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

MFs told not to club new schemes with ongoing open-ended plans

The Securities and Exchange Board of India (Sebi) on Tuesday said fund houses will have to launch additional plans as separate schemes for any ongoing open-ended scheme, other than dividend and growth plans, which differ from the main scheme in terms of portfolio or maturity.

“Some of the mutual funds have launched additional plans of different maturity periods as a part of existing schemes. The mutual fund advisory committee recommended that the additional plans being launched under the existing schemes, which have substantially different characteristics from the main scheme, shall not be launched as part of an ongoing open-ended scheme, and should be launched as separate schemes,” said the Sebi circular.

The new guidelines will be applicable to all the additional plans that have been launched in the past and the plans/schemes to be launched in the future as a part of existing schemes, unless the fund house obtains a confirmation from the regulator that the additional plans do not have substantially different characteristics from the existing schemes.

Besides, mutual funds will be liable to pay interest to investors at 15% per annum in the event of failure to despatch the redemption or repurchase proceeds.

“You are advised to ensure that the interest for the period of delay in despatch of repurchase/redemption warrants is added to the proceeds when such payments are made to the investors,” said the regulator.

In a bid to improve the standard of disclosures in advertisements through hoardings/ posters, Sebi said these statements should be displayed in black letters of at least 8 inches height or covering 10% of the display area on white background. Likewise, in ads through audio-visual media the statement will have to be displayed for at least 2 seconds. The regulator has also been receiving proposals from mutual funds for merger of schemes.

“Such consolidations shall be viewed as changes in fundamental attributes of the related schemes and the mutual funds shall comply with the requirements laid in the Sebi regulations,” said Sebi.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/MFs-told-not-to-club-new-schemes-with-ongoing-open-ended-plans/articleshow/5341797.cms

Quantum MF sees Sensex at close to 22,000 by June 2010

There have variations in Assets under management (AUM) collections by mutual funds in the past three months. There has been some impact on collections since direct sales agents were not given compensation. The Sebi has recently also allowed trading of mutual funds through the exchanges.

In an interview with CNBC-TV18, IV Subramanium, Director, Quantum Mutual Fund spoke about his reading of the markets, fund flows and his outlook on the market and sectors.

Q: What has been the experience in terms of AUM collections by mutual funds in the past three months? They have had to face some kind of vicissitude, first the DSAs were not given compensation and that brought its impact. Now trading through the NSE has been allowed. Basically how have been the fund collection trends?
A: Immediately after August when the new regulations were announced, there was a lot of hue and cry and there was some uncertainty on how the mutual funds would be distributed. You did find flows into the mutual funds declining because the touchpoints were not as effective as they were a year back.
But having said that for the last few months we have also seen things stabilizing and the flows have certainly improved. Going forward with new channels like the NSE and the BSE terminals, I think the touchpoints would definitely be far higher than we had in the past. That should really auger well for the mutual fund flows.

Q: We have seen mutual funds sell pretty aggressively above that 5,000 mark. Insurance companies have been buying, FII figures have been positive. If we see the last two weeks, the week ended December 4, MF’s were net sellers of Rs 430 crore and the week ended December 11 about Rs 1,100 crore. Is it pretty much skittish retail bringing about some redemption pressure or is there just lack of value above these 5,000 levels because this has just been a zone that we have been in for the past three months?
A: That depends on the strategy which each mutual fund follows. By and large if you look at people who follow value philosophy and as long as they find value in the market they will remain invested.
So having said that there are certain segments or certain pockets within the market like consumer discretionary and some of the media stocks or some of the IT stocks, they certainly look a bit expensive compared to their historical valuations. There could be some mutual funds out there wanting to cash out on those and wait for the broader markets to correct.
But it is very difficult to say as what exactly is driving this because each mutual fund follows its own strategies and there could also have been some redemption pressure not only from retail but I think it could also have been from some of the larger institutional players in the market. And that could have also resulted in cash levels going up in mutual funds.
Coming to Quantum, we have raised some cash and that is purely a function of valuations. We are still comfortable with the stocks which we hold in the portfolio but those which we sold were purely from a valuation point of view. And if the valuations look attractive going forward we will definitely redeploy the money back into the markets.

Q: We have a couple of interesting turning points on the horizon there will be the inevitable profit taking towards December 31 and then we get into an earnings season and the pre budget euphoria atleast normally. What kind of sectors would you put your money on, would it be a midcap index that you will back, or would you go with the heavies and would you basically be bullish?
A: I am extremely bullish even now. Somewhere in the middle of next year we can at least justify in terms of numbers that the market could reach levels of 21,000-22,000. So we don’t have a problem with the direction of the market.
But having said that, it depends on where you invest your money. So at this point I am less bullish on consumer discretionary particularly some of the automobile stocks. They have increased quite significantly over the past year and a half and so valuations look to be a bit expensive. I am still not comfortable with the real estate space and cement space.
Barring these three spaces I think most of the other areas we still find a lot of stocks which are attractively priced even at this point. Even if you look at their long term earnings potential they definitely look attractive to me.
So I am still bullish on the power stocks, we have investments in engineering and banks. We are extremely positive on the IT sector as well. So these are areas where we have invested. But we don’t take a call on the macro where the budget would be announced or when or what kind of a budget. We really look at company specific trigger points. As long as we find value in any company we go ahead and invest.

Source: http://www.moneycontrol.com/news/mf-interview/quantum-mf-sees-sensex-at-close-to-22000-by-june-2010_430724.html