New fund offers can signal mutual fund turnaround

Can a few new fund offers (NFOs) from reputed fund houses help the mutual fund industry regain its lost ground? According to industry players, NFOs from reputed players such as SBI MF, Birla Sun Life, DSP BlackRock among others would definitely generate a positive buzz about the industry and it may help bring some of the mutual fund sellers, who have vanished since the entry load ban by Sebi in August, back to the fold.

"DSP is one of the most respected fund houses in the country. When they come out with an NFO, that too a totally different proposition of a heavily concentrated portfolio of 25 stocks, it generates a lot of buzz," says a mutual fund distributor, who doesn't want to be named. According to market sources, DSP BlackRock NFO, which closed for initial subscription on Friday, had collected around Rs 700 crore. The figures couldn't be officially confirmed. The fund house was hoping to collect around Rs 2,000 crore.

"The SBI Mutual Fund NFO is also expected to do well because SBI would back it strongly. Birla and others would also do reasonably well," says Uday Merchant, a mutual fund distributor. However, he is quick to add that mega NFOs collecting Rs 5,000 core or so is now history.

"I don't think people are really interested in NFOs these days. The complete distribution network has collapsed after the entry load ban in August. Earlier, we just had to distribute the NFO form with newspapers and there would be good response from investors. But that is not the case any longer."

"It is a good sign that fund houses are not coming up with pure vanilla schemes to complete their portfolio. DSP is offering a concentrated portfolio; SBI is banking on the PSU theme and Birla on the reform story," says Y Jawahar, VP — head, distribution, Mata Securities.

Source: http://timesofindia.indiatimes.com/biz/india-business/New-fund-offers-can-signal-mutual-fund-turnaround-/articleshow/6005284.cms

Local AMCs turn to offshore advisory biz as inflows dry up

These days, leading asset management companies are focusing more on their ‘offshsore advisory’ business, where they give research-based advice to foreign funds that invest in India for a fee. This comes in the wake of a slowdown in their local investment management business, with money flows into mutual fund schemes drying up, because of the reluctance of distributors’ to sell these products due to lower commissions.

“We are now forced to look at other avenues such as offshore advisory more seriously, because the local market looks dull at the moment, as distributors are just not co-operating to sell mutual fund products,” said a senior official with a private mutual fund, which runs this business.

Top officials of some leading asset management companies are believed to have made overseas visits recently to make a pitch to potential investors for advisory services. Among domestic fund houses, Reliance Mutual Fund, ICICI Prudential Asset Management, DSP Blackrock Mutual Fund and UTI Mutual Fund, among others, are known to have offshore advisory business.

In this business, AMCs get a fee of around 15-50-basis points (100 basis points is equal to 1%) of the transaction size, said industry officials. In some cases, the fee is based on a profit-sharing agreement, but such instances are fewer, they said.

“The offshore advisory business is not easy, as there is heavy competition from broking houses. But this has the potential to make up for the slackening of the local business,” said a top official with another private mutual fund.

Distributors have been averse to selling mutual fund products from August 2009, when the Securities and Exchange Board of India (Sebi) rule to clamp down on fees to distributors came into force. The market regulator barred the practice of charging entry loads by mutual funds, where the fund house deducted 2.25% of the investors’ money to distribute to the brokers. Now, distributors are aiming to sell more of insurance products and companies’ fixed deposits, as they fetch higher fees.

The offshore advisory business of AMCs came under the Sebi lens recently, a reason why fund officials were unwilling to officially comment for this story.

The market regulator felt that some fund houses were not maintaining a ‘Chinese wall’ to operate local investment management, offshore advisory and portfolio management services units, according to a source privy to the matter. AMC officials clarified that the mutual fund, offshore advisory and PMS teams do business separately.

Critics feel AMCs’ focus on offshore business is not in the best interests of the industry in the long-term. “Fund houses should use their time and resources to build a network here rather than overseas, given that India is among the most under-penetrated markets world-wide,” said a sales head with a mutual fund, jointly owned by a foreign institution and a local bank.

Source: http://economictimes.indiatimes.com/Local-AMCs-turn-to-offshore-advisory-biz-as-inflows-dry-up/articleshow/6005510.cms

AMCs split over plan to increase net worth

Domestic fund houses are divided over the proposed increase in the minimum net worth of asset management companies (AMCs) from Rs 10 crore to Rs 50 crore.

The increase has been recommended by the Committee on Review of Eligibility Norm, constituted by the Securities and Exchange Board of India (Sebi).

While large fund houses say this will ensure entry of only serious players, smaller AMCs are opposed to the proposal. The committee said large net worth would signal the company’s seriousness.

Sources say this is becoming a hot issue and is likely to come up for discussion at the general body meeting of the Association of Mutual Funds in India next week.

“Does it mean that fund houses with high net worth are serious and smaller players are not?” said the chief executive (CEO) of a small fund house. “I believe the minimum net worth should be reduced to Rs one crore. We are here to provide services to investors. In the outside world, the net worth requirement (for AMCs) is minuscule and it’s unfortunate that in India we are moving in the opposite direction.”

“Seriousness should not be connected with the money a fund house manages. It has to be linked with ethics, policies and business models. The move favours bigger players,” said another executive.

However, the CEO of a leading fund house said, “On Wednesday, anybody can get into the fund management business. There has to be a certain base capital requirement. I am in favour of raising the net worth.”

Echoing this, the head of another establishment said, “As public money is involved, the capital requirement should be higher. I strongly support this. The net worth of sponsors of mutual fund houses should also be re-looked at.”

The smaller AMCs questioned the committee’s observation that a higher net worth was required to protect investors from market-driven stress as large AMCs would be better placed to obtain liquidity lines from banks.

“Had it been the case, why did larger fund houses knock the doors of the central bank in October 2008, when the industry suffered immense redemption pressure?” said the head of a mid-sized AMC.

Source: http://www.business-standard.com/india/news/amcs-split-over-plan-to-increase-net-worth/396855/