India - SEBI urged to launch IRA scheme for households

Apex chamber Assocham has urged the Securities and Exchange Board of India (SEBI) to introduce individual retirement account (IRA) scheme for large households to enable investment in equity market through various mutual funds. 

In a representation to the market regulator, the chamber has underscored the need for promoting long-term inflows into equities by floating IRA schemes so that households make their investments through various mutual funds to reap the benefits of their long-term plans. 

The IRA scheme concept, prevalent in developed economies such as the U.S. and some countries in Europe, is broadly aimed at savings plans to create wealth over a period, which could then be available for the individual’s post-retirement period. 

To incentivise individuals to join the IRA schemes, the chamber has suggested tax concessions such as a deferred tax system under which each contributor to the proposed IRA could invest up to Rs 5 lakh in a year in a mutual fund scheme for investment in equity or in a combination of equity and debt, as per the investor’s choice. 

Lock-in period 


The lock-in period recommended for such investment is a minimum period of 10 years which can be withdrawn only after the investor attains the age of 58 or 10 years after investment, whichever is earlier. 

Assocham has suggested that while the amount invested in the IRA scheme should be tax deductible, dividend and capital appreciation should be exempted from taxes when the investor withdraws the amount, as is permitted under the EET (‘Exempt, exempt tax’) facility. 

According to the chamber, such a scheme will promote long-term investments in equity and debt and also ensure a reasonable post-retirement income when the individual investor would be on a relatively lower tax bracket. 

For the non-tax paying category also, the IRA scheme could be promoted by permitting mutual funds to offer such investment avenues.

The IRA scheme, the chamber said, would thus help individuals to build their retirement benefit schemes and, at the same time, channelise the savings of the community to the capital market. The diversion of savings of the household sector to the capital market would provide a steady flow of substantial amounts that would also act as a buffer against volatile inflows and outflows of foreign institutional investors (FIIs). 

Assocham also pointed out that though the Government has permitted provident funds (PFs) to invest 10 per cent of their corpus in equity-based mutual fund schemes, the guidelines have not been finalised as trustees of these funds are not permitting such investments. “It is time that the difficulties, if any, are removed and provident funds and gratuity funds are allowed to be invested in mutual funds also,” it said.

Source:http://spoonfeedin.blogspot.com/2009/01/india-sebi-urged-to-launch-ira-scheme.html

Mutual funds give up 2 yrs of gains in 2008 crash

Net values of Indian equity funds fell more than half in 2008, giving up the entire gain made in the previous two calendar years, as the main stock index plunged 52.4 percent to record its worst annual performance ever.

"The fall was stunning and one of the major losses that we would have suffered in any calendar year," said Aditya Agarwal, managing director and head of Indian markets for fund research firm Morningstar.

Indian shares recorded their first annual drop since 2001, surpassing the previous worst fall of 20.8 percent in 1995, slammed by foreign fund outflows and a sagging domestic economy. 

Seventeen stocks in the BSE index lost more than half their value during the year as foreign funds withdrew more than $13 billion after record inflows of $17.4 billion in 2007.

Net asset values of all stock funds fell in 2008, recording their worst annual fall of 54.7 percent during the year, according to data from global fund tracker Lipper.

Nearly half of the actively managed diversified stock funds also underperformed the benchmark index despite maintaining a double-digit cash levels almost through the year as their large mid and small-cap holdings plunged even more than the main index.

The funds' monthly allocation to mid-cap and small-cap shares ranged between 33.6 percent to 43.8 percent during the year, delivering a blow to their portfolios as the BSE Mid Cap and BSE Small Cap indices slumped close to 70 percent.

Their top bets in capital goods and financials were also hitby high interest rates and a slowing economy.

Funds had parked more than a fourth of their equity assets in the two sectors through 2008 on an average, data from fund tracker ICRA showed.


YEAR OF DEBT, GOLD FUNDS

India's gold exchange traded funds rose 25 percent in 2008, the highest by any category of funds, as the dollar weakened against the euro and crude oil rose to record high, improving the yellow metal's appeal as a hedge against inflation.

Gold prices on the Multi Commodity Exchange soared to a record 14,320 rupees per 10 grams on Oct. 10, up 35.1 percent from the close in 2007 and ended 2008 up about 29 percent.

Fixed income funds improved performance over previous year with those investing in government securities recording a stunning 19.77 percent rise in net values as yields saw their biggest yearly fall in seven years in 2008.

The 10-year benchmark bond yield ended the year down 254 basis points at 5.25 percent, plummeting from a seven-year peak of 9.55 percent hit in July as expectations for monetary easing continued to prompt investors to buy debt.

Source: http://in.reuters.com/article/businessNews/idINIndia-37259420090102?sp=true

Don't give up on the bulls

The year 2009, for the stock market, is expected to be a year with two distinct trends:
consolidation during the first half and then building on that consolidation, slow growth in the second half. Market participants feel 2009 will be a year markedly different from 2008, which saw value destruction of unimaginable proportions.
"The market has corrected dramatically this year (2008). So I don't expect any major correction next year,'' said UK Sinha, CMD, UTI Mutual Fund. "We are near the bottom now,'' Sinha added.
The first half of the year is expected to be the phase of adjustment. Once that is over, the stock market could start looking up from the second half.
"The market usually turns 6-9 months ahead of the actual economy. So we are expecting the markets to turn in the second half of 2009,'' said Naresh Kothari, president & co-head, institutional equities, Edelweiss Securities.
"From the third quarter, we would begin inching up, but a V-shaped recovery is ruled out,'' feels Aseem Dhru, MD, HDFC Securities.
One of the main reasons for the recovery is the impending Lok Sabha elections by April 2009. In India, general elections mean some amount of uncertainty with inherent downside risks and investors, including foreign fund managers do not like uncertainty. Brokers and fund managers expect recovery to start after the new government is in place.
The year would also see the Indian market in a different league than most of the other popular investment destinations. Officially a number of developed nations are already in recession. But in India, everyone is talking about the pace of growth coming down. "While the world has to battle negative growth (recession), India has to deal with a slowdown,'' said Dhru.
The marked difference between India and the West could be gauged from a conversation with the head of a UK agency. "You (India) are sorry that growth could be 5-6-7% next year. Come on. Give us that kind of growth and we will be on top of the world,'' said the official.

Equity allocations to rise in '09: Benchmark MF

Sanjiv Shah, Executive Director, Benchmark Mutual Fund, feels equity allocations will be on a rise in 2009. “You have to be more invested in equity as compared to what have you been in the last few years, so in a sense 2009 would be better for investors in equity markets.”

2008 has been a tough year for all stocks, large, small caps etc. but our view is that when the markets turn around the broader market turns around the first with the large caps and they become leaders in a sense. So you have to be mostly in the larger sector of the economy right now.

Source: http://news.moneycontrol.com/india/news/mf-interview/equity-allocations-to-rise09-benchmark-mf/16/16/373337

Central Bank of India enter into an agreement with Kotak Mahindra AMC

State-run, Central Bank of India has entered into an agreement with Kotak Mahindra Asset Management Company (AMC) to distribute latter's mutual fund products through its network.

"Under the agreement Central Bank of India will offer the entire bouquet of Kotak Mutual Fund products from the bank's branches," said Central Bank of India.
CEO of Kotak Mahindra AMC, Sandesh Kirkire said, "The banking channel is one of the best platforms to reach out to retail investors. Offering advice on mutual fund investments is an extension of the value added services that are offered by banks. With this tie-up, customers will gain easy access to the various schemes of Kotak Mahindra AMC at the branches where they do their banking transactions."
Commenting on the tie-up, General Manager of Central Bank of India, Mr G.P. Chitnis said, "In the Indian financial markets, mutual funds have established themselves and gained popularity amongst the retail investors. For us, this tie up will open up further opportunities to provide our vast client base with a wider choice of products to meet their diverse financial needs. It will also give a boost to bank's fee-based income."
Central Bank of India was established in 1911 and since then it has established itself as a one of the popular brand names. The bank has a strong network of more than 3416 branches, 230 extension counters and 400 ATMs. Presently it has a business of about Rs 197,000 crore and it will cross Rs 2 lakh crore shortly, said Mr Chitnis.
Kotak Mahindra Asset Management Company which started its operations in December 1998 is a wholly owned subsidiary of Kotak Mahindra Bank Ltd. It offers a wide range of products and services suiting the diverse and varying needs of its investors.

Source: http://www.rupeetimes.com/news/car_loans/central_bank_of_india_enter_into_an_agreement_with_kotak_mahindra_amc_1998.html

Mutual funds see 2009 as year of active money management

Every equity scheme from every fund house took a beating in 2008; fund managers hope new year will be better

India’s mutual fund managers, after waging a losing battle through all of 2008, are hoping they can recoup some losses in 2009. “We look forward to 2009. It is the year where we’ll have to make amends for the past and the stage is set for the same,” insists Nilesh Shah, deputy managing director of ICICI Prudential Asset Management Co. Ltd, the third largest Indian mutual fund house by assets, managing about Rs37,055 crore at the end of November.

Equity funds in India followed the stock market’s dive even as investors rushed to cash out of their fixed income or debt funds in the months of September and October.Mutual fund assets under management shrank by more than 25% over the year, from Rs5.49 trillion at the beginning, to Rs4.05 trillion as on 30 November, the last date for which data is available. “In 2008, both regulators and fund managers failed in predicting the depth of the economic crisis. While they were talking about globalisation, in the same breath, they were also talking about decoupling,” said Shah. “It was an unprecedented year in terms of how things unfolded, and we are not going to see this kind of a year in the next 10-15 years,” predicts Sandip Sabharwal, chief investment officer (equity) at JM Financial Asset Management Pvt. Ltd, which managed Rs6,749 crore in fund assets at end-November, about half the Rs12,480 crore it was managing at the end of December 2007. Equity diversified funds as a category dropped 56.68% during the year, in line with the 54% fall in the Sensex, India’s most watched index on the Bombay Stock Exchange. Given that 2008 saw every equity scheme from every fund house take a beating, fund managers are desperately seeking to save face in 2009. Shah of ICICI Prudential likens 2009 to 2003, when stock markets rebounded for a five- year rally after being in the doldrums for three following the bursting of the dotcom bubble and 9/11. “2009 starts off negative, with most economies in the world slipping into negative growth, but I feel it will be a very different end,” claims JM Financial’s Sabharwal, betting that credit flows will restart, interest rates will fall further, and there will be no prolonged slowdown.During 2008, when active management failed, the ideal strategy that would have worked, said Sabharawal, was passive management of funds that tracked a key index, keeping a large chunk of the fund in cash. But he predicts that “It (2009) is going to be a year of active management with some very specific picks emerging in industries and sectors that will lead the climb up.”On the debt funds front, thanks largely to an easing in monetary policy by the Reserve Bank of India, mutual fund schemes have already started posting positive returns. As interest rates fall, the price of the paper in which these debt funds invest go up, effectively boosting the net asset value of the schemes. Data from Value Research India Pvt. Ltd, which tracks performance of mutual fund schemes, show that income, gilt and, liquid and liquid-plus schemes—the three broad classes of debt funds—have posted year-to-date returns of 11.93%, 21.44% and 8.55%, respectively. Such returns have likely made up for the crisis of confidence and erosion in value of these funds in late September and early October, resulting in net redemptions of at least Rs90,000 crore over those two months. The Securities and Exchange Board of India, which regulates mutual funds, has also chipped in to boost confidence, announcing earlier this month that it will not allow redemptions from close-ended schemes over the tenure of the scheme. It also said all new closed-ended funds should be listed on stock exchanges to provide liquidity to any investor who may want to sell in a financial emergency. But the bottomline for success in 2009 is consistency, says Krishnamurthy Vijayan, chief executive officer of JPMorgan Asset Management India Pvt . Ltd. “There should be consistent selling,” says Vijayan. “If fund houses were making 20 sales call a day in a good market, they need to do the same in a bad market. If they had one advertisement a week in a good market, they need to have at least one a fortnight now. If they talked about them being a process-driven fund house earlier, they need to do that now too.”

Source: http://www.livemint.com/2008/12/29223723/Mutual-funds-see-2009-as-year.html

Birla Sun Life adds new features to Tax Relief 96

BSL Tax Relief’96 with this novel feature, helps the investors avail of critical illness insurance of upto Rs. 10 Lac, till the age of 55 yrs against 9 critical illnesses.

Birla Sun Life Mutual Fund has added a new feature to one of its most consistently performing fund “Birla Sun Life Tax Relief’ 96”, by offering customers a unique critical illness insurance for 9 critical illnesses. The revised equity linked tax saving scheme opened on December 15, 2008. The fund aims to deliver value to the investors through long-term capital growth from a diversified portfolio of predominantly equity related securities.
BSL Tax Relief’96 with this novel feature, helps the investors avail of critical illness insurance of upto Rs. 10 Lac, till the age of 55 yrs against 9 critical illnesses.
Commenting on the launch of BSL Tax Relief’ 96 Fund with added feature,Anil Kumar, CEO, Birla Sun Life Asset Management Company Ltd, said, “Birla Sun Life Tax Relief’ 96 Fund is designed keeping in mind the requirements of investors. The fund will take care of their three financial planning priorities – tax management, wealth creation and their health needs with insurance for critical illness.”
Birla Sun Life Tax Relief’ 96 Fund offer investors the opportunity to save tax under section 80C, avail special critical illness insurance and also reap benefits of capital growth by investing in the world’s third best equity fund, as rated by Lipper. The scheme has till date declared an impressive 2160 % dividend since inception.

Every equity scheme from every fund house took a beating in 2008; fund managers hope new year will be better

The stock market downturn, beginning early in 2008, wiped off close to Rs150,000 cr this year, bringing its asset size to nearly Rs4,00,000 cr

They used to be an avenue of mutual gains for investors in both good and bad times for years, but incurred heavy losses in 2008, when mutual funds (MFs) became poorer by about Rs150,000 crore or about one-third of their total size.Such has been the impact of these losses, which accounted for nearly three-fourths of the overall gains in the previous year 2007.The mutual fund industry in India, with nearly 36 members, was regarded as a safe avenue of mutual gains for investors till 2007, when their total wealth grew by more than Rs230,000 crore to Rs550,000 crore.However, the stock market downturn, beginning early in 2008, wiped off close to Rs150,000 crore this year, bringing its asset size to nearly Rs4,00,000 crore and leaving the industry shattered with a huge liquidity crunch.But the industry, where players operate with catchlines like “We believe 2009 will be a better year and the mutual fund industry would bounce back with general improvement in liquidity and economy as government measures would promote growth, while the overall market sentiment is likely to change from January onwards,” Association of Mutual Funds chairman A P Kurien said.Mutual funds are likely to resume growing in a robust manner by April-June 2009 as equity markets are expected to improve by then, Kurien said, adding that the Rs20,000 crore support given by the government helped in avoiding a crisis situation for the industry.“We started the year on a extremely optimistic note and are ending it on an extremely pessimistic edge. It has been the worst calendar year for the market as the magnitude of losses have been huge,” mutual fund tracking firm ValueResearch Online CEO Dhirendra Kumar said.However, the weak close to the year could provide an excellent ground for rebuilding “as this is the appropriate time for investors to buy for the long term”, he added.Market regulator Sebi has issued guidelines to protect mutual funds and investors from sudden redemptions, like asking funds to list close-ended schemes and disallowing exit from schemes before maturity.The decision came in the wake of a liquidity crisis faced by the industry two months ago as investors pulled out from fixed-income funds fearing a liquidity crunch.Probably on account of this, the industry saw new fund houses entering or planning to enter the space this year. These included Bharti AXA, Edelweiss Mutual Fund, India Infoline, Religare, Aegon and Peerless.