Do dynamic funds work for you?

A good dynamic fund can absolve you of the headache of timing the markets, but invest at least for five years

Wouldn’t you love to buy equities when markets are at a low and sell them when markets are at a high? As basic as this stock market mantra is, it’s easier said than done. It is hard to resist temptation when markets are near their peak and it’s tough to find the courage to jump into equity markets when they’re falling.

There’s an alternative. If you do not mind taking the mutual fund (MF) route, dynamic (equity-oriented) funds switch your money between equity and debt markets. Apart from the existing six such schemes in the market, two new schemes were launched in November 2010. Pramerica Asset Managers Pvt. Ltd launched Pramerica Dynamic Fund (PDF) and Principal PnB Asset Management Co. (AMC) Ltd launched Principal Smart Equity Fund (PSE). Should you look at them?

Playing on both sides

Dynamic funds switch between different asset classes, depending on their attractiveness. Even hybrid funds do that, but they can’t switch rapidly between asset classes—they’re typically true to one asset class such as equity in case of balanced funds and dip their hands sparingly in other asset classes. Dynamic funds aim to switch aggressively between equity and debt and are more opportunistic.

In rising equity markets, they invest more in equity and less in debt and cash. But when markets start to fall, these funds sell equities and get into cash. “Investors do not take full benefits of rising markets because at higher levels, they do not book profits adequately. Also, at lower levels, people hesitate to invest in equities; they aren’t sure when they should invest; they miss the rally,” says Rajat Jain, chief investment officer, Principal PnB AMC. These funds switch dispassionately, he adds.

Take the case of Franklin Templeton Dynamic PE Ratio Fund of Funds (FTDP). When the Sensex was around 10,000 levels in March 2009, FTDP had invested 91% of its corpus in equities. Now that the Sensex is around 20,000 levels, it has only 30% invested in equities; the rest is in debt.

Not all dynamic funds are alike. Some such as HSBC Dynamic Fund (HDF) switch between equity and cash depending on how their fund manager perceives the markets. Others such as FTDP look at indicators such aas the Nifty’s price-earnings (P-E) multiple to determine how heated the markets are. Apart from determining their asset allocation, they also differ in terms of how they invest. For instance, FTDP is a fund of funds scheme (that invests in other funds) and splits its corpus between Franklin India Bluechip Fund (a large-cap equity scheme) and Templeton India Income Fund (an income scheme); both schemes from its own fund house.

After determining its equity and debt split, UTI—Variable Investment Scheme—Index Linked Plan (UTIV) manages its equity component passively. It invests its entire corpus in shares of companies—and in exactly the same proportion— as they lie in the Sensex. Others such as HSBC Dynamic Fund allow their fund managers to determine the equity and debt split and also to pick and choose equity and debt scrips in which the scheme would invest in.

Freedom at a cost

Schemes such as HDF, which actively manage the equity-debt switch, usually restrict the fund manager’s freedom to exit equities—even in the face of excessive market volatility—and sit on cash. “To be able to exit equities and sit entirely on cash is a very bold move that can go horribly wrong, if the fund manager has the freedom to do so. If the markets jump back, the fund manager is caught off-guard and underperforms badly,” says Nilesh Shah, deputy chief executive officer, ICICI Prudential Asset Management Co. Ltd. Therefore, though ICICI Prudential Dynamic Fund (IDF) has not explicitly stated the parameters that will determine its equity-debt split in its scheme information document, internally the MF looks at the price-to-book value (PBV) ratio of the Nifty. Higher the PBV, lower will be its allocation to equity.

Tushar Pradhan, chief investment officer, HSBC Asset Management (India) Pvt. Ltd, is cautious, too, when it comes to the fund manager’s freedom in dynamic funds. Though he joined the MF only in June 2009, he is mindful of how badly the fund house was punished for sitting on excess cash between March and May 2009. During that time equity markets rebounded and shot up; fund houses such as HSBC MF with high cash levels lost out miserably. “Unless you have a view that the Indian equity markets are going to fare very badly in years to come, there’s isn’t merit in having too much cash in a portfolio,” says Pradhan.

At present, HDF goes a maximum of 20% in cash (10% only for all other HSBC equity-oriented schemes) as a “tactical call” if the fund manager has a negative view on the market. On the other hand, if fund managers have freedom to choose the equity-debt split, most prefer to be heavy in equities to be able to retain the equity tax advantage; schemes that invest at least 65% of their corpuses in equities qualify as equity schemes and do not impose long-term capital gains tax.

Do dynamic strategies work?

To check whether dynamic fund strategies work or not, you’ve got to first check the level of flexibility with which these funds can switch between equity and debt. For instance, of the six dynamic funds present in the Indian MF industry, only two schemes— FTDP and UTIV—can switch completely to cash. Both these have been around for more than five years. Of the two, FTDP has a better track record; it gave a return of 17.75% in the past five years. UTIV managed to give just 3.73% in the same period. Newly launched PDF and PSE, too, can completely exit from the equity markets and sit on cash.

“Typically, dynamic funds underperform pure equity funds in continuously rising equity markets because these funds sell equities and get into cash as equity markets go up,” says Arvind Bansal, vice-president and head (multi-manager investments), ING Investment Management (india) Pvt. Ltd, that manages ING OptiMix Asset Allocator Multi Manager FoF (IOMM). In 2007, on the back of rising equity markets, FTDP returned 27.42% against 40% returned by balanced funds on average. The fund got saved in 2008 when equity markets crashed; it lost 25% against an average loss of 37% by balanced funds. Overall, though, the fund seems to have got its act in place; it returned 18% in the past five years against 15% category average returns by balanced funds. IDF has done well across time periods, but that is mainly because it restricted its cash levels to up to 35% and actively managed its equity portfolio.

PDF aims to be different. It doesn’t just limit itself to one parameter such as the equity market’s P-E multiple. It takes into account several parameters such as fundamental (earnings growth, inflation, interest rates), liquidity (money supply, currency valuations) and volatility (details from the derivatives market) parameters to arrive at its stated equity-debt split. “To ascertain whether the markets are overheated or not, it is necessary to look at a whole host of factors and not just P-E,” said Vijai Mantri, chief executive officer, Pramerica Asset Managers. However, K.N. Sivasubramanian, chief investment officer, Franklin Equity India, Franklin Templeton Asset Management India Pvt. Ltd, says: “The need of the hour is to have simple products. Nifty’s P-E (FTDP refers to it) is derived by the P-E of individual companies from within Nifty, which makes it a good indicator. FTDPEF’s model has been tested through markets cycles and is reflected in the fund’s performance.” While PDF’s formula ascertains its present equity exposure at about 70%, FTDP’s equity exposure at present is 30%. Time will tell who is right and who’s not.

What should you do?

A well-managed dynamic fund can absolve you of the headache of timing the markets, if at all you get affected by market volatility. If that’s your concern, it bodes well if your dynamic fund depends on a formula that ascertains its equity-debt split. In future, expect more exotic funds—such as PDF and IOMM—to be launched. “We at HSBC too are reviewing our products and contemplating to introduce an algorithm or some parameter that the fund manager can follow blindly. In this case, the fund manager can fully focus on picking and choosing scrips. The headache of asset allocation will then be left on a formula that will also be sufficiently back-tested,” says Pradhan. He says that dynamic funds are tricky to manage and fund managers have to be very careful. “If we go by short-term volatility and shift to cash, but the market rises for the next two years or so, we burn ourselves badly.”

Opt for dynamic funds only if you have the appetite to invest for at least five years. “It is a fill-it, shut-it, forget-it product,” says Shah.

Source: http://www.livemint.com/2010/11/29213434/Do-dynamic-funds-work-for-you.html

Liquid fund NAV lock possible only after MFs get money

Capital market regulator Sebi said that investors in liquid funds would no longer get the net asset value NAV of the day before the application date, if the mutual fund doesn’t get the application and money before 2:00 pm. Sebi, in a circular on Friday, said liquid-fund investors would only get the NAV of the day, just before the day on which the mutual fund has received the money irrespective of the time of submitting the application.

“It is observed that mutual funds are deploying funds without receiving clear funds in the scheme account. As a matter of good practice and to avoid systemic risk, it has been decided to modify certain provisions ,” said Sebi.

The regulator said that investors would be allotted units in liquid schemes only if an application is submitted before 2:00 pm, entire investment fund is credited to the bank account before the cut-off time and the money is available without any credit facility. The same conditions would be applicable for allotment of units during switching to other schemes such as liquid plus or other debt schemes.

Investors in liquid schemes, mainly companies, have widely followed a practice , where they submitted the application before the cutoff time and simultaneously directed the fund house to switch to liquid plus scheme. This helps investors get the previous day’s NAV of the liquid scheme and get returns of the liquid plus scheme of the same day.

Mutual fund officials said that the Sebi move is likely to affect flows into liquid schemes, where companies park their idle money. A top official of a bank-promoted mutual fund, on condition of anonymity, said, “Let’s assume that the investor has made the RTGS payment order at 10:00 am in the morning, but the mutual fund gets it only after the cutoff time of 2:00 pm, the investor will not get the previous day’s NAV. All the more, his money will lie idle with us for a day.” Real-Time Gross Settlement (RTGS) is the fastest way to transfer money between banks.

A fixed income fund manager of another bank-promoted mutual fund said, “Now, there will be bigger fights between fund houses and companies (investors) over the timing. Companies and high net worth investors are never known to transfer money on time and often blame us for the delay.”

According to Dhirendra Kumar of Value Research , the Sebi move could create a logistical problem. “Banks do not have the necessary infrastructure to deliver the funds by 2.00 pm. The Sebi move will basically impair the flexibility to move their money across schemes during the day,” said Mr Kumar. Mutual funds are already reeling under the impact of a Sebi’s move in August 2009 to ban them from charging investors, in their equity schemes, an initial fee to pay distributors. The step has resulted in distributors selling fewer equity schemes. Sebi, in the circular on Friday, also said that interval plans would mandatorily be listed and investors could redeem only during the specified transaction period — the period during which both subscription and redemption may be made to and from the scheme.

“It has been noticed that certain scheme information documents provide that the subscription to the scheme can be made during a specific period (known as specified transaction period) and the repurchase of units is permitted on all business days subject to applicable loads (except for redemption during specified transaction period when no load is charged),” the circular said.

“As per the current regulation, there is no restriction on tenure of securities in which interval scheme can invest. This read with daily redemption option may result in asset liability mismatch,” it said.

Source: http://economictimes.indiatimes.com/markets/regulation/Liquid-fund-NAV-lock-possible-only-after-MFs-get-money/articleshow/6998829.cms

Infra spend, capex will drive growth : Principal MF

With the thrust on infrastructure and pick-up in capex, we will see leadership returning to that sector.

With the markets correcting, identifying sectors and stocks that are likely to lead from here will be rewarding for investors. Business Line spoke to Mr P.V.K. Mohan, Head-Equities, Principal Mutual Fund, to hear his views on the sectors that drove the market and the ones that could be the outperformers from here on.

Excerpts from the interview:

In the Indian market different sectors tend to drive each leg of a stock market rally. What in your view are the promising sectors for the next few years?

I think the traditional sectors will do well. Clearly, this rally was led by financials, and sectors related to the consumer space, such as automobiles. These sectors will probably continue to do well. In terms of leadership, one sector that performed well between 2004 and 2008 was infrastructure, though it completely underperformed in this rally.

Now, if the country has to get back to the growth trajectory of 8-9 per cent, there is an urgent need for infrastructure spending. The capex from the private sector needs to pick up. So we will see leadership coming back to that sector. Consumption is one pillar of the economy and it is on a strong track. We are seeing this in durables and in some of the FMCG space.

Our view over the medium term is more of a bottom-up view and not about sectors as a whole. If you look at the long term, I would bet on agri-based stocks. We have seen fertilisers doing well. Going forward, we will see tractor and seed companies join in too.

Do you anticipate expansion in capital expenditure and how is that going to help capital goods sector?

We had one leg of growth from the revival of the economy and some priming of economy by government expenditure. Given the deficit concerns, I think clearly it's the time for the private sector to take on the capex mantle. Even in infrastructure, the role of the private sector is critical. Currently it not involved in a big way, but we are seeing the green shoots. When the auto industry is running at 100 per cent capacity, and the durables industry is at full capacity, it tells us that clearly there is a need for expansion. We see Tata Steel is going ahead with expansion. We see better times ahead for capital goods and infrastructure.

The developed countries are yet to come out of the recession and the rupee appears to be strong. How will this impact the IT sector?

The currency part is a definite headwind for the IT sector. Having said that, the largest part of business at this point is coming from the US. Demand conditions are pretty good there. Corporates are sitting on huge cash reserves. There is the political expediency of anti-offshoring talk on and off. But this model works well for both the Indian companies and for the country looking to cut costs. Very recently the UK government revalidated a contract with TCS after talking out against offshoring jobs. They have to place the order if they want to cut the deficit and costs.

So, I think the demand side is good but on the costs side, salary, attrition and rupee appreciation are the challenges the industry has to live with. The bigger guys will be able to deal with the challenges, but the smaller players will have volatile performance. The industry has shown the ability to meet challenges on earlier occasions, but the margins are likely to take little bit of hit. This sector will be a market performer.

In a highly inflationary and rising interest rate scenario, what is your call on banking and finance?

I think with rising interest rates, typically in a high growth or in strong economy, the banks were always in a position to pass on the costs to the customer. I think today they are in spot where the cost of CASA is higher; and the lending rate may rise. Financials at this point of time may see some compression in the spreads.

Nevertheless, they will remain healthy, if the economy grows at 8-9 per cent, they will be able to manage the margin. In the NBFCs space, those that are well-capitalised can tide over the problem. So in financials, size is going to play a role.

Auto sales continue to be robust, with a normal monsoon. How is this sector likely to pan out?

We are positive on the sector. Two factors are driving the sector, one is rural demand, helped by NREGA. Two the MSP prices are raising. So farmers with a not-so-great monsoon last year have seen their farm incomes go up because of the realisations. Given that India has structural deficits in agriculture, prices will remain buoyant. So, that is a very important contributor for the demand and it is visible in two- wheelers. Even for companies like Maruti, 15-20 per cent of the sales are now being derived from the rural segment; this was in single digits a few years back. In the urban market, due to the faster replacement cycle, bank funding coming back, better job security, due to wage inflation, the EMI culture is coming back. So, autos will continue to do well. On the commercial side, light trucks will see strong growth because of the last-mile connectivity. Overall, we feel that the growth momentum is positive and will remain so.

Source: http://www.thehindubusinessline.com/iw/2010/11/28/stories/2010112850970800.htm

Scam: Sundaram MF waits 'n' watches

Sundaram Mutual Fund, a unit of BNP Paribas’s former partner in India, said it will “wait and see” before deciding what to do with investments in a brokerage involved in a probe into bribes and improper loans.

“We will take a commercial call, keeping the long-term interests of our investors in mind,” TP Raman, managing director at Sundaram Mutual, said in a phone interview on Thursday.

Sundaram Mutual, a unit of Sundaram Finance, manages three funds that own a combined 1.49% stake in Money Matters Financial Services, the Mumbai-based brokerage, according to data compiled by Bloomberg. Shares of Money Matters tumbled by their 20% limit for a second day, reaching Rs 427.05 in intraday trade.

Rajesh Sharma, chairman of Money Matters, was on Wednesday taken into custody by India’s federal investigating agency for allegedly conspiring with others to bribe state-run lenders’ executives in exchange for loans for clients and confidential information.

Executives at Money Matters weren’t available at their offices, which have been sealed by the agency.

Separately, India Infoline advised Money Matters Financial Services for a sale of shares to large investors this year and hasn’t used the securities firm for debt syndication or lending money.

“We did our due diligence but you cannot do an investigation,” India Infoline’s Chairman Nirmal Jain said in a phone interview from his office in Mumbai on Thursday. “As an investment banker, we did our job.”

Rajesh Sharma, chairman of Mumbai-based Money Matters, was among eight people arrested by India’s federal investigating agency on Wednesday following a probe into bribes and improper loan disbursals.

India Infoline shares sank 15%, the most in 19 months, to Rs 91.3 as of the 3:30 pm close in Mumbai.

Money Matters fell% for the second day on the Bombay Stock Exchange to close at Rs 427.05.

Source: http://www.indianexpress.com/news/scam-sundaram-mf-waits-n-watches/716114/2

Principal Mutual Fund announces launch of Principal SMART Equity Fund

Principal Mutual Fund has announced a new offering, Principal SMART Equity Fund, an open-ended equity scheme based on the P/E ratio of the S&P CNX Nifty Index. The scheme will be open for subscription from 26 November 2010 and will close on 10 December 2010. The fund performance will be benchmarked against the Crisil Balanced Fund Index.

Principal SMART Equity Fund, an open-ended equity scheme, is a P/E (Price to Earning Ratio) based fund which dynamically changes its asset allocation between equities and debt / money market instruments based on the weighted average price-earnings ratio (P/E ratio) of the S&P CNX Nifty Index (NSE Nifty). When the markets become expensive in terms of a set ‘P/E Ratio'; the scheme will reduce its allocation to equities and move assets into debt and / or money market instruments and vice versa. Such a strategy is expected to optimize the risk-return proposition for the long-term investor.

Speaking at the launch of the new fund Mr. Sudipto Roy, Business Head, Principal Mutual Fund said “Principal SMART Equity Fund is a product that aims to make the best of any market swing. It is based on the P/E based model that enables asset allocation to be managed by moving investments strategically across equities and debt based on certain pre-set conditions and time periods set by the fund. And all this is done ‘automatically' as part of the fund's strategy. We are confident about this product and look forward to a positive response from investors.”

Elaborating on the fund Mr. Rajat Jain, Chief Investment Officer, Principal Mutual Fund and Fund Manager said “The Principal SMART Equity Fund is a fund that follows the basic rule of investing – Buy Cheap and Sell Dear. Not many people are able to do it successfully, which is why you see a disconnect between returns of market and returns of the investor. This scheme does it for you, regularly and automatically, as defined in the scheme information document based on pre-set P/E ratio levels. This scheme is suited for investors looking for long term investments without worrying about market gyrations.”

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

The scheme would allocate upto 100% of assets in equity & equity related instruments of large cap companies with medium to high risk profile. It would at times allocate upto 100% of assets debt or money market securities and /or units of money market / liquid schemes of Principal Mutual Fund with low to medium risk profile.

Investment in derivatives shall be upto 50% of the net assets of the scheme. Deployment upto 50% of its total net assets of the scheme shall be in stock lending, which is subject to the SEBI regulations.

The minimum application amount is Rs 5000 and any amount Rs 1 thereafter. It also offers Systematic Investment Plan (SIP) for a minimum six installments of Rs 500 each.

The scheme will charge an exit load of 2% for exits upto 1 year, 1% for upto 2 years and nil for after 2 years.

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

Ban on entry load has hit small IFAs hard: Priya Ramarao

All financial advisors tell you that they are good. But are they? How can you evaluate their claims? Read on! In an exclusive interview with Pooja Chopra Goel of Myiris.com, Priya Ramarao, CFP CM, InvestmentYogi explores the business of financial planning and how investors can use it to their advantage.

What led you to opt for a certified financial planner (CFP) course and to choose a career in financial planning?
I previously worked in branch operations division in personal loans business. There, I used to interact daily with lot of customers coming from different walks of life, i.e. self-employed, salaried professionals, pensioners etc. I realized that there was a huge gap between what the customer needed and what was being offered to him. There are a vast majority of people who do not have access to personal finance advisory services. As it was always in my nature to help people, I felt I could do more than just selling loans. That`s how I got interest to enroll myself into CFP course. I obtained the certificate and now am working for InvestmentYogi.

How does a financial advisor make his living and is there any conflict of interest between him and his customers?
Trust is the most important element in an advisor-client relationship. An IFA must disclose any business agreement / compensation arrangements between the IFA and a 3rd party (which may be an AMC, a life insurer, and/or broker) to the client at the beginning of the agreement itself, to avoid conflicts of interest.

When someone approaches a financial advisor for the first time, what are the questions that they should ask?
When one approaches an IFA for the first time, the important points to note are the professional qualifications of the IFA (whether he/she is a certified to handle an individual`s personal finances) and the experience in handling client portfolios. It will help if an IFA can provide references of clients he/she has provided financial planning service to. Another important aspect to check is whether the IFA is making the client feel comfortable during the meeting; an ideal financial planner is one who has the client`s interests in mind.

There is a view that no loads and reduction in upfront commissions have really hurt small IFAs and the retail business. Is this a view that you also share?
At the face of it, the moves proposed to remove loads and upfront commission may appear to benefit the investor. However, we should not forget that the majority of the mutual fund penetration has been through the MF agents/advisors and will continue to do so. Mutual fund is a product that necessitates quality advice. We need to strike a balance between quality advice provided by agents/advisors and their compensation arrangement. The current trail commission is too low a motivation to bring in new business. One way to do this is to provide quality training in financial products to the agent/advisors. NISM (National Institute of Securities Markets; established by SEBI and FPSB, India) has already acted in this direction and have come out with a unique certification program for small IFAs called `Certification Examination for Financial Advisors`. It is expected to serve as skill assessment mechanism as well as help facilitate the augmentation for competent financial advisors in the country

Out of the several changes that advisors now have to face, which one is a more difficult one to cope with?
Among the major changes that have been brought into force, such as ban on entry loads, investor complaint disclosure facility (on fund`s website), ASBA facility, DTC implementation from April 2012, and uniform exit loads - the ban on entry loads for new and existing mutual fund schemes may undoubtedly be the difficult one to cope with for small IFAs. However, there are other ways in which an IFA can earn his due, such as, charging a flat fee for his service. But for this, they need to broaden their products & services basket and upgrade their skills and knowledge for value-added services.

What are your plans for 2011 in terms of product portfolio, new services, client segments etc?
InvestmentYogi plans to expand its services both online and offline. We will give users a 360 degree view of their finances and continue rolling out new and innovative products online. Our goal is that over the next 5 years, we will help over 2 million middle class Indians save by helping them make smart investment choices.

What is your take on current market situation? What are the key factors that will drive the stock markets in 2011? What is your advice to retail investors now?
Although there is no doubt about India`s long term growth and the fantastic performance of Indian stock market over the last couple of years, the current market is still not completely immune from future global shocks. The market has been scaling new heights with FIIs(foreign institutional investors) push and investors should be cautious and understand that once there appears any weak global economy outlook or even a stock market correction, as is the case now, FIIs will take the first flight, pulling the market down along with the investor`s hard-earned money. Therefore, it is wise to diversify your investments across asset classes always to reduce the risk of loss from any one asset class.

Is there anything else you would like to share with our readers?
Most people don`t plan for the future. Not that everyone have the same amount of goals to be seriously sitting down and planning for the years ahead. But having a plan in place atleast with respect to personal insurance will remove half the worry and stress that a working individual goes through in his/her life. Also, it is important that investors have basic level of financial knowledge and not rely totally on the friends, relatives and IFAs for finance related advice, as each person has his/her unique risk appetite, investment preferences, and therefore, the advice on where to invest cannot be a generalized one. Investors can make us of investor camps/workshops, online resources to improve their financial literacy.

Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20101124115104173&dir=2010/11/24&secID=livenews

Foreign investors will continue to buy: Franklin Templeton

KN Sivasubramanian is chief investment officer (CIO), Franklin Equity-India, Franklin Templeton Investments , which manages assets of over Rs 38,000 crore in India besides acting as advisor to offshore funds managing around $2 billion of equity assets. In an interview with ET , he says that there is increased confidence in the Indian economy and global investors will continue to buy selectively at these levels even if the liquidity situation changes. Excerpts:

How do you see the second round of quantitative easing affecting emerging markets like India?

Despite the recent correction, most stocks are trading marginally higher than the fair value based on the long-term averages. Most of the excess global liquidity is finding its way into emerging markets. However, future direction of the market will depend on earnings growth. In India , for long-term and overseas investors, there is increased confidence about the economy and we feel that global investors will continue to buy selectively.

What could reverse the trend in inflows?

Given that a lot of the rally is dependent on global liquidity and risk appetite, any weakening of global sentiment will impact inflows. Having said that, this would only be a temporary phenomenon and longterm inflows will continue to track the strong fundamentals. There is a dichotomy among foreign and domestic investors, of late. While foreign investors have continued to invest in the Indian market, domestic investors, including retail, have either been selling or sitting on the sidelines.

Do you think the market was running ahead of valuations, after seeing the second-quarter earnings?

The second-quarter results were along the expected lines. While some sectors, like cement and commodities, disappointed, consumption-related sectors continued to report good results. Also, the banking sector, which is a barometer of the economy, beat expectations. We have seen some impact on the margins of some companies due to a rise in input costs, like labour, raw material, among others. The impact of this hike in the input costs will be passed on to the end-user only with a lag effect. Markets, like India, are likely to enjoy valuation premiums due to the long-term growth potential, with the economy being driven by domestic demand.

In a market that has started factoring in growth numbers of FY13, how do you identify value?

We follow a bottom-up approach and focus on stock-picking . The investment style is a mix of growth and value. Our investment focus is on long-term wealth creation and we ignore short-term momentum stories.

Are you making any key changes to your portfolio allocations? Which are the sectors you are overweight and underweight on?

Our overall investment strategy has remained the same, with the broad themes being domestic consumption and investment — infra-structure spending and increasing capex. This is reflected in our top exposures — capital goods and financial sectors. We continue to remain overweight on materials, steel or nonferrous and some cement stocks. In the consumption space, we like telecom companies since we feel that current valuations are discounting all the negatives. While the pharma sector has been doing well, there are selective mid-cap stocks that are attractively valued. In the financial services space, we have exposure to broking companies and are positive on private banks.

What about the real estate sector?

We have very little exposure to this sector due to a lack of transparency. We like some South-based real estate players because of the revival in the demand from the IT/ITeS sector, which is expected to have a positive impact. But overall, we still feel that the sector doesn’t offer compelling valuations.

How do you think interest rates will move?

While the central bank has indicated a short-term pause, a lot will depend on how various factors pan out — inflation, global liquidity or risk appetite, capital flows, fiscal deficit and global commodity prices. Given that the trends in food inflation are being increasingly driven by structural factors, the government needs to address the bottlenecks for a long-term solution. The central bank is sensitive to the fact that the interest-rate environment shouldn’t derail economic growth trends.

How are AMCs coping with recent regulatory changes?

The asset management industry has witnessed margin pressures not only in India, but also globally due to the financial crisis and various regulatory actions since then. The fund houses and the distribution community are trying to adapt to the new dynamics. We think that long-term opportunity in any financial services business including the asset management business remains robust in the coming years in India due to the high savings rate and growing disposable incomes. India continues to be underserved in terms of financial services, given the low penetration of banking and financial services.

Source: http://economictimes.indiatimes.com/opinion/interviews/Foreign-investors-will-continue-to-buy-Franklin-Templeton/articleshow/6967219.cms?curpg=2

Principal Plans a New Fund

Principal Mutual Fund is all set to launch its Principal Smart Equity Fund, an open-ended equity scheme that will invest in equity or debt instruments depending on current market valuations. This way, the fund limit’s the fund manager’s role by automatically deciding on equity exposure based on pre-redefined PE (price to earnings) ratio of the NSE Nifty.

As per the fund’s mandate, the equity component of the portfolio would be 100 per cent for a PE multiple of up to 16. Subsequently, it will drop to zero and the scheme would be fully invested in debt once the weighted average PE crosses 28. Says Sudipto Roy, business head, Principal Mutual Fund; “We have seen that once the markets cross the PE of 26, it usually witnesses sharp corrections. Based on this observation, we have defined different levels of PE ratio to correspond to the equity exposure of the fund.”

The scheme is open for subscription from 26 November, 2010 to 10 December, 2010 with the equity component of the portfolio in large-cap stocks and the debt portion in money market securities and liquid schemes of Principal Mutual Fund. The fund levies an exit loads on redemption within two years. Usually, equity funds charge an exit load only on withdrawals within the first year. The scheme will charge an exit load of 2 per cent for redemption within a year and 1 per cent for redemption between one and two years. “Our objective is to encourage investors to stay in the fund for a long time for real chance of wealth creation.”

Source: http://www.valueresearchonline.com/story/h2_storyView.asp?str=15610

Sebi asks MFs to simplify new fund offers

Concerned that mutual fund schemes are becoming too complex for average investors, capital market regulator Sebi has asked several asset management companies to rework some proposed new schemes and file offer documents afresh.

More than a dozen new fund offer (NFO) prospectuses of leading mutual fund houses such as Reliance MF , ICICI Prudential , Birla Sunlife Mutual Fund , Kotak Mutual Fund , Tata Mutual Fund and Benchmark Asset Management are awaiting approval from the market regulator. The regulator is particularly skeptical about capital protection schemes.

According to sources, four fund houses have been asked to withdraw applications to launch capital protection schemes. The regulator was not comfortable with the quality of debt papers that these funds were planning to invest in.

A typical capital protection scheme, or CPS, will invest a small portion of the pool in equities, while the larger portion (about 80%) would remain in debt and money market instruments.

By allocating a portion to equities, the fund will participate in the upside during bullish phases and offer downside protection in a bearish market.

“The regulator will give us approvals only if (an) external rating agency vets the debt portion of the fund’s corpus,” said the top official of a domestic mutual fund which had plans to launch a ‘capital protected’ fund.

Sebi wants us to include some more features that will provide an additional safety net for investors. Changes in current structure will, however, reduce the flexibility of the fund,” the official added.

The regulator is also going slow on approving structured mutual fund schemes where instead of investing in equities and debt in a pre-determined ratio, the fund manager is given the flexibility to adopt complex strategies.
Structured funds require investors to take active calls on market direction. Sebi is also discouraging fund houses from launching flexicap, thematic funds and also schemes similar to the ones they already have.

Apart from CPS, the regulator is also not very comfortable giving approvals to funds and those that work on the lines of ‘range value’ structures where the MF promises a certain NAV as long as stock indices remain within a certain range.

“The thinking (at Sebi) is that mutual funds should be simple products for investors to understand. The regulator feels too many similar-sounding products would add to confusion among investors. Sebi is also of the opinion that fund houses should not launch NFOs to bring in more business,” said Dhirendra Kumar, CEO, Value Research, a mutual fund tracker.

In an interview to ET last month, Sebi executive director KN Vaidyanathan said the regulator is making NFOs more difficult for fund houses. He said mutual funds were misusing the new fund offer option to pay higher commissions and also because some investors continue to believe that by getting units at par they are getting them cheap.

“None of these factors are in the long-term interest of the fund industry so while a lot of people are barking the problem on entry load, actually the root, if you analyse, is that we have made NFOs more difficult,” he told ET in the interview.

The delay in getting approvals is posing problems to fund houses, which tapped the NFO route to mobilise fresh money.

The delay will kill favourable market conditions (like the current phase) to launch ‘flavour-of-the-season’ sector funds, capital protection schemes and thematic funds, a fund marketer said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Sebi-asks-MFs-to-simplify-new-fund-offers/articleshow/6966917.cms

We are heading towards the end of economic cycle

The country is almost well through the mid-cycle of an economic upturn that started in 2002-03, says Kenneth Andrade, head-investments at IDFC Mutual Fund. Throughout the cycle, India continued to grow at 7-8%; but now as leverage increases and cash flows turn negative for India Inc, he says, the markets are heading towards an end of the very large economic rally that started in 2002. In an interview with FE’s Chirag Madia, Andrade says he expects rate tightening in developed economies to be a major risk for Indian markets, so is a higher oil price.

We have seen markets entering into a volatile zone after touching a new high of 21k

I think this is a year-end phenomena, as it has been a long time since money managers have taken money off the table. A fair number of investors has done some profit booking as markets have touched a new high. But the underlying fact remains that markets this year have been driven by the liquidity present in the system. Going forward, we still have liquidity prevailing in the system and India, being part of that entire emerging market basket, will get a fair share of its money.

How would QE2 measures by the Fed impact Indian markets?

Globally, money is moving in large measures into emerging markets and India is a part of that basket. So the question is not whether India will get money or would China and Latin America. All asset markets are bound to do well due to the increased liquidity in the system.

The second quarter results season is almost over, what is your take on the quarter earnings?

The second quarter results, so far, have been in line with market expectations. But then the interest rates are rising and a lot of businesses require huge capital to grow, which is not very good for the system. Also, there has been a dramatic increase in the number of companies that are cash flow negative today. So, whereas EPS (earnings per share) is positive, cash flows are negative.

Which sectors are you currently overweight or underweight on?

Broadly, we have participated in the rally. And the overall portfolio theme has been domestic consumption-driven, while we also had some exposure in the infrastructure sector. The other sector that has done reasonably well is Financials and in recent times it has come under little stress. Over the medium term, we aren’t changing the above portfolio strategy. So, while we expect Financials to do well in the large-cap space and in the small and mid-cap space, we would be looking at the consumer sector to grow, going forward.

Where is the equity market headed?

From an economic perspective, we are almost well through the mid-cycle of our economic upturn that started in 2002-03. Throughout the cycle, we continued to grow at 7-8%; so we didn’t really see any major economic downturn while the financial crisis roiled the rest of the markets. But now as leverage increases and cash flows turn negative, we are heading towards an end of the very large economic rally that started in 2002.

While volatility is intrinsic to any stock market and it will be not very different from the past, over the next one year we can expect a double-digit return, but it will not be a high number.

What are the key risks to watch out for in the coming months?

The primary risk remains that if (interest) rates starts tightening in the West, we might look at money moving back from India to dollar-based assets, which is basically a liquidity risk.

In terms of economy risk, there are challenges of running a large current account deficit that is not sustainable and which is currently funded by strong foreign portfolio inflows. Apart from that, surging oil prices are also one of the risks to the entire economic growth story.

Indian markets are witnessing huge foreign inflows. Do you think it will continue, going forward?

We have been one of the countries where a disproportionate amount of money has come in. We can't guess that this flows will continue, going forward, but India will certainly continue to get fresh money.

Over the long-term, mid-cap and small-cap indices have outperformed the large-cap indices. Do you think it will continue in the near term?

This is a part of the generic theme that is happening; incrementally a lot of portfolios are getting focused on the internal economic situation rather than the global environment. So when we look at portfolios which are focused on internal themes like domestic consumption, a lot of stock picks tend to be from smaller companies, which is why we have seen a predominant surge in mid-cap and small-caps.

What’s your advice to retail investors?

I think the financial year 2001-12 will be quite challenging for investors as they need to concentrate on the fact that they have to lower their return expectations. I think there is enough on the table to be taken away and in any market there is an opportunity and we need to look for it. Even as the market were falling there was a opportunity, so we have to look for it.

Source: http://www.financialexpress.com/news/we-are-heading-towards-the-end-of-economic-cycle/714235/0

Sundaram BNP Paribas Fund Services forays into RTA operations

Sundaram BNP Paribas Fund Services forayed into Registrar and Transfer agency operations and would invest Rs 60 crore in the first phase over the next three years, with majority of investments going into the technology platform.

The firm, which is a 51:49 joint venture between Chennai-based Sundaram Finance Ltd and France’s BNP Paribas, aims to have a market share of 8-10 per cent of the total assets available for servicing in the span of five years.

The venture would have Rs 20,000 crore of assets under servicing in the first year of operations and look to quadruple it to Rs 80,000 crore at the end of three years.

At present, the fund services business is currently dominated by the two biggest registrar and transfer agents Karvy Computer Share and Computer Age Management Services (CAMS), who service 95 per cent of the mutual industry between them.

“Two players dominate the fund services business. But we feel it is the right time to enter into the business, given the Indian growth story and growing interest in mutual funds. The retail oriented customer service and the trust we have build, the culture which our joint venture partners also share, would be the key plus points in the fund management business,” T T Srinivasaraghavan, managing director of Sundaram Finance Ltd said.

To start with, Sundaram BNP Paribas Fund Services would start servicing Sundaram Mutual Fund, which has around 1.4 million customers and later expand full-fledged services to the mutual fund industry and provide specific solutions to asset managers.

The company would also double its workforce at its two centers in Chennai and Madurai from over 150 employees now, in the span of 12 months.

“It is puzzling that only two players offer fund management services to a fast growing and high potential domestic mutual fund industry. We would look at servicing the domestic industry and would look to expand it to our global clients in Europe, UK and France as we go forward,” Patrick Colle, chief executive officer of BNP Paribas Securities Services said.

Srinivasaraghavan also said the venture is open to extend the services to Corporates, though the current focus would be on the mutual fund industry.


Source: http://www.mydigitalfc.com/news/sundaram-bnp-paribas-fund-services-forays-rta-operations-939

Fidelity launches Fidelity Short Term Income Fund

Fidelity Mutual Fund today announced the launch of Fidelity Short Term Income Fund, an open ended income scheme that aims to generate reasonable returns primarily through investments in fixed income securities and money market instruments. The NFO for the fund will be open from 19 – 30 November 2010. Shriram Ramanathan is the fund manager of the Fidelity Short Term Income Fund. The Scheme is benchmarked to the Crisil Short Term Bond Fund Index.

Ashu Suyash, Managing Director and Country Head – India, Fidelity Investment Managers, said: “At a time when investors have turned risk averse with hardening interest rates and increasing equity market volatility, we believe that Fidelity Short Term Income Fund could provide reasonable returns even over shorter periods of time. The Fund presents a key building block for the asset allocation plans of retail and high net-worth investors and is in line with our overall objective of helping investors in reaching their financial goals. With this launch, we hope to reach out to a wide section of investors with an investment option that will leverage our expertise in bottom-up credit research to provide better post-tax returns over other interest bearing instruments including deposits.”

Shriram Ramanathan, the fund manager for the Fidelity Short Term Income Fund, said: “In the current environment where short term yields have moved up significantly, on a risk-adjusted basis, short term income funds provide a good opportunity for investors to benefit from the higher yields, yet keeping interest rate risk at an acceptably low level. Fidelity Short Term Income Fund with its freshly constructed portfolio of short term instruments with attractive yields and sound credit quality (with thoroughly researched constituents) makes even more investing sense in such a scenario. The Fund has been assigned the Credit Risk Rating mfAAA by ICRA.”

The rating for the Fidelity Short Term Income Fund indicates that the underlying portfolio has the lowest credit risk and the highest degree of safety from credit losses.

The Fidelity Short Term Income Fund will offer Growth and Dividend options. The minimum initial investment is Rs. 5000. The Fund has an exit load of 0.50%, which will be applicable for redemptions within 6 months from the date of purchase or allotment on a first-in-first-out basis.

Investors can invest in the Fidelity Short Term Income Fund even through the SIP route with a minimum amount of Rs. 500 per installment with the total of all installments not being less than Rs. 5000/- In addition, the systematic transfer and withdrawal plans are available in the Fund.

FIL Fund Management Private Limited (FFMPL), Fidelity Investment Managers’ Indian asset management company started operations in the country in 2004. Today, with total assets under management of over Rs.8900 crores (AUM as on 29 October 2010) and more than 17 lakh customer accounts, FFMPL is among the fastest growing new asset management companies in India. In addition to offices in 16 cities, it has a significant web presence which helps investors across India access Fidelity’s funds. Further, most of its funds are listed on the NSE’s Mutual Fund Service System (MFSS) and the BSE’s StAR MF Platform, reaching out to investors in over 1500 cities and towns. Fidelity today offers Indian investors a comprehensive range of well-differentiated investment options through its seven equity funds and six fixed income / hybrid funds.

Source: http://www.business-standard.com/india/news/fidelity-launches-fidelity-short-term-income-fund/415338/

Sebi likely to introduce flat fee of 1.5% for equity MF schemes

The Securities and Exchange Board of India (Sebi) is likely to lower the cap on mutual fund expenses. At present, fund houses can charge up to 2.5% of average assets for equity schemes and 2.25% for debt schemes as annual expenses.

It is likely that these would soon be cut to 1.5% for equity schemes, 1% for debt funds and 0.75% for index funds.

The market regulator is likely to take up the issue this month at the meeting of the mutual fund advisory committee. The mutual fund industry though is apprehensive.

“MFs are already reeling under higher redemptions from equity schemes, after the entry load ban. The lowering of expense caps could be the final nail in the coffin for us,” said the chief executive officer of a leading fund house.

After entry loads were banned by the market regulator in August 2009, mutual fund houses have been paying higher upfront commissions to the distributors from their own pockets; essentially they charged the fund higher marketing and distribution expenses.

"With expenses such as transaction costs, advisory fees and marketing expenses being pre-determined and not varying by a huge margin, many fund houses were seen changing their expense ratio frequently. This was a cause for concern and it is likely that a decision will be taken in the coming meeting,” said a committee member.

Either a flat expense ratio, of 1.5%, will be brought in or fund houses will be given the option to continue with the existing sub-limits for expenses, the member added.

The regulator is also planning to make expenses fungible so that fund houses have some flexibility while charging expenses.

At present, MF regulations permit equity funds to charge up to 2.5 % of average daily net assets for an initial Rs 100 crore of assets, 2.25 % for the next Rs 300 crore, 2% for the next Rs 300 crore and 1.75 % for anything above that (see chart). So, as corpus or assets of the mutual fund goes up, the expense cap comes down. For instance, as per present regulations a Rs 1,000-crore equity scheme cannot charge more than 2.05% as annual expenses.

Also, for equity assets, the investment management and advisory fee, which is part of overall expense cap, cannot exceed 1.25%. It is 0.25% less for debt schemes. This sub-limit is likely to go, if a flat fee structure is brought in.

The regulator had raised concerns over fund houses charging different expense ratios for retail and institutional investors. While the issue of lowering the cap on the expense ratio was discussed at the last meeting held in May 2010, no final decision was taken, the committee member said.

Source: http://www.financialexpress.com/news/sebi-likely-to-introduce-flat-fee-of-1.5-for-equity-mf-schemes/711739/0

Register multiple bank accounts; KYC for all

Last week, we told you how some mutual fund (MF) investors found it hassling to change their bank account mandates at the time of, say, redemption. Soon, you would be able to put this problem behind you. A few new rules in the industry will change the way you invest in MFs. We tell you what these are and what you should do.

Effective 15 November, you will be able to register up to five bank accounts with your fund house. You can choose to get dividends credited (if you’ve chosen to receive them through the electronic clearing service mode) and your redemptions into any of these accounts.

As of now, when you issue a cheque to buy an MF scheme, the bank account gets registered with the fund house. If you were to stay invested for several years and in the interim, closed your bank account and moved on to a new account, you would have to get your new account registered with the fund house.

Mostly, this is a simple procedure—fill up the transaction slip that comes with your account statement (or download it from your fund’s website or get it from your registrar and transfer’s, or R&T, office) and submit it to your MF’s or R&T’s office. Some MFs such as HDFC Asset Management Co. Ltd also insist on some proof of your old bank account.

While the process increases paperwork, it is also tough for investors to produce proof of bank accounts (such as a cancelled cheque leaf or a copy of bank statement or if you have neither, the branch manager’s certificate that you had a bank account with them earlier) that you had long back and whose records you no longer have.

Though your fund house will give you an option to register up to five bank accounts, you would need to make one of them your default account in which your dividend and redemption proceeds will flow. At any point in time, you are free to change your default account to any of the other four accounts. However, since you would have already submitted the proof of all the five bank accounts at the time of investment, you wouldn’t be called for submitting proof all over again.

Jimmy Patel, chief executive officer, Quantum Asset Management Co. Ltd says: “Fund houses get many requests to change bank accounts at the time of redemption. The new norm will bring things under control as the fund house would already have the proofs of an investor’s various accounts. To change the bank account mandate would be quicker.” He adds that investors had to wait for almost 10 days to get their bank mandates changed.

Although steps taken by fund houses such as HDFC AMC hassle investors, most fund houses claim it’s necessary. “The ease with which bank account mandates were changed was not good from the risk perspective. Once investors register bank accounts and provide proof upfront, the risk of someone else fraudulently opening bank accounts gets reduced,” says Rajesh Krishnamoorthy, managing director, Fundsupermart.com, an MF portal.

Earlier, know-your-customer (KYC) was required for investments of Rs.50,000 and above. Effective 1 January, irrespective of the amount you invest, you will need to be KYC-compliant.

With this new rule, the Indian MF industry has got a new headache. MFs and agents alike have expressed fears on whether the nodal agency appointed to do KYC for MF investors, CDSL Ventures Ltd (CVL), a division of Central Depository Services (India) Ltd (CDSL), is equipped to handle the volume of KYC applications. “Lots of young professionals are mobile these days; they change jobs and cities and, therefore, residence. Every time they change their residence, they need to update their KYC. Sadly, once they apply for change, there is no system of getting an acknowledgement as of now. It’s a nightmare,” says a distributor, who did not want to be named.

Note that when you change your residence, it’s important to update your KYC. If you’ve opted to receive dividend proceeds by cheques at your postal address, your MF may continue to send cheques at your old residence. Or if there is a mismatch of your name as per your registered bank account and your MF folio, typically, the MF sends you the cheque by post. Therefore, if you change your address, you must update your KYC address.

However, Cyrus Khambata, senior vice-president, CDSL, is confident that they are equipped to handle the load. He says: “We handle 8,000 applications per day. There is no problem and we have updated our systems adequately to handle the pressure.”

The irony is that if you invest in MFs through stock exchanges, you do not need a separate KYC; your demat account’s KYC is enough. However, your bank account’s KYC (MFs do not accept cash; only cheques) is not considered fit enough.

Tip: There’s a way to track your KYC application on the Internet after submitting your KYC form. Visit Cvlindia.com and click on “Inquiry on KYC”. A small window will pop up on your screen asking your permanent account number (PAN). Once you submit your PAN and if your KYC is approved, you will get an acknowledgement. Take a printout as your KYC proof.

The next time you invest in an MF, you will need to make sure that you submit a cheque from a bank account of which you are one of the account holders. To ensure that an investor puts in her own money and not somebody else’s, the Association of Mutual Funds of India, the industry body, has mandated that third-party cheques be banned. It doesn’t matter whether you are the primary or a joint accountholder.

Source: http://www.livemint.com/2010/11/16203253/Register-multiple-bank-account.html?atype=tp

ICICI Pru MF's Regular Savings

ICICI Prudential Mutual Fund has launched its ICICI Prudential Regular Savings Fund, an open-ended income fund.

It is a portfolio of fixed income securities that caters to investors with a focus on earning superior levels of yield at lower level of risks.

The fund intends to provide reasonable returns, by maintaining an optimum balance of safety, liquidity and yield, through investments in a basket of debt instruments with a view to delivering consistent performance, a press release issued here today stated.

The fund helps individuals to allocate money into debt investments, either lump-sum or regularly via SIPs by providing an investment avenue which focuses on accrual income, limits volatility, invests in investment grade fixed income securities across the yield curve and strives for healthy yields for a 18-24-months plus investment horizon.

source: http://www.indianexpress.com/news/icici-pru-mfs-regular-savings-nfo/712074/

FIIs turn to domestic fund managers

Foreign institutional investors (FIIs), including pension funds, sovereign wealth funds and family offices, are hiring Indian asset management companies (AMCs) to manage their India portfolios.

SBI Mutual Fund, Birla Sun Life, Reliance Mutual Fund and UTI MF are among those who have bagged such assignments. “This is an emerging trend and we are seeing a big growth opportunity,” said Sundeep Sikka, CEO of Reliance Mutual Fund.

There is a growing realisation among global institutional investors across geographies that onshore fund managers have the core expertise and better understanding to take a call on the Indian market compared to an offshore fund manager based in Hong Kong or London, he said.

Birla Sun Life Mutual Fund CEO A Balasubramanian said the number of queries from foreign institutions to manage both bond and equity portfolios had increased in the last 5-6 months. “Already, $50 million has flowed into various schemes. Apart from our expertise on active portfolio management we are also advising them on other accounts,” he said.

Most global investors normally mandate an emerging market or Asian market fund manager to manage regional portfolio.

These fund managers are typically based in overseas jurisdictions such as London, Hong Kong or Singapore.

Industry experts also attribute this emerging trend to overseas investors’ growing interest in small- and mid-cap stocks.

“A lot of institutional investors across the globe now want to invest in the Indian market. And to have a closer coverage of the universe of stocks listed in India, domestic fund managers are being favoured as they have been tracking them for a longer period of time,” said Jaideep Bhattacharya, chief marketing officer of UTI Asset Management Company.

At present, there are close to 1,750 FIIs and 5,600 sub-accounts registered with the Securities and Exchange Board of India (Sebi).

In 2010 till date, they have purchased $28.66 billion worth of Indian equities and another $10.16 billion worth of domestic debt instruments.

Source: http://www.financialexpress.com/news/FIIs-turn-to-domestic-fund-managers/711741/

Birla Sun Life Mutual Fund launches Mobile Investment Manager

Offers Portfolio information, SIP, Purchase and even redemption or switch services on a mobile platform

Birla Sun Life Mutual Fund (BSLMF), one of the leading mutual fund houses in India, has launched a mobile platform called ‘Mobile Investment Manager’ in partnership with MCHEK India Payment Systems Pvt. Ltd. (mChek). This unique service is available to existing investors of Birla Sun Life Mutual Fund with the benefit of managing their investments from the convenience of their mobile phone.

Mr A. Balasubramanian, CEO, BSLMF, said, “The launch of ‘Mobile Investment Manager’ assumes great significance for BSLMF given the rapidly increasing number of mobile users and the mobile penetration which is currently above 500 million. This would be a 24x7 hour paperless service provided by BSLMF. Most importantly, it allows users the freedom to transact from anywhere and at anytime especially those who are always on the move.”

Commenting on the launch Mr. Gautam Shiknis, Chief Executive Officer, mChek said, “mChek is pleased to partner with Birla Sun Life Mutual Fund to offer mobile investments and portfolio management services, by leveraging the security of the mChek platform and extending it’s footprint of Anytime Anywhere services to the financial services domain.”

On this mobile platform, an investor can seek portfolio information, make additional purchases, register for SIPs and also make switches and redemptions.

To avail this facility, an investor would have to submit the application form along with the ECS Debit registration form to any of BSLMF Branch or CAMS Investor Service Center. Post- verification of the ECS details, the investor would be enrolled for this service and be able to transact from their mobile phone. Amounts towards purchases initiated would be debited from the pre-registered bank account via ECS of the National Clearing Cell of the Reserve Bank Of India. The forms as well as the full information on the service is available at www.birlasunlife.com.

About Birla Sun Life Asset Management Company Ltd.
Established in 1994, Birla Sun Life Asset Management Company Limited (BSLAMC) is a joint venture between Aditya Birla Group, a well known Indian conglomerate and Sun Life Financial Inc, leading international financial services organization from Canada.

BSLAMC is the 5th largest asset management company in India with average assets under management of Rs 67,421 crores for the month of September, 2010. An impressive mix of reach through 105 branches, wide range of product offerings across equity, debt, balanced as well as structured asset classes and strong investment performance has helped the Company garner close to 2.4 Million investor scheme accounts. Known for its consistent investment performance, BSLAMC has received recognition from various institutes of international repute like Lipper and The Asset Magazine - Hong Kong.

About Aditya Birla Financial Services Group (ABFSG)
The Aditya Birla Financial Services Group (ABFSG) has built a significant presence across its verticals, viz life insurance, asset management, NBFC, private equity, broking, general insurance advisory services and wealth management & distribution.

The ABFSG is committed to being a leader and role model in a broad based and integrated financial services business. Its 7 lines of businesses, with about 5.5 million customers manages assets worth USD 20 billion approximately and prides itself for having a talent pool of over 15,000 committed employees. ABFSG has its wings spread across more than 500 cities in India through over 1600 points of presence and about 200,000 channel partners. This allows ABFSG to offer its customers virtually anything other than a savings or current account. With revenue of over USD 1.25 billion (in 2009-2010) ABFSG is a significant non bank player.

ABFSG is a part of Aditya Birla Nuvo Ltd (ABNL), a USD 3.5 billion conglomerate having leadership position across its manufacturing as well as services sector businesses. ABNL is a part of the Aditya Birla Group, a USD 29 billion Indian business house operating in 26 countries across the globe.

About Sun Life Financial Inc.
Sun Life Financial is a leading international financial services organization providing a diverse range of protection and wealth accumulation products and services to individuals and corporate customers. Chartered in 1865, Sun Life Financial and its partners today have operations in key markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. As of June 30, 2010, the Sun Life Financial group of companies had total assets under management of $434 billion. For more information please visit www.sunlife.com.

Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and Philippine (PSE) stock exchanges under the ticker symbol SLF.

Source: http://www.business-standard.com/india/news/birla-sun-life-mutual-fund-launches-mobile-investment-manager/414907/

JP Morgan Mutual Fund launches JPMorgan India Capital Protection Oriented Fund

JP Morgan Mutual Fund has launched JPMorgan India Capital Protection Oriented Fund. The new fund offer would remain open from 12th November, 2010 to 26th November, 2010. JPMorgan India Capital Protection Oriented Fund is a close ended income scheme with investment objective to generate returns and reduce interest rate volatility, through a portfolio of fixed income securities that are maturing on or before the maturity of the scheme along with capital appreciation through equity exposure. The minimum application amount will be Rs 5000. The scheme will not charge any entry and exit load. The scheme will be benchmarked against BSE 200 and CRISIL Short Term Bond Fund Indices.

Source: http://www.24dunia.com/english-news/shownews/0/JP-Morgan-Mutual-Fund-launches-JPMorgan-India-Capital-Protection-Oriented-Fund-%C2%A0%C2%A0-On%C2%A0Nov-15-2010/8114812.html

ELSS see huge redemption

It's just not investors in diversified equity mutual fund (MFs) who have reaped the benefit of the buoyancy in markets. Equity linked savings schemes (ELSS) investors too have joined the party pulling out Rs 1083 crore in August-October alone, 127.4% higher than the same period the previous year.

The redemptions in ELSS have been more than twice that of the year ago period in three out of the past four months, data with the Association of Mutual Funds in india (AMFI) shows. Investor pull-outs are usually in the region of Rs 110 crore-150 crore a month in ELSS but have been hovering over Rs 300 crore since July and as a result the category has seen net outflows of Rs 931 crore so far in the year, AMFI data shows. In fact, investors took out a whopping Rs 446 crore from the category in September when redemptions from diversified equity funds touched Rs 12,804 crore, an all-time high.

Interestingly, the pace of redemptions in ELSS has been even faster than that of diversified equity MFs, which have seen record pull-outs in the past few months as the markets remained on a strong wicket.

"A large number of retail investors (in ELSS) have booked profits," said Jaideep Bhattacharya, chief marketing officer, UTI MF. Fund houses mobilised huge amounts of money from retail investors under ELSS in 2006-07. With many schemes turning the corner after the good run by the markets in recent months, investors are making an exit, industry officials said.

Source: http://timesofindia.indiatimes.com/business/india-business/ELSS-see-huge-redemption/articleshow/6917790.cms

India will remain favoured by global investors: Satish Ramanathan

Though Sensex valuations may appear high, Satish Ramanathan, Head of Equities at Sundaram Mutual Fund, believes that the risk of steep meltdown in stock prices from here is limited. Investor preference for quality companies, the strong case for investing in India and favourable demographics that are enhancing the long-term growth prospects are key factors that investors should bear in mind before they consider exiting equities, he told Business Line.


Market valuations appear quite high, though people like to say they are a little way away from the 2007 highs. Do you feel there is a bubble in the making?

Markets are close to their all-time highs, but what one needs to appreciate is that earnings have grown in the interim. It is now two years since the all time high was reached and earnings have grown by 50% in this period. So, in that sense, the markets are less euphoric than earlier.

Two or three trends have unfolded, which we need to bear in mind when we talk about valuations. One is the flight to quality. Quality companies that are underleveraged have become far more expensive than they were in the previous market cycle. Companies that have debt, and issues on repayments or on credibility, have become far cheaper than they were in 2007 and 2008.

So, when we aggregate and say that the average market P/E is X, what has actually happened is that companies with good quality have become two times the median valuations and companies that have issues such as constant need for capital, have become half the median valuations. Markets have become far more discriminating.

The second trend is that global investors now have to invest outside of their home country, primarily for growth. India is going to remain one of the favoured destinations for that reason. China is moving to become a far more developed country and its requirement for heavy capital is going to come down. Therefore, incremental money has to come to India, though it may probably go to Africa or some of the LatAm countries too.

Trend number three, which is very important, is demographics. You are going to have a very robust period of domestic demand which can stretch on for 10 or 15 years. Case in point, look at the two-wheeler industry. That is demographics at work.

The industry offers a home-grown solution for infrastructure because we did not privatise transportation in rural markets adequately. So while yes, the market is expensive, based on what we have seen in the past, there are always going to be themes and sub-themes that will work and are available at a price.

So, do you believe that, overall, the markets are not expensive?

These are two key risks we need to bear in mind when we call the market expensive or cheap because, technically, the market looks only one year or 18 months ahead. But it does not factor in the cumulative power of growth over a sustained period and that is really where most people go wrong in evaluating the positive trends in the economy and stock markets.

Markets may be expensive, some of the leading companies may be expensive but if growth were to last for five years, then it is not expensive. So, from a fund manager`s and investor`s perspective one has to bear in mind this point before selling off equity positions.

Consumption-related sectors have led this rally and are at a premium to the market while other sectors (such as infrastructure) are at a discount. Do you see scope for the latter to catch up?

This is not really just about sectoral shifts. Within sectors, the good companies or the well-run companies with high return on equity have been continuously re-rated in this market.

Fund managers have taken the call that - if I have to buy a company I will buy a quality well-run company rather than a depressed company on depressed valuations based on the hope that there will be a turnaround in business sentiment or management.

However, probably a year down the road, risk appetite could come back. If there is a quantitative easing II and if there is indeed an abundance of cheap money, at some point in time there could be a section of the market actually saying why don`t we take that extra risk or how can a company be trading at 20 PE or 25 PE and why don`t I get a company that is at 10 PE and get that 2 or 3 PE extra? That risk appetite has not yet set in but could come in pretty fast if the money situation remains adequately liquid.

Are you saying that earnings performance in one quarter or so does not really matter?

The earnings performance could have several aspects. One is the commodity cycle itself. We have to bear in mind that 20-25% of our earnings comes from the commodity oriented companies. The commodity cycle is far better in the second quarter. Financials too appear to be coming out of their troubled patch.

Having said that, the fundamental risk that Indian companies and markets face is that their margins are among the highest, given that ours is a capacity-starved economy. And the price power is tremendous with companies. So there is a risk that even though our GDP grows, that profits do not grow for some period of time as a result of higher interest cost coming in and higher depreciation as a result of capacity expansion.

Also, the logical end to higher capacity expansion is lower margins. So you could see three or four quarters of this adjustment taking place. The risk is that the markets actually do nothing for some time. Eight quarters from now, you may see markets at the same level as they are today. Apart from that, do I fear a meltdown or am I building that into my scenario of expectations - the answer is `No`.

It is usual for mid-cap stocks to play catch-up in the second leg of any market rally. Do you believe the valuations of mid-caps offer room for this, given the fundamentals?

The term mid-caps has to be used with some caution. As a house, we see that some mid-caps are leaders in their space but are mid-caps because of the size of the business. Typically, what we find is that companies that are small in a large business segment do not have pricing power or capital access and become weaker after a recession or a slowdown. A case in point are the construction or infrastructure companies. L&T and BHEL have come out stronger but many small construction companies have become far weaker.

The qualitative aspects have a significant bearing on valuations in mid-caps now. We haven``t moved towards the commodity stocks and that``s something that helps us.

What is the risk of a shift in FII in to other emerging markets such as Latin America (LatAm) and African nations?

I think capital does not seek all destinations at all points in time. It seeks a favoured destination and the momentum sustains it for the next 5 to 10 years. The second aspect is that the first level of development is not as capital intensive as the second level of development.

Widening a road from 2 to 4 lanes is not as capital intensive as going from 2 to 16 lanes, which is what China has perhaps done. So we are at a lower level of capital intensity compared with China while Africa and LatAm countries are slightly behind us.

When I say LatAm a country like Brazil is probably far more advanced than India. So take China, Japan, Taiwan and Korea in turn - there was a logical way in which liquidity flowed. The demographics in India are now most favourable as was the case in China ten years ago or Korea 20 years ago.

Source: http://www.myiris.com/shares/company/ceo/showDetailInt.php?filer=20101108104609707&sec=fm

Tata Mutual under Sebi probe for front-running

The Securities and Exchange Board of India (Sebi) is investigating Tata Mutual Fund for suspected front-running, according to three people familiar with the development.

Sebi has sought information and data in this regard from the asset management company and the investigation is still on, they said.

Tata Mutual, the tenth-largest mutual fund with nearly Rs22,000 crore worth of assets under management as of September, confirmed the investigation and said it is cooperating with the regulator.

“Sebi had once sought to know our systems/ processes in this regard... We had also given a complete list of all dealing and fund management personnel’s landline as well as mobile numbers for their records and further investigation if required,” an official spokesperson said.

It emphasised its commitment to transparency and to following a vigilant policy with regard to keeping a watch on such activities. “Tata AMC is always willing to do all that is required to not only ensure compliance but also to act in the best interests of our investors, and the investing public generally,” it added.

Front-running refers to an activity where a person with inside knowledge of an upcoming large order takes a position ahead of it.

Here’s how it works. Consider a mutual fund that buys a company’s stock worth Rs5 crore. Suppose a dealer with knowledge that this order will be placed buys some stock ahead of it. When placed, the sheer size of the mutual fund would cause some increase in price. At this point, the front-runner will exit with a neat profit.

Meanwhile, his purchase would have made it more expensive for the fund to buy the same quantity of stock.

This is what is said to have happened in the case of HDFC Mutual Fund, where a dealer is said to have leaked information on the fund’s buying and selling activities to a college friend, among others.

In that case, Sebi banned those involved from the securities market and asked the asset management company to overhaul its control systems.

Sebi had made the order in the case of HDFC MF public in June this year.

In October, DNA had reported that Sebi is investigating a number of mutual funds over cases of front-running, after the regulator confirmed the investigation in reply to an application filed under the Right to Information Act.

Another application in the matter of Tata AMC filed by DNA elicited a similar response from the regulator. As before, Sebi confirmed that the investigation is ongoing while declining to go into details.

“It is informed that one case is being investigated by Sebi. As the matter is under investigation, disclosure of any information at this level would impede the process of investigation and therefore,
disclosure of the same is exempted under section 8(1)(h) of the RTI Act,” it said.

Sources say Tata isn’t the only mutual fund under investigation. A number of other asset management companies have also been summoned by the regulator as part of investigations over the last several months.

here’s no word yet on the extent of the financial losses that might have been caused to investors in these cases, but one thing is clear — mutual funds aren’t done with Diwali cleaning yet.

Source: http://www.dnaindia.com/money/report_tata-mutual-under-sebi-probe-for-front-running_1464063