MFs gaining popularity in India, finds Nielsen survey

In 2007, MFs had a 40% share of investment options available to consumers, said the Mutual Fund Brand Health Monitor-4 survey

Mutual funds (MFs) have become the investment tool of choice for Indian investors, who no longer treat them as tax-saving options, but buy them in the hope of earning higher returns, said a survey released by market researcher Nielsen Co.
Popular choice: An ICICI Bank branch in New Delhi. The Nielsen survey found mutual funds offered by ICICI Prudential to be among the most recalled brands among investors. Photograph: Rajeev Dabral / Mint.

In 2007, MFs had a 40% share of investment options available to consumers, said the Mutual Fund Brand Health Monitor-4 survey. Of 1,600 investors polled, 90% said they preferred to invest in MFs over other investment options, it said.

According to the Association of Mutual Funds in India, total assets under management in June were at Rs5.65 trillion, down from Rs6 trillion in May. That drop came as rising food and fuel prices pushed inflation to a 13-year high, credit costs rose and foreign inflows slumped amid global economic uncertainty. The Bombay Stock Exchange’s benchmark Sensex has declined 30% this year, buffeted by global economic headwinds.

Still, MFs have benefited from aggressive marketing, wider media coverage and higher returns they delivered to investors in recent years, Nielsen said in a statement, adding that there had been a mindset change among investors who regarded them once as tax-saving tools. 
They are “...now buying them in the hope of greater financial return”, said Kalyan Karmakar, associate director for customized research at Nielsen. 

The survey found Reliance Mutual Fund to be the most recalled brand among investors, followed by those offered by ICICI Prudential Asset Management Co., State Bank of India and HDFC Asset Management Co. Ltd.

JPMorgan AMC launches JPMorgan India Alpha Fund

JPMorgan Asset Management India Pvt. Ltd. (JPMAMIPL) today announced the launch of JPMorgan India Alpha Fund, an actively managed scheme that aims to produce returns from a portfolio in an all-seasons environment.

The ‘Alpha’ strategy used here involves taking positions with minimal market risk by buying one stock (or its derivative) and selling another (or its derivative). This usually means identifying some trend that is benefiting one company and at the same time is detrimental to another. 

Traditional equity funds tend to invest directly into stocks, which may go either up or down leading to either appreciation or depreciation of one’s investments. In the JPMorgan India Alpha fund, the fund manager would endeavor to construct a portfolio in a manner which will reduce the market risk (beta) significantly by investing in ‘stocks / derivatives with pair trades’. The stock selection would generate the returns (alpha) of the fund. The fund would invest in stocks / derivatives which would illustrate both positive and negative conviction on ideas and seek to benefit from relative outperformance.

The JPMorgan India Alpha Fund will be open for subscription from 31st July to 29th August 2008. 

The JPMorgan India Alpha Fund is an ideal fit for any investor who owns equity mutual funds or direct equity in his portfolio. It is a complement to the existing long-only portfolio as it endeavors to reduce the overall risk (beta) of the portfolio because of the investment strategy. The strategy would be an ideal fit for investors who would like to have an exposure in the equity market but at the same time are not confident from a market outlook standpoint.

Krishnamurthy Vijayan, Wholetime Director & CEO, JPMAMIPL said, "At the launch of JPMorgan's mutual fund business in India, we had promised to bring in a diverse suite of our global fund products. The launch of JPMorgan India Alpha Fund is just one of the global investment solutions that we bring to you from the JPMorgan suite; and we will continue to launch more of them over the next few years. We are strong believers in long term investment and this fund reinstates our philosophy. We at JPMAMIPL are very excited and feel this fund will become an important part of investors’ portfolios."

Harshad Patwardhan, Investment Manager – Equity, JPMAMIPL said, “The JPMorgan India Alpha Fund will be a great addition to the existing long-only portfolio of investors as it endeavors to reduce the overall risk of the portfolio. The strategy is meant to act as an alternate equity investment targeted at the investor who does not want to take a directional call on the market.”

RBI policy tone remains hawkish: Principal MF

The Reserve Bank of India (RBI) has increased the CRR (Cash Reserve Ratio) by 25 bps and Repo rate (the rate at which the central bank lends money to other banks), by 50 bps.

Ritesh Jain, Head – Fixed Income, Principal Mutual Funds commenting on the rate hike in an exclusive conversation. `The tone of policy remains quite hawkish, indicating the RBI`s clear preference towards inflation containment albeit the move may impact domestic growth somewhat. 

The policy categorically looks to be concerned about the underlying momentum & aggregate demand, and it is likely that the monetary steps will continue to remain the first line of defense in anchoring inflation and inflationary expectation. 

The RBI has indicated its awareness of risks in the global economy and the willingness to act if need be. In terms of direction, the overall interest rates in the economy will align higher. The deposit rates and the lending rates are also likely to head higher over the next couple of months.`

Most ULIPs under-perform Nifty

Equity mutual funds have not managed to contain the declines in their NAV well during the recent market fall, with majority of them trailing the broad market. But did equity-oriented unit-linked insurance plans (ULIPs) from insurance companies manage to do better? 

We took a few schemes which have a track record of at least two-three years. Equity-oriented ULIPs from insurance companies posted a decline of 6.2 per cent in their NAV over the past one year. This compares with the six per cent decline for the Nifty and 11.9 per cent for diversified equity funds as a category. 

Most of the ULIPs trailed the Nifty, with the fund with the maximum decline being Bajaj Allianz Unit Gain Plus Growth (down 11 per cent) and the best – ING Vysya Unit Link Growth. It has lost just one per cent.

ULIPs, however, may not be strictly comparable to equity mutual funds as many of them have lower equity allocations as compared to the former. ULIPs also usually have a focus on large-cap stocks, when compared to equity mutual funds which actively invest in the mid-cap space. In some cases, ULIPs have an inbuilt option that allows the fund manager to move a certain portion of assets to debt or cash, based on the market conditions. However, effective return for investors in ULIPs will not be determined by NAV returns alone; expenses which can account for a significant proportion of initial premia may also have a bearing on returns

“Growth” plans of ULIPs usually invest anywhere between 80-100 per cent in equity and rest in debt. Going by its latest portfolio, ICICI Prudential Life Time Pension Maximer (return negative 7.6 per cent) has invested 95 per cent of the assets in equity and the rest in debt. 

Bajaj Allianz Unit Gain Plus Equity Growth Fund (return negative 11 per cent) has invested 89 per cent of the assets in equity, with its top ten stocks mainly from the large-cap space.

Trail fees by any other name pinches as much

By approaching the mutual fund house directly, investors in mutual funds may have managed to save on money that otherwise would have to be handed over to the distributor. But that still has not given them any immunity from the games played by fund houses. 

These investors who should have been spared the burden of paying any trail fees — a part of the annual recurring charges that is paid to the distributor — are still paying these charges from their investments. So, while they are not paying the initial entry fees for getting into a fund, they are still losing around half a per cent of their investment value every year due to this creative accounting. 

Trail fees are that part of the annual recurring fees that are paid to the distributor (from the investor’s NAV) for retaining the customer. Naturally, any investor who comes without the intermediation of a distributor is justified in claiming relief from this charge. 

Earlier this year, Sebi had a passed a rule that allowed investors, who approached the fund houses directly, to save the fee that is otherwise charged for entering a fund, usually around 2-2.5% of the investment.

Besides these charges, Indian mutual fund laws also allow MF houses to charge a maximum of 1% as investment advisory fees per year and a maximum of 1.5% as other expenses like administrative, registrar and custodian fees and so on. Both these fees are deducted from the investor’s money, bringing down the returns in the process. 

“In a bid to boost their profitability, several MF houses are now charging trail fees (even for direct investors) under the other expenses head, disguising it with names like miscellaneous marketing expenses or other operating charges,” says a financial planner, who is empanelled with several fund houses. 

ET sent emails to Reliance, ICICI Prudential and Fidelity AMCs on the matter, but failed to receive any responses. When contacted, Kotak Mutual CEO Sandesh Kirkire said fund houses were not charging more than the prescribed Sebi limits. “When fund houses charge investment advisory fees and other annual recurring expenses to a fund, they do it at the scheme level, not at the investor level. So, there is no difference made between an investor who comes directly and via a distributor.” 

Distributors have not taken the direct application facility lying down either. They have been telling direct investors that they can arrange for direct applications, but insist on their name to be mentioned in the form for the service provided. So although these investors do not pay any entry fees, they have to cough up trail fees to the distributor every year. End result is the same — lesser returns. 

When Sebi permitted direct applications, leading fund houses opposed the move saying distributors are vital in increasing the penetration of MFs in the country. Since then, direct applications have grown, albeit modestly to around 8-9% of the total investments.

Source : http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/Analysis/Trail_fees_by_any_other_name_pinches_as_much/articleshow/3299673.cms

Bottom fishing in India: In the footsteps of George Soros

"While most funds have been dumping stocks in India's sliding market, billionaire global investor George Soros has turned contrarian on India," says international expert Nick Vardy who now suggests "bottom fishing" in India.

In his Global Bull Market Alert, he explains, "One of the best ways to follow in his footsteps are by purchasing the WisdomTree India Earnings ETF (NYSE: EPI)."

"According to the Times of India, the Hungarian born Soros -- who since last August is again actively managing his famed Quantum fund -- recently went on a buying spree in India making investments valued at $140 million in a wide range of Indian companies.

"In many ways, Soros' call is a vintage contrarian bet. India has been one of the worst performers in the global markets this year. 

"Institutional investors have pulled out more than $7 billion from Indian equities as the BSE Sensex crashed 7,400 points, or 35%, from its peak of 20,873 back on Jan. 8 amid concerns over a weak global markets, soaring global oil prices and spiraling inflation in India. 

"Brokerages and investment banks are uniformly gloomy about India. Inflation has accelerated to just under 12%, a 13-year high. Industrial output in May 2008 rose 3.8%, the slowest in six years. Manufacturing growth slowed to 3.9% in May, while capital goods output growth slowed to 2.5% vs. a robust 22.4% last year. 

"According to Lipper Analytics, three India-focused funds rank among the 10 worst-performing funds globally in May. Stories about India's much vaunted middle class and the country's outsourcing prowess have evaporated from the global financial press virtually overnight.

"Yet, Soros realizes that the fundamentals of India have not deteriorated to the extent the drop in its stock market suggests. Indian banks, for example, have had almost no exposure to the U.S. sub-prime markets and continue to grow their earnings at 30%+ year.

"All top traders know that the best time to buy is when there is blood in the streets. And apparently, George Soros -- who called the current crisis the worst the world has seen since the Great Depression -- has seen enough blood in India to get back into the market. 

"The best way to join George Soros is by buying the WisdomTree India Earnings ETF (EPI), which provides a broad exposure to the Indian stock market. Its top holdings in India include the country's biggest companies such as Reliance Industries, Oil and Natural Gas Corporation, Infuses, Bharti Airtel, and ICICI Bank. 

"More than ever, you need to protect your downside, so make sure you place your stop at $16.30. And if you are feeling particularly queasy, you may want to consider taking half of your position size, and adding to your position as it moves in your favor."