No rush for exit anytime soon, say brokers, fund managers

Investors have stopped looking for exit options as the equity market has witnessed strong support at every high point after the UPA government got a stable mandate, brokers and fund managers told SundayET.
What has further acted in favour of a rising market is the investor's fear that they would miss the bus if they fail to enter the market now.
Executive director at Benchmark Asset Management Company Rajan Mehta confirmed the trend. "We were expecting some redemption pressure to come once the market inches upward but on the contrary we are getting decent inflows," he said.
The situation could also provide an outlet to mutual fund companies which have been sitting on high cash mainly to meet the anticipated redemption. Sanjay Sinha, CEO at DBS Cholamandalam Asset Management, says, "Generally speaking, most of the mutual fund companies are still sitting on high cash level partly on anticipation that investors who were sitting on losses, will probably exit once markets touches higher levels. The industry has not, however, seen any major redemption in the past couple of months."
There is a general tendency among the investor community that when market goes down people sell either to book profit or to minimise losses and whenever the markets take the reverse turn, investors begin to buy. "We are seeing a change in the general sentiment of investors and many of the expected sellers have become buyers," says Mr Sinha.
In fact, new fund offers (NFOs) in equity segment, which was completely dry for the last several months, have begun to see some action. Recently, ICICI Prudential Mutual Fund and IDFC MF garnered more than Rs 1,300 cr through two of their NFOs. Target Return Fund of ICICI Prudential MF received around Rs 800 cr, whereas, Hybrid Infrastructure Portfolio of IDFC MF has mobilised almost Rs 500 cr till date. In addition, there are a number of NFOs which are still open for the subscription. Also, BSE Sensex and Nifty, which have been heading towards north for sometime, have proved that the demand is now more than supply.

Also, the institutional investors have started putting money in the equity market. In the last three months, mutual fund community invested more than Rs 3,000 cr in the shares. In fact, in the last one month, foreign institutional investors (FIIs) invested about Rs 18,000 cr.
According to Prasanth Prabhakaran, Sr VP & all India head for broking at Kotak Securities, the rally of Sensex from 10,000 to the current level of over 14,000 was unexpected. Also, the outcome of the elections surprised many, and consequently on Monday, May 18, 2009, no major trade could take place as trading was halted after the indices touched upper circuit twice. "Now, since we have a stable government on the driver's seat, investors expect economic condition to improve gradually, and hence prefer to remain invested. Yet the Budget is the next big event coming up," he said.

Source: http://economictimes.indiatimes.com/Features/The-Sunday-ET/Markets/No-rush-for-exit-anytime-soon-say-brokers-fund-managers/articleshow/4599032.cms

SIP, effective means of wealth accumulation for retail investors

Some trends never go out of fashion. Probably because they are time tested and proven. Taking a leaf out of the age-old piggy bank concept, fund houses are now re-inventing the systematic investment plans (SIPs). The product, a great success globally so far, has proved to be a great way to accumulate wealth for retail investors with low risk appetite. The virtues of rupee cost averaging and compounding has made it a popular plan to invest with.
Drawing from this success, a few fund houses have launched daily SIPs in India. The new product plans to collect a small sum from an individual on a daily basis and invest in the market, much like depositing a penny in a piggy bank. To help you decode the new product, here’s a pocket guide on daily SIPs and things you must keep in mind before investing in it.

RIDING HIGHS & LOWS

For starters, SIPs allow one to contribute money to a fund on a uniform basis and help average out the peaks and dips in the market over the long term. The benefits of investing via SIP route get amplified in case of a daily SIP where investments are scheduled daily. “It captures the daily levels of market volatility. It not only ensures that one is invested at the highs and the lows but also makes the best out of an opportunity that could be tough to predict in advance,” feels Krishnan Sitaraman, director, fund services at Crisil.
Financial planners say the daily SIP scores over the monthly one as it provides larger benefits of rupee cost averaging. In case of a monthly SIP, you still can lose out if the markets are up on the chosen day of the month. The daily SIP, however, eliminates this flaw and lets you benefit out of equity market volatility.
The scheme, they say, can be even used as an “effective tool” for those who are looking to make a lump sum investment. “One could let market volatility play to their benefit by splitting the lump sum amount in to daily instalments over a relatively short time frame. This strategy avoids market timing and helps rupee cost averaging also,” says Mukesh Gupta, a certified financial planner and director of Wealthcare Securities.
For small time savers, the product offers a very small threshold investment level to invest in mutual funds. The regular stream of investments even passes on the benefits of compounding. Further, the product brings in an element of financial discipline. Currently, Bharti AXA Investment Managers and ING Investment Management have mutual fund schemes in the market that invest an individual’s money on a daily basis in the equities. Sahara Mutual Fund too plans to launch a similar product soon where it proposes a minimum investment of Rs 10 a day.

LOOK BEFORE YOU LEAP

It is important for you to check if there are any incremental transaction charges to complete each investment instalment in case of daily SIPs. Usually, a fund charges 2.25% of invested amount as the ‘entry load’. However, in some cases this amount may get reduced. You should also keep in mind the contribution after taking into account the cash flows available.
Divya Baweja, partner, BMR Advisors, however, is not too smitten by the idea of daily SIPs. “It is administratively cumbersome to get in to a daily SIP, since you need to monitor this on a daily basis. At this stage, the success of daily SIP needs to be tested,” she feels.Financial planners believe you should ideally remain invested in a daily SIP at least for three years to reap dividends. “Historical evidences show probability of having negative return over a four-year period is almost negligible,” Gupta says.

STACK UP

ING Investment Management was the first fund house in India to launch this unique feature as part of their offering, Zoom Investment Pack or ZIP. Under the scheme, investors’ money was collected as a lump sum and allocated on a regular basis in the market than at one go. It requires a minimum investment of Rs 5,000 and you can choose to invest just Rs 99 per day. However, in case of Bharti AXA Mutual Fund, you are required to shell out a minimum Rs 300 per day that sums up to Rs 6,600 per month (for 22 working days).
“It operates like any other mutual fund. The money after getting in to the fund is at the prerogative of the fund manager. It is his discretion whether he wants invest the money in the market on the same day or later,” Vikaas Sachdeva, country head for business development, Bharti AXA Investment Managers, explains.
On the other hand, the Sahara daily SIP plans to raise money 365 days a year irrespective of any holidays. The fund proposes to infuse the money on a daily basis in the market. The two daily SIPs have so far proved to be successful in generating retail interest, now it remains to be seen how far a penny a day can take you.

Source: http://economictimes.indiatimes.com/Features/The-Sunday-ET/Money--You/SIP-effective-means-of-wealth-accumulation-for-retail-investors/articleshow/4599160.cms

For a few basis points more

Long-term investment in equities certainly yields good returns. However, the journey can be bumpy with bulls and bears making their appearances intermittently. Market pundits, therefore, recommend regular and staggered investment. So far a systematic investment plan (SIP), which gave investors the benefit of rupee cost averaging, was considered by far the best way for making such staggered investments. However, an even better approach exists called value averaging investment plan (VIP). This will help you augment your returns by a few percentage points (compared to an SIP plan). While as an investment technique VIP has been around for some time, Benchmark Mutual Fund has become the first company in India to offer this plan with its index fund —S&P CNX 500 Fund.

How is VIP different from SIP?
SIP. In a systematic investment plan, you invest a fixed amount every month. This amount divided by the net asset value (NAV) of the fund determines how many units you get each month. When the markets rise, the NAV rises and you get fewer units, and vice versa. In this way, the investor averages out the purchase price of units. This concept is known as rupee cost averaging.

VIP: Value investment averaging plan too is a regular investment plan, the only difference from an SIP being that here the amount of investment made varies from month to month. In a VIP, a target rate of return is fixed. The monthly investment that you make is calculated in such a way that this rate of return is achieved every month. When the market is declining, you will be expected to invest more, and vice versa.

Consider this: you plan to invest Rs 1,000 a month and expect an annual return of 15 per cent. Say, for instance, at the end of month three your portfolio value is Rs 3,500 and the expected portfolio value for the fourth month is Rs 4,027. Therefore, next month you will invest only Rs 527 (difference between target and actual portfolio value).
Difference in returns. This technique is superior to SIPs as it gives you the weighted average. The cost incurred in acquisition of units is less compared with that of an SIP. We took two periods: Jan 2006 to Jan 2007 and Jan 2008 to Jan 2009. During calendar year 2006, markets were rising. During this phase, an investment of Rs 60,000 through SIPs in an equity fund would have given you Rs 69,878 in return — a gain of 16 per cent. During the same period, a VIP with a target return of 15 per cent would have given you a higher return of 19.5 per cent.
Next, we looked at returns during the bear phase of January 2008-09. A lump sum investment of Rs 60,000 would have yielded -49 per cent return; an SIP would have given a return of -18.70 per cent while a VIP would have given -19.3 per cent return.
From Jan 2008 till May 1 this year, the return on a lump sum investment would have been
-40 per cent. An SIP of Rs 5,000 a month would have yielded -22 per cent return and a VIP, 0.67 per cent return.

Advantage.

Analysis of the last ten years suggests that VIP generates higher returns compared with SIP as the cost of acquisition is lower with the former method.
Disadvantage. A major disadvantage is the variable installment. Instalments can vary from nil to the upper limit set by the investor. When markets are up and the portfolio size is greater than the target portfolio, an investor will not have to invest anything. On the other hand, if the markets are down and hence the value of the target portfolio, you will have to dish out extra cash to match the target rate of return.
Besides, if the markets move in one direction, whether up or down for a long period, the return generated by VIP can be inferior to SIP.
Benchmark’s scheme. VIP is available only with S&P CNX 500 Fund. The fund allows a minimum starting investment of Rs 2,000 and has set a default target return of 15 per cent. The amount invested will be used to calculate the target portfolio amount. You will also have to suggest an upper limit up to which fund manager can withdraw money. The fund doesn’t charge any entry load. However, exit before a year attracts a penalty of 1.50 per cent of the fund value. There is no exit load after three years.

What should you do
Investors should certainly adopt this plan, though its availability is at present an issue. “I would recommend this plan. Since the fund gives weighted average return, it scores over a normal SIP. If you are not working on a tight budget and can afford to pay variable installments, go for it,” says Surya Bhatia, a Delhi-based financial planner. “The fund might give less returns in a unidirectional market. However, markets are unlikely to behave this way in the long term,” he adds.
To get the best out of this plan, stick to it for at least three years. u

Source: http://www.indianexpress.com/news/for-a-few-basis-points-more/469094/0

FMPs go out of favour as SEBI rules bite

Fixed maturity plans (FMPs) that controlled more than a fifth of the Indian mutual fund industry's assets in September are now losing out to a series of regulatory changes that make them a tough sell for fund houses.
These close-end debt funds, which offer predictable returns and minimise interest rate risk by investing in papers with concurrent maturities, managed more than a trillion rupees at the height of their popularity in September 2008.
Their assets have halved since then and may drop further, following regulatory changes in December that banned pre-maturity withdrawals and forced their managers to list such funds, raising cost for the low margin FMPs and making them less liquid.
The regulator also instructed fund houses to stop declaring indicative yields on such funds, a key factor that lured large corporates to FMPs, removing the predictable nature of returns.
"Naturally, no investor would like to block his money," said R.K. Gupta, managing director of Taurus Asset Management.
Listing norm for FMPs was the main reason behind their rapidly falling popularity, he said.
The sweeping regulatory changes since December have come in wake of a liquidity crisis in September-October.
Large corporates had pulled out more than 900 billion rupees from fixed income funds, forcing the central bank to offer money through a special money market operation to ease liquidity woes.
Indian fund houses have launched about 30 FMPs this year, compared with nearly 100 in December quarter, data from fund tracker ICRA Online showed.
March, which typically sees a flurry of FMP launches as investors rush to invest into them to take advantage of favourable tax benefits, saw only 21 launches, compared with over 90 in the same period last year.
Interest into these funds will go down, analysts said, adding the assets managed by them will only drop as fund houses make their large clients shift money to better margin products such as money market and ultra short-term funds.
FMPs managed more than 500 billion rupees in April and ICRA Online estimates funds managing about 115 billion rupees are set to mature by August-end and about 245 billion rupees by the end of 2009.
"Ultra-short term and short-term bond funds would attract these inflows as these products have investment horizons between 3-months to 1-year and can offer higher returns," said Chintamani Dagade, a senior research analyst with Morningstar India.
Money market funds saw a record 518.52 billion rupees inflow in April, while income funds that include ultra short-term funds, attracted more than a trillion rupees as banks, flushed with liquidity, parked surplus cash in mutual funds.
Gupta of Taurus Asset Management said some money could also make way into equity funds as investors chase the Indian stock market that has surged more than three quarters from 2009 lows hit in early March.

Source: http://in.reuters.com/article/businessNews/idINIndia-39964620090529?pageNumber=2&virtualBrandChannel=0&sp=true

FIIs pump in Rs 3,500 cr through 62 bulk deals in April, May

With FIIs getting back the voracious appetite for Indian stocks, they have put in over Rs 3,500 crore through just 62 bulk deals on the Bombay Stock Exchange in the first two months of the current financial year.

According to an analysis of bulk deals on the exchange in April and May this year, Foreign Institutional investors' (FII) transacted as many as 62 bulk deals buying shares worth Rs 3,516.61 crore, with the biggest deal being the sale of over five per cent stake in DLF for Rs 2,106 crore.
Three foreign institutional investors — Deutsche Securities Mauritius, Euro Pacific Growth Fund and Copthall Mauritius Investment — invested as much as Rs 2,106.1 crore in DLF for buying 9.15 crore shares representing 5.39 per cent stake in the realty firm last month.
A bulk deal refers to a transaction which involves buying or selling of more than 0.5 per cent of the number of equity shares of any listed company.
Other key bulk deals in the period include those of private sector lender HDFC and commercial vehicle maker Eicher Motors.
FIIs have turned positive from the starting of the current fiscal year, pouring in Rs 6,500 crore in April and Rs 20,117 crore ($4.1 billion) in the month of May, making the total of $4.2 billion (around Rs 20,473 crore) to date.
Other FII's which invested in the stocks include Goldman Sachs Investment Mauritius, Sansar Capital Mauritius and Deutsche Securities Mauritius.
The stocks which saw buying from the FIIs are Eicher Motors, Vijay Mallya-led United Breweries, HDFC, Aban Offshore, Adlabs Films, Merk, HDFC Bank.
Meanwhile, according to a recent research report, domestic mutual funds are shying away from bulk deals involving large chunks of shares while investing in equity markets as they prefer to retain the confidentiality of transactions.
According to data compiled by SMC Capitals, during the period from 2006 to April 2009, the volume traded on the bulk deal counter of the stock exchanges stood at Rs 5,00,500 crore, but the mutual funds accounted for just three per cent of the total transactions.

Source: http://www.business-standard.com/india/news/fiis-pump-in-rs-3500-cr-through-62-bulk-deals-in-april-may/63401/on

MFs seek removal of single-stock cap

Some large domestic mutual funds (MFs) are asking market regulator Sebi to revise a rule that prevents them from investing more than a tenth of an equity scheme’s assets in a single stock or equity-related instrument.
The main trigger for the request is that the rule is constraining or will constrain these schemes from increasing their investments in shares of Reliance Industries, usually at the vanguard of a bull rally.
Reliance’s weightage in the benchmark S&P Nifty index of the National Stock Exchange has been on the rise, increasing by over 2% since the beginning of the year.
“It is Reliance that usually leads a bull rally, and if we are constrained, it will obviously affect the performance of our diversified equity schemes,” said a fund manager who is aware of the request to Sebi, made informally at a meeting with officials of MF industry.

The 10% limit does not apply to index funds or sector funds that invest only in companies operating in a particular segment of the economy.
Fund managers said the inability to increase their exposure to Reliance, given the company’s strength on the Nifty and its bellwether status among foreign investors in India, will result in returns from these schemes lagging the benchmark index.
They observed that the weightage of Reliance in the index has been at ‘manageable levels’ of less than 11% in the past five years. But its superior performance relative to the Nifty during the recent bull rally has increased its weightage in the index. Since March 10, Reliance shares nearly doubled in value even as the Nifty rose by a little over 70%.
So far this year, fund managers said several diversified equity schemes have lagged the Nifty by 1-2% because of the rise in Reliance’s weightage.
Several foreign funds have also been hit by the increased weightage, as most investors insist on limiting exposure to a single stock. Some of these funds have set a ceiling on their investments in a single stock to minimise risks, even at the expense of underperforming.
Fund managers said that further growth by Reliance, including its subsidiaries, could result in its weightage in the index rising further. The possibility of its subsidiaries, especially retail, getting listed is expected to be a major catalyst for the stock.
“As of now, the problem is limited to Reliance. But there are a few other stocks that have the potential for a higher index weightage. So, the solution is relaxation of exposure limits on stocks,” said the chief investment officer of a private mutual fund.

Source: http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/MFs-seek-removal-of-single-stock-cap/articleshow/4601730.cms