CRISIL cuts rating of Canara Robeco Liquid Plus to AAf

CRISIL, a leading rating agency has downgraded it`s rating on Canara Robeco Liquid Plus Scheme to `AAf``, as the credit quality of the scheme`s portfolio is inconsistent with its previous rating of `AAAf``.
The scheme is managed by Canara Robeco Asset Management Company (CRAMCL), the asset management company (AMC) for Canara Robeco Mutual Fund (CRMF). The `AAf`` rating indicates that the scheme`s portfolio will provide strong protection against losses arising from credit defaults.
Earlier, on Nov. 14, 2008, CRISIL had reaffirmed its rating on another scheme of CRMF, Canara Robeco Liquid Scheme, at `AAAf``.

Sebi bans early exits from close-ended Mutual fund

In a bid to stem premature withdrawals by investors from close-ended funds, capital markets regulator Securities and Exchange Board of India (Sebi) on Thursday banned early exits from such funds.
Close-ended funds are schemes that raise a fixed amount of money through an initial fund offering. These schemes, some of which are listed on stock exchanges and traded, don’t accept investments once the offering closes. However, most such funds are not strictly close-ended because they allow premature exits by investors.
Large-scale early withdrawals since mid-September, after the collapse of Wall Street investment bank Lehman Brothers Holding Inc. that plunged the global financial system into an unprecedented liquidity crisis, have hit Indian fund houses hard. Mutual fund (MF) investors redeemed at least Rs96,000 crore from debt schemes in September and October.
The liquidity crisis forced the Indian central bank to open a credit window of Rs60,000 crore for the mutual fund industry.
Commercial banks can borrow money from the Reserve Bank of India and lend to mutual funds. This window will remain open until 30 June.

According to fund managers, such premature exits led to a distress sales of assets. Relatively illiquid papers were sold in bad market conditions in the past two months, leading to losses for fund houses and hurting long-time investors, who preferred to stay until the schemes mature.
After the Sebi board passed the new norms, its chairman C.B. Bhave said fund houses should necessarily list all close-ended funds on the stock exchanges.
The listing provides an alternative exit route for investors wishing to liquidate their holdings.
Under the new norms, the close-ended funds’ underlying assets should not have a maturity beyond the date on which such schemes expire.
“This will be a compromise on the interim liquidity as close-ended funds trade at steep discounts to the net asset value,” said Dhirendra Kumar, chief executive officer of Value Research, a New Delhi-based mutual fund industry tracker. “I think FMPs (fixed maturity plans) will be less attractive now.”
FMPs are debt schemes that invest their corpus in fixed-income securities and are close-ended in nature. Such plans account for 90% of total close-ended funds’ assets under management, according to industry estimates.
Fund house chief executives such as Waqar Naqvi, who heads Taurus Asset Management Co. Ltd, expect FMPs to do well after an initial slowdown.
“Some large investors might review their investments after this,” said Naqvi. “Even if there is a slowdown initially, it’s too good a product for people not to come back.”
The new norms will be applicable to all issues that have been approved, but not yet launched.
At least one-third of the 1,050 mutual fund schemes at the end of October, for which data is available, are close-ended schemes.
This category of funds had assets under management of Rs1.16 trillion, about one-third of the Rs3.94 trillion total assets under management as on 31 October, according to the Association of Mutual Funds in India, an industry lobby.
In order to usher in more transparency in its decision-making process, the Sebi board on Thursday decided to adopt a code for its board members. The objective is also to avoid a conflict of interest for members of its board. The regulator will release the code before 12 December.
Sebi will also release on its website agenda papers submitted to its board on policy issues, Bhave said. The agenda for Thursday’s board meeting will be released a few days later, but in future, all board meeting agendas will be on the Sebi website after the meetings are over.
The market regulator will also make the minutes of its board meetings relating to policy issues public.
No other financial market regulator in the country makes its board meeting agenda and minutes public.

Source: http://www.livemint.com/2008/12/05000545/Sebi-bans-early-exits-from-clo.html?h=A1

SEBI: Close ended scheme listing

The Securities and Exchange Board of India in its board meeting today decided to fix the structural flaw in fixed maturity plans.
It was decided that no early exit will be allowed in any scheme of mutual fund in the nature of a closed-end scheme. The schemes which have been approved earlier but not yet launched will also have to be amended accordingly. It will be obligatory for the asset management company to list the close ended schemes. The board also decided that for such close ended schemes the underlying assets will not have a maturity beyond the date on which the scheme expires.
This regulatory obligation will save fund managers from distress sale if investors decide to redeem their money before maturity. This is with an intent to guard the interest of the remaining investors. The order will also drive fund managers to be disciplined in building their portfolio as fund have been debarred from buying bonds of longer maturity than their own.
For investors, the order will mean a compromise on the interim liquidity and NAV realisation as closed-end listed funds generally trade at steep discount to their NAV. In any case, FMPs’ ownership profile makes them unsuitable for listing. There are a very large number of FMPs which serve a fairly limited pool of investors. Under the circumstances, the existence of a liquid market for any individual FMP is unlikely.
For all practical purposes, this order strips FMPs of their feature of premature encashment. Investors will now have to approach FMPs as investments that have a genuine lock-in.
However, this fix applies only to all new funds to be launched. This will not save existing fixed maturity plans from the problem caused by premature redemptions.

See more rate cuts ahead, buy gilts: IDFC Asset Mgmt

Naval Bir Kumar, Managing Director, IDFC Asset Management, said a 50 bps cut on both repo and reverse repo is factored in by the markets. "The market is basically forecasting that the interest rate cycle has turned. We see many more rate cuts going ahead."

According to him, gilt or income funds are still good to buy. “As fund managers we would like to play the cycle initially with gilts and not with corporate bonds because of liquidity, even though the spreads are very attractive. Hence, we clearly are advising our customers to take a long bond view and have a number of long bond funds.”

He believes this yield cycle will see new lows being tested. "Last time around the 10-year yield touched 4.95% as the lowest level, this time it will go to 4% levels."