Gilt fund units back in favour among rich investors

Long-term gilt funds, which invest in government bonds with long-term maturity, including the 10-year benchmark bond, have been out of favour among many investors in the past year or so.

But analysts see merit in increasing exposure to these schemes since yields on 10-year government bonds are unlikely to rise much from these levels, with softening inflation expected to limit policy rate hikes by the RBI.

“At current yields on the 10-year benchmark bond, medium-to-long-term gilt funds are very good bargains,” said Devendra Nevgi, principal partner, Delta Global Partners.

“They can generate double-digit returns in the next 2-3 years,” he added. The yield on 7.80% benchmark bond maturing in 2020 was at 7.99% on Monday. It has been hovering around the psychological 8% mark in recent weeks, after rising from a low of 5.25%.

Bond yields and prices move in opposite direction; when yields rise, prices fall and vice-versa. Traders in long-term government bonds, including banks and mutual funds, rely on price jumps in this security to clock higher returns in their portfolios.

Some investors, mainly the affluent, have already started buying gilt fund units in a phased manner, similar to the systematic investment plan. These are investors, who are not sure about the extent of rise in bond yields, but don’t expect it to rise sharply from these levels.

Many debt market participants don’t expect the yield to rise beyond 8.15-8.25%. “By creating average at higher yields and with other fundamental factors, like lowering commodity prices, lowering inflation, higher revenue and other receipts by the government, affecting the market positively, the said strategy should pay good returns to the investor,” said Sunil Jhaveri, chairman, MSJ Capital, a New Delhi-based mutual fund advisor.

A fall in inflation is expected to reduce the pace at which the RBI hikes rates. Although a liquidity crunch is expected in September due to advance tax outflows and a possible interest rate hike by RBI, market participants said the crunch is expected to ease soon. Normally, the borrowings tend to be less in the second half of the year. So, the supply of g-secs tends to be less while there is an increase in demand.

“With tight liquidity conditions prevailing in the money market, banks have increased their deposit rates leading to higher deposit creation in the system which will create additional demand for g-secs,” said Ritesh Jain, head-fixed income, Canara Robeco Mutual Fund.

Source: http://economictimes.indiatimes.com/markets/stocks/market-news/Gilt-Fund-Units-back-in-favour-among-rich-investors/articleshow/6465074.cms

Bill deals body blow to mutual fund dividends

Retail investors in stocks may have a lot to cheer about but risk-averse people who prefer to park their money in dividend-yielding equity mutual funds may be forced to scout about for alternative options before the direct tax bill comes into effect by April 1, 2012.

Salaried people, who funnel their money directly into stocks, will be gung ho over the fact that they will not have to pay a capital gains tax on equity investments that they hold for more than a year — a tax break they enjoy at present and which the original bill had intended to scrap.

But even more attractive is the provision that says the short-term capital gains tax —levied on stocks flipped before 12 months — will be linked to an individual’s income tax slab.

In the case of investments held for less than one year, short-term capital gains tax will be levied in three slabs of 5, 10 and 15 per cent, respectively. This is 50 per cent of the marginal rate of income tax — 10 per cent for those with an income between Rs 1.6 lakh and Rs 5 lakh, 20 per cent in the income bracket between Rs 5 and 8 lakh, and 30 per cent for those with incomes above Rs 8 lakh.

At present, the short-term capital gains tax is a flat 15 per cent irrespective of the tax slab that the investor belongs to.

Individuals in the low-income bracket will have to pay a capital gains tax of 5 per cent. Only those in the top income bracket will have to pay 15 per cent as they do at present. Tax experts say that if the surcharge is included the short-term capital gains tax actually goes up to well over 16 per cent.

Vishal Malhotra, tax partner at Ernst & Young, told The Telegraph that the changes proposed in the short-term capital gains tax should encourage small salaried earners to invest in stocks as they will be subject to a lower rate of tax than in the current regime.

Market circles also reacted positively to the new capital gains tax proposals.

“These will induce greater investments in the stock markets, particularly from the retail end. The markets were apprehensive over the proposals pertaining to capital gains tax. It is heartening to see that zero long-term capital gains tax has been maintained,” said a research head from a brokerage.

Mutual fund woes

The big blow to mutual fund investors is the fact that income distributed by mutual funds to unit holders of equity-oriented fund or that distributed by life insurer to policy holders of an approved equity-oriented life insurance scheme will be taxed at 5 per cent.

According to Gautam Mehra, executive director at PwC, this will impact returns from the stock markets.

Dhirendra Kumar, CEO of Value Research, said the 5 per cent dividend distribution tax would prompt mutual fund investors to move away from dividend-paying schemes and opt for growth plans.

Source: http://www.telegraphindia.com/1100831/jsp/business/story_12877062.jsp

MIP performance — Lacklustre year

In line with the performance of pure debt funds, Monthly Income Plans (MIP) have had a lacklustre year compared with their historical performance.

MIPs on an average managed to deliver 7 per cent returns over the last one year period, partly aided by a decent rally in the equity market. MIPs typically have a maximum allocation of anywhere between 10 per cent and 25 per cent of their total investment in equity markets.

Only 45 per cent of the 38 MIPs (with a one-year track record) under growth option, outperformed the Crisil MIP blended index over the last one year.

The waning performance of MIPs over the last six months was due to the falling prices of corporate debentures and gilts (marked by rising yields). Surplus liquidity condition up to April 2010 meant that the short-term rates were also not attractive.

Thanks to the flattening of the yield curves, some funds have made decent returns by holding on to the short-term maturities post-April.

Top performers

HDFC MIP-Long-term plan, Reliance MIP and HSBC MIP are among the top performing funds over the last one year period.

These funds were consistently among the top five MIPs over the last three and five-year periods. Good performance of HDFC MIP and HSBC MIP can be attributed partly to the higher exposure to equity (over 20 per cent). Funds such as ICICI Pru MIP 25 and UTI MIS advantage plans have also outperformed the Crisil MIP index by virtue of having high equity exposures.

However, others such as Reliance MIP, Tata MIP Plus and LIC MIP delivered good returns, despite having relatively lower exposure to equity; thanks to the constant churning of their respective portfolios.

Reliance MIP, for instance, has not significantly reduced the average maturity of its portfolio, despite the rates trending up over the last six months. Earlier, funds cut their average maturity period in anticipation of rising rates.

Bharti AXA Regular Return Fund, Tata MIP, ING MIP, DSP BR Savings Manager and Fortis MIP were among the under-performers.

While there is no secular trend for the under-performance, some schemes were not invested and were sitting on cash while other funds held on to the corporate debt whose value fell over the one-year period.

With equity markets trading at a 30-month high and further monetary tightening expected investors may be better-off sticking to funds with a good track record, sizeable corpus and limited exposure to the equity markets.

Source: http://www.thehindubusinessline.com/iw/2010/08/29/stories/2010082950200800.htm

'Selling MFs to retail investors makes no business sense for distributors' : CEO, PEERLESS MF

It's been more than a year since the capital market regulator did away with the entry load barrier. But the mutual fund industry is still experiencing teething problems and is unable to lure retail investors. Peerless Mutual Fund, chief executive officer, Akshay Gupta in an interview with Suneeti Ahuja Kohli talks about the problems faced by the industry and how his company plans to tackle the same and much more. Excerpts:

Mutual funds have completed a year of operations without the entry loads. How has the experience been?

We have just started our retail operations in July. So, we cannot say much on this. However, from an industry perspective, I can clearly say that the number of retail applications and the subscription amount have gone down drastically. I keep hearing from various registrars that there has been almost 50 per cent reduction in transactions. So clearly, distributors are shying away from selling mutual funds to retail investors because it doesn't make any business sense to do it now. It is just not viable for them. So they are focusing on other financial products like insurance and company deposits. While the former gives them a better commission and incentive structure, the latter give distributors three years of commission as a lump sum in the first year.

Entry load ban, essentially, has resulted in two things. The retail applicants, who used to bring investments of Rs 1,000 to Rs 1 lakh, have gone down drastically. It was introduced for preventing malpractices such as mis-selling and a lot of churning of portfolios by agents. But because of this and consequent lowering of commission due to ban on the entry, load, the retail population of India is they are now not getting this kind of service and access to these kinds of products.

What are the various channels of distribution that you use to sell your products? And, is there any target number of retail investors Peerless wants to achieve in the near term?

Peerless Mutual Fund is initially trying to target an active and accessible pool of retail clients available to us through our distribution network. Peerless is an 80 year old company and has around one crore customers. So we are trying to convert them slowly. We are facing a few challenges like complying with the KYC (know your customer) norm. It will take us at least five to six years to convert these clients partially.

Even our business is commission sensitive. And one can see interest levels being far higher in case of insurance products rather than in mutual funds. Peerless as a distributor also sells Max New York Life Insurance. So you will see agents are far happier selling insurance than a mutual fund. So what we are trying to do is focus on tier II and tier III towns, where there is a high recall of the Peerless brand. And, we are targeting the lower middle to middle class. We are putting in all efforts to educate them, convince them and convert them.

In such a scenario, don't you think banks are better points of sale for the mutual fund companies? Do you have any such tie-ups?

We haven't tied up with any bank as of now. We are still selling through IFAs (independent financial advisors) and our distributors. More organized bigger networks, like banks, will be able to channelize more sales than the IFAs. And eventually, IFAs will have to merge into such organized bigger networks. So, national level distributors or aggregators are the people who will be able to give better terms to them rather than going directly to asset management companies. Existence of small agents is a question mark now. We are also in the process of finalizing our tie ups with a few banks and should be able to share details in the next three to six months.

How many subscribers have shown interest in your first retail fund and what is the business mix of AUM (asset under management) for retail and institutional clients?

The new fund offer attracted 20,000 investors and a total AUM of Rs 25 crore. As of now, we have a total of Rs 1,500 crore of assets under management.

The RBI has time and again raised concerns over the amount of money parked by banks in the liquid schemes of mutual funds. Has the Securities Exchange Board of India (Sebi) also said something on this?

When you give anybody a better opportunity, he would tend to hold on to that opportunity. Banks, when they invest in mutual funds, do it when there are prospects of better returns compared with alternate instruments available like the call money market, the collateralised lending and borrowing obligation (CBLO) or may be other bank's certificate of deposit. So, banks are opportunistic investors like any other investors and they will bend towards better returns. Keeping in mind lakhs of crore of funds that they manage, a difference of even a 0.25 or 0.5 percentage point makes a lot of difference. Therefore, if a few thousand crore come in mutual funds, I, frankly, do not think it is a bad deal.

Till now, Sebi hasn't said anything to us. However, banks, if I understand correctly, have been briefed informally that they should keep in check money that is being parked in mutual funds.

What is your outlook for equity markets?

There are two factors that are driving the equity markets right now. One is the liquidity factor, primarily coming from the foreign players, which will continue. The second thing are the fundamentals. Now, the fundamentals of specifically the first quarter have not been very great in some of the sectors. So, there will be some sort of profit booking in a few sectors. But at the same time, India and China are the only attractive markets for foreign institutional investors (FIIs). A lot of FIIs look at these two countries as havens of growth. So money will keep pouring in and in fact it has in the last six months unless and until there is another global economic meltdown, which is quite unlikely due to the fiscal stimulus doled out to the countries. There will be a lot of cash flow in the global economy and also in India. Already we have seen $3.5 billion coming into the Indian economy. We expect another $5-6 billion in next few months.

Indian equity markets will not have any problems, unless fears of another recession strengthen and liquidity is sucked out of the system. At home, the rising number of primary issues is sucking liquidity from the secondary markets. Although there is nothing wrong with this, it will tend to make the markets range bound.

Any particular sectors that you are bullish on?

We are quite bullish on the infrastructure space as it is a long-term space. Besides, we are also bullish on the banking sector because that is the core representation of the economy. Cement, heavy industries, oil and gas sectors too look attractive at the moment. We are not very keen on the commodity space and specifically on sectors such as pharma and auto. Auto sector has had a run and now scrips should correct.

How about the debt space?

Debt markets will totally dependent on what is happening on liquidity in the market. It is easing out a bit now. Overall, unless inflation is contained, the interest rate yield curve will tend to go up. If RBI's measures to contain inflation in another 3-6 months are not successful, I think a few more hikes will take place and that will tighten the liquidity further. In case inflation is stabilized, then yields will be completely stabilized. We are also under artificial squeeze of liquidity because of the broadband auction.

Source: http://in.news.yahoo.com/48/20100830/1238/tbs-selling-mfs-to-retail-investors-make.html

MFs question Sebi's unit transfer order

Domestic fund houses have questioned the market regulator’s recent circular mandating unrestricted transfer of mutual fund units between demat accounts. Mutual fund (MF) players have cited operational difficulties in implementing the norm.

Sources in the fund market said the issue was being taken up with the Securities and Exchange Board of India (Sebi) through the Association of Mutual Funds in India.

On finding that mutual fund schemes prohibit transfer on a regular basis, Sebi had directed fund houses to allow free transfer of all mutual fund units from one demat account to another by October 1, 2010.

GREY AREAS

Knowing about beneficiary Who should pay exit load Issues of dividend payout Different TDS provisions for NRIs & non-NRIs Scope for potential frauds Depositories’ hefty charges for daily data for such transfers Stamp duty

“It’s a new concept with a lot of complications and operational issues. A major technical enhancement is required to make this work,” said the chief investment officer of a large fund house.

For instance, he added, if an investor transferred units after holding them for six months and the other account holder sold those units later, who should pay the exit load. Also, dividend payouts and TDS (tax deducted at source) provisions, which were different for NRI and non-NRIs, were also an issue, he said.

Agreeing to it, the chief executive officer of a medium-sized fund house said, “National Securities Depository and Central Depository Services do not send data of such transfers on a daily basis to asset management companies. This becomes a hindrance in determining the actual beneficiary.”

Industry players feared there would be an increase in costs without any material benefit to the investor. “It should be noted that unlike an equity share, whose value keeps fluctuating, the net asset value of an open-ended scheme is comparatively less volatile and a transfer in such scheme does not serve much purpose. Besides, the stamp duty, too, is another grey area, as there is no clarity on who bears the cost,” said an industry player.

Fund houses added that they would be charged Rs 5,000 daily per net asset value (NAV) by depositories to get data for such transfers, which was prohibitively excessive. “Moreover, transfer of units increases activity at the end of registrar and transfer agents, which creates scope for potential fraud and may encourage non-adherence with the Prevention of Money Laundering Act,” said another industry CEO.

Though issues like TDS comes under the Income Tax Department, we wanted Sebi to bring clarity on issues which came directly under its jurisdiction so that the new mandates could be implemented within the deadline, said industry players.

With just a month left in implementation of the norm, industry players said a lot of backend work had to be done. “In case the regulator does not bring more clarity, it is unlikely that the industry can meet the deadline,” said another CEO.

Source: http://www.business-standard.com/india/news/mfs-question-sebi%5Cs-unit-transfer-order/405995/

Mutual funds upset over SEBI’s idea of forced listing of units on stock exchanges

The move will escalate compliance burden on AMCs who see no value addition to investors

Market regulator Securities and Exchange Board of India's (SEBI) intention to mandatorily list all mutual fund schemes has received widespread flak from the industry. According to industry players speaking to Moneylife on the condition of anonymity, listing fund units on the stock exchanges will not provide any value addition to investors but will only burden them with additional compliance requirements. They complain that they are already inundated with excessive compliance work after the sweeping changes brought in by the regulator over the past one year.

Partly due to such frequent and extensive changes, equity mutual fund schemes have witnessed Rs11,560 crore of redemption since the regulator abolished entry loads in August 2009. Since November 2009, the industry has lost a whopping 8.33 lakh equity folios till July 2010.

In a move to counteract the sudden fall in mutual fund inflows, the regulator allowed trading of fund units on the stock exchanges. National Stock Exchange (NSE) started its online trading platform for MFs on 30 November 2009 and the Bombay Stock Exchange (BSE) launched its BSE StAR MF platform on 4 December 2009. However, the volumes have been meagre so far. In July 2010, the NSE recorded 2,340 transactions with Rs20.65 crore of net inflows.
Last week, the regulator asked fund houses to facilitate smoother transfer of mutual fund units between two demat accounts. This too is going to increase the cost for fund houses without any material benefit to investors. Moneylife had earlier reported on how the regulator was seeking bank-sponsored mutual funds' help to boost trading volumes on the exchanges which received a tepid response from bankers.

Now in another forced measure, the regulator has asked all fund companies to compulsorily list their units on the exchanges. "The regulator has sought feedback from us. We will be replying in a few days. The cost of listing mutual fund units is less compared to stocks. All our equity schemes are already listed. We are sorting out the operational issues. The compliance department will have a tough time ahead," said an official who did not wish to be named.

In order to list units on the NSE, mutual funds with a corpus up to Rs100 crore have to cough up Rs16,000 initially; if the tenure of the scheme is more than six months, the listing fee as applicable for multiples of six months will be levied. Similarly, the initial listing fee for a scheme whose corpus exceeds Rs1,000 crore is Rs1.25 lakh.

Unlike MFs, companies have to shell out Rs25,000 as initial listing fees and have to incur an additional annual listing fee depending on the paid-up share capital of the company. As the share capital goes up further, the fee also goes up. Currently 20 fund houses have listed their schemes on the NSE while the Bombay Stock Exchange (BSE) has 23 AMCs on board.

Source: http://www.moneylife.in/article/72/8538.html

How SEBI killed the IFA: A murder investigation report

The IFA (Independent/Individual Financial Advisor) is on life support — suspected dead — and the prime suspect is the Securities and Exchange Board of India (SEBI). The acronym is alternatively called in a parallel world, the Systematic Elimination of Brokers and Intermediaries

Now the distributor is on the incubator, on life support, suspected dead. We know how he got there - is SEBI going to revive him or remove the life support system?

Let us study the history of this crime, and discover what the investigation reveals:

1. The Golden Beginning:

The golden days of mutual funds (MFs) were when they were a hard sell. The IFA educated the investor about risk-control measures, liquidity, profitability over a gestation period, tax benefits and working of an MF and introduced them to asset allocation before putting down a single rupee. However, the investor wanted to hear about the 'guaranteed returns' that he was addicted to - thanks to the Unit Trust of India (UTI), fixed deposits, etc. So he missed the boat but not before dipping his feet into the swimming pool by investing small amounts. The IFA said to himself, "Today he is dipping his toes into the swimming pool - tomorrow he is going to jump in." Right enough!

2. The 'Unethical Practices' begin:

Once the investor started to take a dive into mutual funds, they (mutual funds with the active connivance of some IFAs) introduced their first unethical practice - 'dividend stripping'. They did not inform the investor that the net asset value (NAV) falls to the extent of the dividend amount and that there is no advantage in chasing dividends (in fact there is a disadvantage as the investor is paying a load on money merely returned to him - without any fund management). It was dividend that attracted the inflows and not the client's investment goals nor the fund performances - the party continued.

3. The 'Unethical Practices' grow:

The next big 'con' encouraged by mutual funds was "NFOs" (New {and unnecessary} Fund Offers). Mutual funds did not educate the distributors and investors that the NAV does not generate any return (but rather the 'Portfolio' does) - thus whether the NAV is Rs10 or Rs10,000 does not make any difference - it is merely a mechanism for 'entry' and 'exit'! They instead sold 'Rs10 as 'cheap'. This resulted in thousands of superfluous schemes being launched. SEBI did a great job of stifling the NFOs by abolishing the entry load.

4. Some 'Greedy Distributors/IFAs':

The biggest evil is yet to be highlighted - it is the 'banker' - who sold MFs based on head office's recommendations, which in turn were based on target collection shortfalls - client needs were nowhere in the picture. If the client needed 'debt' - sell 'equity' because there lies the shortfall in targets and the HO's rewards for them. To make things worse, these qualified MBAs would each come with their own ideas and churn the client's portfolio many times and get multiple credits towards their sales targets. Next they would get a job promotion based on this (churning) performance and the new MBA would take his place with his bright ideas and rape the investor again with another few churns.

Some greedy IFAs joined this circus and sold equity as a 'short-term' instrument and wrongly taught investors that 'share funds have to be bought and sold quickly' - they did not inform the investor that they merely have to make an 'asset allocation' and the fund manager will be doing the 'buying and selling' for them.

Thus I maintain my stand that it is not merely 'education/educational qualifications' that will revive the industry but rather 'dedication' - let the investor decide who is dedicated and who isn't!

SEBI, too, messed up over here. When MFs set the exit load on share funds as 1% for those who exit before three years (gestation period of equity product) - SEBI in its benevolence to become popular among the investors reduced this to one year - this move encouraged churning after one year - thus doing more harm than good to the industry, which is suffering from too much short-term money and views.

5. SEBI lands its death blows:

A person is satisfied and gives his best if:

a. He is well-paid - if you pay peanuts you will get monkeys - why should you attract a qualified and dedicated force consisting of the brightest minds if the payment is inadequate? Not only was the payment made inadequate, the upfront brokerage was hastily abolished without setting into place international 'best practices'.

b. He is sufficiently motivated - SEBI and the media continuously focused on the unethical practices of a few distributors. The whole distributor community got demoralised and was viewed with suspicion - as cheats. How can you expect performance from a demoralised force?

c. He has the necessary job security - SEBI has released a diarrhoea of circulars and the entire MF industry is of the view that they all need to go on a long holiday. With the goalpost continuously being shifted, the IFA is totally disoriented and refuses to sell - this has rubbed on to the investor who is resorting to selling to invest in bank deposits and properties.

Let me elaborate:

a. 'Investor Going Direct' is an injustice to a distributor:

A person approached me for the investment of a huge sum. I explained mutual funds to him in great detail. He wanted MF portfolio reports and performance comparisons - these were sent by email. He wanted a detailed plan with a suggested asset allocation - these too were promptly sent to him. After four months of discussion and deliberation - on 4 January 2008 I received an email 'Happy New Year - I heard that now we can now invest directly in mutual funds. Thanks for all the help and advice.'

Now do you think this is fair??? Why on earth should I spend hours of my time on an investor when I do not know whether I will be adequately remunerated? So thanks to this move of SEBI I have turned tight-lipped and sketchy in my explanations, I now give only 10% of myself - as against 120% previously and new investors are strictly taboo (at a time when SEBI wants them popularised).

Thus thanks to SEBI I am no longer doing justice to the investor community. This move to let the investor go directly is retrograde, with the abolishing of the entry load it has become obsolete - but SEBI will not remove it from the statute book as they will be losing brownie points.

b. The international 'best practices' remuneration structure was not put in place before abolishing loads and commission - death for the small investor:

The international practice of the investor and distributor mentioning a mutually negotiated commission rate on the application form and both signing against it should have been put in place before commissions were abolished. This would have resulted in a smooth transition to the new regime. The move on the part of SEBI of only implementing half the job has won a lot of investor brownie points, a place in the history books but has destroyed the remuneration and motivation of IFAs and has rattled the whole MF industry.

Mutual funds were formed to mobilise the savings of the small investor. But with no upfront brokerage and with the laborious and expensive billing process, who would be interested in the small investor who wants to make an SIP below Rs5,000 per month or invest an upfront amount of Rs5,000 to Rs25,000? The billing would cost more than the revenue earned. Thus this populist move has been self-defeating - the small investors are rejected and no longer welcome!

c. All financial products cannot be marketed on the same remuneration:

SEBI has not understood the marketing of financial products and it is for this reason I am most thrilled they were unsuccessful in taking over ULIPs (the most expensive and mis-sold con product in the financial world - which need drastic distributor cost restructuring for some profitability to emerge).

Here is an explanation:

i. Shares and stocks are sold by giving recommendations/tips - it requires no servicing/discussions. All servicing is done by the investor directly with the demat bank/institution. It is a high-volume business with hundreds/thousands of transactions conducted daily on a low remuneration.

ii. Mutual funds required detailed explanations relating to risk control, liquidity, profitability over a gestation, tax benefits, working, etc. Regular servicing for change of address, change of name due to marriage, change of bank details, death of holder, valuation & tax statements, account statements requests, year ending account statements requests, etc, etc - take up a majority of a working day. Such services are generally rendered free although they take up a lot of time and cost much money.

Thus transactions are few and require a higher remuneration.

iii. With insurance a person sells the insecurity of death - which is a hard sell.

iv. With ULIPs they sell a combination of mutual funds and insurance. Both insurance and ULIPs have only a few strikes (if at all) in a month - so how on earth can all these products be sold and remunerated in a similar way? They each have their own dynamics and remunerative structure to retain quality talent. If SEBI took over ULIPs they would become extinct like the dinosaurs and crumble like the MF industry!

d. Unnecessary focus on commissions:

When SEBI abolished the entry load and upfront commissions and focused on commissions, it did the following:

i. Created huge entry barriers due to which bright and clever minds could not enter the industry. The commission given by mutual funds out of their own resources was too low - new entrants did not have the ability to charge a fee.

ii. Around 80% of the IFAs disappeared (100% would have disappeared if trail brokerage commission was also abolished) and enrolled in employment exchanges or joined call centres. With a depleting force how can there be increased market penetration?

iii. All expansion plans into rural areas and branch expansions, etc, were abandoned. In fact many of my colleagues shut down branches.

iv. The lack of remuneration de-motivated persons from getting professionally qualified thus stifling the quality of growth in the industry.

v. The whole focus was drawn to commissions, compiling commission sheets, etc rather than reading news articles, studying portfolios, learning/using tools of financial planning, meeting clients needs, etc - the quality of advice deteriorated as more time was spent on such useless activities.

The SEBI chairman does not pin his salary structure on his shirt, Value Research or any financial magazine does not mention how a big article was published due to the support of an advertisement - so why should a mutual fund distributor reveal his (now - token and miserable) commissions when he meets an investor? In fact, the task is daunting and could take months to prepare - as the commissions on 'all competing schemes' need to be displayed i.e. thousands of schemes - an impossible task! This is how the bureaucracy burdens you with burdens nobody can bear - so that they can crucify you anytime!

All this shifts the focus from the client's needs to the commission structure - thus getting everyone 'out of focus'. With the current rule even the best scheme attracts the suspicion of the investor if it pays the most commission!

It would save a lot of time if instead the regulation provided that:
a. The investor can log into CAMS/Karvy/AMFI and find out the commissions payable by all schemes by entering the distributor code.

b. Each mutual fund scheme is rated by CRISIL (or any other rating agency). And only those selling funds below a certain rating should be forced to reveal the commission received thereon and competing schemes. My 25 years experience in this line tells me that focusing on commissions is a bad idea, puts the emphasis on the wrong thing and get everything 'out of focus'.

vi. The distributor also suffers from the stigma of other injustices in relation to commissions, e.g.:

a. While everyone is exempt from service tax for service income up to Rs10 lakh, the mutual fund distributor's commission is subject to service tax deducted at source from Re1. Why is SEBI not acting in this matter and making representations to the government? It is now three years and this injustice continues - distributors earning more than Rs10 lakh have lost more than Rs3.6 lakh due to this move.

b. A manufacturer does not ask a wholesaler how much of the produce he is going to personally consume and charge him a retail price thereon. An Insurance Distributor gets a commission on his own policy!

So why has an MF distributor to disclose his personal investments and not be paid thereon? It does not make sense especially since upfront commission payment from investor money has been abolished.

This rule was introduced so that persons would not become distributors merely to earn commissions on their own investments. With the professionalization of the distribution business this provision has become obsolete and needs to be abolished.

c. AUM (Assets Under Management by a distributor) is tantamount to goodwill created, as an investor is free to change his broker if he is not happy with him. Thus AUM is nothing but 'retained assets' i.e., goodwill. However there is no uniform mechanism to transfer the AUM on change of the organisational structure, for the distributor to sell the AUM on retirement, for the heirs to sell the AUM within a reasonable time after the death of the distributor. Thus the distributor's 'gold nest' can easily get frittered away and is without any legal protection.

The fact is that for the mutual fund industry to succeed two things need to be done:
a. SEBI, MFs and distribution channels need to work ethically together as a team. Right now there is a major conflict with SEBI. And SEBI is hated by MFs and distributors with all their might (and rightly so!).
b. The investors must be given proper product knowledge and MFs must be sold ethically. Each investment must be tied to an investor's need - so that he remains invested with a purpose.

Until this comes about, the MF industry is not going to expand but will instead stagnate.

Source: http://www.moneylife.in/article/72/8477.html

MFs stay cash-ready for possible bottom fishing

The stock market is not showing any signs of fatigue yet, but mutual fund managers are not taking any chances. To seize the opportunity in case the market corrects sharply, and also as a safeguard against sudden redemptions, fund houses are maintaining cash levels as high as 20-25% (of their net corpus) in select schemes.

Monthly factsheets of mutual funds reveal that fund houses having focussed infrastructure funds are keeping more cash in their kitty than the rest. ICICI Prudential Infrastructure, AIG Infrastructure, SBI Infrastructure Fund, Birla Sunlife Infrastructure Fund and Reliance Infrastructure are sitting on a cash pile between 6-20% of their net corpus, according to mutual fund tracker Value Research. Brokers say one reason for this trend could be that most stocks in this segment appear over priced at current levels.

Baroda Pioneer Infrastructure Fund, which closed subscription recently, has about Rs 16 crore in cash waiting for deployment. At the fund-house level, Baroda Pioneer MF holds over 17% in cash as of July-end. If one takes a wider view, investors have not lost much as market has only risen around 1.5% over the past one month.

“Gains from investing at lower levels could be much more than the potential upsides from these levels. The market is currently in a trading range and we do not expect it to move in one direction. We’ll wait for good opportunities by sitting on cash,” said Rajan Krishnan, CEO, Baroda Pioneer Mutual Fund.

Mr Krishnan is of the belief that there are several good stocks that can be bought at current levels. Some infrastructure companies have become ‘good buys’ post the fall in prices due to extended gestation period and delays as a result of the monsoon, he added.

If one excludes the infrastructure pack, there are several equity funds as well that are holding high cash levels. Religare Equity (with 29% cash holding), UTI Banking Sector Fund (25%), Axis Equity Fund (21%), ICICI Prudential Advisor Fund (19%), Magnum FMCG Fund (18%) and JM Multistrategy Fund (14%) are amongst funds with significantly higher cash levels. Axis Mutual Fund (with 21% cash holding) and ICICI Prudential Mutual Fund (13%) lead the fund houses’ tally of holding large amounts of cash at July-end.

“In our case, we do not take cash calls; cash in our schemes could be related to our futures positions,” said Nilesh Shah, deputy managing director, ICICI Prudential Mutual Fund. “Market, for sure, is trading at a higher level. We are not very clear of the direction. But then, it surely has not become a bubble to short,” Mr Shah added.

According to institutional investors, domestic portfolio investors like mutual funds and insurance companies are not happy about the stretched valuations of Indian shares. At 17-18 times estimated one-year forward earnings, share prices appear expensive relative to historical valuations.

Several fund managers hold the view that market could slip into a correction mode at the slightest negative newsflow from western markets. If one goes by the recent BoA Merrill Lynch survey, fund managers eyeing Asia-Pacific are underweight on India, thanks to ‘pricey’ valuations.

Reflecting this sentiment, domestic institutional investors have sold shares worth Rs 13,000 crore since June this year. Of this, mutual funds have sold shares in excess of Rs 6,400 crore during the period.

Source: http://economictimes.indiatimes.com/markets/stocks/market-news/MFs-stay-cash-ready-for-possible-bottom-fishing/articleshow/6423537.cms

Banks gear up for tighter liquidity in September

Indian banks are likely to face further tightness in cash conditions next month as the second round of advance taxes are paid by companies, but the situation is expected to ease by the end of September on government spending, investors and analysts said.

Banks are already reeling under a cash crunch, following more than 1 trillion rupees of payments towards telecom spectrum, while higher rates amid rising inflation has led to expectations that the central bank may not act to ease it.

Short-term rates, which are driven by liquidity, are already rising on expectation of tightness coming up and are expected to extend their rise till mid-September, traders said. "Rates are already higher pricing in cash tightness and further incremental upside will happen but not big movements," said Murthy Nagarajan, head-fixed income, Tata Asset Management. The one-year overnight indexed swap rate may rise to 6.35-6.40 percent by end-September from 6.25 percent now, while the three-month treasury bills, which have already risen 53 basis points since July-end, may rise to 6.30-35 percent from 6.27 percent now, he added.

Currently, banks are borrowing around 100 billion rupees from the central bank's repo window in August which may go up to around 500 billion rupees in September following the advance tax payments. "The liquidity shortfall can go to about 400-500 billion rupees by mid-September, which is a large deficit for the market and that's why I feel rates are inching up faster," said Monan Shenoi, head of treasury at Kotak Mahindra Bank in Mumbai. Expectations of a mid-quarter rate increase by the central bank on Sept. 16, is also keeping up the upward pressure on short-term rates, said analysts.

EVERY QUARTER

However, dealers are not overtly concerned as they are aware that central bank intends to keep cash tight and banks can borrow from the repo window to bridge any liquidity mismatch.

"Every quarter whenever advance tax outflows happen you will see the money returning to the banking system with a week to 10 days time and that time you will obviously see banks borrowing from the RBI in the LAF window more often," said Kumar Rachapudi, a fixed income strategist at Barclays Capital, Singapore. "As long as banks have enough securities to borrow from the RBI from the LAF window, that will determine the amount of credit that can be disbursed to both public sector and to the government," he added. Mutual funds are also not too worried about the redemption pressure as these are anticipated outflows.

"Mutual funds are already having long term money... (they) anticipated this and have a lot of maturities coming up in September. So from a mutual fund perspective it can be managed," said K. Ramkumar, head of fixed income at Sundaram BNP Paribas Mutual Fund.

However, the pace of government spending will be the key to ease liquidity crunch given the onset of festive season in October. "The market is now at decent levels and higher rates, the currency in circulation will also return to the system," Nagarajan of Tata Asset Management said.

Source:http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/Banks-gear-up-for-tighter-liquidity-in-September/articleshow/6421420.cms

Follow asset allocation framework, stay invested

Veteran fund manager Tridib Pathak, senior director at IDFC Mutual Fund, says irrespective of market conditions, retail investors must have faith in the long term growth prospects of India and its capital markets. In an exclusive interview with FE’s Saikat Neogi, he underlines that investors should not try to time markets and invest depending upon one’s risk appetite and goals. Excerpts:

Given that there is large-scale redemption from mutual funds, what should retail investors do?

Irrespective of market conditions, we always advise retail investors to have faith in the long-term growth prospects of India and its capital markets. Secondly, investors should not try to time markets, as no one can. Thirdly, one should be invested for the long term in equities, at least three years. One must follow an asset allocation framework, so that one invests depending upon one’s risk appetite and goals. One can also avoid market timing by periodically re-balancing asset allocation according to one’s framework.

How do you think emerging markets like India will perform in the long-term?

India’s relative position as an investment destination has improved a lot over the past two years and it has emerged as one of the few countries with continued high growth and with comparatively better financial health. Led by favourable demographics, rising personal income levels, low indebtedness and domestic centricity, India’s high growth is secular. All of this, is in the context of a developed world, which is struggling to grow and is facing structural, and not cyclical, issues. So, the long-term case for Indian equity markets is quite positive.

What is the outlook for equities in the short-term?

In the short to medium term, we think that there are four factors which determine equity markets outlook – valuation, sentiment, liquidity and earnings. Valuation-wise, we are trading at fair levels. In the short run, we feel there is not much scope for any upside in valuations which are already at about 17 times one-year forward earnings. Sentiment and liquidity depend on how the global macro-risks shape up and how that affects risk appetite. On a medium-term basis, both sentiment and liquidity should be favourable for India. In the short- to medium term, earnings growth and earnings upgrades are very crucial. While we do not think that there will be any significant earnings upgrades in the short term, we think continued strong economic growth and a resultant upgrade in corporate earnings forecast over the year will be the key drivers for Indian markets from here on. On a domestic economic growth basis, we are fine. The actual delivery of growth will be the key and inflows will continue to be diverted towards fundamentally sound companies, which have been able to keep the faith of investors with sustained operational performance. As a result, we will see increasing divergence in performance among sectors and among companies within a sector.

What are the international factors which could damage investor confidence in India?

The biggest risk to investor confidence and thus Indian equity markets, is the global macroeconomic conditions. The developed world is facing real structural problems. Sovereign debt levels, total debt levels and fiscal deficits of the developed world are reaching unsustainable levels. Most developed countries are having total debt more than triple the size of their GDP and their fiscal deficits are rising fast. This situation has developed over years of low savings and dependence on cheap debt. Further, the developed world has attempted rampant stimulus over the last two years while trying to revive economic growth. But it is increasingly appearing that their economic growth is becoming dependent on continuation of the economic stimulus. But this will lead to further worsening of fiscal deficits and debt levels. Thus, we have seen widespread fears of a sovereign default, Greece being a case in point, and also of a banking crisis. These fears have ebbed recently. However, what is becoming clear is that the developed world faces prospects of slower growth for a prolonged period of time. Most of Europe has adopted austerity measures to rein in fiscal deficit; but this may lead to slower economic growth.

Which are the sectors that will stand to gain from the slowdown in Europe?

In our portfolios, we run a theme ‘Beneficiaries of Global slowdown’ in which we invest in companies/sectors which may benefit from a slowdown in global growth. There two kinds of such companies/sectors — ones who may benefit from lower input costs due to lower commodity prices like autos, consumer goods, oil marketing companies and secondly, ones who may benefit from increased outsourcing as the developed world searches to cut costs like pharma outsourcing and IT services.

Source: http://www.indianexpress.com/news/follow-asset-allocation-framework-stay-invested/663299/0

Fund Review: Magnum Midcap high on risk

Mid-cap stocks and mid-cap oriented mutual fund schemes are like a double-edged sword. While they can make one super rich in market rallies, they can also throw one flat on the face in the downturn. Investors of Magnum Mid-cap have also faced this harsh reality in the past five years since the time fund was launched in March ‘05. Thus, despite the fund doing fairly well in recent times, the assets managed (AUM) by this fund today stand relatively lower than what it used to manage in 2006-07. The fund is currently managing about Rs 330 crore of investor money.

PERFORMANCE: To summarise the fund’s performance in brief, Magnum Mid-cap has had a fantastic performance in some of the most bullish years of the market in the last five years, like in 2006 and 2007 and then again in 2009; while the meltdown year of 2008 saw the fund’s net asset value (NAV) going virtually down the drain. In fact, by mid-December ‘08, the fund was trading at an NAV, below its face value of Rs 10 per unit, implying that it notionally lost all what it had made in the previous three years since its launch in 2005.

The timing for the launch of this mid-cap oriented fund, at the beginning of one of the wonderful rallies that the Indian equity markets have ever witnessed, could not have been better. It returned a whopping 52% gain in the very first year of its launch, outperforming its benchmark, the CNX Midcap’s 38% returns by extremely good margins. The following years of 2006 and 2007, that witnessed the market’s rally at a stupendous pace, saw Magnum Mid-cap put up an impressive performance with 47% and 71% returns respectively in these two years against CNX Midcap’s 29% and 77% respectively.

In 2008 however, Magnum Midcap was lifted off its ground as its NAV declined by almost 72% as against the decline of about 60% in the CNX Midcap in that single year alone. This was a big shot in the back for investors of this scheme as the fund plunged to its all-time low rankings after this disastrous performance.

However, to the relief of most investors, the fund was quick to recover most of its losses in the following year 2009, as it returned about 104% against the recovery of about 99% made by the CNX Midcap. By the end of 2009, Magnum Mid-cap was trading at an NAV of Rs 21.8, a much desired recovery after its NAV fell to almost Rs 9 per unit in December ‘08.

As far as the performance in the current calendar year is concerned, so far, the fund has delivered about 12% returns since January this year, which appears quite decent in light of the extreme volatility that the broader market indices have faced this year. The fund’s benchmark, the CNX Midcap Index, has however returned about 18% returns so far in the current calendar year.

PORTFOLIO: A mid-cap oriented fund, with just about 30 stocks in the portfolio, raises the risk quotient of the fund. Currently, the top ten holdings of the fund alone account for nearly 50% of the fund’s equity portfolio, making it suitable for investors with a relatively higher risk appetite. As far as the sectoral allocation is concerned, the fund has a fairly high exposure in the FMCG space with GSK Consumer Healthcare alone accounting for about 6.5% of its FMCG composition. With mid-cap FMCG and healthcare sectors doing reasonable well for quite some time now, the fund has already made a neat 20% gain on this stock alone since the time it invested in this stock in February ‘10.

As far as healthcare is concerned, while the fund currently has about 8% exposure in this sector, the same has been increased only recently, May ‘10 onwards, and thus, this sector is yet to reap in gains for this fund. Its stocks under this sector include Cadila Healthcare, Dishman Pharma and Ipca Labs.

Given its mid-cap orientation, the fund has more of an opportunistic approach towards investment rather than a long-term holding strategy. It is thus quite proactive in churning its portfolio with most of its current holdings less than a year old. The only exception to this investment strategy is its investment in GMDC, which it has been holding since February ‘07 and Elecon Engineering, invested in in May ‘06. Of these, the fund has made a neat kill in GMDC with nearly 175% absolute gains in the last three and a half years of its investment in this stock.

OUR VIEW: A mid-cap fund with relatively high exposure to select stocks takes Magnum Mid-cap a bit high on the risk scale. Moreover, notwithstanding the fund’s decent performance in market rallies, it has failed to cushion its fall in the downturn. While those who had invested into this fund right at its NFO stage in 2005, have made around 146% gains from this scheme till date, these gains appear belittled when compared with CNX Midcap’s absolute gains of 199% during this period. Magnum Mid-cap is thus yet to prove its mettle before it can be rated at par with some of the better performing mid-cap schemes of the MF industry.

Source: http://economictimes.indiatimes.com/features/investors-guide/Fund-Review-Magnum-Midcap-high-on-risk/articleshow/6395373.cms

Reliance MF launches Reliance Small Cap Fund

Reliance Mutual Fund has launched a new fund named as Reliance Small Cap Fund, an open ended equity scheme. The New Fund Offer (NFO) price for the scheme is Rs 10 per unit. The new issue is open for subscription from 26 August 2010 and closes on 09 September 2010.

The primary investment objective of the scheme is to generate long term capital appreciation by investing predominantly in equity and equity related instruments of small cap companies and the secondary objective is to generate consistent returns by investing in debt and money market securities.

The scheme offers two options viz. growth (which includes bonus option too) and dividend option with both payout and reinvestment facility.

The minimum application amount is Rs 5000 and in multiples of Rs 1000 thereafter.

Entry load for the scheme will be nil. While, Exit load will be charged at 2% if redeemed or switched out on or before completion of 12 months from the date of allotment of units, 1% if redeemed or switched out after 12 months but on or before completion of 24 months from the date of allotment of units and Nil if redeemed or switched out after the completion of 24 months from the date of allotment of units.

The fund will be managed by Mr Sunil Singhania.

The scheme will allocate 100-65% of assets in Equities and equity related securities of small cap companies including derivatives with medium to high risk profile. 0-35% of the assets in Equities and equity related securities of any other companies including derivatives with medium to high risk profile and 0-35% in debt and money market securities with low to medium risk profile.

The scheme will be benchmarked against BSE Small Cap Index.

Source: http://www.indiainfoline.com/Markets/News/Reliance-MF-launches-Reliance-Small-Cap-Fund/3260149508

SEBI, MFs want tax benefit for equity-linked schemes in DTC

Market regulator Sebi and mutual fund houses have asked the finance ministry to continue with the tax benefits on equity linked schemes in the Direct Taxes Code, which will replace the existing Income Tax Act.

The revised DTC draft, based on which the government is finalising the bill, has proposed to do away with the tax benefits available to people investing in the equity-linked savings schemes (ELSS).

Under the IT Act, investments up to Rs one lakh in the ELSS and dividends accrued on them are exempted from tax. Besides, there is no long term capital gain tax on withdrawal of the funds after the three-year lock-in period.

Sources said Sebi and the mutual fund industry have written to the finance ministry to continue with the current exemption, as the industry is witnessing redemption pressure post the entry-load ban, a type of agent commission that was charged from investors.

During July, the industry saw Rs 139 crore withdrawal from the ELSS portfolio, and till July the redemption was to the tune Rs 349 crore.

The sources said retail investors benefit from investment in ELSS and Sebi wants that ELSS schemes continue to enjoy tax deduction.

After banning the entry-load, since August 2009, this is the first time that the market regulator has sought some benefit from the finance ministry.

Currently, ELSS comes under a method of taxation called EEE -- wherein it is exempted at the points of investment, in the entire tenure of the investment and as well at the time of withdrawal.

The draft DTC does not include ELSS as one of the instruments which will be subject to EEE mode of taxation.

Currently there are over 40 ELSS schemes in the market. During the last fiscal (2009-10), the MF industry sold ELSS units of over Rs 3,000 crore.

Source: http://economictimes.indiatimes.com/personal-finance/tax-savers/tax-news/SEBI-MFs-want-tax-benefit-for-equity-linked-schemes-in-DTC/articleshow/6381259.cms

Pick the one that suits your needs

Selecting the right mutual fund scheme among a plethora of schemes available in the market is the most daunting task for mutual fund investors’ at all times. Selecting the right scheme based on your appetite is like finding a needle in a hay-stack. Every individual is different from the other when it comes to investment goal, risk tolerance, investment horizon, return expectations and entry-exit load, among other things. There is no ‘one size fits all’ strategy, thus investors’ portfolio should be in sync with their very own personal parameters.

Investment Goal
Know your investment goals. Do you want to preserve capital or to grow it? Is it to earn a certain income or to provide a certain cash flow at the end of a period? The answers to such questions will determine your investment goals in life. Your goals should be in line with your responsibilities in life. For example, a person looking to accumulate funds for retirement or a child's education may want to invest in a mutual fund whose objective focuses on long-term stock price appreciations instead of dividend payments. On the other hand, someone who's recently retired may wish to invest in a fund that provides additional income with little risk of loss to principal, such as a conservative stock fund that distributes dividends monthly or quarterly. Still another investor may want to use mutual funds to improve the return on his or her risk-free savings account at a bank. The investment should do at least as well as the overall stock market; therefore, a mutual fund that tracks the overall performance of a benchmark market index might be the most appropriate choice.

Asset Allocation

The groundwork of any portfolio construction is asset allocation. Studies show that over 90 per cent of returns generated by an investor depend on how the savings are allocated across different asset classes. Asset allocation also determines the broad risk level of a portfolio, which should be in accordance with the risk profile of the investor. Risk appetite of an investor depends on various factors like age, income level, etc. While making asset allocation decisions, investors should also keep the concept of diversification in mind. Diversification across asset classes and geographies is a wise idea.

Analyse the performance

A key attribute to mutual fund investing is analyzing the performance of a scheme. However, while evaluating a mutual fund scheme, attention should be given to the consistency of the performance. Investors should select schemes which have performed well over good and even bad markets. Only a long term perspective will help us understand how the fund has fared in unfavorable market scenarios.

Risk-adjusted returns

Returns should always be benchmarked against the risk undertaken by the scheme. A certain scheme could have superlative performance but would have undertaken huge risk to deliver those returns. A good mutual fund not only maximizes returns but also minimizes the risk.

Fund management team

Like an efficient sailor who can take his ship through turbulent weather and come out safe, a large part of a fund’s performance is dependent on the investment management team of the fund house. The ideal sailor whom you can trust with your money is the one who has weathered many a boom-bust market cycles and still have delivered consistent returns. Since the global investing window is now open for every investor, a globally experienced team would then add value to your global investments.

Load and fund expenses

Investors should also get a clear picture of all the funds expenses, including the applicable exit load and annual fund expenses as they also impact fund returns. Since Aug’09, investments in mutual funds no longer attract any entry fee. This now allows investors to decide how much to pay their advisor for his advice.

Typically, mutual funds costs comprise recurring annual expenses and transaction fees each time one buys or sells MF units. The expense ratio of a fund encompasses the myriad costs levied by the asset management company on a yearly basis. This is charged irrespective of fund performance. The basket of costs includes: management & advisory fee, selling and promotion fee, custodial fee, registrar fee, audit fee, etc… The expense ratio varies across different funds. However, SEBI has capped the charges at 2.5 per cent for equity funds and 2.25 per cent for debt funds. This cost gradually goes down as the corpus of the fund rises above a certain level. Equity funds charge2.5 per cent on the first Rs 100 crore of the average weekly net assets collected. This is then reduced to 2.25 per cent for the next Rs 300 crore, 2 per cent on the subsequent Rs 300 crore corpus; it finally comes down to 1.75 per cent for the balance assets. There are some expenses which are not accounted for in a fund’s return and are referred to as ‘loads’. These are deducted at source while buying or selling the units in the fund. SEBI has now abolished the front-end load. So funds can now only charge an ‘exit’ load.

Types of Funds

Mutual funds invest in different asset classes including equity, debt and alternate (gold, real estate, etc…). Investors seeking high return, who do not mind taking risk, should look at equity as an investment vehicle. Short-term investors, who may want to keep money liquid, need some sort of regular income or keep their capital protected, should look at mutual funds that invest in debt products. Investors seeking to diversify their portfolios and guard against inflation buy some gold or real estate through a fund. And then, there are those who want a fund to take care of multiple needs, should look at hybrid products.

Conclusion

In the current market uncertain times, more than ever, asset allocation will deliver better risk reward outcome than trying to time the market. Second, dynamic asset allocation may be preferred over static asset allocation. And lastly, discipline in investing will be more valuable than emotional or ad-hoc investment decisions. Above all, staying away from investing could turn out to be more harmful than investing; hence, invest, if you have a longer term view.

Source: http://www.indianexpress.com/news/pick-the-one-that-suits-your-needs/657759/0

Bharti Airtel, top pick for mutual funds

AMCs reduce stake in Reliance Ind, IDFC.

Bharti Airtel saw the highest number of shares (1.3 crore) being bought by the fund houses, while Reliance Industries witnessed the maximum number of shares (1.7 crore) being sold, said a report from Sharekhan.com.

The month of July saw the total assets under management (AUM) in equity schemes of mutual funds drop marginally by 0.3 per cent to Rs 2.03 lakh share crore, according to a report by Networth Stock Broking.

The mutual fund industry was a net seller of Indian equities for Rs 1,497 crore in July, the Sharekhan report added.

According to Sharekhan, other stocks that fell prey to profit-booking by mutual funds were Infrastructure Development Finance Co Ltd (1.2 crore shares), ITC Ltd (1.09 crore), Dabur India Ltd (1.02 crore) and Crompton Greaves Ltd (0.71 crore).

These companies, along with Reliance, make up the top five companies in terms of the volume of shares sold by fund houses.

In terms of volumes bought by fund houses, Bharti was followed by Petronet LNG Ltd (1.03 crore), Hindustan Media Ventures Ltd (1.01 crore), SpiceJet Ltd (0.86 crore) and Indiabulls Financial Services (0.78 crore).

Shares held

In terms of number of shares held by the schemes, NTPC occupied the top slot.

Around 14 crore shares of NTPC were held in MF portfolios with a total market value of Rs 2,929.12 crore.

However, Bharti Airtel — with the second highest number of shares in circulation in the portfolios (around 13 crore) — had the higher market value at Rs 4,239.68 crore.

In terms of featuring in the largest number of schemes, Reliance Industries was the top stock, with its presence in 269 schemes.

Around six crore shares of the stock were held at a market value of Rs 6,189.09 crore, according to the Sharekhan report.

State Bank of India shares had the highest market value at Rs 6,769.69 crore. However, only 2.7 crore shares of SBI were held in portfolios, according to the report.

ICICI Bank and Infosys stocks each had 259 schemes investing in them, and their market value was Rs 5,882.67 crore and Rs 5,986.48 crore, respectively.

Source: http://www.thehindubusinessline.com/2010/08/20/stories/2010082053281000.htm

IDFC Asset Allocation Fund to be Transacted through Online MF Platform

IDFC Mutual Fund offers an alternate transaction platform to facilitate purchase/subscription and redemption of units of IDFC Asset Allocation Fund (Aggressive plan, Conservative Plan and Moderate Plan) through the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) – Mutual Fund Service System (MFSS). The facility will be offered from 19 August 2010.

Units can be held as per the choice of the investor, in physical or depository mode.

IDFC Asset Allocation Fund is a fund formed with primary objective to generate capital appreciation through investment in different mutual funds schemes primarily local funds based on a defined asset allocation model.

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

Mutual funds dump equities worth Rs 1432 crore in August

Mutual funds offloaded shares worth a net Rs 169.90 crore on Tuesday, 17 August 2010, lower than Rs 334 crore on Monday, 16 August 2010.

The net outflow of Rs 169.90 crore on 17 August 2010 was a result of gross purchases Rs 565.40 crore and gross sales Rs 735.30 crore. The key benchmark indices ended almost unchanged in range bound trade on that day.

Mutual funds have sold shares worth a net Rs 1432.20 crore this month so far, till 17 August 2010. Mutual funds had dumped shares worth a net Rs 4405.30 crore in July 2010.

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

Equity edge ensures high returns

HDFC Prudence Fund, launched on February 1, 1994, is one of the oldest funds in the equity-oriented hybrid funds category (also called as balanced funds). As of July, the fund’s average assets under management (AUM) were Rs 4,558 crore.

It has been ranked ‘Crisil Mutual Fund Rank 1’ for the past three quarters and has held the top rank on 22 occasions over the 10-year history of Crisil Mutual Fund Ranking. The high consistency in rankings is an indication of a blend of superior performance and disciplined portfolio management.

Investment style

It seeks to benefit from both asset classes, ie, it aims to provide capital appreciation of equities and stability of debt market instruments. During the last three years, the fund maintained an average 75 per cent exposure to equities. It’s aggressively managed, showing a clear tilt towards equities over the last three years wherein the fund remained invested largely in equities, despite 2008’s down cycle.

Performance

The fund has capitalised on equity market gains and outperformed the benchmark index (Crisil Balanced Fund Index) with a sizeable margin. It has generated nearly twice the benchmark index returns for various periods analysed (three months to five years) — much higher than its peers. During the downturn of 2008, the fund lost 43 per cent of its net asset value (NAV) from January 2008 (market peak) till March 2009, compared to 34 per cent of the Crisil Balanced Fund Index and 51 per cent of the S&P CNX Nifty. The fund’s performance vis-à-vis its peers clearly stands out during the market recovery phase after March 2009. Till date, the fund’s NAV multiplied 2.5 times (122 per cent gain) from its lowest point in March 2009, while the benchmark index returned 52 per cent and the S&P CNX Nifty gained 77 per cent.

Portfolio analysis

Within equities, the fund maintains a fairly diversified portfolio exposure across market capitalisation with a bias towards large-cap stocks. The average fund exposure to stocks in the BSE 100 and CNX Midcap index during the last two years is around 43 per cent and 18 per cent of the total portfolio.

The average number of stocks in the portfolio for the last two years is 61, indicating good stock-wise diversification. Within the debt portfolio, the fund has maintained good asset quality with a predominant exposure (21 per cent) to government securities and AAA/P1+ rated papers over the last two years.

Sector trends

Banks, pharmaceuticals and financial institutions have been the most preferred sectors in the fund’s portfolio over the last three years, with exposure to these sectors being over a fourth of total assets. Banks, housing finance and consumer goods sectors were the largest contributors to total gains of the fund during the last two years.

Source: http://business-standard.com/india/storypage.php?autono=404876

Pramerica Asset Managers to launch first NFO on Aug 23

Pramerica Asset Managers, the Indian arm of the US-based Prudential Financial, today announced the launch of its first product, which would invest in debt securities.

The Pramerica Liquid Fund new fund offer (NFO) would open for subscription August 23, and close on August 26, Pramerica said in a statement.

The open-ended fund would invest the corpus in debt and money market instruments and the performance would be benchmarked against the CRISIL Liquid Fund Index.

"The new fund is aimed at creating value for investors with a low risk appetite," Pramerica Managing director and CEO Vijai Mantri said.

The fund would act as an ideal short term investment avenue for surplus funds and also the dividend from this scheme is tax exempted.

"The fund presents an option to investors to benefit from presently rising interest rates. Investors can also use this fund for investing cash as part of asset allocation," Pramerica Executive Director & Chief Information Officer (Fixed Income) Mahhendra Jajoo said.

In May, the company had received market regulator SEBI's approval for starting mutual fund operations in the domestic market.

With this approval, Pramerica has joined the league of Italian bank UniCredit's arm Pioneer Global, Japan's Shinsei, South Korea's Mirae Asset and France's Axa, who have launched their products in the country over the past three years.

Globally Prudential Financial manages assets worth $693 billion.

The US-based parent Prudential Financial has already infused $7.5 million into the Indian asset management company.

Source: http://www.business-standard.com/india/news/pramerica-asset-managers-to-launch-first-nfoaug-23/105517/on

AMCs Not to Accept Third-party Payments

The Association of Mutual Funds in India (AMFI) has asked fund houses not to accept third party payments barring a few exceptions.

In a best practice guidelines circular issued to AMCs on Monday, AMFI said that third-party payments would only be accepted in case of payment by “parents/gand-parents/related persons on behalf of a minor for a value not exceeding Rs 50,000 (each regular purchase or per SIP installment); payment by employer on behalf of employee under systematic investment plans (SIP) through payroll deductions and custodian on behalf of an FII or a client.” However, the mutual fund body recommends that in the above mentioned exceptional cases, AMCs should have appropriate controls in place to carry out verification as required under the Prevention of Money Laundering Act (PMLA).

The AMCs should, therefore, determine the identity of the investor and the person making payment, that is, mandatory KYC for investor and the person making the payment; obtain necessary declaration from the investor and the person making the payment. Declaration by the person making the payment should give details of the bank account from which the payment is made and the relationship with the beneficiary.

It has also asked AMCs to verify the source of funds to ensure that funds have come from the drawer’s account only. AMFI further elaborates the process for identifying third-party payments. The procedures recommended include asking the investor for details of his pay-in bank account (account from which a subscription payment is made) and his pay-out bank account (account into which redemption /dividend proceeds are to be paid); seeking a certificate from the issuing banker for subscriptions through pre-funded instruments such as pay order, demand draft, banker’s cheque, etc.

If the payment is made by RTGS, NEFT, ECS, bank transfer, etc., a copy of the instruction to the bank stating the account number debited must accompany the purchase application.

If payments are received via channel distributors, AMCs should ensure that the settlement model has satisfactory checks and balances against third-party payments.

The guidelines further say that for payments through net banking, AMCs should endeavour to obtain the details of the bank account debited from the payment gateway service provider and match the same with the registered pay-in accounts.

AMCs should implement the process for identifying third-party cheques within 90 days of the issuance of the circular or by November 15, 2010.

Source: http://new.valueresearchonline.com/story/h2_storyView.asp?str=14990

KYC Must for Any Investment Amount

The Association of Mutual Funds in India (AMFI) has asked all asset management companies (AMCs) to make KYC (know-your-customer) norms mandatory for all non-individual and NRI investors irrespective of the amount of investment.

Under the present norm, KYC is mandatory only for investments above Rs 50,000.

In a letter sent to AMCs, AMFI has said that the mutual fund industry should go ahead with making KYC mandatory, irrespective of the amount of investment for all non-individual investors/NRIs/channel investors (high risk category) with effect from October 01, 2010. These categories will include corporate, partnership firms, trusts, HUF (Hindu undivided family), NRI and investors coming through channel distributors.

However for individual investors, a decision would be taken only after feedback from the Securities and Exchange Board of India (SEBI).

The AMFI committee on KYC had made the proposal to lower the current threshold amount from Rs 50,000 to zero in a phased manner for different categories of investors and the proposal is still under consideration of SEBI. However, the AMFI committee has recommended that even as the proposal is pending clearance from SEBI, the mutual fund industry should remove the limit of Rs 50,000 for all non-individual investors and NRIs investors.

KYC norms were implemented from February 1, 2008, for all investors investing in mutual funds schemes amount of Rs 50,000 and above. It was done in order to comply with the Prevention of Money Laundering Act 2002.

For the convenience of investors, all mutual funds have made special arrangements with CDSL Ventures Ltd. (CVL), a wholly owned subsidiary of Central Depository Services (India) Ltd (CDSL).

Source: http://new.valueresearchonline.com/story/h2_storyView.asp?str=14989