Tuesday, August 3, 2010

Gilt funds would be a viable investment opportunity from a one year and beyond perspective


Kotak Mahindra Asset Management Company (KMAMC), a wholly owned subsidiary of Kotak Mahindra Bank, is the Asset Manager for Kotak Mahindra Mutual Fund. KMAMC started operations in December 1998 and has over 10 lakh investors in various schemes. Kotak Mahindra Mutual Fund manages average AUM of Rs 28636.86 crore as on June 2010. To know more about current scenario of Indian fixed income markets and investment options available to retail investors, Capital Market's D. Emerson Mcenley conducted an e-mail interview with Lakshmi Iyer - Head (Fixed Income and Products), Kotak AMC. Excerpts:

1) Give us an insight on the current scenario of fixed income markets in India? Share with us the views on G-Sec bonds and corporate bond spreads. How much percentage of your schemes portfolio has investment in corporate bonds?

The fixed income market in India is currently grappling with the transition in monetary policy from an accommodative mode to a normalized mode. In the process, benchmark interest rates are being increased. Consequently, the g-sec and corporate bond markets have been negatively impacted. Benchmark 10yr yields have risen to 7.85% levels. Also we have migrated from a liquidity surplus system to a deficient liquidity scenario which has lead to the shorter end of the yield curve spike up on an average 1.5%-2% over the last couple of months.

2) Which is the more lucrative investment option-short to medium term g-secs or corporate bonds, in current market scenario? Is it advisable to invest in long term government securities, in the wake of rising interest rates in the economy?

With 10yr benchmark g-sec yield approaching the 8% yield levels, it is our view that gilt funds would be a viable investment opportunity from a 1yr and beyond perspective.

3) What is your view on global bond market? What are the likely consequences of the forex-market trends for bond market yields?

Most of the global economies are still grappling with subdued growth which could inhibit them from raising rates in a hurry. This would be supportive for global bond yields which have been seen in the past few months. Even the US 10yr benchmark yield is currently trading at sub 3% levels.

As far as Indian markets are concerned the $ Rupee movements would be keenly watched. An orderly movement in forex market would be required for stable bond markets.

4) What's your take on the inflations numbers? How would inflation impact the debt market?

Inflation continues to be an area of concern as highlighted in the recent monetary policy review. There are concerns of inflation being more generalized in nature which could further aggravate the situation. Apart from significant evidence of demand-side pressures as seen in higher prices of non-food manufactured products, structural bottlenecks in commodities (pulses, milk, and vegetables) and de-regulation of petrol prices have resulted in higher inflation expectations. Also, the outlook on inflation would be guided by rainfall, commodity prices & domestic demand going forward.

The RBI has upward revised its guidance on inflation to 6% from 5.5% by the end of this financial year.

One of the ways to combat rising inflation is also to affect a hike in key benchmark rates which was one of the foremost reasons quoted by the RBI also for a mid meeting hike done last month. Hence rising inflation means rising interest rates, thereby negatively impacting debt markets.

5) What are the investment options available to retail investors, within the fixed income market, at this stage?

Rising interest rates should not be a reason for investors to shy away from the fixed income market. One must appreciate the fact in fixed income one does not lose his capital, unless there is a credit default as the higher yields tend to compensate for capital loss on account of lower prices. Fixed maturity plans offered by fund houses are a good way to benefit from the rising interest rate scenario.

6) What is your debt schemes' investment philosophy? As a fixed income fund manager what are your major concerns now?

The philosophy for us at Kotak Mutual involves around managing liquidity, duration, and credit across all our fixed income schemes. Investments are done taking into consideration the investment objective of the respective schemes and more importantly the time the investor would intend to stay invested in the particular scheme. For instance our Kotak Liquid fund would maintain a very low average maturity given that the investor would come in to this fund for even 1 day. Also on an ongoing basis the macro economic variables as also domestic events are monitored to fine tune the portfolios accordingly. To give a case in point, in today's environment liquidity is the key, hence most of our fixed income portfolio have shortened durations.

The major concern today as a fixed income manager is the movement in yields in a very short span of time. The effective overnight rate from 3.75% in April (reverse repos) has moved to 5.75% (repos rate) in under 3 month's time. Hence the market is still realigning itself to this eventuality - though the rise in yields is an opportunity from an investor perspective.

7) Kindly share your views on the recent credit policy review.

The recent policy has narrowed the liquidity adjustment facility (LAF) corridor from 150 bps to 125 bps by hiking reverse repos by 50 bps and reverse repos by 25 bps. It is very clear that the RBI desires lower volatility and has hence chosen to narrow the corridor. The concerns on inflation also have been highlighted with RBI of the view that inflation is now generalized in nature. The positive this is that the RBI will now do a policy review 8 times in a year which would also remove a lot of guess work that usually prevails between two meetings (since the review was done every quarter ).

8) How would you define your overall approach in managing interest rate and credit rate risks in an income fund?

We as a fund house have been pretty conservative on credit exposures and would not see that approach change very significantly in the near future. Interest rate views are actively managed depending on a host domestic as also global variables. At the current juncture, given that the yields have backed up quite a bit, we would favor adding duration to our portfolio.

9) What is your take on Rupee over near and medium term?

Near term $ Rupee is likely to remain volatile with a weakening bias due to higher than expected current account deficit. Also after the recent run up in Indian equities, there could be some apprehensions on valuations in the near term which could stall inflows. However, long term for the rupee continues to be positive as the fundamental outlook for India as an investment destination sees no change. Infact the RBI has also upward revised its GDP guidance to 8.5% for the current financial year.

Source: http://www.indiainfoline.com/Markets/News/Gilt-funds-would-be-a-viable-investment-opportunity-from-a-one-year-and-beyond-perspective/3216411660

India Mutual Funds' Average Assets Slip 1.6% On Month In July

The average value of assets managed by Indian mutual funds in July slipped 1.6% from a month earlier.

Mutual funds' average assets under management fell to about INR6.65 trillion ($144.03 billion) in July from INR6.76 trillion at the end of June, data from the Association of Mutual Funds in India showed Tuesday.

Assets had dropped nearly 16% on month in June as banks and other companies withdrew investments from debt funds to meet cash needs, and also due to a proposed change in the method of valuation for certain debt securities.

But average assets under management at Reliance Mutual Fund, the largest Indian fund house by assets, rose a little under 1% to about INR1.02 trillion at the end of July. Its average assets had slipped nearly 15% in June from the previous month.

Source: http://www.automatedtrader.net/real-time-dow-jones/9414/india-mutual-funds039-average-assets-slip-16-on-month-in-july

Reliance MF assets rise in July; that of ICICI, UTI decline

The country's largest fund house, Reliance Mutual Fund, witnessed an increase of over Rs 800 crore in its average assets, while that off ICICI MF declined by Rs 5,000 crore in July.

According to data available with the Association of Mutual Funds in India (AMFI), Anil Ambani Group firm Reliance MF witnessed an addition of Rs 859 crore to its average assets under management (AAUM) at Rs 1,02,179 crore during the month.

Besides this, the country's third largest fund house, ICICI Mutual Fund, witnessed an erosion of Rs 5,080 crore from its AUM in July to Rs 68,715 crore.

UTI MF also saw its asset base declining by Rs 2,238 crore during July to Rs 62,208 crore.

Of the 33 fund houses that have so far disclosed their AUM figures, 18 have registered growth.

The assets of SBI MF grew by Rs 4,779 crore to Rs 38,513 crore while that of Baroda Pioneer MF rose by Rs 879 crore to Rs 3,954 crore.

However, certain fund houses -- including Birla SunLife MF, L&T MF, Tata MF and Taurus MF -- witnessed a substantial erosion from their asset book.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Reliance-MF-assets-rise-in-July-that-of-ICICI-UTI-decline/articleshow/6249310.cms

Want investment advice? Ask for the menu card

Looking for advice on how and where to investin mutual funds?
First, order for the menu card.

Huh? Yes, it’s the result of new Securities and Exchange Board of India (Sebi) norms that require investors to pay up commission to agents directly, unlike earlier where a portion of the investment made used to be handed over to the distributor as commission directly.

It is learnt that a distributor incentral Mumbai is handing out pamphlets to people stating “Fee for mutual fund form — Rs 25, Investment only (cheque collection) — Rs 100, mutual fund advice — Rs 250 per investment. For monthly and yearly advice fees, contact us....”

Other independent financial advisors (IFAs) are forming groups and mulling a standard charge across the board. “Pursuant to the present Sebi regulatory issues and the need to charge
the clients for the advice and levels of services offered by us,
we are in the process of preparing a tariff card and notice to
investors based on Sebi notifications (on) the need/ practice to charge fee,” a mail sent to DNA Money by a group of IFAs said.

There are 63 IFAs who form this group.

Another network operating in Mumbai called MF Chain, which involves around 25-odd distributors in the city holding large chunks of assets under them too have decided on a fee structure.

“Location-wise the assets are segregated. So, a distributor servicing in Bandra will not service a client in Borivali as that area is serviced by another distributor,” said a source privy to the information.

“There is a price list that is formed. Because these distributors are operating all across the city it will not be possible for investors to negotiate,” said the source.

He claimed the entire idea to is just like other associations that are run by barbers, laundry operators in Mumbai. “The rates are fixed,” he said.

“As an IFA he can knock out 30% of his competition by fixing rates across. The competition will not be from IFAs, it will be from banks and national distributors,” he added.

Delhi too has a broker syndicate called DFDA, where leading independent financial advisors unite to earn asset under management muscle. “Their agenda is sangathan mey shakti hai (there is strength where there is unity),” a head of a mutual fund house said.

Other distributors too have started asking for yearly fee from investors. Kirit Nagda, who runs Relationship Life & Services, told DNA Money on an earlier occasion, “We have started charging a yearly fee of Rs 2,000 per family.”

Many have realised that when they ask for per transaction fee, they are not sure whether the client will come back to them the next time. “A yearly fee ensures that the client will come to me for each transaction during the year,” said a distributor.

There is another Vadodra-based advisor Durgesh Pandya, has now initiated a life-time advisory fee of Rs 40,000. “Some of my customers have agreed to pay up,” he claims. But asked aren’t people wary of him not continuing in the industry forever, he replies, “People trust me as they have been investing through me for the past five years now. They also invest crores in each transaction, so if you see on a per transaction basis the advisory for life-time turns out to be cheap for them.”

This fixing of fee is against the idea of Sebi. C B Bhave, chairman of Sebi had said while addressing the mutual fund summit last month, “Don’t tell the investor how much he has to pay. Investors should be able to negotiate a fee for the value that the advisor is providing.”

Source: http://www.dnaindia.com/money/report_want-investment-advice-ask-for-the-menu-card_1417988

Just click away from joining most active Mutual Fund India google group

Google Groups
Subscribe to Mutual Fund india
Email:
Visit this group

Aggrasive Portfolio

  • Principal Emerging Bluechip fund (Stock picker Fund) 11%
  • Reliance Growth Fund (Stock Picker Fund) 11%
  • IDFC Premier Equity Fund (Stock picker Fund) (STP) 11%
  • HDFC Equity Fund (Mid cap Fund) 11%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 10%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
  • Sundram BNP Paribas Select Midcap Fund (Midcap Fund) 8%
  • Fidelity Special Situation Fund (Stock picker Fund) 8%
  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Moderate Portfolio

  • HDFC TOP 200 Fund (Large Cap Fund) 11%
  • Principal Large Cap Fund (Largecap Equity Fund) 10%
  • Reliance Vision Fund (Large Cap Fund) 10%
  • IDFC Imperial Equity Fund (Large Cap Fund) 10%
  • Reliance Regular Saving Fund (Stock Picker Fund) 10%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 9%
  • HDFC Prudence Fund (Balance Fund) 9%
  • ICICI Prudential Dynamic Plan (Dynamic Fund) 9%
  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Conservative Portfolio

  • ICICI Prudential Index Fund (Index Fund) 16%
  • HDFC Prudence Fund (Balance Fund) 16%
  • Reliance Regular Savings Fund - Balanced Option (Balance Fund) 16%
  • Principal Monthly Income Plan (MIP Fund) 16%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
  • Principal Large Cap Fund (Largecap Equity Fund) 8%
  • JM Arbitrage Advantage Fund (Arbitrage Fund) 16%
  • IDFC Savings Advantage Fund (Liquid Fund) 14%

Best SIP Fund For 10 Years

  • IDFC Premier Equity Fund (Stock Picker Fund)
  • Principal Emerging Bluechip Fund (Stock Picker Fund)
  • Sundram BNP Paribas Select Midcap Fund (Midcap Fund)
  • JM Emerging Leader Fund (Multicap Fund)
  • Reliance Regular Saving Scheme (Equity Stock Picker)
  • Biral Mid cap Fund (Mid cap Fund)
  • Fidility Special Situation Fund (Stock Picker)
  • DSP Gold Fund (Equity oriented Gold Sector Fund)