SEBI chief calls MF industry's bluff as members pour out grievances

A forum by an industry body on mutual funds on Wednesday, where fund houses intended to pour out their woes to the Securities and Exchange Board of India or Sebi, hardly had any effect on the market regulator. On the contrary, Sebi chairman CB Bhave launched a scathing attack on the practices of the mutual fund industry.

Mr Bhave was critical of the way fund houses do business and reiterated the need for them to focus on investors to grow.

“If you (mutual funds) are producing better returns than what an average investor investing himself in the stock market gets, then why is it that you are unable to convince investors that you are giving them better returns,” said Mr Bhave, at a mutual fund summit organised by the Confederation of Indian Industry (CII). “I mean, are investors so dumb as not to understand that they are getting better returns here (mutual funds) and yet would invest somewhere they would get lesser returns,” he said.

Sales of equity schemes of mutual funds have been hit, after Sebi banned mutual funds from charging investors to pay fees to distributors.

Mr Bhave said that mutual funds needed to look at how investors benefit from investing in their products, rather than create an incentive structure that suits them.

“Somehow the focus goes to short-term incentives and that ultimately results in a great loss for investors. And finally, when investors lose money, the whole industry also comes tumbling down. I think, this lesson needs to be internalised by all of us,” he said.

The Sebi chief said that mutual funds have to streamline their 3,000-odd product offerings to make it more investor-friendly.

“Even if you put before me 3,000 investment products, I won’t know how to choose from those products. I’ll have no idea of which scheme is good for me,” Mr Bhave said. “If you really want to reach to the so-called small investors in whose name you do everything, does he need 3,000 options? Is there really so much of innovation that is going on? Are these schemes really so different from each other or were there incentives operating in the market that made us generate these 3,000 options?” he said.

In an earlier speech during the conference, UTI AMC chief UK Sinha remarked that about 60% of the schemes are sub-optimal and the investments in them will not be able to help mutual funds justify their claims that they are giving investors the benefits of aggregation of savings.

Mr Bhave slammed the mutual fund industry for relying more on short-term money to boost their assets under management. “You are becoming a shock absorber because you are taking short-term money ... now who asked you to take short-term money ... because you see that the neighbour (rival fund house) is taking short-term money and his AUM has gone up, so I need to compete,” he said.

Soon after the conference, Mr Bhave spoke to reporters about his take on the recent verdict over the regulation of unit-linked insurance plans (Ulips). Last week, the government had said that IRDA would continue to be the regulator for ULIPs, quashing Sebi’s order that the investment component in the product should get its approval. “I don’t agree with the description of war — between IRDA and Sebi. We must remember that we all operate under the law as it exists. So, the law has changed now, there is no question of happiness or anything like that,” Mr Bhave said.

Source: http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/Analysis/SEBI-chief-calls-MF-industrys-bluff-as-members-pour-out-grievances/articleshow/6084287.cms?curpg=2

UTI MF Announces change in features of its UTI- Retirement Benefit Pension Fund

UTI Mutual Fund has announced change in features of its UTI- Retirement Benefit Pension Fund with immediate effect. The following are the proposed changes.

Applicants: Under the existing provision, an application for the units may be made by any resident or non-resident Indian adult individual in the age group of 18 to 60 years either singly or jointly with another individual on joint/anyone or survivor basis. Age will be considered in completed years.

While, under the revised provision, applicants age has been extended in the age group of 18 to 65 years either singly or jointly with another individual on joint/anyone or survivor basis. Hereto the age will be considered in completed years only.

Systematic Withdrawal Plan: Under the existing provision of UTI- Retirement Benefit Pension Fund, the unit holders will accumulate their investment up to the age of 58/60 years and thereafter, can opt to receive the accumulated investment in the form similar to annuity by repurchasing the units over a period of time to be indicated by them.

This option has been revised, as the unit holders will accumulate their investment up to the age of 58/65 years and thereafter, can opt to receive the accumulated investment in the form similar to annuity by repurchasing the units over a period of time to be indicated by them.

Source: http://www.bloombergutv.com/stock-market/mutual-fund/commentary/405892/uti-mf-announces-change-in-features-of-its-uti--retirement-benefit-pension-fund.html

BNP to exit Sundaram MF, SFL to acquire BNP stake in AMC, Trustee co

French Bank BNP Paribas SA is exiting from the mutual fund venture of Sundaram Finance (SFL). SFL board on Wednesday decided to acquire the 49.90 per cent stake of BNP Paribas asset management (BNP PAM) both in Sundaram BNP Paribas Asset management company and Sundaram BNP Paribas Trustee company.

This is subject to necessary agreements and regulatory approvals. The two companies will become 100 per cent subsidiaries of SFL. Company officials declined to disclose the deal size citing confidential clause. This is the second time, Sundaram has bought out its MF partner. Earlier, the first partner Newton had exited Sundaram AMC.

The latest deal is sequel to BNP Paribas SA (parent of BNP PAM), as part of part of a global acquisition, taking over the banking and financial services activities of the Fortis Group.

This led to BNP indirectly acquiring interests in Fortis Investment Management (India) and Fortis trustee (India), the asset management and trustee company respectively of Fortis mutual fund in India.

In view of this, SFL and BNP PAM have amicably decided to proceed with the disengagement from their joint ventures in Sundaram BNP AMC and Sundaram BNP TC.

There will be no impact on the other three Joint Ventures namely, Sundaram BNP Paribas Home Finance. (SFL Group holding 51 per cent), Sundaram BNP Paribas Fund Services, (SFL Group holding 51 per cent) and BNP Paribas Sundaram Global Securities Operations (SFL Group Holding 49 per cent).

The partners intend to further strengthen their relationship and ensure sustained growth of these joint ventures.

Since it commenced business in 1996, Sundaram MF has come out with a bouquet of 125 equity and fixed income schemes catering to investor preferences.

As on March 31, 2010, it had average assets under management of Rs 13,878 crore and a customer base of 2.33 million. In 2009-10, the AMC reported income from operations of Rs 110.10 crore and a net profit of Rs 20.83 crore SFL investment in the AMC is Rs 12.09 crore and in the trustee company Rs 2.51 lakhs.

Earlier this year, market regulator, the Securities and Exchange Board of India (Sebi) asked BNP to limit its exposure to the Indian mutual fund industry through a single entity.

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

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

Source: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/BNP-to-exit-Sundaram-MF-SFL-to-acquire-BNP-stake-in-AMC-Trustee-co/articleshow/6111086.cms

LIC new big bull in market

Life Insurance Corporation (LIC) has emerged as a major counterweight to foreign institutional investor (FII) in the equity markets if one goes by latest data on the insurance major’s total equity investment, which has grown nearly 50% in 2009-10.

In 2009-10, net investment by foreign institutional investors in Indian equity markets was Rs 1,10,744 crore. The only entity which came close was LIC, which made an equity investment of Rs 61,463 crore. Significantly, while FIIs have covered their exposure to stocks by taking up positions in derivatives, LIC’s entire investment is unhedged. The Insurance Regulatory and Development Authority rules do not permit investments in derivatives by insurance companies. Still, LIC has managed to act as a major domestic countervailing force to the FIIs.

As a result, while LIC has clearly emerged as the counter-weight to FIIs in the Indian equity market, the insurance major has few if any defence against market volatility. Company officials are understandably cagey about taking a public position on the issue. Mohan Raj, executive director (investments) said the company expects to make sizable investment in the current financial year too as the sentiment in the market has improved and several public offers are in the pipeline. He also said higher investments are essentially linked to premium collections. “If premium from equity-linked Ulips goes up, the investment in the equity market rises.”

Yet, the investments made by India’s largest life insurer has been a bulwark for the relative stability of the Indian equity markets in a year of massive global turmoil.

To get a measure of this statistic, one needs to compare the FII behaviour with that of LIC in 2008-09. In the year when LIC made a net investment of Rs 40,800 crore, FIIs withdrew Rs 48,248 crore from the Indian equity market. The trend of deeper LIC presence in the equity market is persisting in the current financial year too. In just April and May, the company has invested Rs 8,363 crore in equities compared with just Rs 1,189 core made by the FIIs.

Sanjay Sinha, CEO, L&T Mutual Fund said: “Not just LIC, the entire class of domestic financial institutions can be a counter to the volatility brought about by large exits sometimes made by the FIIs.”

Sinha also makes the point that the objective of institutions like LIC should not be to offer an exit avenue for FIIs (to shore up prices in the domestic market) – it must take advantage of opportunities to sell too.

Commented SBMathur, former chairman of LIC and incumbent secretary-general of the Life Insurance Council: “The insurance industry is not allowed to participate in the derivatives market. But if they are allowed in derivatives within prudent limits, they can reduce the influence of FIIs to almost half.”

He emphasised that LIC has become a sufficient counter-weight to FIIs as far as the cash market is concerned and drew parallels with the South Korean equity market. “FIIs were net sellers in the Korean market for three consecutive years from 2005. But the Korean market actually went up in all these three years because their domestic institutions had matured enough.”

Because of these restrictions, the bulk of LIC investments are held for very long periods that, in turn, cut down liquidity in the markets and the insurance company’s ability to offer higher returns to investors. As a senior executive in a rating agency said: “LIC’s impact on markets is limited in comparison to that of FIIs, simply because LIC is a long-term player. Both its investments and withdrawals are phased; in contrast, FIIs invest and withdraw in large numbers at once, thereby having a relatively stronger impact.”

Source: http://www.expressindia.com/latest-news/LIC-new-big-bull-in-market/641089/