MIPs get assets boost

With the incentive structure turning attractive and the equities market clocking gains this year, monthly income plans (MIPs) have accumulated assets at a rapid pace in the past few months.

The total assets of all MIPs have grown by about 115% between December 2009 and September 2010. HDFC MIP Long Term and Reliance MIP—which have grown by 269.6% and 783.9% year-on-year, respectively—are now among the top 15 open-end funds in the country with a total of Rs 16,599.70 crore assets under management .

MIPs, which invest mainly in government securities and corporate bonds, typically have 10-30% exposure to equity. Several MIPs have increased their exposure to equities and the buoyancy in capital markets has brought good gains for them. While the category has given about 7.5% returns in the past year (till December 7), the best ones have given double-digit returns.

"MIP is a great bull market product. Equities have done the magic for MIPs," says Raghav Iyengar, executive vice-president, ICICI Prudential Mutual Fund (MF). The markets have gained nearly 18% in the last one year (till December 7), pushing up returns from MIPs.

"Whenever there is an upswing in equity markets, MIPs see an increase in sales," says a top industry official. "Investor experience in equities has not been that great in the past two years. They (investors) are looking for capital protection. MIPs' marginal exposure to equities does just that and helps satisfy the needs of low-risk investors," say an industry official.

"Investors tend to be cautious when the markets are up. Since the fixed-income portfolio of MIPs is quite secure, they have lapped up MIPs in a big way," said an official. Though equity schemes and even fixed-income products have seen outflows, MIPs have seen only inflows in the past six months, he said.

Moreover, the incentive structure for MIPs is much better and has contributed to sales in a big way. Many fund houses offer upfront commission of 1-1.25% to distributors for selling MIPs. The upfront commission for some of the equity funds is similar or lower (0.5-1%). "It becomes easier and lucrative for distributors to push these products," says Dhruva Raj Chatterji, senior research analyst, Morningstar India, an independent investment research firm. Though MIPs have done well in the past one year, it would take a hit if the markets start declining. " Market volatility would be bad for MIPs. There should be reasonable monthly and quarterly gains for MIPs to make payouts," says an official. MIPs make dividend payouts on a monthly basis. But returns depend on availability of surplus.

Source: http://timesofindia.indiatimes.com/business/india-business/MIPs-get-assets-boost/articleshow/7068213.cms

Investors shun equity mutual funds

Equity schemes of mutual funds continued to witness outflows for the sixth consecutive month, in November, following withdrawals by investors and lacklustre sales by distributors who market these schemes. However, the outflow was the smallest since June. On the other hand, income schemes of mutual funds saw money coming in as a large number of investors parked their investments in fixed maturity plans (FMPs).

According Association of Mutual Funds in India (Amfi) data, equity schemes saw a marginal outflows of Rs 41 crore while income schemes saw inflows of over Rs 11,300 crore in November. Overall, the fund industry saw inflows of approximately Rs 18,300 crore with outflows from equity schemes and equity linked saving schemes (ELSS).

UTI Mutual Fund CMO Jaideep Bhattacharya said, “Investors are booking profits in a rising market but we are looking at some very strong numbers where systematic investment plans (SIPs) are concerned.” Bhattacharya added that investors were probably waiting for visibility on the direction of the market. “We hope that in the coming months we might see smart inflows into equity schemes,” he said, adding that money was also coming in through FMPs and monthly income plans (MIP) on a regular basis.

Categories that saw inflows in November included money market funds (Rs 6,111 crore), balanced (Rs 255 crore), gilt (Rs 431 crore) and gold exchange traded funds (Rs172 crore). Over Rs 11,259 crore was collected by the various new fund offers(NFO) of which Rs 11,187 crore came into income schemes and Rs 68 crore into Axis Gold ETF and the remaining in fund of funds (FoFs) investing overseas.

Since the market regulator scraped entry loads in August last year, equity schemes have seen a net redemption of over Rs 24,300 crore. A sales head from the leading fund house, said, “In the last few months, there were no new NFOs in the market but in the last few weeks we have seen some fund houses launching new schemes. However many distributors have stopped selling mutual funds.” Bhattacharya further adds, “In the coming months we are likely to see revival in equity schemes as many new ELSS schemes will be launched before March, 2011.”

Source: http://www.financialexpress.com/news/mf-equity-schemes-see-outflow-for-sixth-month-in-row/722132/0

Funds set to miss Jan 1 date to complete KYC process

It's a race against time for asset management companies (AMCs), as they try to complete the 'know-your-client' process before the regulatory deadline of January 1, 2011. It is a 'Herculean task' for fund houses, considering that less than 10% of the total unitholder base is 'KYC-compliant' at this point of time, industry officials say.

Capital market regulator the Securities and Exchange Board of India (SEBI) has made it mandatory for asset management companies to extend the KYC norms to investors, who have less than Rs 50,000 in funds. The regulator wants fund houses to verify identity and address of the investor, financial status, occupation and such other information to ascertain the source of money coming into the stock market through mutual funds.

Fund houses are finding it difficult to get investors to co-operate. "Investors are not comfortable providing these details," said the sales head of corporate-promoted fund house, adding, "Rich investors in smaller cities, who make several small investments in their close relatives' names, are worried that these details will be used for tax purposes."

Fund houses mobilising money through new fund offers currently, are the worst affected, officials said. "We're speaking to clients who have completed their KYC process to invest in recent NFOs," said a Bangalore-based fund distributor.

"Getting new clients and then forcing them to submit additional documents is a difficult task," the distributor said. Though retrospective in nature, existing investors - including SIP investors - will be able to continue with their investments after January 1, even if they are not KYC-compliant. However, they will not be able to switch their investments or make additional investments without being KYC-compliant.

The fund industry has appointed CDSL Ventures (CVL) to maintain the database of completed one-time KYC. CVL will also act as an additional counter to accept and verify documents and provide 'KYC-acknowledgement'. Investors need to submit address proof, proof of identity and passport size photograph, along with an application form, to complete the KYC process. Investors can make their submission with distributors, fund houses or CVL counters.

"Adhering to KYC norms for investors below Rs 50,000 is an expensive proposal for fund houses. We'll have to pay Rs 34-37 every time we access the CVL database and check credentials of the investor," said marketing head of bank-promoted fund house.

According to industry sources, several fund houses have written to SEBI and Amfi about practical problems involved in extending KYC norms below Rs 50,000 worth of investments. Retail customers dominate equity mutual funds, with over 90% of the investment volume coming from ticket sizes of less than Rs 1 lakh. More than 70% of overall investor folios have investments below Rs 50,000.

Often, small retail investors - with SIP amounts as low as Rs 500 - especially from tier-3 cities and villages, do not have documents to conform to the KYC process. This will hinder the growth of mutual funds in rural India, industry sources said.

Currently, around 5% of the country's gross domestic savings is invested in equities. As per industry estimates, MF investors constitute just about 2% of the entire population.

Out of 32 crore individual wage earners between the age of 18 and 59, only about 55 lakh invest in mutual funds. As on September 30, there were 3,94,39,302 equity folios holding investor money.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Funds-set-to-miss-Jan-1-date-to-complete-KYC-process/articleshow/7068912.cms

Selling pressure continues, metals weigh

Markets are expected to fall further in the last leg of trade on back of weak opening in the Europe and selling pressure in metal
and consumer durable shares. The Sensex has fallen 252 points to 19,682 and the Nifty has declined 75 points to 5900.

Markets are expected to remain weak with Nifty seeing stiff resistance around 6100 level. Monal Desai, VP & Head–Inst Equities (Derivatives), Prabhudas Lilladher said "there is not enough enthusiasm to buy aggressively; hence upside is capped around the 6100 level. Technical analyst, Devangshu Dutta said, "the Nifty looks Weak and could drop to 5850 or 5825 as 5900 is broken. Investors should start shorting and trade with a stop loss at 5925."

Asian markets also ended on a weak note due to the market wobble in Seoul following reports that North Korea might attack another
South Koran Island which was later reported as a drill. South Korea's Seoul Composite ended down 0.4%, China's Shanghia Composite dropped 1%, Hong Kong's Heng Seng ended down 1.4%. Japan's Nikkei Stock Average was up 0.9% and Straight Times was up 0.3%. European markets also opened lower due to losses in financial and mining shares.

Rally in Oil & Gas sector has lost steam after rising sharply on reports that government may raise fuel prices by Rs 2 per litre
after crude surpassed $90/bbl yesterday. Indian Oil Corp (IOC.BO) was up 2.7 percent, Hindustan Petroleum Corporation has risen
3.5%, Bharat Petroleum Corporation has risen 2.5% and Indian Oil Corporation has surged 1.6%.

Whiles most of the sectors are under selling pressure today, fund houses are bullish on India's consumption theme. Rajiv Anand,
Managing Director & CEO, Axis Mutual Fund said, 'like domestic consumption as a theme as we think it is a secular play in India. Also believe that financial service will remain the core part of our portfolios, but are circumspect of global cyclical like commodities and oil and gas."

Bank Nifty dipped to three month low, down 2%. Canara Bank, Axis Bank and Union Bank were down by almost 5%.

Consumer Durables has been the top sectoral loser; Gitanjali Gems has fallen 5.5%, Bajaj Electricals has dropped 4% and Rajesh Exports has declined 3.2%.

Metal stocks have lost sheen, Welspun Corporation has lost 4.9%, Jindal Saw has plunged 3.7% and SAIL has slumped 2.8%.

On the Sensex HDFC Bank (down 3.3%), Reliance Communication (down 3%) and Tata Stell (down 2.7%) have been the top losers. Only one component on the Sensex has been trading in the green, ONGC (up 0.7%).

Broader markets have also witnessed selling pressure, midcap and small index has declined 1.8% and 2.7% each.

Source: http://www.business-standard.com/india/news/selling-pressure-continues-metals-weigh/118572/on