MFs buy up to 6-month corporate deposits

Certificates of deposit maturing up to six-months were mostly issued today because mutual funds (MFs) were only keen on investing in shorter-tenure papers, dealers said.

“MFs received inflows in their liquid schemes and so preferred to invest in shorter-tenure papers,” said a dealer with a MF.

Around Rs 900 crore worth of CDs were today placed in the market.

Most traders also expect the rates to remain stable for sometime and so choose to invest in papers maturing up to November.

Rates on short-term papers have fallen 50-60 basis points since mid-April.

Banks too are not in rush to raise funds as liquidity is still abundant in the banking system. In April, banks placed around Rs 19,000 crore worth of CDs.

Three-month CDs were quoted at 4.20-4.40 per cent, compared with 4.15-4.35per cent on Monday, while three-month commercial papers were quoted at 4.40-4.60 per cent, compared with 4.50-4.70 per cent on Tuesday.

One-year CDs were quoted at 6.10-6.30 per cent, compared with 6.15-6.35 per cent.

Source: http://www.business-standard.com/india/news/mfs-buyto-6-month-corporate-deposits/393785/

Bond yields fall; rally seen short-lived

The yield on the most traded 8.20%, 2022 bond was at 7.88%, down 12 basis points from Monday’s close

The bond yields fell on Tuesday as traders were optimistic that Friday’s $3.4 billion bond auction may draw a good response as the papers announced for sale are actively traded now.

Yields fell further in late trade after CNBC-TV18 channel reported citing an unnamed finance ministry source that the government may increase the limit for foreign institutional investors (FII) in government debt to $10 billion and in corporate debt to $20 billion.

The yield on the most traded 8.20%, 2022 bond was at 7.88%, down 12 basis points (bps) from Monday’s close.

The yield on the new 10-year bond, the 7.80% bond maturing in 2020, was down 11 basis points at 7.63%. The benchmark 10-year bond yield was at 7.95%, down 10 basis points on the day.

Volumes were a heavy Rs174.90 billion on the central bank’s trading platform.

“Traders were sitting light in anticipation of an aggressive rate hike and there were also concerns on the market appetite for debt because of weekly auctions,” said K. Ramkumar, head of fixed income at Sundaram BNP Paribas Mutual Fund.

“But market demand on the contrary is strong and hence there is buying now.”

Indian bond traders are revising their interest rate views after recent dovish comments by top policymakers, while Greece’s debt woes are driving hopes of benign global rates and boosting sentiment.

Demand for bonds at weekly auctions is also aggressive. The central bank set the coupon for the new 10-year bond at 7.80%, lower than market estimate of 7.87% at Friday’s auction.

But there are doubts whether the rally would sustain as the government is set to sell Rs150 billion of bonds on Friday.

“The immediate direction for the market would be if there is a demand for bonds at current levels in the auction,” Sundaram Paribas’s Ramkumar said.

The central bank is set to auction Rs50 billion each of the 7.02% bonds maturing in 2016 and 8.20% bonds maturing in 2022 on Friday. It will also auction Rs30 billion of the 8.26% 2027 bond and Rs20 billion of the 8.32% 2032 bonds.

Traders are keenly awaiting the March industrial output data and wholesale price inflation for April due next week. These numbers would give a sense of the strength of the economic recovery and price pressures.

In interest-rate futures on the National Stock Exchange, the June contract implied a yield of 8.2342% and the benchmark five-year interest rate swap was at 6.82/85%, from its previous close of 6.81/84%.

Source: http://www.livemint.com/2010/05/04182946/Bond-yields-fall-rally-seen-s.html

'IRDA steps won't make ULIPs more attractive'

Will the new Insurance Regulatory and Development Authority (IRDA) guidelines on unit-linked insurance plans (ULIPs) make them more investment- friendly? Investment experts don't think so. Sure, they aver that these steps are mostly in the right direction, but they insist that these are, at best, "cosmetic changes" that would help the insurance regulator's case on Ulips in the court.

However, the much-debated issues such as "cost cutting" and "transparency" continue to dog these insurance products, which have emerged as the most-preferred insurance plans of Indian customers in the last few years. "They are tweaking the product, but the real issues such as expenses and transparency are not addressed," says Gaurav Mashruwala, a certified financial planner. "At best, these changes strengthen IRDA's case in court as all Ulips would now have an insurance element in them," he adds.

Financial experts often take potshots at ULIPs as they believe that these products, essentially an investment product with a mostly cosmetic insurance component, have been grossly mis-sold to the gullible public without disclosing the real cost or risks involved in them. The issue gained currency since the market regulator Securities and Exchange Board of India (Sebi) sent notices to insurance companies asking them to register Ulips with them as they are essentially investment products, which the IRDA has been vehemently denying.

Many financial experts believe that the recent efforts by IRDA to make ULIPs more investor friendly is just an effort to score over Sebi in its turf war. "Most of these measures, including the recent one on disclosing commission, were taken only to make sure that IRDA is on a strong wicket. However, the frontloading of commission, rampant mis-selling on claims of past performance or not having to pay premium after three years are yet to be addressed," says an expert who doesn't want to be named. Upfront commissions on ULIPs — in some cases it could be as high as 80-90% — have been a bone of contention ever since these products were issued.

However, they gained currency lately after Sebi abolished entry load on mutual fund investment since August last year. "In terms of cutting down on costs, nothing has been done yet. Sure, the IRDA has come up with a concept of gross yield and net yield to curtail cost, but most people don't understand the concept," says Amar Pandit, certified financial planner, My Financial Planner.

Suresh Sadagopan, chief financial planner, Ladder 7 Financial Advisors, says the only difference the new changes would make is that the insurance companies would offer only "type II ULIPs" from now. Insurance companies offer two kinds of ULIPs. The first kind of policy would offer the sum assured or fund value, whichever is higher. The second one would offer both the sum assured and the fund value.

Source: http://timesofindia.indiatimes.com/biz/india-business/IRDA-steps-wont-make-ULIPs-more-attractive/articleshow/5891130.cms