HDFC Mutual, Franklin accused of using client funds to promote brand

The latest round of promotions by HDFC Mutual Fund and Franklin Templeton Asset Management has prompted speculation among competitors and financial advisors that these companies may be using investors’ funds to boost their brand .

The multi-crore campaigns by these funds, though are not illegal, have raised ethical issues when the regulator has been working to cut costs for investors, including banning of entry loads. All mutual fund schemes’ advertisements go through the Securities & Exchange Board of India (Sebi) before going public.

Billboards and signs at traffic lights across Mumbai and Delhi that have sprung up display the companies prominently instead of individual funds which normally is the case. One such advertisement reads — ‘choose a healthy investment-HDFC Mutual Fund SIP’. The other — ‘Invest in Franklin Templeton Mutual Fund’. At the bottom of the boards, one of their funds’ name is written in a small font, the corpus from which possibly the cost of promotion is met.

“Fund houses could be paying for such advertisements from fund accounts,” said Dhirendra Kumar, chief executive at MF tracker Value Research.

“Older schemes have residual funds collected from entry and exit loads which need not be routed back to the NAV of respective funds. Fund houses use residual money to promote the fund under which the money is collected. In this case, I feel, residual money has gone into promoting fund houses,” he said.

“The campaign is not to promote the fund house,” said a HDFC Mutual Fund spokesperson. “It is carried out to promote investments in our four schemes through SIP. We aim to reach out to investors with a message of adapting a disciplined approach to equity investment through SIP as a preferred option.”

Franklin Templeton and Sebi did not respond to queries seeking their views. Asset management companies (AMCs) are struggling with slumping subscriptions to their equity schemes, after the regulator banned entry loads on funds which it believed was unjustified. Ever since, mutual funds have been working ways to promote schemes and draw investors.

This probably may be one of the ways to attract investor attention. While HDFC MF has named its ‘Capital Builder Fund’, ‘Growth Fund’ and ‘Core and Satellite Fund’ on the billboard, Franklin Templeton has highlighted its ‘India opportunities fund’, among others.

“From what it seems, both fund houses are on the right side of the law, but they have not carried out their ad campaigns in the right spirit,’’ said Ashutosh Wakhare , head trainer at Moneybee Institute, which trains investment advisors. “Fund houses should promote themselves using their own money.”

This is not the first time that mutual fund advertisements have come under an ethical debate. In 2008, after receiving complaints from some investor organisations, Sebi had asked AMCs to reduce the speed at which the ‘investment disclaimer’ is read out in television advertisements.

Source: http://economictimes.indiatimes.com/personal-finance/hdfc-mutual-franklin-accused-of-using-client-funds-to-promote-brand/articleshow/7233403.cms

Indian Bank to enter life insurance, restart MF biz

Public sector Indian Bank plans to venture into life insurance. It is looking at floating a consortium with domestic and foreign partners, for which it has already initiated talks. Besides, it would also appoint a consultant to advise it on re-entry into the mutual fund industry.

Speaking to Business Standard, Chairman and Managing Director T M Bhasin said Indian Bank was a bancassurance partner for HDFC Life Insurance and the agreement would mature in March. Last year, the bank earned a commission of Rs 26 crore through the tie-up and was targetting Rs 40 crore this year.

“We are now planning to float a new life insurance company on our own,” he said.

It may be noted that Bhasin was involved in Canara HSBC Oriental Bank of Commerce Life Insurance co, a joint venture (JV) between two of the largest public sector banks — Canara Bank and Oriental Bank of Commerce — and HSBC Insurance (Asia Pacific) Holdings. Bhasin represented Oriental Bank.

He said the bank had invited an expression of interest (EoI) from consultancy services to advise it on its proposed investment, which would either be a JV or based on equity participation.

The new company would take another six months to materialise and would be through a consortium, wherein Indian Bank and the domestic partner would have the majority stake and the foreign partner would hold 26 per cent, he said.

“We have got a few offers from both domestic and foreign firms. They are offering us equity at concessional rates. By charging on a monthly, per branch basis, we would use our branch networks effectively,” he said.

The 104-year Chennai-based Bank has more than 1,800 branches and over 19,000 staff. It has a customer base of around 200 crore. As on date, total business amounts to Rs 1.70 lakh crore.

“This foray will further strengthen our brand and the equity will also get appreciated in the long-term”.

The bank would also hire consultancy services for its proposed foray into mutual funds on a JV basis. It was planning to rope in a suitable partner for the same, said Bhasin.

Indian Bank is one of the pioneers in the mutual fund industry. It set up its mutual fund business in 1989, which became of the top performing mutual funds in the nineties. But in 2001, the bank transferred its schemes to Tata Mutual Fund.

Source: http://www.business-standard.com/india/news/indian-bank-to-enter-life-insurance-restart-mf-biz/420863/