Monday, August 30, 2010

MIP performance — Lacklustre year


In line with the performance of pure debt funds, Monthly Income Plans (MIP) have had a lacklustre year compared with their historical performance.

MIPs on an average managed to deliver 7 per cent returns over the last one year period, partly aided by a decent rally in the equity market. MIPs typically have a maximum allocation of anywhere between 10 per cent and 25 per cent of their total investment in equity markets.

Only 45 per cent of the 38 MIPs (with a one-year track record) under growth option, outperformed the Crisil MIP blended index over the last one year.

The waning performance of MIPs over the last six months was due to the falling prices of corporate debentures and gilts (marked by rising yields). Surplus liquidity condition up to April 2010 meant that the short-term rates were also not attractive.

Thanks to the flattening of the yield curves, some funds have made decent returns by holding on to the short-term maturities post-April.

Top performers

HDFC MIP-Long-term plan, Reliance MIP and HSBC MIP are among the top performing funds over the last one year period.

These funds were consistently among the top five MIPs over the last three and five-year periods. Good performance of HDFC MIP and HSBC MIP can be attributed partly to the higher exposure to equity (over 20 per cent). Funds such as ICICI Pru MIP 25 and UTI MIS advantage plans have also outperformed the Crisil MIP index by virtue of having high equity exposures.

However, others such as Reliance MIP, Tata MIP Plus and LIC MIP delivered good returns, despite having relatively lower exposure to equity; thanks to the constant churning of their respective portfolios.

Reliance MIP, for instance, has not significantly reduced the average maturity of its portfolio, despite the rates trending up over the last six months. Earlier, funds cut their average maturity period in anticipation of rising rates.

Bharti AXA Regular Return Fund, Tata MIP, ING MIP, DSP BR Savings Manager and Fortis MIP were among the under-performers.

While there is no secular trend for the under-performance, some schemes were not invested and were sitting on cash while other funds held on to the corporate debt whose value fell over the one-year period.

With equity markets trading at a 30-month high and further monetary tightening expected investors may be better-off sticking to funds with a good track record, sizeable corpus and limited exposure to the equity markets.

Source: http://www.thehindubusinessline.com/iw/2010/08/29/stories/2010082950200800.htm

'Selling MFs to retail investors makes no business sense for distributors' : CEO, PEERLESS MF

It's been more than a year since the capital market regulator did away with the entry load barrier. But the mutual fund industry is still experiencing teething problems and is unable to lure retail investors. Peerless Mutual Fund, chief executive officer, Akshay Gupta in an interview with Suneeti Ahuja Kohli talks about the problems faced by the industry and how his company plans to tackle the same and much more. Excerpts:

Mutual funds have completed a year of operations without the entry loads. How has the experience been?

We have just started our retail operations in July. So, we cannot say much on this. However, from an industry perspective, I can clearly say that the number of retail applications and the subscription amount have gone down drastically. I keep hearing from various registrars that there has been almost 50 per cent reduction in transactions. So clearly, distributors are shying away from selling mutual funds to retail investors because it doesn't make any business sense to do it now. It is just not viable for them. So they are focusing on other financial products like insurance and company deposits. While the former gives them a better commission and incentive structure, the latter give distributors three years of commission as a lump sum in the first year.

Entry load ban, essentially, has resulted in two things. The retail applicants, who used to bring investments of Rs 1,000 to Rs 1 lakh, have gone down drastically. It was introduced for preventing malpractices such as mis-selling and a lot of churning of portfolios by agents. But because of this and consequent lowering of commission due to ban on the entry, load, the retail population of India is they are now not getting this kind of service and access to these kinds of products.

What are the various channels of distribution that you use to sell your products? And, is there any target number of retail investors Peerless wants to achieve in the near term?

Peerless Mutual Fund is initially trying to target an active and accessible pool of retail clients available to us through our distribution network. Peerless is an 80 year old company and has around one crore customers. So we are trying to convert them slowly. We are facing a few challenges like complying with the KYC (know your customer) norm. It will take us at least five to six years to convert these clients partially.

Even our business is commission sensitive. And one can see interest levels being far higher in case of insurance products rather than in mutual funds. Peerless as a distributor also sells Max New York Life Insurance. So you will see agents are far happier selling insurance than a mutual fund. So what we are trying to do is focus on tier II and tier III towns, where there is a high recall of the Peerless brand. And, we are targeting the lower middle to middle class. We are putting in all efforts to educate them, convince them and convert them.

In such a scenario, don't you think banks are better points of sale for the mutual fund companies? Do you have any such tie-ups?

We haven't tied up with any bank as of now. We are still selling through IFAs (independent financial advisors) and our distributors. More organized bigger networks, like banks, will be able to channelize more sales than the IFAs. And eventually, IFAs will have to merge into such organized bigger networks. So, national level distributors or aggregators are the people who will be able to give better terms to them rather than going directly to asset management companies. Existence of small agents is a question mark now. We are also in the process of finalizing our tie ups with a few banks and should be able to share details in the next three to six months.

How many subscribers have shown interest in your first retail fund and what is the business mix of AUM (asset under management) for retail and institutional clients?

The new fund offer attracted 20,000 investors and a total AUM of Rs 25 crore. As of now, we have a total of Rs 1,500 crore of assets under management.

The RBI has time and again raised concerns over the amount of money parked by banks in the liquid schemes of mutual funds. Has the Securities Exchange Board of India (Sebi) also said something on this?

When you give anybody a better opportunity, he would tend to hold on to that opportunity. Banks, when they invest in mutual funds, do it when there are prospects of better returns compared with alternate instruments available like the call money market, the collateralised lending and borrowing obligation (CBLO) or may be other bank's certificate of deposit. So, banks are opportunistic investors like any other investors and they will bend towards better returns. Keeping in mind lakhs of crore of funds that they manage, a difference of even a 0.25 or 0.5 percentage point makes a lot of difference. Therefore, if a few thousand crore come in mutual funds, I, frankly, do not think it is a bad deal.

Till now, Sebi hasn't said anything to us. However, banks, if I understand correctly, have been briefed informally that they should keep in check money that is being parked in mutual funds.

What is your outlook for equity markets?

There are two factors that are driving the equity markets right now. One is the liquidity factor, primarily coming from the foreign players, which will continue. The second thing are the fundamentals. Now, the fundamentals of specifically the first quarter have not been very great in some of the sectors. So, there will be some sort of profit booking in a few sectors. But at the same time, India and China are the only attractive markets for foreign institutional investors (FIIs). A lot of FIIs look at these two countries as havens of growth. So money will keep pouring in and in fact it has in the last six months unless and until there is another global economic meltdown, which is quite unlikely due to the fiscal stimulus doled out to the countries. There will be a lot of cash flow in the global economy and also in India. Already we have seen $3.5 billion coming into the Indian economy. We expect another $5-6 billion in next few months.

Indian equity markets will not have any problems, unless fears of another recession strengthen and liquidity is sucked out of the system. At home, the rising number of primary issues is sucking liquidity from the secondary markets. Although there is nothing wrong with this, it will tend to make the markets range bound.

Any particular sectors that you are bullish on?

We are quite bullish on the infrastructure space as it is a long-term space. Besides, we are also bullish on the banking sector because that is the core representation of the economy. Cement, heavy industries, oil and gas sectors too look attractive at the moment. We are not very keen on the commodity space and specifically on sectors such as pharma and auto. Auto sector has had a run and now scrips should correct.

How about the debt space?

Debt markets will totally dependent on what is happening on liquidity in the market. It is easing out a bit now. Overall, unless inflation is contained, the interest rate yield curve will tend to go up. If RBI's measures to contain inflation in another 3-6 months are not successful, I think a few more hikes will take place and that will tighten the liquidity further. In case inflation is stabilized, then yields will be completely stabilized. We are also under artificial squeeze of liquidity because of the broadband auction.


Source: http://in.news.yahoo.com/48/20100830/1238/tbs-selling-mfs-to-retail-investors-make.html

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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)