Benchmark Mutual Fund launches first-ever Shariah compliant ETF

The market for Shariah funds is set to grow with Benchmark Mutual Fund launching the first-ever Shariah Benchmark Exchange-traded scheme in India. It’s an open-ended listed index scheme.

The scheme will be benchmarked against the S&P CNX Shariah index, an index that was launched by Standard & Poor’s and India Index Services & Products. Each unit is priced at 1/10th of the S&P CNX Nifty. The scheme will open for subscription on February 4 and close on February 25.
The S&P CNX Shariah index comprises stocks that are Shariah compliant. As a result, the fund will not invest in business activities related to pork, alcohol, gambling, financials, advertising and media (newspapers are allowed and sub-industries are analysed individually), pornography, tobacco and trading of gold and silver.
At present, the Nifty Shariah Index comprises 37 constituents as on January 13, 2009 and includes stocks such as Reliance Industries, Infosys Technologies, ONGC, Gail, Hindustan Unilever, Reliance Capital, State Bank of India, Tata Motors, HDFC, ICICI Bank among others.
Shariah-based equity investments do not allow investors to invest in excessive debt companies (no investments in companies that have debt-to-marketcap exceeding 33 per cent), companies with high outstanding receivables (net receivables in excess of 45 per cent of market cap) and companies that do not have at least 25 per cent of its capital in fixed assets.
“There is a big Muslim population here. We hope they will be interested in investing in this fund especially since this is the first fund of its kind,” said Rajan Mehta, executive director at Benchmark asset management.
While Shariah funds have had a limited run in the Indian markets so far, they could pick up given the kind of products that are coming into the market. HSBC Asset Management has also launched a Shariah portfolio scheme for affluent Indian investors.
The HSBC Amanah India Shariah Portfolio is an actively managed open-ended equity offering wherein investors can invest in conformity with Islamic Shariah principles. The minimum investment amount for this customised product in Rs 25 lakh.
In November 2008, markets regulator, Securities and Exchange Board of India (Sebi) also gave the go-ahead to Taurus mutual fund and its joint venture partner, Parsoli Corporation to set up a Shariah-compliant mutual fund. However, the fund house is yet to launch the product.
Globally, Shariah-compliant investments total around $65 billion. Of these, around 53 per cent of the assets or $35 billion, is held in mutual funds out of which $33.6 billion is managed by local fund managers and $1.4 billion is managed by foreign fund managers, according to the Asia Investor magazine website.
Saudi Arabia is the largest market in the world for Shariah mutual funds measured in terms of number of funds or by assets.
In Asia, Malaysia is also the most important market for Shariah funds. Internationally, other prominent markets for Shariah products are Middle East countries, Indonesia, Pakistan, United States and South Africa.

Source: http://www.business-standard.com/india/news/benchmark-mutual-fund-launches-first-ever-shariah-compliant-etf/01/09/347466/

SEBI Seeking Transparency

Last week, SEBI rolled out yet another set of new rules governing the operation of mutual funds in the country. Like the ones in early December, these new rules too are a response to the crisis faced by debt funds during the October and November. In December SEBI moved to shut off the early redemption route out of closed-end funds. It mandated that liquidity should be provided not by the fund companies themselves but by listing them on stock exchanges. The October crisis was precipitated by investors pulling out money from funds whose portfolios were not designed for early redemptions.
Now, SEBI has moved forward another few steps and blocked a range of questionable practices that exist in the debt funds. Firstly, the regulator has banned fund salesmen from stating indicative yields or portfolios to investors. This practice is common in Fixed Maturity Plans. Effectively, fund companies often work out a debt portfolio in consultation with the actual borrowers and then go and hawk this portfolio to investors. Since the portfolio and its yield were known beforehand, these were openly shared with potential investors. During the credit crisis things didn't really work out the way they were supposed to and many funds deviated from the portfolios and underperformed the yields.
SEBI has now banned this mode of working. Obviously, no fund will now publish these indicators publicly. However it remains to be seen whether informal, oral communication of this nature between funds and large investors actually get stopped.
SEBI has also made a set of changes to the rules governing Liquid Funds. These funds are intended for parking money that investors can spare for very short-term periods of times ranging from days to weeks. They are supposed to be run in a maximally risk free manner. This basically means that they should be investing in debt instruments with very short maturity, because such investments react minimally to interest rate changes. During the crisis, it came out that plenty of liquid funds had invested some of their corpus in longer-maturity investments in order to gain some extra returns. Although this would have worked out fine had the crisis not occurred, the very purpose of liquid funds is to ensure that the investments perform as expected regardless of any crisis. As such, what liquid funds were doing was stretch the safety part of their mandate in order to deliver some extra returns.
The regulator has now mandated that liquid fund managers rein in their maximum maturities to six months by February 1 and further to three months by May 1. They are supposed to get out of all those securities that are over these limits. This will go a long way in giving these funds the kind of safety level that they should have. Yet another change that SEBI has done is a more curious one. There is a class of funds that is called 'Liquid Plus' funds. SEBI wants their names changed to something else because, in the words of the circular, 'the nomenclature of "Liquid Plus Scheme" should be discontinued since it gives a wrong impression of added liquidity'. Liquid Plus schemes actually have less liquidity and the 'plus' part refers to the fact that they try and give greater returns than vanilla liquid funds. Liquid Plus funds are also more tax-efficient than liquid funds.
I would have thought that both these category of funds are primarily used by professional investors who wouldn't be misled by nomenclature but anyhow, greater transparency is always welcome. It must be pointed out that all the ills that these rules plug loopholes that basically allowed fund managers to serve up higher returns to investors who wanted those returns. Like the rest of the financial world, neither of the two were overly mindful of risk. Now, having received the fright of their lives, everyone will stay well within limits till the next cycle starts.

Source: http://www.valueresearchonline.com/story/h2_storyview.asp?str=12633

HSBC India fund unit head of equities quits

HSBC's (HSBA.L: Quote, Profile, Research) Indian mutual fund unit head of equities, Mihir Vora, has resigned, a top official said on Thursday.
"He has put in his papers but he is still with us for some time to ensure that there is smooth transition," Vikramaaditya, chief executive of HSBC Asset Management (India) Pvt Ltd, told Reuters.
The firm was yet to decide on a replacement, he added.
Vora could not be reached immediately for his comments.
Last month, the fund house lost its head of fixed income Shailendra Jhingan to ICICI Securities, while Pioneer Global, the fund arm of Italy's bank UniCredit (CRDI.MI: Quote, Profile, Research), hired HSBC fund manger Alok Sahoo as head of fixed income earlier this month.
HSBC Asset Management, which had an average assets under management of about 101 billion rupees in December, has promoted Suyash Choudhary as fixed income head.

Source: http://in.reuters.com/article/domesticNews/idINBOM42259920090129

Monthly Income Plan: Sound investment

Those with a low-risk appetite who want an 'equity icing' can go in for MIPs. Any savings instrument that contains equity has turned sour for investors following the 2008 markets crash. But there is one mutual fund product, Monthly Income Plan (MIP), launched in 2000, which has held on despite having exposure to equities.Although MIPs have posted negative returns both in nominal and real terms, experts reiterate a reconsideration of the offering as an investment option.

What are MIPs?

These funds were launched with the objective of providing regular income to the investor. Dividends, if any, were paid out of investment profits at periodic intervals - monthly, quarterly or half-yearly. The regular income objective could be achieved by investing at least 75% of the assets in good quality fixed-income instruments and the rest in equities. The less-risky funds restricted equity exposure to 10% of the assets.

Who should invest?

MIPs' target segment includes retired people or those nearing retirement. The offering could be a good solution for those who want to invest in safer assets and still want some 'equity icing'. The risk profile of these funds places them in the space between income and balanced funds, which in turn attract those with low-risk appetite. Those who prefer to have low-risk investment and still want to participate in an upside, if any, may consider investing into an MIP.

What does one expect?

In an age of turbulence, most of us are not sure where equity will head. Though most experts reckon that equities are quoting at bargain prices, it is difficult to go for them. In such circumstances, MIPs can emerge as a preferred means of getting equity exposure. In a falling interest rate environment, MIPs could deliver good returns going forward.

Possible adversities:

Only a few offerings in the market have maintained consistency in paying dividends. The pressure to deliver regular returns means that fund managers cannot take any long-term bet, and hence, the participation in upside remains limited. A postal monthly income scheme, which offers guaranteed returns, scores over MIPs when returns are uncertain.The fixed-income investments carry credit and interest rate risk. Fund managers are pressurised to perform in both the asset classes - equity and fixed income - which, in classical sense, are expected to move in opposite direction.Being on the right side matters. The extent of equity exposure a fund is allowed to take and active management of equity exposure primarily decides the excess returns generated by the fund. A 10% cap on equity exposure may appeal to investors because of the limited downside seen during bad times. But, the same would appear as a dampener as markets recover. There is a set of investors who would prefer to keep things simple by buying into a diversified equity fund and an income fund, where the proportion of investment in each is decided by the investor and the investor can enjoy the best of both the offerings.

Source: http://economictimes.indiatimes.com/quickiearticleshow/4014371.cms

Caveat emptor ::: LIC Jeevan Aastha

Is the phenomenal response to the Life Insurance Corporation’s (LIC) Jeevan Aastha scheme (that closed on Wednesday) a tribute to the life insurance
behemoth’s cleverness in structuring a winning product? Or is it — collections are estimated to cross Rs 8,000 crore — more a reflection of some smart, and not-so-transparent, selling by LIC? The answer is a bit of both. LIC certainly demonstrated an uncanny ability to assess the pulse of the market right, designing an assured returns product that seems tailor-made for uncertain times. But much of the success of the scheme is because LIC was less-than-fully transparent about the benefits. Unfortunately, the insurance regulator, IRDA, too, seems to have turned a Nelson’s eye to the not-so-subtle mis-selling going on right under its nose. Prima facie, Jeevan Aastha is a single premium assurance plan with guaranteed benefits on death or maturity. In an environment where banks have reduced interest rates on fixed deposits (FDs), it seemed to offer the best of both worlds — a higher (tax-free) return than FDs and insurance cover as well. Not surprisingly, it met with a huge response, though a careful calculation shows returns are likely to be much less — in the range of 6.75% to 7.25% per annum in most cases! This paper has often argued the need for greater financial literacy on the part of investors (and greater transparency on the part of players). Even so it is doubtful many investors, even those who are fairly clued-in, would have been able to pierce the veil behind LIC’s complicated ‘benefit illustration’. For instance, insurance proceeds are normally tax-free. But if the premium payable on any insurance plan exceeds 20% of the sum assured, the proceeds become fully taxable. In the case of Jeevan Aastha, the single premium is often likely to be more than 20% of the maturity proceeds rendering the maturity amount taxable. However, LIC chose not to disclose this. Caveat emptor must be the guiding principle especially where money is involved. Nevertheless, it is high time financial players stopped playing a cat-and-mouse game with investors, counting on their naiveté to garner funds. Where they do not, the regulators must step in and compel them to do so.

Source:http://economictimes.indiatimes.com/Opinion/Caveat_emptor/rssarticleshow/4019117.cms

Refinance window open till September

The Reserve Bank of India (RBI) On Tuesday extended the tenure for two refinance facilities, including one to provide support to mutual funds and finance companies, for banks by three months to September 2009, though the use of both windows remains minimal.

Soon after the collapse of Lehman Brothers in the US in September, the global financial market freezed and liquidity dried up from the markets. The effects were also seen India.
The central bank had opened refinance windows to ensure that mutual funds and non-banking finance companies (NBFCs) in India get adequate resource support to meet redemption pressure and are able to conduct normal operations. Later, the housing finance companies were also allowed to use this facility
Now, there is adequate liquidity in the system and funds are available due to a slew of steps, including a 400-basis-point cut in the cash reserve ratio. The actions of the Reserve Bank since mid-September 2008 have resulted in an augmentation of actual/potential liquidity of over Rs 3,88,000 crore.
A senior Bank of Baroda official said that currently there was no demand from mutual funds as they do not face redemption pressure. In the early part of the third quarter (October), MFs were facing liquidity problems due to a sudden rise in redemptions, immediately after the collapse of Lehman Brothers.
Under the first refinance facility, RBI provides assistance through repo window up to Rs 60,000 crore on an outstanding basis. Banks can avail additional liquidity support of up to 1.5 per cent of their net deposit liabilities only for lending to MFs, HFC and finance companies. Banks can still use eligible securities worth Rs 59,170 crore to draw funds under refinance facility, indicating very low usage of facility.

SEBI bans indicative yields on debt funds

India's market regulator on Monday banned funds from suggesting indicative yields on debt plans and cut the maximum maturity of papers liquid funds could invest, a move that could dent popularity of these schemes.
The Securities and Exchange Board of India (SEBI) said mutual funds must not disclose indicative yields and portfolios of debt funds, a practice widely followed in the industry to sell fixed maturity plans.
"This practice should be prohibited as the indicative portfolio and indicative yield may be misleading to the investors," the regulator said in a statement.
In an another statement, the regulator also lowered the maturities of papers that liquid or money market funds could invest into from the current requirement of one year.
It said liquid funds can invest in securities with maximum maturity of 182 days with effect from Feb 1 and 91 days with effect from May 1.
There are currently more than 350 fixed maturity and liquid funds managing about 1.6 trillion rupees, according to data from the Association of Mutual Funds in India.

Source: http://in.reuters.com/article/domesticNews/idINBOM21581720090119

Unitech's debt obligation reduced to Rs 600 crore up to March '09

India's second largest listed real estate developer Unitech on Monday claimed that its debt obligation up to March '09 has reduced from Rs 2,500 crore to Rs 600 crore on account of repayment and roll over of loans. Of the Rs 600 crore loan, which the company is now expected to pay back by March, 60% is due to banks and rest to mutual funds. The company claimed it paid back close to Rs 950 crore and the rest was rescheduled to a later date.
Unitech had a total debt of Rs 8,300 crore on its balance sheet as of September, of which Rs 2,500 was supposed to be repaid by March 2009. Unitech MD Sanjay Chandra said over Rs 1,000 crore loan has been restructured so far, but didn't give the exact figure.
Some of the loans that have been rescheduled include those which were due after March. Without clarifying how much Unitech still owed its lenders following the repayment and restructuring of loans Mr Chandra said, "We don't have substantial repayment obligation now. Nothing that worries us."
Unitech had raised Rs 900 crore at 19% interest rate from 8-9 mutual fund houses, including Reliance and Kotak, in November 2008. This was due for repayment on Monday. The company said it paid back a 'substantial' amount on Saturday, while the rest was rolled over.
"We are trying to replace our short-term mutual fund debt by long-term bank loans," said Mr Chandra, adding that he expected to replace Rs 2,500-crore short-term loans by long-term loans in the next two months. He said he has been able to raise fresh debt, mainly to retire old ones, but refused to give the amount of fresh debt raised.
Unitech in a hurriedly concluded EGM on Monday also obtained approval of shareholders to raise Rs 5,000 crore through fresh issue of equity or convertible instruments. "The way restructuring is happening and the pace at which it is happening, we don't need fresh capital. But if there is a window of opportunity, we will go for it," said Mr Chandra. He declined to comment on the shares promoters have pledged with other financial institutions.
On the issue of share buy-back of AIM-listed Unitech Corporate Park(UCP), Mr Chandra said a decision will be taken by the UCP board next week in Dubai. UCP holds real estate projects being executed by Unitech in India. Unitech's wholly owned subsidiary Nectrus Ltd will buy back shares using management fee it gets from UCP once the board gives a green signal.

Source: http://economictimes.indiatimes.com/Markets/Real_Estate/Unitechs_debt_obligation_reduced_to_Rs_600_crore_up_to_March_09/articleshow/4003452.cms

The amendment to LIC Act

On December 23, 2008, the government introduced in Parliament a Bill for amending the Insurance Act, to raise the capital of the Life Insurance Corporation from Rs. 5 crore to Rs. 100 crore. On the face of it, the intention behind the proposed amendment may appear to be good. Unfortunately, it is not so.

Needless exercise
It is a recognised fact that a life insurance company does not require any capital. There were, and still are, many life insurance companies known as Mutuals. Standard Life of the U.K. (which operated in India even before 1900 and is now again in India in partnership with Housing Development Finance Company) was a mutual company till June 30, 2006. In India itself, Bombay Mutual, before nationalisation of insurance, was a well known example. The mutual companies have no capital — only working capital, during initial years. Policyholders are the owners of these companies and the entire profit, after tax, goes to them.
The Rs. 5 crore provided by the government at the time of formation of LIC was more in the nature of working capital than real capital. Today, the Controlled Fund of LIC exceeds Rs. 7 lakh crore, with a solvency margin reserve of more than Rs. 30,000 crore. This reserve, built up by transfers from surplus (profit) after tax, is akin to general reserve and, therefore, for all purposes, equivalent to capital, but with one difference. Ninetyfive per cent of this capital belongs to policyholders.
With policyholders thus providing almost 95 per cent of the capital, LIC is virtually a mutual company. In this context, an addition of Rs. 95 crore to capital is a drop in the ocean and serves no purpose, except perhaps to facilitate passing of a part of the business to the private sector, Indian and foreign.
Can a minority shareholder unilaterally alter the capital structure of a company? This question has to be first answered before the bill, in its present form, is taken up for discussion in Parliament.
As per the LIC Act, the Central government is not eligible for more than five per cent of the valuation of surplus emerging each year. This was in line with the standard set up by Oriental Assurance Company before nationalisation. In the case of private insurers, as per the Insurance Act, the shareholders are eligible for 100 per cent of the surplus emerging from without profit policies and 10 per cent of the surplus emerging from with profit policies. The unit linked policies come under the without profit category. With these policies constituting more than 95 per cent of the portfolio of private insurers, almost 98 per cent of surplus goes to shareholders in the case of private insurance companies. Policyholders to suffer
If the proposed amendment to the LIC Act goes through, the shareholders’ share of profits of LIC will immediately jump from five per cent to 10 per cent and then gradually increase, during the next ten years, to more than 40 per cent. That is, within the next ten years, even assuming only a modest growth rate, the shareholders of LIC would get more than Rs. 15,000 crore a year, or Rs. 1,250 crore a month, as compared to the present level of Rs. 1,000 crore a year. This, at the cost of policyholders.
These figures would explain the objective behind the proposed amendment.
Such a move to siphon off the profits of LIC will result in enrichment of private pockets, drastically reduce the levels of bonus to policyholders, render the corporation uncompetitive and eventually weaken it beyond recognition. Simultaneously, the demand to withdraw government guarantee to LIC has been resurrected. The government can be allowed to withdraw the guarantee but, on one condition. Convert the LIC into a mutual company and make the policyholders, who have contributed 95 per cent of the capital, the owners.
The amendment to the Insurance Act made in 1999 has conferred on us a distinction. After this amendment, India is perhaps the only country not to allow formation of mutual insurance companies. But, this position can be easily rectified through a minor amendment to the Act. In this context, it is worth mentioning the view held by the International Association of Insurance Supervisors (IAIS). According to this body (not binding on member states), an insurance company can be either a joint stock or a mutual company.
For giving up its control of LIC, the government may be compensated through payment of a fixed sum, say Rs. 1,000 crore a year, for the next 20 years. One may feel that the quantum of compensation is high. But, the price of freedom always is.
If such a scheme is implemented, it would result in immediate increase in the levels of bonus to policyholders, making LIC a much stronger organisation.
In 1993, a national survey was got conducted by the Malhotra Committee, spanning cities, towns and villages. The survey showed that LIC’s emblem was readily recognised by more than 99 per cent of the persons covered by the survey. The LIC is not just a national institution. It is a symbol of national integration and its emblem is treated as a symbol of security. It is the duty of every right thinking Indian to stand up against any attempt to dilute this status.

R. RAMAKRISHNAN

ACTUARY

Source:http://www.hindu.com/biz/2009/01/12/stories/2009011250031600.htm

Bharti AXA MF Launches Regular Return Fund

Bharti AXA Mutual Fund has announced initial offer period of Bharti AXA Regular Return Fund, which is an open ended income scheme. The fund opens for new issue on 28 January 2009 and remains open till 24 February 2009. The NFO price for the fund is Rs 10 per unit. The scheme will re-open on 16 March 2009. The Scheme seeks to generate regular income through investments in fixed income securities and also to generate long term capital appreciation by investing a portion in equity and equity related instruments.The scheme will offer two plans viz. eco and regular plan with growth & dividend options. Dividend option will further offer dividend payout and reinvestment facility. Dividend reinvestment option will have with monthly, quarterly and annual frequency of dividend re-investment. Dividend pay-out option for regular income will be having monthly, quarterly and annual frequency. Eco plan is available for purchase transactions of up to Rs 2 lakh only. Where the value of any purchase transaction is greater than Rs 2 lakh, then such investments can be placed only in regular plan. Both plans will have common portfolio. The minimum investment amount for both eco and regular plan is Rs 10,000 and in multiples of Re 1 thereafter. Additional investments in an existing folio can be made for Rs 1000. The Mutual Fund seeks to raise a minimum subscription amount of Rs. 1 crore during its New Fund Offer period.

Mutual Funds turn sympathetic towards Unitech

Mutual funds, over time, have become sympathetic to Gurgaon-based realt estate company Unitech Ltd. Though the company will have to repay debt to the tune of Rs 1,100 crore to mutual funds over the next one week, there are many magnanimous fund managers out there who are willing to rollover the debt for some more time.
"Most funds have invested into asset-backed papers. Moreover, if there is rollover of debt, investors stand to gain significantly from increased yields (anywhere between 14 and 16%). Considering Unitech's large asset bank, a default is simply out of question," said the CEO of a domestic fund house.
According to a survey conducted by Matrix Financial Services, various mutual fund schemes have an exposure of over Rs 1,433 crore in Unitech Ltd, through several debt papers issued by the company. Several schemes of Reliance MF, HSBC MF and Sundaram BNP Paribas MF have exposure (to Unitech debt) in the range of Rs 50 crore and Rs 300 crore.
"Unitech does not have a credit problem; it is only constrained by a severe liquidity crunch. From what we understand, the company is ready to pay 40% of the money due to mutual funds in the coming week. We are ready to rollover the remaining 60% for another 20 days or a month," said the fixed income manager of a fund house attached to a PSU bank.
Close to downgrading Unitech's long-term rating to 'B (Ind)' from 'BBB (Ind)' about a week ago, Fitch Ratings, on Wednesday, downgraded Pass Through Certificates (PTCs) that are directly linked to the rating company's national long-term and short-term ratings of Unitech Ltd.
The downgrade signals the company's continued delay in raising the required funds as earlier projected and increasing uncertainty regarding its ability to service its interest cost and fulfil its immediate debt payment obligations.
"In case, there is a potential payment delay on account of liquidity issues expected from an issuer of a bond in a fund's portfolio, one of the ways this kind of challenge is temporarily met is by replacing the bond with another instrument of the same issuer. However, this would affect the cashflow position of the fund," Crisil fund service head Krishnan Sitaram.
If there is a redemption request at that time, the options of meeting that can then be by selling that security or some other security in the portfolio or by availing of a bank loan, Mt Sitaram added.
The company has convened an EGM on January 19 to discuss various nagging issues. According to mutual fund sources, the company is also meeting a couple of banker on January 16 and 17 to decide on loan restructuring.
"We'll be comfortable with a rollover. Many of our investors are willing to reinvest in fresh short-term paper issued by Unitech. Many will also be looking to invest in other debt plans. I guess, there wouldn't be a big repayment issue," said the debt fund manager of a Mumbai-based fund house.
Given the weak operational cashflows, the company will resort to asset sales or debt restructuring over the near-term. According to a BNP Paribas report, forced asset sales in the current environment could further erode equity value. Management indicated that it is in the process of raising Rs 800 crore to tide over the near-term liquidity crisis. Failure to do so could lead to forced sale of underlying assets - primarily land, the report said.

Source: http://economictimes.indiatimes.com/articleshow/3987776.cms

Fitch affirms 'AAA (ind)' rating of IDFC Liquid Fund

Fitch Ratings has today affirmed IDFC Liquid Fund's National rating at 'AAA(ind)'. The rating reflects the fund's highest standards for credit quality and its conservative investment approach, relative to other liquid funds in India. The agency has considered the fund's investment policies, management capabilities, risk management procedures and supporting controls in ensuring consistency with management's objectives.
As of 29 December 2008, 96% of the portfolio was invested in assets rated 'F1+ (ind)'/'AAA (ind)' or equivalent, while the minimum credit rating of securities held was 'F1' or equivalent. Fitch notes that the portfolio management team intends to maintain the fund's credit quality when choosing new investments. However, the poor liquidity of lower rated securities in the Indian debt market may put the portfolio credit quality under stress, should assets held in the portfolio be downgraded.
The fund faces concentration risk as at end-December 2008; a large portion of the fund's assets are invested with debt securities of just three issuers, of which the largest, in terms of portfolio exposure is a Government supported entity, hence partially mitigating this concentration risk.
The investment manager of the mutual fund is IDFC Asset Management Company Pvt. Ltd. The sponsor of the mutual fund is IDFC, a diversified financial institution providing a range of financing products and services with infrastructure as its focus area.
Fitch's National fund credit ratings are assigned on a scale of 'AAA(ind)' to 'C(ind)', on a rating scale similar to that of Fitch's National Long-term credit ratings, with 'AAA(ind)' indicating the highest credit quality standards within the country. The assigned rating provides a relative measure of the fund creditworthiness only in comparison with other funds in India as it is a National rating. It is therefore not internationally comparable. Fitch's bond fund credit rating do not consider the effect of market risk on net asset value ("NAV") movements, and are not an indication of the stability of the fund's NAV. Such issues are assessed in Fitch's bond fund volatility ratings.

Source: http://news.moneycontrol.com/india/news/pressnews/fitch-affirmsaaaind-rating-idfc-liquid-fund/14/00/379201

Reliance Mutual Fund Plans To Launch A New Scheme

Reliance Mutual Fund plans to launch a new scheme called Reliance Infrastructure Fund- an open-ended equity scheme.

The Scheme will offer two plans- retail and institutional option and both plans will offer- growth plan with growth option and bonus option and dividend plan with dividend payout option and dividend reinvestment option. The scheme may invest upto 65%-100% in equities and equity related securities including the derivatives. At least 65% of investment would be made in equity/equity related securities of companies engaged in infrastructure sectors and infrastructure related sectors. Apart from this, the scheme will invest upto 35% in debt and money market securities including investments in securitized debt. Investment in securitized debt should be upto 30%.

Source: http://indian-mutualfund.blogspot.com/

NFO :: Fidelity Wealth Builder Fund

Fidelity International's Indian asset management company today announced the launch of its Fidelity Wealth Builder Fund, an open ended fund of funds scheme offering asset allocation options with three Plans. The investment objective of the fund is to seek to generate reasonable returns based on the Plan selected with minimum and maximum asset allocation between debt and equity. The fund manager will use a two-tier investment approach – asset allocation and fund selection – to invest in Fidelity’s funds. This is a zero entry load Fund with free switching between Plans permitted.
The NFO will be open from January 14 to February 5, 2009. The Fund will open for ongoing purchases and redemptions from March 2, 2009.
Ashu Suyash, Managing Director and Country Head - India, Fidelity International, said, “Asset allocation decisions can drive as much as 91.5% of investment returns variability, as studies have shown. In the current market conditions of heightened volatility, a fund like the Fidelity Wealth Builder Fund provides investors a convenient route to benefit from disciplined asset allocation. We are in an environment where attractive returns are likely in the bond market and there is potential for bear-market rallies in equities on the back of increasingly attractive valuations.”
The Fidelity Wealth Builder Fund offers three Plans with varying levels of exposure to debt and equity that investors can choose from depending on their risk appetite.

Under Plan A, the Fund will invest up to 85% in debt schemes and around 15% in equity schemes.

Under Plan B, the Fund will invest around 30% of net assets in equity schemes and the remaining in debt schemes and

under Plan C, the Fund will invest at least 50% of the net assets of the Plan in debt schemes and 50% of the net assets of the Plan in the equity schemes.
Ms. Suyash added, “To encourage investors who have turned risk averse, the Fidelity Wealth Builder Fund is a fund with no entry load. Whether investors invest through their advisers or directly, they will not be charged an entry load. Moreover, the Fund also offers investors free switch-in and switch-out facility between the Plans, if, over time, investors’ outlook for debt and equity changes.”
The Fund will offer Growth and Dividend options. A dividend is proposed to be declared, subject to availability of distributable surplus, on a Quarterly basis under Plan A and Plan B. Under Plan C, the dividend may be declared by the Trustee, at its discretion, from time to time subject to the availability of distributable surplus.
The Fidelity Wealth Builder Fund will have a custom benchmark for each Plan created using the CRISIL Composite Bond Fund Index and the BSE 200 in the proportion of the split between debt and equity for each Plan.
The Fund has no entry load but an exit load of 1% will be applicable for redemptions within a year from the date of purchase.

The minimum initial investment is Rs. 5000. Investors can invest in the Fidelity Wealth Builder Fund even through the SIP route with a minimum amount of Rs. 500 per installment with the total of all installments not being less than Rs. 5000. In addition, the systematic transfer and systematic withdrawal plans are also available.

Indian bond yields off lows, federal auction eyed

Indian federal bond yields rose from intraday lows on Thursday as some investors pared positions ahead of a debt sale on Friday, but hopes the central bank may cut interest rates further curbed a sharper rise.

The 10-year bond yield ended at 5.55 percent, off the day's low of 5.47 percent but still below Wednesday's close of 5.58 percent.

Volumes were heavy at 121.20 billion rupees ($2.5 billion) on the central bank's trading platform, with the 10-year bond being the most heavily traded.

At the day's low, the benchmark yield had fallen 73 basis points this week. In the previous week, it rose 113 basis points due to concerns over heavy government borrowing.

Dealers said they would watch cut-off levels at the federal debt auction due on Friday for further cues.

"Cut-off yields at the debt auction are likely to be slightly higher than those in the secondary market as abundant supply exists," said Bekxy Kuriakose, head of fixed income at DBS Chola Mutual Fund.

Annual inflation fell to a 11-month low of 5.24 percent in early January compared with 5.91 percent in the previous week, marginally below a Reuters poll of 5.28 percent.

Analysts said the fall and expectations of a further cut in fuel prices would give the central bank room to cut rates to revive the slowing economy at its next monetary policy review on Jan. 27.

Other economists said the bank may hold off, preferring to assess the impact of the aggressive moves already taken.

Since mid-October, the central bank has cut the repo rate, at which it lends to banks, by 350 basis points as high borrowing costs and global financial crisis took a toll on economic growth.

"We expect an additional 100-150 basis points easing in policy rates in the coming months," Citigroup said in a note. ($1 = 49 rupees)

Source: http://in.reuters.com/article/domesticNews/idINBOM13292220090115?sp=true

Unitech FMP exposure’s Rs 1,500 cr

FIXED maturity plans (FMPs), which are short term in nature, have invested a mammoth Rs 1,500 crore in troubled real estate major Unitech. This is part of a Rs 2,500-crore debt which Unitech has to repay by March 2009. The company is now trying to refinance a part of the exposure to FMPs and convert it into a long-term debt. For this, Unitech is in talks with banks to refinance part of the exposure, said investment company sources who wished not to be named. The other part of the exposure is expected to be rescheduled. Unitech’s head, corporate strategy and planning, R Nagaraju clarified that Unitech’s exposure to mutual funds was 15% of the total debt, not Rs 1,500 crore. However, he did not confirm how the company plans to pay back the debt. “There is a strategy in place to repay the Rs 2,500-crore debt by March 2009,” he said. According to an Edelweiss sector report published in November 2008, Unitech’s total outstanding debt is Rs 10,000 crore, while its net debt is Rs 8,350 crore. It has been reported that Unitech has already restructured Rs 1,000 crore loans, mainly with PSU banks, and the company is also talking to banks to restructure an additional Rs 500 crore to cut debt. The Reserve Bank of India recently allowed banks to restructure loans given to real estate companies for commercial real estate, and not classify them as non-performing assets (NPA). Earlier, the moment a loan extended to the real estate sector is restructured, the lender has to classify it as a bad loan. At the same time, however, one-time restructuring of loans to any other sector such as steel, textile or cement would not result in the loans being classified as NPAs. This new window has been given to banks till June 30, 2009.

Source:http://epaper.timesofindia.com/Default/Client.asp?Daily=ETM&login=default&Enter=true&Skin=ET&GZ=T&AW=1232011727453

Unitech Exposure - Debt-Money Market Funds

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Fitch affirms 'AAA(ind)' rtg of UTI Floating Rate Fund

Fitch Ratings has today affirmed UTI Floating RateFund's (Short Term Plan) National rating at 'AAA(ind)'. Therating reflects the fund's highest standards for credit quality,its conservative investment approach, well established riskmanagement processes and management controls, relative to otherliquid funds in India. The agency has considered the fund's investment policies,management capabilities, risk management procedures andsupporting controls in ensuring consistency with management'sobjectives. As of 30 November 2008, 96% of the portfolio was invested inassets rated 'F1+(ind)'/'AAA(ind)' or equivalent. The securitywith the lowest rating in the portfolio has a rating of'AA+(ind)' or equivalent. Fitch notes that the portfolio management team intends tomaintain the fund's credit quality when choosing new investments.However, the poor liquidity of lower rated securities in theIndian debt market may put the portfolio credit quality understress, should assets held in the portfolio be downgraded. The fund faces concentration risk as at end-November 2008;68% of the fund's assets were invested with debt securities ofjust three issuers, but all three issuers have the highest creditrating and their debt securities are relatively liquid, hencepartially mitigating this concentration risk. The investment manager of the mutual fund is UTI AssetManagement Company Pvt. Ltd. The sponsors of the mutual fund areState Bank of India, Punjab National Bank, Bank of Baroda andLife Insurance Corporation of India. Fitch's National fund credit ratings are assigned on a scaleof 'AAA(ind)' to 'C(ind)', on a rating scale similar to that ofFitch's National Long-term credit ratings, with 'AAA(ind)'indicating the highest credit quality standards within thecountry. The assigned rating provides a relative measure of the fund'screditworthiness only in comparison with other funds in India asit is a National rating. It is therefore not internationallycomparable. Fitch's bond fund credit rating do not consider the effect ofmarket risk on net asset value ("NAV") movements, and are not anindication of the stability of the fund's NAV. Such issues areassessed in Fitch's bond fund volatility ratings.

Source: http://in.reuters.com/article/domesticNews/idINWNA393920090115

HDFC MF replaces ICICI Pru to be the second-largest in assets

LIC Mutual Fund breaks into the top-10 club, claims ninth slot.

The stock market crash of 2008 has changed the pecking order of the top 10 mutual funds in terms of their average assets under management (AAUM).
Among the top five, there has been a shuffle in positions. While Reliance Mutual Fund has been able to maintain the number one position at Rs 70,000 crore, ICICI Prudential has been pushed to number four from second spot by HDFC Mutual Fund. ICICI Prudential was above HDFC by Rs 7,300 crore in January-end 2008. But at the end of December, HDFC’s assets were up by Rs 4,879 crore over that of ICICI Prudential.
However, HDFC’s rise in the pecking order is more due to a significant fall in the assets of ICICI Prudential rather than an increase in its own AAUM. ICICI’s AAUM has fallen by 15,230 crore between January and December-end, while HDFC’s assets fell by only Rs 2,780 crore during the same period.
According to HDFC Mutual Fund Managing Director Milind Barve, while their equity schemes have shown resilience during the market crash, it was mainly the debt funds that saw some inflows in the year. “In 2009 too, we expect debt and liquid schemes would do better and collect more money,” he said.
Both UTI Mutual Fund and Birla Sun Life Mutual Fund have maintained their positions at third and fifth respectively. Interestingly, only Birla Sun Life has managed to increase its assets in this period by Rs 4,488 crore. Reliance Mutual Fund has been able to maintain the top slot even after its AAUM dropped during the said period by over Rs 13,690 crore.
According to mutual fund experts, assets were largely affected as nearly half of the actively-managed, diversified stock funds underperformed the benchmark index. These funds put up this poor show despite maintaining a double-digit cash level almost throughout the year.
While ICICI has greater dependence on equity schemes, its fixed maturity plans (FMPs) too were battered due to huge redemption pressure.
The AAUM of UTI Mutual Fund, which has maintained its third position, fell quite sharply by Rs 14,320 crore.
Assets of equity funds were halved in 2008, giving up the entire gains made in the previous two calendar years, as indices slumped by over 50 per cent during the period. This is the worst annual performance recorded by equity funds ever.
These funds’ monthly allocation to mid- and small-cap shares ranged between 33.6 per cent and 43.8 per cent in the year. This exposure delivered a blow to their portfolios as the mid- and small cap indices of the Bombay Stock Exchange slumped by over 70 per cent.
Hemant Rustagi, Director, Wise Invest — a mutual fund distributor — said for a major part of 2009, debt schemes would do well, while inflows into equity schemes may steadily rise during the later part of the year.
While Kotak Mutual Fund’s eighth position has been taken over by Tata, a surprise entrant in the top-10 club is LIC, which is at the 9th position. DSP BlackRock (the erstwhile DSP Merrill Lynch) has been weeded out of the top 10 list after its assets declined by Rs 8,600 crore.

Source: http://www.business-standard.com/india/news/hdfc-mf-replaces-icici-pru-to-besecond-largest-in-assets/18/01/345342/

CDs issuance falls; MFs prefer to hold cash

Issuances of certificates of deposit (CDs) fell today as mutual fund houses — the major investors in such papers — avoided fresh buying and preferred to hold cash, dealers said.

Today, Punjab National Bank placed Rs 1,000 crore of one-year CDs at 7.60 per cent. According to dealers, some mutual funds were holding cash since a long time and were eager to invest the excess funds in CDs due to the recent rise in rates.
Hindustan Construction Co placed Rs 10 crore of three-month commercial papers at 10.35 per cent. Usha Martin issued Rs 25 crore of 89-day non-convertible debentures having a daily put/call option at 250 basis points above Mumbai Interbank Offered Rate. A private mutual fund invested in this paper.
Today, the overnight Mibor was at 4.26 per cent compared with 4.29 per cent on Saturday.
On Friday, L&T Infrastructure placed Rs 50 crore of three-month commercial papers at 9.50 per cent. State Bank of Mysore placed Rs 200 crore of June maturity CDs at 6.95 per cent.
Oriental Bank of Commerce’s December maturity CDs were dealt at 7.55 per cent today. Today, December maturity papers were dealt at 7.55-7.75 per cent unchanged from Friday.

Source: http://www.business-standard.com/india/news/cds-issuance-falls-mfs-prefer-to-hold-cash/18/01/345988/

Investors wary of equity, MF tax saving schemes

Many people start thinking about tax planning only after the New Year. With barely three months to go for the last date of completing the process, they would weigh their options and their tax implications . However, according to financial advisors, some people seem to be wary of equity linked tax saving scheme (ELSS) or tax saving schemes from the mutual fund houses.
The reasons are many. One, the latest Satyam fiasco has shaken their confidence in the stock market. Two, the ensuing financial turmoil in the global arena and also in India is also making them nervous. Lastly, the performance of these schemes is also nothing to write about. (See table: to 5 tax planning schemes). You can't blame poor investors if they want to let go off tax saving schemes this year. "I have been investing in tax saving mutual fund schemes for the last three years. All these schemes have given me negative returns. Considering the current status of the market, I don't want to invest in them this year," says an employee in a courier company.
But is it a wise move? "It is a natural psychological reaction . People wanted to get into the market when it was at 18,000 or 20,000, but when it is actually hovering around 9,000 to 10,000 they don't want to invest ," says Sajag Sanghvi, a certified financial planner. "But avoiding ELSS because of the bad performance of a year or two could be a huge mistake. If you have invested in ELSS as part of your asset allocation plan to take exposure to equity, you should continue with it," he adds.
"Investors shouldn't let short-term trends cloud their judgement. They should understand that among investment options under section 80 C, apart from ELSS all other instruments offer only fixed rate of returns," says a tax consultant. "They can get only 8-9 % from schemes like national savings certificate, public provident fund, 5-year fixed deposits. But they stand a chance to earn better returns of, say, 12-15 % from tax saving schemes. This is provided they have the stomach for risk and are prepared to wait for three to five years," he adds.
True, you should invest in stocks only because you are ready to take the risk and wait for at least three years.

Source: http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/Investors_wary_of_equity_MF_tax_saving_schemes/articleshow/3971093.cms

MFs shy away from equity-linked offers

The unexpected Satyam scam has further dampened the market sentiments. It has led to a dip in both the leading bourses. The bearish sentiment likely to deter the Mutual Fund (MF) houses from filing applications with the Sebi for offering equity-linked new fund offerings (NFOs) for the retail investors.
According to Sebi, out of 35 fund houses, only two have filed applications for offering equity-linked NFOs in the last one month.
The ICICI Prudential Mutual Fund has filed two applications with the regulator to offer ICICI Prudential Recovery Fund, an open ended equity fund, and ICICI Prudential Target Return Fund, an open ended diversified fund. Similarly, Tata Mutual Fund has filed an application for Tata Value Opportunities Fund, an open ended equity scheme.

A senior analyst from a broking firm said that the domestic market was effected due to the US financial tsunami leading to the global market meltdown. The BSE Sensex dipped by 52% or 10,639 points and NSE Nifty slide by 52% or 3,179 points in the calendar year 2008. The market has shown some recovery in the month of December, 2008 as Sensex gained 9% or 809 points and Nifty jumped by 10% or 276 points. However, Satyam scam was responsible for the nervousness in January as both the leading bourses are currently having south-bound journey.
In line with the equity market players, the MF industry is uncertain about the market movement. Commenting on the few applications for introducing equity-linked NFOs, a fund manager from a domestic fund house said that the overall bearish market due to the global meltdown and now the scam will influence the retail investors not to invest in the equity-linked NFOs. They will prefer to hold all their investment decisions for a while, the fund manager said.
It may be mentioned here that the meltdown in the equity market has majorly resulted in the reduction of Asset Under Management (AUM) of the MF industry. According to Amfi, the AUM has dipped by Rs 1.27 lakh crore to Rs 4.21 lakh crore as on December 31, 2008 in the calendar year 2008.

Source: http://in.biz.yahoo.com/090112/203/6zas1.html

Make your MF portfolio a long term plan

Over the last few days, there has been a growing consensus on the fact that asset classes are set for a free fall. While equity has been showing intermittent strengths at lower levels, it has been more on account of trading support than investment buying with long-term investors preferring cash or debt. In fact, in the last few months, the fund flow from the high net worth individual community to debt has been on the rise and besides bank deposits, income funds and gold have been the preferred bets.
In such a scenario, investors have to rely on a de-risking model to build a portfolio and reliance on a single instrument or option may not provide the comfort. Investors who prefer mutual funds can look at a combination of products to minimise risk. While the percentage of allocation for each scheme differs based on individual risk-taking ability and tenure of the investment, these options can be considered by a larger segment as portfolio components.
Here are some of those options:
Debt allocation :
This has been the preferred option in recent times due to the economic environment. While fixed deposit is a product with assured returns, mutual funds (MFs) don't offer the comfort of assured returns. However, MFs have a wide range of products ranging from income funds, liquid funds to ultra short-term bond funds for investors looking for a debt option. As they are more tax-efficient and also offer the flexibility of partial withdrawal, these products can be your option besides fixed deposits.
Allocate around 50 per cent of your corpus towards these in the current market environment, while your short-term fund needs should be completely in debt.
Balance with risk :
An ideal MF portfolio should reflect the risk-taking abilities of the investor and should have a mix of debt, equity, gold and other options that come up from time to time. For instance, the real estate portfolio management service (PMS) or equity PMS are some options that have been launched by mutual fund companies in recent times. As a result, investors should be aware of the changing market needs and should also have the liquidity to take advantage of such opportunities. For instance, while everyone expects the equity markets to test new or October lows in 2009, a smart investor would brace himself for such an event by building his liquid portfolio.
The management of risk is a key component of an ideal portfolio and that could be achieved through a single product or a combination of products, the latter is a better option though. For instance, balanced funds do take care of risk management but to a limited extent and would be an option for small sums. A senior citizen can allocate his corpus between fixed return products and balanced funds for his postretirement fund needs in the early stages of his retirement life. For him, such a combination can fulfil the needs of balancing with a couple of products. It may not be the case for a young investor who has different fund needs with different tenures.
Finally, portfolio creation is a long-term exercise and with respect to equity portfolio, the task extends over a longer period of time. In the case of equity, the approach has to be long-term and has to be a continuous process. For MF investors, there are plenty of products for such an exercise in the form of systematic investment plans (SIPs) and systematic transfer plans (STPs), and such investments can be through a combination of products across sectors.

Source:http://economictimes.indiatimes.com/Features/Financial_Times/Make_your_MF_portfolio_a_long_term_plan/articleshow/3962507.cms

Canara Robeco Mutual Fund Decide To Restrict Sale Of Unit

As the asset under management (AUM) of the Canara Robeco Income Fund crossed Rs 350 crore, Canara Robeco Mutual Fund has decided to restrict the sale of units. The fund has acquired more than Rs. 350 crore of AUM (corpus of nearly Rs 363.56 crore at end of 31 December 2008). So in order to protect the interest of the continuing investors, the Trustees have decided to limit the maximum amount of application to Rs. 1 crore and above. But, the fund will continue to accept application amount for less than Rs 1 crore. So, as and when the AUM fall below Rs 350 crore, the fund shall re-open the sale of units for application of Rs 1 crore and above.
Canara Robeco Income Fund is an income fund aims to generate income and capital generation through a low risk strategy by investing in debt securities as well as money market instruments. As on 7 January 2009, the NAV of the fund stood at Rs 18.0

SBI MF cuts exposure to IT, auto, oil & gas

SBI Mutual Fund has pared exposure to Information Technology, Automotive and Oil & Gas sectors while increased to Cement & Construction, Banking & Financial Services and Metals & Mining sectors. Bajaj Auto Finance, HPCL and Rural Electrification were top buys while Atul, Reliance Petroleum and Indiabulls Real Estate were top sells.
A study of the equity portfolios managed by the SBI Mutual Fund as on December 31, shows that in the Information Technology sector, it has sold shares of Infosys Technologies, Satyam Computer and TCS.
Selling was also seen in automotive space, wherein it offloaded Maruti Suzuki, Apollo Tyres and Tata Motors.

In the Oil & Gas pack, it has cut some exposure to Reliance Industries, ONGC, BPCL and Aban Offshore. However, it has purchased HPCL.
The fund house has increased exposure to Cement & Construction, Banking & Financial Services and Metals & Mining sectors.
In the Cement & Construction space, it has bought shares of Jaiprakash Associates, HCC, Nagarjuna Construction and GMR Infrastructure while sold IVRCL Infra.

The fund house also increased stake in Banking & Financial Services segment. It purchased shares of SBI, ICICI Bank and IDFC. However, it sold HDFC and Kotak Mahindra Bank.
SBI Mutual Fund has raised its investment in Metals & Mining pack, as it bought Tata Steel, Welspun Gujarat and GMDC. However, it sold Sterlite Industries and Hindalco Industries, and exited JSW Steel.

Fact of the matter

A mutual fund scheme`s fact sheet is like a monthly report card. It provides information to investors about where and how their funds have been deployed.

A mutual fund scheme's fact sheet is like a monthly report card. It provides information to investors about where and how their funds have been deployed. It also showcases the performance of the scheme and the quality of investments. Sometimes, the monthly reports are also accompanied by the fund manager's views and comments.
There is no standardised format for a fact sheet. The Association of Mutual Funds of India has suggested that all fund houses have a uniform format, but as there is no guideline from Sebi, fact sheets across the fund houses tend to be different.
However, the important details of equity and debt funds in the fact sheet are almost the same for fund houses. Here are the vital points that an investor can check in a fact sheet:

Stock allocation: It lists the individual stocks in which the fund has invested its corpus, as also their proportion. Equity funds plough in money in a large number of stocks, but investors must consider the top holdings (eight to 10 stocks) of the fund's scheme. This will help them determine the extent of diversification by the fund.
Sector allocation: This is important as equity diversified funds invest across sectors to derive the benefit of diversification. The funds that consistently allocate a substantial proportion of their assets to a single sector are more likely to be affected by factors such as a slump in that particular sector. Diversifying across various sectors helps offset the negative effects of a downside in a couple of sectors.
Cash levels: In the past few years, mutual funds have increasingly been using cash as a strategic tool to combat volatility. Check your fund's cash level as it can hint at the market conditions your fund manager is expecting in the near future. For instance, if the cash level is high, it probably means that the fund manager is expecting market uncertainty.
Expense ratios and loads: Check the expense ratio along with the entry or exit loads associated with the scheme. The fund's net asset value is computed after factoring in these expenses. The higher the expenses charged by the fund, the lower are the returns received by the investors. In case of debt funds, the indicators that one should look for are different from those that are common to equity-oriented funds. The factors important for debt funds include the quality of investments, maturity and rating profile.
Average maturity: As the performance of a debt fund is inversely related to interest rates, the average maturity of the fund's debt holdings is of utmost importance. If the average maturity is consistently high (over a period of time), it implies that the manager expects the interest rates to fall in the future, and vice versa.
Rating profile: Debt funds invest in securities with different credit ratings (e.g. AAA, AA+). Such ratings determine the risk profile of a debt fund. The funds that invest the majority of their corpus in low-rated debt instruments are prone to high credit risk, which can affect their performance considerably. There are other facts in the fact sheet that are common to both equity and debt funds such as the investment objective, performance of the fund, applicable dividends, performance of the fund versus that of the benchmark, and the past performance compared with funds within the peer set.

Tata Infrastructure Tax Saving Fund

Scheme Feature-
Tata Infrastructure Tax Saving Fund is a close - ended Equity Linked Savings Scheme offering Tax benefits to eligible assessees under Section 80 C of the Income Tax Act, 1961. The Scheme seeks to provide medium to long term capital gain by investing predominantly in equity / equity related instruments of the companies in infrastructure and infrastructure related sectors along with the income tax benefit to its unitholders.
The duration of the scheme is 10 years from the date of allotment and has a minimum lock in period of 3 years.
NFO Opening Date-17th December 2008
NFO Closing Date- 16th March 2009
Entry Load- For amount < Rs. 2 Cr, exit load charged will be 2.25%
For amount >= Rs. 2 Cr, exit load charged will be nil.
Exit Load- There is a 3 year Lock-in Period.
Minimum Amout- Rs.500/- and in multiples of Rs.500/-
Benchmark Index- BSE Sensex
Fund Manager- Venugopal M. and Mahendra Jajoo

MFs say they exited early from company

The Satyam fiasco is going to leave many mutual fund houses red-faced . A host of mutual fund houses such as Franklin, HDFC, HSBC, Fidelity among others have holdings in the defamed information technology company.
However, unlike many hapless investors they have already been selling stock for some time now. Most fund houses maintained that they have been selling the stock since the trouble started or even before that and their holding is significantly lower or nill in some cases as on December.
Some also claimed that since they place emphasis on diversification, they never went overboard on one company.
“We started selling Satyam stocks ever since the Maytas deal was announced. Today, our holding is substantially lower, it would be less than 1%,” says U K Sinha, chairman, UTI. “This is a wake-up call for the authorities. The time has come for co-ordinated and concerted efforts to make sure these kind of things shouldn’t happen anymore,” he adds.
“As a long-term fund manager, we have strong risk management controls which ensure that there is adequate diversification in the portfolio with negligible concentration risk at any point in time. With assets under management of around Rs 28,000 crore, our exposure to Satyam as a percentage of our portfolio is insignificant as of now,” says a senior official at ICICI Prudential Life Insurance Company .
“This certainly is an unprecedented event. It is paramount for us to protect the interests of our stakeholders, and we are evaluating all possible options along with other institutional shareholders to maximise the value for our stakeholders,” he added.
“Wherever we have a substantial stake, we are mostly on board of those firms. So, we are aware of what is happening and also we ensure that the independent directors are auditors of top quality,” says a senior LIC official. nancial services sector. One can make a mistake but two audit firms can’t make it.” PWC, it is been reliably learnt, has been Satyam’s auditor for almost nine years.
A partner at a domestic chartered accountancy firm said that the underline problem is the basic relationship between auditors and management, where they trust the management too much and take things on face value. The satyam issue highlights that the auditor has not followed even the routine procedures and standards. Like the inflated cash balance on Satyam’s books, if the auditor had physically verified the same, matters wouldn’t have reached this extent.
“This is major eye opener and would bring into renewed and critical focus role of auditors in Satyam” said Suresh Surana, founder of RSM Astute Consulting group. TNN
MUMBAI/BANGALORE: The Satyam fiasco has put the spotlight on the role of external auditors in a company. Industry experts say that the governing body of chartered accountants, Institute of Chartered Accountants of India, should review the guidelines for audit firms.
Said a council member of ICAI, “There should be a rotation of auditors once in three years as this would restrict the association of a particular audit firm with a company for a long time.” Another independent chartered accountant said, “Like in France and Denmark, in India too it should become mandatory for a joint audit, especially in listed companies, where the onus would be both the auditors rather than one like in the case of PricewaterhouseCoopers in Satyam.

Source: http://economictimes.indiatimes.com/Infotech/Software/MFs_say_they_exited_early_from_company/articleshow/3950781.cms

MFs get extra-cautious after Satyam fracas

The crisis over Satyam has left the mutual fund industry in the wilderness as to what extra precautionary measures can be taken to judge the quality of a management while investing. Anticipating similar like fiasco in the future too, MFs plan to be more vigilant in scrutinising balance sheets.
Terming the incident as ‘detrimental to Indian Inc’ industry players are keeping close watch on all Satyam related developments, especially with respect to auditors and bankers of the company. “Auditor’s role is very crucial in this entire saga. We would like to hear from PwC as well as from all the bankers of the company. Their views will put more light into it. Based on that, we shall strengthen our efforts in judging corporate governance of a company,” said Waqar Naqvi, chief executive, Taurus Asset Management.
The balance sheet of Satyam carries inflated cash and bank balances of Rs. 5,361 crore as against Rs.5,040 crore and accrued interest of Rs.376 crore which is non-existent. Industry players express their helplessness over it. Said N K Garg, CEO, Sahara Mutual Fund, “It is not feasible for industry players to cross-check with every banker of a company about the cash in hand or any other item like accrued interest.”
However, Garg added, “it is not enough for MF investors to check only two pages of a balance sheet to draw a conclusion about a company. One will have to go through the schedules and notes of accounts mentioned with the balance sheet. Corporate governance gets 52% of the total scores in asset management in our house.”
As on 31 December, 2008, HDFC Growth and HDFC Equity had Satyam investment of 1.95% and 2.64% to their NAVs. Birla Sun Life Equity had 2.75%. Three schemes of UTI AMC and two schemes of Franklin Templeton had also holdings between 1.75% and 8%. As on November, 2008; Reliance Advantage fund and Reliance RSF had 1.19% and 2.83% respectively.
However, all those stakes have been brought down substantially in view of recent developments in Satyam. Most of the MFs offloaded their stake booking the loss to minimum possible extent when the scrip was traded at 3 digit figures on Wednesday in a losing streak. Fund houses refuse to be quoted on Satyam exposure.
Mentioned Sanjay Sinha, chief executive officer, DBS Cholamandalam Asset Management, “for investments, there is no ready formula to counter such situation. In determining the quality of management we do every needful exercise. Going ahead, there could see many such cases of deliberate frauds.”
In a probable solution to mitigate the risk of investment in such unprecedented fraud case, Anoop Bhaskar, head – equity, UTI Asset Management, presents a case. He said, “It is great learning experience for all of us as it is the first Indian company involved in a fraud of this magnitude. We need to concentrate more on diversification of portfolios. If fund managers restrict a particular company investment to the tune of 2-3 per cent investment, the loss gets limited.”
Going through the annals of ENRON and Worldcom, fund managers are not surprised over Satyam but are scouting for ways to put more focus on corporate governance.

Source:http://economictimes.indiatimes.com/articleshow/3952116.cms?from_et_daily_newsltr=1

BNP Paribas exits Satyam

Fund house raised its holding in the embattled software firm tenfold in December 2008 to more than 5 mn shares, but sold the entire stake in the last week, said Satish Ramanathan, head of equities, BNP Paribas

The mutual fund venture of BNP Paribas has sold its entire holding in Satyam Computer Services, a top executive said on Wednesday.The fund house raised its holding in the embattled software firm tenfold in December 2008 to more than 5 million shares, but sold the entire stake in the last week, Satish Ramanathan, head of equities, Sundaram BNP Paribas Asset Management said..“In January, we have sold... before this event,” he said, referring to a free fall in Satyam’s shares after its chief said earlier on Wednesday that the firm’s profits had been inflated.Sundaram held more than five million shares worth about Rs880 million in Satyam at end-December 2008, ten times its exposure at end-November2008, data from fund tracker ICRA Online showed. Ramalinga Raju, chairman of Satyam, India’s 4th-biggest software services exporter, resigned on Wednesday, saying the company’s profits had been inflated over recent years, sending Satyam shares plunging as much as 80%.

Source: http://www.livemint.com/2009/01/07153424/BNP-Paribas-exits-Satyam.html

SEBI horrified by Satyam revelations; studying actions

Raju has written to the board giving details of the balance sheet that he says has inflated cash balances of Rs5,040 crore

The chairman of embattled Satyam Computer Services resigned on Wednesday and said the company’s profits had been inflated over the last several years, sending the stock down 80%.The shocking revelation comes after India’s fourth-largest outsourcer’s botched attempt last month to buy two construction firms in which the company’s founders held stakes and key customer World Bank dropping its ties with the outsourcing company.

“The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years,” Satyam Chairman Ramalinga Raju said in a statement to stock exchanges on Wednesday.

Satyam’s woes make it one of India’s most high-profile company scandals in recent years. The comments from Satyam sent Indian equity markets in a tailspin, with Bombay’s main benchmark index falling 3.9%.

Raju has written: “It is with deep regret and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice: The Balance Sheet carries as of 30 September, 2008, a) Inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books); b) An accrued interest of Rs 376 crore, which is non-existent.Satyam, which specialises in business software and back-office services for clients such as General Electric, and Nestle, was due to hold a board meeting on 10 January to consider a buyback following a rash of broker downgrades even after the acquisitions were called off.

“I think there is no future for this stock. This case for India is similar to what happened to Enron in the US,” said Jigar Shah, senior vice-president at Kim Eng Securities.“It will not stop at Satyam. Many more companies will come into scrutiny like that. There is a strong possibility investments in India will be affected,” he said.Raju has admitted that the Maytas acquisition deal was the promoters’ last attempt to fill the gaps on company’s balance sheets.“I sincerely apologise to all Satyamites and stakeholders, who have made Satyam a special organisation, for the current situation,” B Ramalinga Raju said in a notice sent to the stock exchanges.“I am now prepared to subject myself to the laws of the land and face consequences thereof,” Raju said. He will continue in the position till the company’s board is expanded, according to a statement sent to BSE. Meanwhile, Ram Myanpati will act as interim CEO.Also while Raju recommended DSP Merrill Lynch be entrusted the task of “quickly exploring some merger opportunities,” the company informed the stock exchanges that the investment banker has terminated its engagement with Satyam

Source: http://www.livemint.com/2009/01/07111949/Satyam-chief-Raju-resigns-say.html?h=A1

See Sensex touching 11K in current rally: Nilesh Shah

Nilesh Shah, MD and CEO, Envision Capital, said there are good chances of the markets going above 10,200 and touching the 11,000 mark, given the current rally. “So 2009 is likely to be significantly better than 2008. We see 7,000-12,500 as the likely trading range for the Sensex in 2009. However, a retest of 2008 lows is not to be ruled out.”

According to Shah, a combination of rate sensitives and infrastructure stocks would be right way to play this market. “I am positive on infrastructure, public sector banks, realty, cement, and auto stocks.”

Indian markets, he feels, are significantly linked to global cues. “In the short-term, the upside in markets will be directed by global sentiments. However, Q3 corporate earnings will be weak. The advance tax numbers and drop in volumes of auto and cement industry indicate the likely sluggishness in toplines.” Continue

Fidelity increases Entry Load on Equity Funds from 2.25% to 3.00%

Fidelity Fund Management increased the entry load for all its equity funds effective January 1, 2009. The entry load has been hiked to 3% from 2.25%. The load will be applicable only to investment below Rs 5 crore for its five equity funds -- Fidelity Equity, Fidelity India Growth, Fidelity India Special Situations, Fidelity International Opportunities and Fidelity Tax Advantage. This will come into effect from January 01, 2009.

The entry-load charged to investors primarily goes towards cost of selling the fund i.e. paid as commission to the agents. This load increases your purchase price of a unit. For example, if the entry load is 3%, and the current NAV is Rs 100, then the purchase price will be Rs 103. An increase in the entry load (or any other charge) means that your fund manager needs to work harder in order to provide you with the same return on your investment.

In January 2008, SEBI mandated change that investors who invest directly with a fund will be exempt from load.

MFs assets jump 4% in December 08

Total assets under management of the country’s 34 mutual fund houses have soared to Rs418,334.65 cr

After a gap of three months, the mutual fund industry witnessed an increase in assets under management by over Rs16,000 crore in December on moderate recovery in the stock markets.
The total assets under management of the country’s 34 mutual fund houses have soared to Rs418,334.65 crore following an increase of Rs16,307 crore at the end of December 2008, according to the data of the Association of Mutual Funds in India.
The total assets under management (AUM) were Rs4.02 lakh crore in December 2008.
“With the stock markets recovering 10-15% in a month, mutual funds assets increased in the terms of mark to market valuation,” Taurus Mutual Fund Managing director RK Gupta said.
Reliance mutual fund retained its position as the country’s top fund house with an AUM of Rs70,208 crore. The AUM rose by over Rs2,392.24 crore in December 2008.
HDFC mutual fund maintained its second position with an AUM of Rs46,757.45 crore in December, an increase of Rs2,495.45 crore from November 2008.
“Some fund houses also saw fresh inflows, which were coupled with positive market sentiments,” Gupta added.
Meanwhile, UTI mutual fund added Rs4,190.03 crore at Rs42,548.17 crore in December to retain its third position.
Meanwhile, the AUM of ICICI Prudential mutual fund rose the most by Rs4,821.84 crore to Rs41,877.52 crore.

Source: http://www.livemint.com/2009/01/02163500/MFs-assets-jump-4-in-December.html

Crisis to continue, but Indian economy to grow by 7pc: Montek

Warning that the global economic crisis would continue through this year, Planning Commission Deputy Chairman Montek Singh Ahluwalia said India would still manage 7 per cent growth in FY'09 which should be a "good performance." 

Announcing the second stimulus package to reverse the economic slowdown in the country, he said the focus was on public investment, particularly in the infrastructure sector, which according to him should be a big booster. 

The package, the second in a month albeit last for the fiscal, would take the total revenue loss to about Rs 40,000 crore for the exchequer by way of various concessions and sops given to various sectors of the economy, Finance Secretary Arun Ramanathan said. 

"Expansion of infrastructure investments in PPP area is a very important part of the effort to mark the contra-cyclical thrusts at a point when there is a bit of global slowdown," he said, while commenting on additional facility for IIFCL to issue tax free bonds worth Rs 30,000 crore. 

It is something that will not only stimulate demand in the short term, but lay the foundation for broader investment revival and for broader growth. 

Ahluwalia said while the current economic crisis has not seen its end, this year could be a difficult one but expressed the hope that the economy would still achieve 7 per cent growth. 

"A growth of seven per cent should be a good performance," he said.

Source:http://www.hindu.com/thehindu/holnus/002200901022023.htm

India - SEBI urged to launch IRA scheme for households

Apex chamber Assocham has urged the Securities and Exchange Board of India (SEBI) to introduce individual retirement account (IRA) scheme for large households to enable investment in equity market through various mutual funds. 

In a representation to the market regulator, the chamber has underscored the need for promoting long-term inflows into equities by floating IRA schemes so that households make their investments through various mutual funds to reap the benefits of their long-term plans. 

The IRA scheme concept, prevalent in developed economies such as the U.S. and some countries in Europe, is broadly aimed at savings plans to create wealth over a period, which could then be available for the individual’s post-retirement period. 

To incentivise individuals to join the IRA schemes, the chamber has suggested tax concessions such as a deferred tax system under which each contributor to the proposed IRA could invest up to Rs 5 lakh in a year in a mutual fund scheme for investment in equity or in a combination of equity and debt, as per the investor’s choice. 

Lock-in period 


The lock-in period recommended for such investment is a minimum period of 10 years which can be withdrawn only after the investor attains the age of 58 or 10 years after investment, whichever is earlier. 

Assocham has suggested that while the amount invested in the IRA scheme should be tax deductible, dividend and capital appreciation should be exempted from taxes when the investor withdraws the amount, as is permitted under the EET (‘Exempt, exempt tax’) facility. 

According to the chamber, such a scheme will promote long-term investments in equity and debt and also ensure a reasonable post-retirement income when the individual investor would be on a relatively lower tax bracket. 

For the non-tax paying category also, the IRA scheme could be promoted by permitting mutual funds to offer such investment avenues.

The IRA scheme, the chamber said, would thus help individuals to build their retirement benefit schemes and, at the same time, channelise the savings of the community to the capital market. The diversion of savings of the household sector to the capital market would provide a steady flow of substantial amounts that would also act as a buffer against volatile inflows and outflows of foreign institutional investors (FIIs). 

Assocham also pointed out that though the Government has permitted provident funds (PFs) to invest 10 per cent of their corpus in equity-based mutual fund schemes, the guidelines have not been finalised as trustees of these funds are not permitting such investments. “It is time that the difficulties, if any, are removed and provident funds and gratuity funds are allowed to be invested in mutual funds also,” it said.

Source:http://spoonfeedin.blogspot.com/2009/01/india-sebi-urged-to-launch-ira-scheme.html

Mutual funds give up 2 yrs of gains in 2008 crash

Net values of Indian equity funds fell more than half in 2008, giving up the entire gain made in the previous two calendar years, as the main stock index plunged 52.4 percent to record its worst annual performance ever.

"The fall was stunning and one of the major losses that we would have suffered in any calendar year," said Aditya Agarwal, managing director and head of Indian markets for fund research firm Morningstar.

Indian shares recorded their first annual drop since 2001, surpassing the previous worst fall of 20.8 percent in 1995, slammed by foreign fund outflows and a sagging domestic economy. 

Seventeen stocks in the BSE index lost more than half their value during the year as foreign funds withdrew more than $13 billion after record inflows of $17.4 billion in 2007.

Net asset values of all stock funds fell in 2008, recording their worst annual fall of 54.7 percent during the year, according to data from global fund tracker Lipper.

Nearly half of the actively managed diversified stock funds also underperformed the benchmark index despite maintaining a double-digit cash levels almost through the year as their large mid and small-cap holdings plunged even more than the main index.

The funds' monthly allocation to mid-cap and small-cap shares ranged between 33.6 percent to 43.8 percent during the year, delivering a blow to their portfolios as the BSE Mid Cap and BSE Small Cap indices slumped close to 70 percent.

Their top bets in capital goods and financials were also hitby high interest rates and a slowing economy.

Funds had parked more than a fourth of their equity assets in the two sectors through 2008 on an average, data from fund tracker ICRA showed.


YEAR OF DEBT, GOLD FUNDS

India's gold exchange traded funds rose 25 percent in 2008, the highest by any category of funds, as the dollar weakened against the euro and crude oil rose to record high, improving the yellow metal's appeal as a hedge against inflation.

Gold prices on the Multi Commodity Exchange soared to a record 14,320 rupees per 10 grams on Oct. 10, up 35.1 percent from the close in 2007 and ended 2008 up about 29 percent.

Fixed income funds improved performance over previous year with those investing in government securities recording a stunning 19.77 percent rise in net values as yields saw their biggest yearly fall in seven years in 2008.

The 10-year benchmark bond yield ended the year down 254 basis points at 5.25 percent, plummeting from a seven-year peak of 9.55 percent hit in July as expectations for monetary easing continued to prompt investors to buy debt.

Source: http://in.reuters.com/article/businessNews/idINIndia-37259420090102?sp=true

Don't give up on the bulls

The year 2009, for the stock market, is expected to be a year with two distinct trends:
consolidation during the first half and then building on that consolidation, slow growth in the second half. Market participants feel 2009 will be a year markedly different from 2008, which saw value destruction of unimaginable proportions.
"The market has corrected dramatically this year (2008). So I don't expect any major correction next year,'' said UK Sinha, CMD, UTI Mutual Fund. "We are near the bottom now,'' Sinha added.
The first half of the year is expected to be the phase of adjustment. Once that is over, the stock market could start looking up from the second half.
"The market usually turns 6-9 months ahead of the actual economy. So we are expecting the markets to turn in the second half of 2009,'' said Naresh Kothari, president & co-head, institutional equities, Edelweiss Securities.
"From the third quarter, we would begin inching up, but a V-shaped recovery is ruled out,'' feels Aseem Dhru, MD, HDFC Securities.
One of the main reasons for the recovery is the impending Lok Sabha elections by April 2009. In India, general elections mean some amount of uncertainty with inherent downside risks and investors, including foreign fund managers do not like uncertainty. Brokers and fund managers expect recovery to start after the new government is in place.
The year would also see the Indian market in a different league than most of the other popular investment destinations. Officially a number of developed nations are already in recession. But in India, everyone is talking about the pace of growth coming down. "While the world has to battle negative growth (recession), India has to deal with a slowdown,'' said Dhru.
The marked difference between India and the West could be gauged from a conversation with the head of a UK agency. "You (India) are sorry that growth could be 5-6-7% next year. Come on. Give us that kind of growth and we will be on top of the world,'' said the official.

Equity allocations to rise in '09: Benchmark MF

Sanjiv Shah, Executive Director, Benchmark Mutual Fund, feels equity allocations will be on a rise in 2009. “You have to be more invested in equity as compared to what have you been in the last few years, so in a sense 2009 would be better for investors in equity markets.”

2008 has been a tough year for all stocks, large, small caps etc. but our view is that when the markets turn around the broader market turns around the first with the large caps and they become leaders in a sense. So you have to be mostly in the larger sector of the economy right now.

Source: http://news.moneycontrol.com/india/news/mf-interview/equity-allocations-to-rise09-benchmark-mf/16/16/373337