RBI grants permission to Axis Bank mutual fund

Axis Bank formerly known as UTI Bank has obtained the Reserve Banks permission to launch its the mutual fund business. Permission from SEBI the market regulator is still under process. The move is interesting as Axis Bank is one of the descendants of the former bank Unit Trust of India (UTI). Among others, the banks funds will be competing for investors attention with those run by UTI Mutual Fund, which is the inheritor of the Unit Trusts mutual fund business. The new company will be a wholly owned subsidiary of the bank and will carry out asset management, advisory and related services, said Asok Kumar, executive director of the Mumbai-based bank. The fast growth and higher margins in Indias asset management segment are attracting several foreign and domestic players. The segment has grown 47% year-on-year (y-o-y) between 2003 and 2007 in India, according to a study in March by consultancy firm McKinsey and Co.

Birla Sun Life MF to launch equity linked FMP

Birla Sun Life MF to launch equity linked FMP Birla Mutual fund has launched Birla sun life equity linked FMP - Series A & B option. It is Close Ended Debt scheme with only one time investment option available. The Maturity period for Series A is 36 months and for Series B it is 21 months. The Liquidity for both series is Quarterly and NAV declaration for both series will be every Wednesday. The primary investment objective of the scheme is to invest in short and medium term debt instruments with fixed and/or floating payouts linked to equity indices. The Scheme may also undertake to invest in derivative contracts. These instruments will normally mature in line with the time profile of the scheme. The scheme also offers Institutional and Retail - Growth and Dividend options.

The offer opened on 26th June, 2008 and closes on 23rd July, 2008.

The minimum investment amount is Rs 5000 for retail plan and Rs. 5 crore for Institutional Plan in multiple of rupee 1 thereafter.

Entry Load for Series A: Retail Plan is 2.25% and Series B Retail Plan is 1.50%. However there is no entry load for Institutional plan under both A & B plans. 

MFs focusing on global markets fare better in June

Investing in global markets seem to have helped withstand the extremely bearish local market conditions for some funds enabling them to give better returns than other sector funds.

Net asset values of some global funds including DSP Merrill Lynch World Gold Fund, Birla Sun Life International Equity Plan A, Sundaram BNP Paribas Global Advantage, Principal Global Opportunities, DWS Global Thematic Offshore Fund fell the least compared with other funds in June. 

Although the benchmark index Sensex fell by around 18 per cent in June, these funds have fallen by less than 10 per cent.

“The funds which figure on top in both the periods are generally international funds, funds which partially invest in foreign markets or fund of funds”, said an analyst with a mutual fund.

DSP Merrill Lynch World Gold Fund has given positive returns of 1.30 per cent, while Birla Sun Life International Equity Plan A fell 5.33 per cent, Sundaram BNP Paribas Global Advantage declined 7.31 per cent, Principal Global Opportunities by 8.21 per cent, DWS Global Thematic Offshore Fund by 7.96 per cent, according to the data provided by Value Research.

Among the other funds which have invested globally and fallen less than 10 per cent include DSP Merrill Lynch Natural Resources and New Energy fund, whose NAV fell less than eight per cent; it invests a certain portion of its corpus in the equity and equity-related securities of companies domiciled overseas or in units and shares of Merrill Lynch International Investment Funds - New Energy Fund, New Energy Fund and similar other overseas mutual fund schemes.

HSBC Emerging Markets fund witnessed a fall of 8.16 per cent in June, and Tata Growing Economies Infrastructure fund, which invests in infrastructure-related sectors in growing economies overseas and in India, has fallen by 8.94 per cent.

“Though the global markets have been in the negative, Indian markets were amongst the worst performers globally,” said Mr Rajat Jain, Chief Investment Officer, Principal Mutual Fund. In case of the returns over the past six months also most of the above mentioned funds have fallen by less than five per cent outperforming the BSE Sensex, which fell by more than 33 per cent.

Emerging markets have been giving better returns thanks to a mix of factors such as better macro-economy condition, successful outsourcing story and huge commodity business, said a fund manager of a domestic mutual fund.

“Globally we have been amongst the worst performers and since we are comparing these funds with Indian markets, they seem to have performed better,” said Mr N. Prasad, Deputy CEO, Sundaram BNP Paribas Mutual.

Another set of funds which have been amongst the best performers include healthcare and pharma funds, which are considered to be defensive sectors. 

The funds include JM Healthcare Sector fund, UTI Pharma & Healthcare fund, Franklin Pharma, Magnum Pharma fund, according to Value Research, which tracks the performance of mutual funds.

Retail investors shying away from equity markets

The downslide trend of the Indian equity market for the last two months has forced retail investors in equity markets to look for alternative mode of investment. 

The stock market which just a few months ago was considered as a most lucrative investment proposition has suddenly turned a monster for the common investors, many of whom put their hard-earned money and suffered losses.

'I don't see any future for middle class in equity markets. It is better to go for a traditional system of savings like buying gold, bank deposits which can fetch better and assured returns', K. H Bhatt, a diamond dealer form Mumbai, told IANS. Bhatt says he has suffered losses to the tune of Rs.700,000 in the last two months due to the fall in markets.

Echoing the same sentiment, Vasant Kulkarni, a human resource consultant with a leading firm in Mumbai, said: 'Just a few months back equity market seem to be the most viable option for investment, but within the last few weeks it has changed completely. And now it seems traditional system of savings is the best option - at least your returns are assured.'

The mayhem in equity markets has broken the back of many investors. What started as a mere correction is now being termed as a bear market.

From a record high of 21,206.77 hit on January 10 2008, Sensex has lost 7752.77 points or 36.55 percent. It has shed 6832.99 points or 33.68 percent in calendar year 2008 thus far, from its close of 20286.99 on December 31 2007. 

According to a market analyst, the market has depreciated more than 40 percent in the last eight weeks and the common investors are in a kind of dejection.

Sudip Bandyopadhyay, director & CEO of Reliance Money, said: 'Retail investors are looking for alternative option. In fact, in the first quarter of the current fiscal we have seen a significant growth in Fixed Maturity Plan (FMP) schemes, which indicates that people are now preferring schemes which give them assurance of fixed returns'.

'Common investors are confused. They have been putting a lot of money through Systematic Investment Plan (SIP) in equity markets and suddenly the market has changed its course,' said Asish Poddar, research analyst of Almondz Global Securties Limited.

However, many market analysts feel that inflation and crude oil prices have become informal standards for stock traders instead of the earnings rate, their consistency and sustainability, and the retail investors should not panic.

'New anchors, such as eye-balls in the dot com era and foot-falls in the retail boom are now history; the oil standard too will soon fade as long-term investors will be coming into the market,' Ashok Jainai, head of research of Khandwala Securities, told IANS.

Diversified stock portfolio can deliver 20% over 3-5 years

There is nothing like a ‘right time’ to invest in equities. What matters is the time horizon for which you want to stay invested, according to Sukumar Rajah, CIO - Equity, Franklin Templeton Investments India. In an interview with ET, he said, if one still wants to time the market, it makes sense to invest when there is gloom all around. 

What is the kind of returns that an investor should be expecting, if he is looking to stay invested for more than a year? And what are the kind of schemes he should be looking at? 

Investors with a longer investment horizon can look to invest in diversified equity funds with a track record across market cycles and those with a higher risk profile could consider funds targeting aggressive growth. We expect a diversified portfolio of stocks to deliver around 15-20% over 3-5 years, which is in line with our earnings growth expectations. 

Which are the sectors you are bullish on? 

We believe long-term investors are better off adopting a bottom-up approach and investing in companies with good fundamentals across market-cap ranges and sectors. 

Sectors that can piggyback on the domestic consumption theme such as retail banking, consumer goods and automobiles; trends in domestic infrastructure spending such as construction and capital goods, are good investment opportunities for long-term investors. 

How do you see interest rate sensitive sectors faring, given expectations that rates could harden further because of rising inflation? 

Interest rate sensitive stocks are likely to be under pressure until inflationary pressures ease out. Typically, our investments are with a medium to long-term horizon, but we reshuffle our portfolios on the back of relative valuations and opportunities emerging in various sectors. 

The recent market declines have resulted in attractive opportunities across the market-cap range and the sell-off has been indiscriminate in nature, with quality stocks also moving down sharply. We are using this opportunity to increase exposure to such companies across sectors/market capitalisation range. 

Do you agree with the general perception that the macro-economic situation is deteriorating? 

Domestic macro-economic trends have been largely positive — FY08 GDP numbers revised upwards, strong direct tax inflows in the current fiscal year and IMD indications of normal to excess rainfall trend in June. While rising borrowing costs and inflation are likely to impact GDP growth over the near term, longer-term economic drivers such as demographics, rising disposable incomes and investments in infrastructure remain in place. 

Oil remains a key factor given that imports account for over 75% of India’s crude oil requirements and its implications for domestic inflation/fiscal deficit. This means that continued rise in oil prices will impact India’s Balance of Payments (BoP) and put further pressure on the rupee. However, strong forex reserves and relatively low external debt to GDP ratio should help mitigate deficit impact to a certain extent. 

What do you think of gold as an alternative asset class? 

While it provides for additional portfolio diversification, gold cannot be the mainstay of a portfolio and investors can consider marginal exposure. They need to keep in mind that the performance of such a portfolio is likely to be cyclical and long-term returns have tended to be low. 

What is your investment philosophy strategy and what kind of cash levels are you sitting on? 

Franklin Templeton does not take cash calls on fund portfolios and we try to reduce risks through stock selection based on fundamental research focusing on the long term. 

We offer long-only products and there are different products like hedge funds, dynamic asset allocation funds (our FT Dynamic PE Ratio Fund of Funds) that are specifically designed to make tactical asset allocation changes based on market conditions. Our portfolios are typically fully invested (around 5% cash keeping in mind the liquidity requirements of an open-end fund). 

We will continue to invest in companies that are best positioned to take advantage of the Indian economic growth. As bottom-up investors, we seek to invest in companies whose current market price, in our opinion, does not reflect future growth prospects. 

We choose companies that have identifiable drivers of shareholder value creation and that present, in our opinion, the best trade-off between earnings growth potential, business and financial risk, and valuation.

Govt wants Sebi to examine conflict of interest in MFs

The Ministry of Corporate Affairs has asked market regulator Securities and Exchange Board of India (Sebi) to examine whether there are any issues of conflict of interest occurring between sponsors of mutual funds (MFs), trustee companies and asset management companies (AMCs). 

 

The ministry, taking cognizance of a representation made by mutual fund industry expert Vijay Gokhale, in a letter to Sebi has asked the regulator to examine the matter at the earliest. 

Gokhale, in his representation to Sebi as well as the Ministry, said many AMCs carry out practically all activities pertaining to the fund on behalf of the trustees and the AMC is virtually the face and mouthpiece of the fund. 

He said there should be an ‘arms length' relationship between a trustee company and the AMC. But that is not the case in many mutual funds. 

Gokhale pointed out that many trustee companies do not have an independent place of business or staff of their own. 

"It is impossible to visualise as to how do the trustees discharge various responsibilities without own staff. It is feared that conflicts of interest occur in this informal arrangement, creating great potential for abuse. This has been going on for years," Gokhale's communique to Sebi said. 

Association of Mutual Funds of India (AMFI) Chairman A P Kurian, however, maintained that there is no conflict of interest occurring in mutual funds. When asked why many trustee companies do not have independent staff or office space, he said it is not needed. 

Gokhale said at present many trustee companies carry their supervisory functions based on information provided by the AMC itself and sometimes even the reports submitted by trustees to Sebi are prepared by AMCs. 

Ideally, an AMC should be an independent company and try to compete for business from a mutual fund and trustees should choose an AMC on merit, he said. 

A top official associated with mutual funds also agreed with this viewpoint. However, he said the industry is still not ready for this.

Nomura may invest in LIC Mutual Fund

Nomura Asset Management Co, the fund management unit of Japan’s Nomura Holdings, said it has agreed to invest in an asset management unit of Life Insurance Corp.

Nomura Asset will work with LIC Mutual Fund on the asset management business in India, said Riyo Azechi, a Nomura Asset spokeswoman. 

In Mumbai, Thomas Mathew managing director, LIC, told DNA Money, “We have only signed a memorandum of understanding. We will have to discuss the details after due diligence. Negotiations will start now and the process will start to see how we can co-ordinate.” 

Sushobhan Sarker, CEO, LIC MF, said he could not comment on whether it will lead to a stake sale. “It’s an MoU exploring common areas for both companies. We will take the call only after sometime,” he added.