Govt permits foreign investors to invest up to $13 bn in MFs

The government today allowed foreign investors to invest up to $ 13 billion in equity and debt schemes of mutual funds, a move aimed at enhancing depth in the capital market.

The announcement comes at a time when there are concerns over the flight of foreign capital and is expected to provide much needed succour to the markets.

"It has been decided that the aggregate investments by Qualified Foreign Investors (QFIs) in equity schemes of the mutual funds under direct and indirect routes shall be subject to a ceiling of $ 10 billion," a finance ministry statement said.

Similarly, QFIs can invest up to an additional amount of $ 3 billion in the units of mutual fund scheme, which invest in infrastructure debt of minimal residual maturity of five years in corporate bonds issued by infrastructure companies, it said.

QFI is an individual, group or association, resident in a foreign country that is compliant with the Financial Action Task Force ( FATF) standard.

It is to be noted that QFIs do not include foreign institutional investors or sub-accounts as these are already permitted to invest in equity and debt markets in India.

This would enable QFIs to have direct access to the Indian mutual funds. It would widen the class of investors participating in the Indian capital market, help increase depth and reduce volatility in the market, it said.

Both Reserve Bank and Securities and Exchange Board of India (Sebi) issued enabling notifications in this regard.

Dividend payments on units held by QFIs would have to be directly remitted to the overseas accounts of the QFIs by the domestic mutual funds and dividend payments to QFIs would not be allowed as an eligible credit to the single rupee pool bank account, RBI said in its notification.

Sebi in a separate notification said QFIs can buy units of equity or debt funds in the primary market, but cannot trade in the secondary market.

The capital market regulator also said that when the cumulative QFI investment reaches $ 8 billion in equity schemes, SEBI would auction the remaining limit to foreign investors who can then buy the units from funds of their choice.

A similar process will be followed when the investment in debt hits $ 2.5 billion.

The QFI limit for debt will be within the overall ceiling of $ 25 billion, including FIIs, set by the RBI in corporate debt issued by infrastructure companies.

According to the statement, the announcement incorporates the suggestion made by captains of India Inc during meeting with Finance Minister Pranab Mukherjee on August 1 to allow investment from QFIs up to $ 3 billion in for debt schemes in the infrastructure sector.

As the scheme has now been expanded to include debt schemes investing in infrastructure sector, it is expected to give a new momentum to the debt instruments in this priority sector, it said.

The QFI scheme, it said, will make it easier for the overseas investors to participate in the infrastructure sector projects in India, and therefore would provide an additional source of overseas long term debt funding.

The move follows the announcement of Finance Minister Pranab Mukherjee on the issue in the last Budget.

"Currently, only FIIs and the sub-account registered with the Sebi and NRIs are allowed to invest in the mutual fund schemes.

To liberalise the portfolio investment route it has been decided to permit Sebi registered mutual funds to accept subscriptions from foreign investors who meet the KYC requirements for equity schemes," Mukherjee had said in the Budget speech.

"This would enable Indian mutual funds to have direct access to foreign investors and widen the class of foreign investors in India equity market," the Finance Minister had said.

The average assets managed by the MF industry, consisting of 40 players, stood at Rs 7.28 lakh crore as of July, 2011.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/govt-permits-foreign-investors-to-invest-up-to-13-bn-in-mfs/articleshow/9542322.cms

Mutual fund industry on recovery, Reliance Mutual Fund records drop while Sahara, Baroda Pioneer and Taurus grow.

After facing redemption pressure during the second half of FY11, the mutual fund industry appears to have clawed its way back. Average assets under management have surged 6% in the April-June quarter after two straight quarters of decline. The largest domestic fund house — Reliance Mutual Fund — has, however, recorded a drop in its assets under management or AUM. Smaller fund houses such as Sahara, Baroda Pioneer and Taurus Mutual fund grew their AUM by more than 50%.

Equity markets remain under pressure, but rising interest rates have helped the industry mobilise funds with strong inflows into fixed maturity plans FMPs. In the quarter to June, mid-cap oriented schemes did better than their large-cap counterparts. On average, mid-cap funds generated an absolute three-month return of close to 2.1%. This even as the broader market indices like Sensex and Nifty fell 3% over the same period. However, certain diversified equity schemes clocked higher returns in the quarter.

These are average returns for the entire category of equity mutual funds and for those anxious to know how their schemes have fared during this period, the ET Quarterly Mutual Fund Tracker brings you a performance report of mutual fund schemes across the five broad categories of equity diversified, equity linked savings schemes (ELSS), balanced, monthly income plans (MIP) and debt.

We analysed a total of 317 schemes this quarter and graded them according to their performance as Platinum, Gold, Silver, Bronze and Lead. Only those schemes which have been on offer for at least three years were considered for our risk-return analysis. In the ELSS category, Canara Robeco Equity Tax Saver and HDFC Tax Saver continue to be the top performers for a third consecutive quarter.

In fact, Canara Robeco Equity Tax Saver has set a record by retaining its Platinum grade for the 11th quarter in a row. In the case of equity diversified schemes, mid-cap and multi-cap oriented schemes did better than their large-cap counterparts, reflecting the outperformance of the BSE 500 index over the benchmark Sensex. Mid-cap funds such as Sundaram Select Midcap, ICICI Prudential Discovery, HDFC Midcap, Birla Midcap, DSPBR Micro-cap and new entrant Birla SL Pure Value have seen a marked improvement in their ratings.

Otherwise, there has been little change in the names or the tally of Platinum winners during the quarter as compared to Mar '11 quarter. Many new schemes are part of our analysis this time. They include Birla SL Pure Value, ICICI Pru Focused Blue Chip Equity, LIC Nomura MF Top 100, Mirae Asset India Opportunity, Morgan Stanley A.C.E, Reliance Quant Plus, JM Core 11, HDFC Infrastructure and Tata Growing Economies.

BEST FUND HOUSE

HDFC, which bagged 10 Platinum medallions, is the best fund house in our rankings for the 10th consecutive quarter. It has proved to be a cut above other fund houses. Birla Sun Life has emerged as the second-best performing fund house for the quarter with four Platinums.

Based on weighted average scores, Canara Robeco is the top fund house. However, since it does not fulfill the criteria of a minimum of 1.5% of the total industry AUM, it has not been considered in this category. Going ahead, it will be interesting to see Canara Robecco's performance as its top fund manager has moved to rival BNP Paribas.

METHODOLOGY FOR THE BEST FUND HOUSE

The number of schemes analysed by the ET Quarterly MF Tracker varies for each fund house. We consider the percentage of schemes falling under Platinum, Gold, Silver, Bronze and Lead grades for each fund house separately to ensure that there is a levelplaying field for all.

Each of the grades is assigned a weight corresponding to its order of importance. Thus, Platinum gets the highest and Lead the lowest of weights. A weighted average score (WAS) is then arrived at for each fund house and the fund houses are ranked in descending order of their WAS. Thus, the fund house with a higher percentage (and not number) of total schemes in the Platinum and Gold grades will enjoy a higher WAS vis-Ã -vis the others.

Source: http://articles.economictimes.indiatimes.com/2011-08-08/news/29864596_1_mid-cap-funds-reliance-mutual-fund-sundaram-select-midcap/2

Equities still better choice: Experts

Indian stock markets will give better returns over a period of three years compared to other instruments like fixed deposits, debt-oriented funds and gold, felt bankers and consultants. However, they added that the global economy would enter a slow growth phase because of the US downgrade, which would also affect the Indian economy to some extent.

"This is the time to invest in the equity market through diversified mutual funds," according to Dhirendra Kumar of Value Research. However, the market may move either way for some time and it is advisable to invest in regular intervals and not in one go, he added.

"If one invests his entire savings at the current level and market falls further, he may have to exit at lower level after experiencing loss," Kumar said. But if he invests over a period of time in intervals, he will be able to enter at the lower levels and benefit in the long term.

Indian economy is facing a risky scenario of reduced liquidity in the international markets due to possibility of defaults by some developed countries in the next two to three years, said Enam Securities in its "India Strategy"' report. But, this will also bring down the commodity prices which would help India contain inflation.

Enam added that in the next two quarters corporate profit may bottom out as interest rates peak. This may add to volatility in the stock market. But a huge latent demand for both goods and services will continue to fuel the growth in Indian economy. A sustained growth in GDP of around 8% will lead to a nominal growth of around 14%. This will enable the EPS (earnings per share) to grow at around 18% to 20%.

The slowdown in the global economy should make India an attractive investment destination, said market players. But the high inflation rate of around 9% has made the present high interest rates offered by banks and other companies unattractive.

Source: http://timesofindia.indiatimes.com/business/india-business/Equities-still-better-choice-Experts/articleshow/9534777.cms

Most-favoured MF equity schemes give negative returns

Even as they beat benchmarks.

With fear of a slowdown looming, a steep fall in world’s markets last week and the US being downgraded first time in seven decades, domestic retail investors have made losses in their most-favoured schemes this year.

Indian investors accessing equities through the mutual fund route have been sitting on negative returns in the country’s top-ten equity schemes this year. The year-to-date (YTD) loss is in the range of 8-25 per cent.

However, a positive amid negative factors that should give some cushion to investors is that a majority of the most-favoured equity schemes has performed better than benchmarks and beaten BSE Sensex and CNX Nifty.

These top-ten mutual fund schemes, in terms of assets under management, make up close to a third of the total equity assets of the fund industry.

India’s largest equity fund HDFC Top 200, which has assets under management of Rs 10,507.61 crore as on June 30, has given a negative return of 11.37 per cent so far this year, while the third-largest, Reliance Growth, has fallen short of its benchmark, with a negative return of 14.85 per cent. Similarly, returns in Reliance Regular Savings Equity and Fidelity Equity stand at -13.23 per cent and -10.94 per cent, respectively.

Kaushik Dani, equity head at Peerless Mutual Fund, says: “It is mainly on account of the fact that equity markets began the current calendar year with a higher base. The market had discounted corporate earnings and margin of error then was little. However, with weak global cues, coupled with domestic issues of high inflation and monetary tightening, equities underperformed.”

Retail investors have already distanced themselves from direct dealing in the stock markets for quite some time now, amid uncertain economic scenario — domestically as well as globally.

“There is global nervousness,” says Nandkumar Surti, chief investment officer (CIO) at JP Morgan Asset Management. “If risk aversion continues, markets are likely to go further down from the current levels,” he adds. N Sethuram, chief investment officer of Daiwa Mutual Fund, agrees: “There is uncertainty across the globe. We believe the markets may further slide by 7-8 per cent as talks of a double-dip recession are resurfacing in the western world.”

Equity schemes have lost investors’ favour, not only because distributors are not willing to sell equity funds but also due to higher risk in the current market scenario. Industry experts say, when risk premium has squeezed down to as low as 1-2 per cent, investors prefer fixed deposits, where returns are attractive at around 8-10 per cent, over equities.

This is evident from the dwindling number of folios and abysmal inflows in the equity schemes. In the first quarter of the current financial year, net inflows stood at less than Rs 500 crore. In June, the figures dropped to as low as Rs 20 crore, against over Rs 1,500 crore in May. Overall, the equity assets have reduced to 25 per cent of the industry’s total assets in June, compared with 29 per cent at the end of March.

Source: http://www.business-standard.com/india/news/most-favoured-mf-equity-schemes-give-negative-returns/445131/