SEBI begins work on infra debt funds for MFs: Sources

The Securities and Exchange Board of India (SEBI) is doing its bit to boost infrastructure funding in the country. The market regulator is working on a proposal for an infrastructure debt fund, specifically for mutual fund, reports CNBC-TV18’s Vidhi Godiawala quoting sources.

Taking a cue from their budget announcements and looking at boosting infra financing in the country, the sources said that SEBI is exploring options to come out with an infra debt fund for mutual fund houses. This proposed mutual fund infra debt fund is still in its conceptualization phases.

The budget 2011 allowed FIIs to invest up to USD 25 billion in corporate infra bonds. Sources also said that the proposed fund will be a separate category of a mutual fund, where SEBI is in talks with the finance ministry and mutual fund houses in terms of the final structure and modelling of this proposed infra debt fund.

FIIs will be investing their money into this proposed mutual fund infra debt fund. In turn, the fund houses will invest FIIs money into the various infrastructure projects across the country.

However, the paper or security proposed fund would have a minimum residual period of maturity of five years at the time of investment.

The budget had also promised that FII investments into infra funds will be exempt from the 20% withholding tax. Sources informed that the regulator and fund houses are looking at clarity on the taxation of this proposed infra debt fund.

They are seeking an exemption of that 20% of the withholding tax, so that it would make it more lucrative for the FIIs to come in and pout the money into this proposed infra debt funds, which will be floated by the mutual fund houses.

In the mean time, mutual funds are receiving feedback from the various FIIs. They are trying to see whether there is an appetite for the fund. They will need finance ministry approval for the same.

However, the initial feedback from the finance ministry has been positive on this front.

Source: http://www.moneycontrol.com/news/mf-news/sebi-begins-workinfra-debt-funds-for-mfs-sources-_538788.html

MFs cut stake in most BSE-500 firms

Mutual funds scaled down their exposure in more than half of the BSE-500 companies in the quarter ended March on a sequential basis. The index comprises largecap as well as midcap stocks.

Data compiled by the Business Standard Research Bureau shows of the 385 companies which had announced their latest shareholding, fund houses cut their stake in about 200.

The companies where MFs pared stake include Kingfisher Airlines, HCC, Voltas, Hindalco, Patni Computers, Axis Bank, Larsen & Toubro, Tata Motors and Mahindra & Mahindra, among others.

Fund managers say the quarter was marked with dividend payouts and had seen churning and stock picking within sectors. For instance, fund houses brought down stake in automobile companies Tata Motors and TVS Motors, but increased the exposure in other sectoral companies such as Maruti Suzuki and Bajaj Auto. This also held true in banks & financials, information technology and metals.

Gopal Agrawal, equity head at Mirae Assets, says, “On an aggregate basis, the reduction (of stake) is very low. The quarter saw redemption as well as Initial Public Offerings, for which MFs generated cash.”

Jimmy Patel, chief executive officer at Quantum Mutual Fund, agrees.

“Several fund houses declared dividends. Moreover, there was profit booking amid redemption pressure,” he adds. For 2010-11, domestic funds saw a net outflow of Rs 49,406 crore, compared with a net inflow of Rs 83,081 crore. The equity category witnessed a historically high outflow of Rs 13,405 crore, while income funds saw an outgo of Rs 36,706 crore in 2010-11. Diversified equity funds have reduced exposure to mid-cap stocks over recent months, explains Dhruva Chatterji, research analyst at MF tracker Morningstar India.

By Morningstar’s statistics, the average percentage of capital allocation for diversified equity funds in mid-cap stocks slipped to 20.5 per cent in March against 21.27 per cent in December. In the case of small caps, the exposure reduced to 14.15 per cent, compared with 14.82 per cent. During the quarter, MFs increased their stakes in 145 of the BSE-500 companies, which included Zuari Industries, Cox & Kings, YES Bank, HPCL, BPCL, Tata Steel, Infosys and Bajaj Auto.

Source: http://www.business-standard.com/india/news/mfs-cut-stake-in-most-bse-500-firms/433741/

Close-ended mutual fund schemes see a sharp rise

With a fourfold increase in new launches, FMPs emerge the favourite.

Amid volatility in equity markets and consistent redemption, the number of close-ended schemes in the mutual fund industry saw a sharp rise in the last financial year, courtesy fixed maturity plans (FMPs). Fund houses registered a four-fold rise in the number of FMPs in 2010-11.

According to data from the Association of Mutual Funds in India (Amfi), the number of close-ended schemes reached 368, as against 202 last year, a jump of over 82 per cent. In contrast, the number of open-ended schemes could grow by 13 per cent only.

majority of the rise happened in the income category. The number of schemes more than doubled, registering growth of 134 per cent. “It is mainly on the back of the industry’s emerging favouritism for FMPs,” said an independent observer of the fund industry.

Says the chief investment officer of a medium-sized fund house, “There is no point investing in equities if you can earn similar, or even better, returns by investing in debt funds.”

With 456 schemes, the year surpassed the number of FMP launches in 2008-09, when the industry came out with 448 such products. Interestingly, after the October 2008 collapse of FMPs, the industry launched fewer FMPs in the succeeding year, mobilising a meager sum of Rs 24,026 crore, as against Rs 100 lakh crore in 2008-09.

However, according to data sourced from Morningstar India, a firm tracking the Indian fund market, fund houses mobilised Rs 1,13,416 crore through FMPs in 2010-11, well above the amount raised in 2008-09.

Dhruva Chatterji, research analyst at Morningstar, says, “In a rising interest environment, FMPs are the preferred investment option for debt investors. Further, high short-term interest rates add to their attractiveness as they are able to give higher yields.”

Generally, fund houses prefer the second half of a financial year for launching FMPs as investors can get double indexation benefits. Indexation benefits help lower the capital gains, thus lowering the tax outflow. In certain scenarios, by staying invested for a little more than a year and covering two financial years, the investor is able to get inflation indexation benefit for two financial years.

This was true for 2010-11 as well. Of the total FMPs launched, over three-thirds came in the second half, post September. With 134 launches, March recorded the maximum FMP launches in a single month ever, garnering assets worth Rs 28,000 crore.

Source: http://www.business-standard.com/india/news/close-ended-mutual-fund-schemes-seesharp-rise/433856/