SBI mutual fund CIO Navneet Munot sees silver lining for Indian markets

A bright Sun is all set to emerge soon from under the dark clouds overhanging the Indian stock markets, according to Navneet Munot, Chief Investment Officer of SBI Mutual Fund.

Mr Munot was addressing an interactive seminar organized by Indian Merchants' Chamber on the topic of "Growth Opportunities in Volatile Markets" at the Chamber. Mr Munot sought to share his insights into the Indian story and into appropriate financial products to suit the risk appetite of investors.

He attributed the present phase of volatility to poor governance at Center, economic crisis faced by many countries in the Euro zone, policy paralysis and political indecision resulting in lack of key structural reforms etc. Mr Munot said that it was not unusual for investors to feel uneasy about their investments in such a volatile market.

"But despite the sinking confidence level, experts believe that most Indian stocks, securities and other assets have retained the ability to deliver attractive returns to investors. Only, an investor needs to take the right step at right time to invest in companies / instruments that can give above normal returns."

Source: http://economictimes.indiatimes.com/markets/stocks/market-news/sbi-mutual-fund-cio-navneet-munot-sees-silver-lining-for-indian-markets/articleshow/14504465.cms

Finance ministry, Sebi looking to make mutual funds attractive for distributors

The finance ministry and capital market watchdog Sebi will think of ways to revive the fortunes of the mutual fund industry by making the incentive structure more attractive for distributors. The ministry will meet industry representatives and Sebi officials on Monday before drawing up a plan to give a leg up to the industry that is faced with steady outflows, partly due to disinterested distributors.

Commissions to distributors and marketing expenses were met by the fund house by charging an entry load of 2.25% from investors. Of every Rs 100 an investor put in, Rs 2.25 was charged as entry load while Rs 97.75 went into stock purchases. Of this, the chunk was earmarked for distributor commission.

The entry load was banned in 2009 by former Sebi chief CB Bhave, who felt that investors were being taken for a ride by distributors who encouraged investors to churn their portfolios. The ban, however, dried up inflows into mutual funds.

"The objective is to reinvigorate the mutual fund sector," a finance ministry official told ET, confirming that the issue to bring back incentives was on the agenda and would be taken up with the market regulator. In the absence of sales push, coupled with a dismal market, equity schemes assets fell 11% in a year to Rs 1.67 lakh crore in May.

The meeting comes close on the heels of Prime Minister Manmohan Singh's statement on Wednesday that there were problems facing the mutual fund industry that needed to be resolved.

current Sebi Chairman UK Sinha may find it difficult to lift the ban as it may be perceived as anti-investor. "The UK had proposed a similar ban ahead of India, but later deferred it for three years, and that too after giving the domestic industry 18 months to adjust. There may be a need to follow this example in the wake of global developments," said a government official.

While several fund houses rampantly misused the entry load mechanism to shower distributors with gifts and foreign junkets, the ban stunned funds as well as intermediaries, which had no time to restructure themselves.

Brokers felt it could have been done in a phased manner as it made little sense for them to sell MFs in smaller cities for collecting investments worth a few lakhs. Industry body AMFI and mutual fund houses have made several representations to Sebi in the last one year advocating review of the cost structure, so as to have a wider retail participation and geographical penetration. Experts suggest a comprehensive package of measures to revive the industry.

"Like any other industry, mutual fund industry is also under pressure due to weak economic environment. Measures like reversing entry load ban will not alone revive the industry. There is a need for having greater flexibility in managing the expense ratio. Mutual funds should also be allowed to launch pension funds to attract long-term investors," said Dhirendra Kumar, CEO, Value Research.

Sebi had earlier informally sounded out market participants on reversing the ban on entry load, but never went ahead to revoke it. It has also met various market participants like fund houses, investors associations, distributors and mutual fund advisors in the last few months to seek their views on the subject, sources said.

"As part of the discussion, Sebi had sought views of industry participants as to whether reversing the ban on entry load would be in the interest of investors," said a person who participated in one such discussion some weeks ago.

Sebi is also in favour of pushing the Rajiv Gandhi Equity Saving Scheme, which seeks to provide tax breaks to first-time investors in equities, to be made available to investors through the mutual fund route.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/finance-ministry-sebi-looking-to-make-mutual-funds-attractive-for-distributors/articleshow/14480401.cms

FinMin mulls re-introduction of entry load for mutual funds

The Finance Ministry may advise the Securities and Exchange Board of India (SEBI) to consider measures including re-introduction of entry load to bail out the mutual fund industry. The Mutual Fund Advisory Committee of SEBI is scheduled to meet on July 17.

However, experts feel that rather than bringing back entry load, the effort should be to allow mutual funds to launch pension schemes. At the same time, the Rajiv Gandhi Equity Scheme should be routed through mutual funds, they suggested.

Highly placed official sources said that after the Prime Minister’s directive to resolve issues about the mutual fund industry on Wednesday, the Finance Ministry is getting ready to draw up an action plan.

Re-introduction of entry loads, which will boost income for funds, is one of the key proposals. Since any move in this regard can be made only by SEBI, the Finance Ministry will advise the regulator, one source said.

SEBI banned entry loads from August 1, 2009. This was done to empower the investors in deciding the commission paid to distributors in accordance with the level of services received, to bring about more transparency in payment of commission and to incentivize long term investment.

The mutual fund industry has been unhappy with this. “First of all, introduction of such a move was not correct. Even the world body, though agreed in principle, did not introduce it, but India did,” said a senior fund executive.

But bringing back entry loads is expected to further dampen sentiment, particularly when the markets are down. This will take away the investors to other avenues, he added.

Earlier this month, the SEBI chief Mr U.K. Sinha, had said that various stakeholders have given their suggestion but not about re-introduction of entry load.

In fact SEBI has requested the Finance Ministry that facilities in the recently announced Rajiv Gandhi Equity Saving Scheme should be made available for investment through mutual funds. This will help the investor to reduce the risk, while benefiting the industry.

Echoing the same sentiment, Mr Dhirendra Kumar, CEO of Value Research said, “Rather than pressing for re-introduction of entry load, the Government should facilitate mutual funds to launch pension funds.”

Such a move will help the industry to get long term funds, which will also help the stock market. It is estimated that the mutual fund industry can easily mobilise Rs 50,000 crore through pension funds.

Source: http://www.thehindubusinessline.com/markets/stock-markets/article3581465.ece

Mutual Funds offering combo schemes to woo investors with plans that invest in gold, debt & equities

Weak markets are making fund houses look at new ways to generate investor interest in products. The latest attraction is a combo deal — schemes that invest in gold, debt and equities. Also, they are betting big on US markets to reap the advantages of the falling rupee.

This comes at a time when the net asset values (NAVs) of multiple asset funds, which invest in gold, debt and equity, have hit their 52-week highs and funds with direct or indirect exposure to stocks of USbased companies have made handsome gains.

Multiple asset mutual funds (MFs) have given 8.2%-10 .9% returns in the past year (till June 22). Except MFs that invest in the defensive FMCG and pharmaceuticals sectors and funds with exposure to stocks of overseas companies, all other equity MF categories were in the red in the one-year period.

"If these three assets (gold, equity and debt) are combined , they would be able to contain losses much more effectively ," says Anil Rego, CEO, Right Horizons, a wealth management firm.

"It is easier to take this product to investors as the risks involved are much less," says Rupesh Nagda, head, investment advisory and products , Alchemy Capital Management . "It is a good option for retail investors as it would be difficult for them to keep shifting money from one asset class to the other," he says. Moreover, investors also do not have much insight into how different asset classes behave in such volatile conditions , Nagda says.

With equities not doing well over the five-year period, usually considered a benchmark for long-term performance, investors are losing patience leading to a sense of fatigue among them, say experts. Diversified equity MFs have moved up by a measly 5.5% a year in the past five years.

Several funds (including sector-oriented funds) that invest in stocks of US-based firms have, however,made it to the top-10 list in the last one year. Incidentally, the best performing equity MF for the period invests exclusively in NASDAQ-100 stocks.

Experts however advise caution on this front. With the rupee plunging to new lows against the dollar and the US markets unlikely to repeat the past year's performance, the prospect of making big gains are much less, they say.

Source: http://articles.economictimes.indiatimes.com/2012-06-26/news/32424752_1_multiple-asset-diversified-equity-mfs-debt-equities

India’s worst fund houses and the importance of benchmarks

Last week, Securities and Exchange Board of India (Sebi) chairman U.K. Sinha, speaking at the Confederation of Indian Industry Mutual Fund Summit, said something that took many of us by surprise. It is not often that a capital markets regulator speaks about the performance of products, the lack of it and how the regulator was going to deal with it. Regulators largely stay with removing systemic risk and the risk of fraud, leaving investors to deal with market risk on their own. Why would Sinha, then, point to nine fund houses that were beaten by their own benchmarks over the last three years and promise to take this up with the companies? Is this the start of micro-managed regulation?

I doubt that Sinha intends to look over the fund houses’ shoulders as they click “buy” and “sell”, but I think he was making a broader point and telling investors to look at benchmarks as a key determinant to evaluate fund house performance. Few investors understand the relevance of a benchmark and look at absolute returns on their money. For example, a few years ago, a fund house sought to take advantage of this ignorance and advertised in large hoardings that its schemes had returned 100% over the year. What investors did not understand is that the underlying index—the Nifty or the Sensex—went up by more than 100% over the year, lifting overall returns. The truth is that that fund house had schemes that had underperformed the benchmark while giving 100% returns! The logic of using an actively managed mutual fund route to investing is to be able to beat the benchmark. Just investing in an index fund or an exchange-traded fund will get you lower costs and average market returns. The reason you pay the higher management fees and take on more risk is so that the fund manager can get you benchmark-plus returns. When that does not happen investors must switch fund houses and schemes. Investors need to be educated about this and what better road than to get the media to report on what seems to be, an outrageous statement—Sebi will monitor performance.

The next question, of course, is: which are these nine fund houses that earned the ire of the regulator? Sebi did not release this list, nor do we have the methodology used to filter these out, but most of the names are not difficult to find—they make up the bottom rank of all league tables. I asked Value Research to crunch numbers for me and a special thanks to Charul Sharma for turning this data around so fast. The fund houses that have seen all of their equity funds underperform the benchmark over a three-year period are JM Financial, Baroda Pioneer, Deutsche and Edelweiss. JM has five, Deutsche four, Baroda Pioneer two equity schemes and Edelweiss one equity scheme in their equity portfolio that have all underperformed their own chosen benchmark. Over a five-year period, there are four fund houses with no funds that beat the benchmark and these are LIC Nomura, Morgan Stanley, JM Financial and Escorts. Look out for a more detailed list of fund houses later this week in these pages.

As an investor, why should you care about overall fund house performance, and not worry about just the scheme that you own? A fund house with 75-80% of its schemes outperforming the benchmark points to an asset manager with good investment hygiene and good systems. Fund houses have used the new fund offer route in the past to garner money and this done, have tended to ignore most schemes, focusing only on the flagship. An overall attitude of we-beat-the-benchmark points to a well-run fund house. The funds that have all their equity funds outperform the benchmark over a three-year period are AIG Global, Canara Robeco, Fidelity (before it was sold), HDFC, Mirae and Quantum. In the over-80% outperforming league table are fund houses such as DSP BlackRock, Franklin Templeton and ICICI Prudential.

If you hold units in any equity funds of the beaten-by-benchmarks fund houses, sell and switch to schemes from fund houses that populate the other end of the spectrum. Often investors get attracted to the lesser known fund houses and schemes by the carrot of a resurgent fund house or a scheme that will do really well. As a small investor with limited resources and risk appetite, remove the noise of non-performing fund houses and new fund houses. Let the high networth, seasoned investors take the higher risk needed to punt on a new fund house or the resurgent scheme of an old one. Your money is limited and so is your risk appetite. Stay with the proven winners. And start looking at benchmarks.

Source: http://www.livemint.com/2012/06/26211123/India8217s-worst-fund-house.html