Tuesday, April 19, 2011

The nuances between liquid and ultra short-term bond funds

Investors use the category of mutual fund schemes called liquid funds (also known as money market funds) for short-term parking, as these funds are most stable in returns. There is another category of funds known as ultra short-term bond funds (earlier known as liquid plus), which are managed in a manner similar to liquid funds. It is necessary that investors are aware of both types of funds and their respective advantages that will aide in making informed decisions.

Liquid funds are those that are defined as money market funds in the offer document and invest in money market instruments of residual maturity up to 91 days. What sets liquid funds apart in terms of lowest volatility in returns among all categories of funds is that there is no mark-to-market (MTM) of the portfolio on a daily basis unless there is a trade in the secondary market in the underlying security (or securities ).

Practically there is no trade in money-market instruments and valuation of daily NAV happens on an accrual basis, i.e., by adding the coupon accrued for the day without any mark-to-market impact. Ultra short-term bond funds (USTBs) are defined as debt funds in the offer document and the fund manager is free to take securities of maturity longer than 91 days, but there is no compulsion to do the same.

Valuation of daily NAV happens as per the valuation matrix provided by the rating agencies, hence there could be a markto-market impact. However, the component of securities with residual maturity more than 91 days (for which the valuation matrix is published) is maintained on the lower side, so that the volatility in returns is limited. Returns in USTBs are marginally higher than liquids by virtue of the marginally higher portfolio maturity.

Normally, the longer the maturity of the instrument, the higher is the yield on that instrument (time value of money). USTBs have the liberty to purchase securities with maturity of more than 91 days and on an average, the portfolio maturity is longer than liquids funds. This leads to a higher accrual rate on the portfolio of USTBs. The volatility of returns in USTBs is marginally higher than liquids funds due to the small MTM component.

Operational aspects:

In liquid funds, purchase is T-1, i.e., cleared funds are given to the AMC by the cut-off time of 2 pm and availing of previous day's NAV. Redemption is T+1, i.e., the redemption request is placed within the cut-off time of 3 pm and the proceeds are received the next day.

In USTBs, purchase is on a T+0 basis, i.e., that day's NAV would be applicable. If the amount is more than Rs 1 crore, clear funds have to be given to the AMC by the cut-off time of 3 pm, otherwise the NAV of the day on which clear funds are being given will be applicable. Redemption is T+1 for USTBs as well. For both fund categories the application should be submitted and time stamped at the AMCs'/RTA's office within the cut-off time.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/the-nuances-between-liquid-and-ultra-short-term-bond-funds/articleshow/8023215.cms

ING IM launching ING OptiMix Financial Planning Fund

  • Carefully Selected Mutual Funds From Different AMCs in One Fund
  • Plus Allocation Across 4 Asset Classes
  • With 4 Separate Plans To Suit Different Risk Tolerance Levels

ING Investment Management India is launching its ING Optimix Financial Planning Fund (an open ended fund of funds scheme) aiming to simplify investing in mutual funds. The most unique feature of this fund is its ability to invest across carefully selected best of breed Funds from different asset management companies in one convenient fund. In addition, investors can invest in 4 different asset classes; Liquid Funds, Debt Funds, Equity Funds and Gold ETFs while getting the flexibility to choose from 4 convenient plans that cater to different risk tolerance levels investors may have.

“Mutual fund investing today has become complex and stressful. Investors need to choose from thousands of funds, closely track their performance, take decisions to retain or change funds, attract tax liability if funds are changed before 12 months and finally, reconcile all these holdings at the end of the year. These are real concerns of investors today. ING IM’s unique Multi Manager Fund of Funds capability simplifies all of this in an instant” says Navin Suri, MD & CEO, ING Investment Management India. “We fully leverage our expertise as Fund Managers ourselves in selecting the best of breed funds from across the industry, with no bias whatsoever towards our own funds. ING has been offering Multi Manager funds in India since 2006 and already manages close to Rs. 347 Cr from a wide base of nearly 30,000 investors.” (as of 31st March 2011)

About ING Investment Management:
ING Investment Management was established in India by ING Groep through its wholly owned subsidiary, Nationale Nederlanden Interfinance B.V. Headquartered in Amsterdam, Netherlands. ING Investment Management (IIM) India is well poised for growth in India, backed by the support of ING’s global investment engine and the vast footprint of the ING India franchise. IIM India serves over 120,000 clients (as of 30th Nov ’10) across corporate, HNI and mass affluent channels through a network of affiliates including the ING banking & Insurance channels, which form the core of this distribution. People are at the heart of its success. IIM India today attracts talent from across industries and aspires to be an employer of choice in the asset management industry. Present in India since 1998, IIM in India today is well established and offers both single and multi-manager products across a range of asset classes. This is a unique combination that supports it’s differentiation in a crowded market place of over 44 other players.

http://www.business-standard.com/india/news/ing-im-launching-ing-optimix-financial-planning-fund/432626/

Franklin Templeton MF Declares Dividend for FT India Dynamic PE Ratio Fund of Funds

Franklin Templeton Mutual Fund has approved the declaration of dividend on the face value of Rs. 10 per unit of FT India Dynamic PE Ratio Fund of Funds. The record date for dividend has been fixed as 21 April 2011.

The quantum of dividend will be Rs. 0.440 per unit for Individuals & HUF and Rs. 0.411 per unit for Others. The scheme record NAV of Rs. 34.4324 per unit as on 13 April 2011.

FT India Dynamic PE Ratio Fund of Funds is an open ended Fund of Funds scheme which has the investment objective to provide long-term capital appreciation with relatively lower volatility through a dynamically balanced portfolio of equity and income funds.

Source: http://www.indiainfoline.com/Markets/News/Franklin-Templeton-MF-Declares-Dividend-for-FT-India-Dynamic-PE-Ratio-Fund-of-Funds/3649225041

Controversy brews over who will head UTI AMC

In this season of controversies, a new one is brewing with the largest stakeholder in the UTI (Unit Trust of India) Asset Management Company threatening to pull out alleging that the Union ministry of finance is thrusting its own candidate as the chairman and managing director of the company which runs India's fourth largest mutual fund.

Political circles in New Delhi and the financial world in Mumbai are abuzz with speculation about the real reason why the powers-that-be are reportedly backing the candidature of Jitesh Khosla, a 1976 Assam cadre officer of the Indian Administrative Service to take over the reins of UTI AMC -- once India's largest mutual funds organisation which today manages assets worth Rs 67,189 crore (Rs 671.89 billion).

Khosla's nomination assumes significance since he is the brother of Omita Paul, adviser to Union Finance Minister Pranab Mukherjee. Paul, who used to belong to the Central Information Service (later Indian Information Service), has worked as Mukherjee's confidante and adviser for decades, including his recent stints at the helm of the ministries of defence and external affairs.

It recently transpired that the American firm T Rowe Price (TRP), which acquired a 26 per cent stake in UTI AMC, has resented the interference from the finance ministry which has been pushing for Khosla, whose candidature had earlier been rejected by the consulting firm that had been engaged to find a successor to U K Sinha, former CMD of UTI AMC who took over as head of the Securities and Exchange Board of India in February this year.

Source: http://www.rediff.com/business/slide-show/slide-show-1-row-over-who-will-head-uti-amc/20110418.htm

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