Sensex crashes on eve of Diwali

Joining a global equity rout on worries about a sharp global recession, domestic indices fell to their lowest levels in nearly three years on “Black Friday” as the benchmark BSE 30-Share Sensex tumbled by 1070.63 points to close at 8701.07.

The index had last tumbled below 9000 in November 2005. 

The sell-off began in the morning session itself — led by realty, oil and gas, bank and metal stocks — as the half yearly review of the Reserve Bank of India disappointed the markets, which were expecting some more measures from the central bank to expand liquidity in the system. 

Signalling what could be a dark Diwali on Dalal Street, as many as 350 securities hit their all-time lows.

These included big names like Reliance Power, Cipla, Ranbaxy, Ambuja Cement, Hindalco, Jet Airways, Suzlon Energy, Idea Cellular and realty majors DLF Ltd. and Unitech.

The RBI had announced a slew of measures to assuage markets in the last one month, including the repo rate cut by 100 basis points four days back and a cut in the Cash Reserve Ratio — a portion of the deposits that banks have to keep as a reserve — to 6.5 per cent from October 11. 

However, the sell-off intensified with the domestic as well as the foreign funds hammering Indian stocks in line with its Asian peers whose stocks tumbled on fears of a severe global downturn. 

In the bloodbath, 20 stocks from the 30-Share Sensex fell more than 10 per cent. This was the steepest fall in any single trading session after a 1,408-point plunge on January 21 this year. A broader index, the NSE 50-Share Nifty, lost 359.15 points to close at 2584. The Sensex fell 1204.88 points at the day’s low of 8566.82 in late trade, its lowest level since November 23, 2005. Nifty hit a low of 2525.05 in late trade, its lowest level since November 11, 2005.

Meanwhile, announcing its stance of monetary policy for the remaining period of 2008-09, the RBI kept all the key rates unchanged even as it lowered its 2008-09 growth forecast to 7.5 per cent to 8 per cent from a previous forecast of around 8 per cent. 

“The global downturn may be deeper, and the recovery longer than expected earlier,” said RBI Governor D. Subbarao, here. The central task for the conduct of monetary policy has become more complex than before, with increasing priority being given to financial stability. The current challenge, according to Dr. Subbarao, is to strike an optimal balance between preserving financial stability, maintaining price stability, anchoring inflation expectations and sustaining the growth momentum. 

European shares — the U.K., French and German — lost between 8.1 and 9.79 per cent on data suggesting Britain would enter a prolonged recession. 
Rupee breaches 50-mark 

The rupee breached the historic 50-mark intra-day against the U.S. dollar on sustained demand for the greenback amid its sharp rise against major currencies. It, however, recovered after the announcement of the monetary policy review and closed the day a little lower at 49.95/96.

http://www.hindu.com/2008/10/25/stories/2008102558300100.htm

Lending, deposit rates may not change for now

Banks non-committal about impact, adopt a wait-and-watch policy.

After injecting Rs 1,00,000 crore of liquidity through a cut in the Cash Reserve Ratio (CRR) in the last ten days, the Reserve Bank of India (RBI), in its mid-term review of the annual policy, kept things simple — no more cuts in any rates. CRR is a percentage of the deposits that banks have to keep with RBI.

For investors in bank fixed deposits, it could mean good news, at least for some more time. Banks, which have been trying to attract funds, may not immediately cut deposit rates. At present, most banks are offering 10-10.75 per cent for deposits between one and two years. “Banks are still competing to raise the resources, so deposit rates have seen an upward movement,” said K R Kamath, chairman and managing director, Andhra Bank.

According to M S Sundara Rajan, chairman, Indian Bank, though long-term interest rates (over five years) and short-term (3-6 months) interest rates have come down, medium-term rates (1 year) are still holding firm. “We will have to wait for some more time before any significant changes occur,” added Sundara Rajan.

No immediate change in deposit rates also implies that the lending rates are likely to stay high. “As long as the cost of funds remains high, it is tough to reduce lending rates,” added Kamath. Most bankers felt that while the repo rate cut is a signal for them to pass on the advantage to consumers, it can happen only gradually.

“Banks will have to wait for large-size deposit rates to settle. It will take 1-2 months to pass the benefit of lower cost to consumers,” said B A Prabhakar, executive director, Bank of Baroda.

Risk-reward ratio is looking very attractive: Hedge funds

As the Indian market went into a tailspin yet again on Friday, the finger of blame once again pointed to leveraged hedge funds, which 
are trying to cut their 
losses and run. But some global fund managers and hedge fund officials maintain the crash was accentuated by too many leveraged players rushing for the exit door at the same time, and not just hedge funds alone. 

“Money is flowing out of every emerging market, not only in India. How does one differentiate between a hedge fund and local mutual fund selling,” asks Amit Bhartia, partner, GMO (Grantham, Mayo, Van Otterloo), a global institutional money management firm managing $120 billion of assets. 

“For any country today, you need serious policy action to stop the carnage. What is worrying is that in a country like India, actions are more reactive than proactive. What is the need of the hour is a serious statement and policy action by government to jump-start infrastructure and maintain growth,” he adds. 

So far in 2008, foreign institutional investors (FIIs) have pulled out over $10 billion from Indian equities at the net level. “In the very short term, there are redemption pressures on domestic mutual funds and hedge funds which have to raise cash. 

Offshore hedge funds are increasing cash ahead of redemptions which they have to pay at the beginning of the next quarter ie January 2009,” said Sam Mahtani, director of emerging markets at F&C Investments which helps manage $2.8 billion in global emerging markets. 

As per a recent analysis by Credit Suisse, hedge funds are sitting on close to $800 billion in cash. On India, Mr Mahtani is of the view that the stock market is likely to remain volatile over the next few weeks and the market is close to a bottom, thereby presenting attractive buying opportunities. 

“We believe the risk-reward ratio is looking very attractive, as we are close to crisis level types of valuations. We see a 5-10% potential downside from here, while the potential upside could be between 30-40% for anyone with a twelve month view. If any one is willing to take a long-term view, this is an extremely attractive time to buy India,” he added. 

Mr Mahtani is betting on frontline. “Once sentiment changes, local and foreign investors will go back into big stocks. Mid-caps, however, could continue to be under pressure.”

Source:http://economictimes.indiatimes.com/Market_News/Risk-reward_ratio_looking_attractive/articleshow/3638730.cms

The dummy's guide to making money when the markets are down

Two Business Standard analysts tell you there’s no time like now to fatten your wallet.

WHO SAYS THE GOOD TIMES ARE OVER?
Shobhana Subramanian

With the stock markets having come off by close to 50 per cent from their peaks in January this year, this should be a good time to buy into some blue chip counters. After all, the India growth story is far from over, so what if the economy grows at 7 per cent and not 9 per cent for a couple of years?

The case for Indian equities remains as strong as ever — India will continue to be the second-fastest growing economy in the world, after China. The fundamental story with a strong domestic market, large pool of skilled manpower and entrepreneurial talent, remains compelling.

Moreover, there are plenty of bargains — it’s almost a fire sale out there. Valuations, usually measured by what is called a price-earnings multiple, are now near their lowest levels in the last four or five years.

Remember, it’s impossible to time the market — one rarely catches either the peak or the bottom. Also, as some wise soul pointed out, “It’s not timing the market but time spent in the market that matters.”

Equities have historically given very good returns over a three to four year period or even a longer horizon; all it takes is some patience. It’s important not to get too greedy and to be able to let go after one has made money; the trouble with most investors is that they are reluctant to sell when prices are rising.

Don’t wait for returns of 60 and 70 per cent; cash out if you’ve made even 40 per cent because no other asset class gives you that kind of return, and that too tax free — that’s if you’ve held the shares for more than a year.

For those who do not have the time to keep track of stocks, the best way to go about it is to invest in mutual funds through what is called a “Systematic Investment Plan” or SIP.

Essentially, the idea is to invest a small amount every month so that it doesn’t strain one’s finances and one gets a good price for what one’s buying. There are all kinds of mutual funds — index funds that mimic the indices, large-cap funds which invest in bigger companies, mid-cap funds that take bets on smaller firms, sector funds that look at options in different spaces such as infrastructure or pharmaceuticals.

There are also what they call balanced funds — schemes that invest some of your money in fixed-income paper and the rest in equities. You can take your pick but for starters stay with large cap diversified funds. It’s important to choose a good fund house — a glance at how they have performed over the years should give you an idea of which have been the better performing fund houses.

The other way to get an exposure to equities is to buy what are called Unit Linked Insurance Plans (ULIPs) which bring with them an insurance cover. ULIPs are pretty much the same as mutual funds though many of them are expensive in that the upfront fees are rather high.

Again, there are several combinations of debt and equity that one can choose from. Remember, equity is risky, you must be prepared to lose money, but I’d say if you’re young — below 35,or even below 40 — this is a good time to invest in the market. You could put in as much as 30 per cent of your savings into equities.

The rest can be put away in what are call fixed-income instruments such as fixed deposits (FD) with banks or Government of India bonds. They are safe and also liquid, because you can break an FD by paying a penalty, but they hardly cover you for inflation.

But interest rates appear to be topping out, so here’s a chance to lock into long-term (three year) money at 10.5-11 per cent, which will fetch you about 7 per cent, post tax. If you think you can do without the money for a longer time, say four years, you could opt for longer term deposits.

FMP today is a four letter word but fixed maturity plans have given good returns in the past. I would like to think there are responsible fund managers who would not invest the money in sub-standard paper or in paper issued by real estate firms.

Perhaps one could wait a while for the liquidity situation to improve and then buy into an FMP. The returns are better than those on fixed deposits, especially if the paper has a maturity of more than a year because there are tax benefits to be had. Again, stay with reputed fund houses.

Finally, since Dhanteras is round the corner, do buy some gold. It’s always a good investment. And if you still have money left over, go party!

TAKE ADVANTAGE OF THE MARKET
Joydeep Ghosh

Where do you invest? In these troubled times, it’s a tough question to answer. With the stock markets down almost 50 per cent in the last 10 months, investors no longer have much confidence in equities. The good news is that banks have been consistently hiking fixed deposit rates — 10-10.5 per cent for deposits of between one and two years.

And gold, whether the metal per se or exchange traded funds (ETFs), has been quite a hit. With returns of around 25 per cent from gold ETFs in the last one year, it well ought to be.

But while fixed deposits and gold ETFs look attractive, parking my entire funds in them would mean that I will have no exposure to equities. While I might be tempted to do this in the present market, when the situation changes, my returns in debt would start coming down.

Also, it would imply that I would be scrambling to move my money from debt to equity, and vice versa, every few years. Since I would be inevitably entering the stock markets when they are on the rise, my returns would come down, and substantially at times.

The only way to resolve this is by keeping things simple. Once I have exhausted my Section 80C commitments (Rs 1 lakh), which would include investments in equity-linked saving schemes, public provident fund, employee provident fund, national savings certificates, principal payout on home loans et cetera, and also taken care of my insurance needs under Section 80D, I will create a portfolio.

For starters, there should be an asset allocation that will change according to risk appetite and income. I would prefer 30 per cent in debt, 10 per cent in gold ETFs and the remaining 60 per cent in equities.

Here’s the scenario. For instance, if I have a monthly take-home of Rs 50,000 per month and cash of Rs 3 lakh in my savings account, I will immediately invest a lump sum of Rs 1.8 lakh in debt, gold ETFs and index funds. I will build the equity portfolio through four monthly systematic investment plans (SIPs) of Rs 2,500 each. The advantage: I will have cash of Rs 1.1 lakh in my savings account for emergencies.

There is further classification. In debt, there are options of short-and long-term mutual funds, fixed deposits, fixed maturity plans (FMPs) and others. In equities, there are stocks, equity diversified funds, sector funds and so on.

I would start by investing 30 per cent in debt — 20 per cent (Rs 60,000) in bank fixed deposits, 10 per cent (Rs 30,000) in FMPs of mutual funds and another 10 per cent (Rs 30,000) in gold ETFs.

By getting into fixed deposits of over one year, I would create a stable part of my debt portfolio that will give me 10-10.5 per cent returns. But since the interest earnings would come under the head of “income under other sources”, my tax payout will increase.

On the other hand, 10 per cent in FMPs (for 13-14 months) of mutual funds would give me double indexation benefits. That is, if I had invested in an FMP on 20 March, 2008 and it’s maturing in 10 May 2009, my returns will be taxed at 10 per cent (without indexation) or 20 per cent (after inflation indexation benefit of 2007-08 and 2009-10). Yes, the risk is higher in FMPs, but with returns hovering around 11-11.5 per cent, it’s worth it.

An investment of Rs 30,000, or 10 per cent, in gold ETFs will ensure that I am able to take advantage of the gold rush.

As far as equities go, Rs 60,000 or 20 per cent will go into index funds because of the nominal entry load and expenses. With the Sensex down at sub-9,000 levels, any rise will ensure that I am able to take advantage of it, even if it happens after a while.

The other two equity investments will take care of safety and aggression. I will start four SIPs (Rs 2,500 each), three in large-cap equity diversified funds and one sector fund. I would look at research data on the performance of the top 10 funds and invest for a minimum of three years.

Among sector funds, I will opt for an infrastructure fund simply because I believe that this is an important need of the Indian economy that will be addressed sooner or later. And I will invest in it for a five-year period. The sector fund will compensate for the slightly-lower returns from my index and equity-diversified funds.

Source:http://www.business-standard.com/india/storypage.php?autono=338301&chkFlg=

How to make tax gains on stock market losses

Stock markets have tanked big time, spreading widespread, contagious panic, pain and gloom the world over. 

For equity investors, the pain is, of course, real though not unusual given that share prices routinely go through bullish and bearish cycles. 

An array of preferential tax treatment on equity investment offers some balm to investors bloodied by capital losses. 

Tax gains on capital losses 

Your investments may not always result in capital gains. A loss from the sale of a long-term capital asset (such as investment in equity or equity mutual funds held for more than 12 months) can only be set-off against long-term capital gains. 

On the other hand, a loss from short term capital asset is allowed to be set-off against both short term and long-term capital gains. 

How to set-off capital losses 

Accordingly, to obtain the maximum benefit one may use the following order of priority to set-off capital losses: 

First, try setting off against short term capital gains not subjected to securities transaction tax (STT); this will save 30 per cent tax (since slab rates are attracted); 

Second, try setting off against long term capital gains not subjected to STT and thus save 20% tax. 

Last, try setting off against short-term capital gain subjected to securities transaction tax. 

Where capital loss cannot be set-off and tax mitigated during the ongoing financial year, it can be carried forward to the next year provided you file a loss return along with your return of income. 

In fact, you can carry forward such losses for up to eight years 

Zero tax on dividends 

Dividends are the distribution of a portion of a company's earnings to its shareholders in proportion to his / her holding in the company. 

The dividend distribution may be in cash or kind entailing the release of a company's assets. 

For this purpose, dividends mean and include: 

Distribution of debentures or deposit certificates to shareholders, and bonus shares to preference shareholders; Distribution in cash or kind on liquidation of a company to the extent attributable to accumulated profits of the company; Distribution by a company to its shareholders on reduction of its share capital to the extent of accumulated profits of the company. 
All such 'dividends' received from a domestic company, whether interim or final, are exempt from tax in the hands of the investor. 

On the other hand, dividend received from an investment in a foreign company is taxable. 

However, an investor can reduce his or her tax burden to some extent by claiming deduction for related expenses, such as collection charges, interest paid on money borrowed to purchase the stock, if any. 

Zero tax on long term capital gains from equity 

Capital gain is the increased value of any capital asset (in this case, shares) in relation to its purchase value. 

However, this gain is said to be realised only when the investment is sold, and not otherwise. 

On the sale of equity or preference shares, securities listed in stock exchange, units of Unit Trust of India or units of mutual funds, or zero coupon bonds, the nature of capital gain (difference between the sale consideration received and the purchase price plus costs incurred to realise the proceeds) depends on how long you held the security concerned. 

If you held it for 12 months or less, the sale results in short term capital gains. 

On the other hand, if the security was held for more than 12 months, its sale results in long term capital gain. 

Any short term capital gain arising from the sale of equity shares or units in a recognised stock exchange, and on which securities transaction tax is charged, attracts a flat short term capital gain tax @15%. 

However, if the sale is effected through an unrecognised stock exchange, the short-term capital gain is added to the investor's total income and attracts tax at the appropriate income tax slab rate applicable to the investor. 

A tax free investment 

Long-term capital gains arising from the sale of equity shares are exempt in the hands of an investor if: 

the sale is effected through a recognised stock exchange, and also when units of equity-oriented funds are sold back to a mutual fund, and has been charged with securities transaction tax in respect of such sale. If the sale is not effected through a recognised stock exchange then tax @ 10% is levied if the indexation benefit is not availed, and at the rate of 20% if the benefit of indexation is availed. 

Clearly, equity investment held for more than 12 months is more tax efficient; in fact, it's tax-free! Such exemption is applicable to bonus shares and right shares also. 

Also, since any long term capital gain arising from sale in a recognised stock exchange is tax exempt, while no such concession exists in the case of sale in unrecognised stock exchange, it is obviously wiser to sell your investment through a recognised stock exchange by paying the very small transaction tax. 

Tax implications of rights issue 

Right shares are shares issued to its existing shareholders by a company which opts not to approach the public for raising its required capital and instead chooses to do so from its existing shareholders. 

The tax implications of right shares are the same as in the case of any other shares which an investor may acquire. 

Thus the dividends received on rights shares are tax free in the hands of an investor. 

Hence, in addition to the benefit that an investor typically gets rights shares at a price lower than the market price, regular dividends received from them are also currently not taxable. 

However, when these shares are sold in the market they attract tax either as short-term or long-term capital gains depending on the holding period from the date of allotment of the rights shares to the date of their sale. 

Tax implications of bonus issue 

Bonus shares are shares issued by a company to its existing shareholders without any consideration. Such shares are issued to increase the liquidity of a stock, or to adjust its market price resulting by a reduction in the accumulated profits and an increased share capital. 

There is no liability on purchase, no tax liability on dividends received; however, on sale they attract short term or long term capital gains depending on the period of holding (date of allotment of bonus shares to date of sale). 

The tax implications are the same as in the case of rights shares except that the cost of acquisition in the case of bonus shares will be taken to be nil. 

Tax implications of stock split 

While a stock split results in an increase in the number of shares in an investor's hand, the total intrinsic value of the investment, however, remains unchanged. 

The tax implications of dividends received on stock split and the capital gains are the same as tax implications of original shares, while the holding period for the purpose is reckoned from the stock's original date of purchase. 

Tax on investments in MFs 

In the case of equity oriented mutual funds with growth option, no dividends are declared, and the tax obligation arises only on sale of the units. 

The capital gains tax arising from the sale may either be: 

short-term capital gains taxable at 15% (chargeable to STT), or long-term capital gains chargeable either at 10% (without benefit of indexation), or 20% with indexation if the sale is through unrecognised stock exchange. 
In the case of sale through a recognised stock exchange, no tax is payable on long-term capital gains. 

Tax on equity-oriented MFs 

In the case of equity-oriented mutual funds with dividend payout option, any dividends received in the hands of investors are tax exempt. 

The tax implication on capital gains arising on sale of units is the same as in the case of equity oriented mutual funds with growth option. 

In the case of debt-oriented mutual funds, dividends declared are tax free in the hands of an investor while long term capital gains are taxed at 10% without indexation, or 20% with indexation. 

In the case of short term capital gains the rate corresponding to the tax bracket in which the investor falls becomes payable.

Are Investments in Foreign AMCs Safe?

The mutual funds in India were buffeted from the meltdown in the Wall Street and its impact on the Indian stock market. The foreign Asset Management Companies, or AMCs, had to deal with another factor. Many mutual fund investors in India were anxious whether their investments in the foreign AMCs were safe, particularly when Lehman went for bankruptcy and AIG's fate was also not decided. There are worries on more Wall Street firms going under.

India has a sizable presence of global AMCs including Fidelity, HSBC, and Morgan Stanley. There are also foreign partners in AMCs, including Merrill in DSP Merrill Lynch, and Sun Life in Birla Sun Life.

But the investors can be assured of their investments in foreign AMCs. Of course, their investment in mutual funds in India has the market risk per se from the fortunes of the stock market or debt markets.

The structure of the mutual funds safeguards the investors in case an AMC falls. The AMCs just manage the money. The creditors of the AMC do not have any right over the investors' money. The AMC just acts as an investment manager of the mutual fund and gets fee-based income on it. The AMC takes investment decisions according to the scheme objectives.

Another entity, the Custodian, has the role of safekeeping of securities and it has no role in asset management. The Custodian is appointed by the Trustees, who are group of persons that have supervisory authority over fund managers. The Trustees of mutual funds in India also ensure that the fund managers stick to the trust deed and the assets of the funds are held safely. The Trustees also perform other supervisory role.

The mutual fund is set up by a sponsor who works closely associated with the AMC. The regulations of the mutual fund regulator, SEBI, require that the Sponsor has to contribute a minimum percentage to the net worth of the AMC.

The Board of Directors of an AMC are normally elected each year at the annual meeting and act on behalf of the shareholders.

So the different levels of supervision in a mutual fund delink your investment from that of the bankruptcy of the AMC. Still, we wish all the foreign AMCs a good luck as they battle the Wall Street storm.

Of course, the creditors have the AMC have rights over the assets of the AMC like its offices. But not over the investors' money.

Are all your worries over from investment in mutual funds? Not exactly, says French bank BNP Paribas. The global markets, including those in India, have not bottomed out yet, it says. But on the positives it says that it expects the Reserve Bank of India to hold rates for the next six months on concern over growth rates. Hopefully, some respite for realty, banking and other interest-rate sensitive counters. BNP Paribas sees Asian banks untouched from the global credit crisis.

As of now, the bank remains underweight on commodities. But still the French bank is worried over how he rescue plans of US Treasury Secretary Henry Paulson and Fed chief Ben Bernanke's will hold off another crisis.

SEBI set to ban early redemption in new FMPs

Capital market regulator, SEBI, is set to stop early or premature withdrawals by investors in Fixed Maturity Plans (FMPs) to be launched from now on. 

The recent rush by large corporate investors in FMPs to redeem their investments, which resulted in considerable pressure on fund houses, has forced SEBI to review its norms relating to this product. 

The regulator has decided not to allow early withdrawals in new FMP offerings and to make it mandatory for new FMPs to be listed on exchanges, according to a person familiar with the issue. The aim is to prevent large scale premature redemption in a product, which is marketed as a fixed maturity plan. 

Over the course of the past 12 months, FMPs had emerged as one of the most popular products offered by fund houses. Where it scored over fixed deposits was in terms of higher yields and post-tax returns, which helped draw in a lot of corporate money. 

On an average, this scheme offers a return of well over 12% with the corpus being invested in corporate and securitised papers, certificates of deposit and commercial paper. The most common FMPs vary in maturities from 3-6 and 13 months. 

An early or premature exit for an investor in these schemes would be through the secondary market, unlike the scenario now where an investor can redeem investments before maturity by paying the exit load. Mutual fund industry managers say the regulator has stopped approving new filings for FMPs until the changes are incorporated. They are now waiting for the regulator to amend the regulations soon. 

Effectively, changes underway could signal that new FMPs will be truly be close-ended schemes, which could be traded like an exchange-traded fund. "The product is called a fixed maturity plan and the investor buys into it knowing the features of the product. People have to come into it with a clear idea that they have to stay in for the maturity. If they want to exit, they should be able to find a buyer in the secondary market after an FMP gets listed," said a person familiar with the proposed changes. 

At the end of September '08, the corpus of FMPs aggregated Rs 132,000 crore out of the assets under management of the Indian mutual fund industry of Rs 5,32,000 crore, a share of 25%. The effective tax for a long-term investor in such schemes work out to 22% while the short-term tax is 16.5%. 

The corpus would have shrunk considering that many corporates have pulled out money, given their concerns relating to the credit quality of some of the investments made by fund houses in some of the FMPs.

Source:http://economictimes.indiatimes.comSEBI_to_ban_early_redemption_in_new_FMPs/articleshow/3635064.cms

Redemptions force MFs to cut costs

Mutual fund houses are on a cost-cutting drive as their profit margins are under pressure following a dip in the assets under their management (AUM). As redemption pressures, following the global credit crisis, is taking a toll on AUMs, fund houses are planning to reduce staff and put off expansion plans. Some fund houses have already terminated their tie-ups with direct sales agents, said sources. AP Kurian, chairman, Association of Mutual Funds in India (Amfi), said the dip in AUMs owes to the global financial crisis. 

Asset management companies, which manage mutual funds, are allowed by the regulator to charge management fees between 2% to 2.5%. And they can amortise up to 6% of the new fund offerings (NFOs) over a period of time. 

Any decline in AUM will thereby force fund houses to rationalise costs. They will hire fewer professionals and open less number of new branches as profits are likely to suffer this year, said market sources. 

The redemption pressure has increased in October due to the liquidity strain in the financial system. However, redemptions are expected to ease. “The Reserve Bank of India's decision to reduce the cash reserve ration and the repo rate will bring liquidity in the financial system and help ease the redemption pressure,” Kurian said. 

The number of new applications to offer new schemes also have come down significantly in the last two months as both equity and debt markets are not conducive for investment. Fund managers are waiting for the cloud of uncertainty in the US financial market to clear. 

The AUM in the mutual fund industry declined 4%, or Rs 21,802 crore, in the period from January to September this calendar year, according to Amfi. 

“Clearly, new recruitments are off. Yes, pay cuts are on the anvil , but not yet implemented as many of the fund houses have kept costs in control by outsourcing a lot of activities,” said a senior HR executive with a leading mutual fund. 

Hence, there has been a churn in service providers and that consequently many fund houses parted with their direct sale agents (DSAs). “In fact, channel rationalisation is the obvious step for existing mutual funds,” he added. 

But the clouds of uncertainty are certainly hovering over fund houses. Retrenching employees, however, is seen as the last option, after rationalising advertising spends and distribution channels.