UTI to be first on NSE mutual fund platform

Around 30 of the 100 schemes of UTI Mutual Fund will be listed on the new NSE Mutual Fund platform, which is set for a Monday launch.

The liquid schemes will not be included among them, said a top UTI official.

For the fund industry, it will be a new technology-driven initiative when UTI MF lists its schemes on Monday on NSE's new platform – the Mutual Fund Service System (MFSS).

In November 2000 a similar initiative by the Association of Mutual Funds in India made it possible for Indian funds to declare their NAVs on a common platform.

BSE to join soon

Around 10 mutual funds are expected to join NSE's platform within a week's time, an NSE official said. BSE too is readying a similar platform for launch, a BSE spokesperson said, without giving further details.

The new transaction platform allows investors who have demat accounts to transact in mutual funds online by logging on to their broker's telecom network, which will be linked to NSE's MFSS.

Those who do not have demat accounts will have to apply to their respective mutual funds for generation of a personal identification number (PIN), a user ID and password; this route will also facilitate online transactions, without the broker coming into the picture.

Such investors will have to provide their bank account details along with their PAN and fund folio numbers to get their PIN.

Transactions would be processed on the business day on which the investor's funds are credited to the mutual fund's bank account. Units will be allotted at the previous day's NAV for orders received up to 3 p.m.

In addition to online subscription and redemption, investors can apply for new fund offers and additional subscription in various schemes.

The facility will also enable switching of units from one scheme, plan or option to another.

No entry load will be charged for direct applications that are not routed through a broker or distributor, but are forwarded online to mutual fund houses through their online transaction facility, the Web site of UTIMF said.

There is no clarity on levy of brokerage and securities transaction tax. NSE officials declined to comment on this matter.

Source: http://www.thehindubusinessline.com/2009/11/29/stories/2009112950990100.htm

Dubai's debt default fears shake investor confidence, rattle stock markets

Indian stocks and the rupee skidded on Friday as Dubai's debt woes sparked fears over corporate exposure to a key trading partner and that foreign funds will lose their appetite for risk.
Banking, property and construction-related shares were among those hardest hit, after Dubai said two of its flagship firms planned to delay repayment on billions of dollar of debt. Foreign investors have poured roughly $15 billion into Indian stocks this year, helping drive a 75 percent rally through Thursday, and were among the sellers on Friday.
Dubai said on Wednesday it wanted creditors of Dubai World and property group Nakheel to agree to a debt standstill as it restructures Dubai World, the conglomerate that spearheaded the emirate's breakneck growth. Dubai World had $59 billion in liabilities as of August.
"Whenever this sort of situation arises you will see a flight to safety, but I think within the emerging markets space India and China clearly are the favourites, so to that extent they will be protected on the downside," said Manish Sonthalia, portfolio manager at Motilal Oswal.
The benchmark Sensex pared losses to 2.2 percent on buying at lower levels in mid-afternoon trade after falling as much as 3.8 percent, outperforming the 4 percent drop in the MSCI Index of non-Japan Asia.
India and the United Arab Emirates, of which Dubai is a member, are separated by the Arabian Sea and closely linked by the millions of Indians who work in the region. Indians make up about 40 percent of the UAE's population, accounting for 10 to 12 percent of India's inward remittances, CLSA said in a report.
The UAE was the second-biggest export destination for India during the nine months through December 2008, accounting for $14.6 billion, or 11.15 percent of India's total -- a share that has been rising and closing in on the United States.
"This event would be a trigger for investor risk aversion and that could slow down the flow of capital into emerging markets, and Indian stocks would be affected by that," said Gaurav Kapur, senior economist at ABN Amro Bank in Mumbai.
Minister for trade Anand Sharma said India's economy was unlikely to be hard-hit by the situation in Dubai. "India is a very large economy. I don't think some development in the real estate in Dubai is going to impact the Indian economy," he told reporters.
While Indian banks are heavily focused on the domestic market, they are active in handling remittances from overseas workers and India's banking index was down 3 percent.
Bank of Baroda, which had a total exposure in the UAE of around 100 billion rupees ($2.1 billion) according to its chairman, saw its shares fall about 7 percent. The mid-sized lender has 10 branches in the Gulf, more than any other Indian bank, according to CLSA, but the exposure is mostly related to remittances, the brokerage said.
SENTIMENT HIT Several market players said the biggest impact of Dubai's difficulties would be on sentiment. "The market was expensive, and it was looking for a reason to correct, and Dubai happened to be one," said Anand Shah, head of equities at Canara Robecco Mutual Fund. "Fundamentally, we are not impacted. But, if the risk appetite comes off, the liquidity flow could reduce," he said.
Many Indian companies were quick to play down their exposure to Dubai. Engineering conglomerate Larsen & Toubro said it had exposure to Dubai of $20 million to $25 million. India's largest listed realty firm, DLF, and second ranked Unitech said they had no exposure to Dubai, and leading private bank ICICI Bank said it had no material exposure.
Real estate shares were down 3.83 percent. Nagarjuna Construction said it was slowing down its real estate operations in Dubai. "We have only one real estate project in Dubai, to develop 1.45 million sq feet ... and right now in the Dubai real estate market we are going slow on this project," Y D Murthy, executive vice-president, finance, said.
Emaar MGF, a joint venture between Indian financier MGF and the UAE's Emaar Properties, is one of several Indian property firms planning a listing. It has filed papers with the market regulator to raise about $830 million, about half the amount it had planned to raise in 2008.
Emaar MGF declined comment, saying it was in a silent period after having filed the prospectus for its share offering.
"For real estate per se, the pressure would be due to lack of investor appetite at a time when a slew of IPOs are lined by local real estate companies," ABN Amro's Kapur said.

Source: http://timesofindia.indiatimes.com/biz/india-business/Dubais-debt-default-fears-shake-investor-confidence-rattle-stock-markets/articleshow/5275349.cms

Fund management fees rise with markets

Management fees to equity fund managers and investment advisors rose 42 per cent, or Rs 224 crore, in the first half of financial year 2009-10.
Fund houses pay management fees on the basis of assets and since assets under management (AUM) of equity schemes have risen 75 per cent, or Rs 83,000 crore, in the first half of the current year, fund managers’ fees have gone up to Rs 759 crore.
The over 100 per cent rise in markets during the period has led to a considerable increase in assets of equity funds. This resulted in higher payment towards management fees, said Anil Chopra, Group CEO, Bajaj Capital.
In the second half of 2008-09, fund houses paid lower fees (Rs 535 crore) to their managers due to the over 50 per cent decline in value of equity portfolios, he added. In the first half of 2008-09, when the market fell off its peak, excessive portfolio churning led to higher administration expenditure. Also, outflow due to management fees stood at Rs 891 crore.
The record shows that fund managers and investment advisers’ remuneration varies in a volatile market. In 2007-08, when the Sensex moved up from 12,000 to 21,000, fund houses paid Rs 1,673 crore to fund managers. Conversely, in the second half of 2008-09, when the Sensex fell to 8,000-10,000, the fees dropped to Rs 535 crore.
During a lean period, inflow into equity funds through new fund offerings (NFOs) and sale of existing schemes fell sharply from Rs 52,701 crore in 2007-08 to Rs 4,084 crore in 2008-09. Mutual fund investors were cautious in the rising market too and subscribed to no more than Rs 5,344 crore of NFOs in the first half of 2009-10.
The turnover of mutual funds on the bourses declined sharply from Rs 2.46 lakh crore in the second half of 2007-08 to Rs 1.61 lakh crore in the first half of 2008-09, and Rs 1.19 lakh crore in the second half of 2008-09. With the BSE-500 index appreciating around 125 per cent from its 52-week low on March 9, 2009, the MFs’ turnover on BSE and NSE has more than doubled to Rs 2.75 lakh crore since April 1.
Reliance MF topped in the list of fees, with payment of Rs 132 crore, followed by UTI MF (Rs 86 crore), HDFC MF (Rs 81 crore), SBI MF (Rs 68 crore) and Franklin Templeton MF (Rs 61 crore).

Source: http://www.business-standard.com/india/storypage.php?autono=377774

Lagging behind in performance

Quant funds should be used only for portfolio diversification, and are suited for high net worth investors.

Computers have replaced humans in many walks of life. And now, these machines are finding their way in the investment world too. Financial institutions like banks and mutual funds are using them for jobs that traditionally required a huge amount of human experience – picking stocks, for instance.
Consequently, mutual funds are launching products, based on quantitative analysis. Currently, two fund houses have such funds. Reliance Mutual Fund’s scheme is called Quant Plus and Religare Mutual Fund has AGILE. The latter has two variations – an open-ended equity fund and an equity-linked savings scheme. The latest to join the bandwagon is Canara Robeco. The company plans to launch Large Cap+ Fund, based on quant.

The analysis involves using historical data of stocks and prediction of stock movements, accordingly.
But returns, as of now, have not been too impressive. If you look at the performance of the existing fund, human intelligence has outperformed the artificial intelligence. Religare Agile has returned 57.11 per cent since January. The ELSS scheme has 84.80 per cent returns. And, Reliance’s scheme has fared better with returns of 86.14 per cent.
Equity diversified schemes have fared much better comparatively. Out of the total 189 equity diversified funds that existed before January, 110 have given higher returns than any of these quant funds.
But that’s in their characteristic. As Vetri Subramaniam, head – equities at Religare Mutual Fund and also the fund manager for the AGILE scheme, explains, “These funds work on historical data. The volatility seen globally, and in India, in the past year- and a-half has not happened before.”
WORKING OF QUANT FUNDSThese funds pick stocks based on a computer programme. This computer programme is made on trends of various stock market parameters observed in the past 10-15 years. The parameters could range from price-to-earnings (PE) ratio, stock price movement, market sentiment, earnings expectations and so on.
Every fund house has a proprietary model based on the parameters they choose. For example, Canara Robeco uses PE and price-to-book ratio, upgrades and downgrades recommendations by analysts, stock momentum of the recent past, earning valuations and earning expectations by analysts.
Analysts in one of the mutual fund’s parent company, Robeco, used this model at headquarter in Netherlands. “The programme is further tweaked to Indian markets based on what is perceived to drive stock prices in the country,” said Anand Shah, head – equities at Canara Robeco.
Reliance uses parameters such as periodical moving average of the stock, liquidity, market capitalisation, PE and PB ratios, earnings before interest tax depreciation & amortisation (EBITDA) & EBITA margin and other parameters, based on the balance sheet and profit and loss account.
These models assume that stock markets or companies will continue to behave the way they have in the past. “But under different situations like the sharp fall of 2008, mathematical models might not hold good. These funds can, therefore, generate significant losses to investor,” said Chintamani Dagade, Head of Research at Morningstar (India).
Religare AGILE faced the same problems last year when market fell. The one year returns for the fund is mere 36.65 per cent. The category average of the equity diversified funds delivered 90.56 per cent returns in the same time.
Another industry expert said that quant funds are more likely to succeed in the developed countries, where markets are efficient. He also added, “As the models are proprietary, asset management companies (AMCs) keep them secret. This causes transparency and accountability issues.”
The existing funds from Reliance Mutual Fund and Religare Mutual Fund are very aggressive. With their benchmark as 50-share Nifty index, their portfolio comprises of less than 20 funds. They also use futures and options extensively.
“As the portfolio consists of a few stocks, these funds will tend to outperform the market in the bull phase and fall heavily in downturns,” said Subramaniam.
These funds tend to use a lot of technical analysis and hence, suited for seasoned investors only. Pankaj Narain, director, head private clients at Deutsche Bank also said that quant-based funds are for investors who have a large portfolio of investment and they have their asset allocation in place. “This is essentially for investors who are looking for diversification in investment strategy. Such investors can put in 3-5 per cent of their portfolio in these funds,” said Narain.

Source: http://www.business-standard.com/india/news/lagging-behind-in-performance/377200/

Finance ministry sets up panel to study foreign capital flows

The Union ministry of finance has set up a working group to study and suggest changes to the legal and regulatory framework on foreign portfolio investments, it said in a statement Tuesday.
The committee will also study rules and regulations relating to foreign institutional investors (FIIs), non-resident Indians, and venture capital and private equity investors.

One person nominated to the panel said the committee will also look into issues relating to debt capital inflows and the policy on external commercial borrowings. “The panel has been given four months to submit the report and a meeting will be convened soon,” he said on condition of anonymity.
The committee will be headed by U.K. Sinha, chairman and managing director, UTI Asset Management Ltd, the fourth largest mutual fund manager in India. Ravi Narain, chairman of National Stock Exchange Ltd, economist Ajay Shah, finance ministry official K.P. Krishnan and corporate lawyers Bahram Vakil and Somasekar Sundaresan will be part of the 16-member group.
The group will review and suggest rationalization of policy on foreign inflows with a view to encourage foreign investment and reduce hurdles while maintaining know your customer norms. It will identify challenges in meeting financing needs of the Indian economy through foreign investments.
Currently, foreign capital flows come in through foreign direct investment (FDI), FIIs and foreign venture capital investment, with different rules for each.
While some sectors have been fully opened up to FDI, there are caps on others such as insurance and retail. The government has also prescribed maximum investment levels under the different routes.
Foreign investors, though, have often used loopholes to exceed limits by registering a sub-account with markets regulator Securities and Exchange Board of India, and buying shares of Indian companies in excess of FDI limits. Although legal, it defeats the purpose of the limits.
The group will also study participatory notes and re-examine the taxation of transactions through securities transaction tax and stamp duty.

Source: http://www.livemint.com/2009/11/24231153/Finance-ministry-sets-up-panel.html?h=B

Size does matter, sometimes

All offer documents of fund houses run a mandatory declaration: “Mutual funds are subject to market risk. Read the offer document carefully before investing.” But ‘market risk’ per se is not all that the investor should be worrying about, especially those who are investing in an existing fund.

Experts advise one should look at past performance, choice of stocks and the Sharpe ratio (returns to risk per unit), among others.

Other factors such as liquidity, corpus size, average maturity, turnover rates, low expense ratio, load structure should also be kept in mind before finally zeroing in on a scheme. Schemes with higher liquidity, lower average maturity and low turnover rate are preferred.

It is always advisable to select a scheme with a well-diversified portfolio rather than a concentrated portfolio, as it carries lesser risk. Portfolios can be judged on the basis of a company and sector/ industry concentration.

However, there are a lot of equity diversified funds with large corpuses. The question is – does a large corpus limit the fund manager’s ability to give better returns and, therefore, should an investor look at a fund with say, a corpus of less than Rs 1,000 crore?

Though a large corpus denotes investors’ confidence in the scheme, there is a flip-side to it as well. Experts say a huge corpus may not be easy to manage and a fund manager is likely to run out of investment avenues to deploy cash. For example, sometimes arbitrage funds refuse to take more money because they lack investment opportunities.

“If the corpus size is huge, funds tend to underperform the index, and since such schemes invest in more number of stocks, it becomes difficult for the fund manager to track stocks,” said D Sundarajan, chief executive officer, Trendy Investments.

Fund managers, however, feel that a large corpus may limit the performance of a fund, but only in some cases. Sanjay Sinha, chief executive officer, DBS Chola Asset Management Company, said, “The corpus size should not be a material factor for selecting a scheme. Track record and the portfolio of the scheme are important factors."

In case of a large-cap fund or an index fund, experts say, the corpus size is of little importance because large-cap stocks have more liquidity. For instance, the average daily turnover of Reliance Industries and Infosys has been Rs 961 crore and Rs 312 crore (in the last one month), respectively.

But for mid- or small-cap funds, a very big corpus may create problems for the fund manager. For example, the fund manager of a mid-cap scheme with a corpus size of Rs 250 crore would find it easier to invest this money. But if the corpus shoots up to, say Rs 1,000 crore, the fund manager is likely to get stuck because his mandate is to invest in mid- and small-cap companies. And these stocks are quite illiquid.

For example, the average daily turnover of Torrent Power (mid-cap) and South Indian Bank (small-cap) was Rs 22.27 crore and 6.89 crore in the last one month.

Add to it the strict regulation that the scheme cannot invest more than a certain percentage in a single stock can make things more difficult. Rajat Jain, chief investment officer (equity), Principal Mutual Fund, said, “In the mid-cap space, hardly 3-4 per cent of stocks can give really good returns. And, for those schemes with large corpus, it may become difficult to invest in such space.”

Source: http://www.business-standard.com/india/storypage.php?autono=377626

Sundaram BNP Paribas MF's PSU NFO

Sundaram BNP Paribas Select Thematic Funds PSU Opportunities, an open ended equity scheme, is the first fund by Sundaram BNP Paribas Mutual Fund that will invest in the companies falling under the public sector, which straddle segments as diverse as banking, insurance, oil, power, mining, defense, engineering and transportation infrastructure & services. The scheme seeks to provide a dedicated way to tapping wealth creation in this space.

The fund house is looking to profit from the central position that PSUs have again acquired in India to drive future economic growth. >For the industry as a whole, this is the second such thematic fund after Religare’s PSU Equity Fund. These two funds will actively invest in PSUs, though there are other passively managed funds investing in this segment, but not on an exclusive basis.

The fund would invest at least 65 per cent in equity and equity-related securities of PSU, but looks to hedge some bets by stating that it may invest up to 35 per cent of its assets in stocks other than the targeted theme or even in fixed income/money market instruments. The fund can also invest up to 35 per cent in overseas securities related to the theme. It can also invest in bonds and other fixed income instruments issued by public sector entities.

The fund has been benchmarked to the CNX PSE Index.

Fund Family
Sundaram BNP Paribas AMC was founded in 1996. At present, the total assets under management (AUM) as on October, 2009 is Rs 13,505.82 crore. Out of the total of 39 funds, 12 are open-end equity funds and the total assets in equities, as on October, 2009, stands at Rs 6,874.92 crore.

Fund Managers
47-year-old J. Venkatesan, fund manager-equity, would manage the fund. He holds an M.Com degree and Grad CWA and CAIIB. He has more than 24 years’ experience (13 years at Canara Mutual Fund and 7 years at Canara Bank).

29-year-old S. Bharath has been designated Fund Manager - Overseas Securities. He holds a B.Com, MBA degrees and is an ICWA. He has a total of 7.5 years' experience of which 2.2 years was with Navia Markets Ltd.

Basic Details

Type: Open Ended Equity Scheme

NFO Opens: November 25, 2009

NFO Closes: December 23, 2009

Plan / Options: Dividend and Growth

Minimum Application Amount: Rs 5,000 SIP Investment: Rs 750 (Quarterly) and Rs 250 (Monthly)

Minimum Additional Application/Redemption: Rs 500

Benchmark: CNX PSE Index

Exit Load Structure: One per cent if redeemed within 12 months. Nil if redeemed on or after 12 months

Annual Recurring Expense (maximum): 2.25 per cent (including investment management fee of 1.25 per cent)

Source: http://new.valueresearchonline.com/story/h2_storyView.asp?str=101031

SIP investors beat equity MF peers in returns race

Whoever said volatility is bad for equity investments? Those who invested in mutual funds through the systematic investment plan (SIP) route have benefited the most from fluctuating share prices over the past 2-3 years. While top equity diversified funds have returned 16-18% in three years, SIP investors have earned returns in the range of 25-28% (investing into the same funds) during the same period.

Supposing an investor has invested Rs 1,000 every month (between November 23, 2006 and November 23, 2009), he would have pocketed a 31% return on his Sundaram BNP SMILE Fund, 29% each on ICICI Prudential Discovery Fund and Birla Sunlife Dividend Yield Fund and 28% on his HDFC Equity Fund.

The investor would have made more ‘risk adjusted’ money than investing directly into stocks (Sensex three-year return being 25% on a compounded basis). In all cases, the investor would have made more money than any high networth individual (HNI) who had invested lumpsum into any of the above funds, unless the HNI managed to enter at the lowest level.

“SIP portfolios have yielding better returns because of the deep-market correction in mid-2008. Volatility provides a perfect setting for high-return SIP investments,” said Gopal Agarwal, equities head, Mirae Asset Investment.

According to fund managers, though there will be a slight erosion in net asset value (NAV), a market crash will not have much of an impact on the overall performance of the SIP. In fact, investors get more units for the same amount of money in falling markets. The units bought at lower price-levels will appreciate when the market turns around, adding to the overall portfolio value.

Lumpsum investors can only invest at one level of the market (in this case at 13,680 levels, Sensex as on November 23, 2006). Their investments went through a cycle of dips and surges, but they could not buy fresh units at lower market levels.

“The variance in the performance of SIP and lumpsum investments is mainly due to the fact that SIP investors would have picked up additional units during the downturn. SIPs route is ideal for small investors as it makes market fluctuations work for them,” said Jaya Prakash K, head-products, Franklin Templeton Investments.

Though one cannot make a direct comparison of benefits (between SIP and lumpsum MF investment), SIP is usually considered a sound investment strategy in range-bound as well as volatile markets, as you would not be locking your capital at one go. Performance of SIPs in the short term, however, depends on the extent of liquidity in the market, liquid cash position (non-invested part of the fund) and portfolio composition.

“Lumpsum investments (in MFs) look good in a constantly rising market; SIPs are better in falling and volatile markets,” said Anand Shah, head-equities, Canara Robeco Asset Management.

“Over a longer term (10 years and more), both investment styles yield decent return pattern for investors. For instance, if you had made two investments at the peak level and at the trough level in a given month, the difference in return at the end of 10 years would be hardly 1%,” Mr Shah added.

It is in this context that wealth managers are asking affluent investors to adopt value averaging strategies while making lumpsum investments. In value averaging investment (VAI), the investor sets a target growth rate or amount for his portfolio each month, and then adjusts the next month’s contribution according to the relative gain or shortfall made on the original asset base.

Though VAI has no historical references, returns (asset growth) could well be very close (or a bit high) to those offered by investments through SIPs, say experts.

Source: http://economictimes.indiatimes.com/articleshow/5265557.cms?flstry=1

Mutual funds bet big on growth sectors

The 30-stock Sensex has risen around 10% from its recent low of 15,404 points on 3 November to close at 17,131 on Tuesday

Driven by better-than-expected corporate earnings in the quarter ended 30 September and recent government announcements on disinvestments, mutual fund managers are showing their optimism by betting on high-growth sectors despite a doubling of stock prices in the past seven months.

The 30-stock Sensex, the bellwether index of the Bombay Stock Exchange, has risen around 10% from its recent low of 15,404 points on 3 November to close at 17,131 on Tuesday. It has gained 77.57% since 1 January.

A Mint analysis of the portfolio data of diversified equity schemes shows that fund managers have significantly higher allocations for automobile, construction and metal sector stocks.

The analysis looked at the month-end portfolio data of diversified equity schemes between 31 March and 31 October. The data was provided by mutual fund tracker Value Research.
While energy and financial stocks continue to command the most investment, allocation to sectors such as consumer goods has come down significantly.

Allocation to auto stocks rose to 4% at the end of October from 2.85% in March. Investments in construction companies almost doubled, from 2.5% to 4.9%. Technology stocks saw increased allocation, up from 4.9% to 7.25%.

The aggressive allocation strategy is a reflection of rising confidence in the economy and businesses, fund managers said.

“Overall economy numbers and other indicators like auto and property numbers are much stronger than expected,” said Suresh Soni, chief executive officer of Deutsche Asset Management (India) Pvt. Ltd, which manages Rs13,795 crore in assets. “However, internationally, central banks are not withdrawing the accommodating monetary policy and have said they will continue the easy monetary policy for a specified period. This has put us in a sweet spot, which is propelling optimism.”

Chennai-based N. Prasad, who runs an independent research firm and is former chief information officer of Sundaram BNP Paribas Asset Management Co. Ltd, said: “Most fund managers are increasing allocation to economy-sensitive stocks in their portfolio. (There’s) nothing wrong with this strategy as most confidence indices are turning positive.”

According to Prasad, the fiscal deficit is no longer a big worry. “The government disinvestment programme is expected to bring it back to FRBM targets.”

The FRBM (Fiscal Responsibility and Budget Management) Act aims to bring down the government’s fiscal deficit to 3% of India’s gross domestic product.

Another important factor that has contributed to the increasing weightages is the movement in stock prices.

Ritesh Sheth, fund manager, SBI Funds Management Pvt. Ltd, which manages Rs38,322 crore in assets, said: “It is not clear whether this increased allocation can be fully attributed to the purchases by fund managers. A lot of it would be due to the price action. For example, a sector like telecom is facing an uncertain period. People are keeping away because there are a lot of ifs and buts. One is not sure on what basis the profitability of these companies need to be calculated in the short term. So, everyone is waiting for the dust to settle.” Allocation to the telecom sector has halved.

Fund managers have also been burnt by a high cash strategy that affected fund returns between March and June. Funds had cash levels of 15-20% and missed the rally triggered by return of the United Progressive Alliance to power at New Delhi in May.

A study of equity funds by Crisil FundServices, a research unit of ratings firm Crisil Ltd, also shows that funds with lower cash holdings have outperformed others in the long run.

While funds with higher cash holdings cut their losses in a falling market, they tend to miss out on a subsequent rally. Further, equity funds with minimal cash holdings fared only marginally lower in a downturn, but benefited considerably more from a rally.

The most notable performance in the downturn came from fully-invested funds that made timely and prudent investment calls in sectors such as pharmaceuticals and consumer goods, the Crisil report said.

“Investing in defensive sectors to negotiate a down market proves to be a more effective strategy as such funds can bounce back faster during a market correction,” said Krishnan Sitaraman, director, Crisil FundServices.

“Investors invest in equity funds primarily because they are perceived as value creators and it helps them diversify from their debt investments. By taking cash calls, funds defeat this very basic objective of investors,” Sitaraman added.

However, Prasad cautioned that valuations could be a dampener for fund managers’ optimism. “Market looks rich largely because earnings are below the long-term trend level of 21%,” he said.

The Sensex, India’s most tracked index, has climbed at least 110% since the lows of March, a rate of growth surpassed only during its rise in the early 1990s during a stock market scam engineered by trader Harshad Mehta.

The index is trading at 20.96 times the estimated earnings for the fiscal year to March. The average range of valuation for the index has traditionally been 14-17 times of earnings.

Soni of Deutsche Asset Management said valuations have to be seen from the perspective that they had been depressed unrealistically when market hit historic lows. “In the near term, it’s a concern. But in the medium term, it’s not.”

Source: http://www.livemint.com/2009/11/24232136/Mutual-funds-bet-big-on-growth.html

Brokers keen on MF trading

Say move to deepen market but existing distributors may get annoyed.

The recent move by the Securities and Exchange Board of India (Sebi) to facilitate mutual fund transactions through the existing stock exchange infrastructure has found many takers, with broking companies keen to venture into this new area within a fortnight.

Brokers said trading in MF units would help them enhance volumes. In return, investors would save costs, they said. However, they added that this would be different from equity transactions and require a dedicated team.

Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services, said, “We are set to offer this value-added service as it will provide transparency, reduce costs from investors’ perspective and increase volumes.”

A majority of existing asset management companies (AMCs) do not have a wide network and are limited to a few cities. On the other hand, broking companies have spread to semi-urban regions and are now focusing on retail investors.

Dinesh Thakkar, chairman and managing director of Angel Broking, said, “There is no reason why should we not get into mutual fund trading. AMCs do not have the reach that broking firms can provide.”

Oswal said: “Our existing infrastructure, with a distribution network having access to 560 cities across the country, will be adequate to offer this service. What will we require is mutual fund advisors.”

Trading of MF units on any day would be at the net asset value (NAV) fixed for that particular day, said brokers. Though most brokers are enthusiastic, some say how things turn out is yet to be seen.

Mohan Natarajan, executive vice-president at Edelweiss Capital, said, “Tracking equity and mutual fund markets are two different things. In mutual funds, it is the fund manager’s call which matters. Moreover, the fund market is not as volatile as equity markets. In case it remains an investors’ game, volume may not be there.”

Fund houses agree that using the exchanges’ infrastructure will expand the distribution network significantly. “However, it could annoy existing distributors and small town advisors,” said the chief investment officer of a leading domestic fund house.

Existing MF distributors and financial advisors are taking this as another challenge to their already shrinking business after the ban on entry load in equity schemes came into effect in August.

According to them, it is doubtful if the issue of low penetration of MF products can be addressed by using the existing infrastructure of stock exchanges.

“Though the market regulator wants to increase mutual funds’ reach to the masses, how will such a move increase retail participation? Existing clients of broking firms are likely to go for this service. Moreover, how many brokers would like to take care of small mutual fund investors who invest far less money than equity investors?” said a leading MF distributor who did not wish to be named. According to the equity head of a foreign MF, “Using the exchange’s network will enhance the fund market, resulting in easy transactions. However, the platform has to be more complicated to take care of the various intricacies involved in trading, such as track record of funds, etc. Else, it will be difficult to make investors understand what to buy.

Source: http://www.business-standard.com/india/storypage.php?autono=377522

NSE's new MF service system from Nov 30

The National Stock Exchange on Tuesday said it is proposing to introduce a new mutual fund service system (MFSS), which will enable its members to use the existing infrastructure for transaction in MF schemes.

The NSE proposes to introduce new MFSS for facilitating transaction in MF schemes through the stock exchange infrastructure, the NSE said in a circular, adding the new MFSS will commence from November 30.

Market regulator SEBI, in a recent circular, gave its approval for facilitating transactions in MF schemes through the stock exchange infrastructure.

"The infrastructure that already exists for the secondary market transactions through the stock exchanges with its reach to over 1,500 towns and cities, through over two lakh stock exchange terminals can be used for facilitating transactions in mutual fund schemes," SEBI had said.

The stock exchange mechanism would also extend the present convenience available to secondary market investors to mutual fund investors, the market regulator had said.

The existing MF scheme, introduced in December 2000, will be substituted with the new MFSS, the exchange added.

Source: http://economictimes.indiatimes.com/NSEs-MF-service-system-from-Nov-30/articleshow/5265292.cms

It is payout time for mutual funds

In a bid to woo investors, mutual funds have embarked on a dividend declaration spree. Over a dozen fund houses, large and small, including Reliance, UTI, ICICI Prudential, SBI, Tata Mutual Fund, DSP BlackRock, Religare, Bharti Axa, Taurus, are doling out dividends in the range of 10-50 per cent.

At a time when new incremental inflows are not coming in, dividend declaration works as a mechanism to attract more investors and fresh inflows, said Mr Krishnan Sitaram, Head of Fund Services, CRISIL.

In the run up to the tax planning season, tax-free funds are seen declaring dividends to lure investors. It is easier for distributors also to sell the product on the back of such an incentive (such as a dividend declaration).

Fresh inflows into equity funds have fallen by more than 50 per cent as on October-end, compared with the July-end numbers. According to industry body AMFI’s figures, investments into equity funds were at Rs 4,261 crore in October as against Rs 8,737 crore in July. The benchmark index Sensex has gone up by over 13 per cent since July.

Declaring dividends works as a goodwill gesture and also works as a tool to attract more money from new investors, said Mr Rakesh Goyal, Senior Vice-President, Bonanza Portfolio.

Typically, when the equity market goes up there is value appreciation in the equity schemes. Hence, fund houses give dividends to reward investors, said Mr Srinivas Jain, Chief Marketing Officer, SBI Mutual Fund.

Mr K. Venkitesh, Head of Distribution of Geojit Financial Services, agrees, “Dividend declaration is more of a selling tactic as it gives immediate returns, although the NAV of the mutual fund scheme falls after dividend is declared.”

Unlike the way corporate houses pay dividends, mutual funds simply sell off part of the funds assets to pay dividends. So on the record date of the dividend, the NAV of the fund drops and also the worth of the investor’s investments decreases to that extent, explained an analyst.

According to Mr Krishnan, dividend is not re-invested in the corpus of the scheme, and to that extent it is not a positive for the long-term investor who would have rather waited to gain on that re-invested amount also.

Source: http://www.thehindubusinessline.com/2009/11/25/stories/2009112551011000.htm

Trading in mutual funds in a fortnight

You may soon be able to buy and sell mutual fund units through your broker's terminal, according to the chairman of the Securities and Exchange Board of India. "Trading in mutual fund units is expected to start in 10 to 15 days," he said in an interview with CNBC Awaaz. Brokers have applied for the necessary certifications and expect to be battle-ready anytime soon.

"The buying of mutual funds would be like any other equity shares transaction on T+1 settlement (one day after the trade has taken place) through exchanges," said Mayank Shah, CEO of Anagram Capital. Brokerages are signing up withvarious asset management companies and exchanges for trading throughterminals.
"It would not be a problem for us. Not many changes would be required in our system and dealing in MFs would be like any other equity product. This would reduce paperwork and units would be in demat form," said Dinesh Thakkar, CMD of Angel Broking.
Sebi had issued a circular on November 13, which allowed the use of stock exchange infrastructure for sale of mutual funds. It is expected that this would increase the reach of themutual fund industry, which is dealing with increased difficulties in distribution following the ban on charging of entry loads.
As well as increasing penetration among retail investors who currently do not invest in mutual funds, investors who have exposure to mutual funds may take the demat route, feels Nitin Rakesh, CEO at Motilal Oswal AMC. "There could be a migration period lasting a few months. HNIs already have demat accounts and the number of retail investors with such accounts should also increase soon".
"Anything that spreads the availability of the product would be welcome, and the entire process should begin soon," said Suresh Soni, CEO of Deutsche Asset Management (India).

Source: http://www.dnaindia.com/money/report_trading-in-mutual-funds-in-a-fortnight_1315664

Religare Tax Plan To Pay Dividend Of INR1 Per Unit

Religare Mutual Fund Monday declared a dividend of 10%, or INR1 a unit, under the dividend option of its Religare Tax Plan.
The record date for the dividend is Nov. 25, the Indian fund house said in a statement.
Religare Tax Plan is an open-ended, equity-linked savings scheme that invests mainly in equity and equity-related securities.

Source: http://www.religaremf.com/pdf/Notice-ReligareTaxPlan-Nov1909.pdf

MFs on stock exchanges: fund houses strategise

Market regulator SEBI’s proposal to allow mutual funds (MFs) to trade on recognised exchanges through brokers has asset management companies thinking up necessary strategy changes.

Firms such as India Infoline are planning to merge the MF sales vertical with broking business. “This will help us serve our customers better with one relationship manager being the interface of the customer for all the products including mutual fund,” said Nirmal Jain, Chairman and Managing Director of India Infoline group.

Experts foresee that MF schemes are likely to turn from marketing or sales-driven products to performance-driven ones. AMCs would have to draw up new strategy to get investor attention, they felt.

There is also a question on whether SEBI (Securities and Exchange Board of India) would allow investors to hold both stocks and MFs in the same demat account.

AMCs will be able to survive — even thrive --- if they are able to generate a critical mass of assets under management. This will happen when investors benefit, said experts.

“MF units cannot be traded based on price movements, like stocks. They would have to be based on Net Asset Value (NAV) at the close of market. This would put the onus on performance of MFs and not just the marketing push. This would benefit investors a lot,” said Sandip Sabharwal, chief executive officer --- portfolio management services of Prabhudas Lilladher.

“Within 2-3 months, SEBI will issue guidelines. The guideline will also clarify whether NAV can be changed during the course of the day. But if we have to imagine from the current system then for a day mutual fund schemes will keep the prices fixed for buying and selling,” said Jain.

Meanwhile, not all fund houses are gung-ho about the proposal. “We are unsure what SEBI has in mind and how it would be implemented. We are waiting for further clarity on the issue before we can form any concrete strategy,” said the spokesperson of a leading securities firm, not wanting to be named.

Source: http://www.hindustantimes.com/rssfeed/business/MFs-on-stock-exchanges-fund-houses-strategise/Article1-479090.aspx

Reliance Vision Fund to pay 50% dividend

Reliance Mutual Fund, will announce a dividend of 50 per cent under its retail and institutional scheme Reliance Vision Fund, on Monday, a press release issued by the company said.

Reliance MF is part of the Anil Dhirubhai Ambani Group.

The record date for dividend, which is Rs 5 per unit on the face value of Rs 10, is Friday.

All unit holders registered under the Reliance Vision Fund scheme as on the record date will be eligible for this dividend.

Reliance Vision Fund is an open-ended diversified equity scheme, with a primary investment objective to achieve long-term growth of capital by investing in equity and equity-related securities through a research-based investment approach.

The net asset value as on November 20 under the dividend plan of Reliance Vision Fund – retail and institutional – was Rs 46.3236 and Rs 226.091, respectively, the release said.

Mr Sundeep Sikka, CEO Reliance Mutual Fund, said in the press release, “We have always maintained our strategy of giving timely and regular dividends on equity schemes.”

Source: http://www.thehindubusinessline.com/2009/11/23/stories/2009112350850400.htm

Sebi may widen PMS scope

The Securities and Exchange Board of India (Sebi) is examining the possibility of allowing inclusion of currency and interest rate futures in portfolio management services (PMS)

.

“We are looking at allowing exchange-traded derivatives to be part of PMS. However, no decision has been taken yet,” Sebi Executive Director RK Nair said

On the derivatives side, PMS are allowed to use only equity-related derivatives products such as stock futures for hedging their portfolios.

Hinting at further PMS reforms, Nair said PMS was not as tightly regulated as the mutual fund (MF) industry.

“When we compare general regulations (pertaining to MFs), there is a lot of leeway given to PMS. In terms of investor protection, PMS is not that tightly regulated,” he said at a seminar organised by the Indian Chamber of Commerce (ICC) on PMS here on Friday.

At present, there are 247 portfolio managers registered with Sebi, with total assets under management of about Rs 2.71 lakh crore serving 57,134 clients. Of this, Rs 2.35 lakh crore is invested in debt schemes, Rs 30,000 crore in equity, while Rs 6,000 crore is in other investment schemes, according to the latest Sebi data.

Nair said there were several intermediaries such as private equity and hedge funds which offer services similar to that of PMS. It was becoming a challenge for regulators to see if any systematic issues were involved in them, he said.

Sebi has, in recent years, taken several steps to regulate PMS by banning pooling of client assets, putting up capital adequacy ratio norms and enhancing the minimum net worth requirement for registration as a portfolio manager from Rs 50 lakh to Rs 2 crore.

“Sebi is looking at allowing newer products into the financial markets, but is a little conservative in introducing structured products. We are looking at reforming primary and the secondary markets to make them more fair and inclusive,” said Nair.

He said PMS should not partake functions of a mutual fund. He also said, “We are thinking if there is a need to increase the minimum investment amount of Rs 5 lakh for PMS.”

Of the 57,134 clients under PMS, about 48,000 are discretionary clients whereas 3,529 are non-discretionary ones as on October 2009.

Source: http://www.business-standard.com/india/news/sebi-may-widen-pms-scope/377136/

MFs chalk out new strategies to rope in more investors

The fate of mutual fund industry, after it witnessed a paradigm shift in the distribution model, lies in the hands of the investor. Industry experts believe that the value proposition in products, offerings and advisory will determine as to who will survive the battle. CNBC-TV18’s Priyal Guliani reports.
Apart from grappling with falling markets due to global crisis, the Indian mutual fund industry is going through a transition due to regulatory changes. After initial resistance with regard to changes in the charge structure and distribution model, it is now busy creating value for investors to rope them in.

Ajay Srinivasan, Chief Executive Officer, Aditya Birla Financial, says, “Change in regulation has meant that distribution needs to change in itself. What it means is that commission cannot be there in the product. It clearly means that you need to show value. Some distributors have made the shift, while some are finding it difficult. But over a period of time this is how it is going to be.”
Fund houses bringing in new offerings in the market also believe, products offering unique proposition combined with awareness will change the tide.
Ashu Suyash, Country Head and Managing Director, Fidelity India, says, “All the upheaval concerning entry load notwithstanding, I believe there is sufficient interest. It is about continuously building their awareness levels.”But experts say with retail participation being lacklustre in the last couple of months and change in business models, the mutual fund industry will witness the survival of the fittest.

Source: http://www.moneycontrol.com/news/cnbc-tv18-analysis/mfs-chalk-out-new-strategies-to-ropemore-investors_425422.html

‘No consensus on longer market hours’

There is no consensus among market participants on extension of market hours, something recently permitted by Securities and Exchange Board of India, said Mr Ravi Narain, Managing Director of NSE, here today.
“We would love the market to build consensus on what makes sense for them, and we will respond. Some segments of the market are interested in longer hours but the majority of the market seems to be interested in retaining the hours as they are,” Mr Narain said on the sidelines of the Indian Securities Forum here.
“The systems at the exchanges are not a problem, the real concern is the facility to transfer money and margins within the banking system from upcountry.
The second concern is the back-office system, especially of the smaller brokers,” he added.Faster listing

One year from now, Indian companies may be able to list within seven days of closure of their IPOs.
The market regulator plans to reduce the closure-to-listing time from 20 to seven days, as a longer time span makes it too risky for the issuer and the investor, said the SEBI Chairman, Mr C. B. Bhave.
“We are planning on implementing this over the next one year,” he said.
SEBI is also working on extending the Applications Supported by Blocked Amount (ASBA) facility available to institutional investors, Mr Bhave said.
About 25 per cent of retail applications for IPOs come through ASBA, he said.
The stock market regulator might also reduce the cost of mutual fund transactions and tighten regulations for portfolio management.

Source: http://www.thehindubusinessline.com/2009/11/19/stories/2009111952460100.htm

DSP BlackRock Mutual Fund launches DSP BlackRock World Mining Fund

The New Fund Offer (NFO) will commence on November 23, 2009 and close on December 18, 2009.


DSP BlackRock Investment Managers today announced the launch of DSP BlackRock World Mining Fund. The scheme is a fund of funds Scheme investing predominantly into the BlackRock Global Funds (BGF) – World Mining Fund (WMF) which invests in equity securities of mining companies globally. These companies generally operate across various geographies and enjoy considerable pricing flexibility. The New Fund Offer (NFO) will commence on November 23, 2009 and close on December 18, 2009.

Unique Features
DSP BlackRock World Mining Fund provides Indian investors with a unique investment opportunity to benefit from potential growth prospects in the mining sector by investing into mining companies globally

The unique features of this product are:

Provides access to BGF–WMF, one of the largest funds in its category in the world, with a long term performance track record
BGF World Mining Fund is highly regarded and rated by independent agencies.
The scheme provides investors the opportunity for global diversification combined with access to fundamentals of the mining sector and the growth potential of equities
The team responsible for BGF-WMF is one of the stronger Natural Resources Teams in the industry, managing around US$ 31.9 billion in assets as on Oct 30, 2009. Four of the team’s five portfolio managers are geologists/geophysicists – a definite advantage for successful investing in this sector. The core of the team has worked together for over ten years, which has enabled them to build up invaluable experience with regards to the gold, mining and Mining resources industry.

Areas into which this scheme invests
DSP BlackRock World Mining Fund will invest into the BGF-WMF and other similar overseas mutual fund schemes, and will provide investors with access to the fundamentals of the mining sector.

BGF - World Mining Fund invests mostly in the equity securities of mining and metals companies whose predominant economic activity is the production of base metals and industrial minerals such as iron ore and coal. The scheme may also hold the equity securities of companies whose predominant economic activity is in gold or other precious metals or mineral mining.

Key drivers in the Mining sector
The global mining and metals sector is faced with the challenge of responding to the rising demand for resources. While deposits are becoming scarcer and harder to locate, new production is being limited by supply chain bottlenecks and skills shortages.

Current outlook on the Mining Sector
The first half of 2009 saw China aggressively restocking. This drove up the demand for commodities in the first half of the year and caused commodity prices to rise significantly from the lows seen in late 2008. For example, by the end of June 2009, copper had risen 92% from its low. We are yet to see evidence of a material restocking cycle in the US or Europe but once signs of sustainable economic recovery emerge, restocking in these regions should also be supportive for commodity prices.

Despite a supposed slowdown in industrial demand, there were record levels of imports for copper, iron ore and coking into China during the first half of 2009.

We have also seen signs of economic recovery in the Western World with some restocking seen in selected areas e.g. steel, but the full effect is yet to be felt, in our opinion

As we look forward to 2010, it is likely that the impact of stimulus spending on infrastructure projects should begin to come through into the market, as well as a potential recovery in private sector demand. If demand does recover then the supply side is unlikely to be able to respond to the same extent.

The credit crisis has resulted in widespread production cutbacks across most metals. Some of this capacity has been taken offline permanently and the remainder will not be able to be brought back online instantaneously. In addition, a large number of planned expansion projects have been shelved as appetite for taking on development risk has diminished and the ability to finance the projects has reduced.

Such constraints on the supply side lead us to believe that a demand recovery could provide a constructive environment for commodity prices, which are the key earnings driver for mining companies.

Why Invest DSP BlackRock World Mining Fund?

As mentioned earlier, DSP BlackRock World Mining Fund will invest predominantly into the BGF-WMF (Fund). This Fund has a strong long-term performance track record – The Fund is ranked no. 1 in its sector over 5 years, 10 years and since launch and has produced impressive cumulative returns ahead of benchmark over the long term.

Regional and sub-sector diversification – By investing in DSP BlackRock World Mining Fund, which will invest into the BGF-WMF, Indian investors will have the opportunity to diversify investments away from country based asset allocation strategies and gain exposure to sectors of the market which tend to outperform at various phases of the business cycle.

Experienced Team – The Team is one of the industry’s acknowledged specialists, with extensive industry contacts and significant research capabilities, managing US$31.9 bn (As on Oct 30, 2009)* in assets on behalf of clients. The latest August 2009 Standard & Poor’s report refers to the Fund as being “Managed by BlackRock’s expert natural resources team”.

In-depth research process – the managers really apply a kick-the-tyres approach to the companies in which they invest. It is only by meeting with company management, attendance at industry events and research trips to company assets, as well as extensive commodity and equity analysis that the stock-specific risks within the portfolio can be evaluated fully.

The Fund has been awarded the maximum AAA ratings from both Standard & Poor’s and OBSR. The Fund was also awarded an “ELITE” Morningstar Rating in July 2009. The fund achieved “24 1st place awards” for performance excellence worldwide in 2008 from a number of recognised ratings agencies and publications.

The Fund strategy
The Fund’s endeavour to incorporate the ‘best ideas’ in the portfolio instead of just following a benchmark driven approach. The wide experience of the portfolio managers as well as their sector perspective of companies across the globe help them ensure that the best global ideas are reflected in the portfolio. The Fund focuses on a bottom-up approach to portfolio construction coupled with a top-down sub-sector overlay.

Speaking to the media, Mr. S. Naganath, President and Chief Investment Officer said, “DSP BlackRock World Mining Fund provides investors with an opportunity to diversify their portfolio and access the potential growth prospects of the global mining sector”

Source: http://www.indiainfoline.com/Markets/News/News.aspx?NewsId=15032

MF could give financial inclusion another dimension

Technology has simplified our lives. So why should it be any different for our investments? If the internet and mobile phones have made banking — one of the most time-consuming affairs — a pleasant experience, mutual fund transactions are not far behind! Come March 2010 and Indian investors will wake up to a gateway of convenience and simplicity as far as their mutual fund investments are concerned. So what is this gateway? Why are newspapers these days flooded with updates about an ‘online mutual fund trading platform’ ? Will this online gateway indeed change the face of the Indian mutual fund industry? Or will it open the doors for the listing and trading of mutual fund schemes on the bourses in future?
The online MF trading platform would probably do to the mutual fund space what dematerialisation (demat) of shares has done for the traders and investors in the equity market. It will be an online convenience gateway where mutual fund schemes can be bought and sold at the click of the mouse, payments directly debited from the bank account and units purchased or sold credited or debited to the investors’ demat account just like the way the shares are traded today. No long waits for the dividend cheques as well, as they shall be directly credited to bank accounts.
The catch here, however, is that while the shares are listed and transacted at the spot price, mutual funds shall be bought and sold at the net asset value (NAV) of the previous day – as is the current practice. Similarly, while the redemption orders will be accepted at a click of the mouse, the current redemption cycle of T+2 days shall continue to exist, meaning, that while the orders will be accepted on Day 1, the redemption proceeds shall be credited to the investors’ account only by the third day.
So where is the value addition? Does an online gateway merely imply saying no to paper? The real convenience stems from the fact that the gateway will empower investor to makes choices. The platform is likely to be designed to facilitate not only buying and selling of mutual fund schemes but will also be loaded with information on various mutual fund schemes, their performances, updates, analysis, trends etc. Moreover, if an investor is unhappy with the performance of a scheme of a particular fund house, say ‘A’ ; he will be empowered to transfer his investments from ‘A’ to a better performing scheme of another fund house ‘B’ within seconds through the click of the mouse. Any applicable exit load shall be automatically deducted from the investment and the balance will be transferred to an absolutely new fund of a new fund house—no paper work or other formalities. While currently too an investor can easily switch between MF schemes, the swapping can be done between the schemes of the same fund house.
Another interesting facet of the online MF portal will be its ability to provide the investors a consolidated view of all their mutual fund holdings. Say an investor has investments in 10 different mutual fund schemes, keeping a track of all of them is tedious. The platform will combine the information on all MF holdings of the investor and present a consolidated screen shot view with the latest NAV to help investor keep track of all MF investments along with their current sale value. In case of systematic transfers, it will now be easier and convenient to keep a track of regular monthly debits in the bank accounts and credits of mutual fund units in the folios. No more waiting for the annual or biannual MF statements by post!
The features are aplenty, but what about the costs? Are these services free of cost?
Market regulator Sebi has scrapped entry loads from the mutual fund investments in order to bring transparency. Keeping that in mind, the new platform will be linked to the demat account of the shareholder and the commission payable on every MF transaction shall be mutually determined between the investor and their respective brokers, who in turn will have to be a Depository Participant (DP).
The online platform may also make life easier for distributors who now find it tough to convince investors to issue separate cheques for commission. As MF trading will now be akin to share trading where the commission will evolve into a small brokerage charge, investors may pay it without much resistance. There are also fairly bright chances that competition and price war between brokerages may make these commissions highly competitive.
Though simplicity and convenience are the two major aspects that the MF industry is aiming to achieve through this platform, it is in fact the reach and the penetration – the grey areas of this industry for a long time now—that it expects to deal with through this gateway. It will thus become easier and much more convenient for those placed in remote districts of the country to invest in mutual funds either directly or through their distributors who will have online access to the portal as the portal is not restricted to demat account holders alone.
To learn more about this MF trading platform and its impact on the fund houses, distributors and the investors, turn to page three where the two honchos of the industry share their views on the new concept.

Source: http://economictimes.indiatimes.com/features/investors-guide/MF-could-give-financial-inclusion-another-dimension/articleshow/5234106.cms

MFs have served both small and large investors well

Mutual Funds have the expertise of managing products across the risk return spectrum. Correspondingly, for large and small investors, mutual funds offer an opportunity for deployment of savings based on individual risk taking capabilities and corresponding return expectations. This unique capability of mutual funds has helped individuals and large/institutional/corporate investors enhance significantly their return on savings over the last decade. The industry in India has some very high quality global and local players, very high quality of regulation and has a long track record of delivering returns in line with risk profile of products across the spectrum.
Mutual funds have offered great value to large and small investors. The industry in its modern form and shape is about 15 years old. The participation of individual investors in the industry has grown significantly in this period and today we have a situation where the total number of mutual fund folios actually exceeds the total number of demat accounts. Thus, more individuals are participating in India’s capital markets through mutual funds than directly through purchase and sale of other securities. This growing family of individual investors is a testimony to the fact that the industry has been able to manage the savings of both large and small investors in a transparent and efficient manner thereby creating value for all.
Investments made by large institutions have in fact helped the mutual fund industry bring down expense ratios for a large number of debt products where the institutions invest significantly. In fact, a study of the industry shows that for most debt products, the expense ratio is significantly below the limit provided under regulation.
Global experience shows that the skill of money management needs to be made available both to individuals as well as to large investors/institutions. In fact, if one studies the example of other countries like Brazil and China that have a large mutual fund industry, one finds a significant participation of institutional investors in mutual funds.
The mutual fund industry in Brazil is over $600 billion and that in China is over $300 billion. While the retail participation in mutual funds in India has increased, we have a long way to go as penetration is very low. However, the efforts of the industry are now resulting in this penetration gradually improving and increasing and investors from over 300 cities now actively participate in investing in Indian mutual funds. The industry has also provided service to institutional/corporate clients in this period.
These institutions/corporates are in turn owned by a large number of individual investors. Availability of skilled money management advice to these institutions has helped them enhance their own return on investments thereby in turn benefiting their millions of shareholders. The industry now has a 15-year track record of managing products across the entire risk return range and delivering high quality consistent returns over a long term timeframe. The focus of our efforts should now be to increase the reach and availability of this expertise available with Indian mutual funds to a wider range of individual and institutional investors to enhance the productivity of capital in our economy.

Source: http://economictimes.indiatimes.com/ET-Debate/MFs-have-served-both-small-and-large-investors-well/articleshow/5237931.cms

The financial panic is over: Warren Buffett

Warren Buffett, perhaps the world's most admired investor, said on Thursday the financial panic that gripped the globe last year is a thing of the past, even as the US economy's struggles persist.
"The financial panic is behind us," the world's second-richest person said at Columbia University's business school. "Our economy was sputtering, still is sputtering some."
Buffett, 79, nevertheless said there is greater opportunity for investments inside the United States than outside, noting that the US economy is far larger than any other.
He appeared at Columbia with Microsoft Corp founder Bill Gates, the world's richest person and a Buffett friend and bridge partner.
Last month, preliminary government data showed the US economy expanded in the third quarter, the first three-month period of growth since the second quarter of 2008.
Nonetheless, the US unemployment rate last month reached 10.2%, the first double-digit reading in 26 years.
Buffett last week made a big bet on the US economy when his Berkshire Hathaway Inc agreed to pay about USD 26.4 billion for the 77% of railroad company Burlington Northern Santa Fe Corp that it did not already own.
"There will be more people in this country, 10, 20, 30 years from now," Buffett said. "They'll be moving more and more goods back and forth to each other and the most environmentally friendly and cost-efficient way of doing that is railroads."
Buffett said rail transport uses one-third less fuel and pollutes the air less than trucks, and that one train can supplant about 280 trucks.
Gates, who is also a Berkshire director, said other sectors might also boost the economy over the long term, including information technology, energy and medicine.
Separately, Buffett advised the US government not to coddle companies that need bailouts to survive or preserve capital.
"More sticks are called for," he said.
Buffett gave Federal Reserve Chairman Ben Bernanke and US Treasury Secretary Timothy Geithner "high marks" for how they managed the financial crisis.
The billionaire has praised Bernanke in the past, while mocking Geithner's stress tests for banks.

Source: http://www.moneycontrol.com/news/world-news/the-financial-panic-is-over-warren-buffett_424662.html

Trading in MF units allowed

Investors will soon be able to buy and sell mutual fund (MF) units on stock exchanges.

India’s capital market regulator on Friday announced this game changer for the Rs7.62 trillion MF industry, three months after it abolished upfront commissions that were being paid to MF distributors.

“The infrastructure that already exists for the secondary market transactions through the stock exchanges with its reach to over 1,500 towns and cities, through over 200,000 terminals can be used for facilitating transactions in mutual fund schemes,” the Securities and Exchange Board of India (Sebi), said in a late evening release.

Currently, investors buy MFs either from a distributor or from asset management companies (AMCs).

A few online portals, too, sell these units. The exchange platform will be a critical new channel for the industry, say asset managers.

A.Balasubramanian, chief executive officer (CEO) of Birla Sun Life Asset Management Co. Ltd that manages Rs65,053 crore, said the move will help both the AMCs as well as the investors.

“It will be a cost-efficient channel for both. It will not take much time to implement as we will leverage the existing technological platform and nationwide network established by the exchanges,” he said.

In order to be able to sell MF units through exchanges, stock brokers will need to pass a certification course offered by industry lobby, Association of Mutual Funds in India, Sebi said.

The move comes as a breather to AMCs, hit hard by the market regulator’s move to ban upfront commissions charged by asset managers from 1 August.

The industry has been seeing more redemptions than sales since August. In a recent interview with Mint,U.K. Sinha, chairman and managing director of UTI Asset Management Co. Ltd, said: “No industry can survive with this kind of negative sales.”

“Mutual funds will have a wider geographic reach through exchanges as equity brokers will become eligible to sell fund units like shares. At present, 70-80% sales of mutual funds come from 10 cities, but with this move, funds will be able reach across the country where the two depositories record share sales,” said Dhirendra Kumar, CEO of New Delhi-based MF tracker Value Research.

He, however, does not see any immediate rise in assets of MFs even though this will simplify the procedures of investments in such instruments.

According to Piyush Surana, CEO of Shinsei Asset Management (India) Pvt. Ltd, the exchanges cannot replace the sales function (of distributors) and it is only an additional procedural facilitation. “The move makes mutual funds more accessible to investors, but someone has to sell the fund and someone has to buy. Essentially, one needs to convince the investors (to buy and sell),” he said.

Ashutosh Wakare of Money BEE Institute, a training institute for MF distributors, said it requires a transformation of mindset of investors as “you are bringing a passive investor into an active platform”.

“The idea is to facilitate the buying of mutual fund units through an avenue which has a greater reach. But, I don’t see any distinct advantage of this move, because mutual funds will still be required to be sold through the conventional concept selling methods,” said Hemant Rastogi, CEO of Wise Invest Advisors Ltd, an MF advisory firm.

It is not known when the exchanges will start trading of MF units.

A few online portals that help investors buy and sell MF units say the exchanges are in talks with them. Maju A. Nair, associate vice-president (MF- product manager), Sharekhan Ltd, said the National Stock Exchange (NSE) has already made a presentation of its proposed platform to the brokerage. He is meeting the Bombay Stock Exchange (BSE) soon. “It will make life easier for the online portals as the depositories will take care of the back-office—interactions with registrars,” he said.

Derivatives expiry:
Sebi on Friday also allowed the stock exchanges to set the expiry day for equity derivative contracts. At present, the expiry day for equity derivatives is the last Thursday of every month on both the stock exchanges—NSE and BSE.

Source: http://www.livemint.com/2009/11/13225958/Trading-in-MF-units-allowed.html

SEBI allows registered brokers to deal in mutual fund products

In the light of entry load abolition to distributors.

Stock brokers need to clear AMFI certification to become distributors
No price discovery, just another order routing system for MF units
Investors can hold units of MF schemes in demat accounts

In a move that could considerably widen the distribution network for mutual funds, SEBI on Friday allowed registered stockbrokers to transact mutual fund units on behalf of their clients through the stock exchange mechanism.

“The infrastructure that already exists for the secondary market transaction through the stock exchanges with its reach over 1,500 towns and cities, through over two lakh stock exchange terminals can be used for facilitating transactions in mutual fund schemes,” the SEBI circular said.

Stockbrokers will be eligible to be considered as official points of acceptance, the circular said. These stockbrokers need to pass AMFI’s (Association of Mutual Funds in India) certification examination, and become empanelled distributors.

Every mutual fund has to disclose the locations of its official points of acceptance in its offer documents and Web sites.

Selling through the stock exchange mechanism basically means an additional order routing system for buying or selling mutual fund schemes; there is no price discovery, said a senior official at a transfer agent’s office.

End-users can use the convenience of their neighbouring broker’s office for their mutual fund transactions, said Mr Mayank Shah, CEO of Anagram Stock broking.

Whether brokers can charge a fee for the service or not is unclear. But Mr Shah felt a fee structure would evolve once the system is in place.

This issue must be seen in the light of SEBI abolishing the entry load on mutual fund investments for distributors, starting August 1. This affected distributor income as well as inflows into equity schemes.

Currently investors roughly pay 1.25 per cent as commission to distributors; 0.75 per cent is upfront commission and the rest in the form of “trail commission” (when an investor remains invested in his fund).

“Once the broker starts acting as a distributor, there is an issue about what commission he might ask for and whether the client would be ready to pay that or not,” said a broker.

The SEBI circular on Friday also said that investors can hold units of mutual fund schemes in dematerialised form, and that the demat statement given by the depository participants would be deemed adequate compliance with SEBI norms.

Further, the stock exchanges should provide for an investor grievance handling mechanism to handle disputes between brokers and their clients. The time-stamping for transactions would be in the form of a confirmation slip issued through the stock exchange mechanism. The markets regulator has asked the stock exchanges to provide detailed operating guidelines for facilitating transaction in mutual funds on their platform by their member-brokers.

Source: http://www.thehindubusinessline.com/2009/11/14/stories/2009111451880100.htm

Seeking experts' help in buying MF

Rather than looking at recent and past performances as a parameter for investing into an equity mutual fund, you will do well to make a mental note of a host of qualitative and quantitative factors that a professional at financial management puts before you before recommending which mutual fund to buy.

Buying the best performing mutual fund of tomorrow is the aim of all investors, as ‘buying low and selling high’ is their credo. Both are next to ‘impossible’. Those who get it right are more fortunate than smart.

A study in the US showed that $1 lakh invested in S&P 500 in 1984 would have become $13.01 lakh by 2000-end. But the average stock investor’s money grew to only $2.41 lakh. Investment guru Marc Faber attributes the underperformance of such investments to the chase of ‘hot’ sectors. Those who don’t understand the dynamics of business should best assign the job to professionals — read professional money managers or mutual fund managers.

For most financial planners, the starting point before recommending an equity mutual fund is doing a financial plan for the client. This involves sitting with the client, understanding his/her cash inflows and outflows, goals and needs. Based on all the inputs, they would broadly classify a client as conservative, moderate or aggressive. Once this classification is completed, recommendation of funds would be the next step.

These recommendations would be based on qualitative and quantitative factors. Take the quantitative factors first. Things like the risk-adjusted returns, sharpe ratio, beta and returns over various periods of time like three-, 6-month, 1-year, 3-year are taken into account and given weightages. Then comes research on the portfolio quality: what percentage of the portfolio do the top 10 stocks constitute? What percentage of allocation is done to various sectors? Does the folio comprise illiquid stocks?, and the like. The qualitative aspect encompasses the number of years the fund house has been around, cumulative experience of fund managers and their past track record.

“Then there are other important things like accessibility and level of comfort with the fund manager,” says Akhilesh Singh, head of wealth management, Emkay Global Financial Services. His final recommendation is done by adding together the qualitative and quantitative parameters. Besides, any fund, which has a corpus below Rs 400 crore and less than a year’s track record, is not recommended by him. The top five funds which find favour with him are HDFC Equity, ICICI Prudential Discovery, HDFC Top 200, UTI Dividend Yield and UTI Equity Fund.

“All decisions taken by a fund manager are reflected in the net asset value (NAV) of a scheme. While selecting a fund we look at NAVs on a daily basis and compare them with their peers over a one-year period,” says Yogesh Kalwani, head-investment advisory, BNP Paribas Wealth Managers. Among large-cap funds, Mr Kalwani recommends, are HDFC Top 20, DSP Blackrock Top 100, Birla Sunlife Frontline Equity and ICICI Prudential Focused fund.

“We recommend funds on the basis of philosophy, discipline and predictability of the performance,” explains Sumeet Vaid, founder, Ffreedom Financial Planners. He believes that in the process of reaching one’s financial goals, stable fund houses are key to investment. So, the equity funds that find favour with him in the large-cap category are HDFC Top 200, DSP Blackrock Top 100 and ICICI Prudential Dynamic Fund. Among mid-cap funds, he recommends Birla Midcap and Reliance Growth Fund.

“Qualitative factors are given a higher weightage than quantitative factors while recommending funds to clients,” says the head of investment advisory at a foreign bank. Though qualitative factors such as investment process, service quality and communication with the investors are strictly not measurable, quantitative performance of mutual fund are.”

Source: http://economictimes.indiatimes.com/articleshow/5224723.cms?flstry=1

Mutual fund transactions just a click away

Online platforms for mutual funds (MFs) could soon become a reality. With the Securities and Exchange Board of India (Sebi) nudging the exchanges – the Bombay Stock Exchange and the National Stock Exchange – to launch such platforms, investors could soon find that buying or selling of mutual funds could be much easier.

Jaideep Bhattacharya, chief marketing officer, UTI Asset Management Company (AMC) and chairman of the committee on Common Industrial Platform, said, “The online platform will be a consolidated and single point of access for the industry.”

The first phase or of this online platform will be in place by March 2010. Sources at the Central Depository Securities Ltd (CDSL), a clearing house that will be involved with this venture, said that initially, this would an order-entry platform and not a trading platform. But transactions would be much easier – much like investing in a stock. According to sources, the process could work like this.

An investor will have to get registered with a broker and open a demat account (which need not be necessarily linked to a bank account). The investor will then place an online order with the broker or distributor (who could be a broker himself or deal through a broker). This broker, in turn, will enter the order in the exchange system.

The broker or the distributor will do a pay-in to the clearing house both at the time of purchase and redemption of funds. Once the payment is executed, it will be sent to the AMC and the information of the transaction will be passed on to the Registrar and Transfer Agents (RTAs).

The units of the scheme will be directly transferred to the account by RTA.

At present, Karvy Computershare and Computer Age Management Services (CAMS) are the two big RTAs. At the time of redemption, the amount will be directly credited to the investor’s bank account.

The settlement of the transaction will then be done by the exchange’s clearing house mechanism. The settlement for purchase of units will be done on a T+2 basis, while redemption will be done on a T+3 basis.

The advantage of having this demat account will be aplenty. Now, if you have more than one scheme in your portfolio, the units and its records are maintained by different AMCs. The distributor consolidates this data when he sends you a monthly/ quarterly report.

This account will allow you to keep a track of all the units of different schemes that have been purchased over time, quite similar to stocks in the demat account.

In addition, if one wants to replace one scheme by another within the same AMC, they will be able to do so, though an exit load will be applicable. The platform will also allow a seamless switching of schemes.

The onus will be on the broker or distributor to adhere to the Know-Your-Customer (KYC) norms.

Industry sources said that the number of access points would increase substantially because of NSDL and CDSL. At present, AMCs have only 500 offices across the country, whereas these two organisations, by themselves, account for over 1,000 terminals, thereby increasing the reach of mutual funds substantially.

According to sources, this plan is only for the first phase of the online transaction platform. Its second phase will see payments being made directly to exchanges. The first phase is likely to be launched by March 2010. And the second phase will kick off within three months of the completion of the first phase.

Hemant Rustagi, CEO, Wiseinvest Advisors, said, “This platform will help in paperless transaction, will make buying and selling easy and should also improve efficiency.”

Source: http://www.business-standard.com/india/storypage.php?autono=376140

Add MF to 'core' portfolio

A smart investor finds it easy to invest when the market is either flat or falling.

The time she spends in the market is very much in her control. In fact, she can use the current market to build a good mutual fund portfolio.

In such a market, some try out the ‘core and satellite’ approach, a time-tested method of portfolio construction. In this, the investor creates a core-holding that is expected to offer returns in sync with the market and the rest is put into some alternative investments having a low correlation with the core investment.

“Financial goals, time horizon and risk appetite should decide the allocation to a core and satellite portfolio,” says Sumeet Vaid, founder & MD of Ffreedom Financial Planners. Generally, the core component should account for 60-80% of the portfolio. In the classical sense, the broader market is represented by index funds. But, given the high scope for outperformance over the index by the diversified equity funds, one can invest in quality diversified equity funds. “An average MF investor lacks the time and expertise to decide on a sector which will do well.

Given the dynamic scenario in various sectors, it makes sense to have a diversified equity fund as part of the core holdings, as the fund manager can take an informed decision that benefits the investors,” says Nikhil Naik, managing director of Naik Wealth, a Mumbai- based investment advisory firm.

Depending on the risk appetite, you can choose between index funds and diversified equity funds. A risk-averse investor may go in for index funds whereas one with a propensity for risk could opt for diversified equity funds. A point to note is that no mutual fund scheme here should get more than 20% of your money. While deciding on the schemes, you may consider past returns, fund pedigree, fund management team and the fund management style, among other factors. The core portfolio offers you returns in sync with the broader market returns.

On the other hand, the ‘satellite’ holdings are expected to add quality and returns to your overall portfolio. Here you need to incorporate investment opportunities that are ‘not strictly correlated’ with your core holdings. Mutual funds that invest in alternate assets or geographical locations make eminent sense for this portion of the portfolio. One can also consider different investment styles. Sector funds, though selectively, also make it to the satellite portfolio of investors. No investment in the satellite portfolio should occupy more than 10% of the entire portfolio.

Consider a case where you have invested in Indian equities. That must not be the best-performing market in the world. There are other growth stories worldwide, beyond India and China. One can consider ING Latin America Fund, an equity mutual fund scheme that invests in a fund dedicated to invest in Latin American markets. This may make a meaningful diversification, given the low correlation with our markets in the long run. However, considering there are geopolictical risks associated with investments into these markets, one should limit the exposure in funds which invest into these markets.

If you are a professional working in a particular sector and are well-versed with the dynamics of the business, you may be better off taking a sectoral plunge. A project manager with an IT company may consider an IT fund. Within the category, the investor must find a solution that better suits his view.

Investment in Franklin Infotech Fund will offer an exposure to the sector, but will remain focused on large-cap IT, with more than half the assets invested in Infosys Technologies. On the other hand, DSPBR Technology.com fund will offer a more diversified portfolio. Both have their own risk-and-reward matrices and can bring a big change in your overall portfolio returns if a careful entry and exit can be timed as a satellite holding in your portfolio.

“Passionate investors prefer to include schemes that invest on quantitative parameters. ‘Ethical’ or ‘socially responsible’ offerings also make it to some investors’ radar,” says a financial planner with a Mumbai-based bank. A fund that invests on dividend yield parameters is also considered by some investors with low-risk appetite.

While building a portfolio, you should invest in systematic investment plans (SIPs) and the amount should be decided taking into account accumulated money with you and the anticipated monthly investible money inflows. “Timely rebalancing of the portfolio is important to ensure success of such a strategy,” says Sumeet Vaid.

Source: http://economictimes.indiatimes.com/articleshow/5217468.cms?flstry=1