MF chiefs allay fears over high FII inflows, bullish on infra

The Indian capital market remains fundamentally strong, concerns over high FII inflows are uncalled for and the much-feared flight of capital, if it at all happens, will only result in short-term volatility in the market, domestic fund managers have said.

"Why are you worried about the scenario of selling by FIIs? Let the foreigners sell so that we can buy our own stocks cheap," Reliance Mutual Fund's Head of Equity Investments Sunil Singhania said at an event here.

Both Singhania and Sanjay Sinha, Chief Executive Officer of L&T Mutual Fund , opined that market-prospects were bright both in the medium and the long-term, and that a pull-out by FIIs, if at all, would only result in a short term volatility.

An 18-month rally has seen the BSE Sensex gaining over 150 per cent, rising from 8,000 points to reach the 20,000 mark this month. Unlike the pre-slowdown rally, domestic institutions and retail investors have not participated in the surge, which has primarily been driven by heavy FII buying.

The FII inflows have resulted in a steady appreciation of the Rupee, giving rise to concerns over the price competitiveness of the country's exports. This has led the Reserve Bank to announce that it may intervene in the forex market.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/MF-chiefs-allay-fears-over-high-FII-inflows-bullish-on-infra/articleshow/6763110.cms

MF sector will adapt to Sebi norms

The mutual fund industry has been under pressure over the last one year after market regulator Sebi tightened rules to curb misselling by distributors. Distributors now have to directly negotiate the initial commission with investors. Naval Bir Kumar,president and CEO, IDFC Mutual Fund , says the industry is attempting to cope with the changes in the Sebi norms . But margins, he points out, have dropped and there is aneed to raise productivity.

The tightening on the operational fronts like risk management and disclosure norms was long awaited, Kumar says. "The last one year has been one of transition for the asset management industry and all stakeholders connected with it. The industry is still in the throes of this transition. Over a period of time, however, one would expect the industry to respond with simple, yet innovative products, improved customer service and more productive channels of distribution. With changes coming in all financial products, one would expect more congruence in the way to approach investors, he says.

“We can embrace these changes for the retail market only if we create products whose returns are much less volatile and have the flavour of a fixed deposit. Hence, we have been focusing on capital protection funds, asset allocation funds and other hybrid funds such as monthly income funds (MIPs). We are also increasing the range of products for high networth individuals (HNIs) and launching alternative assets class such as private equity funds to attract HNIs.”

Mutual funds complement, and not compete with, other investment avenues like insurance products. It is probably the only product that has all the advantages of tax benefits, liquidity, returns and transparency, he says.

According to him, so far, most investors based their decisions on short-term goals and the industry, on its part, launched several new fund offers in overheated markets. In a market where the industry was thriving on NFO game, products were launched to suit the flavour of the month and distributors’ interest. Kumar reckons that somewhere along the way, an NFO became the primary medium to raise assets than conventional sales and it spawned an entire machinery to that effect. The focus currently is on building performance and assets in the ongoing schemes. Distributors, clients, media and AMCs have all aligned towards that goal.

Another target group, according to him, is retail investors in Tier-II cities. In developed countries, retail investors enter the markets mostly through pension and insurance funds. However, in India, they usually invest directly. “So far, equity has become a product where investors pour money only at the peak and by that time, there is a correction. To overcome these issues, the industry launched the systematic investment plan (SIP). The product is yet to take off in a big way. For the retail investor, bank deposits continue to be the most preferred saving instrument. The trend is, however, changing and investors are looking at MFs as an alternative investment option now, he said.

With most retail investors continuing to stay away from the markets due to a sharp rise in a very short period, Kumar says that investors should be proactive in their decisions. "Money that retail investors save can help them earn more if they invest in instruments like MFs rather than in fixed deposits. So, investments are an important part of planning for the long term.”

"We need to bring investors back. There are various parts of business — one segment is corporate savings and other is HNIs. We are increasingly looking to target the HNI segment through innovative products like hybrid infrastructure schemes," he says.

Today, around 25% of the industry’s assets come from beyond the top 10 cities, up from 9% in 2003. This is expected to go up. India has been a best performing market globally in the past few quarters. “We have entered moderate interest rate scenario, though inflation continues to be a worry.” But there could be some pressure on interest rates as the private sector is getting aggressive in sectors like infrastructure.

Kumar, however, believes that the markets are overvalued. "India is attracting capital since Europe and the US are yet to come out of the woods. At the same time, low or negative growth in these countries is a risk to India. As of now, there are no worries about asset bubbles and earnings growth is seen stable even with the slowdown in the West."

Source: http://economictimes.indiatimes.com/opinion/comments--analysis/MF-sector-will-adapt-to-Sebi-norms/articleshow/6757321.cms?curpg=2

‘Inflation may surprise on the upside'

Monthly Income Plans and balanced funds have demonstrated that they have beaten inflation over a longer period of investments and should be actively considered by investors. - AMANDEEP CHOPRA, HEAD-FIXED INCOME, UTI AMC

The debt market is hotting up, with short-term debt funds doing well, fixed maturity plans delivering good yields and rates rising. Business Line put a few questions to Mr Amandeep Chopra, Head-Fixed Income, UTI AMC on the attractive options for investors today.

Excerpts from the interview:

What is your outlook on interest rates? Given that RBI has stated that ‘reversal of monetary stimulus' is almost done, how much more do you expect rates to rise?

We expect the interest rates to remain largely range bound. With inflation being on the forefront again, the RBI may go ahead with two more rate hikes of 25 bps each. The market appears to have already factored in at least one more rate hike and may not react to the actual hike unless the central bank continues to be hawkish in its stance.

With the equity market touching new highs and the debt funds continuing to invest in shorter-term instruments, which reduces effective yields, where should debt investors focus today?

While the short-term debt funds will remain an anchor in an uncertain time, investors can look at close-ended funds such as fixed tenure plans and fixed maturity plans and Monthly Income Plans with a stable dividend distribution history like the UTI Monthly Income Scheme.

Given the outlook that we are nearing a peak in interest rates, it would be a good strategy to allocate a small portion of overall investment portfolio, say 5 per cent, to income funds such as UTI Bond Fund.

What is your outlook on inflation? What are the safe investment options for those looking to beat inflation over the long term?

Inflation may surprise on the upside in the near months as it has remained pretty sticky based on the recent data releases. However, we expect it to moderate from January 2011 onwards, yet remain above the RBI's target levels.

Monthly Income Plans and balanced funds have demonstrated that they have beaten inflation over a longer period of investments and should be actively considered by investors.

Recent months have seen a slowdown in bank deposit growth. Are retail investors allocating the money to other debt investments?

The real rate of return on bank deposits is low due to high inflation at present, and it appears that there has been no significant credit growth yet that can compel banks to hike deposit rates, hence retail investors are chasing higher yield and riskier asset classes like equity, real estate and commodities.

Unless the credit growth on a year to date basis picks up substantially the deposit rates may maintain status-quo.

Over the last few months yields of longer-dated securities have somewhat stabilised. Are mutual funds moving to long dated instruments or will they stay with short-term debt?

Based on our view, we have increased duration of our long term funds - UTI Bond Fund and UTI Gilt Advantage.

FMPs have made a strong comeback in recent months with MFs raising a large sum through these funds. Can 3-month to 1 year FMPs offer better yields than bank deposits today on a pre-tax basis?

Yes, based on prevailing short-term rates – 3-month at 7 per cent and 1 year at 8 per cent, FMPs can offer better returns than deposits.

Quite a few companies are opening up FD programmes again. How should an investor choose between fixed deposits and debt mutual funds?

The factors to consider are diversification of the invested portfolio which a single company's fixed deposit cannot offer. Liquidity too may be non-existent in a company FD.

With introduction of infrastructure bonds and renewed interest in the debt market, will there be improvement in corporate debt trading volumes?

Yes, we have already seen improvement in debt market volumes for year-to-date FY2010 with more issuers and larger issues hitting the markets. With no surprises on enhanced supply of G-Secs, we can see more activity in corporate bond markets in the second half.

Source: http://www.thehindubusinessline.com/iw/2010/10/18/stories/2010101850521300.htm