Choose your own investment options, pension fund managers

If you are looking at building your retirement corpus, you can consider the New Pension System (NPS). Launched by the Indian government, the Tier-I scheme offered by NPS is a pension scheme that allows investors to choose their own investment options and pension fund managers.

Open to anyone between 18 and 55 years, a minimum of Rs 6,000 needs to be invested every year, until heshe turns 60. At maturity (60 years), investors would be required to invest a minimum of 40 per cent of the accumulated amount to purchase a life annuity. The remaining can be withdrawn in a lump sum or in a phased manner.

Investing Rs 6,000 every year at a 12 per cent interest rate, for the maximum term of 37 years, one would have collected a corpus of over Rs 3.65 crore. However, these returns are not guaranteed and depend on how the pension fund you choose (out of the designated seven) actually performs. Like any other pension scheme, NPS invests in government and other debt products. Its equity investments will be capped at 50 per cent.

At present, there aren’t many pension products to choose from. Besides the Public Provident Fund (PPF), there are just a couple of plans in the mutual fund and the unit-linked insurance pension products segment. Most insurance companies have pulled out their unit-linked products after the Insurance Regulatory Development Authority (Irda) came up with a 4.5 per cent guaranteed returns mandate. However, the traditional retirement plans offered by insurance companies remain a good option with their built-in guarantees, and option for loans against the cash value of the policy.

While PPF remains a popular investment avenue, the restriction of investing Rs 70,000 every year works against it. There is no upper limit for investment in NPS and others.

However, it is with regard to fund management charges (FMC) that NPS really scores. While FMC for NPS is a mere 0.0009 per cent or 90 paise a lakh, it is one per cent or Rs 1,000 per lakh in case of mutual funds. Insurance companies charge up to 1.35 per cent or Rs 1,350 per lakh.

Many believe that the long lock-in period for the pension scheme works against NPS. PPFs and other existing pension plans that allow partial withdrawals are far more liquid. At present, all annuities coming out of pension products are taxable as income. It will be the same in case of NPS, too. Even in terms of tax benefits, tax free PPFs may be a better option than NPS, which at 12 per cent may not give attractive post-tax returns.

Source: http://www.business-standard.com/india/news/choose-your-own-investment-options-pension-fund-managers/430483/

Consistent performance, low tracking error

Passively-managed products are catching up with Indian investors in a big way. Exchange traded funds (ETFs) are passively managed funds which invest into an underlying asset or portfolio of assets and trade over stock exchanges. The underlying portfolio may represent an index, securities or commodities.

Equity ETFs invest in a basket of stocks in the same proportion, as the ETF’s benchmark index.

ETFs can be easily bought/sold anytime during the market hours like any other stock on the exchange through terminals. The trading price is usually close to the actual NAV (net asset value) of the fund. Investors who seek market exposure through mutual funds, but are uncertain of which fund to buy, can use equity ETFs to their advantage. According to the latest edition of S&P Crisil Spiva (Standard & Poor’s Index Versus Active Funds) scorecard, a majority of largecap funds have underperformed the S&P CNX Nifty Index across one, three and five year time frames. Over the last one year period, 77 per cent of the largecap oriented equity funds have given returns lower than the index.

Apart from tradability, other advantages of ETFs include diversification, exposure to the index constituents through a single unit, low expense ratios, no exit load and elimination of fund manager’s bias. Investments in ETFs, however, require investors to hold share trading and demat accounts.

NIFTY BENCHMARK ETF
Nifty Benchmark Exchange Traded Fund (Nifty BeES) was launched in December 2001 by the Benchmark Mutual Fund and was India’s first ETF. The fund house on Thursday is the largest ETF manager in India focusing on index based products. The fund is managed by Vishal Jain since its inception.

Nifty BeES tracks the S&P CNX Nifty Index and is listed on the NSE. The investment objective of the Nifty BeES is to provide returns, which before expenses, closely correspond to the total returns of securities represented by the S&P CNX Nifty Index.

The fund had average assets-under-management of Rs 622 crore as of the month ended February. According to the Crisil mutual fund ranking for index funds, Nifty BeES has been consistently fund rank 1 – in the top 10 percentile – for the past 16 quarters. The category ranks funds which track the S&P CNX Nifty or BSE Sensex index.

Investors seeking exposure to all the 50 stocks of a largecap index viz. S&P CNX Nifty can invest in the fund. One unit of the Nifty BeES represents approximately 1/10th of the S&P CNX Nifty Index. Its expense ratio is 0.5 per cent vis-à-vis 1-1.5 per cent in the case of index funds. Investors should note that there could be additional brokerage and transaction charges for ETFs.

TRACKING ERROR
Till March 24, Nifty BeES delivered a compounded annualised growth rate (CAGR), of 21.52 per cent vis-à-vis 21.28 per cent by the S&P CNX Nifty total returns index (TRI). TRI measures the value of the index assuming that all dividends distributed were reinvested. The basic difference between two passively managed ETFs is in the funds’ tracking error. Tracking Error is an estimate of how closely the returns of the fund correspond to the returns of its benchmark’s TRI. Lower the tracking error, the closer are the returns of the fund to the benchmark index. Within the Index funds category of Crisil mutual fund rankings, Nifty BeES has the lowest tracking error. The fund has an annualised tracking error of 0.09 per cent over the last one year, as of February 2011. The range of tracking error varies from 0.12 to 3.23 across other index funds.

IMPACT COST
Impact cost is a key parameter that investors should look at before they invest in an ETF. Since ETFs are redeemed by the mutual fund only in predefined lot sizes, trading of units on the exchange is the primary source of liquidity of units. The impact cost is a measure of the volumes traded on the exchange and represents the liquidity for the ETF. Impact cost is also known as bid-ask spread. The impact cost of the Nifty BeES is 0.11 as of February (Source: NSE).

PORTFOLIO ANALYSIS
The Nifty BeES tracks the S&P CNX Nifty, a diversified index representing the top 50 stocks by market capitalisation listed on the exchange and 23 sectors of the Indian economy. Since this is a passively managed fund, the fund manager does not take any active calls in terms of portfolio constituents and their weights.

The top three sectors in the fund’s portfolio are banks, petroleum products and software which together account for 39 per cent of the portfolio over the last three years. The top three stocks in the portfolio over the last three years are Reliance Industries, Infosys and ICICI Bank which together constitute 23 per cent on an average over the past three years.

Source: http://www.business-standard.com/india/news/consistent-performance-low-tracking-error/430512/

Mutual funds go on ad-spending binge, shell out 30% more in '10

Mutual funds have been on an advertising blitzkrieg last year, increasing spends on print. As per AdEx India, a division of TAM media research, the advertising volumes have shot up 89% for print advertising in calendar year 2010 as compared to the previous year.

TV ad volumes during the same period grew at a slower pace of 4%. According to industry estimates, overall advertising budget for the mutual fund industry shot up 30% in 2010 to total R200 crore. “Earlier, fund houses paid higher commission to distributors (taken from entry loads) to push equity funds,” Dhirendra Kumar, CEO of Valueresearch online, says. But with ban on entry loads post August 2009, fund houses have resorted to higher advertising to market its schemes resulting in print advertising figures going up, he added.

Advertising though didn't seem to have an immediate impact on its overall assets, which fell 6% to R6,26,314 crore while equity assets grew 4% to R1,81,224 crore. Some of the industry though believe the advertising has helped push SIP schemes and limit losses post entry load ban.

Interestingly, on the back of record profits made by mutual fund houses for the financial year 2009-10, MFs had increased advertising spends which had remained subdued in the past following poor equity market conditions. And print have traditionally remained the largest component of advertising budget with around 50% of advertising goes towards print media, with another 40% towards television and rest into out-door media, according to industry estimates.” MFs usually prefer advertising in print which is much easier for marketing financial products.

Sundaram Asset Management Company (AMC), Birla Sun Life , DSP BlackRock and UTI were among the top advertisers constituting 56% of total advertising volumes of the MF industry in the year 2010, according to AdEx data.

T P Raman, MD of Sundaram MF says, “In 2010 we had declared dividends in almost all the equity schemes which we advertised”. Besdies we also wanted to reinforce our brand name, he added. However some of the market participants believe advertising spends got a boost following Sundaram Finance acquiring 49.9% stake of BNP Paribas. “After the acquisition Sundaram MF, spent a lot on creating their own identity ” said a senior official from the leading fund house.

Within print media, most of the advertising (97%) was done in newspapers with rest in magazines. In terms of geography, south zone dominated with 33% market share followed by 28% for the west zone. Among TV ads, national channel dominated with 73% market share.

Source: http://www.financialexpress.com/news/mutual-funds-go-on-adspending-binge-shell-out-30-more-in-10/769462/0

LIC Mutual Fund is Now LIC Nomura Mutual Fund

LIC Mutual Fund and Nomura have announced the launch of LIC Nomura Mutual Fund. In a function held in Mumbai, Shri Namo Narain Meena, Honourable Minister of State for Finance, Government of India, unveiled the company's new logo.

LIC Mutual Fund Trustee Company Private Limited and LIC Mutual Fund Asset Management Company Limited (LIC MF) have entered into a joint venture with Nomura Asset Management Company Ltd. This is pursuant to Nomura having acquired 35% of the fully paid-up equity share capital of both LIC MF AMC and the Trustee Company. LIC Mutual Fund Trustee Company Pvt. Ltd. has now been renamed LIC NOMURA Mutual Fund Trustee Company Pvt. Ltd., while LIC Mutual Fund Asset Management Company Ltd. will now be known as LIC Nomura Mutual Fund Asset Management Company Ltd.

“This partnership will help the investors in our Mutual Fund as they will get the benefit of the expertise and global experience of Nomura along with the well established trustworthiness of the LIC name.” said Mr. T. S. Vijayan, Chairman, LIC Nomura Mutual Fund Asset Management Company Ltd. while speaking in the function.

“The joining of hands of LIC and Nomura, two leaders in their respective fields, will be a coming together of the excellent track-record and on-the-ground knowledge of LIC MF AMC with the global research, product development and investment management capabilities of Nomura Asset Management. With these enhanced capabilities, LIC Nomura Mutual Fund AMC will be well positioned to move further up the ranks of asset management companies in India and into a dominant position in the near future.” said Mr. Takumi Shibata, Deputy President and Chief Operating Officer of Nomura Holdings.

Mr. Thomas Mathew T., Chairman, LIC Nomura MF Trustee Co. Pvt. Ltd., spoke of the strengthening of both the product range and service delivery that will result from this joint venture.

“Nomura Asset Management has a long history in the mutual fund business. We have solid expertise and skills in the management of many asset classes including global equity and fixed income products. We are immensely happy to bring our business experience to India through our joint venture LIC Nomura.” said Mr. Atsushi Yoshikawa, President and CEO, Nomura Asset Management.

“This is a significant landmark and will be a combination of the strengths and expertise of both LIC and Nomura. India is a market of key strategic importance to Nomura. This joint venture further strengthens Nomura's commitment to India.” said Mr. Vikas Sharma, President and CEO of Nomura Financial Advisory & Securities.

The primary objective underlying the joint venture between Nomura and LIC Mutual Fund is to leverage the respective business skills, know-how, experience and expertise of both parties to maximize the potential of LIC Nomura MF AMC.

Going forward, Nomura will provide and procure for LIC Nomura MF AMC its expertise on various matters such as structuring the nature and standards of operations for risk management, equity/debt/investment research, information technology operations, compliance and distribution of LIC NOMURA MF AMC's products to overseas investors to enhance the customer base. Indian investors can look forward to an enhanced and differentiated offering of services and products from the joint venture.

Source: http://www.indiainfoline.com/Markets/News/LIC-Mutual-Fund-is-Now-LIC-Nomura-Mutual-Fund/3629557008

Canara Robeco MF Unveils Yield Advantage Fund

Canara Robeco Mutual Fund has launched a new fund named as Canara Robeco Yield Advantage Fund, an open ended debt scheme. During the New Fund Offer (NFO) period, units will be offered at Rs. 10 per unit. The new issue will be open for subscription from 1 April and close on 15 April 2011. It would re-open on or before 2 May 2011.

The investment objective of generate regular income by investing in a wide range of debt securities and Money Market Instruments of various maturities and risk profile and a small portion of investment in Equity and Equity Related Instruments.

The scheme would offer options such as Growth, Monthly Dividend (Payout & Reinvestment), Quarterly Dividend (Payout & Reinvestment).

Canara Robeco Yield Advantage Fund would allocate 90% to 100% of assets in Indian debt and money market instruments with low risk profile. On the flipside it would allocate upto 10% of assets in equity and equity related instruments with high risk profile.

The minimum application amount is Rs. 5,000 and in multiples of Rs. 1 thereafter.

The fund seeks to collect a minimum subscription amount of Rs. 1 crore under the scheme during the NFO period.

Entry load charge will be nil for the scheme. Exit load charge will be 1% if redeemed / switched-out within 1 year from the date of allotment. Nil if redeemed or switched out after 1 year from the date of allotment.

Benchmark Index for the scheme will be CRISIL MIP Blended Index.

The fund manager for the scheme will be Ritesh Jain

Source: http://www.indiainfoline.com/Markets/News/Canara-Robeco-MF-Unveils-Yield-Advantage-Fund/3629207043