Equity NFOs dwindle amid regulatory heat

New fund offers (NFOs) based on stocks are fast dwindling, thanks to the tough stance taken by the Securities and Exchange Board of India (Sebi) against the lookalike mutual fund schemes from a same fund house.

The first half of the current calendar year has seen a mere nine new equity NFOs from mutual fund houses, managing to raise less than Rs 600 crore. This is in stark contrast to the rush to collect assets through equity NFOs during the bull ride in 2007, when fund houses launched a record 67 equity fund offers.

“There has been a systematic approach to discourage NFOs. The markets regulator has also pointed out consolidation of schemes in the mutual fund industry,” said H N Sinor, chief executive officer, Association of Mutual Funds in India (Amfi).

The domestic fund industry was riding high on the new launches, which helped the players garner huge assets till 2007. As global markets crashed thereafter, there was a steep fall in fund mobilisation, despite the industry launching 51 more equity products in 2008. However, after that, as new launches failed to gather assets, industry applied brakes on the number of equity NFOs which reached the lowest this year in the first half.

According to the chief marketing officer of SBI Mutual Fund Srinivas Jain: “The overall inflow into the equity category is very low. After launching equity fund offers, it is not possible to expect fund mobilisation (in Monday’s scenario), unless the product is extremely unique, innovative and there is a track record of performance.”

Arindam Ghosh, CEO of Mirae Asset Global Investments (India), agrees. “Industry is going through a structural change. Fund houses are maturing from asset gathering to balanced approach. One needs to have a track record to attract flows and well differentiated products in the market place. Once there is a track record, momentum of flows builds up,” he said.

“Manufacture the product, build up performance and funds will start flowing in. This will ensure a sustainable and orderly growth,” Ghosh adds.

However, it is not only the regulator’s stand on NFOs which pulled down the new launches.

The country’s equity market in the last one year has gone nowhere. Plus, the no load structure continues to haunt selling of equity products, as distributors are not willing to push these products.

Dhruva Chatterji, senior research analyst at MorningStar, which tracks the mutual fund industry says, “The number of equity NFOs and funds mobilised by them is dismal. With subdued performance of the equity markets, inflows in the equity schemes are affected. Moreover, it is difficult to sell equity funds as distributors are not incentivised.”

Source: http://www.business-standard.com/india/news/equity-nfos-dwindle-amid-regulatory-heat/441514/

'Living too long a serious threat to Indians'

Banks and other intermediaries who provide access to the National Pension System may now be a bit more forthcoming in opening pension accounts.

The panel, headed by GN Bajpai, looking into revitalizing the National Pension System has recommended that these entities be paid a commission of up to 0.5% of the investment. In an interview with TOI, Bajpai speaks on why the product, despite being the best for retirement savings, needs to be pushed.

The panel has said that financial products have to be pushed.

Any financial product in India has to be sold as nobody queues up for buying any financial insurance product. Have you seen anybody queuing up to buy insurance or mutual funds? That is the ethos of this country. The NPS is a wonderful product, it is the equivalent of pure desi ghee and we have not tampered with the product at all. But it still has to be pushed. Pension is a time bomb which is ticking in Indian society. Without protection, retirees will ultimately become dependent on society.

Your recommendation for ad valorem charges comes at a time when markets like UK are moving away from commissions.

In UK and the West, pension has become a pull product because of the level of financial literacy. But the mindset of Indian society is different and people do not want to think about these requirements. I am talking about the mindset today which may change tomorrow.

What will be the impact of revised charges on investors' savings?

The impact would be that those who make low contribution will be better off. Even for those who pay more it is not that the sky is the limit in respect of charges - there is a limit in absolute terms. Today, there are some commentators who feel that system is loaded in favour of the rich because in percentage terms the smaller investors are paying more in terms of charges.

When you talk about financial inclusion, do you mean to say that a pension plan should be opened with every bank account?

On financial inclusion there is a lot of publicity going around. But when they talk about banking products, they should also be taking about pension and insurance. Living too long is a serious threat to Indians because we have not made adequate provisions. We have always worried about dying too soon but have not made preparations for living too long. Ultimately, why do you want a bank account? It is to park your surplus funds.

Will extending the government scheme to contribute Rs 1,000 into every small investors account not put pressure on the Centre's finances?

If you start expenditure for this, it is actually an investment because money goes straight into the account of the pensioner. Secondly, there is zero leakage because the money cannot be spent and it goes into investment which, in turn, will have a spill over effects. We are not saying that it should go on for ever. It can be reviewed later.

What changes have you proposed for the PFRDA?

Basically, PFRDA will have to build more regulatory capacity. When you have eight or nine fund managers with Rs 10,000 crore it may not matter. But tomorrow when this goes to Rs 1 lakh crore with many more fund managers, a different regulatory capacity would be required.

Source: http://timesofindia.indiatimes.com/business/india-business/Living-too-long-a-serious-threat-to-Indians/articleshow/9117883.cms

Returns-hungry HNIs flock to offshore funds

Subrahmanyam Guttina, a Bangalore-based software professional with a multinational firm, allocated a small portion of his money to a relatively-unknown US asset manager Superfund in the peak of the market downturn in 2008, based on the advice of his wealth manager. During the year, products of Superfund, which manages money through futures strategies in various assets, fetched 35-80% returns while values of equity market schemes of domestic mutual funds eroded 30-60%.

"Superfund provides a good diversification strategy and it has been performing consistently well. I've stayed invested for about two years in Superfund," Guttina said.

Two years later, wealth managers are again recommending products of asset managers, including Superfund, SPDRs, I-Shares and Maquarie Farmland to their rich clients as a hazy outlook for Indian stocks has heightened uncertainty about returns from domestic equity-linked products. Investors hope to generate "inflation-adjusted" returns through these investments.

Funds like the precious metal based-SPDR funds, I-Share ETFs and theme-based funds by Maquarie, among several others, have collected in excess of Rs 500 crore over the past five months. Superfund has mobilised over Rs 200 crore from rich Indian investors since March this year, according to wealth managers.

"We have seen increased unsolicited interest from NRIs and super HNI families," said Aaron Smith , managing director, Superfund Financial. "Indian equities have been the centerpiece for most wealthy Indian investors portfolio. However, with markets correcting deep in 2008 and lacklustre performance of the Nifty over the past one year, sophisticated investors are looking at absolute return strategies that can deliver alpha regardless of the particular market cycle," Mr Smith said.

Investors are using RBI's liberalised remittances scheme (LRS) route to invest abroad. Under the LRS , an Indian resident can invest up to $200,000 in overseas assets in one financial year.

Specialised overseas funds differ a lot in terms of investment strategies when compared to 'international funds' (or feeder funds that invest into offshore funds). Most Indian international funds in India are long-only global equity funds, which perform when equity markets move up. Superfund Green Gold has returned 20.1% per annum since inception in 2005 and 44.2% in the past 12 months, Mr Smith said.

Global equity markets have underperformed Indian shares in recent years. But when Indian equities are in a downturn, international funds run by domestic mutual funds deliver much lower returns than specialised overseas funds.

"Overseas domiciled funds don't have any bearing on Indian asset classes. This, in a way, helps these funds generate non-correlated returns," said Anil Rego, CEO of Bangalore-based wealth management firm Right Horizons.

"Specialised overseas funds are designed to perform in times of a market downturn. Most funds adopt long-short strategies that enable funds to generate returns in times of deep correction," Mr Rego said.

According to wealth managers, funds like Superfund allow investors to hold their funds in different currency denominations - that is, US dollar, euro or gold, the prices of which are linked to London markets. Wealth managers are advising Indian investors to hold their Superfund units in gold to insulate the portfolio from currency risk.

"Overseas domiciled funds help clients invest in non-rupee assets. These funds are based on newer ideas... They have a different product mix and they follow trend strategies which generate higher portfolio returns," said Hrishikesh Parandekar , CEO, Karvy Private Wealth.

Apart from higher returns, overseas funds allow investors to have multi-asset, multi-geography exposures. Maquarie's Farmland Fund, which invests in farmlands of Brazil , China , Australia and New Zealand , is very popular among Indian high net worth investors.

Source: http://economictimes.indiatimes.com/personal-finance/savings-centre/savings-news/returns-hungry-hnis-flock-to-offshore-funds/articleshow/9118199.cms

RBI caps bank exposure in liquid funds

The Reserve Bank today extended the 10 per cent ceiling of bank investment in liquid schemes of mutual funds to include short-term debt funds.

The bank investment in such debt schemes of mutual funds with weighted average maturity of portfolio of not more than 1 year, would be subjected to the cap, RBI said in a notification.

“With a view to ensuring a smooth transition, banks which are already having investments in these (liquid) schemes of mutual funds in exces of the 10 per cent limit, are allowed to comply with this requirement at the earliest but not later than six months from the date of this circular,” it said.

The Reserve Bank in its ‘Monetary Policy Statement for 2011-12 had directing banks to cap their investments in the liquid schemes of mutual funds at 10 per cent of their networth.

“This an effort to increase the purview of earlier circular. RBI is focusing on stability of banking and mutual fund industry,” SMC Global Securities Strategist & Head of Research Jagannadham Thunuguntla said.

The RBI said same money was circularly moving between banks and the debt-oriented mutual funds (DoMFs), which could potentially lead to systemic risk.

Banks normally put in their surplus funds in liquid schemes of mutual funds, which invest in debt securities having maturing within 90 days. Also short term debt schemes of duration of less than a year gives banks higher returns within a short period.

In turn, DoMFs invest heavily in certificates of deposit (CDs) of banks.

“Such circular flow of funds between banks and DoMFs (debt-oriented mutual funds) could lead to systemic risk in times of stress or liquidity crunch. Thus, banks could potentially face a large liquidity risk,” the RBI had said.

Experts said the fund flow into the over 7.43 lakh crore mutual fund industry, which is still battling with the entry load ban of 2009, could further slowdown with the implementation of this circular.

The aim of DoMFs is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, government securities and money market instruments.

Source: http://www.indianexpress.com/news/rbi-caps-bank-exposure-in-liquid-funds/813135/0

Battle to be UTI AMC's chief hots up

NSE’s Ramakrishna and ING Vysya Bank’s Bhandari front runners for the post.

The current joint managing director of the National Stock Exchange (NSE), Chitra Ramakrishna and ING Vysya Bank’s managing director and chief executive officer Shailendra Bhandari, are front runners for the post of chairman of UTI Asset Management Company (AMC), sources in the industry and finance ministries, said.

UTI AMC is the fourth-largest mutual fund in the country with assets of Rs 69,100 crore ($15 billion) under management, making its chairman’s post a coveted one.

The AMC has been headless since U K Sinha, its former chief, moved on to take charge of the Securities and Exchange Board of India (Sebi) in February. Both Ramakrishna and Bhandari were shortlisted after they were suggested by a head hunting firm, Egon Zehnder, chosen to identify potential candidates for UTI AMC. Egon had interviewed of 30 candidates.

The decision to select a chairman vests with a search committee of three board members: Anita Ramchandran, Mumbai-based founder of HR firm Cerebrus Consultants; Prithvi Haldia, owner of Delhi-based Prime Data Base and a representative of T Rowe Price (TRP), the single largest shareholder of UTI AMC. Shareholders will have the final say.

Intense lobbying for the post has, however, given rise to a controversy and delayed decision making.

TRP, which holds 26 per cent stake in the fund house, twice alleged the government was trying to influence appointment of the chairman.

It said decision making was being influenced to get Indian Administrative Services officer Jitesh Khosla, the brother of finance minister Pranab Mukherjee’s personal advisor Omita Paul, as chairman.

Reportedly, Khosla was not shortlisted even after being interviewed by the search committee.

TRP first made this allegation in a letter to the finance ministry and later to other majority shareholders of UTI AMC, which include State Bank of India, Life Insurance Corporation, Punjab National Bank and the Bank of Baroda.

Though UTI AMC is a board-managed company, the government can influence the decision-making through the public sector banks, which are large shareholders. The US-based TRP manages assets of $510 billion worldwide and is keen to increase its stake in UTI. TRP’s vice chairman, Edward Bernard was scheduled to meet Mukherjee to discuss the matter when the latter was on his US visit last month. However, it could not be confirmed if the meeting happened.

UTI AMC also had plans to come out with an initial public offer.

Ramakrishna, 48, is the second-most senior official at NSE, the country’s leading equity derivative exchange, and has been with it since its inception in 1992. Prior to this, she was with IDBI Bank, a promoter of NSE. Ramakrishna holds a degree from the Chartered Institute of Management Accountants, UK, and is also a member of the Institute of Chartered Accountants of India.

Apart from NSE, she holds senior positions in other companies promoted by the exchange. Ramakrishna was part of the committee on financial sector reforms headed by Raghuram Rajan in 2008.

Bhandari had joined HDFC Bank as executive director and treasurer in 1994, after a stint with Citibank. Between 2000 and 2004, he moved to asset management, joining ICICI Prudential Mutual Fund as managing director and chief executive officer. He then joined Centurion Bank and led its merger with another private bank, Bank of Punjab. This was in 2005, before another acquisition, this time of the Kochi-based Lord Krishna Bank in 2006. Centurion Bank of Punjab was subsequently acquired by HDFC Bank.

An alumnus of Delhi’s St Stephen’s College and IIM Ahmedabad, Bhandari also headed the private equity arm of Tata Capital for a brief while before moving to ING.

Source: http://www.business-standard.com/india/news/battle-to-be-uti-amcs-chief-hots-up/441660/