Mkt will take 5.5% fiscal deficit no positively: Madhu Kela

Madhu Kela, Head Equity Investments, Reliance Mutual Fund says Budget may surprise positively. “Market will take 5.5% fiscal deficit number positively.”

Kela feels excise duty hike will not significantly impact the auto industry. ”Will look for higher disinvestment number from government.”

Here is a verbatim transcript of an exclusive interview with Madhu Kela on CNBC-TV18.

Q: Most of the times we dont see a post-Budget sell-off, do you think it is likely this time around?
A: I am happy we are seeing some pre-Budget sell-off this time. The market undertone is like what it is today. Then there are chances that post-Budget market will look up rather than selling off.

Q: Do you think that the market has already priced in or is going in with very low expectations therefore the chances of a relief rally are higher going forward?
A: Budget proves to be a non-event in a matter of three-five days. Market at a point was overvalued. It needed some chance to correction. If the market corrects 15-20% from the peak and if we go into the Budget after that, Budget may positively surprise people this time.

Q: For this Budget how central is this fiscal deficit issue? What would the market ideally like to hear on the fiscal deficit front?
A: The market would focus on the absolute number which the government will come up with. The market will focus on the roadmap and the body language of the FM as to how to fiscal deficit will get controlled over the next 12-24 months. For a macro-institutional, this is a very big thing. They will continue to watch.

Q: What is the number that the market would be happy with?
A: If the number is 5.5% or so, the market will take it positively.

Q: Would it want to see a concrete roadmap on how this is to be achieved instead of just a promise?
A: Yes, the market would like to see a concrete roadmap. Based on the roadmap that is proposed, the analysis will be done on whether it is achievable or not and people would like to take a view post that.

Q: Do you have a number in mind and would the market like to hear specific names of large companies?
A: I think that has already come. In the last 10-15 days, government has been very proactive. They have already given lists of companies that they would like to disinvest. It is not very difficult to estimate a number. I would not like to hazard a guess. However, I would like to see a much higher number. Given their own plan, what they have spoken in the last two months, these are the companies that will disinvest. I think it is a significantly large number.

Q: From an earnings perspective, the assumptions are that through FY11 the earnings will grow at a robust pace. The risk to that is withdrawal of stimulus and how it would affect some of the companies that have benefited from it. In the Budget, are those company earnings at risk at all?
A: Maybe marginally at risk. If you look at auto sector, the EBITDA margins have expanded from 12% to 20%. If the stimulus is withdrawn and if there is a compromise of 1-2% on EBITDA margins, then I don’t think it significantly changes the course of earnings for these companies. Markets have been anticipating this. These stocks have been underperformers for the last three-four months.

Q: Hero Honda management said that the growth would go to single digits if this stimulus is withdrawn, would you go with that argument for a sector like autos?
A: My hunch is that it is not linked to 1-2% price increase or decrease. The volume growth is linked to the overall feel good factor. The government will be sensible enough because they know that this recovery has happened. I do not expect them to go that far so that the fundamental recovery will be at risk.

Q: Do you see any major direct tax changes? In the US budget we have seen things like capital gains tax go up because of fiscal deficit pressures. Do you see the government doing anything around direct tax changes?
A: That will be a very worrisome factor. The introduction of long term capital gains may not be fundamentally a big thing. However, sentiment wise, it will dampen sentiment significantly.

Source: http://www.moneycontrol.com/news/mf-interview/mkt-will-take-55-fiscal-deficit-no-positively-madhu-kela_443888.html

UTI Master Equity Plan Unit Scheme declares dividend

UTI Mutual Fund has declared a dividend 15% (Rs 1.5 per unit on a face value of Rs 10), in UTI Master Equity Plan Unit Scheme. The record date for the dividend is March 3, 2010.

All investors registered under the above scheme as on record date March 3, 2010 will receive this dividend. The NAV under the dividend plan of the scheme as on February 25, 2010 is Rs 44.04.(Check out - Recent MF Dividends)

UTI Master Equity Plan Unit Scheme is and closed ended equity oriented scheme. The scheme primarily aim at securing for the investors capital appreciation by investing the funds of the scheme in equity shares of companies with good growth prospects.

Source: http://www.moneycontrol.com/news/mf-news/uti-master-equity-plan-unit-scheme-declares-dividend_443951.html

Kotak Emerging Equity Scheme to be converted into Open Ended Scheme

Kotak Mutual Fund has announced the conversion of Kotak Emerging Equity Scheme, a three year close ended equity growth scheme into an open ended equity growth scheme with effect from 31 March 2010.

Unitholders of the scheme who are not in agreement with the conversion may redeem their units at applicable NAV or switch to other open-ended schemes of the fund house without payment of exit load between 1 March 2010 and 30 March 2010 (both days inclusive). Kotak Emerging Equity Scheme will be an open ended scheme from the business day immediately following the closure of exit option period i.e. 31 March 2010. No action is required in case the unitholders are in agreement with the aforesaid conversion.

The exit load charge will be 1%, for exit within 1 year from the date allotment and nil for exit after 1 year from the date of allotment of units. The load structure shall be applicable to units allotted on or after 31 March 2010.

Kotak Emerging Equity Scheme is a close ended equity growth scheme with the investment objective to generate long-term capital appreciation from a portfolio of equity and equity related securities, by investing predominantly in mid and small cap companies.

Source: http://profit.ndtv.com/2010/02/26095857/Kotak-Emerging-Equity-Scheme-t.html

Union Budget 2010: Market borrowing lower than estimates

Bond market dealers have welcomed the union government’s debt borrowing targets for FY11, saying the lower numbers could lead to a short term rally in dated securities. Though bond yields fell immediately after the finance minis-ter’s speech, they were trading higher than the previous close at 14.45 hrs.

The yield on India's 10-year benchmark bond yield traded at 7.89% at 14.45 hrs. It had ended at 7.83% on Thursday. Dealers said this was due to uncertainity about Market Stabilisation Scheme (MSS) bonds that would be un-wound in the coming fiscal.

“There is no bad news, which is a positive in the short-term. But a government borrowing programme of Rs 4.57 lakh crore is sizeable and would drain out a lot of liquidity” said Ashish Vaidya head of fixed income currencies and commodities trading at UBS. “I will not be surprised if the 10-year bond ends the year at 8%”

Finance minister Pranab Mukherjee said on a gross basis, the government would raise Rs 4.57 lakh for FY11, compared with Rs 4.51 lakh cr in the current year ending March. Dealers had predicted this figure would be in the range of 4.6 lakh cr to Rs 4.9 lakh cr.

Net borrowing target (the amount after accounting for the scheduled bond redemptions that pump liquidity) stands at 3.45 lakh cr, compared with about RS 3.97 lakh cr this year.

“The target announced is largely in line with what market expectations,” said Prasanna Patankar, senior vice president at STCI, a bond house. “However the market is not clear about the MSS securitities desequestration required for the next year, hence there is a sell off” he added.

Market watchers say the budget has addressed the key issues of containing fiscal slippage and outlined a clear roadmap for the next three years. The finance minister projected the fiscal deficit for the next fiscal year at 5.5%, which was lower than market expectations.

SS Raghavan, head of treasury at IDBI Gilts, another bond house said he expects the ten-year yield to fall to 7.75% in the short term.

Source: http://economictimes.indiatimes.com/markets/bonds/Union-Budget-2010-Market-borrowing-lower-than-estimates/articleshow/5620037.cms

Budget raises borrowing to new record, bonds hit

Government plans record levels of borrowing next year and will count on surging economic growth to help cut its fiscal deficit, putting pressure on the central bank to be more aggressive in its monetary tightening. Finance Minister Pranab Mukherjee told parliament the government plans to increase market borrowing by 1.3 per cent in his $239 billion budget, pushing bond prices lower as investors anticipated a flood of fresh debt supply.

Analysts said the borrowing plan cements the likelihood that the central bank will raise interest rates at its next meeting on April 20 as policymakers scramble to keep surging food inflation from spreading to the wider economy and fueling social unrest. "Given that the fiscal stimulus withdrawal was not strong, the Reserve Bank of India (RBI) may have to be more aggressive in its policy tightening," said Robert Prior-Wandesforde, HSBC senior Asian economist in Singapore.

Many watchers praised the plan to reduce the fiscal deficit to 5.5 per cent of GDP in the new year from 6.9 per cent this year, with further declines in coming years, and a central bank deputy governor said the budget addressed concerns on fiscal discipline. Mukherjee announced plans to hike spending on social and agricultural programmes popular among voters, and adjusted taxes to put more money in the hands of the middle class. But some analysts said India had missed a chance to take more aggressive fiscal measures as Asia's third-largest economy gathers speed, reinforcing perceptions that the coalition government may not have the heart to make tough decisions.

The budget focused on keeping the economic recovery robust, but there was little mention of reforms, such as freeing state fuel and food subsidies, that investors say could help India rival China's years of double-digit growth rates. Some heavy economic stimulus brought in last year was trimmed, but not chopped, with rollbacks of certain tax breaks. "The first challenge before us is to quickly revert to the high GDP growth path of 9 per cent," Mukherjee told parliament. The 74-year-old minister is known for deftly appeasing India's myriad of caste and ethnic groups rather than pushing visionary reforms. The decision to spend more on agriculture in particular is bound to please a key rural support base that helped re-elect the Congress-led government last year.

RATE HIKES AHEAD

Financial markets focused on whether the government would pay more than lip service to imposing fiscal discipline and start weaning itself off aggressive deficit spending that risks pushing up companies' borrowing costs. Usha Thorat, a deputy governor at the Reserve Bank of India, said the deficit outlook was in line with expectations. "From our point of view one of very important thing was the fiscal consolidation. So, I think one would say it is positive for lesser inflation," she told reporters.

The deficit figure was slightly better than a Reuters poll forecast of 5.6 per cent and in line with government expectations. Gross borrowing for the new fiscal year will total 4.57 trillion rupees ($99 billion), below a Reuters poll forecast for 4.61 trillion but above a record 4.51 trillion rupees expected in the current year ending in March, Mukherjee said. For highlights of the Indian budget, click "With the fiscal deficit expected to be still high over the next fiscal year, it is clear that the onus will be on the RBI to hike rates in coming months in order to move policy settings closer to neutral and to deal with emerging inflation pressures," said Brian Jackson, strategist at Royal Bank of Canada.

SPENDING AND REVENUE

Total government spending will rise nearly 9 per cent in the next fiscal year, while revenues will rise nearly 18 per cent as the economy recovers. In one politically charged effort to raise revenue, the government said it would raise prices of gasoline and diesel fuel for the first time in 7 months. Mukherjee also pencilled in expected revenue of 400 billion rupees from the sale of stakes in government companies, a figure that some observers said was ambitious. India's economy grew 6 per cent in the December quarter, short of a Reuters poll forecast of 6.8 per cent, as farm output fell 2.8 per cent after a poor summer drought.

The slowdown in spending growth may help ease inflation, some analysts said. High food prices helped push wholesale price inflation to 8.56 per cent in January. Opposition lawmakers boycotted much of the budget session, saying government plans to increase fuel prices would further add to the woes of millions of Indians hit by high prices. The yield on benchmark 10-year government bond fell as much as 6 basis points earlier on Friday but erased that move on worries over high government borrowing.

The yield on the benchmark 10-year government bond ended at 7.86 per cent, four basis points higher than Thursday's close. Stocks ended 1 per cent higher after Mukhjeree announced measures aimed at increasing domestic consumption.

Source: http://economictimes.indiatimes.com/markets/bonds/Budget-raises-borrowing-to-new-record-bonds-hit/articleshow/5621690.cms

HDFC unveils Fixed Maturity Plans - Series XII

The New Fund Offer of HDFC FMP 13M March 2010, under HDFC Fixed Maturity Plans - Series XII, a close ended open scheme, will open for subscription on 02 March 2010 and close on 10 March 2010.

The objective of the scheme will be to generate income through investments in Debt/Money market and Government securities maturing on or before the maturity date of the respective plans.

The scheme will allocate 60-100% in Debt and Money market instruments (including securitized debt up to 75 of the net asset of the plan) and 0-40% in government securities.

The units of HDFC FMP 13M March 2010 will be listed on NSE.

Source: http://profit.ndtv.com/2010/02/26110201/HDFC-unveils-Fixed-Maturity-Pl.html

Sinor new AMFI CEO, charts out road map

Former ICICI Bank and Indian Banks' Association CEO, HN Sinor was today appointed as Association of Mutual Funds of India's Chief Executive Officer with immediate effect. The current AMFI Chairman, AP Kurian announced that he will retire at the end of his term in September.

Speaking to CNBC-TV18 on what needs to be done, Sinor says AMFI has not moved towards a self-regulatory organisation (SRO). "The Securities and Exchange Board of India is regulating the industry as AMFI did not perform the self-regulatory organisation role." He added that AMFI's evolution towards a self-regulatory organisation would be a better choice.

Reviewing agent code of conduct and ethics is top of Sinor's agenda. He promises to put in place an ombudsman structure for investor grievance. "There is need for co-ordination between trustees, asset management companies and regulators. There is also need for fair trade practices, no mis-selling to small investors, and honesty, transparency towards small investors."

Here is a verbatim transcript of the exclusive interview with HN Sinor on CNBC-TV18. Also watch the accompanying videos.

Q: What more does AMFI need to do?
A: You see on the SRO (Self Regulatory Organisation) concept while I do accept that at some point of time we need to move in that particular direction, but it is a process of evolution. I don’t know to be very honest about many micro issues which are there.

But yes one basic issue as I look at it is that at the retail end when you have a large number of small investors, I think fair trade practices, being honest and transparent to small investors, not to try and missell to this segment of people and creating some kind of trust in this mutual fund industry by the small investor is very important.

Now whether it comes through regulation or self regulation. Maybe I would put it this way that SEBI is expecting industry to comply because perhaps AMFI has not moved towards self regulation. But it is too early for me to really react on this. But yes at some point of time evolution towards SRO would be a better choice.

Q: We have seen a situation where the regulator has set up a committee which has started interacting more with trustees and investors and somewhere one gets the impression that AMFI has been reduced to more like a club of asset management companies and has had probably very little interaction with trustees and investors. Do you think that is something that AMFI needs to change?
A: I do agree with you that we need to look at some kind of coordinated approach with trustees on one side, asset management companies and the regulators. So I don’t think that we can overlook any of the stakeholders in this industry.

Q: On the one hand we do have a code of ethics, we do have AMFI as a certifying agency for agents. But it is very sad that there has been practically very little enforcement of that. In fact I don’t even think half a dozen agents have been suspended for misselling in the entire history of AMFI till now. Is that going to be one of your priority areas to look at not just tightening perhaps the code of ethics but also enforcing it in a manner that actually benefits investors?
A: If I have to look at the top of the agenda, this is one area that I would like to do the first, which is to review the code of conduct, the code of ethics, fair practices for the small investors, having some kind of a structure of ombudsman within the system where grievances can be aired and rectified. I think this is what will be uppermost in my mind.

Source: http://www.moneycontrol.com/news/mf-news/sinor-new-amfi-ceo-charts-out-road-map_443590.html

IDFC MF announces change in IDFC Premier Equity Fund

IDFC Mutual Fund has announced that IDFC Premier Equity Fund shall not accept further subscriptions (other than by way of SIPs / STPs) at the end of business hours on February 26, 2010.

With effect from February 26, 2010, the STP amount shall be reduced to Rs 10 lacs from Rs 25 lakh.

IDFC Premier Equity Fund is an open ended equity scheme. The investment objective of the scheme is to generate long-term capital growth from an actively managed portfolio of predominantly equity and equity related instruments.

Source: http://www.moneycontrol.com/news/mf-news/idfc-mf-announces-changeidfc-premier-equity-fund-_443478.html

Bonds rise on hopes that FM will rein in fiscal deficit

The 10-year bonds had their biggest twoday gain in six weeks on speculation that finance minister Pranab Mukherjee in his Budget this week will cut subsidies and rein in the deficit from a 16-year high.

The benchmark 10-year yields dropped to a two-week low as the government said last week it will allow higher urea prices and free price controls on some fertilisers in a bid to reduce subsidies it pays farmers. The budget deficit may narrow to 5.5% of gross domestic product in the year starting April 1, from 6.8%, according to C Rangarajan, the government’s top economic adviser.

“Right now, there are expectations the deficit will ease as the recent increase in fertiliser prices suggest the government is keen on some fiscal consolidation,” Roy Paul, assistant manager of treasury at Federal Bank in Mumbai.

“The direction of bond yields will depend on the Budget.” The yield on the 6.35% note due January 2020 declined four basis points to 7.79%, according to the central bank’s trading system. The price climbed 0.26, or 26 paise per Rs 100
face amount, to 90.22.

India will borrow a record Rs 4.6 lakh crore next fiscal as debt payments double and the government only gradually withdraws policies to support economic growth, according to the median estimate of 13 economists and investors surveyed by a media group.

Source: http://economictimes.indiatimes.com/markets/bonds/Bonds-rise-on-hopes-that-FM-will-rein-in-fiscal-deficit-/articleshow/5609926.cms

Religare to invest up to $1 bn in asset managers

Religare Enterprises, the Indian financial services company owned by billionaire Malvinder Singh, said it may invest as much as $1 billion buying stakes in asset management companies worldwide.

Religare agreed to buy a majority stake in Northgate Capital LLC, a private equity and venture capital company that manages about $3 billion in assets and has offices in San Francisco and London, the New Delhi-based company said in a statement distributed by PRNewswire.

Religare, controlled by the former owners of Ranbaxy Laboratories, set up its own mutual fund business in 2008 and bought Hichens, Harrison & Co, London’s oldest company of stockbrokers, in the same year. The money manager has said it plans to open 100 branches in the first three years of operation.

Religare shares rose as much as 6.1 per cent, the most in intraday trading in more than five weeks, to Rs 390 in Mumbai. The stock traded at Rs 376.25 as of 9:28 am local time.

Jefferies & Co and Religare Capital Markets Ltd were the financial advisers to Religare Enterprises. Credit Suisse Securities (USA) LLC was the adviser to Northgate, according to the statement.

Source: http://www.business-standard.com/india/news/religare-to-investto-1-bn-in-asset-managers/386627/

'The retail momentum is catching on'

Tata Mutual Fund Managing Director Ved Prakash Chaturvedi thinks investor confidence is slowly returning, though large investors are adopting a wait-and-watch strategy. Chaturvedi, who is bullish on information technology and auto sectors, spoke to Swarup Chakraborty on market outlook and participation of retail investors in mutual funds. Excerpts:

How do you see the recent correction in equity markets?
Some issues that the world faced recently like the liquidity crunch, non-availability of credit and low investor confidence are real issues and will recede gradually. Sometimes, stock markets expect the recovery to be dramatic. Therefore, in the last six months, we saw that the rise in valuations and prices was steep and very sharp. So, after a period of euphoria and high returns, there is some correction, which is less than 10 per cent. It was expected as markets do not move in a straight line.

The third-quarter numbers were not bad, yet the Sensex went down by nearly 1,000 points in January. Why?
Stock markets do not react to individual events. They had already factored in an improvement in third-quarter numbers. The rollback that you see is a reflection of what happened worldwide. What happens globally will continue to affect our markets and therefore we will have to moderate expectations based on what is happening worldwide.

Is it the right time to enter equity markets?
The Indian equity markets will be among the most lucrative ones for the next 5-10 years. Though the period will be marked by volatility, as we have seen in the past, there is a gradual return of investor confidence.

How do you see the markets panning out over the next quarter? Which are the sectors you are bullish on?
The markets will be volatile over the next three months and analysts and investors will take cues from the Budget and inflation trends.

For now, analysts and large investors are adopting a wait-and-watch approach. We are bullish on IT, capital goods, construction, auto, auto ancillary, and consumption-driven industries, and cautious on oil & gas and real estate.

Which factors will affect the markets the most over the next two months?
The fourth quarter results of companies and the outlook given by companies for the next financial year will be watched carefully. I am positive about economic growth in the next two quarters.

What is your view on positive inflows into equity funds in January?
There has been a return of business and consumer confidence and an improvement in the outlook of global investors towards India. However, this is happening gradually. From the perspective of growth, the index of industrial production numbers are gradually improving. This is the first phase of return of investor confidence. January and February figures reveal the retail momentum is catching on.

In January, high net worth individuals invested in equity funds while smaller players stayed away. Why?
The participation by investors went up in January and a majority of them were big investors, or rather better-informed investors. However, retail participation in mutual funds is gradually increasing.

Source: http://www.business-standard.com/india/news/%5Cthe-retail-momentum-is-catching-on%5C/386519/

The low-cost way to scale the investment Wall

Investors who choose to invest in index-based funds have one more option — Hang Seng Benchmark Exchange-Traded Scheme launched by Benchmark Asset Management Company. The scheme is an index fund which will be listed on the National Stock Exchange. The investment objective is to provide pre-expense returns that correspond to total returns of securities as represented by Hang Seng Index by investing in the securities in the same proportion as in the index.

Investment strategy
The fund is expected to replicate the index. The fund manager will invest 90-100% of the assets in securities constituting the index. Rest of the money can be invested into money market instruments and such other debt instruments with low-risk profile. The index represents approximately 60% of the market capitalisation of the Hong Kong Stock exchange as on January 29, 2010. The index comprises 42 stocks with financials occupying 50% weightage in the index.

The correlation between the Hang Seng gross total return index and S&P CNX Nifty total return index stands at 0.64 for daily returns for the past three years as on January 29, 2010. On purchasing power-parity basis, China is the second-biggest economy in the world. China is the fastest growing economy in the world. The infrastructure sector in the country is experiencing an unprecedented boom.

For whom
The scheme is ideal for those who intend to invest in China without taking the risk associated with active fund management. The fund gives an opportunity to investors to own the front-running blue chip companies in China.

Taxation
The fund invests in equity shares listed on the foreign stock exchange and hence, enjoys the tax treatment of a non-equity oriented fund. For individual investors, long-term capital gains (applicable for investments of more than 12 months) will be taxed at lower of the two: 10.3% without indexation or 20.6% with indexation. Short-term capital gains (applicable for investment of less than 12 months) will be taxed at 30.9%. There will not be any securities transactions tax payable on the purchase or sale of units of the mutual fund.

Fund details
The NFO closes on February 25, 2010. There is no entry or exit load on units. The minimum amount of investment in this scheme in the new fund offer is Rs 10,000. Post listing on the bourse, one can transact in a minimum lot of one unit and multiples thereof. The units of the scheme will be listed on NSE. The scheme offers only growth option.

Risk — reward
At a time when the world is yet to recover from the recession that followed the financial crisis in 2008, China continued on the growth path. The high-growth economy attracts global investors due to the possibilities of immense wealth creation. Long-term investors in China are expected to benefit from the growth of the Chinese economy. The ‘manufacturing’-backed growth in Chinese economy supplements the ‘services’ backed growth in Indian economy from a portfolio point of view.

There are geo-political issues associated with China that an investor cannot afford to ignore. Slowdown of Europe and the US will have an impact on the China’s export-oriented economy. Experts, of late, have gone ahead, expressing the possibility of a bubble situation in Chinese assets. The high correlation with Indian markets may not really help from the diversification point of view, as both Indian and Chinese equity markets may fall and rise together.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/The-low-cost-way-to-scale-the-investment-Wall/articleshow/5605163.cms

One-minute guide to understanding Mf growth and dividend option

Most mutual fund (MF) schemes have dividend and growth options. The dividend option gives out a cash flow by liquidating some units periodically, while the growth option allows the money to stay invested

0-15 seconds

What are they?

Most mutual fund (MF) schemes have dividend and growth options. The dividend option gives out a cash flow by liquidating some units periodically, while the growth option allows the money to stay invested. While filling the form, if you forget to choose one, your fund will allot you the default option, which may not be the one you really want.

15-30 seconds

How to choose?

MFs pay dividends whenever your investments earn a profit that they can pay out. If you need periodic dividends as a source of income from, say, debt funds, or if you feel the need to periodically book profits in your equity funds, choose the dividend plan.

30-45 seconds

Which is a better plan?

Neither. Dividends come out of your own pocket. When a fund declares dividend, its net asset value (NAV) comes down by that extent. If a fund’s NAV goes up to Rs15 and it declares Rs3 dividend, the NAV drops to Rs12. Dividends are good for those who reinvest them effectively or those who need them as current income.

45-60 seconds

Tax treatment

Dividends from equity-oriented funds, which invest at least 65% in equities, are tax-free. Dividends from liquid funds are taxed at 28.325%, including surcharge and cess. Dividends from other debt funds are taxed at 14.163%. Tax treatment should always come second to your needs.

Source: http://www.livemint.com/2010/02/21205200/Oneminute-guide-to-understand.html

Sebi takes investor education to schools

Class 8 and 9 students at 26 schools all over the country are taking lessons in investor education these days, courtesy the capital market regulator.

The optional three-month course teaches these students the importance of money, how to manage it and concepts of budgeting and saving.

Last month, 720 of these students received certification (of 3,000-odd who participated in the special programme). The initiative follows the Securities and Exchange Board of India’s decision to facilitate financial literacy to children before they complete their secondary education. The regulator feels catching them young is the only way of increasing the number of households investing in the equity market. The number is paltry, even after decades of a free capital market. Consumer Pyramid, a survey of 120,000 households done by the Center for Monitoring Indian Economy (CMIE), showed only 6.5 per cent of Indian households invest in shares and only 1.12 per cent of the total savings flow into listed shares and mutual funds.

Sebi is implementing the financial literacy programme through the National Institute of Securities Markets (NISM), set up by the regulator to improve the quality of the market through educational initiatives. A pilot project called the School Financial Literacy Programme is being supervised by the National Progressive Schools Conference. Of the 26 schools, 13 are from north India, 11 from the south and two from the east. The plan is to extend this programme shortly to 110 schools in New Delhi, covering 15,000 students. NISM is also conducting teachers’ training programs in conjunction with the Rotary Club of Calcutta South West.

Sebi Chairman C B Bhave said the definition of financial inclusion is different for the banking and security markets. “If a person has a bank account, it is inclusion from the banking sector’s perspective. But, all citizens cannot be asked to buy shares. If he cannot buy risky assets, he will be advised to buy fixed income securities.”

The regulator has also been talking to the Central Board of Secondary Education to introduce a course for financial literacy at the school level. Efforts are on to introduce a course in Marathi and talks are on with the Maharashtra government in this regard. If it succeeds, other regional language courses will be on.

Mahesh Vyas, Managing Director & CEO, CMIE, said: “It is imperative that we take basic financial services to the masses, as only 40 per cent of the population between the age of 25 and 75 years is financially included in the sense of having a bank account or an insurance policy or a demat account or a debit/credit card.

It is important that basic financial education is integrated with basic education to ensure this education permeates deep and is not mixed with the marketing efforts of financial intermediaries.”


Source: http://www.business-standard.com/india/storypage.php?autono=386412

Study shows large-cap funds are better bet for long-term investment

Top performers focus on blue-chip stocks, attract fresh inflows.

If you are looking to outperform the indices, then plan to hold your equity fund for the long term and stick to funds that invest in blue-chip stocks.

That seems to be the lesson from the 10-year performance of open-end equity funds that have a long track record. 58 of the 360 plus equity funds in India have been in existence for ten years or more.

These funds averaged a return of nearly 13 per cent (compounded annually) over the ten-year period, beating the Sensex and Nifty (11 per cent) and easily outpacing the broader BSE 100 (9 per cent).

Ten-year funds do better
Nearly 62 per cent of the funds (36 in number), beat the Sensex returns over a ten-year period. Only 45 per cent of the equity funds have bettered the Sensex over a shorter five-year period. This number drops to 40 per cent over a three-year time frame. This indicates that funds with a longer record have improved the investor's chance of beating the index.

Diverging returns
Top performers such as Reliance Growth and Vision, HDFC Equity and Tata Equity Opportunities have delivered returns as high as 20-25 per cent on annualised basis over the past ten years.

However, the return divergence between the top performers and the laggards was huge. SBI Magnum Infotech Fund — a fund based on the technology theme launched during the tech stock boom of 1999 — has actually seen its NAV erode by 5 per cent a year.

The other key trend is that the list of top performers is dominated by funds that focus on large-cap stocks — Reliance Vision, HDFC Equity Fund, Tata Equity Opportunities, HDFC Top 200 and Franklin Bluechip.

That goes against the common investor perception that it is mid- and small-cap funds that outperform the long-term ones. A few of the mid-cap funds such as Franklin Prima, JM Basic and Tata Life Sciences and Technology managed to make it to the list.

A few funds in the list also have a flexi-cap approach and move between mid- and large-cap stocks.

Asset growth
One significant finding is that funds that performed exceedingly well over the past ten years were able to attract fresh inflows as well.

For instance, HDFC Equity and HDFC Top 200 opened the decade with an asset size of just Rs 31 crore and Rs 85 crore respectively, but their assets had grown manifold to Rs 5,400 crore and Rs 6,086 crore respectively by end-January 2010.

That these funds saw investors putting in money is clear from the asset size growing more than the funds' NAV. Over a ten-year period, HDFC Top 200 Fund's NAV has grown at a compound annual return of 20.5 per cent, whereas its assets grew by 53 per cent. HDFC Equity saw assets grow by 67 per cent while NAV grew by 23 per cent a year.

However, some of the big names have seen a shrinkage in assets, due to sedate performance from their funds. At the start of the decade, investors pumped money into equity funds based on the lineage of the fund house, but over time it was performance that mattered. JM Basic Fund which started the decade with an asset size of Rs 943 crore saw this fall to Rs 589 crore by January. During the same period, its NAV, after hitting a high, moved back to the same level.

Source: http://www.thehindubusinessline.com/2010/02/22/stories/2010022251410100.htm

Retail investors returning to equity funds, says Crisil

Equity funds saw interest returning from individual investors as they witnessed net inflows of Rs 1,300 crore for the first time after five months. The category had witnessed net outflows of close to Rs 8,000 crore since August 2009 after the ban on entry loads by the Securities and Exchange Board of India, according to Crisil FundServices.

Equity fund inflows in January 2010 were mainly on account of new fund offers of Rs 1,600 crore and equity-linked saving schemes (ELSS) as investors invested in tax- planning avenues in the last quarter of the financial year. Sales of equity funds rose to around Rs 9,000 crore in January (levels last seen in July 2009).

Assets under management (AUM) of equity funds, however, declined despite net inflows due to mark to market losses following the slide in the equity markets, said Crisil FundServices – which provides fund evaluation and research to the Indian mutual fund industry.

According to Krishnan Sitaraman, director of Crisil FundServices, “The entire amount redeemed by banks in December did not flow back into mutual funds in January as credit growth has picked up. Going forward, on full implementation of the 0.75 per cent CRR (cash reserve ratio) hike, bank exposure in mutual funds may see a slow return to a level lower than those seen in early December 2009.”

The month witnessed a rise in mutual fund AUM from Rs 665,000 crore in December 2009 to Rs 759,000 crore in January 2010 – a gain of Rs 93,500 crore or 14 per cent, owing to net inflows.

Mutual funds saw return of inflows of Rs 97,200 crore in January post the quarter-end outflows clocked in December. Among categories, income funds (predominantly ultra-short-term debt schemes) saw the highest net inflows of Rs 100,000 crore, while liquid and gilt funds were the only categories to witness net outflows of Rs 102,000 crore and Rs 260 crore respectively, according to Crisil FundServices.

Source: http://www.mydigitalfc.com/news/retail-investors-returning-equity-funds-says-crisil-963

Peerless MF Launches 2 NFOs

Peerless Funds Management, promoted by The Peerless General Finance India Co. Ltd, has initiated its journey in the mutual fund industry with the launch of two schemes: the Peerless Liquid Fund (open-ended liquid scheme) and Peerless Ultra Short Term Fund (open-ended debt scheme).

Peerless Liquid Fund is the low-risk option and is positioned to meet the needs of those investors who want to deploy their funds for a short period of time with the least amount of risk.

The risk return profile of Peerless Ultra Short Term Fund positions it in between a liquid fund and short
term income fund. The portfolio strategy seeks to increase yield by having a marginally higher maturity and moderately higher credit risk as compared to a liquid fund while maintaining a balance between safety and liquidity.

“Since the objective of the scheme is to generate reasonable returns with the least commensurate risk, the scheme would predominantly invest in money market instruments. As the turnover of the portfolio would be high, given the fact the investors in a liquid fund would deploy their funds for a short period of time, the portfolio would be structured to incorporate high liquidity by the use of cash and cash equivalents,” said Akshay Gupta, CEO of Peerless Funds Management.

Investors have the choice of three plans: Retail, Institutional and Super Institutional Plans.

Two options are on offer: growth and dividend in each plan. The dividend option would provide three sub-options: Daily (re-investment), weekly (payout and reinvestment) and monthly (payout and reinvestment).

The NFO opens on 17th February, 2010 and closes on 18th February, 2010.

The issue comprises units of Rs 10 per unit during the NFO period and at applicable NAV based prices upon re-opening.

The minimum application amount/number of units is as mentioned below:

Retail: Rs 5,000 and in multiples of Re 1/- thereafter

Institutional: Rs 1 crore and in multiples of Re 1/- thereafter

Super Institutional: Rs 5 crore and in multiples of Re 1/- thereafter

Source: http://new.valueresearchonline.com/story/h2_storyView.asp?str=101254

Dividend in Principal Services Industries Fund

Principal AMC proposing to declare a Dividend in Principal Services Industries Fund.

Dividend Rate – 15% (Rs 1.50 per unit)
Record Date – 22nd February, 2010 (Monday)

Principal Services Industries Fund has been performing well and has been able to capture the recent market rally. The scheme has delivered CAGR return of around 81% since last 1 year as compared to 67% by benchmark CNX Service Sector Index as on January 30, 2010.

What Worked For them:
Media: Though the valuations were not cheap, we added Media stocks due to the strong underlying growth which has been proven in past few quarters.

IT: We have added the IT stocks when the valuation for the sector were not very favorable due to the concerns on the overall business environment for these companies (Specially US)

Financial: Good stock selection within the sector has helped us; especially this sector has a very large inventible universe

What didn’t for them
Utility: Defensive character of the sector has led to relative underperformance in the recent rally over the past years.

Telecom: The sharp intensification of price war in this sector in past few months has led to concerns on the profit margins going forward

IDFC Fixed Maturity Plan – Half Yearly Series 9 Floats On

IDFC Mutual Fund has launched a new fund named as IDFC Fixed Maturity Plan – Half Yearly Series 9, a close ended income scheme. It offers one plan for the investors i.e. Plan A. The New Fund Offer (NFO) price for the scheme is Rs 10 per unit. The new issue is open for subscription from 17 February and closes on 22 February 2010.

The investment objective of the Scheme is to seek to generate income by investing in a portfolio of debt and money market instruments maturing before the maturity of the scheme.

The tenure of the scheme is six months and it shall mature on 23 August 2010.

The plan under the scheme offers growth and dividend option.

The scheme will allocate up to 100% of assets in debt and money market instruments with low to medium risk profile. Investment in securitized debt shall be up to 50% of net assets of the plan.

Entry and exit load charge will be nil. The units are proposed to be listed on the NSE.

The minimum application under the Plan A is Rs 10000 in multiples of Re. 1 thereafter.

The fund seeks to collect a minimum subscription amount of Rs 1 crore under the scheme during the NFO period.

The scheme's performance will be benchmarked against Crisil Composite Bond Fund Index and will be managed by Mr. Anupam Joshi.

Source: http://www.apollosindhoori.cmlinks.com/MutualFund/MFSnapShot.aspx?opt=9&SecId=10&SubSecId=22,24

Investors should consider brand name, performance of fund house

Are investors no more than consumers drawn by brands? Can just a name ring in returns? Birla, ICICI, Reliance and HDFC, household names in the country for decades, dominate the Indian mutual fund (MF) industry even as the lesser known among the urban investing elite, such as Canara Robeco, Taurus and Sahara, fail to draw investors despite some of their fine performances, though on a small asset size. One answer is the brand-pull.

But the fact is that a strong brand alone is not enough to keep a fund house on top forever. In India, the MF industry, once dominated solely by the Unit Trust of India for more than three decades, is today gaining ground with foreign companies, such as T Rowe Price, Nomura and BNP Paribas, investing to run asset management business.

But their strategy of entering into joint ventures with a dominant local name rather than an independent foray suggests that local brand names are far stronger than global ones. Despite being one of the early entrants in 1990s, Morgan Stanley is stuck with Rs 2,300 crore of assets while Reliance has about Rs 1,17,248.57 crore in its kitty.

In fact, nine off the top 10 largest fund houses of the country today belong to some of the prominent, well-known Indian brand names backed by strong pedigree. Data reveals that the market share of the top five fund houses in the country has increased from about 50% in 2007 to more than 56% by January 2010. Correspondingly, the top 10 fund houses of the country today enjoy a market share of about 80% visà-vis 73% in 2007.

These funds don’t just draw the corporate money, but also the retail investors who mainly come from urban centres and familiar with the business houses. Of the four crore or so equity folios in the country - predominantly retail - more than 75% of these investor accounts are with the top 10 fund houses, according to the Association of Mutual Funds in India (Amfi). Similarly, on the debt front, which is known to be dominated by corporate money, there are currently about 37 lakh investor accounts, of which more than 93% are dominated by these top 10 fund houses alone.

Even as the existing brandnames continue to dominate the Indian MF market, regulatory pronouncements such as scrapping of distributor commission from investments in equity schemes, have compounded the problems of other smaller fund houses. Until the time, the investor is in this country is financially responsive enough to pay the distributors a fee for advisory and other services, the onus to compensate the distributor to indulge him into selling their products is now on the fund houses. This will impact the margins of these fund houses especially when most of them are already reeling under losses.

Thus, the regulator, while ensuring transparency for investors with respect to charges levied on MF investments, has also endeavoured to make MF industry a preserve for serious players only, re-enforcing the maxim - ‘survival of the fittest’. Just that fitness here is grossly dependent on the brand name, size and reach.

But for investors, it may not be wise to blindly follow the brandname and size of the fund house without analysing the past performance and also the fund manager’s track record. One of the examples of investors getting carried away by brand-name and size without consideration to performance is the maddening rush to invest in new fund offers (NFO) of popular fund houses.

Despite the fact that the financial advisors have time and again advised investors against investing in NFOs in the absence of any performance record to justify an investment, investors usually end up thronging to these offers on the mere pretext of buying the units at the face value of Rs 10.

For instance, Reliance Natural Resources Fund created a record at its launch in Jan 2008 - just a few days before the financial crisis hit the market in 2008. It collected about Rs 5,660 crore, second highest only to the collections of Reliance Equity a couple of years ago.

Today, two years after the record setting collection, at Rs 9.75, its net asset value (NAV) languishes below the face value of Rs 10, despite benchmark indices recovering sharply. Similarly, Birla Sun Life’s Special Situation Fund, launched around the same time received around Rs 900 crore. The fund is today trading at Rs 9.19 per unit. Thus, though brand name is important to ensure the fund house stability, investors should also consider the long term performance of schemes before investing.

To illustrate, some specific schemes of rather smaller fund houses such as Canara Robeco, Sahara and Taurus are today reporting relatively better returns than some of those belonging to larger fund houses. An argument against them is they manage small funds and it is always easier to manage smaller funds than the larger ones.

Canara Robeco manages about Rs 9,000 crore of assets while Sahara and Taurus manage about Rs 608 crore and Rs 1911 crore, respectively. And if one were to assume that these companies may attract assets in future, of these three, it is Canara Robeco which is better placed given the strong backing of a prominent state-owned bank that has both the brand-name as well as the reach.

Thus, despite performance being a forte, in the absence of a strong distribution and identity, it will be difficult for many such smaller firms to survive in the ever changing and more challenging environment of the Indian mutual fund industry.

Source: http://economictimes.indiatimes.com/Features/Investors-Guide/Investors-should-consider-brand-name-performance-of-fund-house/articleshow/5574498.cms?curpg=2

Indian mutual funds approach zero tax destinations to raise offshore capital

Representatives of offshore financial centres like Cayman Islands, Isle Of Man, Mauritius and British Virgin Islands are going all out to convince Indian clients to launch their business or investment verticals from these jurisdictions. Corporate advisory businesses in these ‘capital havens’ have begun offering India-centric services to asset management companies (AMCs) and firms intending to raise capital or launch investment vehicles.

According to international lawyers, Indian mutual funds, investment firms and corporate bodies are approaching zero tax destinations to raise offshore capital or start new business verticals. Corporate enablers (international lawyers, corporate advisors etc.) are working overtime to get these businesses to jurisdictions they represent. The trend of Indian companies launching offshore funds or special purpose vehicles has picked up post the market turnaround since mid-2009.

“We’re getting enquiries from several investment managers now. The idea of setting up offshore funds is fast catching among Indian asset management companies,” said Chetan Nagendra, head of India practice, Harneys Westwood & Riegels, a firm that services clients setting up businesses in British Virgin Islands (BVI) and Cayman Islands.

On their part, zero-tax jurisdictions like Cayman Islands, Isle Of Man, Mauritius and BVI are trying hard to get as many India listings as they can while market conditions are favourable. Asset managers or corporates would prefer these jurisdictions as they provide benefits like tax neutrality, zero tax on investment income and flexible corporate & regulatory structure.

“India becomes a logical step to us after having covered almost the whole of Asia. Moreover, there is intense competition among similar destinations to get more listings and business. The competition is driven by increased regulatory and transparency requirements from global players,” said Sherri Ortiz, ED, BVI International Finance Centre, which is the largest FDI contributor to China.

Almost all these zero-tax jurisdictions are offering tailor-made solutions like offshore fund licensing , capital raising, SPVs and trading company formation, setting up trusts, M&A services and shipping & aircraft registry services (for affluent Indian clients). Experts expect M&A services to do well in India as most companies are looking for foreign partners or overseas acquisitions.

“India is a good market because of its mass population and growth. From a practitioner’s point of view, setting up an offshore businesses or fund is relatively easier than incorporating them locally,” said Kapil Dhar, consultant, Sable Trust, that services trusts in BVI.

“Though highly regulated, it takes just about 24-48 hours to start a new company or fund in BVI. This helps professionals like fund managers — who have money on the line — to start their investments immediately,” he added. Offshore financial destinations have always been a conduit for capital flows into India.

Large chunks of investments flow into the country from tax havens like Luxemburg, Mauritius, UAE and Hong Kong. Outflow of investment from these regions was over $16 billion in 2008-09 and $18 billion in the previous fiscal. However, there are many sceptics who doubt the quality of the money flowing in from these jurisdictions.

“There are lot of claims made by these jurisdictions; most of them just want to emulate the Mauritius model. In fact, none of these destinations have much to offer to Indian clients. Regulators do not like the trend of setting up offshore funds or investment vehicles and they are right about it,” said Ashvin Parekh, partner-financial services, Ernst & Young.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Indian-mutual-funds-approach-zero-tax-destinations-to-raise-offshore-capital/articleshow/5582011.cms

Faber: Don't Ignore India

The rising Asian powerhouse is adding middle-class consumers at a heady pace, writes Dr. Marc Faber of The Gloom Boom & Doom Report.

I found it remarkable that at a recent Barron’s roundtable discussion in New York where a number of prominent strategists and portfolio managers had gathered, India—the world’s second-most populous country, with more than a billion people and an economy that is growing at around 8% per annum—wasn’t mentioned once.

In the year to March 2009, India added 125 million mobile phone subscribers! And whereas Indian auto sales are tiny compared to China’s vehicle sales (running currently at an annual rate of over 12 million units and up over 90% year on year), they are nevertheless up 39% year on year, with an annual rate of 1.6 million sales.

India’s middle class is estimated at 170 million (half the population of the US), and the country has one of the lowest vehicle-penetration rates in the world. Given that India also has one of the youngest populations—half of its 1.1 billion-plus people are less than 25 years old, compared to 42% in Brazil, 36% in China, and less than 30% in the developed nations—car sales will undoubtedly continue to soar in the next few years. In this respect, we should also take into account that India’s population will continue to grow rapidly and will exceed China’s population before 2030.

McKinsey estimates that by 2025, India’s middle class (households with disposable incomes of from 200,000 to one million Rupees a year) will increase to close to 600 million people, or more than 40% of the population.

This is not to say that India is free of problems. Its rapid population growth will be challenging. India’s land mass is only a third that of China or the United States, yet its population will exceed 1.4 billion in 20 years’ time. With close to 20% of the world’s population, India has just 4% of the world’s water resources and is likely to suffer in future from water scarcity.

Tensions between India and China [could increase over disputed Himalayan territory and] also in the Indian Ocean, where China has been involved in a number of port development projects.

Individual investors may wish to invest in New York-listed Morgan Stanley India Investment Fund or individual companies such as Infosys and ICICI Bank a very well-managed bank.

I should stress that I am far from certain about current stock prices providing an ideal entry point; however, given the country’s size and economic potential, investors who either have no exposure to India’s economy and vibrant corporate sector or are massively underweight Indian stocks should gradually become more involved in this promising country.

Source: http://www.moneyshow.com/investing/global.asp?aid=GlobalPer-18937

Irda hits back at Sebi on Ulips

Questions market regulator’s showcause to insurers on conceptual, legal, structural grounds.

The Insurance Regulatory and Development Authority (Irda) has said the Securities and Exchange Board of India’s (Sebi) notice to insurance companies on unit-linked insurance plans (Ulips) sold by them was “misconceived on conceptual, legal and structural grounds”.

Irda’s letter to the market regulator comes after the latter’s showcause notice to insurance companies last month, asking why they had not taken Sebi’s approval to sell Ulips.

In a letter to Sebi Chairman C B Bhave last week, Irda’s Deputy Director (Life) Sudipta Bhattachaya pointed out that the regulatory set up in India, which had legal backing, was clearly demarcated.

In its letter, the insurance regulator said the road map for regulation of Ulips by Irda was “well laid down, and settled,” and there was “no merit” in the contention that insurers must obtain a certificate of registration from the Sebi for selling these products.

Following the Sebi showcause notice on January 15, life insurers had approached Irda. “While there is an element of market exposure, the insurance component is much higher. The rules are fairly clear and investor interest is clearly protected,” said the CEO of one of the largest life insurance companies. For some private players, Ulips account for close to 90 per cent of new business.

Application of mutual fund rules to Ulips would mean that companies will not be able to pass on the commission to customers, since entry loads have been banned for mutual funds. In addition, the investment and accounting rules are different for Ulips and mutual funds.

Sources close to the development said Irda’s letter has pointed out the legal provisions that limited Sebi’s jurisdiction to securities and securities related transaction.“What constitutes a security has been defined in the Securities Contract (Regulations) Act, 1956 and insurance contracts are not regulated under these securities laws,” it said.

Further, Irda said that structurally, Ulips are distinct from mutual funds and pointed out that the minimum capital requirement for an insurance company was Rs 100 crore and also maintain around 3 per cent as solvency capital. In contrast, an asset management company “is required to manage thousands of crores of assets with just Rs 10 crore”.

“Certain similarities in the features of various products issued in the financial world would not necessarily imply regulatory overlap,” Irda added.

Asked to comment, a senior Sebi official said: “Ulips are hybrid investment products with insurance cover and since it involves management of funds, Sebi has a role in protecting the interests of investors... Ulips are fit for regulation under Sebi’s mutual fund regulations.”

He, however, added that the Sebi was waiting for replies from insurance companies before deciding on how to regulate them.

In its letter to Sebi, sources said Irda also attached a copy of its mandate, which states that the regulator has to “protect the interest of the holders of insurance policies”.

Sandeep Parekh, a faculty member at the Indian Institute of Management, Ahmadabad and a former Sebi legal advisor said buyers of insurance policies were not sophisticated enough to understand the fine print or the risks associated with such plans.

“Ulips, which are mutual fund products with a fig leaf of insurance, ought to be regulated by Sebi. This is notwithstanding the fact that the insurance regulator already regulates it. There is nothing unusual with more than one regulator regulating a product,” he added and pointed to the joint regulation of currency futures by the Reserve Bank of India and Sebi.

Source: http://www.business-standard.com/india/news/irda-hits-back-at-sebiulips/385953/

Many diversified funds falter despite bull run

Indian stocks have doubled from their lows in early-March 2009, yet many diversified equity schemes of domestic mutual funds have not fully mirrored the stellar performance of equities in the past year. Returns from as many as half of the 200-odd diversified equity schemes have been below the category average from March 2009 to January 2010.

The schemes, which have underperformed the category and their benchmarks the most, include those from Religare AGILE, HSBC Dynamic Growth, JM Hi Fi and Fortis Equity Growth. These schemes have returned 38-55% in the period under review against the category average of 82%.

Investors could excuse fund houses for not being able to protect their holdings during the bear run January 2008-March 2009, as equity schemes in India are mostly structured to benefit from upsides. But these funds’ inability to capitalise on the rally in 2009 — the best year for equities since 1991— will worry their investors.

The causes of their inferior performance can be traced to excessive focus on select sectors at wrong points of time, and in some cases, the exit of some high-profile fund managers. While the movements of fund officials are beyond the reach of investors to base their investment decisions on this factor, analysts feel investors should keep a track of the portfolio of the fund house.

“It is better to exit funds that have not been able to deliver returns in the past year’s rally,” says Dhirendra Kumar, CEO, Value Research.

Fortis Equity Growth

This large-cap diversified equity scheme is probably the best example of funds that were unable to shuffle their portfolios in time from a one suited for a bear phase to that for a rally.

Amit Nigam, the scheme’s fund manager, says, “When the rally started in March, we stuck to a defensive portfolio, as we felt it was not backed by fundamentals. That’s the reason we were among the best performers till March. Though we changed our stance after the election, competition was already ahead of us.”

Religare AGILE

This fund works on mathematical models based on historical data. This means that a fund manager doesn’t actively manage the fund. Given that the algorithm was prepared based on data for many years, it was not prepared to work in the volatility that has been witnessed during the past many months.

HSBC Dynamic Growth

The scheme, which has returned 48% in the period, is again a case of sticking to defensive bets when the rally started. HSBC CIO Tushar Pradhan says, “The fund outperformed the benchmark in the bear market of FY09 (April 2008-March 2009) on account of a defensive portfolio and cash. However, the sharp rally of 2009 and the election day gap resulted in the fund underperforming its benchmark in ‘09.” The fund house says the scheme is “different from diversified equity funds”.

JM Hi Fi

Industry watchers say the fund house had grown on the strength of its ex-CIO Sandip Sabharwal, who was known for his aggressive investment strategy. By the time Sabharwal left under a cloud, the scheme was saddled with a few poorly-performing illiquid stocks that could not be sold swiftly. JM Mutual Fund officials didn’t respond to email queries.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Many-diversified-funds-falter-despite-bull-run/articleshow/5577917.cms

Retain tax benefits for mutual fund schemes

The mutual fund industry expects the Finance Ministry to retain the existing tax benefits available to investors in MF schemes despite revenue and fiscal deficits, which are of grave concerns of the Finance Minister.

The industry is hoping for the continuation of tax benefits on MFs, particularly the exempt-exempt-exempt (EEE) system on tax-saving funds or equity-linked savings schemes (ELSS), which renders all the investment, interest and maturity tax-free for the investor.

Withdrawal of tax benefits would affect the mutual fund industry adversely as it is already struggling to make its way out from the global economic crisis. Besides, there have been a number of policy changes in the past one-year; hence the industry seeks the continuation of tax redemption together with the extension of zero-dividend distribution tax on equity funds to attract investments.

Source: http://www.thehindubusinessline.com/2010/02/14/stories/2010021451520400.htm

‘Our investment approach will be stock specific’ Sundaram BNP Paribas Mutual Fund

Companies with strong business models, large cash flows, and low levels of leverage will continue to do well even in a rising interest-rate environment, says T.P. Raman, managing director, Sundaram BNP Paribas Mutual Fund in an interview with Sanjay Kr Singh.

What are the factors responsible for the current weakness in global markets?
The weakness in select European nations like Greece, Spain and Portugal and in the US housing sector as well as the overall US economy are all acting as dampeners for markets worldwide. Geo-political issues like US-China relationship and the behaviour of the Chinese currency (Yuan) are also concerns for the Indian markets. Developments related to Iran’s nuclear programme and reactions from the global community to it is another area of concern.

What are some of the key issues to which market participants will expect some answers in the Budget?
Macro issues like a roadmap for fiscal deficit reduction, handling of subsidies, and next year’s government expenditure and borrowings programme to fund the spending are some factors the market will keep an eye on. Implementation of GST (Goods and Services Tax) and the extent of push given to the infrastructure sector will be some of the other key issues that the market will look forward to in the Budget.

Any particular wish or expectation that you have from the Budget?
Development of long-term instruments in the debt market to mobilise savings should be encouraged. This will help in funding the country’s huge infrastructure requirements.

NTPC’s follow-on public offer received a rather tepid response. What does the government or the disinvestment ministry need to do in order to make PSU IPOs/FPOs more attractive in future?
Attractive pricing will in future ensure a good response from the market.

The Kirit Parikh Panel’s recommendations on pricing in the petroleum sector have created a buzz around this sector. Would you bet on the sector currently (since it also requires taking a call on the political question of whether the panel’s recommendations will be accepted)?
Any sectoral investment should be looked at from a medium to long-term perspective rather than from the short-term perspective.

Against the backdrop of a likely increase in interest rates this year, which are some of the sectors that you think look promising currently?
More than sector, our approach will be stock specific. Stock selection as opposed to sector attractiveness or unattractiveness will be the decisive factor. Companies with a good business model backed by strong cash flows and low levels of leverage will continue to do well in a rising interest-rate scenario.

Source: http://www.indianexpress.com/news/our-investment-approach-will-be-stock-specific/579691/0

Equity schemes performance stood out last year

For Indian mutual fund houses, the year 2009 ended on a fairly satisfying note. The industry’s assets under management swelled to Rs 8,00,000 crore, much of it on the back of institutional money as retail penetration continued to be negligible.

Rather, the retail numbers appear to have worsened, especially after market regulator Sebi scrapped entry loads (read as distributor commission) on the sale of equity Mutual Fund(MF) schemes. The lack of enthusiasm on the part of distributors and investment advisors in promoting equity MFs has hit fresh sales of these products.

Add to it, a substantial amount of money also moved out of the industry, especially since August 2009. The net outflow from equity schemes was Rs 81 crore in 2009 despite the fact that the stocks markets generated returns of over 75% while equity MFs, on an average, posted returns of close to 84% in the year.

The negative inflows into equity MFs last year is in stark contrast to the trend observed in earlier years. For example, in 2008, when the markets tanked and fund houses were under heavy pressure to meet redemptions across the MF industry, net inflows in equity schemes aggregated at Rs 25,799 crore, and in 2007, one of the best years in the history of Indian equities , net inflows were at Rs 21,889 crore.

But for those who have invested in these schemes, ET Mutual Fund Tracker, like every quarter, continues to provide you a performance update of MF schemes across five broad categories of equity diversified, equity tax saving (ELSS), monthly income plans (MIP), equity-oriented balanced and debt schemes.

REPORT CARD AT A GLANCE

As many as 263 schemes were analysed this quarter and graded according to their performances as platinum, gold, silver, bronze and lead. With the tax saving season underway, investors can choose from among some of the consistent performers in the ELSS category such as Canara Robeco Equity Tax Saver, Fidelity Tax Advantage and Sundaram BNP Paribas Tax Saver. These schemes have figured in the list of platinum and gold grades consistently.

There has also been a major improvement in the performances of ICICI Prudential (I-Pru ) Tax Plan and HDFC Tax Saver over the previous quarters. While I-Pru Tax Plan has succeeded in moving up from silver to gold for the very first time this quarter, HDFC Tax Saver may have to work harder to regain the platinum grade.


Under the category of diversified equity schemes, a good number of funds have made it to the platinum grade for the very first time. These include
Birla Sun Life Midcap, UTI Opportunities, Templeton India Growth, HDFC Equity, ING Dividend Yield and Principal Large Cap.

Also racing way ahead in performance is I-Pru Discovery, which has been graded gold for the second consecutive quarter in a row. A fund based on a value style of investment, I-Pru Discovery has been highly acclaimed for its top notch performance in 2009. In fact, most ‘value’ funds such as Templeton India Growth, Tata Equity PE and UTI Master Value have shown a major improvement in their performances last year, especially during the last quarter. (For complete list of ratings, log on to www.etintelligence.com)

THE BEST FUND HOUSE

Reliance and IDFC continue to be the top two best fund houses for the second consecutive year in a row followed by HDFC, Birla Sun Life and DSP Blackrock. As a minimum of 1.5% of the total industry assets under management (AUM) forms one of the selection criteria for the best fund house, Canara Robeco, which otherwise tops the performance list with a score of 29.5, has not been considered in this category.

BEST FUND HOUSE - HOW WE DO IT

The number of schemes analysed by the ET Quarterly MF Tracker varies for each fund house. We thus consider the percentage of schemes falling under the platinum, gold, silver, bronze and lead grades for each fund house separately to ensure that there is a level playing field for all these fund houses. Each of the grades is assigned weights corresponding to their order of importance.

Thus, platinum gets the highest and lead the lowest of all weights. A weighted average score (WAS) is then arrived at for each fund house and the fund houses are ranked in the descending order of their WAS. Thus, the fund house with a higher percentage (and not number ) of total schemes in the platinum and gold grades will enjoy a higher WAS vis-à-vis the others.

Source:http://economictimes.indiatimes.com/Features/Investors-Guide/Equity-schemes-performance-stood-out-last-year/articleshow/5574502.cms?curpg=2

Sebi ‘super ATMs’ to spread info on MFs

With a view to increasing financial literacy, markets regulator, Securities and Exchange Board of India (Sebi) plans to launch over 2,000 ‘super ATMs’ in the country, which will facilitate all the information to mutual funds investors. Apart from this, Sebi is also in the process of starting financial literacy and investor education programmes throughout the country to encourage retail investors to participate in mutual funds.

Speaking at an awards ceremony on Thursday, K Vaidyanathan, executive director Sebi said, “Super ATMs will provide better infrastructure to investors throughout the country and we hope to start this initiative in the next 12-18 months.”

CB Bhave, chairman, Sebi, while speaking at the event, said the Indian mutual fund industry is at the crossroads and should not expect phenomenal results in the next six months. Bhave said, “It is always difficult to accept change but if you are confident that the change is good for the consumer, you eventually accept it.” In the year 2009, several regulatory changes were made, such as the ban on entry load and parity among all the classes of investors in the exit load structure.

Bhave also added that Sebi is ready to help the mutual fund industry in the country, in their efforts to increase the financial literacy. “We have already started some programmes for financial literacy and the education of investor. But we also want that fund houses come and present to us their plan for the purpose so that we can help them out.”

Apart from this, Vaidyanathan also mentioned that the regulator will play a twin role for investor interest protection through regulations and also through developmental activities. “Performance is also the important factor and we would like to see this business revolve around the investor’s managers and also the performance,” he added.

After the ban on entry load, several distributors had stopped selling mutual fund schemes, as their upfront commission completely vanished. Since the ban on entry load from August, 2009, equity schemes have seen net outflows for the next five months to the tune of over 7,000 crore as distributors stopped selling mutual funds.

However, in January, 2010, some smart inflows came in equity schemes after three new fund offers (NFO) were launched. Total average assets under management for the month of January, 2010 stood at over Rs 7.61 lakh crore, according to the data provided by the Association of Mutual Funds in India.

Source: http://www.financialexpress.com/news/Sebi--super-ATMs--to-spread-info-on-MFs/579081/

UTI MF Declares Dividend for Contra Fund

UTI Mutual Fund has announced the declaration of dividend on the face value of Rs 10 per unit under dividend option of UTI Contra Fund. The record date for dividend has been fixed as 17 February 2010.

The quantum of dividend will be 10% (Rs 1 per unit). The NAV of the scheme stood at Rs 12.68 as on 10 February 2010.

UTI Contra Fund is an open ended equity oriented scheme which has the investment objective to provide long term capital appreciation / dividend distribution through investments in listed Indian equities and equity related instruments. The Fund's investment policies are based on insights from behavioral finance. The fund offers an opportunity to benefit from the impact of non-rational investors behavior by focusing on stocks that are currently undervalued because of emotional and behavioral patterns present in the stock market.

Source: http://www.bloombergutv.com/stock-market/mutual-fund/commentary/374729/uti-mf-declares-dividend-for-contra-fund.html

10-yr bond yield hits 16-month high

India's benchmark 10-year bond yield rose to its highest in 16 months on Thursday as traders began pricing in improved economic conditions, with higher US yields overnight also denting market sentiment.

At 9:07 a.m. (0337 GMT), the yield on the benchmark 10-year bond was at 7.82 per cent, which was its highest since Oct. 15, 2008. It had ended at 7.78 per cent on Wednesday. Industrial output data due on Friday is forecast to show annual growth of 12 percent in December, close to the 11.7 per cent rise in November.

Finance Minister Pranab Mukherjee on Wednesday forecast the economy would grow 7.75 per cent in 2009/10, faster than a government projection on Monday of 7.2 per cent.

Source: http://economictimes.indiatimes.com/markets/bonds/10-yr-bond-yield-hits-16-month-high/articleshow/5558946.cms

Investors can now buy foreign ETF listed on NSE

Indian investors will soon be able to buy a foreign exchange-traded fund (ETF) listed on the National Stock Exchange (NSE). The coming Monday will see NSE list the Hang Seng BeES, an open-ended index scheme, which tracks the Hang Seng on a real-time basis.

Promoted by Benchmark Mutual Fund, this will be the first foreign ETF which will enable investors to take exposure to a hitherto closed market like China.

“All the regulatory approvals are in place and we will go live from February 15,” Sanjiv Shah, ED, Benchmark Mutual Fund, told ET confirming the development. “Hang Seng BeEs will enable an Indian investor to buy into the largest manufacturing economy in the world (China),” he added.

ETFs are just what their name implies: baskets of securities that are traded, like individual stocks, on an exchange. Unlike regular open-ended mutual funds, ETFs can be bought and sold throughout the trading day like any stock.

Most ETFs charge lower annual expenses than index mutual funds. However, as with stocks, one must pay a brokerage to buy and sell ETF units, which can be a significant drawback for those who trade frequently or invest regular sums of money.

Fund managers at foreign brokerages who track ETFs globally believe that this is one more diversification opportunity for the Indian investor, but more specifically for high networth individuals (HNIs).

“China is a market everyone wants to be a part of. But how many Indian investors track it on a real-time basis or keep up with market trends there? This ETF will be a quick and easy way of accessing Chinese markets,” said the head-equity products at a foreign brokerage on condition of anonymity.

Significantly, India ETFs have been gaining ground overseas, as a low-cost option to get exposure to the Indian stock market in a diversified, low-cost portfolio. A query as to the timing of such a product elicited the response that this is a structural trend and not a cyclical one. “It is better to launch a product in volatile market conditions and take it slow and easy,” a fund manager added.

Interestingly, last Friday when the market witnessed an unusually high degree of volatility, Rs 50 crore worth of Nifty BeEs were traded. Benchmark Mutual Fund currently has five equity ETFs being traded on the NSE, Nifty BeEs, Junior Nifty, Bank BeEs, Shariah and PSU BeEs.

Officials said that there is no entry or exit load on Hang Seng BeES purchased and sold on the NSE. However, an investor will have to pay a fee in the form of a bid and ask spread and brokerage and other charges as may be levied by his broker.

The asset allocation of Hang Seng BeES will be 90-100% into securities constituting the Hang Seng Index and 0%-10% into money market instruments, low G-Secs, bonds, debt instruments, cash at call and mutual fund schemes/overseas exchange-traded funds based on the Hang Seng index.

Source: http://economictimes.indiatimes.com/markets/stocks/market-news/Investors-can-now-buy-ETF-listed-on-NSE/articleshow/5558399.cms

IDFC MF Introduces New Plans

IDFC Mutual Fund has announced the introduction of new plans, ‘Plan C' under IDFC Super Saver Income Fund - Medium Term (MT) and ‘Plan D' under IDFC Super Saver Income Fund – Investment Plan (IP). The plans are to be introduced with effect from 10 February 2010. The features of the plans are as follows:

Plan C & Plan D under the respective schemes offers growth, dividend & dividend sweep options. The plans introduction price is Rs 10 per unit and at applicable NAV thereafter. Minimum application amount is Rs 5000 & in multiples of Re 1 thereafter. Entry load charge will be nil.

Exit load charge for IDFC Super Saver Income Fund-MT – ‘Plan C' will be 0.50% of NAV on investors who purchase / switch and seek to redeem / switch out such investment within 182 days from the date of effecting such purchase / switch in. Investors opting for PEP / Dividend reinvestment option /SWP or switch between options within the plan will not be levied an exit load.

Exit load charge for IDFC Super Saver Income Fund-IP – ‘Plan D' will be 1% of NAV on investors who purchase / switch and seek to redeem / switch out such investment within 365 days from the date of effecting such purchase / switch in. Investors opting for PEP / Dividend reinvestment option /SWP or switch between options within the plan will not be levied an exit load.

Source:http://www.adityabirlamoney.com/Default.htm

Total assets of MF increased by 14.07% in January 2010

The mutual fund (MF) industry registered 14.07% increase in total asset under management (AUM) to Rs 7.59 lakh crore as on 31 January 2010 from Rs 6.65 lakh crore as on 31 December 2009. The huge inflow on account of income funds aided the increase in total asset during the month of January 2010.

Average Assets under management (AAUM) of MF fell by 4.14% for the second consecutive month to Rs 7.62 lakh crore in January 2010 compared with Rs 7.94 lakh crore in December 2009, according to the data released by the Association of Mutual Funds in India (AMFI). Banks staying away from investing into mutual funds has been the primary reason for erosion of the AAUM.

Association of Mutual Funds in India (AMFI) has released monthly data of the industry for January 2010. The industry has launched 7 new schemes, out of which, four schemes belong to income fund and three under equity funds category in month of January 2010. The new funds launched have mobilized around Rs 1947 crore during the month under review.

It was only income funds that witnessed a huge rise in total assets in January 2010 compared to fall in December 2009. The total assets of income funds registered the highest increase of 30.58% in January 2010. Apart from the income funds, gold ETF and other ETF'S also registered increase in their asset base by 5.40% and 22.41% respectively. While all the other funds such as - liquid funds, equity funds, balanced funds, gilt and ELSS funds registered dip in their asset base during the month under review.

The MF industry recorded the net inflow of Rs 97242 crore in January 2010 against the outflow of Rs 157204 crore in December 2009.

Equity Funds

The total asset of equity funds has declined by 3.76% to 1.68 lakh crore as on 31 January 2010 from 1.75 lakh crore as on 31 December 2009, as equity benchmark indices witnessed fall during the month under review. The Bombay Stock Exchange's Sensex and National Stock Exchange's Nifty fell by 6.34% and 6.13%, respectively, in January 2010.

The fall in asset base took the weightage of equity funds down to 22% in the total assets of the industry as against 26% in December 2009. However equity funds witnessed a net inflow of Rs 980 crore and total redemption of Rs 6857 crore in the month of January 2010.

Income Funds

The Income funds stood in limelight with highest inflow of Rs 1.06 lakh crore in January 2010 compared to outflow of Rs 1.05 crore in December 2009. At the same time the redemption also remained quite heavy at Rs 2.22 lakh crore in January 2010 compared to just Rs 6232 crore in December 2009.

However the total asset of income funds zoomed by 30.58% to 4.71 lakh crore in January 2010 compared to fall of 28.16% to 3.60 lakh crore December 2009. This translated into increase in income funds AUM weightage to 62% compared to 54% in December 2009.

Liquid Funds

Liquid funds also recorded highest outflow for the second consecutive month at Rs 10218 crore in January 2010 as against outflow of Rs 14267 crore in December 2009. Liquid funds also witnessed highest redemption of Rs 5.57 lakh crore as against outflow of Rs 5.53 lakh crore in December 2009. The total asset declined by 10.74% to Rs 71502 crore in January 2010 compared to 20.64% fall in December 2009.

Gilt Funds

AUM of gilt funds fell by 6.87% to Rs 3361 crore in January 2010 from Rs 3609 crore in December 2009. Gilt funds had net outflow of Rs 257 crore and redemption of Rs 454 crore for the month under review.

Other Funds

ELSS-Equity Funds witnessed net inflow of Rs 268 crore but declined by 3.33% in its total assets. Gold ETFs registered net inflow of Rs 112 crore and its total AUM increased by 5.40% to Rs 1425 crore in January 2010. The total AUM of other ETFs also increased by 22.41% in January 2010 while, the Fund of Funds and balanced funds recorded fall of 9.76% and 2.67% respectively in their assets.

Mutual Funds were net sellers of Rs 1311.30 crore in the equity market and net buyer of Rs 31333.50 crore in debt market in the month of January 2010.

Source: http://www.adityabirlamoney.com/Default.htm

Peerless MF biz launched

Peerless General Finance & Investment Company Ltd (PGFI) on Tuesday announced the commencement of its mutual fund business, Peerless Funds Management Company Ltd.(PFMCL), as a wholly-owned subsidiary of PGFI.

The products intended for launch in coming months include liquid and ultra short term funds catering to institutional needs and savings fund for retail customers.

PFMCL, according to Mr S.K. Roy, Managing Director of PGFI, is the first financial services company in eastern India to have received the SEBI approval for setting up its asset management company.

“With a growth rate of over 30 per cent CAGR in the past six years, the mutual fund business in India presents an interesting opportunity and this venture is consistent with our plan to capitalise on the opportunities and emerge as the country's leading financial supermarket,” Mr Roy observed while addressing a news conference here on Tuesday.

Mr A.C. Chakraborti, Chairman of PFMCL, felt that organised mutual fund business being still concentrated in metros, there were considerable opportunities for expanding business in tier-II and III cities and semi-urban markets.

“We're hopeful of meeting the needs of investors in these locations through the company's extensive network of branches, product bouquets and customised services,” he said.


Source: http://www.thehindubusinessline.com/2010/02/10/stories/2010021051481700.htm

Why liquid funds may soon lose their sheen

Debt funds will now have to value debt papers as per the prevailing market prices if they mature after three months, up from the earlier six months

One of the least risky products in the mutual funds (MF) space just got riskier. From 1 July, all debt funds will have to value their debt papers as per the prevailing market prices if they mature after a period of three months, down from the earlier six months. The Securities and Exchange Board of India (Sebi) made this mandatory through a circular issued on 2 February.

Money market instruments will also be valued similarly, said Sebi. This means that your ultra short-term (ST) fund, earlier known as liquid-plus schemes, will become riskier.

The problem

When the markets fell in 2008, investors made a rush for redemptions. MFs had to arrange for cash on a short notice since they did not anticipate so many redemptions. They had to sell assets at throwaway prices and incur losses. Three ultra ST funds gave negative returns, contrary to expectations.

Earlier, debt securities maturing before six months were not required to reflect their prevailing market prices. They used the amortization method. To put it simply, if your debt fund invested in a debt security with a face value of Rs100, carrying a coupon rate of 5% per annum and matured in five months, it would have spread the total interest income of Rs2.10—or Rs0.014 per day—over the debt paper’s tenure. In other words, only those securities that mature after six months would reflect market’s volatility depending on how their market prices move. Also, money market instruments—in which ultra ST funds invest a chunk of their assets—were valued through the amortization method, as per Sebi rules.

In 2008, when the debt markets turned volatile, ultra ST funds did not reflect the reality and their net asset values (NAVs) continued to show a steady rise. A chief investment officer of a leading asset management company said, on condition of anonymity: “Debt funds with shorter duration had large maturity scrips, out of line with their risk profile. Also, much of these debt papers were not valued, giving a false sense of stability to investors.”

Ever since, Sebi has taken corrective steps to ensure that MFs are in line with their objectives and do not convey a message that is not in sync with what they can actually offer.

What has changed?

Sebi now wants debt funds to value their underlying securities more realistically. They will now have to mark-to-market all those debt papers that mature after 91 days. Money market instruments, such as certificates of deposit, commercial papers, collaterized lending and borrowing offerings, were not marked to market even when they matured after six months. Now, these too will be marked to market.

As most ultra ST funds invest up to 90% of their corpus in such instruments, they are set to become more volatile. “Ultra ST funds invest significantly in money market instruments. Now their NAVs will be more volatile and they can also give negative returns on some days,” says Mahendra Jajoo, head (fixed income), Pramerica Asset Managers India Ltd, which is waiting for Sebi’s second-stage license to start its MF operations in India.

They will be more realistically priced as most of their underlying instruments will reflect the prevailing market price.

More realistic

Ultra ST funds are set to lose sheen as they will now be more realistically priced. Fund houses introduced these funds in 2007 when the year’s budget increased the dividend distribution tax (DDT) for corporates from 14.03% to 28.03% in liquid funds. Ultra ST funds were devised to provide liquidity with the tax advantage.

Your fund manager’s skills would be tested to the hilt. “Fund managers will have to sharpen their skills to be able to dynamically manage the duration of funds and debt papers,” said Maneesh Dangi, head (fixed income), Birla Sun Life Asset Management Co. Ltd. “Liquid funds are safer as they can’t invest in debt papers that mature after 90 days,” said Arvind Chari, debt fund manager, Quantum Asset Management Co. Ltd.

Industry sources say that Sebi’s latest move is just the beginning. To ensure that a October 2008-type crisis is not repeated and corporate investors do not use the MF route to save taxes, the coming Budget may plug the loopholes, experts predict. Just like liquid funds, ultra ST funds may also have to pay higher DDT to reduce the tax arbitrage that corporates now enjoy.

Ultimately, such moves will only help the industry focus more on retail than institutional investors. About 66% of the industry’s corpus lies in ultra ST and liquid funds as per the December figures released by the Association of Mutual Funds of India. Reforms such as these would nudge the industry to focus more on retail investors.

Source: http://www.livemint.com/2010/02/08211205/Why-liquid-funds-may-soon-lose.html