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