UTI Mutual Fund declares dividend in 2 schemes

UTI Mutual Fund has declared a dividend of 15% (Rs 1.5 per unit on a face value of Rs 10), in UTI Equity Tax Savings Plan and UTI Transportation & Logistics Fund. The record date for dividend is December 29, 2009.

All unit holders registered under the dividend option of the schemes as on December 29, 2009 will be eligible for this dividend. The NAV of the schemes under dividend option as on December 24, 2009 was Rs 17.06 and Rs 15.28 respectively. (Check out - Recent MF Dividends)

UTI Equity Tax Savings Plan is an open ended ELSS scheme. The investment objective of the scheme is to invest the funds collected into equities, fully convertible debentures / bonds and warrants of companies, investment may also be made in issues of partly convertible debentures / bonds including those issued on rights basis subject to the condition that as far as possible the non-convertible portion of the debentures / bonds so acquired or subscribed shall be disinvested within a period of twelve months from their acquisition.


UTI Transportation & Logistics Fund is an open ended equity scheme. The objective of the scheme is to seek capital appreciation through investments in stocks of those companies engaged in transportation & logistics sector.

Source: http://www.moneycontrol.com/news/mf-news/uti-mutual-fund-declares-dividend2-schemes_432942.html

Realty mutual funds, investment trusts to open up new channels of funding

Initial public offerings (IPOs) in the near-term, real estate mutual funds (REMFs) and real estate investment trusts (REITs) in the medium-term are likely to emerge as new channels of real estate financing in the country. Property funds are also expected to enhance their activities in coming quarters.

The market capitalisation of country’s real estate firms, which equals to just 2.2% of the aggregate equity market capitalisation, far below than the 10-15% level found in advanced economies, is an indicator of the future potential, said Ramesh Nair, managing director (Chennai & Hyderabad), Jones Lang LaSalle Meghraj, a global realty consultancy firm.

According to estimates, the real estate sector will require an additional $3.66 billion to construct undertaken commercial projects and fulfil the unmet housing demand. While sources of funding have become scarce in the aftermath of the 2008 global financial crisis, there are some emerging channels, which are likely to help the sector continue its high-growth story.

With several real estate players having submitted red herring prospectus to the Sebi, a total of $3.31 billion is expected to be raised in coming months. Given that the Sebi has recently allowed anchor investors to participate in this fund-raising channel, IPOs can be an attractive vehicle to tap domestic as well as foreign institutional investment. Additionally, they provide a good exit option for most PE investors that have a short-term to medium-term investment horizon, Nair told FE.

According to a study on emerging trends in real estate finance carried out by Jones Lang LaSalle Meghraj, REMFs and REITs have played an important role in institutionalising real estate investment in many countries. The essential difference between them is that while investment made by REITs are only permitted in income-generating physical real estate assets, REMFs can take exposure in securities of real estate companies as well. Currently, both of these vehicles remain a future prospect in India.

As per Sebi regulations, REMFs in India have to invest in direct ownership of real estate (that accrues rentals and capital appreciation), mortgage-backed securities and securities of companies dealing in the development of real estate. However, a minimum of 35% of net assets have to be invested in direct ownership, leaving an upper limit of 65% on security exposure by REMFs, says the study.

According to the study, real estate developers HDIL, HDFC, ICICI, L&T and Unitech are some of the players that have expressed interest in launching REMFs. While issues related to valuation and taxation are currently holding back this emerging vehicle, the government is expected to clear these uncertainties soon. Similarly, regarding REITs, many policy issues are yet to be resolved, and authorities concerned have yet to come up with clear regulations.

The study says there are challenges that must be addressed in order to bring about a smooth improvement in the sources of funding. Establishing a nodal real estate regulator will be a welcome step in enhancing transparency and making the sector more organised. Clarifications pertaining to taxation and valuation issues for existing REMF and REIT guidelines will also be expected in the coming quarters.

Source: http://www.financialexpress.com/news/realty-mutual-funds-investment-trusts-to-open-up-new-channels-of-funding/561653/0

RBI puts banks on notice again over MF exposure

The Reserve Bank of India (RBI) has, for the second time in a fortnight, sought details from banks about their investments in mutual funds treasury officials at several banks said. The banking regulator has yet again made it clear in its communication that it is against banks handing over their surplus money to fund houses, officials told ET.

RBI’s concern stems from the fact that banks’ investments in mutual funds have risen even after it first made its displeasure known about these in the October mid-term policy review. This number rose by Rs 8,753 crore to Rs 1,69,236 crore in the month that ended on December 4, data from RBI show.

In the latest letter, the RBI has asked banks to give data on the average, lowest and the peak level exposure to mutual funds at various points of time. The regulator specifically sought data about their quarterly exposure since March 2009 and the third quarter (September to December) exposure to mutual funds, said treasury officials who requested they not be quoted.

The RBI also wants data on certificate of deposits (CD) issued by banks which are directly subscribed by mutual funds. CDs are money market instruments sold by banks to raise short-term funds. This money, too, is often routed back to mutual funds through investments in their liquid funds.

The regulator has also sought specific details about the money lent by mutual funds to banks through market repo or Collateralised Borrowing & Lending Obligations (CBLO) route. Both are markets where money is lent and borrowed on an overnight basis.

In mid-December, the RBI had officially asked banks about their aggregate exposure in mutual funds schemes and the steps that they have taken to curtail this figure although it was in the mid-term policy review in October 2009 that RBI governor D Subbarao had first expressed concern about banks parking surplus money in mutual funds.


In an interview to this newspaper, the governor had termed it as “circular trading”, saying the money was finding its way back to banks through route.

In a meeting with the RBI, bank CEOs had assured the regulator that they will set an internal limit, approved by the board, on such investments. It is estimated that banks account for one-third investments made in the liquid mutual fund scheme.

Meanwhile, select public sector banks have begun putting internal caps on such investments. Canara Bank has fixed a limit of Rs 6,000 crore or 10% of total investments while Oriental Bank of Commerce has fixed it at 10% of investments, top officials in the two banks said.

For Dena Bank and Indian Bank, the number stands at 5% of total investments. Officials with Bank of Baroda said they are considering linking the quantum of cap to total assets.

The RBI has often maintained that it is not comfortable with banks extending funds to corporates through intermediation of mutual funds. Banks charge anywhere between 7% to 10% to most highly-rated corporates on short-term loans while mutual funds subscribe to the short-term bonds at rates ranging from 5% to 7%.

As a result, corporates who are perceived as more creditworthy have begun raising money from mutual funds by selling debentures with a daily put and call option shunning banks in the process.

Source: http://economictimes.indiatimes.com/News/Economy/Finance/RBI-puts-banks-on-notice-again-over-MF-exposure/articleshow/5397769.cms?curpg=2

Shape of distribution market in years to come

Distribution will not die. It is an integral part of the handshake between consumers and product manufacturers.

This year will go down as one in which a fog of confusion enveloped consumers and distributors of financial products. While mutual fund agents feel as if the regulations are trying to kill their business, insurance agents are protesting reform that is yet to be announced.

Consumers are confused about what to pay, to whom and how much. I have been tracking this change fairly closely and have written frequently on it. Mails and comments on previous columns and off-line views tell me that there is much confusion out there on what the distribution market will look like once this second wave of financial sector reforms is over.

The first wave opened up the gates to financial products that an average Indian needs—mutual funds, insurance products, pensions, home loans—and they are all there in a largely usable form. The consumers are all there as well. But the conversion of demand to supply is not happening. Issues of trust, access and transaction ease are holding back the demand and supply from meeting.

If we read the spirit of the regulatory changes in 2009, the second wave of reform is aimed at clearing the way for easier, swifter and more transparent transactions. I’ll take a shot at what the financial product distribution will look like in 2015.

Distribution will not die. It is an integral part of the handshake between consumers and product manufacturers. And distribution will not be free. It cannot be. But the manner of the distribution, and its compensation, will change. From a largely low-value-add agency business, a structure that has compensation linked to the service provided will emerge. The biggest, in terms of numbers, will be the bank distribution network vending funds, insurance and pension products, at a small transaction cost to its customers. At the mass level for the financially included population, the banks will be the biggest beneficiaries of the regulatory changes we’ve seen so far. The banks have the trust, the distribution reach and the customers to most efficiently sell products across the country. In addition to the banks, there will be a few large retail distribution powerhouses, not unlike the Charles Schwab model of the US. Those that have the money to invest in technology and building a distribution chain will put in place a pure vending plus advisory service system. The key reason for this corporatization and streamlining will be economies of scale since one of the key costs will be technology and a centralized system driven by administrative needs.

The small agent, who today just collects signatures and forms and has neither the knowledge nor the intent to advise, will either become an employee of one of the large distribution powerhouses or upgrade his services to become a higher value-added financial advisor or planner. These will be boutique services by financial advisors and planners, and will be serviced by centralized administrative service providers like the platform that is already being put in place. There will be greater reliance on some form of certification to allow this market segment to distinguish itself from the pure vendors.

The third part will be the small (and in India, even small has many zeros) do-it-yourself population who will choose products and transact on their own. Most transactions will be online or through large clearing houses, such as stock exchanges. They will like the virtual comparison shopping and delivery modules and will be willing to pay a small transaction cost to avail of these services.

While this takes care of the financially included population (those who have a bank account), there is yet the issue of distribution to those outside the banking system. Expect mobile banking and the microfinance pipeline to transform this space. The banking regulator is already removing many roadblocks to mobile transactions and some microfinance initiatives are already moving beyond credit delivery. A uni-product distribution system is high-cost waste. Expect micro insurance, mutual funds, pensions all flowing through this pipeline in the times to come.

While some reform has got underway in 2009, there are still roadblocks to this world view. The direct stocks, mutual funds and pension pieces of the market are largely in place for this changeover to begin. What holds this process back is the blinker-wearing insurance regulatory system. The Indian insurance industry is a textbook case of regulatory capture by a small group of deep pockets. If this were not true, how would we have insurance products that are designed like investor traps? But 2010 should see some big-bang regulatory changes in insurance, with either the regulator finally understanding that it is not an industry association that they run in Hyderabad or change coming anyway to the industry.

2010 will be a year of much more change and uncertainty for the distribution industry. But some smart companies are already preparing for 2015 and putting in customer-friendly business models that aim at cutting cost, easing transaction efficiency and significantly enhancing transparency in financial products and services.

Source: http://www.livemint.com/2009/12/29222835/Shape-of-distribution-market-i.html

KARVY, CAMS launch `FINNET`

Computer Age Management Services (CAMS) & Karvy Computershare (KCPL), the two largest service providers of the mutual fund industry have joined hands to launch `FINNET`.

The product, designed for mutual fund distributors, will enhance the services to stakeholders in increasing geographical footprints, improve operational efficiencies and most importantly reduce cost significantly.

This is the first time that two the biggest registrar and transfer agents, who between them service 95% of the MF industry, have come together to offer a unified product. FINNET `is an all in one engine` product which facilitates transacting (order placement), execution and customer service on an integrated system. It will empower the distributors and individual financial advisors (IFAs) to cut across geographic barriers, access information relating to and transact on the schemes of nearly all the mutual funds through an internet enabled user interface.

Speaking at the launch, V Ganesh, country head, KCPL said, ``We are delighted to launch `FINNET` which will help create a strong value proposition amongst the distributors and eliminate duplicated efforts by distributors as well as investors. Distributors can aggregate their customer portfolio and provide a number of value added services with embedded CRM tools available in the product.``

The new model will facilitate multi-manager funds service support across mutual funds and better access to information than ever before. It will also empower the distributors to transact up to 3 pm from their offices without any geographical limitations. It will enable the distributors to generate consolidated account statements across all funds, thereby further strengthening client engagement and boosting customer service.

NK Prasad, executive director & chief operating officer CAMS said, ``This partnership will extend an all embracing management reporting and decision support ensuing better customer service at a fraction of cost and negligible risk.``

This initiative will go a long way in achieving substantial market penetration and in bringing in additional retail investors to participate in mutual funds.

CAMS is the largest service provider to Indian mutual fund industry providing comprehensive package of transaction processing and customer care.

KCPL is the largest integrated registrar and transfer agent in the country servicing more than 350 corporates and 23 domestic mutual funds.

Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20091229184401194&dir=2009/12/29&secID=livenews

Diversify and assess risk when building portfolio

People think and react differently when there is talk about investing. Some do not even allot much time to think and plan their investments. Financial advisors say investment planning is as important as earning. It's basically putting your money to work or at places where you might need it someday. There are various investment instruments available in the markets and one should give a serious thought to planned and informed investment decision-making. You should look at various investment instruments according to your needs and allocate funds accordingly.
These are some of the broad categories of instruments available in the markets:

Tax-savings instruments
Taxes drain a significant portion of an individual's hard-earned money. Therefore, one should look at using all possible ways to save taxes, especially those in the higher tax bracket. There are provisions for investments in various instruments which qualify for tax rebates. For example, one can invest in PPF, National Savings Certificate or tax-saving bonds. Getting into the last quarter, investors should look at various schemes and reduce their tax liabilities.

Insurance instruments
The thumb rule regarding investments in insurance is that an investor should have an insurance cover of at least five times of his annual income. One should also look at a balance between term plans and endowment plans to optimise the funds outgo and risk cover. It is advisable to take insurance cover during the early part of life to ensure lesser premium and higher risk cover. Health insurance is another area which should be seriously considered by investors who do not have appropriate health cover for themselves and their family.

Debt instruments
Debt-based instruments usually guarantee principal security. There are various classes of debt-based investment instruments available in the market. For example, deposit schemes (bank fixed deposits, post office deposits, company deposits), debt mutual funds, saving schemes (PPF, NSC) and liquid funds. Debt instruments should be part of every investor's investment portfolio. Inclusion of debt-based investment instruments provides stability to a portfolio and reduces the overall risk. However, the percentage allocation towards equity and debt-based instruments should depend on the risk profile of the investor and prevailing market conditions.

Equity-based instruments
There are various schemes and investment instruments available in the market in this category. There are two broad categories - direct investments in stocks or indirect investments by way of mutual funds. Those who have time and adequate understanding of the markets should look at the direct investment method. Others should look at investments through mutual funds. Investors should look at diversification by investing in many mutual funds and the investment decision should not be driven by past statistics only as they might be misleading at times.

Gold
Investments in commodities, especially gold, have found favour in recent times. The gold-based investments add another dimension to a portfolio. It acts as a debt instrument and usually provides good returns during uncertain economic conditions. The investments in gold can be through various gold funds or buying gold bars from the market. Buying gold ornaments should be treated as consumption rather than an investment.

Source:http://economictimes.indiatimes.com/features/financial-times/Diversify-and-assess-risk-when-building-portfolio/articleshow/5382176.cms

Time to review your portfolio

New Year eve always brings in hope in addition to excitement. It is time for retrospection, resolutions and perhaps making new road maps. Among other things in life this is true for your investments too. It is time to review your portfolio and plan for the new year ahead to achieve even higher ground.

Tax planning investments
The first quarter of the calendar is incidentally the last one for the financial year and hence it is usually heavy with investments in tax-saving instruments such as specified mutual funds, provident funds, tax-saving bonds etc. However, if you are going to do most of your tax-related investments in the last three months then you should resolve for the change in this habit next year.

It is prudent to plan your tax-related investments right from the start of the financial year. For instance, provident fund investments should be made before fifth of every month to reap maximum interest and compounding benefit. In the same way, mutual fund investments can be made through a systematic investment plan (SIP) to average out the market ups and down and keep the cost low. Hence, doing it evenly throughout the year not only keeps you off the last minute burden but also helps you reap much higher returns.

With the economy showing signs of revival, there is definitely going to be lot of buzz in the stock markets. We are most likely at crossroads when change in due. But, change is always uncertain and slow to occur. All you need to do is to stick to the basics with this asset class in these times.

What this means is that you will have to work harder to dig deep, do your due diligence to find the value picks. Prudence would demand that you stick to core sectors such as infrastructure, auto and pharma where you can monitor the growth and all you need to do is spot the value picks in the sectors.

A lot would depend upon how factors such as the monetary policy, union budget, monsoons, and inflation here, as well as the US interest rates and foreign institutional investor (FII) inflows behave, and that will determine the direction of the markets. So watch these windows as the action unfolds in the next 12 months.

One good thing about mutual funds is the fundamental advice of sticking to the systematic investment route remains unchanged irrespective of the investment climate and time. So, it is the advice this time too - to stick to this fundamental principal to reap the best benefit of this asset class.

However, stay away from any exotic theme funds and even the new fund offers unless they provide good reasons. There is a plethora of existing funds to choose from.

All that glittered in the past few months was indeed gold. However, it may not continue to do so forever. One must treat investments in gold primarily as hedging simply because of its impeccable track record of over 2,000 years as a store of value.

Any attempt to go overboard and treat the asset like equity to make money in the short term would be a hasty move. Do not forget that it has given good returns in the past few months because other assets haven't , and that is its primary job as a hedge in your portfolio.

Any move to divert higher funds to gold at the expense of other assets would also mean bigger opportunity loss. Hence, resist the temptation and stick to the basic rule of keeping gold to about 15 percent of your portfolio.

Source: http://economictimes.indiatimes.com/quickiearticleshow/5384346.cms

A year for all asset classes

The Indian investor would have generated healthy portfolio gains this year; with no asset class acting as a drag on the other.

The year witnessed a rise in valuations across asset classes such as equities, gold and realty.

If 2008 was a year when most asset classes failed to perform, 2009 was one when almost every popular asset class provided an opportunity to build wealth. Be it equities, debt, gold or real estate, the Indian investor would have generated healthy portfolio gains this year; with no asset class acting as a drag on the other.

Surprised? Well, here's how you would have made a quick buck by just staying invested round the year, across asset classes.

Debt for all seasons

Take the simple time-tested debt option; fixed deposits with banks. Looking back, you would be surprised to know that these fixed return investment havens lured investors with interest rates as high as 12 per cent in end of 2008. Of course, the beginning of any lucrative offer or rally is often overlooked.

Even if you had been a late entrant and missed the 12 per cent rates, locking in to fixed deposits in January 2009 would have still guaranteed an 11 per cent interest rate.

Missed the bus there and watched bank interest rates sadly dwindle? Never mind, a series of non-convertible debentures issued by companies such as Tata Capital, Shriram Transport Finance and L&T Finance at various time periods between February and August offered interest rates between 10 and 12 per cent. It's not just the interest rates that made these offers noteworthy. These non-convertible debentures (NCDs) are traded in the stock exchanges and can be sold anytime.

Take the case of Tata Capital NCD offered in February. It currently trades 22 per cent above its offer price. A rather neat return from a debt option.

And as if that was not enough, corporate deposits – tagged risky in the initial part of the year given the high leverage of their underlying companies – soon provided comfort with improving financials. Interest rates of 9-12 per cent offered (and still on offer) by many creditworthy finance companies such as Sundaram Finance or Mahindra Finance followed by a number of corporates ensured that investors were not short of good debt options for most part of the year.

Debt mutual funds too, played their part well in ensuring that investors were not disappointed.

Rich, richer …

If debt was not exactly your idea of building wealth, then let's move on the most-loved and at times the most-hated asset class – equities.

Returns of 120 per cent from the March lows would only have been a dream for many as few could have timed their entry in to equities in March, given the undercurrent of pessimism then. However, even if you had waited a while and invested sometime during May (when mutual funds too derived conviction to move fully in equities from their deep cash positions), chances are that you would have made a neat returns of about 50 per cent (returns generated by the broad market index CNX 500, during this period). And had you taken the mutual fund route, your returns could have been much higher.

Real opportunity

Not often do you get a real deal – when a reasonable property price and low home loan rates are offered at the same time. Well, 2009 is one such year.

While it would be hard to generalise, property prices were available at a bargain beginning February and extending up to June-July. To enable you to purchase at bargains, interest rates offered by banks also dipped to as low as 8 per cent (and still remains so). However, property prices, especially in the middle income offerings, were not available at discounts for too long as select areas across cities witnessed appreciation.

Between June and September alone capital values of residential properties in key cities such as Mumbai, Gurgaon and select parts of Chennai and Bangalore have seen a rise of between 10 and 25 per cent. Had you been among the smart investors who bought a property before June, you may already be sitting on substantial gains.

Not just property prices, homes loans with interest rates kept fixed for 3-5 years at 8-9 per cent could certainly be called some deal. And to think, a home loan would have cost you as much as 12 per cent a year ago. If that does not make an impact sample the difference in terms of EMI: A Rs 20-lakh, 15-year home loan at 12 per cent would have resulted in an EMI of about Rs 23,000 a month. At 8 per cent, there is a drastic reduction by Rs 4,000 a month to Rs 19,000.

The gold rush

Besides debt, if there was one asset class that endowed multiple opportunities to earn returns in 2009, it would have to be gold. Had you invested in gold (through exchange-traded funds) as early as January, this asset class would have yielded a good 20 per cent profit. Had you delayed your purchase to, say, June, the returns would have been 10 per cent – not too lucrative but nevertheless attractive for a safe asset class like gold that does not always generate returns that beat inflation.

So 2009 would certainly go down in history as one of those singular years where every asset class held by you added to your portfolio wealth; that is only if you had invested those cash holdings in to some of these options.

Source: http://www.thehindubusinessline.com/iw/2009/12/27/stories/2009122751081100.htm

PFRDA may take up SBI employees pension corpus

Country's largest lender State Bank of India's (SBI) pension corpus could be regulated by the Pension Fund Regulatory and Development Authority (PFRDA), opening a new area for the interim regulator.

"We have given approval to SBI for management of its pension corpus by our fund managers and now they are talking with its trust," a PFRDA official told PTI.

Regulating the corpus of companies is a new area for the interim regulator. Till now, PFRDA-appointed fund managers, under the New Pension System (NPS), were handling only the corpus of individuals.

Six PFRDA-appointed fund managers —IDFC Mutual Fund, Kotak Mahindra, SBI, UTI Asset Management, ICICI Prudential Life Insurance and Reliance MF— are handling the corpus under the NPS, which was thrown open to all citizens from May 1 this year.

There are 22 contact and collection centres-- Points of Presence-- including State Bank of India, ICICI Bank, the Postal Department, IDBI Bank, Oriental Bank of Commerce, Axis Bank and Union Bank of India for all citizens' scheme.

Source: http://www.business-standard.com/india/news/pfrda-may-takesbi-employees-pension-corpus/81770/on

Do it yourself: get the agent and charges right

You can now decide the fee of your adviser, but do you know how much is enough? There are three levels of service available, pay only for what you get.

It’s confusing time for mutual fund (MF) investors. The way to buy and sell funds changed drastically in the last half of 2009 and the industry as well as the investors are still trying to make sense of how to deal with a no-load world.

On 1 August, the Securities and Exchange Board of India (Sebi) became the first capital market regulator in the world to make mutual funds a no-load product. Mutual funds in India will now invest the full Rs100 that you put in instead of Rs97.75 that they earlier did.

You will now have to compensate your agent for the service you think he provides. You get transparency because you can evaluate service and pay accordingly. But here’s where you run into the first roadblock: how do you know what to pay? But before we get to the money bit, a look at the various levels of service in the market.

Who does what?
Essentially, there are three levels of service in the market.

At the base level, you get an agent who can be likened to a chemist. A chemist is a person who does not, and should not, have a view on the medicine you buy. His job is to follow the prescription written by the doctor or to sell you the non-prescription medicine you have chosen yourself. This chemist is the agent or the seller of a mutual fund. He is the foot soldier who simply gives you a form, gets a signature and completes the transaction. He used to earn commissions, but will now be compensated by you directly.

At the next level is an adviser. His job is to help you choose a mutual fund from over 1,000 schemes that are on offer in India. His expertise is to match funds that have consistent good performance with your needs and then manage your investments over time. What you would pay this person is higher than what you would pay the agent.

Higher in the pecking order than an adviser is a financial planner. He does not just advise you on investments, but also helps you zero in on the best loan deals, restructures and keeps in place your borrowings, plans your finances, does your risk management for you, helps you lower your tax outgo and even follows up the entire process of estate planning to ensure a smooth transfer of all your assets to your legal heirs after your death.

A financial planner is a qualified guide having a universally accepted certification. Currently, in India, the Certified Financial Planner (CFP) is the most credible stamp that qualifies a person to manage your financial life.

What to pay?
The mutual fund industry is in a flux given the slew of changes announced by Sebi in 2009. Intermediaries are confused as to what to charge and investors are unsure of how to value services.

Since Sebi has allowed mutual funds to list on stock exchanges, there is a basic level of charges that we can now benchmark ourselves to. A retail investor needs to pay 20 to 40 basis points (a basis point is one-hundredth of a percentage point) or around 20 to 40 paise for every Rs100 to buy shares on an exchange. The same is true when selling shares.

Agent: Your MF agent may charge a bit more because, unlike shares, transactions where you pick up your phone and call up to place orders, your MF agent would still need to visit your home or office to pick up the forms and deliver them to the fund houses. It’s a courier service for which he’ll charge marginally more.

However, with little or no advice on offer, there is no reason why agents should charge you more than 50 basis points on the investment, specially because there is a trail commission on the money that stays invested. That is what you should pay any entity (individual, bank, distribution house) who simply vends the product you have chosen to you.

Adviser: The adviser helps you choose, maintain and redeem your funds. He has no view on the rest of your finances. Many such advisers these days charge no fees from you; they earn from the trail commission (typically around 40 to 50 basis points) MFs pay them for as long as you stay invested. Some advisers do charge around 0.50-1% of your transaction amount as an upfront fee.

Planner: The financial planner is the qualified doctor who runs his dispensary as well as his own chemist shop. So, you need to pay for all of this. Broadly speaking, CFPs today in India charge you anything between Rs5,000 and Rs20,000 for the first financial plan. Subsequently, the charges can go up to Rs15,000-30,000, or even upwards every year. This, typically, includes one or few reviews of your financial planning every year to ensure you’re on track. Note that these are ballpark figures and financial planners charge you depending on how much effort they need to put in to set your house in order.

How to choose
There isn’t one way that works the best. What seems to work is to look at what other people are doing.

Rajesh Krishnamoorthy, managing director, iFast Financial India Pvt. Ltd, an online portal that offers MF schemes, feels it’s also a good idea to ask around and check out what your friends are up to. He says: “It’s a good idea to ask them about their financial planner or distributor and their experiences. It’s a great way to get to know the adviser’s track record if your friends or close circle can corroborate.”

Agrees Lovaii Navlakhi, CEO, International Money Matters, a Bangalore-based financial advisory company: “Read the newspapers and look out for any financial planners. If what they’re saying makes sense to you, get in touch with them.”

But, remember to ask some basic questions even if the intermediary comes with a reference. You should know what is his qualification, how long has he been in business and how many clients he has. How much time he spends with you and what sort of questions he asks is also important.

For instance, if he is trying to sell you just any product to hit and run, he is unlikely to be very concerned about your needs and goals. Try asking questions in areas of help you’re looking for. “If you are looking for taxation advice, try asking him tax-related questions to check his knowledge,” adds Navlakhi.

One red flag that should warn you of a hit-and-run salesperson is: “How much do you have to invest?” It would be much better, if you hear: “What do you want your money to do?”

Source: http://www.livemint.com/2009/12/27231502/Do-it-yourself-get-the-agent.html?pg=2

A 10-minute guide for alert investors

Hope, fear and greed are three basic elements that constitute our capital market. In the past 24 months, the market has been in strong grips of one or the other of the three elements.

Year 2010 is starting on a note of hope; hope that the Indian market is going to have another year of strong outperformance.

Compare this with the start of 2009, when fear was the overriding factor in the minds of investors as financial markets were coming to terms with one of the worst crisis after the Great Depression of 1929.

Go back a little further, at the beginning of 2008, greed was all over the Street. Everyone was taking to the street, the number of new demat accounts opened between late December 2007 and early January 2008 were more than the total opened in the preceding 12 months.

Now, look at the sentiments at the end of the each year. In December 2008, everyone was counting his or her losses. At the end of 2009, everyone is wondering why didn’t they buy stock when the market had hit rock bottom in March. So, what will be feeling on the Street at the end of 2010? Will it be euphoria or will hopes be dashed to ground once again after the indices peak in mid-2010? Or it could be the exact opposite?

Whatever the mood might be at the end of 2010, some rules, if followed in letter and spirit, will help investor make money in the coming months. First, don’t invest in an index fund at present level. What could be the best-case scenario for the index performance in 2010? A rise of 20 per cent from the present level will make Nifty cross its all-time high and even the biggest bull on the Street is not expecting that to happen.

So, if you are one who invests through mutual funds, stick to mid-cap funds. There is a high probability that some of the mid-cap companies are going perform well on the bourses, making mid-cap schemes a better bet. Among the plethora of mid-cap funds, investors should choose those where commodities companies don’t figure prominently in the portfolio. The scheme should be well diversified in terms of sectoral exposure, and there should not be any doubt over corporate governance of the companies that figure in their portfolios.

Also, avoid mutual fund schemes where cash levels were very high in March, 2009. This will be an indication that the fund manger of that scheme was as confused and fearful as the retail investor when the indices were quoting close to their lowest valuation bands in which they move.

Secondly, keep a watch on the US dollar. Any strength on the greenback can play spoilsport in the Dalal Street party. The easy money that some of the hedge funds have invested in emerging markets is going to flow out at the slightest rise in the dollar.

In order to hedge against any possible decline in the rupee, have some stocks of IT, textile exporters and oil PSUs in your portfolio. The rise in the US dollar will lead to a decline in oil prices, which should help the Oil PSUs reduce their cash losses and also their dependence on government bonds.

There will be a phase of underperformance for Indian equities even if the news flow on the companies front is good. But that phase of underperformance will be only for a short duration. Investors should utilise this phase.

Source: http://www.mydigitalfc.com/stock-market/10-minute-guide-alert-investors-664

‘Having funds on NSE and BSE platforms is fantastic'

A road can be used by a lunatic driver speeding at 140 km/hour for the thrill or by a sensible driver. The stock market offers the opportunity to make wonderful long-term returns — but also the temptation of reckless driving.

The easy money part is over, but 2010 will continue to offer opportunities for sensible investing, says Mr.Ajit Dayal, President of Quantum Mutual Fund, rounding off the year with an interview to Business Line on issues ranging from no-entry loads, to the prognosis on India Inc for 2010.

There has been a sharp decline in mutual fund inflows since August, when entry loads were waived. What is your sense of how this issue will evolve?
My view is that quite a few distributors were mis-selling mutual funds to their client base. The focus of the distributors was on the commissions that they would earn, rather than what was best for the investor over the long term. Unfortunately, most of the mutual fund houses in India were part of this system because it allowed the fund houses to show a growth in Assets Under Management on which the AMCs (asset management companies) earn their fee.

So, there was an artificial demand for mutual funds based on the ability to sell, rather than the need to buy. After SEBI's new rule, the distributors have no incentives to sell mutual funds so this artificial demand has disappeared. The distributors are now playing the regulatory arbitrage – selling those financial products like ULIPs which allow higher commissions.

Now, with these forced lower commissions and expenses, the mutual fund industry should be advertising about the advantage of lower cost products like mutual funds versus the higher expense products like ULIPs! But, there is silence. The mutual fund industry may be paralysed by the fact that many mutual fund houses are in the insurance business themselves.

Quantum Mutual Fund does not face these issues. We were the 29 {+t} {+h} mutual fund house when we launched our first product in February 2006 – but we were the first to refuse to play along with an opaque and loaded distribution system.

Would the availability of MFs on trading platforms like NSE, BSE encourage churning, as investors are used to trading too much on stocks?
Cars are designed to run at speeds of 140 km per hour and more. That does not mean we should drive the car at 140 km per hour! Credit card companies give us spending limits on our credit cards. That does not mean we need to go on a shopping spree. We need to balance what technology or accessibility allows us to do, with what is sensible.

Having mutual funds available on the NSE and BSE platforms is fantastic. It increases the reach of mutual funds by 30,000 per cent and there is a move to bring transparency in the process. The contract note from the broker will show the amount of commission brokers will earn from investors on each mutual fund transaction.

Of course, there is scope for misuse. Investors must read and understand why they are buying mutual funds – they cannot expect the regulator to tell them what to do every day.

Only six of ten equity funds have managed to outperform the market indices in 2009, a far fewer number than in earlier bull markets. Is this a trend likely to stay? Are active managers in India likely to find the going tougher from here on?
The year 2009 was challenging for many momentum managers. The BSE-30 Index was stuck in an 8,000 to 10,000 trading range till March 2009 and many fund managers felt that the market would fall to the 6,000 levels. So, they stayed on the sidelines. Then, when the first sign of green shoots and a global economic recovery appeared, the index galloped to the 12,000 levels by mid-May catching many fund managers by surprise as they were still in cash, waiting for the markets to head down. The 17 per cent surge in the index the day after the election results put many fund managers in a difficult spot.

Quantum Long Tern Equity Fund outperformed the index by 14 percent. We are boring, value investors and like to buy stocks when they look cheap. We did not have much cash – we were fully invested. The debate of active fund management (where stocks are chosen by the fund manager) versus passive fund management (where the index is blindly replicated) is, in my opinion, misguided. Our indices change too often. The indices contain so many companies that I would never trust with the savings of our investors. The focus should be on risk.

The market is factoring in fairly high earnings growth estimates for FY11. Are these achievable for India Inc?
I have no doubt that, over the long term, many Indian companies are capable of showing a 15- 20 per cent growth in earnings every year and investors should focus on that. There will be short periods when there is no growth as happened to be the case for the year-ended March 31, 2009. Recent quarters have shown raw material costs and operating leverage aiding profit growth. Toplines seem to be still sluggish.

Do you see scope for sustainable profit growth through 2010, in this light?
The first stage of the profit recovery was definitely aided by lower raw material costs but, in my opinion, there will be a pick up in sales volumes and pricing power in the next few months and this operational leverage will aid the profit growth for the next few quarters. There will be sectors where there is pricing pressure (mobile phone tariffs and cement) and there will be sectors where selling prices, if left to free market forces, should collapse by 20-30 per cent (say, real estate) but in most other sectors there will be the impact of higher volume demand and less capacity additions. How long this will continue is a function of when businessmen are ready to jump on the growth bandwagon again.

We can see first signs of exuberance again today, with statements like ‘the Indian economy could grow by 9 per cent' and so on. This may be followed by the irrational capacity additions. These capacity additions will eventually hurt the earnings cycle and share prices. Don't get me wrong – the 9 per cent growth in GDP can happen. But it must happen in a sustainable manner - not as a result of some global events that are not under our control.

After a year of stunning gains, will 2010 be a more challenging year for fund managers? Where do you see the opportunities and pitfalls?
The stock market is a place where companies that need capital for growth come to find those investors who have the savings to meet these needs.

But now it is all about the gambling and the liquidity and the excitement of making money every second.

A road can be used by a lunatic driver speeding at 140 km/hour for the thrill or by a sensible driver who understands the benefits of using a vehicle versus walking.

The stock markets always offer the opportunity to make wonderful long term returns – but they also offer the temptation to be a victim of reckless driving. Momentum investors are challenged on a daily basis and their final risk-return result is a function of how good and successful their last trade was.

In 2010 and beyond, our job at Quantum will be to stay focused on the managements of companies that we can buy into for a sensible price. Very boring when compared to the fast-paced world of high-frequency trading but we recognise the risks we take and sleep well every night.

Source: http://www.thehindubusinessline.com/iw/2009/12/27/stories/2009122751250800.htm

We expect mid-caps to outperform in 2010: Mirae Asset's Gopal Agrawal

He feels India is fairly valued, if not expensive, at these levels. However, there are a host of opportunities still available for investors, especially in the mid- and-small-cap space, the important thing being that one should be able to identify them early on. Meet Gopal Agrawal , CIO and head (equity), Mirae Asset Global Investments, who, in an interview with ET, advocates a stock-specific approach for 2010 and advises investors to buy companies having good business models with high debt as risk taking is back.

Where do you think the market is headed in the coming year, and what do you see as the key driver of sentiment?
We expect global markets, including emerging economies, to continue with their upward trajectory in 2010, though we don’t expect returns to be as spectacular as they were in 2009. The strong co-ordinated actions taken by various governments and central banks across the globe in terms of stimulus and fiscal packages have already started to show effect and major economies have come out of global recession though all the news flow is still not positive. However, the important thing is that positives are now overweighing negatives.

The TED spread (difference between interest rates on inter-bank loans and short-term US government debt) having narrowed down and VIX (volatility) index also back to normal levels indicate that investors have regained appetite for risk. From here on, company-specific news flow, earnings and GDP upgrades will determine the market direction. We expect investors to make superior risk-adjusted returns if they are able to invest in well-managed equity diversified funds

India has been the beneficiary of sustained capital flows into emerging markets, so much so the central bank was considering controls. Do you expect this trend to continue or are we headed for a pause?
Yes, India has witnessed sizeable capital inflows in the past. Its strong and resilient consumer demand, impressive IIP numbers and GDP growth of around 7% during the period of severe global recession makes India a favourable investment destination for FIIs. We believe that if the Indian government is able to take progressive steps towards curtailing fiscal deficit and increase infrastructure spending, it will give further fillip to FII inflows in the country.

What is your view on earnings? Some believe that earnings may surprise on the upside in 2010. Do you agree?
We expect earnings growth of over 20% in FY11E, but rising commodity prices, strong consumer demand and expected CAPEX boom could surprise earnings on the positive side.

Do you see a possible shift in investment strategy for 2010? What are the themes you see being played out?
We believe that in 2010, a stock specific approach would be able to generate superior risk adjusted returns compared to the conventional top-down sector-specific approach. As economies across the globe emerge out of recession, we expect strong growth of over 7.5% in BRIC nations, which will lead to resources, infrastructure spending and corporate CAPEX-related themes being able to deliver relatively superior returns. In addition, given the current scenario of high global liquidity and benign interest rates, we would advise investors to buy companies having good business models with high debt as risk-taking is back. Any equity infusion will improve sustainability of company’s growth and deleveraging of its balance sheet.

Where would you advise investors to park their money sectorally, or even by asset classes? What would an ideal basket be?
We expect mid-caps to outperform in 2010, because of superior earnings growth, valuation discount to largecap and risk taking coming back into action. We would advise investors to pursue a prudent asset allocation with exposure to equities, gold and resources. In the resources space, we would advise investors to take exposure to agricultural and bulk commodities. We are also selectively positive on pharma and IT companies.

The mutual fund industry has been going through some tumultuous times over the past few months, and mutual fund investments seem to have taken a back seat with equities being looked at more favourably. Your comment?
We expect investors to invest more favourably in equity mutual funds in 2010 as they have recovered their losses from most of the schemes and are, in fact, sitting on decent gains. Given that bank deposit rates are low amid a rising inflation scenario and a return of investor aptitude towards riskier asset classes, including equity, retail investors should definitely increase their investments in equity mutual funds in the coming months.

Source:

http://economictimes.indiatimes.com/opinion/interviews/We-expect-mid-caps-to-outperform-in-2010-Mirae-Assets-Gopal-Agrawal/articleshow/5386482.cms

Brokers give financial planners a run for their money

Much more than the entry load ban, it is the trading of mutual fund units on exchanges that is giving a headache to independent financial advisors.

Private wealth planners are accusing brokers, and rightly so, it appears, of poaching clients who use the exchange gateway to transact in mutual fund units. Brokers are attracting customers of small investment advisors by offering them free trading accounts, margin and portfolio leveraging facilities.

In their bid to tide over the crisis, a batch of influential wealth planners recently met BSE officials to start an exclusive low-cost mutual fund trading window (on BOLT) for registered financial advisors. According to fund industry officials, the aim of this request of wealth planners is to empanel themselves with the Bombay Stock Exchange (BSE) at a lower cost. Currently, any intermediary to get empanelled (and get trading rights) with BSE has to pay about Rs 1 crore.

Capital market regulator Sebi had allowed investors to buy or sell their mutual funds units through stock exchanges last month. As per Sebi guidelines, any investor who wants to use the exchange gateway will have to open a trading account with a broker and a demat account with either of the two depositories.

After opening relevant accounts, if an investor wants to buy a fund, the broker will pay for the purchased units from his own account. Upon receiving the purchase note, the investor writes a cheque (which includes the money paid by broker to buy the units and brokerage commission, if any) in the name of the broker. The fund units — being purchased in the name of investor — will be entered into the demat account of the investor.

“The entire chain puts brokers at a greater advantage. They acquire our investors by offering them free trading accounts, life-time commission-free MF trading facilities and cash margin on their portfolio. We are in no position to compete with them,” said a Mumbai-based independent financial advisor. By offering free demat (offered free of cost by very small number of brokers) and trading accounts, investors save on initial charges up to Rs 750. Relationship managers at brokerages advise new investors to “make good use of their demat accounts” by starting equities trading as well. They also agree to lend money, keeping the investor’s mutual fund portfolio as the margin. Brokerages are also allowing rich investors (who have MF investments in excess of Rs 10 lakh) to leverage on their portfolio and take more exposure to the equity market.

Portfolio leveraging is a method of raising easy interest loans wherein investors leverage on their own fund portfolio to raise a loan that will be re-invested in either mutual funds or stocks. According to market sources, brokerages allow 60-70% exposure on the portfolio pledged.

“Acquiring clients is a natural process in broking business. We give a run-down of all the services that we offer when customers approach us,” said Vinay Agrawal, executive director - equities broking, Angel Broking.
“Online clients are joining us because they are getting a wide spectrum of financial services under one roof. We want such clients to join us; we’re not charging any fee on mutual fund transactions,” Mr Agrawal added.
According to Ranjeet Mudholkar of FPSB India, an international professional body of financial planners, client acquisition will always happen in a market where there are several intermediaries.

“Giving freebies is one of the many strategies adopted by competition to acquire more clients. But then servicing a client is tougher than acquiring one,” Mr Mudholkar said.

“As long as private wealth planners render good service to clients, there is nothing to fear. They should try to add value by offering services like tax planning and succession planning. They can also tie up with select brokerages for opening trading accounts as well,” Mr Mudholkar added.

Source:http://economictimes.indiatimes.com/markets/analysis/Brokers-give-financial-planners-a-run-for-their-money/articleshow/5371946.cms

Merry Christmas and Happy New Year

Merry Christmas and Happy New Year

Let us implement the following message going forward in our lives...

Quote
"Youth"
I want to see you game boys. I want to see you brave and manly and I also want to see you gentle and tender.

Be practical as well as generous in your ideals, Keep your eyes on the stars and keep your feet on the ground.

Courage and hard work, self mastery and intelligent effort are all essential to a successful life.

Characters in the long run is the decisive factor in the life of an individual and of nations alike.

Theodore Roosevelt
Unquote

Mutual Funds seem to be seeking little 'value'

There are often talks that value investing worked many years ago when markets were less efficient. Now, with the amount of research that goes into stocks and the amount of new players that have entered the market, value investing has much less scope to unearth bargains. Or so the theory goes.

The chart that you are about to see next is one that will confirm to you that the above is nothing but hogwash.

But first, a brief primer on mutual funds. Out of the money that you invest in them, equity mutual funds hold a percentage this in cash. The rest they invest in stocks. A small part of this cash holding is out of compulsion, as they have to meet obligations from investors who seek to redeem their units from the fund. However, a larger part of this cash holding by a fund has a lot to do with how the fund manager thinks the markets will perform going forward. If he thinks that stocks will go down, he will sell some stocks and thus increase his holding of cash. Similarly, if he feels that markets will move up, he will by more stocks and consequently the fund’s cash holding will go down.

However, as the following chart shows, they can be quite bad predicting the direction of the market.

The chart plots the monthly cash holdings of the mutual fund industry as a percentage of their assets against the monthly low of the BSE Sensex for the past one year. The results are quite interesting to say the least. For as stocks got cheaper, mutual funds sold more stocks and increased their cash holdings to unprecedented levels.

So in effect, as Indian companies became cheaper to buy, Indian mutual funds were actually selling them instead of buying more of them. Quite the opposite of what they should have been doing. And this logic defying act was repeated by them on the way up too.

As markets have risen higher and higher in the last six months, and consequently stocks became more and more expensive, mutual funds have been buying them with full vigour. Infact, their cash levels have now fallen to extremely low levels once again.

Infact, cash holdings of diversified equity funds averaged around 5% to 6% of total assets in October-November 2009, levels that were last seen during December 2007 and January 2008 when the markets were at their peak.

Indeed. Buy high and sell low seems to be their mantra!

But that’s not such a bad thing afterall. It shows that most large mutual funds to this day commit the same mistake they have been committing for the last century or so. And in the process, they leave doors of opportunity wide open for those smart investors who realise that you should buy your stocks as you buy your groceries, not as you buy perfume. The cheaper the better.

Do not be surprised if markets tank sometime in the future and you see mutual funds selling once again. Just stick your neck out and look out for those bargains that will once again be yours for the taking.

Source: http://www.equitymaster.com/detail.asp?date=12/23/2009&story=5

Changing agents: who gets trail commission?

When you invest in mutual funds (MFs) through your agent, he gets a trail commission, also known as loyalty bonus, for as long as you stay invested in the fund. Typically it ranges from 40-50 basis points a year.

The market regulator, Securities and Exchange Board of India (Sebi), has made investors happy by scrapping the need to get a no objection certificate (NOC) before changing agents. However, it has left the agents in a fix—they have no idea who will get the trail commission.

When you invest in mutual funds (MFs) through your agent, he gets a trail commission, also known as loyalty bonus, for as long as you stay invested in the fund. Typically it ranges from 40-50 basis points a year.

However, in case an investor switches agents, it is not clear yet which one would get the commission—the new one or the old one. MFs are yet to take a firm stand on this issue.

Some agents feel that old agents should continue to get the trail commission even if investors shift their investments to another agent. Their argument is that some agents may unscrupulously drive away existing business of small agents.

Not all agree though. Manish Gadhvi, head (Mumbai operations), NJ India Invest Pvt. Ltd, one of India’s largest retail MF distributors, says: “An agent gets rewarded in terms of initial commission for bringing in new customers. The trail commission is meant to retain the customer. If the agent is unable to do so for reasons, such as lack of service, then he does not deserve the trail commission. What is the sanctity of the no-NOC rule then?”

A distributor source said a leading fund house has decided to pay the trail commission to old agents, a move that has not gone down too well with some agents. Agents have demanded a written communication from different fund houses and they are expected soon.

Source: http://www.livemint.com/2009/12/20211409/Changing-agents-who-gets-trai.html

BSE to allow MF brokers place orders through mobile

BSE had launched the MF platform early this month, less than a week after NSE made its own platform operational

The Bombay Stock Exchange would allow brokers to place orders through mobile phones in its mutual funds transaction platform in the next 15 days.

The exchange hopes the facility would enhance the accessibility of traders to the BSE StAR MF, BSE Deputy chief executive officer Ashish Chauhan said.

“Using this facility, brokers can place orders from anywhere through their mobile phones. This would be launched in the next 10-15 days. Moving ahead, we would also like to extend this facility to the investors,” Chauhan told reporters.

BSE had launched the MF platform early this month, less than a week after NSE made its own platform operational.

The exchange is also planning to extend the equity back office software, SPARK, developed by Marketplace Technologies, to the brokers transacting in the StAR MF platform, he said.

UTI mutual fund today joined BSE’s MF platform and will offer 30 schemes, which include 92 International Securities Identification Numbers (ISINs).

With this, ten fund houses are currently offering over 150 schemes in the BSE StAR MF platform. Ten more companies have agreed to join in-principle in the near future, a BSE official said.

Announcing the tie up with BSE, UTI MF’s chairman, U K Sinha said MF penetration in the country still remained low and introduction of fund transactions through the exchange infrastructure would help increase the market.

On the first day of its launch, seven MF companies had offered a total of 103 schemes in the BSE StAR MF platform.

The BSE, which is Asia’s oldest exchange, has a reach to over 400 cities through 40,000 terminals.

Source: http://www.livemint.com/2009/12/21144303/BSE-to-allow-MF-brokers-place.html

‘Upside in large-cap stocks is limited from here on'

The scope for positive surprises in earnings growth next year is limited. 2009 was the year of beta. 2010 will depend on alpha generation, which is never easy.

PANKAJ TIBREWAL, FUND MANAGER, PRINCIPAL MUTUAL FUND

What did the top performing equity fund for the year, Principal Emerging Bluechip Fund, do to manage its stunning 156 per cent return over the past year? Well, it got off the starting block when pessimism was at its extreme, bought the most beaten down sectors and took brave calls on highly leveraged companies, explains Mr Pankaj Tibrewal, Fund Manager, Principal Mutual Fund.

Excerpts from an interview:

Principal Emerging Bluechip Fund is the top performing equity fund for the year. What are the sector and stock choices that powered these returns?
If you go back to when we launched the fund, the time was just right from an investment perspective, but quite bad, from a market perspective. Stock selection has played a vital role in the fund's returns of about 146 per cent for a year.

One factor which helped us was the mandate the fund had, of investing up to 30 per cent of its portfolio in large-cap stocks in the initial months. As our view was that large-caps would lead any rally, we fully used this leeway in the initial months. By March 2009, however, pessimism was at an extreme and we took the call that the market was oversold. If you ask me today whether we expected the market to double from those levels, the honest answer is ‘No'.

From a fund management perspective however, this has been one of the most difficult years to manage money. In January, you had the Satyam scam, in March there was extreme pessimism about global recession and in May the uncertainty of elections… Yet the returns that you today see for this calendar year came mainly from the first half, where the market view was so uncertain. To retain the conviction to buy at that point in time and to remain fully invested in the fund, was no easy task.

On sector choices, we took a few early calls to invest in sectors that were hit the hardest. One of these choices was metal stocks.

The other call that we took was unearthing quality companies with high leverage that had been severely punished. We took the view if the capital market were to revive again, companies with reasonable management, good businesses and business models could de-leverage quickly and would be re-rated. Those stocks have today become the darlings of the market!

During the height of the crisis you will remember that even technology stocks were beaten down as doubts were cast on the outsourcing model. So, wherever we bet on stocks or sectors during a phase of extreme pessimism, it worked out well.

What is your take on mid-cap stock valuations? Mid-cap indices are today trading at a PE multiple of about 19 times. Does that offer sufficient margin of comfort to invest in mid-cap stocks?
My view is that the upside in large-cap stocks is limited from here on. Most stocks in the BSE Sensex index are today discounting 2011 earnings, with the market factoring in an earnings growth of 20 per cent for that year. If you break down those earnings, you will find that they are coming mainly from energy, financials and metals, which are expected to contribute 75 per cent of the earnings growth.

Now there are a lot of ifs and buts to that growth. One problem is with the commodity cycle, where you do not know the shape of things to come. That makes me believe that the scope for positive surprises in earnings growth next year is limited. Yes, liquidity can drive markets for extended periods of time. But the call on liquidity is always a tough one.

There are however, many sectors where there is a clear valuation discrepancy between large and mid-cap stocks. The trend of mid-cap stocks outperforming is already evident.

If you look at the second half of this calendar year the index has moved only by 13-14 per cent but there are stocks that have moved 45-50 per cent. I think there are a good number of mid-cap stocks which would give you great returns over the next 6-12 months.

What is your view on the market for 2010?
I feel the market may not fall drastically. But near-term consolidation cannot be ruled out. If that happens it will be a stock pickers market.

If you look back at the previous bull run, you will find that 2002 and 2004 were the only years when the market moved less than 25 per cent. In both these years, the markets consolidated in a narrow range. When that happens, you always have to work a little harder to dig out stocks with a superior earnings story.

2010, I believe will be that kind of a market. The broader market will be range-bound with volatility picking up from time to time. 2009 was the year of beta, 2010 will depend on alpha generation, which is never easy.

What is your sense of earnings performance from Indian companies in recent quarters. While profits are improving, the topline for companies seems sluggish. Is that a worry?
It is. My sense is that, going forward into 2011, the bulk of the raw material cost savings and operating leverage may have played out for companies. The trend of earnings surprises from companies may end by December quarter this year. Earnings, from there on, will depend only on two factors — lower leverage, which can reduce interest costs, and topline growth.

The latter can, after all, only come from price or volumes. It will take time for pricing power to come back to producers, given that the global environment remains quite weak. In that scenario, you really need to focus on volume growth.

The theme we are looking at is: Which sectors can deliver volume growth in FY11, assuming prices stay flat or decline? Companies and sectors that show good volume growth may be the ones to enjoy premium valuations going ahead.

How big a risk do rising interest rates pose to the earnings outlook?
If you go back in history, there is usually a 12-15 month lag between changes in interest rates and the earnings response to it. In recent months, a good number of companies have been able to raise equity to repay debt. Our calculations show that even if you factor in equity dilution and weigh that against interest rate savings for companies, they may be able to deliver earnings growth. Capital raising is a blessing in disguise for highly leveraged companies. So which are the sectors you are bullish on at this juncture?

They would be consumption related sectors-FMCG, retail, financial services, where volume growth would not be a challenge. In the infrastructure space, we see potential in companies which own assets such as power plants, airports and ports, though valuations are not exactly cheap. In the downturn, we saw that companies that only work on a cash contract basis were hit harder as their margins were squeezed both by interest rates and raw material costs. Companies that own assets may see a dip in revenues during a slowdown, but they can always come back quickly once a recovery begins. They also face fewer risks from interest rates or raw material prices.

Source: http://www.thehindubusinessline.com/iw/2009/12/20/stories/2009122050610700.htm

Domestic MFs plan international funds

Domestic mutual funds are again scouting investment opportunities abroad, mostly in emerging markets, as they plan to launch international funds, after more than a year. At least three fund houses-- SBI Mutual Fund, UTI Mutual Fund and Mirae Asset Mutual Fund— are planning to launch international funds soon.

UTI Mutual Fund is planning to launch its international fund, with focus on emerging markets, along with T Rowe Price, which recently bought 26 per cent stake in it. This will be UTI MF’s first international fund, and also its first fund with T Rowe Price.

“Many retail as well as high net worth investors want to invest in overseas markets to diversify their portfolios. The launch of an international fund will depend on liquidity and other market conditions,” said Joydeep Bhattacharya, chief marketing officer, UTI AMC. SBI Mutual fund is hoping to launch its emerging markets international fund by 2010. “Today, there are a lot of investment opportunities outside India for investors who want to have long-term investment plans. There are good opportunities outside India, like carbon credit based investments, among others,” said a source at SBI MF. Both UTI and SBI MF had earlier filed initial papers for international funds with Sebi, but their plans were on hold for more than a year due to the global financial crisis.

Mirae Asset Mutual Fund has filed a draft offer document with Sebi last month for Mirae Asset Korea Discovery Fund, with an investment objective “to generate long-term capital appreciation by investing predominantly in units of Mirae Asset Korea Equity Fund and or units of other MF schemes, units of exchange traded schemes that focus on investing in equities and equity related securities of companies domiciled in or having their area of primary activity in Korea.” In September, Mirae Asset MF had launched Mirae Asset China Advantage Fund, with focus on equities and equity-related securities of companies domiciled in or having their area of primary activity in China and Hong Kong.

Some other MF houses may also launch international funds. “We are evaluating the option as it could be good for investors willing to diversify their portfolio,” said Vikas Sachdev, country head of Bharti AXA MF. Most international fund investments from India are routed through a feeder fund, with an option to invest fully or partly in the international markets. However, for retaining tax advantages, they must invest at least 65 per cent of assets in Indian securities.

“More money is to be made in emerging economies than in developed world. While emerging economies will grow faster, without a meaningful recovery in the US, it will be difficult for countries like India to grow rapidly. Stocks of the developed economies are available at low prices and one can look at launching an international fund with a mix of emerging markets and developed economies. Some allocation can be made to this fund by investors,” said Waqar Naqvi, CEO of Taurus MF. Now, more than a dozen MF houses offer international funds, with majority being lunched in 2007. After the global financial meltdown, no domestic mutual fund house had launched an international MF scheme.

Source: http://www.business-standard.com/india/news/domestic-mfs-plan-international-funds/380139/

Safe bets in Indian debt market

India’s debt market may be in its nascent stage with limited opportunities, but you can still find some safe bets, say Gaurav Pai & Preeti Kulkarni

It’s hardly a secret that the Indian debt markets are still in the nascent stage and offer limited opportunities for individual investors looking to incorporate debt in their portfolio.

But most experts say as the market matures in the coming years, debt could gain traction as one of the best investment avenues for investors.

“Investors, looking at options beyond the low returns of bank deposits and volatility of stocks, are increasingly eyeing debt issued by corporates,” said Rujan Panjwani, president of Edelweiss Group. “This has come at a time when corporates themselves are looking to raise funds. Fixed income products can bridge this gap effectively,” he said.

ET did a quick check on all the possible ways through which you can buy debt in your portfolio today. Most experts say yields on government bonds may not go beyond a particular level, making them good bets in the long run. Corporate debt too is currently offering high yields, making it a reliable option.

Ask Wealth Management Solutions head Nishant Agarwal is advising against investments in long-dated papers (6-10 years) since he expects them to hedge higher in the coming days. For an investor with an investment horizon of 6-12 months, he recommends short-term bonds and fixed maturity plans (in the next three months to benefit from double indexation).

Through Mutual Funds
Arjun Parthasarathy, head of fixed income at IDFC Mutual Fund points out that the biggest advantage of a mutual fund is the wide range of options available. “Those looking for an avenue to invest for the long term can look at long-term bond funds while those planning to park their money for the short term can consider liquid funds, which offer better returns than the savings bank rate,” he explains.

There are also short-term floaters and fixed maturity plans, whose yields go up along with the interest rates. Besides, institutional investors dominate the segment currently, and retail investors’ understanding of debt markets could be limited.

Through broker/Directly
This is a less popular option, but hardly the gigantic task it is made out to be. You can buy both government securities and corporate bonds through a bank or a bond house (a primary dealership like ICICI Securities PD or STCI or IDBI Gilts.)

This is not any more difficult than buying shares through a stock broker. All it requires is an investor to open a secondary constituent’s subsidiary general ledger (CSGL) account with a bank, after which the bank will hold all the government securities in an electronic form.

For buying corporate bonds, one can either participate in the primary market (i.e. when they are being first issued) or the secondary market (exchanges where they are traded.) This can also be done through a bank, bond house or a brokerage house that offers fixed income facilities. This, however, requires the investor to have a demat account.

An investor can buy government bonds with as little as Rs 10,000, the face value of a single government bond. To get subscriptions through the primary market for corporate bonds requires a large sum in the order of a few crores. However, investors can buy corporate bonds in the secondary market through much smaller ticket sizes, even less than a lakh.

Non-convertible debentures listed on stock exchanges like Tata Capital, L&T Finance, etc, in fact can be brought from NSE-affiliated brokers in ticket sizes as low as Rs 10,000.

Through PMS
One would need to sign an agreement with the PMS manager, who will open a separate bank account, demat account and a CSGL account. Government bonds are issued in the demat form with RBI functioning as the depository. Banks can open a sub-account (constituent SGL A/C) within their account for large investors.

The bonds will be sold or bought by the PMS manager on the investor’s behalf. Only large and more sophisticated investors have traditionally used this method.

Source: http://economictimes.indiatimes.com/Personal-Finance/Savings-Centre/Analysis/Safe-bets-in-Indian-debt-market/articleshow/5359997.cms?curpg=2

Tectonic shifts in the mutual fund industry

The regulator is tightening the manner in which the mutual fund industry is being run. In August 2009, the Securities & Exchange Board of India (Sebi) ordered that the entry load charged by the industry be removed and that distributors charge commission directly to investors. And there are many other regulations in the offing that would tighten the operations further. But then these changes have come with an intention. A senior Sebi official told FE that this was part of a plan to get more retail investors under the regulatory fold. And this is clearly because, over the years, the fund industry has been concentrating heavily on the corporate sector or institutional investors, and therefore retail investors have been rather neglected. The effort to reach out and even educate them, had taken a back seat.

India’s mutual fund industry has a unique distinction of having being dominated by institutional investors. These investors contribute to around 56% of total assets under management (AUM), according to a study carried out by an independent research agency Celent. This compares starkly with the US, where less than 15% of the AUM is routed through institutions. And even in China, institutional participation is lower—at around 30% of the AUM. The skew in India is mainly due to tax advantages offered for mutual fund investment, and the lack of alternative short-term investment opportunities for Indian corporations, the Celent study revealed.

Even in India, the retail investor segment contributes to around 45% of the AUM, while the high networth individual sub-segment accounts for more than half, which is around 23%. High networth individuals have access to wealth management services and are likely to adopt the advisory model. For the remaining 20% of small-ticket retail investment, the transaction model is better because advisory services do not find traction in this sub-segment, according to experts.

Fund houses, therefore, would have to take a close look at building up the non-metro base. Mutual funds are skewed towards the urban segment. The top eight cities, including the four metros (Mumbai, Delhi, Kolkata, and Chennai) followed by Bangalore, Hyderabad, Pune and Ahmedabad contribute 75% of the assets collected, while the share of the next 20 cities was only 20%.

And this skew has also been impacting profitability. So while the AUM has grown at a compounded rate of 25% since 2006, the profitability, as measured by total income as a percentage of AUM, has fallen. The profitability on-average in 2008, was 16.5 basis points. This is a drop of 27% in profitability since 2006, which was 23 basis points, says the Celent study. “This drop is primarily due to the growth in the income funds—a direct consequence of corporations becoming the primary target for the mutual funds,” the report says.

To consider a case, Reliance Mutual Fund has a lower-income as a percentage of AUM, mainly because of the composition of its funds—-a heavy dominance of institutional investments in its asset composition has led to short-term funds dominating its portfolio, resulting in the suppression in the fee. On the other hand, ICICI Prudential has been able to garner better retail participation, and this is reflected in the higher fees that it charges.

The writing on the wall is therefore clear. Fund houses will have to concentrate on building their retail portfolios and also take funds to all corners of the country. Merely concentrating on the corporate segment might not work in the days ahead, as the regulator gets stricter on commissions and also on the manner in which funds are structured to attract corporate investments.

Sebi chairman CB Bhave has consistently been emphasising the need for asset management companies to focus more on the retail segment. The regulator has not forgotten the fright witnessed during the previous year when the corporate houses led a pullout from the mutual funds sector as a liquidity crisis emerged.

Some fund houses have been working on this aspect and would be working with non-traditional distribution channels like non-government organisations (NGOs) to build distribution strength. Such initiatives will have to be taken to reduce the high dependence on the corporate segment.
Moreover, the regulator too is not taking things easy. It is planning to accumulate Rs 80 crore-100 crore for an investor- education fund. According to officials connected with the development, this decision will be taken by the regulator in the next month. “The issue has been pending for many months and the corpus will be raised by Sebi from asset management companies. The corpus will be used only for providing education in mutual funds throughout the country.”

Currently, several big fund-houses conduct investor education and awareness in several parts of the country. “Sebi plans to raise 0.01% of the asset under management (AUM) of each and every fund house. However, other details such as when the amount will be collected and how it will be used, will be chalked out by the Sebi in the coming days,” said a member of Sebi’s mutual fund advisory committee.

Already, distributors have started to shun fund-schemes and the fund industry continued to witness a downfall of inflows in equity schemes. Investment in mutual-fund schemes also saw a sharp decline of 68% in November, to over Rs 45,100 crore over the previous month, as investors preferred to stay away from equity-based funds.

At the end of November 2009, investors poured in funds worth only Rs 45,124 crore into several mutual fund schemes, with the maximum infusion coming into fixed-income plans, according to the data provided by the Association of Mutual Funds in India’s (Amfi). At the end of October, the total inflow stood at Rs 1.41 lakh crore.

The message is very clear. Mutual funds will have to get sharper and increase their retail reach.

Source: http://www.financialexpress.com/news/tectonic-shifts-in-the-mutual-fund-industry/555554/0

India no longer attractively valued, corrections expected: Fortis MF

``With markets trading at approximately 15 times PE multiples on FY11 estimates, we are wary of the fact that India is no longer attractively valued (within the emerging market basket) and any reversal of the carry trade could trigger corrections``, says Fortis Mutual Fund.

Highlighting the equity market scenario the AMC pointed out that the month of November witnessed the 5th consecutive month when DXY, a measure of value of USD as a basket of 6 major world currencies, closed lower.

The USD has been weak ever since the Federal Reserve has maintained its intent to keep liquidity high till the economy is back on track and unemployment rate starts ticking down.

Fortis which oversees average AUM of nearly Rs 91 billion in November believes that this cheap liquidity has been feeding the carry trade in riskier assets like emerging market equities and commodities (both hard and soft) and Indian markets were no different - November saw a strong up move of 13% from the month lows.

Further foreign investors have been aggressive iwith cumulative USD 16 billion of inflows and good corporate results along with positive sound bytes from the political and bureaucracy with regards to tax reforms have sustained the euphoria.

Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20091218130503707&dir=2009/12/18&secID=livenews

Get the right advisor, see your investments grow

SEBI’s directive, removing entry loads on mutual funds from August 2009 has now put the onus on investors to decide how much their distributors’ services are worth. On their part, many distributors have prepared a tariff of rates for their services.

Since both sides are on the process of price discovery, various models are being tested in the market on which fees can be calculated. Some distributors have decided to offer free services for certain asset sizes while there are a few who charge a fee for every transaction, others with a deeper relationship charge annual advisory fees.

For the investor, these are confusing times as they try to figure out how much fees to pay and what kind of service to expect.

The beauty parade
The first step is to identify the right advisor. The best way to seek a reference from someone who is happy with his advisor’s services. You also need to figure out if he is competent enough to service the areas that you are looking at.

For instance, if you are a sophisticated investor and would like access to structured products, you need to know if your advisor can offer you the same or not. “It is very important to get the right advisor first, as the quality of the advisor can make a huge difference to your portfolio,” says Vishal Kapoor, head of wealth management at Standard Chartered Bank.

He further adds that the maximum fee difference between advisors would be a maximum of 200 basis points, which is negligible when compared to the impact a portfolio can have, based on the quality of advice.

A la carte
Broadly, there are three services which a financial planner provides to a client. The first part is the most crucial since it involves understanding the customer, diagnosing his needs and making a financial plan for him.

The second service provided is that of execution of the plan, wherein the advisor helps you in buying, selling redeeming, and such other operational aspects. The third service provided is the periodic review and advice given. Before you get your prescriptions from your advisor, find out what is the kind of service that he is offering.

Fees
When it comes to paying fees, there are various models available in the market today. There are financial planners who could make a detailed financial plan for you at a cost of Rs 2,500, while if it increases sophistication, the fees could extend up to Rs 15,000.

Once your plan is done, you could execute it through the same person, or use another organisation. Just like every doctor or lawyer is different and charges as per the value he gives you, so does an advisor. Then there are banks that charge fees based on the number of transactions the client does, or as a percentage of the average assets that the client maintains with them.

Take the case of ICICIdirect. Here if you have assets worth Rs 8 lakh with them, the services offered are free. However, if the assets with them is less than Rs 8 lakh, they charge you a transaction fee of Rs 100 for every transaction you do with them. Personalfn, which provides advisory services, could charge you anywhere upward of Rs 5,000 per annum, depending on the size of assets you maintain with them.

Source: http://economictimes.indiatimes.com/articleshow/5345649.cms?flstry=1