Mutual funds see no gain from IRDA move on agent fee disclosure

Even as the Insurance Regulatory and Development Authority (IRDA) asks insurance companies to disclose commissions paid to agents, mutual fund experts say the step is not enough to create a level playing field for mutual funds vis-à-vis ULIPs. It will take some time for the mutual fund industry to recover from the dip in distributor revenue due to the entry load ban, the experts observe.

The ban on entry load for mutual fund products last year had sparked off the confrontation between the insurance and mutual fund industries on the non-uniformity of the commission structure. According to industry insiders, nearly half of the country's independent financial advisors selling mutual funds have quit due to the ban on entry load. They say that many distributors have also chosen to sell ULIPs rather than mutual funds as the former offered more lucrative commissions.

ULIP Vs. mutual fund

Some observers also see the recent spat between the Securities and Exchange Board of India (SEBI) and IRDA on the jurisdiction of ULIP as a fallout of this clash of interests.

“The basic idea behind SEBI's move to claim jurisdiction of ULIP is to bring parity in commissions,” says the head of a mutual fund company on condition of anonymity.

Since the ban on entry load, upfront commission for mutual fund distributors has been slashed from about 2.5 per cent to 0.5 per cent. In contrast, the upfront commission for ULIPs remains 20-40 per cent even after the recent cap on charges.

Phased changeover

“Any move by the insurance regulator which infuses transparency in the system is welcome; but such changes should be phased and not rushed into. It will take at least a year for the mutual fund industry to regain the business of pre-entry load barrier days,” Mr Rajiv Deep Bajaj, Vice-Chairman and Managing Director, Bajaj Capital said. The revenues from Bajaj Capital's mutual fund business dropped 40 per cent in the last 6-8 months, and this was more or less compensated by the rise in revenues from ULIPs and fixed income instruments, he added.

While distributors are gearing up to charge commissions directly from investors for advisory services, only about 30 per cent of customers are willing to pay the additional fee, Mr Bajaj said. “The strategy for the remaining 70 per cent would be to reduce operating cost by using online medium and impart more efficiency in the distribution system,” he said. Investors generally would prefer to pay commission for financial instruments if it was embedded in the product pricing and not on a voluntary basis, he pointed out.

Mr Atul Suchak, an independent financial adviser said, “We are trying to mitigate the fall in charges by acquiring more customers by offering innovative and interpersonal advisory services.”

Source: http://www.thehindubusinessline.com/2010/04/30/stories/2010043050671200.htm

'Equity funds have lowest rate of survivorship'

Equity funds have the lowest rate of survivorship over a five-year period when compared to other fund categories, said a Standard & Poor's-Crisil survey report.

S&P Crisil has introduced a new performance scorecard for mutual fund schemes taking into account some unique attributes.

The report covers equity, hybrid and fixed income categories of funds.

S&P Crisil Spiva scorecard removes survivorship bias, also compares a fund's return against the returns of a benchmark for that particular style and size category, said a release issued by S&P Crisil.

Also the scorecard shows both equal and asset weighted averages unlike the usual practice of calculating average returns using only equal weighting.

“S&P Crisil Spiva” performance scorecard presents the performances of actively managed mutual funds in India as compared to benchmark indices (S&P CNX Nifty and S&P CNX 500).

According to the report, “Benchmark indices have outperformed a majority of funds in most categories across one-year, three-year and five-year time periods.”

The S&P CNX Nifty index has outperformed at least 55 per cent of active large cap equity funds across all observed time periods and 70 per cent of large cap funds under performed the S&P CNX Nifty Index over a 5-year period.

Large cap and diversified equity funds only have a 74 per cent and 85 per cent rate of survival over 5-year periods respectively.

On the other hand, ELSS funds enjoyed a 100 per cent survivorship rate across all time horizons due to mandatory 3-year commitment for investors to invest in ELSS funds for availing tax benefits.

Source: http://www.thehindubusinessline.com/2010/04/30/stories/2010043052161300.htm

Sanjay Sinha, CEO, L&T Mutual Fund

Sanjay Sinha, CEO, L&T Mutual Fund, which was known as DBS Chola Mutual Fund before it was acquired by L&T Finance in January 2010. Before joining DBS Cholamandalam Asset Management in September 2008, Mr. Sinha was the Chief Investment Officer at SBI Mutual Fund. He started his career with UTI AMC Pvt. Ltd. and was with them for over 16 years. He joined SBI Funds Management in 2005. Mr. Sinha is an Honours Graduate in Economics from University of Delhi and a Post Graduate from IIM Kolkatta.

L&T Mutual Fund is one of the premier mutual funds in the country that serves the investment needs of investors through a suite of acclaimed mutual fund schemes. With a well laid out investment management process and an equally proficient fund management team, L&T Mutual Fund helps its investors reach their financial goals. L&T Mutual Fund is present across 37 cities through its network of dedicated branches and is continuously increasing its footprints across the country. L&T Mutual is backed by one of the most trusted and valued brands, L&T Finance as the sponsor. L&T Finance and L&T Mutual Fund are part of the L&T Group, one of the largest and most respected groups.

In an exclusive interaction with Hemant P. Maradia and Fahima Shaikh of IIFL, Mr. Sinha says, "India stands out due to strong pace of GDP growth, which should be sustained over the next few years."

What is your reaction to the Goldman Sachs fraud case?

There is a point of view that the some of the activities of the big US banks are not transparent and beyond the jurisdiction of many regulatory authorities. These issues have been cropping up every now and again. What we right now have is mounting of an investigation by the SEC into alleged irregularities of Goldman Sachs in relation to a particular product. We don’t know what will be the conclusion of these findings. So, on that one would be a little guarded in responding. However, a couple of issues are still worrisome. One is the opacity with which some of the Wall Street banks operate. Another is the infallibility of the so-called big banks. It will be difficult to predict the enormity of the issue.

Some time back there were talks in the US on new set of regulations to be introduced for the financial firms. With the Goldman fraud case, the case for the new legislation will be strengthened further.

What is your outlook on interest rates?

We expect the RBI to go for calibrated hike in interest rates. Rate tightening cycle may be more front-ended. Most of the rate increases may get over in the first half.

Some of the pressure on the RBI to raise rates may subside in the second half. Inflation should start to moderate from the second quarter of FY11. If we have a reasonably good monsoon then food price inflation should also come down.

Also, there will be a need to get the capex cycle moving in a far more accelerated pace. A softer interest rate environment will be conducive for corporate investments.

How do you see benchmark yields?

The bond market seems to have received the borrowing programme positively; because it is staggered. Given the fact that there will be some more monetary tightening, there will be an upward pressure on benchmark 10-year yield. At the same time, the tightening cycles will not be too prolonged. In that case, the 10-year yield may not rise too much beyond 8.5-8.7%.

Indian shares recently touched 2-year highs? What in your view could be the challenges or concerns immediate or medium to long term?

In the near-term, the market will tend to react to every upward movement in interest rates. Historically, whenever there are rate hikes, the market has reacted negatively. A fairly large chunk of the market is in the interest rate sensitive sectors. Also, some of these rate sensitive sectors are fairly high beta in nature. So, whenever there is a rate hike, these sectors tend to take a hit, which in turn affects the overall market.

But I feel that if the stocks in these rate sensitive sectors do fall in reaction to RBI action, it will be a good long-term opportunity. Banks have largely benefited whenever the interest rate cycle has turned up. Loans will be re-priced faster and the deposits are anyways coming in for re-pricing. Therefore, their net interest margins would tend to expand. While there will be treasury losses they will be notional in nature.

Has the risk-reward ratio for equities narrowed? Where do you see opportunities now?

Corporate investments may start to pick up from now onwards. Out of the Rs20 trillion that was earmarked for spending on infrastructure in the 11th Five-Year Plan, only about Rs8 trillion has been spent so far. So, in the last two years of the Plan, there will be accelerated spending on infrastructure. In addition, there is a proposal to hike the infrastructure spending in the 12th Plan to US$1 trillion (Rs45 trillion). What this means is that the investments will have a major part to play in boosting India’s GDP going ahead.

There will be huge opportunities that will emerge from accelerated investments and the same will not be confined to sectors directly linked to infrastructure. This in turn makes the overall outlook for the market positive.

Another factor that influences the market is liquidity. With the global economy recovering funds will move from less risky asset classes to riskier asset classes. While there will be large allocations toward developed markets, there will also be proportional allocation to the emerging markets, where India will be hard to ignore. So, I expect the momentum in FII inflows to continue going forward also.

RBI’s role in maintaining the financial stability has been remarkable. This has happened because it has a fairly measured approach toward opening the various parts of the financial sector. It has now a good number of time-tested tools to formulate its monetary policy in response to the changing economic situation.

Do you feel the premium that Indian market commands vis-a-via other comparable emerging markets is justified?

India stands out due to strong pace of GDP growth, which should be sustained over the next few years. The capital market structure that is present in the country today also makes it attractive to overseas investors. So, there is a case for one to be overweight on India. The only reason for one to be a little apprehensive about India is on relative valuations vis-à-vis other emerging markets. But, valuation has to be seen with growth prospects and not in isolation.

What would be your advise to those who may have missed the rally and now want to enter the market? Is fresh buying advisable at this juncture or should one wait for a correction?

Markets are fairly valued at this juncture if you consider current earnings. But, from the third quarter of FY10, the earnings momentum has gathered pace. If earnings growth picks up further then the valuations may start appearing attractive.

If you commit a large chunk of your investment money toward equity, and for some reason there is short-term pain, then the initial reaction is one of disenchantment. Retail investors should come into the market in a staggered manner. Trying to time the market on the way up or down hasn’t worked for them in the past. One needs to be clear about the investment horizon and the risk appetite.

Do you fear any asset bubbles building in any part of the Indian economy e.g. real estate prices?

Two divergent trends are emerging in real estate. In commercial space, there is excess capacity and rates haven’t come down. So, the offtake is slow on the commercial side. The residential side is doing reasonably well. In the last quarter of 2009 when developers dropped the prices there was significant offtake. But now rates have started rising again. Despite that, there is demand for fairly priced residential properties. Wherever, the prices are moderate, the inventory is being reduced.

Are you satisfied with the Government’s policies?

This Government has decided to go for incremental reforms rather than blockbuster measures. So, the policy announcements are not creating too much of a sensation. But, the policies have been positive for sectors at which they are aimed at.

What is your reaction to FPOs not doing well?

It is good for the Government to offload shares in public enterprises to a larger pool of shareholders. A few significantly large PSUs are being brought to the market. The flip side is because the Centre is aiming to raise such a large amount of money through disinvestment in a short period of time, there may be pressure on the markets due to the liquidity that it will suck out from the system. Also, in few cases, the pricing has been aggressive, which has left retail investors disappointed. This will be another negative going forward.

How do you see the sovereign debt problems in certain parts of Europe?

There will be among the trouble spots in 2010 for the global markets. Issues connected with Greece have also not been resolved totally. The eurozone will be a cause for concern in 2010.

What about China?

They have executed some tightening for the real estate sector recently. There also seems to be some willingness to allow the yuan to appreciate much more rapidly. These two developments suggest the China is ready to move towards a market-driven economy. Rate tightening will slow the Chinese economy and yuan appreciation will make other nations more competitive. As long as the re-balancing in China is a gradual it won’t impact the world markets that much.

Which are the themes you are betting on for this year and the next fiscal?

Engineering and Capital Goods looks like an enduring theme. Pharma sector should also do well. What doesn’t look attractive in the short term actually is good in the long term. Therefore, Banking & Financials, Autos, etc. would be good to accumulate at lower levels.

We have a contrarian call on IT. If these companies have been able to sustain business in the downturn, they should be able to expand volume in the upturn. Right now, the stocks are reacting to Rupee appreciation. But, the Dollar could start rising in the latter half of the fiscal year, which will be good for IT companies.

What about telecom, fertilizer and FMCG?

Telecom we are not positive because of the competitive pressure and aggressive bidding for 3G spectrum. We are underweight on Telecom as of now. Deregulation in fertilizer is happening in calibrated manner. It is not getting deregulated completely. Some of the actual benefits for the sector will come a little back-ended. Most of the good news is already reflected in the stock prices. For some time, the sector may be a market performer.

FMCG is attractive but it is a fairly well-penetrated sector now. It is also prone to a lot of competitive pressure. But, the economic growth is more effectively getting passed onto the grass root levels. That will lead to greater purchasing power in the rural areas. How big an impact this will have on the sector would be visible in the quarter-on-quarter growth of FMCG companies. As of now, one is a little guarded about the sector.

What is your view on small-cap and mid-cap stocks?

The mid-cap segment may outperform the large-cap stocks in FY11. If the economy as a whole is doing well then it presents a whole host of opportunities to companies of small-and mid sizes.

Could you give your take on the SEBI-IRDA spat over ULIPs?

The move by SEBI is aimed at making a level playing field for all types of similar financial products. As of now the field is uneven with different guidelines for products with similar attributes. If the field is leveled then the ability of mutual fund industry to tackle competition from other similar products will increase. Mutual Funds are one of the most cost-effective investment products. It also has a fairly good track record in terms of returns delivered net of expenses.

How do you feel commodity prices will behave in the next few months?

If you look at the way commodity prices have moved in the past few months, they seem to have factored in a global economic recovery much ahead. But, there is still scope for commodity prices to rise from here onwards though they may not gain as rapidly as they have done in the past 12 months. If commodity prices do shoot up sharply it could derail the entire growth process.

There will be an aggregate demand for commodity as the global growth picks up pace. Also, two of the world’s most populated nations – India and China - are witnessing accelerated growth. Because of the scarcity of resources there will be an upward pressure on commodity prices. In the short term one will see volatility in commodity prices and stocks related to commodities.

Source: http://www.indiainfoline.com/Research/LeaderSpeak/Sanjay-Sinha-CEO-LandT-Mutual-Fund/10498950

DWS Fixed Term Fund - Series 70 Floats On

Deutsche Mutual Fund has launched a new fund named as DWS Fixed Term Fund - Series 70, a 370 day close ended debt fund. The New Fund Offer (NFO) price for the scheme is Rs. 10 per unit. The new issue is open for subscription from 28 April and closes on 4 May 2010.

Source: www.karvymfs.com

Fund managers gung-ho about realty debt papers

The outlook on real estate sector may not be too bright at the moment, but that is not deterring mutual funds from investing in paper issued by property developers.

In addition to the old restructured papers of Gurgaon-based builder Unitech, debt schemes of fund houses like SBI, ICICI and UTI have invested in papers of companies like K Raheja, Emmar MGF Land and Shapoorji Pallonji.

As per mutual fund tracker Value Research, UTI Bond (medium term) fund has invested Rs 14.7 crore in ‘BBB’-rated floating rate bonds of Emmar MGF Land. ICICI Prudential Liquid Fund has invested over Rs 421 crore in secured debentures of K Raheja Corporation. LIC Income Plus and SBI Short Horizon Debt Fund have invested Rs 1.8 crore and Rs 1.6 crore respectively, in the ‘A1’-rated commercial papers of Shapoorji Pallonji.

However, raters tracking debt are comfortable with the debt-equity mix of most real estate companies and are positive on the sector. “The fundamentals of India’s real estate sector are improving, as seen by better liquidity and improved demand in the residential segment,” said Rakesh Valecha, senior director, Fitch Ratings.

Enhanced affordability, lower mortgage rates and better job security have helped revive demand for homes, according to Mr Valecha. “Demand in the commercial segment remains weak, primarily due to over-supply and the scale-back of expansion plans by corporate India. But then, we expect demand for commercial spaces to improve in the second half of 2010,” he added.

According to analysts, in sharp contrast to 2007 and early 2008, real estate companies are not investing money to acquire mass land bank or other fixed assets. Post the turmoil in end-2008, real estate companies have realised the need for a stronger balance sheet. Many over-leveraged real estate firms have used their cash in books to de-leverage themselves.

Equity analysts tracking the sector are currently maintaining a neutral to near-positive outlook on the real estate sector. They expect prices to be stable in the medium term due to good demand. Property prices may only rise 3-5% over the next few months, say analysts.

Such a price trend could sustain the demand for real estate for a longer term. Moderate demand will enable real estate companies to complete existing projects and take up new ones. Pressure on profit margins, however, cannot be ruled out, analysts opine.

Overall, credit metrics are expected to recover in 2010 and 2011, as developers are expected to improve their capital structure, operating margins, and liquidity. According to sources, the restructured loans of Unitech are expected to come up for repayment (or reaching maturity) in about 6-8 months’ time. Unlike in 2008, fund managers and paper valuers are not expecting the company to have too many problems in repaying the debt.

Debt schemes like HSBC Cash and HSBC Ultra Short Term Bond, Kotak Flexi Debt, Reliance Money Manager and Sundaram BNP Paribas Ultra Short Term fund still have investments in papers of Unitech. The Gurgaon-based company had restructured and rolled over the debt due to mutual funds in early-2009, as it was not in a position to repay because of low demand for real estate and beaten-down prices.

“We’ve not made any fresh investments in real estate companies since 2008. Our current investment in Unitech was done some time ago. In fact, our current investment is just 10% of what it was two years ago,” said K Ramkumar, head-fixed income, Sundaram BNP Paribas Mutual Fund.

“Unitech has paid back almost 90% of the debt in time. It is paying us a bulky monthly coupon as per a pre-set arrangement. Our investments are perfectly in order,” Mr Ramkumar added.

Source: http://economictimes.indiatimes.com/markets/real-estate/realty-trends/Fund-managers-gung-ho-about-realty-debt-papers/articleshow/5865613.cms

DSP Black Rock to mobilise Rs 2,000 crore from its NFO

DSP Black Rock mutual fund on Tuesday said it plans to mobilise around Rs 2,000 crore from the new fund offer, an open ended equity growth scheme focusing on investment in 25 stocks of top 200 companies by market capitalisation. "We expect to mobilise around Rs 2,000 crore from our open ended equity growth scheme DSP Black Rock Focus 25 fund, of which Rs 175 crore is the expected investment from Gujarat," Fund Manager DSP Black Rock Focus 25 Fund Apoorva Shah said.

Source: www.karvymfs.com

Indian bond yields in narrow range; auction eyed

Indian federal bond yields were largely steady on Monday supported by ample cash conditions in the banking system but impending debt supplies prevented traders from adding aggressive positions.

The yield on the benchmark 10-year bond IN063520G=CC ended up one basis point at 8.07 percent after trading in the 8.06-8.10 range. Volumes were a heavy 81.45 billion rupees ($1.8 billion) on the central bank's trading platform.

"The market will be guided by what auction securities are announced for this week," said K. Ramkumar, head of fixed income at Sundaram BNP Paribas Mutual Fund.

After market hours, the government said it would sell 50 billion rupees each of the of the 7.38 percent bonds maturing in 2015 and a new 10-year bond along with 20 billion rupees of the 8.28 percent bonds maturing in 2032 on Friday.

Dealers said the announcement of a new 10-year bond sale would result in a sell-off in the existing 10-year benchmark bond and volumes would shift to the new bond eventually, leaving the current benchmark bond illiquid.

Traders are worried about the market's capacity to absorb the wall of weekly supplies as the government looks to sell 2.87 trillion rupees of bonds in the April-September period against the backdrop of the central bank tightening policy to reign in inflation.

The government has already sold 370 billion rupees of bonds since the beginning of April.

Banks parked 482.90 billion rupees in the central bank's reverse repo window on Monday, which assured the market that cash conditions in the banking system are abundant.

This was despite the 25 basis point cash reserve ratio hike which took effect on Saturday, draining about 125 billion rupees from the banking system.

Traders said they would also keep an eye on the outcome of the U.S. Federal Reserve's two-day policy meeting on Wednesday. The Fed is expected to keep interest rates unchanged near zero and repeat its pledge to keep them low for an extended period. [ECI/US]

In interest-rate futures on the National Stock Exchange, the June contract N10M0 implied a yield of 8.2814 percent.

The benchmark five-year interest rate swap ended at 6.90/93 percent, unchanged from Friday's close. [IN-SWAPS] ($1 = 44.4 Rupees)

Source: http://in.reuters.com/article/companyNews/idINSGE63P0NV20100426?pageNumber=2&virtualBrandChannel=0

Child care through mutual funds

Fund houses have balanced schemes and monthly income plans to cater to children's long-term needs.

Parents often seek the best way to save for their children. And aggressive advertising can confuse them. There are various insurance schemes, namely child plans, in the market. Also, many fund houses have schemes that cater specifically to this need.

UTI Mutual Fund, Tata Mutual Fund and Franklin Templeton Asset Management have been running schemes catering to financial planning for children for over a decade.

Such schemes offered by mutual funds are similar to either balanced funds or monthly income plans (MIPs). Being low-cost investment instruments compared to pure insurance products, these made more financial sense for child planning, said financial planners.

“Compared to an insurance product, they work out to be more cost-efficient,” said Malhar Majumder, a certified financial planner. He added, “Though diversified equity funds are the best option for any long-term goal, these schemes suit investors who keep moving in and out of mutual fund based on market conditions. Investing for children creates a psychological hurdle that prevents parents from either breaking the investments or switching.”

“That is why we accept applications only in the name of a child. This further deters parents from utilising this money for other purposes,” said Ranen Gandhi, head (products), ICICI Prudential Mutual Fund.

Structure

Most of the equity-oriented plans in this category are balanced funds. This helps in automatic rebalancing of equity and debt and even reduces the risk of volatility.

There are around six equity-oriented schemes, including ICICI Pru Child Care (Gift), HDFC Children's Gift (Investment), Principal Child Benefit SS-Career Builder, UTI CCP Advantage, Templeton India CAP Gift and LICMF Children Fund. Except for ICICI Prudential, which has a customised index, all the funds have Crisil Balanced as their benchmark.

However, asset allocation between equity and debt differs from fund-to-fund. For example, though UTI CCP Advantage is a balanced fund, it has the mandate to invest in equity up to 100 per cent and up to 35 per cent in debt. HDFC Children's Gift's (Investment) equity allocation can range from 40 to 75 per cent and debt allocation from 25 to 60 per cent.

Equity allocation of over 65 per cent makes these funds more tax-efficient. There is no long-term capital gains tax for the unitholder if the fund maintains equity allocation at 65 per cent of the overall corpus.

Within debt, there are six funds, including ICICI Pru Child Care (Study), UTI CCP Balanced, HDFC Children's Gift (Savings), Magnum Children's Benefit Plan, Templeton India CAP Education and Tata Young Citizens.

The equity-oriented schemes were suitable for children under 13, as equity investment required long-term investments, said financial planners. Later, one can move the money into debt-oriented plans through a systematic withdrawal plan, as you get closer to your financial goal.

A person investing in these schemes can also opt for lock-in. For example, HDFC Mutual Fund offers a lock-in for both its funds. If a person opts for this option, the money cannot be redeemed until the child attains 18 years or until each investment completes three years, whichever is later.

Insurance

Some of these schemes also offer insurance cover. These include ICICI Prudential and Tata Mutual Fund. However, this is a personal accident insurance cover. Between the two, ICICI Prudential covers one parent for Rs 5 lakh or 10 times the units held, whichever is lower. Tata Mutual Fund covers a child for personal accident for Rs 1.5 lakh, as per the scheme's information document. “This cover is of little use to the investor. Such a product is available at a small cost elsewhere. What a parent requires is life insurance,”said Majumder.

Even for accident insurance, there would be many clauses and caveats. An investor should first gain clarity on insurance before relying on it.

Performance

In the past one year, ICICI Prudential ChildCare Gift (97.84 per cent), HDFC Children's Gift (Investment) (66.91 per cent) and Principal Child Benefit (59.80 per cent) are among the top 10 balanced funds by returns. In the debt-oriented category, ICICI Prudential ChildCare Study (25.62 per cent), UTI CCP Balanced (27.59 per cent), Tata Young Citizens (38.43 per cent) are among the top 10 schemes by returns.

AT A GLANCE
Schemes (Equity-Oriented)	5-Year	3-Year	1-Year	Equity	Debt	Benchmark	Net Assets (Rs Cr)
ICICI Pru Child Care-Gift	19.22	11.53	97.84	65-100	0-35	50% mid-cap & 50% small-cap	153.93
HDFC Children's Gift Inv	15.97	12.22	66.91	40-75	25-60	Crisil Balanced	225.57
Principal Child Benefit SS-Career Builder	23.46	14.65	59.80	65-75	25-35	Crisil Balanced	30.13
UTI CCP Advantage-G	9.06	11.61	44.91	70-100	0-35	Crisil Balanced	48
Templeton India CAP Gift-G	-	9.86	44.71	40-75	25-60	Crisil Balanced	6.7
LICMF Children Fund-G	-	-11.42	39.36	0-70	0-100	Crisil Balanced	7
Tata Young Citizens	14.17	8.99	38.43	0-50	0-50	Crisil Balanced	175.83
Schemes (Debt-Oriented)
ICICI Pru Child Care-Study	12.68	10.65	25.62	0-25	75-100	Crisil MIP BI	30.97
UTI CCP Balanced	11.88	9.27	27.59	0-40	60-100	Crisil H 60:40	2,780.52
HDFC Children's Gift Sav	9.56	12.24	22.84	0-20	80-100	Crisil MIP BI	60.11
Magnum Children's Benefit Plan	8.83	7.44	15.09	0-25	0-75	Crisil MIP BI	21.84
Templeton India CAP Education	8.22	6.21	12.14	0-20	80-100	Crisil MIP BI	1.42
Source: Value Research; Returns as on April 23

“We get long-term money and only from retail investors, that's why the corpus of such scheme is small. However, this helps to construct the portfolio accordingly. Most of the funds in this category are consistent, if not star performers,” said Gandhi.

Investments

When planning for a child's future, a person should always keep adequate insurance, said financial planners. Without relying on insurance bundled with the scheme, a parent should take a low-cost term plan that covers the child in case of death of the parent.

Source: http://www.business-standard.com/india/storypage.php?autono=393093

Product Crack | Kotak Credit Opportunities Fund

Name of new fund offer (NFO)

Kotak Credit Opportunities Fund

What is it about?

It would invest significantly in debt papers with a maturity of up to one year, and also those maturing after a year. On the basis of the maturity, the NFO would position itself between Kotak’s short-term bond fund and long-term bond fund.

What works?

It has a potential for aggressive investors looking for a relatively shorter duration but seeking more returns than what a typical short-term fund would give. As Kotak’s Short-Term Bond Fund (KST) invests in debt papers with a duration of 5-12 months, the new fund is an aggressive option to KST. Kotak Mutual Fund’s debt fund management enjoys good pedigree and has delivered consistently.

What doesn’t?

Understanding the duration is necessary to get the most out of any debt fund, especially the risky ones. Say, a fund has a duration of a year and you withdraw within two months, the returns may disappoint. Since this fund aims to have a chunk of its assets that mature in a year’s time, it may be too aggressive for investors seeking to invest for 3-6 months. Also, as per its offer document, it gives its fund manager flexibility to be almost on a par with its short-term fund, which could be a risk in the long run.

Money Matters Take

KST is a safer choice if you wish to invest conservatively over six months to up to a year. The NFO may offer something new, from what KST offers, but how well it is able to differentiate itself from short-term funds is to be seen. Too many products confuse the investor, especially if there is choice. Aggressive short-term funds may be an option.

Source: http://www.livemint.com/2010/04/26205635/Product-Crack--Kotak-Credit-O.html

SEBI warns HSBC Mutual fund for contravening MF regulations

The Securities and Exchange Board of India (SEBI) on Monday warned leading mutual fund group HSBC for contravening MF regulations. The asset management company (AMC) had changed the name as well as the index of the HSBC Gilt Fund in 2009 and the investors were not informed of the sudden changes in the scheme, the regulator said. Also, investors were not informed of the change in duration after extension, SEBI added.

source: www.karvymfs.com

Birla Sun Life Mutual Fund announces dividend under Birla Sun Life Pure Value Fund

Birla Sun Life Mutual Fund has declared dividend under its scheme namely Birla Sun Life Pure Value Fund (close ended diversified equity scheme). The quantum of dividend decided for distribution under the scheme will be 10 per cent that is Rs. 1 per unit where face value of the scheme is Rs.10 per unit. The record date decided for distribution of dividend is 30th April, 2010

Source: www.karvymfs.com

Reliance MF Launches 371 Days Plan

Reliance Mutual Fund has launched a new fund named as Reliance Fixed Horizon Fund – XV – Series 4, a close ended income scheme. The New Fund Offer (NFO) price for the scheme is Rs 10 per unit. The new issue is open for subscription from 26 April and closes on 27 April 2010.

The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio of Central, State Government securities and other fixed income/ debt securities normally maturing in line with the time profile of the scheme with the objective of limiting interest rate volatility.

The duration of the scheme is 371 days from the date of allotment.

The scheme offers two options viz. growth and dividend payout option.

The scheme will allocate up-to 70% of assets in money market instruments and it would allocate 30% to 100% of assets in Government Securities issued by Central & or State Government & other fixed income/ debt securities including but not limited to Corporate bonds and securitized debt with low to medium risk profile. Debt Securities will also include securitised debt, which may go up to 75% of the portfolio. Average maturity of the securities will be in line with the maturity profile of the scheme.

The minimum application amount is Rs 5000 and in multiples of Re 1 thereafter.

The fund seeks to collect a minimum subscription (minimum target) amount of Rs 20 crore under the scheme during the NFO period.

Entry and exit load charge will be nil for the scheme.

Benchmark Index for the scheme is CRISIL Short Term Bond Fund Index.

The fund manager of the scheme will be Amit Tripathi.

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

IDFC MF Declares Dividend For Small and Midcap Equity Fund

IDFC Mutual Fund has announced the declaration of dividend under dividend option of IDFC Small and Midcap Equity Fund (IDFC-SMEF). The record date for dividend has been fixed as 29 April 2010.

The quantum of dividend will be Rs. 1.60 per unit subject to availability of distributable surplus as on the record date. The scheme recorded NAV of Rs 15.6646 as on 22 April 2010.

IDFC Small and Midcap Equity Fund has the investment objective to generate capital appreciation from a diversified portfolio of equity and equity related instruments. The scheme will predominantly invest in small and midcap equity and equity related instruments. Small and Midcap equity and equity related instruments will be the stocks included in the CNX Midcap index or equity and equity related instruments of such companies which have a market capitalization lower than the highest components of CNX Midcap index.

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

DSP Blackrock launches DSP Blackrock Focus 25 Fund

DSP Blackrock Mutual Fund announced the launch of DSP Blackrock Focus 25 Fund. This is an open ended equity growth scheme investing largely in companies, which are amongst the top 200 companies by market capitalization. The Focus 25 Fund is scheduled to open on 23 April and closes on 21 May.

Source: www.karvymfs.com

Sebi may cap PMS fees on realty fund

The Securities and Exchange Board of India (Sebi) is considering a cap on the fees charged by portfolio management service (PMS) providers for their real estate fund, a person familiar with the development told ET. Investors have complained to Sebi that most PMS providers are charging the full management fee upfront, rather than in proportion to the net invested amount.

Source: www.karvymfs.com

Franklin Templeton MF to Wind up Franklin India International Fund

Franklin Templeton Mutual Fund has announced to wind down Franklin India International Fund (FINTF). The scheme will stand wound down as on 30 April 2010. The major reason for it is strengthening of Indian Rupee against the US Dollar since the scheme's launch together with the scheme's performance profile resulted in a sharp reduction in demand for FINTF. Hence, as part of the ongoing product rationalization exercise, the scheme will be wound down.

Accordingly from 22 April 2010 the Trustee and the Asset Management Company shall cease to carry on any business activities in respect of scheme so wound up, create or cancel units in the scheme and issue & redeem units in the plan.

Source: http://www.bloombergutv.com/stock-market/mutual-fund/commentary/388113/franklin-templeton-mf-to-wind-up-franklin-india-international-fund.html

Sales, marketing costs eat into mutual fund profits

While equity assets have doubled in the FY2010 as compared to the previous fiscal, higher sales and marketing costs are to dent profits of the Indian mutual fund houses. A McKinsey report, estimates that over 50% of total costs of an asset management company (AMC) comprise just the sales and marketing expenses.

“Indian mutual fund industry is in the growth phase and in terms of assets is smaller than other developed markets. So in terms of percentage our sales and marketing cost would be higher initially,” said Ved Prakash Chaturvedi, MD, Tata Asset Management. He added, however, that the marketing budgets would be lesser in absolute numbers.

The report also states that in India, while sales and marketing expenses comprised 54% of overall costs, fund management was another 12% and rest (34%) back office and IT infrastructure costs. However, in Western Europe, sales and marketing costs as a proportion of overall costs were much lower. In western europe, while sales and marketing comprised 24% of overall costs, fund management was another 32% with back office/IT expenses forming the rest of the costs (44%). The report further mentions that sales and marketing expenses needs to be effectively managed to enhance profitability. It is estimated that in the year 2000-10, sales and marketing expenses for the entire Indian fund industry has been over Rs 2,000 crore. Bulk of the sales and marketing expenses comprise the brokerage charges. While FY ‘ 10 figures are yet to be disclosed, Reliance Mutual Fund in FY ’09, approximately spent Rs 75 crore as marketing expenses which included Rs 66 crore towards brokerage fees and remaining towards advertisements. For HDFC MF, Rs 44 crore was towards brokerage fees and another Rs 11 crore towards scheme launch expenses in FY ’09. Both the above mutual funds earned Rs 375-400 crore in the form of revenues in FY ‘09.

After the ban on entry load post August ‘09, it seems the sales and marketing costs has escalated even more since mutual fund houses now pay it from their own pockets instead of investors. According to industry experts, several big as well as mid-size fund houses still pay an upfront commission to the distributor of over 1.25-1.5% on new sales.

Source: http://www.financialexpress.com/news/sales-marketing-costs-eat-into-mutual-fund-profits/609558/

Quantum Mutual Fund introduces STP facility under its scheme

Quantum Mutual Fund has decided to introduce daily and weekly Systematic Transfer Plan (STP) under Quantum Liquid Fund. The minimum STP amount for the daily plan is Rs. 100 and in multiples of Rs 100 thereafter and for the weekly plan Rs. 500 and in multiples of Rs 100 thereafter. The minimum number of installments under the STP facility will be 132 and 24 respectively. SIP facility will be available only on mutual fund business days. The investor has to submit STP application at least 10 business days in advance before commencement date of daily STP and weekly STP. This facility came into effect for the investors from 16th April, 2010.

Source: www.karvymfs.com

Sundaram Fin to buy out BNP in JV

Chennai-based Sundaram Finance Group is set to buy French bank BNP Paribas’ 49.90% stake in their domestic mutual fund joint venture, Sundaram BNP Paribas Asset Management.

The decision comes after the Securities and Exchange Board of India (Sebi) earlier this year asked BNP, which also owns Fortis Mutual Fund here, to limit its exposure to the Indian mutual fund industry through a single entity.

BNP Paribas had bought a stake in Sundaram Finance’s mutual fund in 2005. But, last year, Fortis Mutual Fund came under the French bank’s umbrella after it acquired Belgium-based Fortis Bank’s various international operations, including the domestic mutual fund business.

As rules do not allow one firm to own stakes in more than one Indian asset management companies, market regulator Sebi set a deadline of March 31 for BNP to decide on how it wanted to operate in India’s 36 member-strong mutual fund industry.

While conveying to Sebi the decision to sell its stake in Sundaram BNP Paribas Asset Management, BNP has sought approval to conclude the deal by June, said a person close to the matter. ET could not ascertain how much Sundaram will shell out to buy the stake.

In a response to ET’s email questionnaire, a BNP spokesperson said, “We do not comment on this story. BNP Paribas studies (sic) the various strategic options on the Indian market.” Sundaram Finance officials could not be reached for comment. BNP had the option of selling its stake in Sundaram BNP Paribas Asset Management or push for the merger of Fortis Mutual Fund with the mutual fund joint venture, said another person in the know.

Sundaram BNP Paribas’ merger with Fortis Mutual Fund would have resulted in Sundaram Finance owning a lower stake in the new entity, unless it wanted to pump in more money.

“The thinking in the Sundaram Finance camp has been to buy BNP’s stake (in Sundaram BNP Paribas Asset Management) and own the entire company rather than pump money into an entity where they have a lesser say,” the person in the know said. “Also, there is discomfort at Fortis’s assets being mostly debt,” he added.

Fortis Mutual Fund managed assets worth Rs 7,889 crore, as on March 31. Sundaram BNP Paribas Asset Management managed assets worth Rs 13,877 crore as on March 31. The mutual fund industry had assets under management worth about Rs 7.5 lakh crore in the period. Industry officials said Sundaram Finance will probably look to grow its equity assets under management and look for a partner later at higher valuations.

“Roping in a bank with a wider reach as partner would be a good strategy at a later stage to grow this business (mutual fund),” said a senior official with a private mutual fund.

Source: http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/Sundaram-Fin-to-buy-out-BNP-in-JV/articleshow/5841925.cms

Value Research joins hands with UK-based Financial Express

Mutual fund research firm, Value Research has joined hands with UK-based Financial Express to launch Value Express, a complete solution in investment data management that is designed to help asset management companies (AMC), retail investors and financial advisors to make sound investment decisions, a company statement said here.

Financial Express is UK's number one provider of mutual fund data and analytical tools.

"Value Express would offer an overall holistic approach to data, information management and dissemination that would produce excellent results due to the economies of scale and consistency of approach," Value Research Founder, Dhirendra Kumar told reporters here.

It will also assist the maintenance of existing services in relation to market changes, and the development of future services.

Our partnership with Financial Express will allow us to provide world-class services to the Indian market and its customer-driven approach will enable mutual fund companies of India to achieve higher levels of support and service in a cost-effective manner and with much reduced timescales, Kumar said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Value-Research-joins-hands-with-UK-based-Financial-Express/articleshow/5840335.cms

SBI Mutual Fund may get a new owner

SBI Mutual Fund’s ownership may soon see a change, with its shareholder Societe Generale Asset Management merging with Credit Agricole Group’s asset management arm globally earlier this year to form a new entity, Amundi.

SBI owns 63% in SBI MF, while France’s Societe Generale Asset Management owns 37%. Sources said SBI MF, which has assets under management worth around Rs 37,000 crore, has sought Sebi’s approval to effect the change in ownership following the merger. A person familiar with the matter said the change will be only in the name of the shareholder, but will not impact the shareholding pattern.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/SBI-Mutual-Fund-may-get-a-new-owner/articleshow/5837964.cms

Now, mutual fund agents on Sebi’s radar

The Securities and Exchange Board of India (Sebi) is planning to introduce norms to regulate mutual fund distributors, said a top official. The stock market regulator is working with the Association of Mutual Funds in India (Amfi) in this regard and plans to effect the proposed norms from June, said Sebi’s executive director KN Vaidyanathan.

“Distributors have to be regulated and we have given the responsibility to Amfi. Every component of capital market intermediaries need to be regulated,” Mr Vaidyanathan told reporters at a Federation of Indian Chambers of Commerce and Industry (FICCI) conference here on Tuesday.

India’s fragmented mutual fund distribution industry is largely unregulated and has been in shambles since August after Sebi banned asset management companies (AMCs) from charging investors the so-called entry load that was mostly used to remunerate distributors.

The new rule gave very little incentive for distributors to sell mutual fund products. While the larger distributors have been less affected by the move, smaller distributors have taken a severe hit, with many of them even shutting shop.

Now, Sebi along with Amfi, is attempting to put processes in place to train and certify distributors.

“The examination which we (Amfi) initiated in 2000 is now undergoing a change. The exam will now be conducted by the National Institute of Securities Market (NISM),” said AP Kurian, chairman, Amfi. “NISM will now conduct all examinations for market participants in the securities market,” he said.

There are around 65,000 mutual fund agents across the country who have Amfi registration numbers (ARN).

The need to train distributors was mentioned in the Swarup Committee’s consultative paper on investor awareness and protection. The paper emphasised on the pressing need in the market for a regulatory structure for mutual fund, insurance and pension sellers and advisers.

There are 30 lakh plus insurance and mutual fund agents and bank officials (as per Swarup committee estimates) which sell retail financial products in India. Separately, at the FICCI event on Tuesday, Sebi chairman CB Bhave stressed on the need to cut costs in securities market transactions and also said sellers of derivatives products should not ‘indiscriminately sell these products’.

“One should see that products are sold to only suitable investors. We need to keep appropriateness in mind... We should not sell these products indiscriminately to push volumes,” Mr Bhave said.

“Cost of securities market transactions is a challenge. We need to be conscious of cost- cutting in market transactions,” he said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Now-mutual-fund-agents-on-Sebis-radar/articleshow/5837944.cms

MFs rediscover the virtues of passivity

With many funds lagging benchmarks, index funds and ETFs become attractive.

Moving away from active management, a clutch of fund houses are planning to launch passively managed funds that include index funds and ETFs (exchange-traded funds).

For the first time, mutual funds (MFs) are showing increased inclination towards passively managed funds after the downturn, when actively managed portfolios were hurt more than index funds.

IDBI Bank, while announcing its MF venture recently, announced it would launch only index funds. “The reason is that they are easy to understand from a retail investor’s perspective and come with lesser expenses than an actively managed fund,” Krishnamurthy Vijayan, CEO of IDBI MF had said at the time of the launch. For a new fund house such as IDBI, it makes all the more sense because costs involved in running the fund are lower.

IDBI is not the only one. Motilal Oswal, which recently got approval to start an asset management business, has filed for a Nifty-based ETF. The underlying index for this is MOSt 50 index, fundamentally an enhanced index based on the S&P CNX Nifty index.

Nitin Rakesh, CEO, Motilal Oswal MF, said, “Markets are becoming more efficient, which makes it all the more difficult to beat the benchmark. With Sebi scrapping the entry load, distributor differentiation for this product has gone. And, the fact that a couple of global players are looking to launch ETFs itself speaks about the importance of this product. ETFs are a huge asset class globally. In India, there is a lot of scope for this product to grow.”

Reliance MF, the largest fund house, has filed for MSCI India Growth ETF and MSCI India Value ETF. These would track the MSCI India index. Sources said a couple of other fund houses, one being Deutsche, are also planning to launch passively managed funds.

Currently, Benchmark MF is the only fund house dedicated to ETFs. It launched a Hang Seng ETF last month and plans to launch an infrastructure ETF.

Experts said a lot of investors became disenchanted with actively managed funds after the market crash as most of them were unable to beat the index. In spite of entrusting their money with professional fund managers, retail investors burnt their fingers, with performance in some cases being worse than the index. According to rough estimates, only 17 per cent funds globally outperform the indices.

“The case for indexing is gaining strength in India if one goes by the numbers. Ten years back, a majority of funds used to beat their benchmarks, but now only 50 per cent funds do that. And, the universe of actively managed funds is so large that it is difficult for investors to figure out which funds are outperforming the indices,” said Dhirendra Kumar, CEO, Valueresearch Online, a fund tracking firm.

Distributors said index funds and ETFs would become more popular once the MF platform of the Bombay Stock Exchange and the National Stock Exchange got active. Currently, although these platforms exist, the number of trades is quite small.

Financial planners and advisors said for somebody with a 10-15 year horizon, index funds made more sense as they would beat actively managed funds due to the lower fee structure. Besides, it gets increasingly difficult to beat the market on a regular basis year after year for a long period of time.

Source: http://www.business-standard.com/india/storypage.php?autono=392426

RBI hikes repo, reverse repo rates & CRR by 25 bps

The Reserve Bank of India on Tuesday raised key interest rates by 25 basis points, as expected, tightening policy for the second month in a row as inflation heads towards double digits.

The Reserve Bank of India also raised its cash reserve ratio (CRR) requirement for banks by 25 basis points, as expected, in a move to drain further liquidity from the financial system. The hike in CRR will suck out Rs 12,500 crore from the banking system. The CRR increase will come into effect from April 24.

India last month became the second Group of 20 economy after Australia, to raise policy interest rates as the world economy recovers from it worst downturn in decades. The central bank surprised markets by raising rates by 25 basis points ahead of this month's scheduled quarterly policy review.

Asia's third-largest economy is set to grow at 8.5 percent in the current financial year and 9 percent the following year, and inflation is spreading beyond food to fuel and manufactured goods such as cars. March annual inflation reached 9.9 percent, its highest in 17 months.

The central bank lifted the reverse repo rate, at which it absorbs excess cash from the banking system, by 25 basis points to 3.75 percent. It increased the repo rate, at which it lends to banks, by 25 basis points to 5.25 percent.

It raised the reserve requirement for banks by 25 basis points to 6.00 percent.

"With the recovery now firmly in place, we need to move in a calibrated manner in the direction of normalising our policy instruments," RBI Gov. Duvvuri Subbarao said in the policy statement.

Malaysia and China are among the developing nations that have begun to use monetary tools to cool their economies. India also raised policy rates unexpectedly on March 19 by 25 basis points as food price increases spilled over to manufacturing that could set off an inflationary spiral.

Industrial output has risen more than 15% for three straight months, wholesale price inflation is at 9.9%, much above the central bank’s raised target of 8.5%, and loan demand is rising, indicating acceleration in economic growth. That has prompted many to forecast a 9% economic expansion this fiscal.

Source: http://economictimes.indiatimes.com/news/economy/policy/RBI-hikes-repo-reverse-repo-rates--CRR-by-25-bps/articleshow/5834930.cms

Religare MF unveils two monthly income schemes

Religare Mutual Fund has come up with two new funds, including Religare Monthly Income Plan (MIP) Plus, which will come with an exposure to gold. The other fund is a traditional monthly income plan. Both the new fund offers will close on May 11. Under MIP Plus, investments will be made in gold through gold exchange-traded funds (ETF), in addition to fixed-income instruments and equities.

The fund will invest a minimum of 65% of its assets in debt and money market instruments, while at least 10% of the assets will be invested in Gold ETFs (exposure in the range of 10-35%). The fund, which seeks to generate moderate capital growth, will invest up to 25% in equity and equity-related assets. The fund is benchmarked against Crisil MIP Blended Index and price of gold.

The stated investment objective of the traditional MIP is to generate regular income through a portfolio of predominantly fixed-income securities, with a small exposure to equity and equity related instruments. For both the schemes, the minimum application amount during NFO under the growth option is Rs 5,000, while it is Rs 25,000 under the dividend option.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Religare-MF-unveils-two-monthly-income-schemes/articleshow/5833933.cms

Credit Opportunities Fund from Kotak Mutual

has announced the launch of Credit Opportunities Fund, an open-ended income scheme. As per its scheme information document, the investment objective of the scheme is to generate income by investing in debt and money market securities across the yield curve and credit spectrum.

The new fund offer, which opened for subscription on April 12, will close on April 30. Exit load specified under the scheme is 2%, if the investor redeems/switches-out within one year from date of allotment, and nil after one year. The minimum application amount prescribed by the fund house is Rs 5,000.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Credit-Opportunities-Fund-from-Kotak-Mutual/articleshow/5833942.cms

PSU fund houses score over pvt biggies in asset growth

Public sector mutual fund houses account for just a fifth of the total assets under management (AUM). But in relative terms, they have had a better run, compared to their private sector counterparts in 2009-10, when industry-wide assets grew 47% to Rs 6,13,979 crore. A similar trend was witnessed the year before, too. This indicates a preference for public sector fund houses in the period, following the crisis in financial markets in 2008.

Of the 38 fund houses which are currently operational in the country, only six funds houses — Unit Trust of India, Life Insurance Corporation, SBI Magnum, Baroda Pioneer, Canara Robeco and Principal PNB — can be categorised as those falling under the public sector, implying a ratio of 84:16 between the private and the public sector mutual fund players. It is no surprise then that private sector fund houses account for a predominant share of the assets

under management.

According to Sebi data, private players together accounted for about 78% of the industry wide assets under management at the end of financial year 2009-10. This is two percentage points lower than their market share in the preceding year.

If one were to consider the growth in assets over the past few years, private players clocked a 59% growth in their assets during the bullish phase of 2007-08. This was followed by a decline of more than 19% the following year when markets across the globe sold off. The rebound in 2009-10 led to an increase of about 43% in their assets last year.

In case of public sector fund houses, a growth of about 39% in the asset base in 2007-08 was followed by a decline of about 9% in the meltdown year of 2008-09. However, during the recovery phase of 2009-10, the assets of the public sector fund houses have jumped by nearly 66%. This is the highest in the past six years. In absolute terms, the public sector fund houses have seen their assets grow from Rs 82,000 crore in 2008-09 to more than Rs 1,35,000 in 2009-10.

Among the public sector fund houses, the largest percentage rise in the average assets under management during the period April ‘09-March ‘10 was accounted for by Baroda Pioneer (90%) followed by LIC which saw its assets rise by about 62%. Interestingly, both Baroda Pioneer and LIC have a higher proportion of debt assets compared to equity assets.

These statistics reflect investors’ changing preference for public sector mutual funds vis-à-vis the private sector ones. Industry officials says the collapse of some of the biggest names in the private sector financial organizations globally in 2008, could have partly contributed to this trend.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/PSU-fund-houses-score-over-pvt-biggies-in-asset-growth/articleshow/5823322.cms

SEBI - IRDA spat: Financial literacy will follow

Fish or fowl? What are ULIPs (unit-linked insurance products)? For all the brouhaha over ULIPs last week, the answer is, and always has been, neither! Yet judging by their phenomenal popularity, investors neither knew nor cared! Since they first came on to the scene about a decade ago, ULIPs have enjoyed a rare success.

One can try and hypothesise why: as a part insurance product, part savings product, maybe they fulfill a felt need. Maybe they epitomise the Indian attitude to life in general – a little of this, a little of that and not too much of anything! How else can one explain our fondness for Khichdi or Avial!

Consider. In 2008-09 as many as 7.03 crore ULIPs were sold for a staggering Rs 90, 645 crore (close to 1.3% of the country’s GDP!) while during the last financial year alone (April- February) another 16.7 lakh ULIPs were sold.

All the more reason why the very public spat between the capital markets regulator, the Securities and Exchange Board of India (SEBI) and the insurance regulator, Insurance Development and Regulatory Authority, (IRDA) last week is puzzling. Remember, the present product has been in existence for almost 10 years and an earlier avatar, ULIP 71, a UTI (Unit Trust of India) product with a term cover from LIC has been in existence since 1971.

Needless to say there are a lot of theories floating around. These range from the usual turf-battle theory to regulatory capture of SEBI by a mutual fund industry,(incensed at its business being hit with the whittling down of MF agents’ commissions, even as insurance agents, riding generous commission push ULIPs ever harder), to the more conspiratorial one that sees the hand of the finance ministry in using the spat as a ploy to push through its pet project of a Financial Stability and Development Council to upstage the present High Level Committee on Capital Markets, headed by the Reserve Bank of India .

As with all such theories they will have to remain conjectures. We will now have to await the final outcome of either the court case or perhaps an out-of-court compromise between the two regulators. But what is noteworthy is all this is not the minutiae of the spat but an entirely unintended consequence: overnight investor education!

For years, financial market regulators have been trying to get ordinary investors to take informed decisions when choosing between different financial products. In vain! Whether it is investment in the stock market or investment in an insurance or pension product, few investors care to do any homework before investing, relying instead on ‘tips’. Indeed it is doubtful if many ULIP holders were even aware how much of their money goes to buy insurance and how much is a pure play on the stock market.

Not any longer! After last week’s unseemly spat, triggered by an ill-judged attempt by to force the issue, a whole lot of investors who in the past had never cared to figure out what they were buying, are now wising up. Companies and agents say they are deluged with inquiries. And that is the best outcome of the spat.

Ultimately the storm will blow over but the financial literacy gained will stand investors in good stead. For many investors in ULIPs it might be a costly first lesson but it is unlikely to be one that they will forget easily. At the end of the day, it matters little to ordinary investors whether a product they buy is regulated by X or Y. What matters is that it is properly regulated and there is transparency. So whether SEBI ‘wins’ or IRDA wins, what is essentially a petty turf war is immaterial as far as they are concerned.

The lesson they need to take home is that there is no alternative to financial literacy. The job of the regulator (any regulator) is to frame rules and ensure all players play by the same rules and also make sure there is complete transparency. Once that is done, it is up to the investor to take his own decisions. And live with the consequences!

It is not the job of the regulator to ‘protect’ a man from his own ‘folly’. Not only because what is folly to one may be eminently sensible to another but also because it is not the regulators job in the first place. As financial products become more and more complex, investors need to remember that when it comes to their savings, they must be their own masters!

Source: http://economictimes.indiatimes.com/Opinion/Columnists/Mythili-Bhusnurmath/SEBI---IRDA-spat-Financial-literacy-will-follow/articleshow/5826614.cms?curpg=2