Investors put in over Rs 1.23 lakh crore, mostly in fixed plans

Mutual fund investors put in more than Rs 1.23 lakh crore into various schemes in July -- the second biggest infusion in a month this fiscal -- mainly in fixed income plans.
The Association of Mutual Funds of India (AMFI)in a monthly report said at the end of July, investors had put in funds worth Rs 1,23,679 crore. The maximum of infusion of funds was in fixed income plans.
This is the second biggest inflow in the fiscal 2009-10 after the Rs 1,54,192 crore investment in April.
The MF industry had witnessed outflows worth Rs 83,937 crore in June, after two consecutive months of inflows, which analysts believe was mainly on the back of a heavy pull-out by banks.
At the end of July, fixed income plans with assured annual returns, saw a maximum investment of Rs 95,764 crore, followed by liquid or money market funds which have a higher liquidity and a short maturity period, that saw inflows worth Rs 24,698 crore.
Besides, equity funds investing in stocks attracted investments worth Rs 4,232 crore.
"The banks can better anticipate the interest rate scenario in the country and accordingly they change their investment strategy," Taurus Mutual Fund Managing Director RK Gupta said.

Source: http://economictimes.indiatimes.com/Investors-put-in-over-Rs-123-lakh-crore-mostly-in-fixed-plans/articleshow/4877326.cms

For small investor, has golden age arrived or is it still waiting in wings?

The countdown to India’s 63rd Independence Day has begun and what could be a better time than this to get into retrospection mode. We at SundayET have always been a step ahead when it comes to the small investor’s interest - in other words your interest. And this time, we decided to try and figure out if the small investor in India had really arrived big time, as is sometimes made out to be, or are some of the myths around Dalal Street more hype and hoopla? Has the golden age actually started for the Indian small investor - or is it waiting in the wings? How far away are we from financial freedom?
At first sight, it surely seems that retail investors have things cut out for them and life was never so good. From mutual fund investments to putting money in stocks, buying an insurance policy, buying or investing in real estate or filing tax returns, all the deals that one can possibly think of are simple and painless. However, the flip side is that this is just the beginning and a lot remains to be done. In fact, investors can and should expect better facilities and new products for investment and risk management going forward.
Looking for landmarks that have helped play out the freedom theme for Indian investors - the recently launched new pension scheme (NPS) immediately comes to mind. It has brought cheer to many private sector employees, since now they too can avail themselves of pension facilities, which were earlier available only to government employees.
In fact, one of the most important reasons for seeking out jobs in the government sector was the assured pension that would come after retirement. But now, any citizen of India can invest in this product to help secure their old age. There were several pension funds in the market such as public provident fund (PPF) and employee provident fund (EPF) and numerous other schemes offered by mutual funds and insurance companies.
But the problem with those was that the returns from PPF and EPF are relatively lower and schemes offered by mutual fund and insurance companies are costlier than NPS. NPS is a more efficient product and gives the freedom to investors to participate both in equity and debt markets depending on their risk profile. The flip side to it is that the returns are taxable and since, there is not much incentive for distributors, the benefit may remain confined to a few informed investors only.
Moving to the stock market - there’s been a sea change there in the last few decades, which is all about more power to the investors. Now there’s freedom from floor trading and physical share certificates. In fact, the very hallmark of Dalal Street - where brokers bought and sold shares by out crying - is, as we all know, a thing of the past.
Flashback to those days - the major difficulty that investors faced was to sell or buy at a particular price. The prices kept changing and one couldn’t sell all shares at a given price. Brokers used to take a long time to execute the complete trade in case the quantity was big - due to lack of liquidity. After the execution of trade, investors had to wait for a month for the share certificate. And then they also faced hassles regarding the transfer of ownership as investors needed to affix transfer stamps and then had to send them to the respective registrar & share transfer agents.
Investors had no option but to wait for around a month again for ownership transfer to happen. So surprise really that many investors, preferred to put money in fixed deposits rather than investing in shares. The average transaction time was more than a fortnight. Investors could not buy single shares as the lot sizes were higher and generally, used to be in the range of 50 to 100 shares.
Of course all that is history, today it’s electronic trading. National Stock Exchange was first one to go electronic. Investors have the freedom to buy or sell from anywhere with the help of the Internet. In fact, the impact cost has also come down substantially. Investors no longer need to struggle with share certificates as all the shares are in electronic form. And best of all, overall cost of transaction in India is probably the lowest in the world. Welcome to the world of demat!
Why is it then that every small investor is not jumping into the equity bandwagon. More than 3/4th of the trading is done by corporates and high net worth individuals and there is not much participation from retail investors. There is need for more depth and more participation from retail investors. While the move to bring down promoters’ holding to at least 75% will increase the float, it is not yet clear when that will actually happen.
According to Anup Bagchi, ED at ICICI Securities, investors have got freedom in terms of available instruments and easy and convenient transaction. The overall cost has also come down. Going forward many new instruments will come, which will help in better risk management.
While equity has become a buzzword among small investors, the Indian debt market remains shallow. Although, government bonds are liquid to a great extent but there is not enough trading volume as far as the corporate debt market is concerned. The total turnover of the Indian corporate debt market in the Bombay Stock Exchange was merely around Rs 6 cr on August 6, 2009, against a turnover of around Rs 7,000 in the equity category.
In fact, there is no direct participation from retail investors in the debt market as the ticket size is very high. Most of the time bonds are issued though private placement and in general participants are either high net worth individuals or institutional investors. Thanks to the debt mutual funds, retail investors have the freedom to participate in the debt market, however, indirectly. Going forward more debt instruments have to be launched to ensure direct participation of retail investors.
Remember the days of the stranglehold over the market by UTI Mutual Fund? MF investors have surely come a long way. They have seen the journey from a monopoly to more than a dozen asset management companies today. It was only in the 1990s, when private sector companies were allowed to set up shop to provide services, that the monopoly of UTI ended after more than two decades.
In the latter half of the 90s, mutual fund companies started giving account statements, these statements used to take months to reach to investors. Also, it used to take a fortnight for a dividend cheque to come to the investor. Investor awareness about the scheme was very limited as there was no offer document and periodic portfolio disclosure. Thanks to the Securities & Exchange Board of India (Sebi), which later made it mandatory to disclose the portfolios regularly.
In fact, the current move by Sebi - that mutual fund investors are not required to pay an entry load but have the freedom to decide the commission of distributor based on the quality of service that distributors give - has given more freedom to mutual fund investors. According to Jaideep Bhattacharya, chief marketing officer at UTI Mutual Fund, investors have got a lot of freedom during the last few years in terms of transparency and cost, however, such independence is only available in the mutual fund industry.
Going forward, experts think that there are lot many things to be done in the mutual fund industry. According to Piyush Surana, CEO at Shinsei Asset Management Company, the industry needs to grow from just selling products to selling solutions. It has to be a need based solution provider.
Like mutual fund, the life Insurance industry has scripted a similar story. Until recently it was a one-company industry. Life Insurance Company was the only player. Now investors are spoilt for choice and have options to buy an insurance policy from 22 insurance companies. According to G V Nageswara Rao, MD & CEO at IDBI Fortis Life Insurance, there has been drastic reduction in the cost.
The recent move of Insurance and Regulatory Development Authority on capping the total cost in ULIP to 300 basis points of the gross return will further make the industry cost competitive and beneficial for customers. Going forward investors can expect more simplified and convenient operational and sales process and hence the cost will be even cheaper.
As far as tax planning is concerned, although it is difficult to get freedom from paying taxes, but over a period of time rates have come down and exemption limits have gone up. For instance, now income up to Rs 1.5lakh is exempt, which was merely Rs 1lakh a couple of years back. Also, no longer its just investments in insurance and public provident fund give tax benefit but investors have several other options, such as equity linked saving schemes, ULIPs, NPS and FDs, to choose from.
No longer does one need to stand in queue but can file their tax returns online through e-filing. However, the system has to improve further as it takes a long time in getting the money back in case someone has paid more than the actual tax liability.
Buying and investing in real estate was also not so easy before. In fact, the focus on affordable segment by real estate developers and government has ensured there must be a house in every range. Until a year back, housing prices were starting from Rs 15 to 20 lakh, currently there are several projects, which assure to provide home at a price, which is as low as Rs 5 to 7 lakh.
Also, with many Internet sites coming into play it is easier to get virtual tours of the residences. The transaction time has also come down. While over the years investors have been empowered and given more freedom, yet a lot remains to be done, to give them full financial freedom.

Source: http://economictimes.indiatimes.com/articleshow/4872906.cms?flstry=1

'MFs can't charge varying exit loads from investors'

The Securities and Exchange Board of India (Sebi) has restrained fund houses from charging unitholders different exit loads based on the value of their investments. The market regulator has told asset management companies that they can charge exit load within the existing limit of 7%, but without discriminating against any category of investors. Until now, fund houses were charging around 1% as exit load from investors who have invested less than Rs 5 crore (Rs 2 crore in case of some funds). Investors who have invested more than Rs 5 crore were not charged an exit load in most cases. In the case of fixed income funds, retail investors were charged 0.5% as exit load for premature withdrawals (exit load limit may span between six months and one year), while institutional investors investing beyond a pre-set limit were not charged exit loads. "Mutual funds are making distinction between unit holders by charging differential exit loads based on the amount of subscription. In order to have parity among all classes of unit holders, it has now been decided that no distinction among unit holders should be made, based on the amount of subscription while charging exit loads," the Sebi order said. The order has raised mixed reactions from fund houses. While a section of the industry believes such a move will dispel 'fast institutional cash' moving in and out of schemes, others are apprehensive as to whether institutional investors will continue to invest in mutual funds that also has retail investors (also called general plans). "The move will ensure that institutional money stays for long enough (in the fund). This is also intended to apply brakes on the AUM bundling game played by top fund houses," said the marketing head of a private fund house. Fund houses will now have to launch separate institutional plans to ring in investments. "We can move around this diktat only by launching exclusive schemes for institutions. Only then we'll be able to give institutions a no-load exit," said channel head of bank-promoted fund house. "But this could marginally increase the expense ratio of retail funds. Institutional money greatly subsidised the cost of managing the fund; without institutional money, AUMs in retail schemes could fall, which could result in the expense ratio of the fund shooting up," the channel head said.

Source: http://economictimes.indiatimes.com/Personal-Finance/MFs-cant-charge-varying-exit-loads/articleshow/4869575.cms

Irda may up lock-in for Ulips to 5 yrs

In an attempt to check mis-selling, the Insurance Regulatory and Development Authority (Irda) is planning to increase the lock-in period for unit-linked insurance plans (Ulips) from three to five years.

Talking to reporters on the sidelines of an insurance seminar, Irda member R Kannan said the regulator was taking steps to address concerns over mis-selling.
He said the move would reduce the problem of policyholders letting covers lapse and also benefit companies as it would help them minimise their administrative and marketing costs. “We are waiting for a consensus on the issue,” Kannan said. A senior executive at a large private sector insurance company said that the minimum tenure for a Ulip was five years at present, but partial withdrawals were allowed after three years.
“If the intent is to allow partial withdrawals only after five years, then it is good since insurance is a long-tenure product,” he said.
The chief executive officer of one of the country’s largest life insurance companies said that he had not heard of any industry-level discussion on the issue. He, however, added that the move would be beneficial for both policyholders and insurers. “Given the cost structure, returns would be better in case of a mutual fund if the investment tenure is five to six years. It makes sense to invest in Ulips only if you want to invest for at least seven or eight years,” he added
However, Future Generali Chief Actuary G N Agarwal said the move would benefit the mutual fund industry as the interest of Ulip buyers might be affected since they have to wait for five years before they could exit.
In recent months, Irda has tried to tighten regulations on Ulips. First, it put in place systems to ensure that policies were not front-loaded in terms of premium payment. Last month, it also reduced the charges levied on Ulips, though the circular was expected to be modified to factor in industry concerns.

Source: http://www.business-standard.com/india/news/irda-maylock-in-for-ulips-to-5-yrs/366307/

MFs to face greater obstacles with entry load gone

The mutual fund industry in India, although 15 years old, is still to develop into a
credible competitor to other segments of the financial services industry, especially insurance. On the face of it, mutual fund investments (in equity schemes) seem more attractive than insurance products, but on the ground the reverse is true. More Indians trust life insurance companies with their savings than they do with mutual funds. According to figures from the Central Statistical Organisation (CSO), life insurance funds accounted for 12% of total household savings in India. In contrast equity & debentures only attracted 7% of household savings in financial year ending March 2008.
There are 35 asset management companies (AMCs) in India managing Rs 6,70,012 crore, according to independent investment information provider, Value Research. The industry’s penetration is estimated at 4-5 % as against 10-15 % for insurance. There are around 3 million agents for insurance products and just 80,000 distributors for mutual funds.
Both industries, which started almost half a century ago in India with a single player, now have several competing companies. Still, low customer awareness levels and poor financial literacy have largely stymied the popularity of financial products in India.
But in the case of insurance, rampant misselling has made it more popular than mutual funds. While insurance is indeed an investment for covering your life, it is sold more as a tax-saving investment tool. In rural areas, agents mis-sell it as a fixed deposit and the idea has been so well rooted that in many Indian villages, it is still popularly known as ‘Lal FD’ . There is little scope for mis-selling in case of mutual funds - the mis-selling is limited to the extent that the agent assures investors a return that the fund may not able to deliver.
In terms of selling, both mutual funds and insurance are ‘push’ products. However, a distributor has a higher incentive to sell the latter because of the opportunity to earn a higher commission. An agent selling insurance earns a commission of 30-40 % of the initial premium and a trail commission of around 5%. However, the commission in case of mutual funds is never more than 2-2 .5%.
Insurance generally is a product that cannot be sold multiple times to one investor. Hence, the agent has to be given a high commission to push the product. In case of mutual funds, the agent gets multiple opportunities to sell more than one product to the same investor.
As a result, distributors and mutual fund houses exhibit limited interest in continuously engaging with customers post closure of sale as the commissions and incentives are largely in the form of upfront fees from product sales. Limited use of the public sector banks’ network and post offices to distribute mutual funds has also impeded the growth of the industry. The insurance industry, on the other hand, has been able to leverage this to its advantage.

While setting up an AMC is relatively easy, getting business during a downturn and
withstanding redemption pressures during times of low liquidity is the difficult part. The insurance business is one with a long gestation period and requiring sufficient capital to cover incremental actuarial liability. The breakeven time for an insurance business in India is at least seven years. In this scenario, the most important challenge for the company is to have a robust agency network.
Mutual Funds have to face a stricter regulatory environment as the industry is regulated by the conservative capital market regular Sebi. As a result, there is limited flexibility in fixing fees and pricing. Insurance companies have a relatively less stringent environment as the industry is regulated by Irda, which is less conservative in its regulation. This allows more flexibility for companies to structure their products and fees.

Source: http://economictimes.indiatimes.com/Features/Investors-Guide/MFs-to-face-greater-obstacles-with-entry-load-gone/articleshow/4850274.cms?curpg=2

India Post stops MF distribution

The ban on entry load on mutual funds (MFs) has struck its first blow to the asset management industry, with the government-run India Post stopping the distribution of MF schemes through its designated post offices.
India Post — a 'national distributor' in the real sense, thanks to its expansive distribution channel covering over 210 post offices — has informed mutual funds (with which India Post has exclusive tie-ups) that it will not sell schemes until there is clarity on distribution commission.
"We will not sell mutual funds until we get some clarity on entry load. We'll see how the issue unfolds over the next few weeks. The final decision will depend on how Sebi settles the issue without really hurting the distributor,"a senior official at India Post told ET.
A circular sent to the heads of concerned postal circles states that: "in view of Sebi guidelines, empowering investors through transparency in payment of commission and load structure which will come into force on August 1, it has been decided to suspend the retailing of MF products on all MF companies with effect from August 1."
But the department will distribute Franklin Templeton's Build India Fund as "it will get commission as per the existing terms (referring to the earlier commission structure) and conditions for retailing the NFO,"the circular added.
India Post sells schemes of Principal MF, SBI, UTI, Franklin Templeton and Reliance Mutual Fund through designated post offices in India.
According to the official, India Post has sold mutual fund schemes worth Rs 150 crore last fiscal. Ballpark estimates suggest that the postal behemoth would have earned anywhere between Rs 5 crore and Rs 10 crore on it, including upfront and trail commissions.
India Post started distributing mutual funds in 2001, first by signing an exclusive tie-up with IDBI-Principal. The India Post website says the department has stationed one AMFI qualified personnel at every designated post office to sell mutual funds.
"We've not yet received any official communication regarding it. But if it is true, the long-term impact is going to be very drastic. India Post — though not much of a big contributor to AUMs currently — has all that it takes to be a big rural distributor in future,"said the channel head of bank-promoted fund house.
India Post's decision to stop fund distribution stems from the recent Sebi ban on entry loads in mutual funds. According to the new rules, investors now have the freedom to directly negotiate on the fee that they pay for the services of distributors, or brokers, during the purchase of mutual fund schemes.

Industry watchers are concerned that many more distributors may stop selling mutual fund products because of unviable profit margins.
Though not officially confirmed, Bajaj Allianz Financial Distributors, the third joint venture business between Bajaj Finserv and Allianz SE, is seriously considering to shut operations soon. The Pune-headquartered distribution company has a presence in over 30 locations, and has exclusive tie-ups with fund houses such as Fidelity MF, Principal MF and Taurus Mutual.

Source: http://economictimes.indiatimes.com/India-Post-stops-MF-distribution/articleshow/4861637.cms

The sharp contraction in the U.S. economy "seems to be ending"

The sharp contraction in the U.S. economy "seems to be ending" but recovery will be slow with risks still looming from the weak labor and housing markets, the International Monetary Fund said on Friday.
The IMF, in its annual report on the U.S. economy, stuck to earlier forecasts that gross domestic product will shrink by 2.6 percent in 2009 and then rise by 0.8 percent in 2010.
The report was prepared before U.S. data on Friday showed the economy contracted by a 1.0 percent annual rate in the second quarter.
"As a result of their increasingly strong and comprehensive policy measures, the sharp fall in economic output seems to be ending, and confidence in financial stability has strengthened," the IMF said in its report, which followed consultations with U.S. officials and institutions.
"Nevertheless, with financial strains still elevated, the recovery is likely to be gradual, and risks are tilted to the downside," it said.
The IMF said unwinding fiscal and monetary stimulus measures would have to wait until a sustainable recovery is underway. But they need to develop exit strategies from stimulus programs, strengthen financial regulation and in the medium term cut budget deficits.
Charles Kramer, head of the IMF's North American Division, said the United States may need more stimulus measures if economic and financial conditions worsen significantly.
Still, he said, policy-makers should be thinking about how to end the generous fiscal and monetary policy measures put in place over the last 10 months.
"We should emphasize that now is not the time to implement the exit, but it's a good time to be developing and communicating exit strategies to underpin confidence," Kramer told reporters on a conference call.
The IMF's North American division deputy, Marcello Estevao, said rising unemployment is the greatest threat to recovery efforts.
"The weakness in the labor market is going to reflect into the weakness in the housing market. When people lose jobs, wages don't grow as much, it's harder for people to pay their mortgage, Estevao said.
"There is substantial uncertainty exactly how this feedback would play out. And that is one of the reasons we have this very gradual recovery outlook for the U.S."
He said the IMF sees U.S. GDP growing "a little bit" in the second half, with a sustained recovery not starting until the second quarter of 2010.
The IMF's forecast for unemployment was unchanged, seeing 2009 unemployment averaging 9.3 percent and rising to 10.1 percent for 2010.
DIVERSE FED TOOLKIT
The IMF directors said the Federal Reserve would need to maintain a diverse set of tools to respond to evolving market conditions, and it recommended that assets it holds from bailed-out financial institutions, known as the Maiden Lane facilities, be transferred to the U.S. Treasury to protect the central bank from credit risk.
The value of assets that the Fed has taken over from American International Group (AIG.N), for example, have been reduced by several billion dollars in recent months.
The IMF welcomed the Obama administration's efforts to revamp the U.S. financial regulatory system, and said this should aim to discourage size and complexity among financial firms to limit potential systemic risks in the system.
The IMF also maintained its view that the U.S. dollar was "moderately overvalued," though Kramer noted the dollar has been volatile because of safe-haven flows into U.S. assets during the crisis and the subsequent unwinding of that as the crisis eased.

Indian equity regulator causes panic among Mutual Fund investors

Panic and doubts have started arising in the minds of the Indian mutual funds investors regarding the sustainability of the viability of the Indian Mutual Fund Agencies (AMC) after Securities and Exchange Board of India (SEBI) abolished the entry load. A fragile mutual fund industry is facing glut of fresh applications and the pressure of redemption’s. Investors are also dismayed with the exit charges levied by AMC’s under the directive of SEBI. AMC’s have increased the exit load durations, some up to 3 years. As per today’s circular, SEBI website circular says that “The mutual fund may charge the load within the stipulated limit of 7% and without any discrimination to any specific group of unit-holders.” It further writes that “It is observed that the mutual funds are making distinction between the unit holders by charging differential exit loads based on the amount of subscription.” Mutual Fund AMC’s have either not charged any exit load or decided on less period of investment duration, for applications above Rs. 5 crores. This will definitely deter the fresh investments.
Worried AMC’s are finger pointing at SEBI but are afraid to speak out in the public. AMC’s reasoned that the AMC directors in SEBI had rejected the proposal. Subsequently the proposal was put on vote on SEBI intranet and they are not aware of the results of the poll. The decision by SEBI Chairman S D Bhave was a bolt from the blue for the AMC’s and AMC’s allege that the proposal was never discussed with them after the initial rejection.
Distributors have started getting queries on the safety of the funds from their clients. While investors are aware of the dwindling fresh applications, the August redemption figures will be published only on September 10th and it might be too late for investors.
Industry feels that SEBI has harmed the investors more than the AMC’s and distributors.

Source: http://frontierindia.net/ea/indian-equity-regulator-causes-panick-among-mutual-fund-investors/287/