MFs completely missed April rally

While foreign institutional investors were buying Indian shares hand over fist --- like they never have in the past 18 months ---- local mutual funds were consumed by a debt wish.
A DNA analysis of fund behaviour in April 2009 shows that local fundmen's continued caution may have robbed the small investor of a chance to ride the best monthly stock rally in 10 years.
The Sensex rose 17.4% or 1,694 points in April, and investor wealth by Rs 5,00,903 crore or Rs 1.42 crore per trading second.
The market capitalisation of Bombay Stock Exchange rose from Rs 30,86,000 crore to Rs 35,87,000 crore during the "cruellest" month.
Estimates by Icra, the credit rating agency, say diversified equity schemes whose primary mandate is to invest in equities were holding on to cash positions of up to 15%, a majority of the purchases in April was debt paper --- worth Rs 26,450 crore. But this could be liquid funds money being rolled over from March. There was an outflow of Rs 37,000 crore from liquid schemes in the month, according to the Association of Mutual Funds of India data.
Nevertheless, it is the highest monthly investments into debt ever by mutual funds. It tops the Rs 18,421 crore worth debt purchased by funds in January this year.
Gross purchases of debt by funds stood at Rs 45,991.90 crore in April --- they sold Rs 19,541.70 crore worth of paper, giving a net buy of Rs 26,450 crore.
In sharp contrast, net inflows from mutual funds into equity was a paltry Rs 38.6 crore, according to Securities and Exchange Board of India data.
While funds bought stocks worth Rs 12,137.80 crore, they sold almost an equal amount ---Rs 120,98.90 crore.
Globally, risk aversion has reduced significantly, and emerging markets including India have been receiving copious flows from FIIs.
FIIs have invested Rs 6,500 crore in the equity markets and Rs 2,490 crore into debt in April. In all, they plonked in more than Rs 10,000 crore in the last two months.
Though Indian funds seemed to have joined the party initially, they decided to pull out as the momentum was too fast for their comfort. In March, mutual funds had turned net buyers, reeling in equities worth
Rs 1,477 crore, which was then a six-month record.
That's after being net sellers in January and February, a time when FIIs also sold big-time.
Cash levels in diversified mutual funds are above 15%, according to Icra data.
The upshot: 90% of diversified equity schemes have trailed the market performance in April, according to a report by Reuters, with returns to investor severely affected.
"Equity fund managers were unwilling to commit their money due to political uncertainty around the polls. But now there would be a lot of pressure to put money into the market," said a fund manager, requesting anonymity.
Interestingly, mutual funds seem to be dipping toes when the rally is looking "overbought" according to some marketmen.
On Monday, FIIs bought shares worth Rs 1491.10 crore, while mutual funds bought equities worth Rs 378.80 crore. That was a big buy after a long hiatus.
However, they seem to have reverted to mean, as it where, on Tuesday. Provisional data for the day show domestic institutions sold equities worth Rs 129.85 crore, while FIIs bought shares worth Rs 508.51 crore.
"FIIs who have put in money are ones who have received fresh inflows whereas that is not the case for mutual funds. Fixed-income is receiving a greater portion of the liquidity as compared to equity offerings," said Rajan Krishnan, CEO of Baroda Pioneer AMC, which saw a 66% increase in its assets under management, driven largely by fresh inflows to its liquid fund.
"There is a large amount of liquidity in the hands of the corporates and other institutions which traditionally invest into the fixed income side of the market. On the other hand, retail investors and high net-worth individuals who drive the equity inflows are adopting a wait and watch approach. Hence the flows to debt," said Sanjay Sinha, CEO of DBS Cholamandalam Asset Management.
The mutual fund AUM for April has gone up by Rs 58,000 crore. Reliance was the top gainer adding Rs 7,400 crore to its kitty, while HDFC and UTI saw their AUM rise by Rs 5,900 crore and Rs 5,700 crore, respectively.
The overall gain in AUM is 11.76%.The combined AUM stands at Rs 5,55,000 crore.

Source: http://www.dnaindia.com/report.asp?newsid=1253328

Mutual Funds: Variable loads can wait

Market regulator SEBI’s proposal to let mutual fund investors decide what they want to pay their agents failed to impress the participants at the ETIG Mutual Funds Round Table held last week. Bringing back rebating would be a more effective solution if SEBI wants to provide greater pricing power to investors, said MF house chief executives and distributors including Fidelity’s Ashu Suyash, Reliance ‘s Sundeep Sikka and HDFC Bank ‘s Abhay Aima among others.
Speaking to an audience of editors and reporters from ET and ET NOW, they said introducing a variable load system would only hurt the already feeble MF penetration in the country and open up a Pandora’s Box of consumer complaints.
Today, a small investor has to pay roughly 2.25% to get entry into an MF scheme, while large investments of typically Rs 1 crore upwards do not attract any loads. The regulator has proposed to abolish this and replace it with a system popular in more developed markets where the investors, big or small, control the fee. SEBI has proposed two options.
One, the investor, in consultation with his broker, can mention the amount of commission he is willing to pay on the application . Alternately, the investor can write two cheques – one for his investment amount and the other for the commission he would want to pay his agent.
While agreeing that Indian investors deserve greater pricing power, Vijay Venkatram of Wealth Forum, said: “If made operational in its current form, it will lead to a plethora of customer complaints and further confusion.”
Fidelity’s Ashu Suyash felt that merely “lifting” international practices could be detrimental to penetration of MF industry in the country. “When fund houses are working to attract investors from Guwahati to Nariman Point, our focus should be to come up with an improvement within the current regulations,” she said.
Ms Suyash pointed out that SEBI has already introduced no-load funds last year when it said that if an investor goes to a fund house directly without the assistance of a distributor, his entry fees would be waived.
The market regulator feels the current MF fee structure gives investor no control over the fees that the agent gets, especially if he is not satisfied with the latter’s advice.
Reliance MF’s Sundeep Sikka, however, argued that variable load structure will not necessarily lead to customer satisfaction as “valuing and quantifying advice” will always be a challenge. Panelists agreed that the problem could be solved if rebating is brought out from its closet and made transparent.
HDFC Bank’s Abhay Aima said reintroduction of “transparent rebating” will ensure better pricing, adding that the Indian MF buyer should not be underestimated . “If he can see through the bania at a neighbourhood kirana store, he can also figure out the banias in the MF industry,” he said much to the glee of the audience. SEBI is yet to announce whether it will go ahead with its proposal.
Bajaj Capital’s Rajiv Deep Bajaj said the move may be good in the long-term , but India is not yet ready for it. “It will empower investors but this may not be the right time for the move,” he said.
In 2002, Association of Mutual Funds in India (Amfi) and SEBI had banned rebating in MFs as most MF companies and distributors would pay back part of their MF fees to investors in a bid to increase their investors. Thus, an investor who paid 2.5% of his investment as entry fees of a MF scheme would get back about 1% of his investment either in cheque or cash.
The ban was brought in because the authorities thought this process was not fully transparent. Besides, there was a mounting fear that the distributor unduly influenced investor’s decision by offering a higher rebate, when his only job is to give advice. It’s the fund house that should be giving him (broker) the remuneration.

TO SUM UP
WHAT?
Commission should be determined mutually between the investor and the broker/banker, depending on the service provided by the latter
WHY?
Current fee structure is linked to the size of the investment and has no correlation to the service provided by the distributor. SEBI also hopes to make the commision process more transparent
HOW?
Two proposals. First involves a separate section in the application form where the investor can tick how much he wants to pay. Or the investor issues a seperate cheque towards commission
WHEN?
Currently SEBI is studying the suggestions made by fund houses, distributors and investors. It is silent on whether it plans to go ahead with the move.

Source: http://economictimes.indiatimes.com/articleshow/4480644.cms?flstry=1

MF AUM Rose By Means Of 11.76 Per Cent In Apr 09

Mutual fund industry registered rise in Average Asset Under management (AUM) in April 2009. The AUM of the industry has increased by 11.76% (Rs 58013.38 crore) to Rs 5.51 lakh crore in April 2009 compared with Rs 4.93 lakh crore in March 2009. AUM of funds of funds (FoFs) stood with Rs 706.29 crore in April 2009.
The increase in AUM is due to huge inflow in liquid funds, where banks and corporates invest heavily and also due to the recent recovery in equity market. According to the data released by RBI, banks had an outstanding investment of over Rs 85,000 crore in MFs as on 10 April 2009 against Rs 45,134 crore as on 27 March 2009.
The corresponding figures for the past year stood at Rs 50,950 crore and Rs 18,692 crore, respectively.
Out of 35 fund houses posted the Average AUM, 31 fund houses has recorded inflow and remaining 4 fund houses posted - outflow in April 2009. Baroda Pioneer MF has reported the impressive rise of 66.25% in April 2009 compared with March 2009.
All the top three funds recorded an inflow in April 2009. Reliance Mutual fund continued to be in the first position with AUM of Rs 88387.99 crore in April 2009 and its AUM has gained by 9.17% in April 2009 over March 2009. HDFC MF retained its second position with the average AUM of Rs 63880.63 crore a rise of 10.22% compared with the month of March 09 and ICICI Mutual Fund stood with an AUM of Rs 56049.28 crore and it rose by 8.98% in April 2009 over March 2009.
The other top mutual funds, in terms of AUM, UTI MF rose 11.76% to Rs 54489.99 crore in April 2009. Birla Sun Life MF has increased by Rs 4733.04 crore (10.05%) to Rs 51829.27 crore in its AUM and SBI MF also registered an impressive rise of 17.03% to Rs 30875.02 crore in April 2009 over March 2009.
Reliance MF registered the highest inflow in AUM of Rs 7425.05 crore, while HSBC MF recorded the outflow of Rs 253.91 crore, it was down by 2.65% in April 2009 over March 2009.
In the category of fund houses maintaining AUM between Rs 10000 -20000 crore, Sundaram BNP Paribas Mutual Fund surged by 20.45% to Rs 11161.77 crore in the month of April 2009 over March 2009. Deutsche Mutual Fund has gone up by 18.77% to Rs 11110.79 crore in April 2009.
In the category of MFs maintaining AUM between Rs 10000 - 1000 crore, Baroda Pioneer MF went up by 66.25% to Rs 1882.01 crore and DBS Chola has risen by 57.44% to Rs 1611.40 crore in April
2009 over March 2009, while ING MF was down by 6.95% to Rs 2353.08 crore and HSBC down by 2.65% to Rs 9321.28 crore.
The fund houses with relatively smaller corpus having AUM less than Rs 1000 crore has registered rise in their AUM, except Edelweiss and Benchmark MF. Taurus MF was up by 65.49% to Rs 344.82 crore and Sahara MF went up by 27.34% to Rs 185.82 crore, While Edelweiss registered a fall of 34.63% to Rs 14.57 crore in April 2009 and Benchmark MF's AUM declined by 12.11% to Rs 939.11 crore in April 2009 compared with March 2009.

ING appoints head of Indian mutual fund unit

ING Groep's Asia-Pacific fund arm has named Navin Suri as chief executive of its Indian mutual fund unit, filling a position lying vacant since January.
Suri, a former Citibank executive in Singapore, joined ING Investment Management, India in August 2008 as vice president and director for sales and distribution and has spent more than 17 years in financial sector in the Asia-Pacific region.
ING had on Dec 18 said it was shifting its chief executive Vineet Vohra to Singapore, a week after its Indian unit's director for research and investment Paras Adenwala left.
The firm, which manages about 23 billion rupees in India, is yet to replace Adenwala.

Source: http://in.reuters.com/article/domesticNews/idINBOM48196820090504

Playing safe, new pension plan halves equity cap to 50%

Contrary to its earlier draft, the New Pension Scheme (NPS) for all citizens to be launched on May 1 has capped the equity exposure fund managers can take on investments made by subscribers at 50 per cent. The draft investment guidelines issued by the Pension Fund Regulatory and Development Authority (PFRDA) earlier had recommended that equity exposure can go up to 100 per cent.
“The idea is to distinguish between mutual funds and pension funds, the latter being a long-term investment plan with an objective to provide individuals a safety net. Given the current market conditions, we were advised accordingly,” PFRDA chairman D Swarup told The Indian Express. However, he said that “we can review this cap after one year.”
After launching the NPS last year for those government employees who joined on or after January 1, 2004, the PFRDA has now opened the doors for the unorganised and private sector citizens.

Swarup said that the NPS “combines flexibility of choice of portfolio, fund managers and the quantum, frequency of investment.” A subscriber can decide the mix of his portfolio between three asset classes: G — Central and state government bonds, C — liquid schemes of mutual funds, fixed deposits of banks and corporate bonds and E — equities. The permissible equity exposure of 50 per cent will, however, be only through index funds, tracking either the 30-scrip BSE Sensex or the NSE’s Nifty 50.
The regulator has also put in place a default option that will work like a life-cycle fund. Up to 35 years of age of a subscriber, the fund will invest 50 per cent in equities, 20 per cent in Central and state government bonds and 30 per cent in the C category. Over the next 20 years, investment in equity will gradually be pared to 10 per cent. The fund will automatically redirect the money invested in equities to government bonds, the safest of all asset classes.
The NPS allows a minimum annual investment of Rs 6,000 and a minimum single deposit of Rs 500. The scheme will be distributed through 23 points of presence that include select banks, life insurers and asset management companies.
Pension fund managers will charge 0.009 basis points as fund management fee (Rs 900 for every Rs 1 lakh of assets managed). Life insurance and mutual fund companies charge between 1 per cent and 2.5 per cent of the fund value.
However, with other charges like a one-time registration fee of Rs 40, transaction fee of Rs 20 and Rs 350 as an annual CRA (central record keeping), the New Pension Scheme becomes a tad expensive for small-ticket investments. An investment of Rs 1,000 a month in a balanced mutual fund, for example, will entail total charges (entry loads and management fee) of about Rs 510 a year. The same investment in the NPS will attract Rs 640 as charges.
Investments made in Public Provident Fund (PPF), Employee Provident Fund (EPF) and Group Provident Fund (GPF) are tax exempt in all three stages of investment, accumulation and withdrawal. In the NPS, funds are taxed at the withdrawal stage. The regulator has been pushing for a level-playing field, but the government has not yet responded.
The pension money of the private and unorganised sector will be managed by six fund managers: ICICI Prudential Life Insurance, IDFC Asset Management Company, Kotak Mahindra AMC, Reliance Capital, SBI Pension Funds and UTI Retirement Solutions.

Source: http://www.indianexpress.com/news/playing-safe-new-pension-plan-halves-equity-cap-to-50/452904/0

Manage your own pension

Anybody can invest in a pension fund with the Pension Fund Regulatory and Development Authority (PFRDA) launching the facility for the general public. The scheme is similar to the one currently in operation for central government employees, which yielded an average return of 14.5% in 2008-09.
Under this National Pension Scheme (NPS), money invested in the pension fund during the working life of the investor will come back partly as a lumpsum and partly as an annual payment or pension.
The fund gives investors the option of deciding what level of risk they want to take, given the fact that higher returns are typically associated with higher risk investments. The fund will be invested in three kinds of assets — equity, government bonds and corporate bonds — and it is for the investor to decide how much should be invested in each of these.
Investment in equity is, however, subject to two significant caveats. First, it cannot be more than 50% of the amount in the investor's account. Secondly, fund managers cannot invest in shares of individual companies, but only in index funds linked to the BSE's sensex or the NSE's Nifty.
For those who would rather leave it to experts to decide what the balance should be, there is `auto choice' option. Under this option, for those aged 18-36, 50% of the amount in their pension account will be invested in equity, 30% in corporate bonds and the remaining 20% in government securities. From age 36 onwards, the proportion of investments in equity and corporate bonds will decrease annually while that in government securities will increase till the mix reaches 10% in equity, 10% in corporate bonds and 80% in government securities at age 55.
Under the scheme, you can invest any amount, though tax benefits will be available only up to Rs 1 lakh under Sec 80C. The minimum annual contribution, however, has been mandated at Rs 6,000.
The fund will be managed by six fund managers, appointed by the government at annual fees of 0.0009% of the invested amount, which is less than one paise per Rs 100. The fund managers appointed by the PFRDA are SBI, UTI Asset Management, ICICI Prudential Life Insurance, Reliance MF, IDFC Mutual Fund and Kotak Mahindra.
To open a pension account, you will have to approach the branches of any of the 22 `point of presence' (POP) service providers selected by the authority. These include State Bank of India and all its seven subsidiaries as well as ICICI Bank and Punjab National Bank. PFRDA Chairman D Swarup said that to start with there would be around 300 POPs in the country, which will soon be ramped up to more than 10,000.
The investor's account will be kept by a record keeping agency appointed by the PFRDA. However, the investor will need to interact only with the POP, where he can deposit his annual/monthly contribution.
The scheme gives the investor the option of shifting from one fund manager to another, merely by instructing his POP to do so. The POP will inform the same to the record keeping agency, which will shift the fund to the new fund manager, selected by the investor.

Source: http://timesofindia.indiatimes.com/India/From-today-manage-your-own-pension/articleshow/4469763.cms

MFs offer top-ups to bring back investors

With markets remaining volatile, fund houses are offering products having new features, aimed at tackling the downturn and eliminate the uncertainty element as much as possible.
One fund house has even lowered the ticket size to a portfolio management services (PMS) product, willing to bring into the PMS fold even those who are just on the borderline of qualifying as a highnetworth individual (HNI). Fund managers believe that this would help them in bringing retail investors back into the industry.
Over the last one year, first a bad equity market hurt fund investors hard. Then as the gilts were rallying, they shifted to gilt funds but soon burnt their hands there too. Thereafter as they shifted to FMPs and liquid funds, there also, between October and December, the liquidity crunch hit them hard. Looking at this chain of events the fund industry had to work overtime to launch schemes which could minimise investment risks as much as possible.
Recently HDFC Mutual Fund (MF) has introduced ‘Flexindex’ plan that allows investors to put money in equity funds at their preferred Sensex levels. ICICI Prudential MF has come out with a ‘Target Return’ fund, which gives the investors to lock in their gains at pre-set trigger points.
On its part, IDFC MF has launched its Hybrid Infrastructure scheme, a portfolio management services (PMS) product with entry load as low as Rs 10 lakh. And UTI MF is offering its second scheme under the “Wealth Builder” umbrella, whose portfolio is spread across equity, debt and gold in good measure to shield investors from the market volatility.
In all of I-Pru MF’s equity schemes, there is a trigger return but almost no investor opts for this, top fund house officials said. Under the ‘Target Return’ fund this trigger is compulsory. For example, after an investor’s investment gains 20%, either his full investment along with the gains, or only the profit part will be transferred to a debt fund where the risk of losing money in case of a market downturn is much lower.
I-Pru MF recently also brought in a systematic transfer plan in its ‘Income Opportunities’ fund, which allows investors to enjoy gains in the debt category while allowing them a gradual entry into the equity market.
“These products would gain momentum in the short run. We have to give a lot of solutions to investors now,” said Vikram Kaushal, head, retail sales & distribution, I-Pru MF.
“Investors are looking for relatively safe and less volatile products. Since returns are quite low in these market conditions we have to offer products that provide stability ,” said Harsha Upadhyaya, fund manager, UTI MF. “In a market like this investors are more receptive to such ideas,” feels Dhirendra Kumar, CEO, Value Research, a firm that tracks MFs.
::RICH PICKINGS::
ICICI Target Return
The investor would have a range of triggers to choose from 12% to 100%. The fund, which would invest primarily in largecap stocks, offers the option to either switch the entire investment along with appreciation or just the appreciation to any of the four debt funds man-aged by ICICI
HDFC Flexindex
The investor can put money into select HDFC debt/liquid schemes and choose four Sensex levels or ‘trigger events’ of choice to get into equity. They can then automatically transfer investments from these debt/liquid schemes to select equity schemes of HDFC MF at closing Sensex levels of choice
UTI Wealth Builder
The fund invests in equity, debt and gold. Investments are scaled up or brought down in each of these asset categories depending on market conditions. The fund can invest a maximum of 35% in gold/debt

Source: http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/MF-News/MFs-offer-top-ups-to-bring-back-investors/articleshow/4461825.cms

BNP Paribas, Sundaram to launch India-dedicated offshore fund

To take advantage of the highly under-owned pattern of the Indian equity market, French financial major BNP Paribas will set up an offshore fund jointly with the Sundaram group. The two companies are already running a mutual fund in India called Sundaram BNP Paribas Mutual Fund with assets of over Rs 10,000 crore.

According to top Sundaram BNP Paribas officials in India, the offshore fund will be domiciled in Singapore and legal formalities for this are under process.
“Initially, it would be a $100-million plus India-dedicated fund and it is likely to be launched before the end of 2009,” said sources close to the development, adding that Sundaram BNP Paribas would be marketing the fund aggressively in middle-eastern countries.

FUND FUNDAMENTALS

* Initially, it would be a $100-million plus India-dedicated fund

*It is likely to be launched before the end of 2009

*Credit Suisse too is looking to set up an India-dedicated offshore fund

TAX SOPS

* Of late, Singapore has become the most-favoured destination for fund managers

* Singapore grants tax exemption to a qualifying fund, provided it is not 100 per cent owned by domestic investors

* Collects tax, if any, from the investor*Fund managers are taxed only 10 per cent on their fee-income

BNP Paribas is one of the six strongest banks in the world, according to Standard & Poor’s. The group is present in 85 countries. The group is very strong in three major segments: corporate and investment banking, investment solutions and retail banking.
Apart from Sundaram BNP Paribas, Switzerland-based global financial major Credit Suisse too is looking to set up an India-dedicated offshore fund.
While most of the offshore funds are domiciled in Luxembourg or launched from tax havens like Mauritius or Cayman Islands, of late Singapore has become the most-favoured destination due to its tax exemption policies.
To encourage fund managers to set up shop, Singapore has in place a tax incentive scheme to benefit offshore funds. A qualifying fund will be granted tax exemption, provided it is not 100 per cent owned by Singapore investors. Tax, if any, will be collected from the investor, depending on his specific profile. Apart from this, fund managers are taxed only 10 per cent on their income from fees.
According to some of the top traders in Indian markets, Singapore has become more of a single-point investment destination for major Asian markets. All major benchmark indices, including India’s Nifty, are listed on the Singapore Stock Exchange (SGX). In fact, Singapore has become so important that global financial majors can decide the mood of Asian markets from that country alone.
“If fund managers want to take a call on Indian markets, they do not have to bring their money to India. Instead, they can simply trade Nifty futures on SGX and this saves them legal hassles involved in getting money into India,” said a Singapore-based fund manager.

Source: http://www.business-standard.com/india/news/bnp-paribas-sundaram-to-launch-india-dedicated-offshore-fund/356540/