SEBI and Pension Fund Regulatory airing contradictory views on investment of retirement pool into risky equities

Differences of opinion among regulators are back with the markets and pension chiefs airing contradictory views on investment of retirement pool into risky equities. The Securities & Exchange Board of India chairman UK Sinha, and the Pension Fund Regulatory and Development Authority chairman Yogesh Agarwal differed on whether there should be more money funnelled into equities.

"Law and regulation shouldn't prevent pension money from entering capital market," Sinha said at a conference on 'Inclusive Growth & Beyond'. "Pension money will be a long-term fund for the markets." But Agarwal had something else to say.

"We think that at the current stage of pension market, investing more than 50% in equities is not going to be fair to the investors in terms of risk and therefore we tend to retain the cap at 50%,'' Agarwal told reporters on the sidelines of the same conference. "It would not be fair for one regulator to comment on another," he said, leading to murmurs at the venue that there are differences.

With the simultaneo US development of various sectors such as mutual funds, insurance, pensions, there are overlapping of functions between regulators, leading to disputes between them. There were instances of Sebi chairman interfering in the insurance industry and the pension authority seeking jurisidiction over pension schemes of insurance companies.

The Reserve Bank of India is seeking exclusive control over mergers & acquisitions in the banking industry even as the Competition Commission of India is mandated to oversee such transactions in all sectors.

Lobbying is intensifying to have more of the pension funds into equities as in the US under the 401 K plan which was partly responsible for the sustained bull markets for the last two decades, barring a few bursts. But Indian Employee Pension Fund Organisation has been reluctant to invest in equities.

Although the Indian benchmark has been climbing steadily, investors have suffered losses in many non-index stocks. The mutual funds' performance in nearly two decades has not been stellar either to justify equity investments.

The numerous disputes between the regulators led to the finance minister Pranab Mukherjee to take the Financial Stability and Development Council under his chairmanship. Although some, including the RBI Governor Duvvuri Subbarao, feared that it could lead to lesser autonomy for the regulators, Mukherjee went ahead with it.

Even if 15% of pension money is invested in equities, it will raise investible surplus by 1.5%, said Sinha Further, he believes that it could be a buffer against the foreign fund outflows when they happen in violent ways as it did in 2008 during the credit crisis.

Source: http://economictimes.indiatimes.com/markets/regulation/sebi-and-pension-fund-regulatory-airing-contradictory-views-on-investment-of-retirement-pool-into-risky-equities/articleshow/8704942.cms

Top fund houses dazzle, but it's a struggle for the rest.

India's top fund houses have posted impressive growth numbers for FY11, despite being hobbled by equity fund outflows and regulatory changes marked by a ban on charging entry fees to investors. But apart from the top eight fund houses, the remaining 33 asset management companies are struggling to stay afloat.

A marginal rise in their equity asset base, coupled with cost control measures and greater reliance on debt fund management, helped leading fund houses to generate profits, according to the chief executives of some of these firms.

The fund house league table is led by HDFC Mutual Fund , the asset management firm promoted by HDFC, which has reported a 16% rise in net profit at 242.18 crore. The profit before tax of Birla Sunlife Mutual Fund - part of the Aditya Birla group has gone up from 85 crore to 120 crore last fiscal. Reliance Mutual Fund , which is the largest in terms of assets managed, logged a profit before tax of 294 crore, up 10% from 2009-10.

Operating profits of ICICI Prudential MF fell 44% to 72 crore last fiscal while Kotak Mutual Fund's profits dipped 3% to 6.7 crore last year. SBI Mutual Fund reported a net profit of 79 crore last year while Religare Mutual Fund reported a loss of 50 crore last year vis-a-vis 3 crore worth of losses the previous year.

"There is some pressure on profitability with regard to the overall industry," said Ajay Srinivasan, chief executive - financial services, Aditya Birla Group.

"Fund houses will have to focus on keeping good product mix; the industry will have to grow its retail asset base and reign in costs to be profitable. In our case, we're trying to increase our equity asset base to increase profitability," Srinivasan said.

Several fund houses are trying to boost their equity assets by pushing systematic investment plans or SIPs aggressively. The difficult part, however, is that it takes time to generate profits. Thanks to higher asset management fees, it is equity AUMs that generate profits for asset management companies. The irony, however, is the fact that equity asset base, as a percentage of overall industry assets, has been shrinking over the past few years. Equity assets formed over 35% of overall assets in calendar 2007 vis-a-vis 31% in 2008, 24% in 2009 and 26% in 2010. Equity mutual funds logged an outflow of over 13,000 crore last fiscal.

"Equity fund outflows were the biggest challenge last year... Promoting long-term investments and expanding retail investor base are the only options to increase mutual fund profitability," said Saurabh Nanavati, CEO of Religare Mutual Fund.

Though investment management fee, as a percentage of AUM, has been in the range of 55 to 58 bps, the money is not reflected on the balance sheets of mutual fund houses as a result of "low-revenue earning" debt schemes targeted at institutional investors. While fund houses charge anywhere between 25% and 2.5% to manage equity assets, the fee component falls to as low as 10 bps (the maximum being 50 bps) in the case of debt and money market schemes. This, in a way, means higher the percentage of debt AUM, the decline in profits is higher.

Analysts reckon only a handful of asset management companies would have generated profits last year.

The gestation time for fund houses -- has gone up from 3.5 years to about six years, they said. "It is a struggle for smaller and newly-established fund houses," said Dhirendra Kumar, managing director of fund research firm Value Research, adding, "profitability of several fund houses has come down mainly because of upfront brokerage commissions paid to distributors." Fund houses pay 75-100 bps as upfront commission to distributors for selling their schemes.

Source: http://economictimes.indiatimes.com/markets/analysis/top-fund-houses-dazzle-but-its-a-struggle-for-the-rest/articleshow/8687933.cms

Pharma, FMCG funds top returns chart in May

Pharmaceutical and FMCG-focused mutual funds have been the best performers in May, while the banking sector funds have performed the worst.

According to data on Valueresearchonline.com, pharmaceutical and FMCG sector funds saw returns in the positive whereas all the other sectors have given around one per cent returns or even negative returns in the month of May.

Reliance Pharma was the best performing fund in the sector with 2.77 per cent returns in May. SBI Magnum Pharma was the second best with 2.33 per cent monthly returns and UTI Pharma & Healthcare was third with 1.45 per cent monthly returns.

The best performing FMCG fund was Franklin FMCG with 3.62 monthly returns, followed by SBI Magnum FMCG with 0.9 per cent returns and ICICI Prudential FMCG with 0.8 per cent.

Banking funds were the worst performers with all funds giving returns in the negative and underperforming even the indices. The best performing banking fund in the sector was ICICI Prudential Banking and Financial Services, which gave -3.09 returns followed by Religare Banking Fund and Religare Banking ETF with -3.32 per cent and -3.79 per cent monthly returns.

Fund analysts attribute this to two factors: Rising interest rates and falling markets.

Rising interest rate scenario makes banking and automobile stocks jittery. The RBI has been increasing interest rates to contain growing inflationary pressure. In such a case, interest rate sensitive sectors such as banking and automobile take a hit.

In the last one month the BSE banking index, BANKEX, fell by -2 .04 per cent, while the BSE auto index fell by -5.6 per cent.

“The poor market performance has resulted in the adoption of sector rotation strategy among fund managers. The rising interest rate scenario has shifted focus onto the defensive sectors,” said Mr Kaushik Dani, Head – Equity, Peerless Mutual Fund.

The focus is slowly shifting to defensive sectors such as FMCG and pharmaceuticals. These are largely consumption-driven sectors and not affected by increasing interest rates.

During May the BSE pharmaceutical index, BSE HC, gave 2.6 per cent monthly returns and the BSE FMCG index gave 3.21 per cent monthly returns. The returns given by the pharma and FMCG funds were in the 0.5 per cent to 3 per cent range.

In May, the Sensex fell by 2.6 per cent, and the Nifty fell by 2.48 per cent.

Source: http://www.thehindubusinessline.com/markets/stock-markets/article2068611.ece