SBI transfers Unitech exposure from debt funds to equity funds

The move means investors in its equity schemes will have to bear any risk that the debt paper brings

In a bid to cushion a blow to its debt schemes, SBI Funds Management Pvt. Ltd has moved debt papers it holds of embattled Delhi-based realtor Unitech Ltd into its equity schemes. This means investors in its equity schemes will have to bear any risk that the Unitech debt paper brings with it.

By culling Unitech papers from its debt scheme, SBI Funds, the asset management venture of India’s largest bank by assets, State Bank of India, and French banking major Societe Generale SA, is essentially shielding these schemes from any default by Unitech.Credit rating agency Icra Ltd in October downgraded Unitech’s Rs100 crore short-term debt programme from A1+ to A2+ (above average credit quality). The rating was withdrawn in November after the papers matured.In January this year, Fitch Ratings India Pvt. Ltd downgraded Unitech’s Rs4,400 crore long-term debt to “B” from “BBB”, and Rs1,100 crore short-term debt programme to “F4” from “F3”. The “B” rating indicates a significantly weak credit risk relative to other issuers or issues in the country, and the “F4” rating means a highly uncertain capacity for timely payment of financial commitments.Unitech had earlier said it has cut its debt obligations due by March to Rs600 crore from Rs2,500 crore, by repaying in part Rs900 crore to mutual funds and restructuring some bank loans, as reported in Mint on 20 January.Debt schemes are conservative on their returns and a small exposure to a bad asset can severely dent performance of such schemes.

According to data from the website of Value Research India Pvt. Ltd, a research service on mutual funds, five of SBI Funds’ equity schemes have a cumulative exposure of Rs65 crore to Unitech’s commercial paper, or a form of tradable debt issued by the company.Given that these five equity schemes with Unitech exposure are down 46-63% in the past year, and that investors have already factored in market volatility, a default by Unitech on this commercial paper can be better and less noticeably absorbed by equity schemes, two fund managers that Mint spoke with said.“The impact on the equity schemes in an already volatile market will be minimal,” said a distributor of funds, who didn’t want to be named as he also sells SBI Funds schemes. This is because the Unitech exposure in these schemes is 1.38-1.69% of their individual portfolios. “The larger issue is why you should penalize an investor in an equity fund for a hit that the debt fund investor should have taken, or the AMC (asset management company) itself should have taken for a call gone wrong,” he said.SBI Fund’s managing director and chief executive Achal Gupta, however, defended the firm’s move and said: “Inter-scheme transfers happen from time to time, and they’re done according to Sebi (market regulator Securities and Exchange Board of India) guidelines, in keeping with the objective of the schemes to which they are transferred.” Sebi rules say equity funds can have a debt exposure of up to 35% in their total portfolio.Mint could not independently confirm when these transfers were made, though Gupta said it would likely have been made before Unitech’s paper was downgraded by credit rating agencies. “As per law, we cannot make a transfer after the paper gets downgraded. So it must have been done in October, if not earlier,” he said, adding that even if there was a fear of a downgrade, SBI Funds would not have transferred the paper as it would have meant a dilution in the schemes’ portfolio quality.At the time of the downgrade, Fitch had said in a statement that “the downgrade reflects 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/land payment obligations.”It also said while Unitech had made some progress on its asset sales and fund raising from other sources, the quantum and timing of these remained uncertain, increasing the risk of delays in servicing its debt obligations on time. SBI Funds’ moving Unitech paper from debt to equity schemes comes in the wake of other AMCs also resorting to transferring some real estate debt papers they hold to their parent organisations. Mint had reported on 15 December, 2008, that state-owned Life Insurance Corp. of India Ltd had in October bought at least Rs1,755 crore worth of illiquid debt paper, largely of real estate firms, from its mutual fund subsidiary, LIC Asset Management Company Ltd (LIC MF). On 4 November, 2008, The Economic Times newspaper had reported that HDFC Asset Management Co. Ltd, the country’s second largest fund house by assets under management, had sold Rs650 crore worth of real estate paper to a firm that’s part of its parent, Housing Development Finance Corp. Ltd.

Source: http://www.livemint.com/2009/02/28001738/SBI-transfers-Unitech-exposure.html

Sahara MF appoints new fund manager

Devesh Thacker is being appointed as fund manager (debt) with effect from 27 February 2009 in place of Puneet Srivastava for the debt oriented schemes namely Sahara Liquid Fund, Sahara Income Fund, Sahara Gilt Fund, Sahara FMP 395 days series 2, Sahara FMP 395 days series 3, Sahara Classic Fund, Sahara Interval Fund Quarterly Plan Series 1 and Sahara Short Term Bond Fund.

Source: http://www.geojit.com/mutual/MF_news.asp?srno=300779

JM Financial MF announces change in key personnel

ADDENDUM

THIS ADDENDUM DATED FEBRUARY 25, 2009 SETS OUT THE CHANGES TO BE MADE IN THE SCHEME ADDITIONAL INFORMATION DOCUMENT (SAI) OF ALL SCHEMES OF JM FINANCIAL MUTUAL FUND AND SCHEME INFORMATION DOCUMENT (SID) AND KEY INFORMATION MEMORANDA (KIM) OF RESPECTIVE EQUITY SCHEMES OF JM FINANCIAL MUTUAL FUND
In view of Mr. Sandip Sabharwal’s separation from the services of JM Financial Asset Management Pvt. Ltd., he ceases to be a key personnel of the AMC and the schemes managed by him will now be managed by the existing Equity Fund Management team. Mr. Asit Bhandarkar shall be the Fund Manager of JM Core 11 Fund – Series 1 and JM Emerging Leaders Fund, Mr. Sanjay Chhabaria shall be the Fund Manager for JM Multi Strategy Fund, Mr. Sandeep Neema shall be the Fund Manager for JM Tax Gain Fund and JM Contra Fund will be managed jointly by Mr. Sandeep Neema and Mr. Sanjay Chhabaria.
All references to Mr. Sandip Sabharwal, CIO (Equity) in the Statement of Additional Information (SAI)/ Scheme Information Document (SID) and Key Information Memoranda (KIM) of the respective Equity Schemes of JM Financial Mutual Fund stand deleted.
All other features of the respective Schemes remain unchanged.

Source: http://jmfinancialmf.com/CMT/Upload/ArticleAttachments/C8D619C5-51C1-4EE7-9CE3-E6C84826CFC4/Addendum%20-%20Sandip%20Sabharwal.pdf

ADDENDUM

THIS ADDENDUM DATED FEBRUARY 25, 2009 SETS OUT THE CHANGES TO BE MADE IN THE SCHEME ADDITIONAL INFORMATION DOCUMENT (SAI) OF ALL SCHEMES OF JM FINANCIAL MUTUAL FUND AND SCHEME INFORMATION DOCUMENT (SID) AND KEY INFORMATION MEMORANDA (KIM) OF RESPECTIVE DEBT SCHEMES OF JM FINANCIAL MUTUAL FUND
Mr. Mohit Verma, Chief Investment Officer (Debt) and Fund Manager of JM Short Term Fund, JM Income Fund and JM G-Sec Fund has resigned from the services of JM Financial Asset Management Private Limited. Pursuant to his resignation, Ms. Shalini Tibrewala shall be the Fund Manager for the Schemes managed by Mr. Mohit Verma.
All references to Mr. Mohit Verma in the Statement of Additional Information (SAI)/ Scheme Information Document (SID) and Key Information Memoranda (KIM) of the respective Schemes of JM Financial Mutual Fund stand deleted.
All other features of the respective Schemes remain unchanged.

Source: http://jmfinancialmf.com/CMT/Upload/ArticleAttachments/C8D619C5-51C1-4EE7-9CE3-E6C84826CFC4/Addendum%20-%20Mohit%20Verma.pdf

Diversified funds hold on to cash

Diversified equity schemes seem to prefer cash over equity. According to ICRA online data, some schemes have close to 60% of their total assets under management (AUM) in cash.
Industry experts say that most funds are sitting on cash anywhere between 10-15% of AUM, as the market continues to move in a narrow range. ``Our analysis shows that the cash portion of the portfolio has been growing steadily in the last few months,'' says a mutual fund analyst.
Why are funds sitting on cash, when they can buy shares cheaply and maximise returns for their investors? ``A fund could be sitting on high cash levels for a variety of reasons, including waiting for the correct entry point to negative or range-bound market view. In case of NFOs, the fund may also be in the deployment mode,'' explains Sameer Kamdar, ceo, Asset Management, ASK Investment Holdings. ``People don't think the market will move up sharply soon. In such a situation, they prefer to stay on cash,'' says Waquar Naquvi, ceo, Taurus Mutual Fund. ``Most fund houses are sitting on cash up to 15-30%.''
Another reason why some of the schemes may prefer to sit on cash is because of the nature of their investment. ``When you are running a small or a mid-cap scheme or a scheme looking for new opportunities, you will have to keep some cash aside. Especially in a market like this, the cash could come in very handy,'' says an MF manager, who doesn't want to be named. ``Also, some funds try to show better performance by sitting on cash, as most funds are in the negative territory.''
However, Naqvi points out that extremely high cash element in the portfolio won't work over a long period of time. ``It should be a short term strategy. If you keep extremely high percentage of cash, then you won't qualify as an equity MF for the tax purpose. And the investors would suffer,'' he says. An equity fund should have to invest at least 65% of its portfolio in stocks to qualify for the long term tax-free capital gains status.
So, what exactly is the ideal percentage of cash in a portfolio? Some fund managers believe 5% cash is ideal, but they point out that ideal percentage works in an ideal market. ``There is no ideal percentage of cash one should have in the portfolio. It all depends on the style and the view of the fund manager,'' says Kamdar. ``MNCs may have such figures, but Indian companies don't stick such rules,'' points out Naqvi.

Source: http://timesofindia.indiatimes.com/Business/India-Business/Diversified-funds-hold-on-to-cash/articleshow/4198045.cms

IDFC’s new equity fund to mirror GDP growth pattern

In an innovation of sorts, IDFC Mutual Fund has launched GDP Growth Fund, a scheme that provides investors the opportunity to invest in the India growth story by mirroring investments in thevarious components of growth.Thus, the fund would endeavour to follow economic growth of the country by investing its corpus in different gross domestic products (GDP), such as industry, services and agriculture, in the same proportion as their contribution to overall GDP.Accordingly, going by the present trend, 8 per cent of the total corpus would be allocated to stocks of companies having business related to agriculture, 71 per cent in services and the remaining 26 per cent in industries. IDFC has pinned its hopes on India growing at a higher pace compared with other countries across the globe.The fund, however, comes at a time when the economic growth of the country has slowed with GDP projections being successively lowered to a little over 7 per cent for the present fiscal year by the Union government. The new fund offer period was open for subscription from January 28 to February 26, 2009. The face value of new issue is Rs 10 per unit.Mutual fund industry players say that IDFC Mutual Fund might not have an easy ride with the fund, especially at this point.“It is not easy to mirror the GDP as the new scheme of IDFC fund envisages. There are not many great performers in the agriculture sector and getting right stocks in optimum proportion would not be easy. Also, not all the sectors of the economy would perform in a similar manner at any given point and hence the fund has to remain invested in a particular sector in a particular proportion and this is a negative of the new fund,” Ashish Kapur, chief executive officer, Invest Shoppe, a broker of mutual fund products, said.“There are other mutual funds that offer schemes that have similar features. Under the present circumstances, investors might be wary of betting on a new fund rather than investing in tried and tested one,” a head of a mutual fund house, who did not wish to be named, said.The new fund offers both growth and dividend options. The minimum investment amount is Rs 5,000 and in multiples Re 1 thereafter. The fund will charge an entry load of 2.25 per cent for the investment amount less than Rs 5 crore.

Source: http://www.mydigitalfc.com/mutual-funds/idfc’s-new-equity-fund-mirror-gdp-growth-pattern-183

Templeton India fund house recent investment strategy

Franklin Templeton expects the Indian economy to be among the first to recover from the global slump and sees top names such as Reliance Industries and Bharti Airtel emerging as winners, spurred by a growing local market.
On Tuesday, the U.S. fund manager's $335 million Franklin India Fund was ranked the top performing India fund by Lipper over the past three years among mutual funds available in Singapore.
The fund has been raising its holdings of India's best-known firms even in out-of-favour sectors, chief investment officer for Indian equities Sukumar Rajah told Reuters in an interview.
"From a fundamental perspective, India with its relatively lower dependence on exports is likely to weather the current global uncertainty better. This is further supported by the robust banking system and strong domestic consumption."
Infosys Technologies, the country's second largest software exporter, HDFC Bank, the second largest private sector lender, and consumer goods firm Nestle India are the fund's other top holdings.
India's economy is expected to grow by 5.1 percent this year compared with 7.3 percent in 2008, according to forecasts by the International Monetary Fund. .
The world's second most populous nation ranks after China and Hong Kong in terms of investment appeal, according to a Thomson Reuters survey of portfolio managers and securities analysts who together help manage more than $1 trillion in assets.
The Franklin India fund lost 1.2 percent in dollar terms in the 36 months to January 2009 compared with a 5.6 percent fall in the MSCI India index, according to the fund's factsheet.
LOCAL GROWTH
Rajah said countries that rely on domestic demand and are growing at a relatively fast pace had a better chance of attracting new capital over the longer term, giving a boost to the economy and stocks.
The BSE Sensex tumbled by more than half in 2008, its worst annual performance ever, and has shed a further 8 percent so far this year.
Rajah said Templeton had increased its investment in Reliance to 7.8 percent of the India fund's portfolio at end-January from 5.5 percent in September because the firm's diverse oil and gas exploration, production, and petrochemical businesses helped it overcome the volatile product cycles in energy markets.
"The large oil and gas exploration acreage coupled with the company's scale and capabilities to execute projects provides opportunities for further growth," he added.
As for Bharti, Rajah said the Indian mobile market could see 2-3 more years of aggressive growth before maturing and market leader Bharti had "consistently expanded market-share by leveraging its branding, better execution and infrastructure capabilities."
"We believe well-managed Indian companies will emerge stronger in the current environment, and the sharp declines have resulted in attractive valuations across sectors."

Source: http://in.reuters.com/article/businessNews/idINIndia-38176320090224?sp=true

Equity funds sitting on Rs 20,000-cr cash chest

Equity mutual funds are choosing to hold sizeable cash positions in view of current market uncertainties.
Data from Indsec Securities, based on January-end portfolios, show that average cash positions across equity funds were as high as 20 per cent, amounting to over Rs 20,000 crore across fund houses.
Mutual fund managers say that unprecedented volatility has prompted them to wait on the sidelines for buying opportunities. The proportion of cash to total equity assets has gone up from 10.1 to 20.5 per cent between January 2008 and now. Though the actual cash holdings have only increased from Rs 18,000 crore to Rs 20,000 crore, the contraction in equity fund assets (due to NAV declines and some outflows) has resulted in a larger proportion of cash. Cash includes cash and cash equivalents such as money market instruments and short-term debt instruments.
Among the larger asset management companies (AMCs) Reliance Mutual Fund and UTI Mutual Fund hold cash positions amounting to about 30 per cent of the equity assets while those such as SBI and HSBC Mutual hold about 20-22 per cent.
These cash holdings are not evenly spread across schemes.
Thematic funds, which typically focus on one sector (say, infrastructure) or theme (mid/small-cap stocks), account for a big portion of the cash holdings, while diversified equity funds have lower cash on their portfolios.
Reliance Diversified Power, Reliance Natural Resources, UTI Infrastructure and DSP BlackRock TIGER fund are some thematic funds which are high on cash and cash equivalents.
In some cases, cash positions (for funds such as Reliance or Birla Sun Life) are held against their exposure to derivatives in select schemes.

Are equity fund managers holding high levels of cash anticipating pullouts from the funds? Fund houses deny that that is the case.
Equity funds saw relatively small net outflows (redemptions) of Rs 1,378 crore in the choppy October-December 2008 quarter. In January, there was Rs 338 crore of new outflows.
Fund managers who are high on cash appear to be taking the view that the worst isn’t over yet for the stock markets. Mutual funds have made net sales in stocks amounting to Rs 2,521 crore so far in 2009.
Mr Sanjay Dongre, Senior Equity Fund Manager, UTI Mutual Fund, says that redemption pressures faced by the equity funds were at “negligible” levels, as the investor base was mainly retail.
“We are holding higher cash positions on our funds given the uncertainty prevailing in the marketplace, where the risk appetite of investors is extremely low. Our diversified funds hold a 15-18 per cent allocation to cash and the thematic funds hold larger cash positions.”

Asked if the fund house is looking for a specific market level (say, a Sensex of 8,000 or 8,500) to deploy this cash, Mr Dongre replied that it is uncertainty rather than the prevailing market valuation, that is prompting the cautious stance. “If we see risk capital returning to the markets and the uncertainty receding, we will go ahead and deploy that cash, even if market levels are higher than they are currently,” he said.
At the other end of the spectrum, fund houses such as HDFC Mutual Fund and Franklin Templeton Mutual hold only about 7 per cent of their equity fund portfolios in cash.
These AMCs have consistently followed a practice of remaining more or less fully invested, irrespective of market swings.

Source: http://www.thehindubusinessline.com/2009/02/23/stories/2009022351410100.htm

Sebi mulls norms to let investors decide MF fee

New regulations on entry load likely to be announced within a month; details of the plan yet to be finalized

The Securities and Exchange Board of India, or Sebi, is drafting new norms that would offer mutual fund investors a band or range of entry loads to pick from while purchasing units of a mutual fund, said a senior official at the market regulator. An entry load is the commission that an investor has to pay a distributor while purchasing units. Currently, investors pay an average 2.25% of the sum invested as entry load if they buy the units from a distributor, who is a third party, but they pay nothing if they buy directly from the fund house. The new norms are likely to be announced in a month, the official said requesting anonymity as details of the plan have not yet been finalized. Empowering Investors: Sebi chairman C.B. Bhave. The new Sebi norms are expected to make distributors more competent to justify their role. Abhijit Bhatlekar / MintAccording to the Association of Mutual Funds in India a 13-year old industry lobby, there were about 47 million mutual fund account holders in India at the end of 2008. There were some 35 mutual fund houses with net assets under management of about Rs4.6 trillion, at the end of January. The bulk of mutual fund unit sales in the country, however, are conducted through a large, unorganized network of distributors, which also include a few large players that have their own fund offerings. The largest third party distributors of mutual fund products in India are banks such as ICICI Bank Ltd and HDFC Bank Ltd. Several brokerages and non-banking finance companies also have large mutual fund products distribution businesses. “This (move) will hugely empower mutual fund investors,” said the Sebi official, adding that it would force “distributors to stay competent to justify their role”.

The move could also help increase the current investor base, this official said. “Penetration of mutual funds can be much more (but) .. without distributors, it would have been even less,” said Uttam Aggarwal, who heads the mutual fund distribution business of Bajaj Capital Ltd, which is present in 90 towns and manages about one million investors. “Look at Quantum (Quantum Asset Management Co. Pvt. Ltd), its asset under management is in double digit crore,” said Aggarwal. Quantum does not have a distribution model and does not charge entry load from investors. At the same time, financial services firms with established distribution capabilities have now expanded to included funds management business to leverage their strength.“We are in this business to leverage our strong distribution capabilities,” says Nitin Rakesh, chief executive of asset management with domestic retail brokerage Motilal Oswal Financial Services Ltd, one of the latest players in the funds business. In fact, fund houses recognize the grip that distributors have over access in both directions. The penetration of mutual funds in India, have been “severely limited” by distributors, Ashu Sayash, managing director and country head (India) of Fidelity Advisors International, had said in June last year. He was speaking at the launch of FundsNetwork, an online fund distribution portal that Fidelity International, the world’s largest mutual fund manager, had launched. “The existing mutual fund business model is also not as profitable as insurance,” said Aggarwal. “Insurance allows you to reach the smallest towns but mutual funds have regulatory issues (such as daily net asset value, or NAV, disclosures and cap on marketing expenses).” Unlike the third party distributors of, say, insurance products, who can only sell policies of one firm, mutual fund distributors are free to sell schemes from any fund house. Not surprisingly, fund houses often fall over each other to woo distributors so they will push their products. Sebi currently allows mutual funds to spend up to 6% of a scheme as marketing expense, and fund houses typically spend part of this allocation on distributors.

Source: http://www.livemint.com/2009/02/17222436/Sebi-mulls-norms-to-let-invest.html

Market volatility may continue on rising US woes

Indian equities are seen extending last week’s losses, as fear of more bad news from the US financial sector is likely to keep the mood in world markets subdued. Leading US equity benchmark Dow Jones Industrial Average fell to a six-year low on Friday on concerns that many US banks would be nationalised.
Such a move, while saving those banks from any collapse, would erode the shareholder value, according to analysts. Such concerns were eased partly after the White House spoke in favour of US banks remaining in private hands.
Back home, the market is likely to be volatile in the first two trading sessions of the week, in the run-up to the expiry of the February derivative series on Thursday, as traders square off existing positions and take up fresh ones in the March series.
Fund managers believe possible interest rate cuts by the Reserve Bank of India, this week, could revive sentiment, albeit temporarily. "This time, unlike previously, the market is yet to factor in expectations of a rate cut, which is a consoling factor,” said a fund manager with a private mutual fund.
"Some aggressive short-covering may happen if RBI cuts rates aggressively, and its short-term impact will be huge, given the quantum of shorts present now,” he added.
Expectations of aggressive rate cuts by the central bank have strengthened, as government’s inability to dole out liberal fiscal relief measures due to deteriorating financial position, has put the onus on RBI to anchor the economy through the current economic crisis.
“Given the upcoming elections, the entire onus on stimulating growth now rests on the monetary policy, and we expect additional easing to the tune of 100-150 basis points (bps),” said Citigroup economists in a report.
“While rising Consumer Price Index (CPI) is a worry, we expect a minimum 100-150-bps cut in repo/reverse repo rates and cash reserve ratio (CRR) in the near term,” they added.
Last week, benchmark indices lost 7-8%, with the Nifty ending at 2,736.45 on Friday amid sustained selling by foreign institutional investors (FIIs) after the government said its fiscal deficit would widen to 5.5% in 2009-10.
An independent technical analyst said the Nifty has a crucial support at 2,600, breaking which the index could head below 2,500 levels. He advises even short-term traders to keep their directional bets to the minimum at the moment, given the uncertain market outlook.

Source: http://economictimes.indiatimes.com/Analysis/Market-volatility-may-continue-on-rising-US-woes/articleshow/4172103.cms

Mid, small-caps hurt India funds amid slowdown

Large exposure to mid and small- caps accelerated damages to fund portfolios in 2008 and pose significant risk now as a falling share market cripples trading volumes, making it tough for managers to exit holdings.
For 55 open-ended stock funds, managing more than 400 billion rupees or two-thirds of the assets of diversified equity funds, will take an average 10 days or more to liquidate their holdings of mid and small-cap shares, data from fund tracker ICRA shows.
It may get worse, analysts warn, as investors favour bigger firms considered relatively better placed to survive a downturn, making exits tougher for fund managers who have parked a third of their portfolios in mid and small-cap stocks since at least 2007.
While funds are not facing sharp redemptions yet, industry watchers say investors should be mindful of risks associated with mutual funds that invest mainly in shares of medium and small-sized firms in a slowing economy.
"Liquidity is a risk point that people should consider," said Krishnan Sitaraman, head of fund services at CRISIL. "This could be an issue when redemptions are large-scale."
Less than a fourth of India's open-end diversified stock funds can liquidate portfolios in a day as compared to nearly a third in same period last year, the data showed.
"Risk has gone up... stocks which were relatively liquid have become illiquid because of the volumes declining because of the drastic fall in the market," said Aditya Agarwal, managing director and head of India for fund research firm Morningstar.
Sameer Narayan, head of equity, Fortis Investment Management, said the daily market volume had crashed to almost a tenth to $2.5 billion in the last one year.
However, large cash holdings of the funds may help them meet redemptions in the near-term, all three said.
Equity funds have held an average 16 percent of their assets as cash at the end of January.
"We don't expect any significant crisis in days to come," Sitaraman said.
MID-CAP BETS
Indian funds have historically relied heavily on mid- and small-caps to produce outperformance.
The strategy paid rich dividends in five years ending 2007 when the BSE 500 index rose seven times, far higher than about sixfold gain in the benchmark index.
In 2008, as tide turned against stocks given large-scale sell-offs by foreign portfolio investors, the benchmark index dropped 52 percent, while the BSE 500 index fell 58 percent.
The mid-cap and small-cap indices plunged 67 percent and 72 percent respectively.
Asset values of stock funds fell an average 54.7 percent, losing the entire gain made in the previous two calendar years and recording their worst annual fall, data from global fund tracker Lipper showed.
Analysts say there could still be opportunities to pick multi-baggers among the battered small and mid-caps but as the economy slows further from an expected 7.1 percent growth in 2008/09, many smaller firms are likely to face pressure as debt levels rise and lenders shy away from funding them.
In a research note last week, CLSA said profits of small and mid-caps fell 83 percent in December quarter as compared to a modest 7 percent decline for bluechip firms part of the benchmark index and advised clients to avoid shares of smaller firms.

Source: http://in.reuters.com/article/businessNews/idINIndia-38115920090220?sp=true

Are debt funds still hot?

The recent rally in debt funds came as a much-needed relief for investors as well fund houses, which saw their assets under management go up after some time. If you have missed the rally, you might be wondering whether there is still some steam left.
Before deciding on debt fund investment, let us first get a lowdown on the different types of debt funds available in the market. Debt funds are of four types: income or bond funds, liquid or money market funds, floating rate funds, and gilts funds. In terms of risk perspective, any debt fund carries liquidity and interest reinvestment risks, among others.
But income funds—which invest in long- and medium-term instruments like corporate bonds, debentures, fixed deposits, gilts— have an extra element of risk over gilt funds. The additional risk element is known as default risk because technically a government cannot default, though theoretically it can. Income funds that are overweight on corporate bonds carry the risk of default so they should pay that extra risk premium to the investors.

Why mutual fund route?
Lack of awareness about the fixed-income market and its complexities leads most of us to the route of mutual funds. The Indian financial market is predominantly equity driven, with very less information flow and awareness about the fixed-income or the bond market.
In the recent past, gilt funds which invest in central government and the state government papers have outperformed the income funds primarily because of easing inflation and the series of rate cuts. However, as I see, going forward the difference between the returns from these categories should come down. Recently, credit spreads of AAA-rated corporates had reached a level of about 415 bps before falling down to the current levels of 300 bps. Historically, AAA-rated corporate spreads have averaged around 120 bps since 2001. The spread is expected to come down over the next six months or so, as the RBI continues to pursue its monetary easing to tackle the slowdown.
As interest rates soften, the yield of the bonds decrease, but the price tends to increase. Once bond prices rise, this is reflected in a rise in the net asset value of debt funds.
Now, in a falling interest rate scenario, I expect the spreads of higher rated PSU bonds to decline. Further, going forward, lower inflationary expectations, coupled with further monetary easing, should lead to a further decline in gilt yields. This makes a classic case for investment in fixed income market for not-so-aggressive investors. A conservative investor should go for long-term debt funds with an investment horizon of two to three years. Gilt yields are likely to soften again once the RBI goes for more rate cuts. And spreads of the AAA-rated bonds are also likely to come down once economy starts picking up along with global economy.

Key things to watch out
This brings us to some key things to look out while investing in the fixed-income mutual fund. First, investors should look at the quality of the portfolio of the fund as times are extraordinary now. A portfolio with more than 20 per cent exposure in gilt and more than 35 per cent of weightage in PSU bonds would be preferable. With the collapse of big institutions globally and expectation of rough times ahead, quality of the portfolio can make huge difference for any scheme.
It is also important to check the track record of the fund manager. In any mutual fund, the record of the fund manager along with the discipline of the fund house is very important. Prudent fund management should help in reducing risks.
Choosing between a between gilt and an income fund would depend upon the risk appetite of any investor.
Finally, the tax angle: For individual investors, long-term capital gains from debt funds are taxed by 11.33 per cent without indexation and 22.66 per cent with indexation. And dividend distribution tax is 14.16 per cent for debt funds.

Source: http://profit.ndtv.com/2009/02/19171634/Are-debt-funds-still-hot.html

HDFC announces introduction of HDFC FLEXINDEX Plan

HDFC Mutual Fund has introduced HDFC FLEXINDEX Plan under its debt / liquid schemes.
The introduced plan will provide a facility to unit holders under the debt / liquid schemes of the HDFC Mutual Fund (Source Schemes) to automatically transfer a portion of their investment into equity schemes of HDFC Mutual Fund (Target Schemes) on the trigger dates occurring during the period of 1 year from the date of registration.
Unit holders of the Source Scheme(s) have to set triggers based on the index reaching or crossing of a closing level, as specified by the unit holder. The plan offers Flexible Investment option and Fixed Investment option. Under Flexible installment option minimum of 10% and in multiples of 1% thereafter is to be indicated against each index level trigger and under Fixed Installment option, a fixed installment of 25% against each Index level trigger is to be indicated.
The move will be effective from February 25, 2009.

Source: http://freepress.in/business/hdfc-announces-introduction-of-hdfc-flexindex-plan/

CRISIL upgrades ING Liquid Plus Fund to ‘AA+f’

CRISIL has upgraded its rating on ING Mutual Fund’s ING Liquid Plus Fund
to ‘AA+f’ from ‘A+f’, to reflect the improvement in credit quality of the scheme’s holdings. The ‘AA+f’ rating indicates that the scheme’s portfolio will provide ‘strong’ protection against losses arising from credit defaults.
Earlier on Nov 14, 2008, CRISIL had downgraded the scheme’s rating to ‘A+f’ from ‘AAAf’, following deterioration in the credit quality of the scheme’s holdings.
CRISIL’s rating is not an opinion on fund manager ING Investment Management (India)’s willingness or ability to make timely payments to investors, or on the stability of the fund’s net asset values (NAVs), as the NAVs could vary with market developments.

Source: http://economictimes.indiatimes.com/ViewsRecommendations/CRISIL-upgrades-ING-Liquid-Plus-Fund-to-AAf/articleshow/4153217.cms

CRISIL upgrades ING Liquid Plus Fund to ‘AA+f’

CRISIL has upgraded its rating on ING Mutual Fund’s ING Liquid Plus Fund
to ‘AA+f’ from ‘A+f’, to reflect the improvement in credit quality of the scheme’s holdings. The ‘AA+f’ rating indicates that the scheme’s portfolio will provide ‘strong’ protection against losses arising from credit defaults.
Earlier on Nov 14, 2008, CRISIL had downgraded the scheme’s rating to ‘A+f’ from ‘AAAf’, following deterioration in the credit quality of the scheme’s holdings.
CRISIL’s rating is not an opinion on fund manager ING Investment Management (India)’s willingness or ability to make timely payments to investors, or on the stability of the fund’s net asset values (NAVs), as the NAVs could vary with market developments.

Source: http://economictimes.indiatimes.com/ViewsRecommendations/CRISIL-upgrades-ING-Liquid-Plus-Fund-to-AAf/articleshow/4153217.cms

Mutual fund assets up Rs39,833 crore in January

The mutual fund industry saw an overall increase in assets under management of 9.4 per cent, or Rs39,833 crore, in January, with 22 of the 35 fund houses reporting growth in average AUM.
The total AUM of the country's 35 mutual fund houses have risen to Rs4,60,949 crore at the end of January, according to the data of the Association of Mutual Funds in India.
The gains were led by significant growth in debt funds, according to the fund evaluation and risk solutions provider Crisil FundServices.
Reliance Mutual Fund, the country's largest fund house, saw its AUM rise Rs5,960 crore in January to Rs76,168 core. HDFC MF remained the second big fund house with an addition of Rs4,663 crore in its AUM at Rs51,421 crore as of end-January.
ICICI Prudential Mutual Fund toppled state-run UTI MF as the third largest fund house of the country with an AUM of Rs47,515.51 crore, after adding Rs5,638 crore in a month.
While Reliance MF and ICICI Pru MF recorded maximum growth in asset in absolute terms, LIC MF and IDFC MF were at the top in terms of rate-of-growth.
"In terms of rate of growth, reflected in month-on-month growth percentage of average assets, LIC MF and IDFC MF were the leaders, registering 30 per cent and 29 per cent growth in average AUM respectively, between December 2008 and January 2009," Crisil said in report.
January 2009 also witnessed a 110 per cent increase in cash levels with MFs at Rs42,930 crore from Rs20,415 crore in December 2008.

Source: http://www.domain-b.com/investments/funds/20090218_mutual_fund.html

Debt funds drive record growth in MF assets

Buoyed by significant growth in debt funds, the mutual fund industry's total asset under management in January rose to rose 9.4 per cent, the highest monthly growth in 15 months.

According to the fund evaluation and risk solutions provider Crisil FundServices, the assets of mutual funds increased significantly in debt funds.
The various categories including bonds, gilts and liquid funds, collectively witnessed their net inflows surging to Rs 67,000 crore in January from Rs 1,150 crore in December.
"The growth in AUM was despite weak equity markets, and on account of strong inflows in debt funds. The current outlook of declining interest rates makes debt funds a popular investment option," the report stated.
The total AUM of the country's 35 mutual fund houses have risen to Rs 4,60,949 crore, following an increase of Rs 39,833 crore, or 9.4 per cent, at the end of January, according to the data of the Association of Mutual Funds in India.
"This is the second consecutive month of growth after the industry witnessed steady de-growth from September 2008 to November 2008," Crisil FundServices said.
Of all the fund categories, the bond funds witnessed the highest inflow of Rs 39,100 crore in January, from Rs 4,500 crore in December.
Liquid or money market funds saw net inflows of Rs 27,100 crore against net outflows of Rs 4,300 crore in December.
According to Crisil, on an aggregate while the equity funds witnessed marginal net outflows, the Equity-Linked Savings Schemes (ELSS) saw net inflows owing to increased investments driven by tax planning requirements.
Also net inflows from all categories for the industry as a whole increased to Rs 66,800 crore in January 2009, from negligible levels in December 2008.
Although the overall MF industry saw an increase in AUMs, 22 of the 35 fund houses reported growth in average AUM.
Country's top house Reliance Mutual Fund saw its AUM rise by Rs 5,960 crore in January to Rs 76,168 core. HDFC MF remained the second big fund house with an addition of Rs 4,663 crore in its AUM at Rs 51,421 crore at January end.
ICICI Prudential Mutual Fund toppled state-run UTI MF as the third largest fund house of the country with an AUM of Rs 47,515.51 crore, after adding Rs 5,638 crore in a month.
According to Crisil although Reliance MF and ICICI Pru MF recorded maximum growth in asset in absolute terms, in terms of rate-of-growth LIC MF and IDFC MF stole the show.
"In terms of rate of growth, reflected in month-on-month growth percentage of average assets, LIC MF and IDFC MF were the leaders, registering 30 per cent and 29 per cent growth in average AUM respectively, between December 2008 and January 2009,"

Source: http://www.business-standard.com/india/news/debt-funds-drive-record-growth-in-mf-assets/18/33/55294/on

Top fund managers may quit JM Financial

There is considerable uncertainty over the fate of the top fund team at JM Financial Mutual Fund. People familiar with the matter said strong difference of opinion had developed between the promoters and the fund management team on account of the promoters’ displeasure about the performance of equity funds and other investment decisions.

As a result of these differences, chief investment officer Sandip Sabharwal and sales and marketing head, Bhanu Katoch may leave the firm, according to a number of market participants with knowledge of the matter. A JM spokesperson denied this, saying, “Sandip and Bhanu are very much with JM Financial. These are rumours and there is no truth in it.” Mr Sabharwal strongly denied any such possibility, saying, “this is untrue.”

When contacted, a top JM official said: “Mr Sabharwal has not left the firm and I am not aware that he is planning to leave the firm. But he is free to decide what he wants to do.” This official did not want to be quoted by name.
There is speculation that some members of its fixed income team may also be on their way out.

In the recent past, the performance of fund managers has come under intense scrutiny in the wake of the market meltdown. Recently, some top officials of the Indian arm of a European mutual fund were asked to leave after its international audit team assessed that its fixed income was of inferior quality.

A person familiar with the development said Mr Sabharwal has drawn a lot of flak from JM’s management because many of its equity funds have fallen further than others in the same categories. This in start contrast to the situation in the bull run, when schemes that were managed by him were among the top performers in the industry. For instance, one of its popular funds, JM Basic Fund, which was at one point delivering more than 100% annualised returns, has been struggling of late.

In the last quarter, while the Sensex has fallen a little under 3%, the fund contracted 19%. Industry officials familiar with his investment style said his aggressive exposure to mid-cap stocks may have increased risks. Mr Sabharwal shot to fame in his assignment in SBI Mutual Fund, where he turned around the prospects of its equity funds through his aggressive investment strategy.

He left the firm to join Lotus AMC — now Religare Aegon AMC — where he was asked to leave abruptly after the CBI named him, among others, in a case related to the purchase of Padmini Technologies shares by the mutual fund during the stock market scam in 2001. Mr Sabharwal joined JM soon after that.

Talk of Mr Sabharwal leaving the firm comes at a time when the parent company, JM Financial, has been under the spotlight of late, with the government ordering a probe into Maytas Properties where a JM-promoted private equity fund invested Rs 600 crore.

When asked about his role in this investment, Mr Sabharwal said he had not role to play in JM’s private equity arm’s investments. One of the most affected stocks in the financial sector in the bearish phase, shares of JM Financial closed higher at Rs 21 on Wednesday.

Source: http://economictimes.indiatimes.com/News/News-By-Company/Corporate-Announcement/Top-fund-managers-may-quit-JM-Financial/articleshow/4152311.cms

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Mutual Fund industry assets up by 9.5%

The Indian Mutual Fund industry is on front foot once again. The industry’s assets under management (AUM) have risen by about 9.5% in Jan ’09 vis-à-vis Dec ’08. This is the second consecutive monthly rise in the AUM after a series of downfalls witnessed in the last quarter of 2008. Earlier the assets had risen by around 5% in Dec ’08.
With an asset base of Rs 4,60,949 crore, the industry may still have a long way to go to regain its highest absolute peak ever of Rs 6 lakh crore. However, in percentage terms, this rise is pretty significant as growth in January ’08 is second highest after Oct ’07. In last 15 months, growth in AUM has been over 10% on only two occasions.
LIC Mutual Fund is once again the biggest AUM gainer in percentage terms. Its assets are up by over 30% since last month to Rs 18,731 crore. This AMC had earlier reported a rise of over 23% in AUM for the month ended Dec ’08.
Other asset management companies (AMC) to have recorded significant rise in assets include IDFC, DWS Investments, Birla Sun Life, Tata, Principal, ICICI Prudential and Kotak. Each of these AMCs has recorded an increase of over 10% in their AUM.

While Reliance continues to be the largest player of the industry with an asset base of Rs 76,168 crore, followed by HDFC at Rs 51,420 crore, there has been a re-shuffling for the third position. ICICI Prudential has once again overtaken UTI to be the third largest fund house of the country. It has reported an increase of about 13.5% in its AUM which currently stands at Rs 47,515 crore against UTI’s 46,161 crore.

Source:http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/MF_News/Mutual_Fund_industry_assets_up_by_95/articleshow/4070266.cms

Mutual Fund industry assets up by 9.5%

The Indian Mutual Fund industry is on front foot once again. The industry’s assets under management (AUM) have risen by about 9.5% in Jan ’09 vis-à-vis Dec ’08. This is the second consecutive monthly rise in the AUM after a series of downfalls witnessed in the last quarter of 2008. Earlier the assets had risen by around 5% in Dec ’08.
With an asset base of Rs 4,60,949 crore, the industry may still have a long way to go to regain its highest absolute peak ever of Rs 6 lakh crore. However, in percentage terms, this rise is pretty significant as growth in January ’08 is second highest after Oct ’07. In last 15 months, growth in AUM has been over 10% on only two occasions.
LIC Mutual Fund is once again the biggest AUM gainer in percentage terms. Its assets are up by over 30% since last month to Rs 18,731 crore. This AMC had earlier reported a rise of over 23% in AUM for the month ended Dec ’08.
Other asset management companies (AMC) to have recorded significant rise in assets include IDFC, DWS Investments, Birla Sun Life, Tata, Principal, ICICI Prudential and Kotak. Each of these AMCs has recorded an increase of over 10% in their AUM.

Open-ended mutual funds offer better returns

The pressure of redemptions, i.e. investors exiting from the fund, has given nightmares to many a seasoned fund manager. Open-ended mutual funds, which by definition allow investors to exit at any point, are run by fund managers who keep higher levels of cash aside for redemptions.
But being prepared for the worst scenario could have ‘helped’ openended mutual funds which have outperformed their closed-ended peers in the last 12 months, an analysis shows.
While top close-ended equity diversified funds have grossed (-) 44% in the one year, their top open-ended peers have given (-) 33% in the same time. As an investor, this means 10% of your money was saved if you chose an open-ended scheme. Both types of funds being ‘diversified’ meant they chose wide variety of stocks to hedge their risks but still a wide gap persists.
“One reason could be the optimal design for open funds,’’ Prateek Agrawal, head of equity at Bharti AXA Investment Managers, said. “Open-ended funds have to be prepared for both inflows and outflows.’’
Mutual fund industry analysts point out that fund managers in open-ended schemes keep 15-20% of assets in cash and cash related instruments to meet redemptions. Top open-ended funds such as Birla Sun Life Dividend Yield Plus, UTI Dividend Yield, IDFC Imperial Equity, DSP BlackRock Top 100 Equity and UTI Contra could have scored on this point.
Putting beside more cash left less room for open funds to remain less invested in themes such as mid-caps and smallcaps, which meant that they (open funds) were stuck with less illiquid stocks.
“A good number of fund houses zeroed in on the close-end structure to invest in small and mid-cap themes or infrastructure/construction stocks. These stocks were known to hold long term potential but were also among the most illiquid stocks,’’ said a fund manager of a closed-ended scheme.
Top closed-ended funds such as Tata Equity Management, UTI India Lifestyle, Fortis Sustainable Development, Sundaram BNP Paribas Equity Multiplier and LIC MF Top 100 were perhaps exposed to some illiquid stocks. Once trading volume thins, illiquid stocks are the ones more difficult to dispose off.
Dhirendra Kumar, CEO of fund tracking company Value Research, feels fund management for close-ended funds has been less intensive in the past one year.
“Most close-ended funds used to charge initial launch expenses of a new fund offer till 2007. This was stopped from January 1, 2008. Would fund management companies be interested at a similar level then? Launches of new close-ended funds have been minimal since then and existing funds were less-intensely managed,’’ Kumar said.

Source: http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/Open-ended_mutual_funds_offer_better_returns_/articleshow/4070274.cms

Once again Reliance MF adjudged best fund house

Reliance Mutual Fund, part of the Reliance Anil Dhirubhai Ambani Group, has been adjudged the best fund house in India and Vikrant Gugnani the best CEO by Asia Asset Management, a journal of investments and pensions based in Hong Kong.
Asia Asset Management magazine is a monthly publication focusing on the institutional fund markets in the Asia Pacific region. The award is for the 12-month period ended December 2008.
Commenting on the awards, Leehock Tan, publisher of Asia Asset Management, said, “We have seen that Reliance Capital Asset Management Ltd continues to expand both its domestic and international franchise, re-affirming its dominance as the leading mutual fund house in India. Amidst the global economic crisis, its recent growth has been impressive. Thus, their commitment to the industry deserves to be recognized.”
On this recognition, the newly-appointed CEO of Reliance Mutual Fund, Sundeep Sikka, said, “This recognition is very special as it comes from an international and a very credible institution endorsing us as the Best Fund House in India. We convey our gratitude to our investors and partners who have been the driving force towards our success. Such recognition makes us more committed towards serving our investors with better products and services.”
Gugnani was the CEO of Reliance Mutual Fund from October 2005 to December 2008, and was instrumental in taking the company to leadership position and making it the most trusted brand amongst asset management companies, the company said in a press release.

Source: http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/Reliance_MF_adjudged_best_fund_house/articleshow/4041672.cms