SEBI Chief UK Sinha douses expectations of entry load revival

SEBI Chief reportedly cites positive inflows in 2011-12 while acknowledging the fall in folios.

Over the past few days, there has been a buzz in the media about how entry loads could make a comeback.

But judging by SEBI Chairman UK Sinha’s comments at Chennai yesterday, it seems that the regulator has not been approached by any party for reintroduction of entry loads. “No one has brought the matter to us so far; no one has written or asked for that, but we are worried as to why the penetration of mutual funds in remote areas is not increasing,” he has been quoted as saying in various media reports.

In fact, Mr Sinha pointed to the positive net inflows in equity funds for the financial year 2011-12. In 2010-11, the net inflow in equity schemes of the mutual fund sector was down by about Rs 13,000 crore, while in 2011-12, the net inflow was higher by Rs 600-700 crore. “This is an encouraging development considering that the number of mutual fund folios were down in 2011-12,” he said.

Mr Sinha added that mutual fund inflows had declined even in more mature economies.

Though re-introduction of entry loads might not be high on the agenda, various distributor associations (and a few AMCs) have been requesting SEBI to introduce some form of advisor compensation, as clients in India have yet to move to a fee-based model.

“Entry load has already come back in the form of transaction charge. The issue is that distributors want a percentage share as an upfront commission. If for example, they mobilize Rs 1 crore they can get Rs. 1 lakh even if 1% entry load is introduced.  I don’t see any scope for bringing back entry load as this might be seen as an anti-investor move,” says a CEO of a bank sponsored fund house.

Source: http://www.cafemutual.com/News/InnerNews.aspx?srno=1317&MainType=New&NewsType=Industry&id=21

Go online to invest in mutual funds

If you are tired of paperwork while making your mutual fund investments, it is time to go online.In the physical world every new investment entails filling of forms, writing a cheque, attaching a copy of your Know your client ( KYC). After that your broker or agent has to physically deposit the form with the fund house or the registrar. If the transaction goes through, you get an account statement which you have to file. Over a period of time, such account statements pile up and you may not even know what is the value of your investments.

However, when you go online, you can transact without any paperwork and from anywhere in the world. Integration of your bank account with your mutual fund account ensures seamless transactions with instant confirmation. When you log in, you can check in and find the latest the value of your investments. You also need not hunt for statements. Transactions like Systematic investment plan ( SIP) can be altered, or done at the click of a button. Many online brokers also offer you research and tools to track your mutual fund investments.

They have financial calculators, which give you solutions on meeting your financial goals. These websites offer asset allocation models that can be used to construct your portfolio based on your age and risk appetite. Besides this, they also have model portfolios, which you can replicate while building your own portfolio. A customer portfolio is tracked regularly and updated online, which helps him take corrective action if any.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/go-online-to-invest-in-mutual-funds/articleshow/13052858.cms

MF continued to be net sellers driven by volatility

Domestic mutual funds continued to be net sellers in the Indian equity markets in the month gone by, to the tune of Rs 677 crore thereby following their March month's activity where they stood net sellers to the tune of Rs 1,412 crore. It seems that fund managers preferred to be on a cautious footing given an uncertain global economic environment, and the vulnerability of FII flows until clarification issued over GAAR. It is noteworthy that in order to attract foreign flows, India has to make the tax policies more predictable, or else it would impede foreign investors from investing in India.

As far as the performance of various categories of mutual funds is concerned, in the diversified equity fund category, mid and small cap funds continued to deliver luring returns as compared to the large cap ones (which provided dismal returns).

Amongst the sector funds, as the Indian equity markets got into a nervous mood (which set in a consolidation phase), schemes focusing on defensive sectors such as FMCG and pharma, helped in creating wealth for investors. However, media & entertainment, banking & financial services, infrastructure and technology depicted a descending move.

In the Fund of Fund (FoF) schemes, the equity oriented international feeder funds did well; especially the ones focusing on investing in China and ASEAN (Association of South East Asian Nations).

Speaking about the hybrid funds, balanced funds felt the impact of gradual descending move of the Indian equity markets, but their debt portfolios - especially the composition holding shorter maturity papers, have benefited due to fall in in short-term yields. Likewise Monthly Income Plans (MIPs) holding greater composition of lower maturity papers (of less than 5 years) also benefited as RBI initiated reduction in policy rates.

Debt mutual funds, across categories and tenure showed a decent performance in the month gone by. Those holding shorter maturity papers - especially short-term income funds and liquid plus funds (also known as ultra-short term funds) impressed on the performance front, with the drop in short-term yields, while the Long-term debt funds across category also delivered decent returns, as RBI initiated policy rate cuts in its annual monetary policy review meeting on April 17, 2012.

It is noteworthy that while the FIIs turned net sellers in the Indian debt market to the tune of Rs 3,788 crore (as against being net seller to the tune of Rs 6,589 crore in March 2012); domestic mutual funds net bought aggressively to the tune of Rs 41,130 crore. But having said that, they treaded cautiously compared to their March month's activity where they net bought to the tune of Rs 1,10,866

(1-Mth average returns of funds in various categories as on April 30, 2012)

The graph above depicts how various categories of mutual funds performed in the previous month. Amongst the sector and thematic funds, barring FMCG and pharma funds (which have a trait of being defensive), all others took a beating. In the diversified equity funds category too, only mid cap funds managed to deliver positive returns (of average +0.4%), despite a descending move of -3.1% in the CNX Midcap index. From a fund management style perspective, only some funds following a value style of investing, and some of those having a mandate to invest in dividend yield stocks managed to deliver positive returns, but they were marginal. Tax saving funds (which are diversified equity scheme and generally follow a fluid investment style) category too reported negative returns in the month gone by.

However, tracing with upward move in the price of the precious yellow metal - gold, Gold ETFs exhibited positive returns for investors (gaining by an average of +2.8%).

Source: http://www.moneycontrol.com/news/mf-news/mf-continued-to-be-net-sellers-driven-by-volatility_701782.html

Post-Lehman crisis, minority stake deals in MFs fail to boost assets

Interestingly, sector sees deals at higher valuations despite shrinking assets of similar tie-ups in the past

At a time when recent minority stake sale deals inked at higher valuations may have provided much-needed grease to the stagnating wheels of the Indian mutual fund industry, similar transactions in the post-Lehman crisis period appear to have gone haywire as far as assets under management (AUM) are concerned.

For instance, in July 2009 when Japanese asset management company Nomura picked 35 per cent stake in LIC Mutual Fund, the latter managed average assets of Rs 32,415 crore and was the seventh largest fund player in India. However, till the deal was concluded, LIC MF lost 40 per cent of assets — declining to Rs 18,695 crore.

Interestingly, the free-fall in assets did not stop even after the conclusion of the deal during the January-March quarter of FY2011. The joint entity under the name LIC Nomura Mutual Fund had an average AUM of Rs 11,195 crore as on March, 2011 which got almost halved to a mere Rs 5,799 crore as on March 2012. This pushed the fund house beyond the top 15 players to 18th position.

Ranbir Datt, chief marketing officer, LIC Nomura Mutual Fund, says, “RBI issued guidelines in 2011-12 for banks to limit their investments in debt funds of mutual funds to not more than 10 per cent of their networth. Unlike other AMCs, LIC Nomura MF had around 85 per cent of their AUM in these funds.Thus, the impact of withdrawal of banks was significant in LIC Nomura MF as compared to other AMCs.”

Six months after Nomura announced their plans to take a stake in LIC MF, another deal followed. Baltimore-based T Rowe Price bought 26 per cent in UTI AMC in January, 2010. UTI AMC had an average AUM of Rs 74,510 crore and was India’s fourth largest fund house. However, as on March, 2012, the fund house’s assets stood at Rs 58,992 crore, a decline of 21 per cent.

When contacted, the spokesperson of UTI, said, “UTI MF has no comment on the matter.” After remaining without a chief executive officer (CEO) for over a year, recently the chief marketing officer of the fund house, Jaideep Bhattacharya, also put in his papers.

In both cases, AUM of these entities have shrunk considerably since announcement of the deals. The overall industry’s average AUM declined marginally by less than a percentage point over the last two years.

Aditya Agarwal, managing director at Morningstar India, says, “These foreign players have a long-term approach for building assets. Building assets take a lot of time and we cannot draw a conclusion between these tie-ups and asset erosion. The fall in assets is mainly because of pretty bad market conditions.”

These deals had surfaced at a time when industry was in deep trouble. Nevertheless, parties involved in these transactions were optimistic of reaping benefits from the expertise of their respective new partners. But AUM, considered one of the important factors for growth, could not be prevented from falling.

And, it is not that the industry has managed to wriggle out of trouble. Rather, it has worsened. Despite this, yet another Japanese firm, Nippon Life, entered the Indian mutual fund space by picking up 26 per cent stake in Reliance AMC while Axis AMC pulled in Britain’s largest asset manager, Schroders, which bought a 25 per cent stake.

Interestingly, the difference in the former and the latest deals is the valuations being offered by the acquirer. While Nomura and T Rowe Price offered a valuation of between 2.5 and 3.5 per cent of assets to their respective targets, Reliance MF and Axis MF ended up inking handsome deals of between six to seven per cent.

Once again, entities involved in the latest transactions sound optimistic. Though they admit the situation is unlikely to improve soon, they continue to have positive views from the long-term perspective. Lester Gray, chief executive officer, Schroders (Asia Pacific), says, “We believe that the long-term prospects for the asset management industry in India are very positive. However, we do recognise that right now the markets are quite difficult and challenging.”

Source: http://www.business-standard.com/india/news/post-lehman-crisis-minority-stake-deals-in-mfs-fail-to-boost-assets/473789/