Small investors logging out from SIPs

Young Chinmay Pise never forgot to check the net asset value of his investments in equity mutual funds before going to bed. His tracking of investments only intensified this year, amid a swift rally in equity markets as the Pune-based software engineer had been investing through systematic investment plan (SIP) since September, 2010. And, last week when the fund value overtook his costs he chose to exit.

“Barring the first two months, my fund value remained below the incurred costs,” says Pise, 25. “At one point of time, it dipped more than 13 per cent. Had I put this amount even in a recurring deposit, I would have made close to nine per cent gains.”

He started when the equity markets was to its last high only to see a value erosion of 25 per cent in 2011. Pise is not alone. Over one lakh retail investors, who took the SIP route, considering it a safer way to invest in equities, decided to stop investments in January. And the current month, appears to be the same or worse, say fund managers.

“Reduction in SIP is not new. It’s happening over the last six months,” says Sanjay Sachdev, chief executive officer at Tata Mutual Fund. In February too, the scenario has not changed, he adds. “Even those SIP investors who had started investing three years back have not made gains.”

Last month, nearly one lakh equity folios (including non-SIPs) were closed. On top of it, 1.2 lakh equity SIPs failed to see transactions. “Either the cheques bounced back or transactions through ECS (electronic clearing service) were not honoured,” says the chief marketing officer of a large fund house.

...but fund managers are optimistic 

Domestic fund managers are more confident about investing in stock market now than three months ago, says a survey conducted by ICICIdirect, the online broking arm of ICICI Securities.

According to the survey, conducted among 17 domestic mutual fund managers this month, the outlook for the Indian equity markets has improved significantly. The previous survey was conducted in November 2011. After losing nearly a quarter of its value, the Bombay Stock Exchange benchmark, Sensex, has gained over 19 per cent so far this year. Most fund managers do not see any major downside in the equity market, the survey says. Seventy-six per cent of the respondents expect the Sensex to rise 5-10 per cent or more from the current levels by 2012-end.

Most fund managers have increased their earnings growth expectations for FY13. Eighty-two per cent, as against 50 per cent in the previous survey, believe the earnings growth for FY13 will be around 10-15 per cent. Though most believe the markets to be fairly valued, the majority advises investors to increase allocation to equity markets.

Compared to November, a higher number of fund managers expects equities to outperform, even as almost everybody expects gold to underperform for the rest of 2012. Most respondents see higher crude oil prices and the European debt crisis as the major concerns for the Indian market.

The previous year had started on a big bang note for SIPs. That time, H N Sinor, CEO of Association of Mutual Funds in India (Amfi), had told Business Standard that there was a remarkable increase in number of SIPs. One of the top officials at Securities and Exchange Board of India had said that transactions through the SIP had improved from Rs 800 crore per month to Rs 1,300 crore per month.

Sinor, though, was quick to add that it had to be seen whether this trend continues. Possibly, he could foresee the trend reversal in the second half of 2011.

“Clearly, there is a trend of outflow from equity funds,” explains Akshay Gupta, CEO of Peerless Mutual Fund. “There is no upbeat attitude among investors to propel their equity investments. As the markets have rallied too steep and too fast, retail investors are cautious.”

Tata Mutual Fund’s Sachdev says investors are cautious. “They should stay invested,” he notes. “This is more of a liquidity-driven rally and not a fundamental-driven one.”

Investors are only recovering their costs and moving out, they say. According to Waqar Naqvi, CEO at Taurus Mutual Fund, the situation continues to remain same as what the industry witnessed in January. “Old investors continue to exit and new investors taking time to enter,” he adds.

Most fund managers, Business Standard spoke to, were of the opinion that it is the current state of markets that is making investors quit equities. Moreover, availability of alternate investment avenues, including the recent tax-free bonds issued by several companies offering assured returns, have dented inflows in the equities, they say. For the last couple of months, net inflows in the equity segment has been touching three year lows of close to Rs 2,500 crore against as high as Rs 5,000 to Rs 6,000 crore witnessed in early part of last year.

Industry officials also admit that there was an over-marketing of SIPs. This led to mis-selling as well. “Distributors are getting a high up-front fees of 0.5 per cent,” says a chief marketing officer. “They tend to churn the portfolio in as little as one month of starting the SIP. For this, both industry and distributors are to be blamed.”

According to Hemant Rustagi, CEO of Wiseinvest Advisors, the bigger question now is how investors perceive equities. “I do not think that Indian mindset is yet prepared for equity investments,” he adds.

Source: http://www.business-standard.com/india/news/small-investors-logging-outsips/465382/

Product differentiation is not significant

The gold fever, which caught on last year, seems to be a rage still. Though prices have tapered a little — returns from gold exchange-traded funds were down 3.5 per cent in the last three months — enthusiasm hasn't ebbed. The euphoria then is justified, as the yellow metal returned 35.59 per cent in the last one year.

Motilal Oswal Mutual's New Fund Offer (NFO) plans to tap this trend. But, the product has been tweaked slightly — investors can redeem units of gold (minimum ten grammes) directly from the fund house and get an equivalent amount of physical metal, quite similar to the National Spot Exchange that allows this through its e-series.

However, unlike banks or jewellers, who charge a premium on physical gold, the product will price the units based on the Indian spot price of the metal. In addition, there will be a value-added tax.

The minimum investment amount during the NFO will be Rs 10,000. The expense ratio would be up to 1.3 per cent at the moment, said Rajnish Rastogi, senior VP and co-head of equities at Motilal Oswal Mutual Fund, which is in line with the other gold ETF schemes — eleven at present — that charge between one and 1.5 per cent.

The units of the scheme will be listed both on the NSE and BSE. Investors can buy or sell the units through their trading accounts with their brokers or sub-brokers at the price quoted on stock exchanges. "When you want to redeem units, you will have to approach the fund house, furnish your PAN card details and another identity proof such as driver's licence or voter's ID. It will take T+5 days to receive your gold units after putting in your request for redemption", said Rastogi.

There is no entry or exit load applicable. Since all gold ETFs give similar returns, there won't be much difference in these. The only innovation - being able to buy gold cheaper than banks or jewellers - isn't a great differentiator. But, the cost difference — five to 15 per cent — can make it beneficial for the long-term saver.

Typically, it can be used by people who want to save for their children's wedding few years down the line. A 10-15 per cent savings could be significant then.

This is like a monthly savings scheme that many jewellers such as Tanishq have, where investors can pay monthly and buy jewellery at the end of the tenure. Some jewellers even pay one or two instalments. MOSt's gold ETF can be used to save gold over a longer term and then use it for making jewellery. However, as Hemant Rustagi, CEO, Wiseinvest Advisors, puts it, "The usual expenses will have to be incurred once the physical gold is given to the jeweller. Any saving, therefore, is only interim in nature."

As for taxation, there will be none on redemption in the physical format. But if you sell the gold within three years, you will be levied a short-term capital gains tax in which the gains will be added to income and taxed according to your slab. And, if it is sold after three years, you can index the cost and long-term capital gains tax of 20 per cent. However, if you use it as any other gold ETF, the tax will be similar to debt instruments.

Since the advantages of the conversion to the physical format are not significant, treat this scheme like any other ETF.

The NFO for the scheme will open on March 2 and will close on March 16.

Source: http://www.business-standard.com/india/news/product-differentiation-is-not-significant/465370/

Fidelity Mutual Fund in two minds over selloff; bidders confused

Bidders for the India business of Fidelity Mutual Fund are picking up confusing signals from the fund house. Fidelity's decision not to part with its equity fund management team and overseas advisory business has not gone well with many bidders, sources in merchant banking and mutual fund circles told ET.

Fidelity Mutual Fund, in its 'request for proposal' document, has stated it is keen to retain the equity fund management team headed by Alexander Treves. Fidelity Mutual will reach a final decision on its equity fund management team after taking into account the overall valuation of the deal, said a Fidelity insider.

What has added to the confusion is a recent mail from the Fidelity management to senior officials, talking about the possibility of a joint venture with an Indian bank. This comes barely a week after circulating the 'request for proposal' document among potential acquirers.

Sources said sections within the Fidelity management feel that it may be a wrong time to exit India with the local market just stepping into a bullish phase.

Bullish on Fund Mgmt Business

"The business review was conducted in November and December, when markets were not doing well at all. The turnaround in markets has taken top Fidelity officials by surprise. There's a feeling that Fidelity is selling its asset at the bottom of a market cycle," said an insider at Fidelity Mutual.

At the regular morning meetings in the Mumbai office, a few senior officials have expressed their desire to continue with the fund management business in India.

They are optimistic of making the fund house profitable in bullish market conditions.

Fidelity officials declined to give specific comments on the story. "Fidelity Worldwide Investment is conducting a strategic review of its onshore asset management business in India; as with strategic reviews all options are being covered. The review is underway and it is too preliminary to discuss any outcome," said a spokesperson at Fidelity Mutual.

Fidelity Mutual, with a high salary structure and accumulated losses of Rs 305 crore, is looking for a price of about 6.5% of its assets under management (AUM). The fund house has a net AUM of Rs 8,700 crore, of which Rs 5,000 crore are equity assets. "Fidelity is asking for a very high price... we've placed our bids at about 4%," said the CEO of domestic fund house. "Another concern is their reluctance to let the equity fund management team stay with the fund. The deal is not hot without the fund management team," said the person.

Till Friday, Fidelity had received bids from more than a dozen Indian and international institutions, including Invesco, Pramerica (Prudential in USA) and State Street Corp. The fund house is yet to begin the short-listing process.

"If the price is right, Fidelity may prefer an American buyer as it will smoothen the exit. Getting regulatory approvals will be easier if an American asset manager buys Fidelity India. Sebi too will like it if Fidelity finds 'an-equal weight buyer'," said another investment banker.

A few leading domestic fund houses, however, did not bid for Fidelity's assets as the acquirer, as part of the deal, has to give jobs to all members of the business management team, comprising marketing and sales personnel.

"Large Indian fund houses have full-sized business management teams; they do not have the space to accommodate Fidelity personnel," said another chief executive of a local fund house.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/fidelity-mutual-fund-in-two-minds-over-selloff-bidders-confused/articleshow/11983051.cms