Private PFs don't invest even 5% in equities

The finance ministry’s proposal to allow private provident funds (PFs), superannuation funds and gratuity funds a greater exposure to equity and market-linked instruments has been cheered on by market participants. However, the ground reality is completely different. 

Interestingly, very few of the funds allowed to invest in equities have even utilised their cap of 5%. According to various industry experts, even those funds, which do invest in equities, have an exposure of only 1-2%. Further, with the recent spike in bond yields, government securities as well as corporate bonds have been giving returns of over 9%. This is well above the returns of 8.5% which these funds are supposed to guarantee. 

In a proposal made in September last year, the finance ministry had suggested a greater exposure for these funds, which manage the savings of employees of various corporates. It was mandated that these funds double their capital market exposure from 5% to 10% while reducing their exposure to government securities from 40% to 35%. A number of other changes in the investment pattern, including more exposure to money-market mutual funds and bonds or securities of PSU companies. 

While market participants have welcomed this proposal, the general perception is that a number of other regulations need to change to make equity investments viable. The main bone of contention is that of the guaranteed returns of 8.5%. In case the fund fails to throw up an 8.5% return, the employers are expected to provide for the rest. 

“The fact that these funds have to guarantee fixed returns while investing in instruments with variable returns did not find flavour with them,” said Amit Gopal, vice-president, India Life Capital, which manages funds for over 150 companies. 

Whether these funds will actually take to the proposed relaxation in exposure norms remains to be seen. “It is highly unlikely that private provident funds or superannuation funds would actually take advantage of the relaxation in investment pattern, if and when it happens. 

The basic risk appetite of these funds is completely different, even the bonds they invest in are top class bonds,” said a fund manager. In spite of having the expertise of huge treasury departments, banks and insurance companies that manage private provident funds have not invested heavily in the capital market, he added. At the moment, PF returns have been above the 8.5%-mark. Investments done in 2007-08, in particular, have given returns of over 9% while those of 30-year old trusts, which have been managed effectively, have consistently given returns of 8.5-8.8%.

Reliance MF buys engg & cap goods, banking, oil

Reliance Mutual Fund has enhanced its exposure to the engineering & capital goods, banking & financial services, oil & gas and utilities sector. However, it cut its holdings in the information technology, metals & mining and automotive pack. 

Unitech, BGR Energy Systems and Kotak Mahindra Bank were the top buys while Escorts, Dabur Pharma and Emco were the top sells.

A study of the equity portfolios managed by Reliance Mutual Fund as on July 31 shows that in the engineering & capital goods pack, BGR Energy Systems, Thermax, Alstom Projects and ABB topped the list of buys while Crompton Greaves, Suzlon Energy and Siemens topped the list of sells.(View - All Bulk Deals by Mutual Funds)

In the banking & financial services, the fund house purchased Kotak Mahindra Bank, IDFC and HDFC Bank while decreased its holding in Rural Electrification, ICICI Bank and HDFC.

In the oil & gas pack, Cairn India and ONGC were in the list of top buys whereas Reliance Industries and Shiv Vani Oil & Gas were in the list of top sells.(Check out - Which sectors are attracting Fund Managers?)  

In the utilities space, Torrent Power, Tata Power Company and NTPC topped the list of sells.

Reliance Mutual Fund slashed its exposure to information technology, metals & mining and automotive stocks. In the information technology pack, HCL Technologies, Infosys Technologies and Patni Computer Systems were in the list of top sells while Satyam Computer Services and Tata Consultancy Services were in the list of top buys.

In the metals & mining pack, SAIL, Tata Steel, Hindalco Industries and Jindal Stainless topped the list of sells. Maruti Suzuki India, Tata Motors and Escorts were in the list of top sells in the auto space.

Templeton MF bets on banking, oil, cap goods

Templeton Mutual Fund has increased its holding in the banking & financial services, oil & gas and engineering & capital goods sectors. However, the fund house has reduced its exposure to information technology, metals & mining and chemicals sectors.

A study of the equity portfolios managed by the Templeton Mutual Fund as on July 31 shows that in the banking & financial services space, Federal Bank, HDFC Bank and ING Vysya Bank topped the list of buys while Yes Bank, India Infoline and Kotak Mahindra Bank topped the list of sells. Bank of India, LIC Housing Finance, Reliance Capital and Bajaj Holdings were newly introduced stocks.

Among the oil & gas stocks, HPCL, BPCL and Cairn India were top buys while Reliance Industries was top sold stock. It has made fresh investment in Indian Oil Corporation. (View - All Bulk Deals by Mutual Funds)

In the engineering & capital goods sector, Cummins India, ABB, Thermax topped the list of buys while Larsen and Toubro, Greaves Cotton and Suzlon Energy topped the list of sells. The fund house has exited Gremach Infrastructure and Shanthi Gears.

Templeton Mutual Fund slashed its exposure to information technology, metals & mining and chemicals. In the information technology pack, TCS and Infosys Technologies were in the list of top sells. It has exited Redington (India). (Check out - Which sectors are attracting Fund Managers?)  

In the metal & mining space, Tata Steel, Sterlite Industries (India) and Sesa Goa were top sells. 

In the chemical sector, it has sold over 26.55 lakh shares of Reliance Petroleum and over 14 lakh shares of Tata Chemicals.

AMFI initiates study on common online platform

The Association of Mutual Funds in India (AMFI) has initiated a study to form a common online platform which would facilitate investors and distributors in mutual fund transactions, A.P. Kurian, Chairman, AMFI, said here on Saturday. 

The association is also looking to simplify the process of application for different mutual funds by introducing a common application form for all asset management companies, he said. Talking to reporters on the sidelines of a Mutual Fund Summit organised by the Indian Chamber of Commerce, Kurian said: “A committee of seven-eight members is currently exploring the formation of an industry-wide common online platform which would help in buying and selling of all types of mutual funds available in the market.” 

The new system would take a few months to be implemented, he said. In response to a question whether the mutual fund brokers would become redundant in such an arrangement Kurian said the role of brokers would still be essential in providing investment advisory services. 

Application forms 

In regards to the introduction of a standardised application form across all mutual funds he said the investors currently faced a lot of complication in filling up forms of varied formats for different funds and the new system would simplify the process. 

A committee formed by AMFI is currently looking into the matter. The application forms should also categorically mention the amounts of commission to be paid for different services, he said, adding, “This would lead to a more transparent and open way of commissioning.” 

AMFI has recently submitted a proposal to the Security and Exchange Board of India to introduce variable pricing of distribution. This would ensure that the investors also had a role in deciding the commissions depending upon the service availed by them, he added.

Sebi mulls variable load structure for MF distributors

Securities & Exchange Board of India (Sebi) is looking to have a variable load structure for mutual fund distributors. The commission in the variable load structure regime, as proposed by the Association of Mutual Funds in India (Amfi) board, would depend on the quality and nature of service and advice given to an investor. 

Speaking to reporters after the one day seminar ‘ICC Mutual Fund Summit 2008’ organised by the Indian Chamber of Commerce here on Saturday, Sebi executive director R K Nair said: “In global markets, investors have a choice. They have different load for different services. We too are working towards it.” 

Incidentally, entry load is a charge levied on investors by a mutual fund in case an investor decides to invest in the scheme. Open ended mutual fund schemes charge anything between 2 % and 2.5% of the amount invested under different heads like marketing cost and distribution commission. 

Elaborating further, Amfi chairman A P Kurian said, the commission paid to distributors is not linked to the quality or extent of service as well as the nature or quality of advice. 

“In case Sebi clears the proposal, distributors along with the investor can jointly work out their commission depending on the quality of service or the nature of advice. The rate will largely depend on the extent of service and advice gven to the investor and will find mention in the investor’s application form,” he added.' 

“Since the variable load factor regime is a common practice in developed markets, Indian mutual fund industry should also strive towards this,” Mr Kurian said. 

This apart, Amfi is also working to have a structured common application format for all mutual fund schemes across the country instead of having different application forms from different mutual fund houses. The association is yet to take up the issue with Sebi.

Japanese giants eye Indian MF market

Though the market meltdown has hit the domestic mutual fund industry and affected investor sentiment temporarily, it hasn’t deterred global biggies from going ahead with their India plans. At least three financial giants from Japan — known for their conservative approach — are looking at setting up asset management business in India. 

Japanese financial conglomerates — Nikko, Nomura and Shinsei Bank — are exploring various options to enter the Indian mutual fund market, top mutual fund sources said. Nomura, which has signed an MoU with Life Insurance Corp (LIC), is likely to get a stake in LIC Mutual Fund. Shinsei Bank already has a relationship with India as it runs an asset management business with Guernsey-based UTI International Ltd, a wholly owned subsidiary of UTI Asset Management Company. 

“The Indian mutual fund industry has a huge growth potential and foreign players are looking at tapping it,” said Association of Mutual Funds of India chairman A P Kurian. “Some Japan-based pension funds are also looking at investing in India. But they’re likely to come as foreign institutional investors registered with market regulator Sebi. A major reason for the increasing Japanese presence in India is that they are wary of the kind of returns they can hope for in saturated US and European markets,” said a mutual fund source. 

It is not only Japanese companies that are making a beeline to enter the growing MF market but European companies are also heading to South Asia. While UK-based Schroder has plans to set up shop in the coming months, Belgium-based KBC Asset Management Company has announced its joint venture with Union Bank of India. Union Bank will have a 51 per cent stake in the joint venture company while KBC will hold the remaining 49 per cent stake. 

These new entrants will face tough competition from other foreign players like UBS, Goldman Sachs Group, Morgan Stanley and Credit Suisse, which have been studying the market dynamics for quite some time now. 

To cash in on the 50-60 per cent growth in assets under management that the industry has seen in the past, domestic stock broking houses are also eyeing a share of the pie. Indiabulls, Motilal Oswal and India Infoline also have plans to launch MF schemes soon. The average assets under management of the industry fell by 6 per cent in July to Rs 5.30 lakh crore.

ICICI Mutual Fund And Others May Face Competition From Aviva India

"As part of our expansion strategy in Asia Pacific and keeping in mind the opportunity India presents, we would like to enter into asset management business as soon as possible," Aviva India Managing Director Bert Paterson said. 

However, the company is yet to decide about the structure, he said, adding the company is looking at a number of ways in which it could be set up. 

"We are considering what the various options might involve, but we have no specific plans to announce at the moment," he said. 

"The company has not yet engaged Securities and Exchange Board of India," he added. 

Of the total 20 life insurance players, about 9 already have their asset management arm. Prominent among them include ICICI Prudential, Reliance Mutual Fund, HDFC Mutual Fund and SBI Mutual Fund.
Source : www.business-standard.com

JM Multi Strategy Fund

JM Multi Strategy NFO ( an Open Ended Equity Fund) today, a brief is mentioned here. 

Launch Date : 31st July’08
Closing Date : 29th August’08

JM Multi Strategy Fund will have an active investment strategy which changes with the changing markets. 

Identifying the future market scenario and identifying stocks that are likely to outperform will be critical in managing the fund. JM Multi Strategy will seek to adopt a portfolio strategy depending on the prevailing market conditions; the scheme will either adopt a growth or a value style of investing.

During bullish market conditions, the scheme will act like an aggressive growth fund with a concentrated portfolio of say 25 to 30 stocks and a targeted portfolio beta of greater than 1.

However,in a bearish market, the scheme will have a low volatility conservative portfolio of a larger number of stocks in the range of 40 to 60 stocks with a targeted portfolio beta of less than 1.

The scheme may have to regularly churn its portfolio at periodic intervals in order to achieve the investment objective and as such the portfolio turnover ratio could be high.

 

The intention is that in these market conditions the fund will switch between aggressive and defensive large caps depending on the market conditions. The fund will have large caps to an extent of 90 to 95%. 

Load Structure: 

Entry Load Exit Load 

In case of investments <>2.25%
In case of investments >= Rs. 2 crores : Nil

In case of investments <>1% if redeemed within 1 year of allotment / transfer of units. 
In case of investments >= Rs. 2 crores: 0.5% if redeemed within 3 months of allotment/transfer of units 
In case of investments made through Systematic Investment Facility : Nil

In case of investments made through Systematic Investment Facility: 2.25% if redeemed within 2 year of allotment / transfer of units of respective installments.