getting easier access to credit for the markets to stabilize, and that there could be larger measure from the central bank in January. “This is a confidence booster; however, it may not be sufficient,” said N. Mohan Raj, executive director of investment operations at the Life Insurance Corp of India Ltd, or LIC, and who manages the biggest portfolio in local equities. LIC, which is also India’s largest lender to companies, on Monday announced it would invest Rs11,000 crore in Indian stocks by March, taking its investment in secondary markets for fiscal 2008-09 to Rs40,000 crore.Some fund managers and brokers say they expect the peaking of foreign institutional investors (FIIs) selling domestic stocks by December. Going by the provisional date released by the BSE, FIIs bought Indian stocks worth $70.65 million on Monday, net of selling. FIIs, the main driver of Indian stock market, have taken out $13.7 billion this year after investing $17.36 billion in 2007.In a report on Monday, Sonal Varma, economist at Japanese investment bank Nomura Financial Advisory and Securities (India) Pvt Ltd, wrote the firm expects “the government to continue to announce incremental fiscal policy measures aimed at specific vulnerable sectors and a much larger fiscal stimulus to be announced next year to offset the fall in private investments in financial year 2010”. The good news, she said, is that inflation is likely to continue to fall at an accelerated pace due to falling commodity prices, rising economic slack and a high base effect.Both Sensex and Nifty so far have lost close to 55% each this year.

Source: http://www.livemint.com/2008/12/09003952/Markets-see-another-dose-of-in.html

Sebi debars early exit for MF

What will Sebi’s new regulations for close-ended funds issued last Thursday mean for you?

While high redemptions by big corporates and high net worth individuals (HNIs) created an unprecedented crisis within the mutual fund industry in the months of September and October, now it is the market regulator’s turn to restore order by changing the rules of the game. Securities and Exchange Board of India (Sebi) on Thursday decided that no early exit will be allowed in any close-ended scheme. It has also asked fund houses to list close-ended funds on stock exchanges.
“The schemes, which have been approved earlier but have not yet been launched, will also have to be amended accordingly,” said Sebi chairman C.B. Bhave.To avoid any mismatch between asset and liability, Sebi has also mandated that close-ended mutual fund schemes should not invest in assets whose maturity is not in line with the fund’s maturity. “The October incident has thrown up a lot of issues and this is just one of those. We are also looking into the underlying assets of liquid funds,” said Bhave.

The rationale

While the primary trigger was the high level of redemption that the mutual fund industry suffered during the September and October, there is also a problem with the debt markets. Due to illiquidity in these markets, mutual fund managers, when faced with redemption pressures, had to resort to distress sale. This in turn lowered the NAVs of the funds and affected the returns of investors who wanted to stay on till maturity.
“Markets for securities had become illiquid in September and October, which led to distressed selling by some funds. Such a move affects the investors who want to stay back. Therefore, to protect the interest of the investors, Sebi has made this move,” said Sandesh Kirkire, chief executive officer, Kotak Mahindra Mutual Fund.

How will it affect you

Earlier, investors could exit close-ended funds by paying an exit load. “Now, any investor who comes in should come with the clear understanding that he will stay put in the fund till maturity,” said Kirkire. While investors who are uncertain about their immediate liquidity needs might stay away from close-ended funds, disciplined investors, who plan to stay till the maturity of the plan, stand to benefit.
“This regulatory obligation will save fund managers from distress sales. This has been done with the intent of guarding the interests of the remaining investors. The order will also drive fund managers to be disciplined in building their portfolio as funds have been debarred from buying bonds of longer maturity than their own,” said Dhirendra Kumar, chief executive, Valueresearch.Agreed Surya Bhatia, Delhi-based financial planner: “It is a welcome move and is in the interest of investors who plan to stay with such schemes till maturity.”
However, Uma Shashikant, managing director of Mumbai-based Centre for Investor Education and Learning, thinks a higher exit load would have been a better move for the investor. “Instead of eliminating exit loads and mandating the listing of such schemes on the bourses, an increase in exit load would have been a better option. Listing of the closed-ended funds will compromise the liquidity needs of the investor. Liquidity will depend upon the availability of a counter-party.”
Listing will also mean an increased burden on the asset management company. “FMPs are low-margin products and listing incurs a fee, which will put a financial burden and impact the yield,” added Shashikant.While the industry’s initial reaction has been positive, wait and watch how these new regulations impact the product category (of fixed maturity plans).

Source: http://www.financialexpress.com/news/sebi-debars-early-exit/395747/0