10 investment resolutions for 2010

Every year starts with a handful of New Year resolutions – losing weight, giving up a bad habit, spending more time with family, or anything personal or professional. When we can make so many commitments to different parts of our lives – why forget our money? Let us welcome 2010 with ten simple investment resolutions we can all strive to make:

1. I will truly invest for the long-term
Everybody claims to be a long-term investor, but nobody really is. Most investors are relentlessly checking their portfolio every day, often more than professional money managers, and they lose sight of the long term. Checking your portfolio every day leads to overtrading, which only makes your broker and the tax department richer. Don’t forget that when you invest in a stock, you invest in a business – businesses don’t change materially every day.

2. I will not trade on tips
We love investment tips, from our brokers, bankers, family, and cocktail party acquaintances, particularly when they come for free. We are also happy to trade on those tips, forgetting that most of them are not grounded in any kind of reality. Anybody with an opinion who has watched a little bit of TV will give you a tip – that does not mean it makes sense and that certainly doesn’t mean you put hard earned money behind it.

3. I will be disciplined and not emotional about investments
It’s very easy to see an article about the 10% rise in a mid-cap stock and go out and buy it, forgetting that news is meant to get you excited. If there is one place where discipline and not emotion pays off, it is your money. Make a plan when you build a portfolio – why are you building a portfolio, when do you intend to sell it to use the money, when would you increase it?

4. I will do due diligence on my fund manager
It is very easy to invest with a fund manager and then blame him when something goes wrong. Do the due diligence before investing. Just because you are investing in a known fund house doesn’t not mean the fund manager is competent. Find out about the fund manager’s track record and ask the manager about their practices – accounting, reporting, redeeming funds, talking to clients – to see if you can really rely on them.

5. I will have reasonable expectations with my money
Investing in the stock market will not double your money in a year – you should stop working if it did. Have reasonable expectations from your money and money manager. A manager who can beat the market by 5% every year net of all fees has done very well by global standards and a manager who claims they can beat it by 30% a year is lying. Any equity investment will lose some money in a 2008 like crisis – no manager can perfectly call a crisis and neither can you.

6. I will try something new with my money
Are you tired of saying every money manager sounds the same and that there is nothing new in the market? Think again – the market is full of young boutique managers with interesting ideas and new approaches to investing. All you have to do is seek them out and give them a listen. Suspend your existing beliefs and learn new approaches to investing, and try them out, at least in a small dose. If nothing, it adds valuable diversification to your portfolio.

7. I will invest based on my needs
No two investors are the same and every investor has different needs based on their income, life stage and responsibilities. Investing isn’t about gambling or playing the market for fun, it is about building long term wealth to meet your future needs. Understand what your needs are and then invest appropriately in different asset classes and instruments.

8. I will think about risk
Most investors conveniently ignore the more important side in the risk-return equation of finance – the risk side. Risk exists and is different by stock, sector, and asset class, and every investor should have a basic understanding of risk. Don’t evaluate the return on any investment independent of the risk of that investment. Get mathematical with risk – you always want to know the return numbers on an investment, ask for the risk ones too.

9. I will not follow the herd
Who doesn’t love following the herd, whether it is movies, music or money? If everyone is subscribing to the Reliance Power IPO, there must be something great about it, right? Wrong. What everyone is investing in or not investing in doesn’t have to be right – in fact, investing by nature is about discovering opportunities that others haven’t. Next time, when you make an investment decision, don’t look to the world for validation.

10. I will invest, today
If you do one thing in 2010, don’t try to time when you invest. There is always a great excuse not to invest – market has run up too much, I am busy with other things, I don’t understand the market, afraid of a correction, can’t afford it. All the stars in the investing world never align and no time is a perfect time to invest – that is why markets work. If you are truly investing for the long term (Resolution 1), there is no difference between today and two weeks later.

Keeping even of a few of these simple resolutions will make us smarter, safer, and if nothing else, saner investors. This decade, let’s remember the lessons of the financial crisis, let’s be cautious yet creative with our money, and most importantly, let’s take our money seriously.

Source: http://www.moneycontrol.com/news/mf-experts/10-investment-resolutions-for-2010_432912.html

‘Secondary market for mutual funds needs to be developed’

Heavy inflows from the equity funds and structural changes have impacted the mutual fund industry in the interim. This has, therefore, prompted players to think differently and innovate. Ashu Suyash, MD & country head, Fidelity International, spoke with Akash Joshi of The Financial Express about the impact on the industry and how they are coping up with the situation. Excerpts.

We have seen several changes in the industry, the commission structures being changed and now the low inflows into the equity funds. How do you see this shaping up?
The mutual fund industry has been wholesale distribution and now we see that there is a huge disinterest in the distribution community. In other markets, other than India, there are distribution norms that are being re-worked and the regulators are saying that they would give two or three years for the industry to realign. Here, we went ahead and implemented these norms.

So now given this, we are looking at seeing to it that communication and service do not suffer and we have invested heavily on our service infrastructure and building communication. When distribution is disinterested then the end-customers are not going to receive as much service. Clearly as a result of this move, in the interim, the end-customers are still coming to grips with this move. And this is one big reason for not seeing as inflows coming into the industry as they should have.

If one looks at it 2009, it was one of the best years for the stock market. And in this year we saw, on a net basis, only Rs 1,000 crore coming in which is very small considering the size on potential of the market.

And at the same time we have had several discussions over tax codes and say that we have dealt with this. However, the uncertainty element is out there. One does not know what the paradigm would down the line. And the third thing is that when change happens and it is common across investment products then it's fine. Here, every thing about mutual funds has got implemented but other instruments, whether it is unit linked plans or structured products, it's the old order that continues. When I look at it from a customer perspective, then they only get to see change in mutual funds. Why can't we have common standards and I am thinking that when the underlying, the market linked instruments, are the same, then the same customers have different experiences. So given this, we have stepped up our investment education programmes.

How is your new product development coming up?
We have not done new schemes for almost two years and we believe when things realign, it will be better for the long-term. So we have looked at bringing in products that are differentiated in the market place. And its not a case of these products will over take the existing ones.

What is the theme that you are looking at?
If one looks at the market and not just India but globally, last year was a come back for equities and we still believe that there is still lot left here. Our view on fixed income is rather cautious and there would be a time when action would be taken on the interest rates, it's difficult to tell when. And then there is a recovery that sets in, it's difficult to say, especially, countries other than China and India. Then again there is the inflation factor that has caught up and the government will have to walk a tight rope between managing the inflation and growth. And obviously, in this, the commodities will do well. When recovery picks up, the commodity prices will rise. So, we are looking at gaining from the rise at the materials and the commodities sector. Therefore, we looked at a pilot project for the global real assets segment and the London office seeded it.

If you wanted to look at taking an exposure to the commodity segment, as a retail investor you have very limited means to take an exposure. Say you want to get an exposure to gold, it has a problem with liquidity and the ETFs don't track the commodity prices that well. And then you look at investing in securities, say a mining company, India has only one. Moreover, say what happens when gold starts underperforming. Most of the investors cannot take these calls. So we have built our thought over this.

How would you look at real assets, especially the real estate sector and other commodities?
Property would be a segment and the route to that would be through the securities and not real properties. And we will be looking at global assets so we would look at what gets the investors the best buck - say it's a DLF or its some company in China. The best plays in real assets are not in India and China. Say you want to have a play in oil, then ONGC would be the choice. But its results are decided, to a great extent, by government policies. But if you were to buy an Exxon Mobil, then you have a better chance to riding the oil price play. And if you tracked oil prices and Exxon Mobil, our researchers saw that the price of Exxon did not rise as much when the oil price rose, but actually later. We saw that it had $40 billion in cash and therefore it was safer than some of the banks at the end of the crisis. If you locked at yourself to India, you might not get diversification nor would you get a play on the global movements. Now, even look at agricultural plays. Where do we, in India, have an exposure to this play? Those are the stocks that are listed outside of India. We also believe that there is a huge opportunity in platinum as the gold prices have overshot. And again, where do we have an exposure to companies that would gain from this. Then there are developments in the steel sector and the cement sector and there is far more action happening in China, so why have an exposure to India only.

There has been a move to list all close-ended funds. What is your take on this one?
The move to allow brokers to trade in mutual funds is definitely a welcome move. Moreover, you need to offer an exit for investors as closed ended funds should remain closed ended. Then the secondary market is the best route and this is being followed globally as well. However, in India we don't have a vibrant secondary market even for bonds, so having one for mutual funds would also be a challenge. Yes, market makers would work, but we have a long way to go on developing the secondary markets. The secondary markets for equities, however has come a long way and is of global standards.

Source: http://www.financialexpress.com/news/secondary-market-for-mutual-funds-needs-to-be-developed/572707/0

Investments in Mutual Funds after CRR hike

RBI has stepped in to rein in spiraling headline inflation and in this direction it has raised the Cash Reserve Ratio (CRR) by 75bps. This will happen in two stages. CRR is the amount of funds that banks have to keep with RBI.

This step by RBI did not come as a surprise to the market as it was already expecting a hike in CRR. Chaitanya Pandey, Fund Manager, ICICI Prudential AMC said, “the rate hike was very much expected by the debt market, participants had already discounted for it in their investment decision.”

But, the important question is what today’s announcement means for debt/income fund investors.

Impact on the Markets

While today’s policy announcement was more or less expected, fund managers are now awaiting cues from the forthcoming union budget. “On debt market side the CRR increase is not going to have much of an impact. Any major reaction can be seen once any fiscal steps are taken. Next month’s budget will give a clear direction for the debt market as Government will announce its borrowing programme for next financial year” said Chaitanya Pandey. Market participants believe that if government borrowing equals or exceeds the FY 09-10 borrowing amount of Rs 4.51 trillion, we may see a major reaction in the market.

Investment in Debt oriented Mutual Funds

It is clear that today’s hike in CRR will not impact bond market much, so debt funds too will not be affected much. Presented below is the investment strategy an investor can follow while investing in different kinds of debt/income based funds:

Liquid Funds: As per Chaitanya an investor with less than 6 months investment horizon may look at investing in liquid funds which may generate steady returns going forward and the returns could also possibly improve.

Income and Gilt Funds: On long term funds, he said that an investor needs to stay put for more than 1 year. But when asked whether it is the right time to enter in he said “long term yields are more dependent on the government borrowing programme to be announced in the budget, so only post budget it will be appropriate to take a call whether to enter in or not”.

With spiraling inflation, possibilities of rate hike in next credit policy and possibilities of fiscal measures by Government and uncertainties over borrowing programme of Government for next financial year may keep the long term rates volatile in short term.

Short Term Debt Funds: On short term funds – funds that invest with an average maturity of one to two years - he said that “in March we may see a gradual increase in short term interest rates, so better to stay away from these funds.” Any increase in interest rates causes a fall in the market prices of debt paper and consequently the NAV of a fund.

Fixed Maturity Plans: With so much uncertainty, an investor may feel safe if he invests in fixed maturity plans and holds it till maturity. FMPs may act as the best bet to tide over short term uncertainties. Typically, FMPs hold their investments till the end of the scheme tenure, thereby cutting interest rate risk in the intervening period.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/Investments-in-Mutual-Funds-after-CRR-hike/articleshow/5514017.cms

Momentum – The trend is not always your friend

Have you ever thought why most stock tips you receive are about buying a stock that has done well recently, a recent winner? Are your brokers and friends great stock pickers who pick stocks that do well, or is it just momentum – picking stocks AFTER they have done well – at work? With no offense to anybody’s skills, it’s probably the latter.

Momentum is India’s favourite market strategy. Most stock picks and market recommendations, whether they come from a broker’s desk or a cocktail party, when looked at in any detail, point to momentum. What does that mean? Quite simply, it means betting on things that have done well recently – whether it is an individual stock, a particular sector or the market as a whole. A classic recent example – everyone wants to buy steel stocks because they have done well, everyone wants to sell telecom stocks because they have done badly. Buy winners, sell losers, it’s as simple as that.

Indians are not the only ones who understand or love momentum, and there is no magic behind it. Momentum is a time-tested globally known investment strategy with its roots in behavioural finance. When good news comes out, people under react because they are not sure, and the stock price doesn’t rise enough. The stock has room to go, and as more good news comes out, people overreact, driving the stock price up further. Similarly, on the downside, as bad news comes out, people over react to bad news, and in despair run for an exit, leading to a further correction. The tendency to overreact to bad news and under react to good news is timeless and inherent in human nature, and as long as it works, momentum trading will continue to work.

In fact, momentum has historically been even more powerful in India, than other global markets, and is one of the best performing strategies over the last 15 years. The most basic indicators have made for very favourable trading strategies. What makes it even more popular is that momentum is one of the easiest things to do – it takes very little to get the past prices of stocks and figure out which ones are doing well. You don’t need to know anything about the stock or the business to trade momentum – you could be following the price of bananas for all it matters.

Moreover, for a broker or an individual, momentum is a professional and socially safe strategy. You’re always following the trend, always selling what is doing well, and that’s a pretty easy sale to make. You always sound right, and who doesn’t like that? Compare this to value investing – after all the work involved in understanding a company’s inherent value and financials, you are the one rooting for an undervalued firm whose stock price has been beaten down. Even tougher, you’re running down a company that has done well because it is overvalued, even though everyone else loves it. It’s a pretty unpopular place to be in and a tough sale to make to a client.

Unfortunately, for all its ease and apparent money making abilities, momentum can revert pretty quickly, and when it does, it gets ugly. No trend sustains itself forever, definitely not in the short to medium term, and when a trend reverts, it is painful being a momentum trader. Think of 2007. For the three year bull run, markets were doing well, and every trader was bullish – momentum did well and every investor felt they had discovered a gold mine…until 2008 struck. The upward trend reverted, the market crashed and momentum crashed with it, and quickly. Momentum traders saw gains made over three years quickly erode as markets took a turn.

My favourite story about the dangers of playing momentum is Religare AGILE, a mutual fund that claimed to be a quant fund, but is actually just playing momentum. AGILE launched when the tide just turned and momentum was having its worse run. In a year when the markets were down 60%, AGILE bled much more. A period of downward momentum followed and AGILE did fine, but come May 2009, the downward trend reverted. The markets rallied nearly 90%, momentum strategies suffered, and AGILE returned less than 50%. AGILE’s poor performance, incidentally, has nothing to do with being a quant fund – many quants have done well over this period – it is simply playing momentum.

Cut to the last quarter of 2009 – another great period for momentum as the markets have had an upward trend, and to no surprise, AGILE has done superbly, as have other funds that have played the same trick. What will happen to them when the trend reverts, however, is the question?

Should you not play momentum or invest in a momentum fund? In general, yes, investing in a concentrated strategy is a bad idea – investments should be diversified across investment styles. If you do have to play momentum, do it in a conservative way with moderate risk. Most of all don’t be fooled by a manager’s great returns over a period – he may just be playing momentum. Check out his returns when the trend reverts.

Be careful when playing momentum – following the trend may appear to be your friend, but can quickly turn into a foe you had never bargained for.

Source: http://www.moneycontrol.com/news/mf-experts/momentum-%96-the-trend-is-not-always-your-friend_438780.html

LIC Index Fund - Sensex Advantage Plan declares dividend

LIC Mutual Fund has declared a dividend of 17.5% (Rs 1.75 per unit on a face value of Rs 10), under the dividend plan of LIC MF Index Fund - Sensex Advantage Plan. The record date for the dividend is January 29, 2010.

All investors registered under the dividend option of LIC MF Index Fund - Sensex Advantage Plan as on record date January 29, 2010 will receive this dividend. The NAV under the dividend plan of the scheme as on January 18, 2009 is Rs 10.373. (Check out - Recent MF Dividends)

LIC MF Index Fund - Sensex Advantage Plan is an open ended index linked equity scheme. The objective of the scheme seeks to provide capital growth by investing in index stocks and growth stocks.

Source: http://www.moneycontrol.com/news/mf-news/lic-index-fund-sensex-advantage-plan-declaresdividend_438779.html

Religare's Gold ETF NFO

The launch of Religare Mutual Fund’s Gold exchange Traded Fund (ETF) has expanded the segment’s universe. Till now, there were six gold ETFs - the oldest being Gold Benchmark ETF, which was launched way back in February 2007.

The Religare Gold ETF fund will invest up to 100 per cent in physical gold in the domestic markets while it would also invest up to 10 per cent in debt or money market instruments.

The performance of the scheme would be benchmarked against the price of gold.

For investors, Saurabh Nanavati, Chief Executive Officer, Religare Mutual Fund, lays out the reasoning behind the launch of the ETF: “Investors keep asking whether this is the right time to invest in gold. From my perspective, gold is a necessary allocation for everybody’s portfolio to the tune of 5-10 per cent. Gold is a hedge against inflation and a falling US dollar. Emerging markets like India are facing inflationary issues due to ample liquidity created by global central banks. As regards the US dollar, over a longer period with India and China GDP growth being in excess of 6 per cent plus and US growth not expected to cross 2 per cent in the near future, the dollar is bound to depreciate fairly sharply over the next five years against emerging market currencies. Gold will therefore, act as an insurance to retail investor portfolios”.

The fund would be managed by commerce graduate and an MBA in finance, Gautam Kaul. He has more than eight years of experience in fixed income markets. Prior to joining Religare AMC, he was working in Sahara India AMC (2005- 2006) and Mata Securities (India).

The New Fund Offer (NFO) opens on January 28, 2010 while it closes on February 23, 2010.

The minimum application amount during NFO period for retail investors is Rs 5,000, while for large investors, it is Rs 15 lakh per application.

There is no exit load.

Other Gold ETFs in the market:

1. Gold Benchmark ETF

2. Kotak Gold ETF

3. Quantum Gold

4. Reliance Gold ETF

5. SBI Gold ETS

6. UTI Gold ETF.

Source: http://new.valueresearchonline.com/story/h2_storyView.asp?str=101209

Edelweiss Capital buys Anagram for Rs164 cr

The acquisition trebles Edelweiss’ network to about 200 offices from 65 now, for the distribution of its insurance and mutual fund products

India’s third largest brokerage by market value, Edelweiss Capital Ltd, has agreed to buy retail broker Anagram Capital Ltd for Rs164 crore in cash.

“The deal will bring us a retail distribution network that can be scaled up...and a seasoned management team,” Rashesh Shah, chairman and chief executive officer of Edelweiss, said over phone after signing the deal.

Ahmedabad-based Anagram has 137 branches and 180,000 customers. It had a net worth of Rs65 crore and Rs100 in revenue in the nine months to 31 December.

The acquisition trebles Edelweiss’ network to about 200 offices from 65 now, for the distribution of its insurance and mutual fund products.

Shah said Edelweiss could have built the network in 18-24 months at a lesser cost, but would have lost valuable time.

Established in 1994 by the Lalbhai group, Anagram and its subsidiaries offer a range of broking services to retail clients across equities, equity derivatives and commodities.

Edelweiss plans to operate Anagram as a 100% subsidiary, “building on the current business and people with investments in research, products, training and technology”, Shah said.

Mint had reported earlier in January that Edelweiss was close to signing the deal with Anagram, a firm controlled by Sanjay Lalbhai, chairman and managing director of textile firm Arvind Ltd.

“This transaction is a win-win for Anagram clients and employees,” said Mayank Shah, chief executive officer of Anagram Capital.

Edelweiss had signed a joint venture agreement in November with Japanese insurer Tokio Marine Holdings Inc. to enter the Indian life insurance space. It also runs an asset management company and has businesses in institutional equities, equity financing and investment banking. It has for long wanted to build a retail broking network.

Shah said there could be more consolidation among brokerages and 50-60% of the existing businesses would be controlled by 15-20 firms. In 2008, Birla Global Finance Co. Ltd had picked up a 56% stake in Apollo Sindhoori Securities Ltd, valuing the firm at around Rs350 crore.

Shares of Edelweiss fell 2.63% on Wednesday to close at Rs438 on the Bombay Stock Exchange, in line with the benchmark Sensex index, which ended with losses of around 3% at 16,289.82 points.

Source: http://www.livemint.com/2010/01/27232914/Edelweiss-Capital-buys-Anagram.html

Expanding MF reach

The Securities Exchange Board of India (SEBI), in a circular issued on 13th November 2009, has mandated that the stock exchange terminals offer the facility to buy and sell schemes of mutual funds. SEBI states, “Units of mutual fund schemes may be permitted to be transacted through registered stock brokers of recognised stock exchanges and such stock brokers will be eligible to be considered as official points of acceptance.”

There are about 200,000 stock exchange terminals across 1,500 towns and cities. The move is expected to extend mutual funds to investors beyond the major metros and cities in India. Thus, the market regulator has opened up another channel for retail investors to buy or sell mutual funds using the existing stock exchange infrastructure.

However, this trade facility should not be confused with the Exchange Traded Funds (ETFs). Basically, ETFs are open-ended index funds listed on stock exchanges and were introduced in US in 1993. The assets under management of the global ETF industry stands at $711 billion at end of 2008 with a share of $1.28 billion from India (source Global ETF Research).

ETFs and mutual funds

•ETFs allow exposure to different indices which reflect specific stocks, sectors, countries, fixed income or commodities. Mutual funds schemes have a specific investment objective based on which allocation to a particular asset or security is made. In fact, ETFs do not sell individual shares directly to investors and only issue their shares in large blocks (blocks of 50,000 shares, for example) that are known as “Creation Units.” (Source: Securities Exchange Commission).

•The portfolio composition of ETFs will be available to investors on a daily basis unlike mutual funds where you get to see a monthly factsheet.

•ETFs are traded on a real time basis which means that the prices change throughout the day as determined by the market forces while mutual funds have a Net Asset Value (NAV) at the end of each business day. The SEBI circular does not mention whether the NAV of mutual funds will fluctuate or be traded similar to ETFs. Presently, the units are allotted to investors based on previous day’s NAV or same day’s NAV in case the transaction is accepted before a particular cut-off time.

•ETFs can be purchased on margin and are lendable. Thus, ETFs are for a more sophisticated investor whereas mutual funds are an investment product for a retail investor.

•ETFs do not have sales load unlike the exit load in mutual funds. The expenses for ETFs are annual varying from 0.05 per cent and 1.60 per cent. Since August 2009 SEBI has abolished entry load for mutual funds. Also, there have been reports of SEBI’s advisory committee proposing to lower the fund management charges with increase in assets under management.

•Investors can sell their ETF shares in the secondary market, or sell the Creation Units back to the ETF. The purchase, sale or redemption of units in mutual funds always takes place between the investor and the Asset Management Company.

•ETFs work for institutional investors as an alternative to futures by establishing a short or a long position in the market. During bear markets, the most profitable investment strategy would be to short the market. However, retail investors of mutual funds would find it hard to benefit from bear markets – most of the retail equity funds provide long only exposure, meaning that investors of such funds benefit only when equity markets rise. Conversely, they will suffer losses when the equity markets plunge. Some of the equity funds with absolute return mandates or with mandates that allow for both long and short positions would be able to preserve the funds’ value slightly better than long only equity funds.
Exotic ETFs
In recent times, we also have ETFs that track fundamentals instead of market capitalisation. WisdomTree Investments, Inc. developed the first family of fundamentally-weighted indexes and ETFs. In contrast to capitalisation-weighted indexes, the WisdomTree Indexes anchor the initial weights of individual stocks to a measure of fundamental value.

The company believes its approach provides investors with a viable alternative to market capweighted indexes. To cite an example: the WisdomTree India Earnings Fund which holds assets of $526 million (as at 29 September 09), tracks the WisdomTree India Earnings Index, a fundamentally-weighted index. This index measures the performance of companies incorporated and traded in India that are profitable and that are eligible to be purchased by foreign investors as of the index measurement date. Companies are weighted in the index based on their earnings in the fiscal year prior to the Index measurement date, adjusted for a factor that takes into account shares available to foreign investors. For these purposes, “earnings” are determined using a company’s net income.

There are other exotic products like the iPath S&P500 VIX Short-Term Futures ETN, which is designed to provide exposure to equity market volatility through CBOE Volatility Index futures. Another exotic product, the iPath Global Carbon ETN, provides exposure to the performances of carbon credits.

Conclusion
ETFs and Mutual Funds fall into different segments in terms of investor profile. Mutual funds traded through stock exchange terminals are an additional avenue to transact for the retail investors. Clearly, this move by SEBI does not change the product attributes of mutual funds but in effect provides wider means of distribution.


Source: http://www.business-standard.com/india/storypage.php?autono=383495

New strategy: Mutual funds turn focus on retail investors

The Mutual fund industry is passing through testing times, with assets dwindling owing to withdrawals by banks and investors showing little faith in the long-term prospects of MFs. Fund houses are now going back to the basics: serving individual investors rather than chasing banks and companies for showing impressive figures of assets under management, something that the Securities and Exchange Board of India has been advocating.

Birla Sun Life Mutual Fund CEO A Balasubramanian said investors have to be educated about the need for "proper financial planning for long-term prospects and that they don't have a better vehicle than mutual funds to achieve it".

"We also have to tell them that they should consider equity for long-term goals," he said, adding that getting individual investors to understand this tenet is the only way forward for the MF industry. "Many mutual funds are working hard at it," he said.

A senior fund manager, who didn't want to be named, said: "If the regulator is going to stop banks and companies from investing in MFs in a big way, the only way out is serving individual investors." The MF industry has been facing the heat ever since the market watchdog abolished the entry load from August 1. This has effectively taken the incentive away from agents to sell MF products, fund houses feel.

"The energy is missing. The push factor is not there anymore," laments Balasubramanian. Many fund houses say distributors have started marketing unit-linked insurance plans (Ulips) instead of MF schemes as Ulips offer better commission to agents.

The attitude of retail investors is also not inspiring much confidence among fund managers. Since August, investors have been pulling out money from equity schemes. Equity MFs witnessed an outflow of Rs 2,464 crore in December, higher than the net outflow of Rs 814 crore in November and the reported net outflows for five consecutive months.

Besides, huge withdrawals by banks recently have also forced funds to review their business model. Banks have pulled out more than Rs 1,00,000 crore invested in MFs in a single fortnight of December. "The total assets under management (AUM) have dropped below Rs 8 lakh crore, mainly because banks tend to take money out of MFs during December. It is to be seen how much of it would come back since the RBI's observations about banks parking money in MFs," says Y Jawahar, vice president & head, distribution, Mata Securities.

Many industry watchers feel that the money taken out of MFs won't return to the industry entirely, as the RBI wants banks to start lending to companies rather than opting for an easy way out.

Industry players also believe that the talk of scrapping the tax advantage enjoyed by banks and companies in MF investments would dampen the sentiment. As of now, it seems, 'back to small investors' is the only mantra that can help funds rediscover their lost magic.

Source: http://timesofindia.indiatimes.com/biz/india-business/New-strategy-Mutual-funds-turn-focus-on-retail-investors/articleshow/5502795.cms

Gains from paying for financial advice

The transparency that results when the investor pays for the advice directly would drive a shift towards professionalism in the industry.

There has recently been a lot of heat and noise about the abolition of the entry loads on mutual funds and the consequent pressure on retail investors to pay financial advisors for their services. Certain sections of the industry have been talking about the end of ‘free-advice' for consumers. The point being missed is that there never was any free lunch for consumers — they were always ‘paying'!

Earlier, the advisor was earning a commission from the fund house (out of the investment made by the consumer and referred to as the ‘entry load'), but today, following the ban on the entry load, the customer pays the advisor directly.

While the customer still pays, there are several reasons to say that the change in the mode of rewarding financial advisors is actually a customer friendly measure. And to that extent, this change should get a thumbs-up from all stake-holders, most importantly, the retail investor! When the investor pays for the advice directly, it helps bring about a significant level of transparency. Models of remunerating advisors that are non-transparent always have the potential to end up being costlier than models that are transparent.

Transparency also brings in a significant level of professionalism since it will take a professional to have the confidence and standing to be able to charge a fee for advice. We could thus be looking at a paradigm shift towards professionalism in the industry in line with what has happened in developed countries over the last few years.

Aligning Goals

Since the earlier regime was not transparent, it was always likely that the goals of the advisor and the investor would be at cross purposes. Since the advisor was getting commission irrespective of the service level and the quality of advice, there was seldom any pressure to deliver value. With different fund houses compensating differently there was also the likelihood of bias towards funds or companies that provided the best commission. Today, with the investor paying the fees, it gives them control and a right to expect better service and quality of advice. This aligns the goals of both the advisor and investor; resulting in rewarding advisors who provide better advice and service.

Broadly there are three types of models: Entry Load, Transaction based and AUM Based (AUM – Assets Under Management). Considering the drawbacks of the current entry load model, we believe that a model that charges based on the Funds Managed does align the goals of the customer and the investor in a better way. This will clearly ensure that good advice is rewarded and as the portfolio grows, the compensation of the advisor grows.

A larger return can result in significantly better monetary value for the investor even though this model would result in higher costs when the returns are significantly higher. Some advisors are also keenly looking at the profit sharing model.

Cost of Entry Load

Many distributors are today providing the Entry Load or AUM fee based pricing: One needs to note in the above table that AUM Fee is charged on the total assets where as entry loads are charged only on investments into equity in that year and therefore the above table may not provide an ‘apple to apple' comparison.

Entry loads will also be chargable on the switch made from debt to equity. For an investor who believes that it is a good idea to book profits in equities over a 2-3 year basis; when one eventually moves back to equity, this would result in an entry load again.

Hence, the entry load cost would depend on how much fresh investment and switches (debt to equity) happen in the portfolio in the long term.

Removal of the entry load structure and the requirement that the advisor directly charges fees from the customer is likely to bring about a paradigm shift in the Indian Mutual Fund Industry. It is likely to bring in professionalism into the industry as is evident from markets where this model has become operational. Of course, investors will need a change in mindset; paying for professional services rendered by financial advisors just as they pay for other professional services.

Source: http://www.thehindubusinessline.com/iw/2010/01/24/stories/2010012450911200.htm

Markets in a spin over Obama talk

Stocks, commodities, gold and crude oil tumbled on Friday as investors see the end of a great liquidity cycle coming to an end, as the US moves to rein in proprietary trading by banks, and central banks begin to roll back easy monetary policies to curb inflationary expectations.

Indian shares rebounded from their worst levels, but still ended near a month low. The S&P 500 Index was down 0.5%, the MSCI Emerging Markets Index declined 2.7%, oil, gold and aluminium fell by at least 1%.

“Comments from the US government on restraining banks’ investment activities weighed down sentiment because it is feared that any such move would hurt fund inflow,” said NK Garg, CEO, Sahara Mutual Fund.

The 30-share Sensex fell 1.1%, or 191.46 points, to close at 16,859.6. The 50-share S&P CNX Nifty fell 1.1% to 5,036. In the broader market, losers outnumbered gainers by 2043 to 842 on BSE.

“Banks will no longer be allowed to own, invest in or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit, unrelated to serving their customers,” US President Barack Obama said on Thursday.

Asset classes across the board lost value after Mr Obama unveiled a plan to limit trading by banks such as JPMorgan Chase and Bank of America to reduce the risk to financial system, which was propped up by taxpayers money last year after banks incurred losses of trillions of dollars. These banks’ trading was a major reason for the record performance of emerging markets last year, including India which gained 81%. So, any restriction on them could reduce investments from the West to emerging markets.

Foreign institutions net sold shares worth Rs 2,415.4 crore while their domestic counterparts net bought shares worth Rs 1,954 crore, according to provisional data from NSE.

Furthermore, central banks, at least in emerging markets, are expected to start raising interest from record lows, as accelerating economies threaten high inflation.

While China grew 10.7% in the latest quarter creating a fear of asset price bubbles, food price inflation in India -- above 15% -- is straining household budgets.

Even the Federal Reserve and the European Central Bank, which have the lowest policy rates, may start withdrawing some liquidity measures launched at the peak of the credit crisis, even as they hold on to low rates to avoid derailing a fragile economic recovery.

“The great liquidity cycle that began about a year ago is starting to draw to a close,” said Citigroup’s Asia equity strategist Markus Rosgen. “The Citi global excess liquidity indicator has already begun to roll over and is decelerating... Asia’s not immune,” Mr Rosgen said in a recent report.

Foreign institutions net bought Indian shares worth over $17 billion in 2009. The Reserve Bank of India in its January 29 meeting is expected to act to cool down prices and the finance minister Pranab Mukherjee may rollback tax cuts next month.

Source: http://economictimes.indiatimes.com/markets/stocks/market-news/Markets-in-a-spin-over-Obama-talk/articleshow/5490270.cms

Mkt must brace itself for near-term turbulence: Tata MF

Big boy Reliance posted strong third quarter numbers. The topline came in significantly higher than estimates at Rs 56,856 crore driven by strong volume growth. The big surprise came on the gross refining margin front, which came in at a robust USD 5.9 per barrel. Profits too were better than expected, rising 14.5% YoY.

Q3 earnings announcements from India Inc have largely been satisfactory with the exception of a few disappointments.

In an interview with CNBC-TV18, Ved Prakash Chaturvedi, MD, Tata Mutual Fund, gave a roundup of the earnings announcements so far, and his prognosis on the market in the run up to the budget.

Q: What have you made of the earnings announcements so far?
A: I cannot comment on individual earnings. But generally speaking from large companies particularly in IT and automobiles, and some midcap companies in the infrastructure sector, FMCG companies, by and large the feeling has been that there is strong recovery happening. Companies are more confident about the business that they are going to do. Largely, there has been a flavour of good cheer.

There have been some disappointments as well as it normally happens for example from some large companies in the construction and engineering space etc. The nature of that business is also very lumpy.

On the whole, I would say that the report card is positive. India Inc is looking at positive outlook for the economy and for incremental growth in the future. The earnings growth numbers at least justify that. By and large, a mood of good cheer which has been in the Indian equity markets seems to have been resting on sound foundations.

Q: What about global factors?
A: My feeling for some time is that we have seen a period of very good cheer, a long period of a sustained run, the dollar carry trade. I think there is some turbulence in the offing. We anticipate some tightening in China. We will have the credit policy at home on January 29.

The feeling is that there may be some action on mopping away of liquidity. Similarly in the US, if the dollar carry trade actually unwinds then what happens to the flows that happen globally. I think there is some turbulence ahead.

We should not forget that the good cheer in Indian equity markets has been based on sound foundations, on sound business, sound growth, numbers that companies are giving a very good outlook that business has in this country.

Q: Do you think the markets are likely to stay rangebound or dip even further from now till the budget?
A: I think the upside is capped. But I don’t see a huge downside from here. There could be some downside especially if global indices come down and if there is outflow of money from India. I think earnings numbers are good and there is domestic liquidity that comes in the last quarter especially from the insurance segment. By and large there is a left out feeling among investors and could be an opportunity for entry.

So, I suspect money from different sources will come back into the market. Maybe the dollar carry trade will become the yen carry trade of tomorrow. The positive outlook for Indian equities will gradually resume. Yes, there would be a period of turbulence and we should brace for a period of turbulence in the very near future.

Source: http://www.moneycontrol.com/news/mf-interview/mkt-must-brace-itself-for-near-term-turbulence-tata-mf_437547.html

Brokerage, MF top bosses go places

Brokerage, MF top bosses go places Leading brokerages and mutual fund (MF) houses are busy churning their portfolios, with the markets coming back to life. But they are also seeing churning at the top.

Along with the market, a host of top-level executives at these firms are going places, literally, and have started responding to the call from headhunters like never before. The fallout has been predictable. In the last few months, high profile names such as Keshav Sanghi, Devesh Kumar and Krishnamurthy Vijayan have moved.

Kumar, till recently the managing director of Centrum Stock Broking, is joining Fortune Financial Services, a listed capital market intermediary. He is tipped to be the group CEO and would be responsible for expanding Fortune’s broking and investment banking operations.

Vijayan, who quit JPMorgan Asset Management as its executive chairman, will join IDBI Mutual Fund. When contacted, he declined to comment. Sanghi will join Citi. He was the CEO of Reliance Equity International. He could not be contacted.

Similarly, Ajay Bhatia recently moved from Macquarie to Indiabulls Securities as the president of its capital markets division. Jayesh Parekh, who was the head of sales at Motilal Oswal Securities has joined Abu Dhabi Investment Authority as fund manager. Four senior people have also joined the investment banking team of Emkay Global Financial Services. Fund managers Promodh Gupta and Pankaj Tiberwal have quit Principal Mutual Fund.

Market players said that while people movement has been on for some time now, it is only recently that even the top brass has started moving. They said the upsurge in the market sentiment has been the primary reason that has led to increased business volume for most brokerages.

“This is a good time to step on the gas and we, too, have been doing selective hiring to strengthen our capital market side,” said Abhay Bhalerao, director, Equirus Capital, a boutique investment bank operating in the mid-market segment. Equirus recently expanded its top brass by hiring Abhijeet Biswas as director focusing on industrial, energy, health care and FMCG.

Ruth Singh, who heads human resources at Emkay Global Financial Services, said that the firm was also beefing up its capital market division. “We are expanding our ECM (equity capital market) team and have recently got senior people on board for our investment banking division,” said Singh.

The growth in business volume is also seen from the impressive profit growth registered by some of the listed brokerage entities. India Infoline’s third quarter consolidated net profit has almost doubled to Rs 59.51 crore when compared to the corresponding quarter of the previous financial year. Meanwhile, the benchmark Sensex has nearly doubled in the last one year, moving from 9,000 levels to the current 17,000.


Source: http://www.business-standard.com/india/storypage.php?autono=383337

Bharti AXA MF's Infrastructure NFO

Bharti AXA Investment Managers has announced the launch of the Bharti AXA Focused Infrastructure Fund.

It is an open-ended equity fund that would invest in equity and equity-related securities of companies engaged in infrastructure and infrastructure-related sectors.

The reasoning behind the creation of the new fund, as per the fund house, is the opportunity that has been unveiled. According to the fund house, the CNX Infrastructure index has outperformed the broader CNX Nifty index over a period of 3 years. This trend is likely to continue owing to the increased outlay for infrastructure both from government and public-private partnerships.

“Our internal research has indicated that core Infrastructure stocks amongst the companies forming the BSE 100 index has outperformed the BSE 100 index by 19% CAGR over a period of 3 years. By having a focused portfolio of such sectors, we expect to derive the best for our investors through this fund,” said Prateek Agrawal, Head, Equity, Bharti AXA Investment Managers.

The fund’s performance will be benchmarked against the BSE 100 Index.

“India, amongst all developing countries, has the need to invest most on infrastructure development. The government is cognizant of this fact and has taken significant steps towards meeting infrastructure needs. This provides for a very good opportunity for investor participation and deriving benefit,” said Vikaas M Sachdeva, Country Head – Business Development, Bharti AXA Investment Managers.

The new fund offer (NFO) commences January 20, 2010 and closes on February 15.

The fund offers both growth option for capital appreciation as well as dividend options.

The face value is Rs 10 per unit.

The minimum investment amount is Rs 5,000, while the additional investment amount is Rs 1,000. Investments may be made in multiples of Re 1 subject to minimum investment amount.

One per cent exit load would be applicable if redeemed within one year.

The SIP/STP route is also available to investors.

Note: Bharti AXA Investment Managers is a joint venture between Bharti Ventures Ltd, AXA Investment Managers (AXA IM) and AXA Asia Pacific Holdings (AXA APH, through its wholly owned subsidiary National Mutual International Pty. Limited).

Bharti AXA Mutual Fund has been set up as a Trust (under the Indian Trust Act, 1882) by AXA Investment Managers, sponsor of the fund.

Source: http://new.valueresearchonline.com/story/h2_storyView.asp?str=101192

No bringing back MF entry load: SEBI

The Securities and Exchange Board of India has virtually ruled out a re-think on its move to do away with entry load on Mutual Fund (MF) products.

Delivering his address at the Assocham Mutual Fund Summit on Wednesday, Mr K.N. Vaidyanathan, Executive Director, SEBI, said the distributors of MF units and other such agents should stop complaining and stay focused to enable retail investors have maximum return on their investments and stop thinking in terms of their commission.

This is necessary because with reasonable commission, the distributors and agents will be able to generate volumes of scale to enable them to earn money, which they cannot envisage in the initial phases, he said.

Source: http://www.thehindubusinessline.com/2010/01/22/stories/2010012251251500.htm

DLF to Exit Mutual Fund JV With Prudential Financial

DLF Ltd., India's biggest realty company by sales, will exit a mutual fund joint venture in the country with Prudential Financial Inc. because of a proposed regulatory change, a person with direct knowledge of the matter said Monday.

"The move is prompted by a proposed regulatory change, which makes it mandatory for a company to have five years of experience before selling mutual funds," the person, who didn't wish to be named, told Dow Jones Newswires.

The move is also in line with the New Delhi-based company's strategy to focus on real estate development, the person added.

DLF currently owns 39% in the joint venture--DLF Pramerica Asset Managers Pvt. Ltd.--while Prudential owns the remaining 61%.

"DLF will sell its 39% stake to Prudential," the person said, without disclosing details of the likely valuation of DLF's stake in the venture.

Spokespeople from Prudential weren't immediately available for comment.

The person said also that the time frame for DLF's exit from the joint venture is yet to be decided.

In November 2008, DLF and Prudential had received an approval from the markets regulator, the Securities & Exchange Board of India, to jointly sell mutual funds and said they will jointly invest $45 million in DLF Pramerica.

DLF Pramerica was planning to start selling mutual funds in 2009.

Earlier Monday, The Economic Times newspaper reported that DLF plans to exit the venture to reduce its debt of nearly 120 billion rupees ($2.6 billion).

DLF has been exiting its non-core businesses as part of its strategy to focus more on property development. The company's founders recently sold its multiplex-chain, DT Cinemas, to Indian multiplex operator PVR Ltd. The real estate developer also previously announced plans to sell its wind power business.

Still, DLF has a separate life insurance venture with Prudential, DLF Pramerica Life Insurance Co. Ltd., in which the Indian realty firm owns a majority 74% stake, while the remaining stake is held by the U.S.-based insurance company.

"The life insurance business is continuing and is doing very well for DLF," the person said.

The life insurance business began operations in September 2008 with an equity base of 1.1 billion rupees. In November 2008, DLF had said that the companies will jointly infuse 10 billion rupees of capital over next five to six years in the life insurance venture.

Source: http://online.wsj.com/article/SB10001424052748703569004575010112446094370.html

Things to know before investing in Tax Saving Funds

Equity Linked Saving Schemes (ELSS) or tax saving mutual fund schemes as they are otherwise known as, are a popular tax saving investment. The major reason for this popularity has been the introduction of Section 80C of the Income Tax Act, from April 1, 2005. This section allows the investor to invest up to Rs 1 lakh in various investment products and get a tax deduction for the same. The list of investment products also includes ELSS. Earlier, till March 31, 2005, investment in these tax saving schemes only allowed for a tax deduction of up to Rs 10,000 under Section 88.

However, that being said, there are various things an investor needs to keep in mind before deciding to jump into an ELSS investment.

Section 80 C spoils you for choice: As has been mentioned above, ELSS is not the only investment avenue that comes under Section 80C. Other investments such as Life Insurance, Public Provident Fund (PPF), National Savings Certificates (NSCs), Senior Citizen Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS) etc also offer a similar tax benefit. Then there are mandatory payments such as your PF, tuition fees of children and even housing loan repayments that are covered under Sec. 80C. Let us say an individual contributes Rs 40,000 to the PPF every year and Rs 30,000 is his provident fund deduction. So for him it makes sense to invest only the remaining Rs 30,000 [Rs 1 lakh – (Rs 40,000 + Rs 30,000) = Rs 30,000] for tax deduction under Sec. 80C. This is primarily because if he invests more than Rs 30,000, he will cross the overall level of Rs 1 lakh and the deduction is limited to Rs 1 lakh.

Lock-in of three years: Like all investment avenues under Section 80C, ELSS funds also involve a certain lock in. In this case the lock in is for three years. Hence an ELSS investment cannot be withdrawn for a period of three years from the date of investment. This lock-in is like a double-edged sword. On the one hand, it fosters long-term investment, which is very essential while investing in equity. And on the other, if you find yourself in a situation where you require funds in an emergency, you will have to resort to other means / investments --- the ELSS fund will be closed to you for three years. Withdrawals are just not allowed, not even with a penalty.

Tax saving schemes carry the risk of investing in equity: ELSS funds are promoted as good investments as they enable the fund manager to take long-term calls on account of the enforced three year lock-in. In other words, the fund manager doesn’t have to worry about keeping funds liquid to cater to daily redemptions that can happen in normal open ended schemes. However, it has to be kept in mind that ELSS funds for all practical purposes are similar to normal diversified equity mutual fund schemes. The funds in these schemes are invested in the stock market. Hence the returns these schemes generate depend on the kind of stocks the fund manager invests in and the overall state of the market. So if an investor invests in a tax saving scheme, and three years down the line, when the lock-in ends and the markets are not doing well, his total returns will take a beating. Yes, this has not happened in the past as the Indian market is in a lateral bull phase (barring the occasional hiccups). However, the potential of capital loss is very much there and it has to be considered. So investors need to consider their risk taking ability in terms of age and responsibility before deciding on investing in ELSS.

The bottom line? Whether ELSS or any other investment, do not invest because the investment offers a tax benefit. Ask yourself whether you would have invested in the particular instrument per se --- the tax benefit should be the incidental icing on the cake. This will ensure that all your investments will be as per your risk profile and goal oriented and not only on for the temporary purpose of saving tax.

Source: http://www.moneycontrol.com/news/mf-experts/things-to-know-before-investingtax-saving-funds_436668.html

India Inc may lose tax cover on MF investments

Capital markets regulator Securities and Exchange Board of India (SEBI) wants the government to scrap tax benefits for corporates investing in mutual funds (MFs), a proposal, if accepted by the government, could deal a body blow to local asset management companies and other firms.

The regulator has also proposed to the government that the securities transaction tax, or STT, which is levied on buying or selling of stocks and on derivatives trade, should be cut by one-third and that a uniform stamp duty be levied and collected by a central agency.

These proposals have been forwarded to the finance ministry, in the run-up to the Budget, said a person with the knowledge of the proposal. The letter to the finance ministry says, “Tax benefits to corporates investing in schemes of mutual funds may be withdrawn.”

It is not just the capital markets watchdog that is uncomfortable with MF industry’s unhealthy dependence on short-term funds from corporates.

Though this helps fund houses grow their assets and boost valuations, policymakers are worried about the systemic implications of any swift outflow of such institutional funds that could hobble some of the fund houses. This was evident during the second-half of 2008, when the Reserve Bank of India (RBI) had to keep liquidity support open to help MFs meet their redemption obligations.

RBI has also been unhappy at the way banks have been parking their surplus with MFs, which in turn finds its way back to banks. The central bank has nudged banks to restrict their investments in MFs.

Any move, either to do away with the tax benefits or to tweak the tax rates, could hurt the local MF industry whose growth is linked to the flow of funds from corporates. Over 50% of the money that Indian MFs attract for their debt schemes comes from corporate treasuries and banks. According to latest data, the assets under management of the Indian MF industry are a little under Rs 7-lakh crore.

SEBI’s proposal is aimed at putting an end to the rampant misuse of debt schemes of MFs by corporates, who park short-term corporate treasury funds to enjoy a tax arbitrage. While income from their treasury operations attract the corporate tax rate of 33.99% (including surcharge and education cess), treasury investments in debt funds attract a dividend distribution tax (DDT) of only 22.66%.

“If the tax benefit is removed, it will discourage corporates from using mutual funds as a treasury instrument... as we want to develop mutual funds as a vehicle for retail investors to take exposure in the securities market,” said a SEBI official.

Recently, RBI had told banks to go slow on their MF investments. In the last fortnight of December 2009, banks withdrew more than Rs 1-lakh crore from MFs. RBI deputy governor Shyamala Gopinath too had expressed her concerns about tax arbitrage through mutual fund investments.

“Mutual funds’ fixed-income products enjoy certain tax exemptions not available to banks. But this is outside the regulatory purview. However, if these policies introduce any vulnerability in the financial system, there is a need to address this through appropriate macroprudential and microprudential regulations,” Ms Gopinath said at a Fixed Income and Money Market Dealers Association (FIMMDA) meet.

SEBI has also asked the government to drastically reduce the securities transaction tax (STT) on equity transactions, as it increases the transaction cost. The regulator has recommended that STT should be slashed by one-third, as the rate has effectively tripled with the withdrawal of STT as a rebate under Section 88E in the last Budget.

Besides proposing a uniform stamp duty that will levied and collected by a central agency and shared among states based on an agreed formula, SEBI has recommended a goods and services tax (GST)-type concept for stamp duty collection on securities trades.

Market players say that there are several anomalies in the stamp duty, as it is levied by states with each levying different rates for different securities instruments. There are also disputes among states. Transaction costs in India are one of the highest in the world, with government levies, such as stamp duty and STT, accounting for almost 75% of the cost.

SEBI also wants Indian Depository Receipts(IDRs), instruments through which Indian investors can invest in equity shares of foreign companies, to be treated as securities for tax purposes. It has also recommend to the government that IDRs should not be taxed on transfer.

Source: http://economictimes.indiatimes.com/markets/indices/India-Inc-may-lose-tax-cover-on-MF-investments/articleshow/5461454.cms

Amfi may drop plan to launch MF platform

Association of Mutual Funds in India (Amfi), the industry body of fund houses, today hinted that it may drop the plan to launch its own mutual funds transaction platform, as others have already launched similar facilities.

"We are re-examining the proposal as many parties, including BSE, NSE and Cams and Karvy have launched their platforms. We have to see whether there is a space for one more platform," Amfi Chairman A P Kurian told reporters here.

The NSE was the first to launch its mutual funds transaction platform in association with UTI MF, which was followed by the BSE and others. Initially, Amfi had planned to make its platform operational by March this year.

NSE Managing Director & CEO Ravi Narain today said, the exchange has received a modest response from investors to its mutual funds transaction platform but expects the response to improve in the period ahead.

Asked about the banks parking their money in the financial instruments issued by MF companies, Kurian said banks tend to invest in instruments, which, they feel are profitable.

Reserve Bank is understood to have asked banks to bring down their investments in mutual funds, as the regulator feel that this would affect the bank credit flow to the needy sectors.

Source: http://www.business-standard.com/india/news/amfi-may-drop-plan-to-launch-mf-platform/83535/on

JP Morgan Asset Management announces top-level changes

JP Morgan Asset Management on Tuesday announced the promotion of Christopher Spelman as Chief Executive Officer (CEO) of its India business and the appointment of Nandkumar Surti as Chief Investment Officer (CIO).

The company also announced the resignation of its Executive Chairman, Krishnamurthy Vijayan, who will leave the company shortly to take up a senior position at another company.

In his new role, Spelman will be responsible for asset management business including sales and marketing, product development, operations, staffing and budgetary controls, a press release issued here stated. Spelman has been with JP Morgan for over 12-y ears.

Mr Nandkumar Surti, the erstwhile CIO of Fixed Income at JP Morgan Asset Management, will now be the CIO for the entire India asset management business. Mr Surti joined the firm in 2006 and has been instrumental in building a strong fixed income busines s for JP Morgan Asset Management in the country, release added.


Source: http://www.thehindubusinessline.com/blnus/14191825.htm

India Post to again sell UTI MF schemes

With UTI Mutual once again offering commissions, India Post has started selling the fund house’s schemes. India Post had stopped selling UTI’s schemes after market regulator, Sebi banned entry loads in August last year.

For its efforts, India Post is getting upfront commissions between 0.75-1% on selling their products to the India Post, say UTI officials.

AS Prasad, deputy director general, Financial Services at India Post said, “UTI mutual funds have agreed to our terms and conditions and we have started selling their products. Our main aim is to reach out to the people, who are not investing in mutual funds. Apart from UTI MF, we are also in talks with other fund houses for selling their schemes.”

Before the ban on entry load, India Post was selling schemes of Franklin Templeton, Principal MF, SBI MF, UTI MF and Reliance Mutual Fund through designated post offices across India. According to officials from the India Post, in the last fiscal it earned a commission, exclusively through mutual funds, of over Rs 10 crore.

Jaideep Bhattacharya, chief marketing officer at UTI MF says, “This tie-up will bring in large number of retail investors, who are saving with post offices into the mutual funds net. We will continue to reach out to more investors across various geographies and provide them with various facilities, which will make investing simple and hassle free.”

In December 2009, UTI MF reported over one crore-investor accounts, the first fund in the industry to do so.

India Post started distributing mutual funds in January 2001, first by signing an exclusive tie-up with IDBI-Principal.

Source: http://www.financialexpress.com/news/india-post-to-again-sell-uti-mf-schemes/569302/

Sir John Templeton's 16 investment rules

SIR John Templeton, the founder of Templeton Funds was a multi-faceted personality, a legendary investor, fund manager and an astute philanthropist. He wrote 16 rules of investment success, which can be found here. They are the crux of his investment ideas and philosophy. Let us examine their relevance in the Indian context.

Rule 1: Begin with a prayer
Prayer helps you think clearly and make fewer mistakes. Meditation is known to reduce anxiety and stress, helping in better decision making.

Rule 2: Invest for maximum total real return
It is important to only consider the total real return i.e. the money you make in your investment lifetime after inflation and taxes. Many investors get carried away by short-term movements. They tend to ignore the long-term opportunities.

Rule 3: Remain flexible and open-minded
Flexibility comes from being agile. Open-mindedness is learning from new ideas and perspectives. Many old-timers missed India 's IT sector growth in the early 90s, which gave multi- bagger stocks like Infosys and Wipro. They neglected the infrastructure and banking sectors, whose stocks multiplied within a couple of years. Hence it is important to be flexible and open-minded.

Rule 4: Invest, do not trade or speculate
Almost all successful people in the stock market are investors and not traders. They invest for long-term and are patient. There are many investors who have become millionaires solely on return of one stock in their portfolio over a decade. Sure they bought lot of other stocks which went no-where but the one or two stocks that did well made all the difference. Traders think of the market as a casino where you play daily to win, investors think of markets as a long-term wealth building exercise.

Rule 5: Search for bargains
Just as we buy garments at discount sale, we need to buy and not sell stocks when markets are crashing. In October 2008, many high dividend yielding stocks were sold for meager amount. People who bought them have reaped huge profits.

Rule 6: Don't buy market trends or economic theories
Remember the India story told when the sensex was at 21,000 and markets dipped to 7,500 within a year. The boom gave way to gloom, economists and market experts were expecting a correction not a crash. Thus, you should not rely on economic theories and market trends while investing as they are told only after the event has occurred.

Rule 7: Diversify across assets and across markets, there is safety in numbers
Last year, when stocks dipped, gold and bond mutual funds thrived, an investor who had invested across all three assets would have got negative return in stocks but would have made good returns in bonds and gold. Thus, it is advisable not to put all eggs in one basket.
Investment opportunities come with risks. When markets are high, investors want 100 per cent equity exposure and forget the downside risk. When markets have crashed they want 100 per cent safety and ignore the upside potential.

Rule 8: Do your homework or hire experts who will do it for you
Some of us invest based on tips and rumors, that is speculating not investing. You should read and research all investment ideas well, take time to understand the upside and downside of each investment before buying. Or else, you must engage quality financial advisors before investing.

Rule 9: Aggressively monitor your investments
No investment is forever. Expect change and react to it. There are no permanent bull market and bear market.
Way back the BSE Sensex had bluechip companies like Scindia Steamship, Asian Cables, Crompton Greaves, Mukand Iron, and Premier Auto. Today, these companies have become small or midcaps. Some are not even quoted. Indices and markets keep changing. Investors should be on guard always.

Rule 10: Don’t Panic
Many people panic and exit the market when there is a dip. It is better to sell before a crash not after. Panic and euphoria are the two facets of same investors. Both selling after a crash and buying after a huge rally make no sense.

Rule 11: Learn from your mistakes
The only way to avoid mistakes is not investing which is the biggest mistake of all. Those who didn't invest after losing money in 1994 crash wouldn't have made money in 1999 boom. Those who lost money and exited in 2000 would have missed one the best times to invest in India from 2002 - 2008.

Rule 12: Beating the markets is a difficult task
Even professional fund managers have tough time doing it. Hence, an investor should remember that getting above market returns year after year is difficult.

Rule 13: Buy low
So simple in concept, yet so difficult to practice. Humans tend to think in herds and not alone. Only a brave person would have invested in October last year when people were shell shocked and wanted to forget about stocks.

Rule 14: Anyone who has all the answers doesn’t even know the questions
Markets make even the most brilliant fund managers humble. We have seen big fund managers make wrong decisions. An investor who thinks he knows everything doesn't usually know anything. Success is a process of seeking out answers to newer questions.

Rule 15: There is no free lunch
Never invest based on a tip or rumor. Everyone talks about their profits however small and no one talks about their losses however big.

Rule 16: Do not be fearful or negative too often
There will be corrections and crashes in the markets, but markets do recover and reward diligent and patient investors. This century or next it's still buy low and sell high.

Reliance Capital may sell 20% in AMC to foreign firm

Anil Ambani-controlled Reliance Capital is looking to sell up to 20% stake in Reliance Mutual Fund to a strategic foreign partner, a person privy to the development told ET.

The company is likely to appoint investment banks JP Morgan and UBS as advisors to the transaction. Reliance Capital holds 93.37% in Reliance Capital Asset Management Company, India’s largest mutual fund house by assets under management (AUM).

In 2007, the AMC had sold 5% stake to New York-based Eton Park for Rs 500 crore. Eton Park Capital Management is a hedge fund founded by former Goldman Sachs partner Eric Mindich. The deal with Eton Park was valued at 13% of the AMC’s assets.

The valuation Reliance Capital is currently looking for is at a premium to recent transactions involving stake sale in asset management companies. Last November, Baltimore-based firm T Rowe Price had bought 26% stake in UTI AMC, the country’s fourth-largest MF, for around Rs 652 crore, valuing UTI AMC at around Rs 2,500 crore or 3.25% of its AUM then.

The deal is likely to be sealed within the next two months. “By bringing in a strategic partner, Reliance Capital will add international distribution muscle and will also be able to attract international institutional and retail fund flows to India,” said an executive, who did not wish to be identified.

However, a spokesperson for Reliance Capital declined to comment, saying, “As a policy, we do not comment on speculation.”

“This move will also unlock substantial value for Reliance Capital, as the entire sale proceeds will flow to the company,” said the executive.

Source: http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/Reliance-Capital-may-sell-20-in-AMC-to-foreign-firm/articleshow/5474627.cms

MFs fear loss of tax advantage in debt

A veild threat from the banking regulator has left many mutual fund managers with worry lines. They are beginning to fear that at the advice of the Reserve Bank of India, the government may take the fizz out of certain debt schemes that have helped them fatten their asset book as well as served as a quick money parking zone for corporates and banks.

At a recent conference with money market dealers, RBI deputy governor Shyamala Gopinath hinted that “since MF fixed income products enjoy certain tax exemptions not available to banks”, there may be a case to address this through regulations.

The remark did not go unnoticed in the financial market. Ms Gopinath was referring to the liquid plus MF schemes that give investors a higher return and a clear tax advantage over bank fixed deposits (FDs). For instance, while bank FDs, for a minimum period of seven days, would fetch about 3-3.25% per annum, the return on liquid-plus scheme could be 4.5-5%. Besides, interest income on FDs would be taxed at 33% like any other income, but the dividend distribution tax (DDT) — which fund houses deduct before giving investors the dividend — is at 22% for corporates and 14% for individuals. Dividends can be paid by MFs on either a daily, or weekly, or fortnightly, or monthly basis.

Out of the Rs 7-lakh crore MF corpus, around Rs 2.5-Rs 3 lakh crore would be in various liquid-plus scheme. The central bank’s concern emanates from a crunch that financial markets and the thinly capitalised fund houses may face, if there are rapid withdrawals by large investors as it happened in the weeks after the Lehman collapse. A tax advantage has only deepened the concentration of funds in such schemes.

“It’s a matter that’s more and more catching the attention in recent times,” said Phani Shankar, head of financial markets, ING. But any tinkering on the tax front may have a significant impact on the sector. According to Sunil Jhaveri, who heads MSJ Capital & Corporate Services, a leading MF advisor, “The liquid/liquid plus category will get impacted by almost 15-20% over a period of time. At least individuals will prefer bank deposits (for longer periods) over liquid schemes as there will be certainty of returns and no tax advantage for parking funds in liquid schemes.”

Sensing that the tax arbitrage window may be shut in future, fund houses are preparing their counter-argument. “You can’t compare between FDs and debt schemes. A higher tax on FD interest may be justified since there is an implicit guarantee from the government and RBI that banks won’t fail,” said the CEO of a large asset management company.
‘Liquid plus’, as a product, was designed by the MF industry to overcome the disadvantage in liquid schemes where the DDT was hiked to 28%. While in liquid schemes, the investment happens in money market instruments and the average maturity is 90 to 120 days, liquid-plus schemes hold even more than one-year papers and the average maturity is 170-180 days (which explains the higher return).

Under the present tax regime, all debt schemes, such as short-term and long-term income fund, monthly income, balance fund, gilt and floating rate fund, enjoy a DDT of 22%. But wholesale investors prefer liquid-plus schemes as these generate a higher return.

The MF industry, which is already under strain due to the recent Sebi notification of not charging any upfront load on equity schemes, is closely watching the development. After the adverse impact on sales and distribution of equity-related products, a hike in DDT, they feel, could deal a body blow to the industry. Interestingly, even if the tax rate does not go up, Sebi can make liquid-plus schemes unattractive by making it mandatory for funds to mark-to-market all debt securities with more than 90-day maturity.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/MFs-fear-loss-of-tax-advantage-in-debt/articleshow/5460717.cms

Insurance and investments are not replaceable

The year 2009 was one of the toughest in recent times for distributors of financial products, with challenges ranging from a whimsical market to tightening regulations on commissions. Business Line spoke to the Mr Rajiv Deep Bajaj, Vice-Chairman & Managing Director of Bajaj Capital, one of the leading Indian distributors, to understand how business has coped with the changed rules of the game.

Excerpts from the interview:

With abolition of entry load, as a leading distributor of MF products, have your revenues suffered and how are you coping with the trend?
With the abolition of entry load, we had to change our commission-based model to one based on both commissions and fees.

Though the fee sign-ups have not been numerous enough to make up for the fall in commission revenue, our revenue gap has been temporarily filled up by investors showing greater preference for fixed-income products. Products such as insurance have started contributing more.

We are working hard and are seeing a gradual pick-up in mutual fund volumes. It will be some time before the revenue gap created by the removal of entry load is filled.

Your investors were allowed to buy and sell MF products through your online platform. With both BSE and NSE allowing investors to transact in MFs through their platforms, which route are you asking your clients to take?
We see the exchange platform picking up really soon because of two reasons — convenience (operational convenience) and cost considerations. Out of the total investor population, 20 per cent already prefer using the online platform.

Also, we see 20 per cent of the total business in the next couple of years happening on the exchange platform. There are a few points where NSE/BSE platforms are still to improve — the SIP mode is missing and switch in/switch out is yet to get effective and large transactions (more than Rs 1 crore) are yet to be introduced.

For the above reasons, some investors still prefer to go through online platforms, but with the addition of these features on the NSE/BSE platforms, we hope to see substantial increase in volumes on the same.

What is your outlook for the stock market in 2010? On which sectors are you bullish and what valuation metrics support your view?
The equity market in 2010 is likely to be volatile. The first half of the year is expected to be bullish and the second half would be volatile with a downward bias. Also, foreign fund flows will continue coming to India. US dollar will appreciate, but only in the last quarter of 2010.

We are bullish on disinvestment as a theme. Value investing will outperform growth investing in the next two years.

In terms of sectors, we are bullish on infrastructure, Public Sector Undertakings (PSUs), pharmaceuticals, banking and captive power generation.

The mutual fund top brass claim that, with upfront commissions gone, agents and distributors prefer to sell insurance rather than MFs. What is Bajaj Capital's stance?
Bajaj Capital has always been engaged in providing need-based advice to clients. The need of the client determines what products should go in their portfolio.

Though, in the current scenario, insurance has started contributing more to the revenues we believe that insurance and investment (MFs) are not replaceable, and we try to include both in our clients' portfolios.

What is your advice in MFs and insurance (premium collected)?
Our assets under management in MFs is Rs 6,000 crore. In the coming financial year, the annual insurance premium routed through us will be more than Rs 250 crore. On the Mutual Fund assets side, the average age does speak for our long-term investment philosophy, it is comparatively higher than most players in the market.

With the stock market already at a yearly high what funds do you recommend to your investors?
We recommend that our clients have a balanced portfolio consisting of equity, debt, cash, real-estate, etc, i.e. all asset classes should be included.

Depending on the market levels, the mix of these assets undergoes a change. Presently, we are neutral on cash and gold, underweight on debt and commodities and overweight on equity.

If investors want to invest in MF and come to you for advice do you charge them, if so on what basis?

On August 1, we had rolled out our four fee packages out of which one — the transaction package — is free of cost and the other three are fee-based packages costing Rs 2,500, Rs 5,000, and Rs 7,500. In the transaction package, there is no charge for buying, selling and switching.

Thus, it is virtually free for the investor. In paying Rs 2,500 (Advisory Package), the client receives consolidated portfolio statement once a month, tele advice, other statements once a year.

In case one pays Rs 5,000 (Premium Package) as fees, apart from the above mentioned services, there will be portfolio construction as well as quarterly portfolio review.

If one pays Rs 7,500 (Financial Planning Services), apart from the above services, a personalised Financial Plan will be prepared, presented and implemented and will be regularly reviewed once in a half year.

Alternatively, customers can pay us a percentage of their portfolio.

This ranges from 0.25 per cent to 1 per cent, depending on the assets that a client maintains with us.


Bajaj Capital talks about financial planning as a concept. Have clients taken to this?
There are approximately a lakh investors who have availed our financial planning services. Now after the changed regime in Mutual Funds, accountability on the part of advisor has definitely increased and clients also have become demanding. We do not limit our Financial Planning to products only. Our recommendations relate to the goals, needs and wants of the client, thus non-investment related issues such as pre/postponement of goals, loans, emotional attachment to goals, also form part of the discussion. In terms of investment products, we cover mostly all products under our Financial Planning — such as Mutual Funds, Life Insurance, Asset Insurance, Health Insurance, disability & accidental insurance, fixed return instruments, equity share investments, facilitating property purchase at major locations in India, etc. We anticipate a very good growth for this business over the next few years. At Bajaj Capital, 60 per cent of our revenues are from clients who have used financial planning services.

Source: http://www.thehindubusinessline.com/iw/2010/01/17/stories/2010011750150500.htm

Sahara Banking & Financial Services Fund declares dividend

Sahara Mutual Fund has declared a dividend of 40% (Rs 4.00 per unit on a face value of Rs 10), under Sahara Banking & Financial Services Fund. The record date for the purpose of dividend payout is January 19, 2010.

All investors registered under the dividend option of Sahara Banking & Financial Services Fund as on record date January 19, 2010 will receive this dividend. The NAV under the dividend plan of the scheme as on January 14, 2009 is Rs 18.9493. (Check out - Recent MF Dividends)

Announcing the dividend Mr. Naresh Kumar Garg, CEO mentioned that Indian economy is on the high growth path and Indian banking & financial system has proven its robustness in the economic crisis faced by economies across the globe over the last two years. The Indian Banking system which is the backbone of our economy is poised for better performance over medium to long term.


He further mentioned that Sahara Banking & Financial Services Fund has shown remarkable performance ever since its launch in September 2008. It regularly feature among the Top performing funds. Based on its excellent performance, the Fund has declared two back to back dividends in the last 6 months.

Sahara Banking & Financial Services Fund is an Open-Ended Sectoral Growth scheme that aims to provide long term capital appreciation through investment in equities and equities related securities of companies engaged in Banking / Financial services, either whole or in part.

Source: http://www.moneycontrol.com/news/mf-news/sahara-bankingfinancial-services-fund-declares-dividend_435942.html

Shinsei, Jhunjhunwala sell MF business to Daiwa

Japan’s troubled Shinsei Bank and billionaire investor Rakesh Jhunjhunwala are said to be selling out their Indian mutual fund joint venture to Daiwa for about $10 million, as industry profitability erodes on rising competition and regulatory restrictions, two senior bankers familiar with the matter told ET.

The two-year old venture could provide Daiwa, a cross-town rival of Shinsei, a platform to expand in the financial services in a nation of fast-growing middle class. For Shinsei, which sold real estate in Japan to shore up its finances after losses, it may free up resources from a tiny venture to focus on merging with Aozora Bank.

Daiwa Capital Markets, which had raised funds for Indian mutual funds from Japanese investors, can now offer asset management services on its own. Recently, it hired bankers from Credit Suisse and YES Bank to raise business in equity capital markets, private equity and M&A. It plans to double the investment banking team to 18.

“The deal is almost done, it has to now receive regulatory approvals,” said a person privy to the development. Indian mutual fund industry has been losing charm in the past few months, as regulators are cracking down on what is considered unfair practices to get funds.

The Securities & Exchange Board of India, or Sebi, abolished entry loads on mutual fund investments, slowing inflows for asset management companies. Banks, a major source of assets for mutual funds, have been asked to withdraw their money by the Reserve Bank of India.

Aditya Rattan, country head of Daiwa Capital Markets India, declined comment. “We have no comment on this matter,” said James Seddon, group IR & corporate communications division, Shinsei Bank, in an email response.

If the deal goes through, Shinsei, which manages Rs 448 crore of assets in debt and equity schemes, will be valued at about 10% of assets, comparable with previous deals. L&T Finance last December paid Rs 45 crore to buy DBS Cholamandalam Asset Management, a joint venture between Singapore’s DBS and the Chennai-based Cholamandalam.

T Rowe Price bought 26% in UTI Asset Management Company for $135 million, 3.6% of assets. These valuations are a far cry from what Eton Park Capital paid for Reliance Mutual Fund in 2007. Eton paid 13% of assets in December 2007 when equity markets were roaring.

Although the benchmark indices have recouped most of their losses in 2009, the retail investor is yet to hang on to the optimism. New regulations provide no incentive for middlemen to sell mutual fund products, either. Hence, mutual funds have been losing assets.

Outflow from equity schemes continued for the fifth consecutive month, totalling Rs 7,300 crore since August after Sebi’s fiat on entry loads. Banks reportedly withdrew more than one-lakh crore from mutual funds recently.

Freedom Financial, founded by Sanjay Sachdev, the founder CEO of the Principal Group in India, would also sell its stake, but Sachdev would remain with Daiwa. Shinsei, part-owned by investor Christopher Flowers, holds 75% in the asset management company, Mr Jhunjhunwala 15% and Freedom Financial the rest. N Sethuram, former chief investment officer of SBI MF, who had served in Japan for many years as an employee of SBI, is the CIO of the mutual fund.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Shinsei-Jhunjhunwala-may-sell-MF-business-to-Daiwa/articleshow/5451004.cms

Exchange platform unattractive for MFs & investors: UK Sinha

With a majority of people going for traditional instruments that are easily available and simple to understand, the investor population is shrinking, says UK Sinha, chairman and managing director, UTI Asset Management Co, in an exclusive interview with Sucheta Dalal. This is the first part of a two-part series

Sucheta Dalal (ML): You were among the first to join the effort to introduce exchange based trading, after the scrapping of entry loads on mutual fund schemes. In your view, how is it working?
UK Sinha (UKS): There is no alignment of interest. I don't see this move being successful. We were hopeful that it would succeed, but now we are discovering that the interests of the brokers, the stock exchanges, the depositories, the mutual funds and the investors are not aligned.

What is happening is that each broker who is a member of this system is participating in it, not because of the small income he gets from the investor but because he is negotiating a separate rate with the mutual fund. And that rate is the best possible rate that the mutual fund can offer. So to think that trading is happening because of the availability of the platform and is easy to access is not correct. What is also happening is that each large broker has his own mutual fund distribution platform where he has an arrangement with the mutual fund. So if he is charging, for example, 1.25% or even 1.5% in some cases on his distribution platform, why should he charge any less here? After all, it is part of the same family. So there is no compromise on fees or the commission that is paid by the AMC. What they are expecting is that they will also charge something from the investor in the bargain. They hope to charge around 50 basis points (which is the amount paid for delivery-based trades).

The whole culture in the secondary markets is to encourage trading and churning, but to encourage an investor to come to buy and hold is not the culture in a majority of the cases. So unless there is some incentive to the investor through this platform it will not work. There is no advisory service, because the broker has no time to even offer a choice of five or ten schemes which the investor can select.

ML: But many brokers have joined the platform; what persuaded them to do so?
UKS: What happened was that everybody decided to take a chance and join this bandwagon because if it succeeded, they would be left out. There is a gradual realisation that this is not going to work. There is also a worry about future fees. Stock exchanges are not charging any fee right now, but they have said that they will not charge a fee only for the first few months—they will start charging a fee sometime. Depositories too are not charging a fee today; they too will begin to charge some time. Then there is the issue of Securities Transaction Tax (STT). It is not clear if that is applicable or not.

ML: So an investor is not charged STT today, but may have to pay if it is charged later?
UKS: Yes, he could be asked to pay, because there are two different interpretations. The stamp duty implication is yet another issue. One view is that stamp duty could be charged because trading is on the secondary market platform. All this has led to a situation where nobody wants to push for exchange trading because there is no clarity on several issues.

ML: But when the exchange traded platform was created, should at least tax implications like STT and stamp duty have been clarified?
UKS: Yes, they should have been done, but it was not.

ML: We hear that the exit load of 1% that is still permitted may be an incentive to encourage investors to churn, is that a possibility?
UKS: Not really, because brokers are already negotiating 1.5% as an incentive from the AMC includes a trail commission, so that eliminates the incentive to an extent. It is very simple. Mutual funds today earn just 1%; if they pay more than that, they will make a loss. But they are promising 1.5% hoping that the money will stay with them. This means that the 1.5% will be paid, provided the money stays with them for a year or longer. If the money goes away earlier, the broker loses the trail commission and that is a disincentive of sorts.

Source: http://www.moneylife.in/article/8/3225.html