Liquid fund NAV lock possible only after MFs get money

Capital market regulator Sebi said that investors in liquid funds would no longer get the net asset value NAV of the day before the application date, if the mutual fund doesn’t get the application and money before 2:00 pm. Sebi, in a circular on Friday, said liquid-fund investors would only get the NAV of the day, just before the day on which the mutual fund has received the money irrespective of the time of submitting the application.

“It is observed that mutual funds are deploying funds without receiving clear funds in the scheme account. As a matter of good practice and to avoid systemic risk, it has been decided to modify certain provisions ,” said Sebi.

The regulator said that investors would be allotted units in liquid schemes only if an application is submitted before 2:00 pm, entire investment fund is credited to the bank account before the cut-off time and the money is available without any credit facility. The same conditions would be applicable for allotment of units during switching to other schemes such as liquid plus or other debt schemes.

Investors in liquid schemes, mainly companies, have widely followed a practice , where they submitted the application before the cutoff time and simultaneously directed the fund house to switch to liquid plus scheme. This helps investors get the previous day’s NAV of the liquid scheme and get returns of the liquid plus scheme of the same day.

Mutual fund officials said that the Sebi move is likely to affect flows into liquid schemes, where companies park their idle money. A top official of a bank-promoted mutual fund, on condition of anonymity, said, “Let’s assume that the investor has made the RTGS payment order at 10:00 am in the morning, but the mutual fund gets it only after the cutoff time of 2:00 pm, the investor will not get the previous day’s NAV. All the more, his money will lie idle with us for a day.” Real-Time Gross Settlement (RTGS) is the fastest way to transfer money between banks.

A fixed income fund manager of another bank-promoted mutual fund said, “Now, there will be bigger fights between fund houses and companies (investors) over the timing. Companies and high net worth investors are never known to transfer money on time and often blame us for the delay.”

According to Dhirendra Kumar of Value Research , the Sebi move could create a logistical problem. “Banks do not have the necessary infrastructure to deliver the funds by 2.00 pm. The Sebi move will basically impair the flexibility to move their money across schemes during the day,” said Mr Kumar. Mutual funds are already reeling under the impact of a Sebi’s move in August 2009 to ban them from charging investors, in their equity schemes, an initial fee to pay distributors. The step has resulted in distributors selling fewer equity schemes. Sebi, in the circular on Friday, also said that interval plans would mandatorily be listed and investors could redeem only during the specified transaction period — the period during which both subscription and redemption may be made to and from the scheme.

“It has been noticed that certain scheme information documents provide that the subscription to the scheme can be made during a specific period (known as specified transaction period) and the repurchase of units is permitted on all business days subject to applicable loads (except for redemption during specified transaction period when no load is charged),” the circular said.

“As per the current regulation, there is no restriction on tenure of securities in which interval scheme can invest. This read with daily redemption option may result in asset liability mismatch,” it said.

Source: http://economictimes.indiatimes.com/markets/regulation/Liquid-fund-NAV-lock-possible-only-after-MFs-get-money/articleshow/6998829.cms

Infra spend, capex will drive growth : Principal MF

With the thrust on infrastructure and pick-up in capex, we will see leadership returning to that sector.

With the markets correcting, identifying sectors and stocks that are likely to lead from here will be rewarding for investors. Business Line spoke to Mr P.V.K. Mohan, Head-Equities, Principal Mutual Fund, to hear his views on the sectors that drove the market and the ones that could be the outperformers from here on.

Excerpts from the interview:

In the Indian market different sectors tend to drive each leg of a stock market rally. What in your view are the promising sectors for the next few years?

I think the traditional sectors will do well. Clearly, this rally was led by financials, and sectors related to the consumer space, such as automobiles. These sectors will probably continue to do well. In terms of leadership, one sector that performed well between 2004 and 2008 was infrastructure, though it completely underperformed in this rally.

Now, if the country has to get back to the growth trajectory of 8-9 per cent, there is an urgent need for infrastructure spending. The capex from the private sector needs to pick up. So we will see leadership coming back to that sector. Consumption is one pillar of the economy and it is on a strong track. We are seeing this in durables and in some of the FMCG space.

Our view over the medium term is more of a bottom-up view and not about sectors as a whole. If you look at the long term, I would bet on agri-based stocks. We have seen fertilisers doing well. Going forward, we will see tractor and seed companies join in too.

Do you anticipate expansion in capital expenditure and how is that going to help capital goods sector?

We had one leg of growth from the revival of the economy and some priming of economy by government expenditure. Given the deficit concerns, I think clearly it's the time for the private sector to take on the capex mantle. Even in infrastructure, the role of the private sector is critical. Currently it not involved in a big way, but we are seeing the green shoots. When the auto industry is running at 100 per cent capacity, and the durables industry is at full capacity, it tells us that clearly there is a need for expansion. We see Tata Steel is going ahead with expansion. We see better times ahead for capital goods and infrastructure.

The developed countries are yet to come out of the recession and the rupee appears to be strong. How will this impact the IT sector?

The currency part is a definite headwind for the IT sector. Having said that, the largest part of business at this point is coming from the US. Demand conditions are pretty good there. Corporates are sitting on huge cash reserves. There is the political expediency of anti-offshoring talk on and off. But this model works well for both the Indian companies and for the country looking to cut costs. Very recently the UK government revalidated a contract with TCS after talking out against offshoring jobs. They have to place the order if they want to cut the deficit and costs.

So, I think the demand side is good but on the costs side, salary, attrition and rupee appreciation are the challenges the industry has to live with. The bigger guys will be able to deal with the challenges, but the smaller players will have volatile performance. The industry has shown the ability to meet challenges on earlier occasions, but the margins are likely to take little bit of hit. This sector will be a market performer.

In a highly inflationary and rising interest rate scenario, what is your call on banking and finance?

I think with rising interest rates, typically in a high growth or in strong economy, the banks were always in a position to pass on the costs to the customer. I think today they are in spot where the cost of CASA is higher; and the lending rate may rise. Financials at this point of time may see some compression in the spreads.

Nevertheless, they will remain healthy, if the economy grows at 8-9 per cent, they will be able to manage the margin. In the NBFCs space, those that are well-capitalised can tide over the problem. So in financials, size is going to play a role.

Auto sales continue to be robust, with a normal monsoon. How is this sector likely to pan out?

We are positive on the sector. Two factors are driving the sector, one is rural demand, helped by NREGA. Two the MSP prices are raising. So farmers with a not-so-great monsoon last year have seen their farm incomes go up because of the realisations. Given that India has structural deficits in agriculture, prices will remain buoyant. So, that is a very important contributor for the demand and it is visible in two- wheelers. Even for companies like Maruti, 15-20 per cent of the sales are now being derived from the rural segment; this was in single digits a few years back. In the urban market, due to the faster replacement cycle, bank funding coming back, better job security, due to wage inflation, the EMI culture is coming back. So, autos will continue to do well. On the commercial side, light trucks will see strong growth because of the last-mile connectivity. Overall, we feel that the growth momentum is positive and will remain so.

Source: http://www.thehindubusinessline.com/iw/2010/11/28/stories/2010112850970800.htm

Scam: Sundaram MF waits 'n' watches

Sundaram Mutual Fund, a unit of BNP Paribas’s former partner in India, said it will “wait and see” before deciding what to do with investments in a brokerage involved in a probe into bribes and improper loans.

“We will take a commercial call, keeping the long-term interests of our investors in mind,” TP Raman, managing director at Sundaram Mutual, said in a phone interview on Thursday.

Sundaram Mutual, a unit of Sundaram Finance, manages three funds that own a combined 1.49% stake in Money Matters Financial Services, the Mumbai-based brokerage, according to data compiled by Bloomberg. Shares of Money Matters tumbled by their 20% limit for a second day, reaching Rs 427.05 in intraday trade.

Rajesh Sharma, chairman of Money Matters, was on Wednesday taken into custody by India’s federal investigating agency for allegedly conspiring with others to bribe state-run lenders’ executives in exchange for loans for clients and confidential information.

Executives at Money Matters weren’t available at their offices, which have been sealed by the agency.

Separately, India Infoline advised Money Matters Financial Services for a sale of shares to large investors this year and hasn’t used the securities firm for debt syndication or lending money.

“We did our due diligence but you cannot do an investigation,” India Infoline’s Chairman Nirmal Jain said in a phone interview from his office in Mumbai on Thursday. “As an investment banker, we did our job.”

Rajesh Sharma, chairman of Mumbai-based Money Matters, was among eight people arrested by India’s federal investigating agency on Wednesday following a probe into bribes and improper loan disbursals.

India Infoline shares sank 15%, the most in 19 months, to Rs 91.3 as of the 3:30 pm close in Mumbai.

Money Matters fell% for the second day on the Bombay Stock Exchange to close at Rs 427.05.

Source: http://www.indianexpress.com/news/scam-sundaram-mf-waits-n-watches/716114/2