India stk fund inflows drop as entry fee ban bites

Net collections by Indian stock funds turned negative for the first time in four months in August, a month after the market regulator banned entry fees by mutual funds, limiting their ability to pay distributors.
The Securities and Exchange Board of India in July directed mutual funds to abolish front-end or entry fees from August 1, a move aimed at cutting costs for investors and to discourage aggressive selling.
However, the step has irked distributors, who bring more than 90 percent of the business to money managers and have threatened to stop selling mutual funds, given the potential loss in fees.
"Under the new norms, distributors are no longer likely to get higher commission from AMCs and, therefore, mutual fund business, especially sale of equity funds, has become an unattractive proposition," said Chintamani Dagade, a senior research analyst with Morningstar.
He said equity markets trading at higher levels would have also held investors back from investing.
Indian stock funds recorded a 1.18 billion rupees net outflow in August, the sharpest monthly decline in 2009, after three straight months of robust flows on back of a strong rebound in domestic shares.
Inflows into existing funds dropped by more than a third to its lowest since April.

Source: http://in.reuters.com/article/domesticNews/idINBOM44046320090911

Mr. Anand Shah, Head-Equities, Canara Robeco Mutual Fund

Canara Robeco is a JV between Canara Bank, a 100-year old premier bank in India and Robeco, an 80-year old Rabobank entity and an asset management specialist. It is one of the fastest Growing Asset Managers in India, clocking 94% growth year-on-year in AU M (June 2009 over June 2008). It is the Lipper’s Bond Fund House of the Year for 2008 in India. Canara Robeco has an experienced fund management team with over 75 years of experience amongst them in Equities and Fixed Income.
Mr. Anand Shah, Head-Equities, Canara Robeco Mutual Fund joined the firm in 2008. He has done his MBA from IIM-Lucknow. Prior to this, he has worked as a Fund Manager with Kotak Mutual Fund for more than 6 years. He also worked as a co Head-Equities with ICICI Prudential Mutual Fund.
Speaking with Yash Ved of India Infoline, Anand Shah says “Liquidity has taken the markets up so far, but we are not comfortable with the valuations right now.”

What is your view on the Indian stock market at this point of time? Where do you see the Sensex by March?
In the short term, we are cautious on the stock market. According to us, the market has factored in a lot of recovery in the economy, domestic & overseas. We don’t see a rosy picture for the global markets next year. The large fiscal stimulus that has supported the markets across the globe will be rolled back partly or completely depending upon the recovery. We see little bit of caution in the markets given the current valuations and fundamentals. Valuations are neither low nor very high. Liquidity has taken the markets up so far, but we are not comfortable with the valuations right now.

What is your view on the Indian economy?
The Indian economy is more resilient than several other global economies. India will continue to grow at a decent rate. India’s FY10 GDP could hit 7%, though we see monsoon affecting the GDP growth rate by 100-150 basis points.
In terms of global markets, whatever green shoots we are talking about is nothing but stabilization of the economic deceleration. The emergency stimulus measures taken by governments around the world will get rolled back next year. As a result, the global economy could actually see another dip in growth compared to this year.
That is where we see an impact on global equity markets which in turn will have some impact on the Indian markets as well.
The global markets have already revived. It is the liquidity that is driving the markets. Otherwise, actually, the markets should be in a correction mode.

What impact do you see from govt borrowing?
The Government has to increase tax revenues and reduce expenditure to keep the bond market stable.

What is your AUM?
Our AUM is Rs84bn. Out of this, around 10% - 12% is equity and rest is debt.

How do you see inflation and interest rates?
We see inflation going up to 6-7% by March 2010, if food inflation deteriorates further.

What is your view on the rupee? What kind of flows do you expect from FIIs?
In the short term, the rupee would depreciate and the dollar will appreciate, and in the long term, the rupee will appreciate vis–a-vis the dollar
India has always been one of the top receivers of global funds and will continue to get money from the foreign investors. There will be bouts of risk aversion which may lead to some outflows. It depends upon fiscal policies pursued by the Government and the status of recovers in the global economy.

Which are the sectors you are bullish and bearish on?
We are bullish on sectors that are linked to the domestic consumption. We are bullish on Telecom, Banking, Power and Pharma and Gas Utilities.
We are bearish on Global Commodities and Metals – sectors that are dependent on global demand.

Any NFO(s) in the near term?
Currently there are some products in pipeline and we would launch our funds as and when we see an opportunity.

What are your plans on the distribution side?
We have done well since 1-2 years of its existence. We have tie ups with most of the banks and also we see huge potential in our Canara Bank distribution.

What is your view on the bond market?
We already have the yield on the benchmark 10-year government bond at around 7.3%. Inflation is also inching up and is likely to be at 6-7% by March. So, our view is that by March, the benchmark 10-year yield could touch the 8% mark.

Source: http://www.indiainfoline.com/news/showleader.asp?storyId=836&lmn=1

Surviving Retirement

India’s most ambitious pension scheme has had a slow start. Giving it the power of 401(K) is the way to rev it up

Four months have passed since India’s New Pension Scheme was rolled out to the public with a big bang and what a whimper it has been. Only 1,500 people have joined the scheme and the corpus has touched a mere Rs. 2.5 crore. Early reports indicate three major shortcomings are holding back the scheme’s wider adoption: The tax liability on retirement, the limit of six in the choice of fund managers and the fact it is not an employer-sponsored scheme.

The clues to solving this impasse may lie in the world’s most popular word in the context of retirement planning: 401(K). It refers to specific section in the US Internal Revenue Code but has become popular across the world as the mnemonic for retirement and pension plans. Many countries have their own version of 401(K). Image: Vidyanand Kamat

In fact, the six fund managers appointed by the Indian government to manage NPS claim the new scheme is actually India’s own 401(K), but a scrutiny of its features shows otherwise. So, what if India were to go all the way and adopt 401(K), complete with all the features of the tried and tested scheme?

The simple answer: NPS will take off in a big way and become de rigueur for pension planning by Indian families.

The launch of NPS on May 1 this year was a major leap for India. “This scheme allows investors to take their retirement planning in their own hands and it has a lot of future,” says Naval Bir Kumar, managing director of IDFC mutual fund, one of the six fund managers. And then he adds his pitch, “In a way, it is totally like the 401(K) plan of the US.”

But a full-fledged 401(K) plan would be sponsored by employers. That is, a company would set up the retirement scheme for its employees by deferring the wages. This would be done based on an individual’s choice of schemes from a wide variety of investments and fund managers — literally hundreds — that 401(K) covers. Since NPS doesn’t have these features, it is not a 401(K) yet, says Mukul Asher, professor of public policy at National University of Singapore and who had been involved in pension policy discussions in India.

Remove these lacunae and the potential is immense. “If the NPS was really like the 401(K) plan, then in the next 10 years the NPS can easily grow to Rs. 500 billion [Rs. 50,000 crore] as distribution and advisory does not become an issue at all,” says Norman Sorensen, president and CEO of Principal International, the biggest 401(K) manager in the US. He says the scheme should not be limited to just six managers but opened up to the entire fund management industry.

India should also avoid the pitfalls of US 401(K) such as automatic enrollment and volatile employer contribution.

Perhaps, the biggest hurdle now is that NPS collections are not made from the salary slips of workers. The entire organised sector in India is hooked on to the employee provident fund (EPF) scheme. “For the NPS to come through the corporate, all the other benefits will have to go,” says Professor Asher.That suggestion may not find favour with employees, but opening up NPS to many more fund managers and corporate sponsors will certainly take it mainstream. And the government can add some zing with a full income tax exemption.

Source: http://business.in.com/article/what-if/surviving-retirement/3652/1

Commission+fee likely in insurance, for now

Commission-based and fee-based models are likely to run simultaneously for financial products, especially from the insurance industry, during the transition to the new regime.

While commission is associated with agents, the fee-based model is meant for financial advisors. The transition to the new revenue model may take 18 months, but could even stretch to 24 months.
A view would be taken on an alternate revenue model soon, D Swarup, chairman of the Pension Fund Regulatory and Development Authority, told reporters on Wednesday.He said the committee headed by him will submit its final recommendation to the government by the end ofthis month.
The committee won't fix a price band or a cap on the fees for financial advisors, Swarup said. When suggested that this could lead to arbitrariness, he said, "It's more arbitrary for the regulator or the government to fix a band or a cap."
Fees should be driven by market forces, like in the case of other sectors, he said. "Bilateral negotiation between consumers and advisors would determine the fee."The insurance industry has been up in arms since the government-appointed Swarup Committee released its draft report favouring a phasing out of agents' commissions by April 2011. The idea is to make insurance a no-load product by then, as the New Pension Scheme and mutual funds already are.
Indications are that only one revenue model would operate after the transition period.After an open-house discussion with industry representatives, including severe objections to the proposed model, the PFRDA chief's tilt was clearly towards a fee-based system.
"One has to take a view on whether the US model is for us to follow," Swarup said, while stating that the pure-fee model of Australia held much more promise than the combination of fee and commission-based models in the US. The UK is also in the process of shifting to a fee-based model.
Swarup likened the proposed reforms in the financial sector to those in the telecom industry. The telecom sector has registered significant growth in India, while tariffs have continuously decreased, he said, adding, the same is expected in the financial sector as well.
The final call on the committee's recommendations will be taken by the government and the financial sector regulators, including Irda. The Swarup Committee's mandate is to suggest measures to protect and educate investors, rather than looking at the business side of things, Swarup said. More than 90% people dealing in investment products do not know how mutual funds work, also very few know the difference between equity and debt, he pointed out.
Estimates suggest that there are 30 lakh advisors and sellers in the country, and the number of investors is more than 19 crore. In 2007-08, as much as Rs 14,704 crore was paid out as commission to agents. The objective behind bringing in a fee-based structure is to introduce transparency in the market for investors.

Source: http://www.dnaindia.com/money/report_commissionfee-likely-in-insurance-for-now_1288920

Govt to adopt common qualifying exam for financial advisors

The government is preparing to implement the suggestion made last week by an expert panel to introduce a common qualifying exam for financial advisors of all kinds ranging from tele-marketers of car and personal loans to sellers of mutual funds and insurance policies.

The proposed exam is aimed at testing their knowledge of not only what they sell, but also of all other financial products chasing the same customer. Officials from the finance ministry, financial regulators and market players will on Wednesday deliberate on the consultation paper titled ‘minimum common standards for financial advisors and financial education’ prepared by the D Swarup committee.

The idea is to crystallise the form of the proposed self-regulator for financial advisors, Financial Well-Being Board of India—which will set the benchmarks for the eligibility and standards for them, said a government official. The panel had recommended that the existing examinations in mutual funds, insurance and others should continue as different modules within the overall scope of the proposed eligibility test.

This is part of the government’s plans to prevent financial advisors from acting merely as the agents of one insurance company or one mutual fund house for which they work, while their job is to give customers insights into the relative benefits of competing products as well.

Under the law, financial planners are supposed to serve the end customer and not their employers since these middlemen get their pay either directly from the end consumer or from his investments without his knowledge. In practice, financial advisors act as the marketing agents of producers of financial productsmutual funds, insurance, loans etc—although the customer pays for his services. The finance ministry wants to put an end to this practice.

Finance ministry officials said the proposed self regulator may be asked to set the educational benchmark for all financial advisors including insurance agents, mutual fund sellers and retail loan pushers.

“Now many financial planners know only about the products they push and are ignorant about the competing products in the market. The proposed self-regulator may fix the benchmark for the examination that all of them have to pass, but sectoral regulators like Sebi or IRDA will be responsible for implementing the standards and holding the exams,” said an official, who asked not to be named. The D Swarup panel had also suggested that all upfront commissions now paid to a financial advisor from the investment made by a customer be removed.

Now, to be an insurance, one needs to pass 12th standard if he lives in a place with a population of 5,000 people or more. Passing 10th standard would suffice for those staying in other places.

To get the licence to sell, one needs to pass a pre-recruitment exam in life or general insurance conducted by the Insurance Institute of India and undergo 100 hours of training at the insurance firm for which he would work. Besides, aspiring insurance agents should also have the requisite knowledge to solicit and procure insurance business and be capable of providing the necessary service to the policyholders.

Source: http://economictimes.indiatimes.com/News/Economy/Govt-to-adopt-common-qualifying-exam-for-financial-advisors/articleshow/4989182.cms

MFs need to improve on transparency, disclosure

The recent move by the Securities and Exchange Board of India (Sebi) banning entry load and capping exit load, among other things, has turned the spotlight on the possible improvement in rights of mutual fund (MF) holders in the country. Sure, we already have regulations in place.

But according to industry observers the Sebi move points to improvement in investor rights. “The rights protection of mutual fund holders have been always been on top of Sebi agenda. It has also moved a great deal in the last few years towards improvement in this direction,’’ says Devendra Nevgi, an independent investment consultant.

Here are the rights that are available to an MF holder as per Sebi Regulations on MFs:
A) An investor is entitled to receive statements of accounts in 6 weeks from the date of request for unit certificates.

B) He also has a right to receive information about investment policies, objectives, financial position and general affairs of the scheme.

C) He is eligible to receive dividend within 42 days of declaration, and the proceeds within 10 days from the date of redemption or repurchase.

D) Trustees are bound disclose to unit holders any information that could adversely impact investments.

E) With prior Sebi approval, 75% of the unit holders can terminate the AMC of the fund.

F) They can also pass a resolution to wind-up the scheme.

G) An investor can also send complaints to Sebi, who will take up the matter with the concerned MFs and follow them up till the issue is solved.

Does that mean that everything is hunky dory with MFs? To a certain extent, say experts. “No fund house will take an investor for granted, as nobody wants bad publicity. Also, fund houses know that the Sebi is extremely serious about investor protection,’’ says an MF advisor who didn’t want to be quoted.

Nevgi says: “If an investor writes to Sebi about not getting dividend or redemption proceeds on time, the regulator takes it very seriously. Even mutual funds treat those matters seriously. So those kind of complaints are very uncommon in the industry,’’ he says. However, he feels there is scope for more improvement. “When it comes to quantitative rights like receiving dividend or redemption cheque on time, things are very much in place. However, when it comes to transparency or frequency of portfolio disclosure, things can still improve.’’

The view is shared by many others. “Transparency is a big issue. There are lot of problems like schemes with strange and funny names. Also there are lot of schemes which are repackaged where the investment objective and investment portfolio are not close to each other,’’ says Nevgi. “Complex schemes are the main issue. Name of the scheme or investment objective can be interpreted the way the manager wants. This can confuse investors. They would realise they invested in a wrong scheme only when things go wrong,’’ says an expert.

Another area which most experts feel could improve is frequency of portfolio disclosure. They point out that since fund houses have the choice of making the disclosure of portfolio twice a year, many fund houses are lacking in this aspect. “Some funds don’t even bother to send detailed portfolio. Investors also should be blamed as they don’t take it seriously. In fact, they should demand portfolio since that is the only way they will come to know how their money is invested,’’ says the MF expert.

Source: http://timesofindia.indiatimes.com/news/business/india-business/MFs-need-to-improve-on-transparency-disclosure/articleshow/4992707.cms

Axis AMC, two others in race for DBS Chola assets

Negotiations are at an advanced stage and the deal could be closed soon; price likely to be around Rs80 crore

Axis Asset Management Co. Ltd, Indiabulls Financial Services Ltd and L&T Finance Ltd have emerged as the top contenders for the assets of DBS Cholamandalam Asset Management Ltd.
Edelweiss Capital Ltd is investment banker for the deal.
A DBS Cholamandalam executive, who spoke on condition of anonymity, said negotiations are at an advanced stage and the deal could be closed soon.
The price is likely to be around Rs80 crore, said an investment banker, who did not want to be identified.
Axis Asset Management is the new kid on the block in the mutual fund business; it has been promoted by Axis Bank Ltd. The bank received the Securities and Exchange Board of India’s (Sebi) nod for entering the mutual fund business last week. L&T Finance has not yet moved the capital markets regulator seeking its nod for starting an asset management company (AMC), while Indiabulls is awaiting an approval.
Rajiv Anand, managing director and chief executive of Axis AMC, said: “We are happy to look at acquisitions if the deal comes at the right price and matches our investment philosophy, but we would not like to comment on any specific deal.”
N. Sivaraman, director at L&T Finance, said: “Asset management business looks interesting to us. We have not yet applied to Sebi. There are multiple options available for inorganic growth.”
“An acquisition can help us get into the business fast. But till such time we take a final decision, it continues to be a speculation,” he added.
Indiabulls Financial Services couldn’t be reached for comment. Spokespersons of DBS as well as the Murugappa Group declined comment on “market speculation”.
DBS Cholamandalam Asset Management is a subsidiary of Cholamandalam DBS Finance Ltd, a joint venture between Chennai-based Murugappa Group and DBS Bank Ltd of Singapore, with each holding 37.5% and the rest being held by the public.
In August, it had Rs2,893.16 crore worth of assets under management (AUM). Of this, equity assets account for Rs252.93 crore under 11 schemes and the rest is debt. The volume of AUM plays a key role in valuing an AMC. At Rs80 crore, the cost of DBS Cholamandalam works out to be around 3% of its assets.
Typically, larger the equity asset base of the fund house, the higher its valuation. Debt funds receive lower valuation as the commission from managing such funds is lower than that on equity funds.
“A 3% valuation for DBS Cholamandalam would be on the higher side as most of the assets of the fund house are under debt and liquid schemes that fetch lower income compared with equity schemes,” said a senior official at a large bank-controlled AMC, who did not want to be identified.
DBS Cholamandalam has 78 employees, including 12 fund managers and 40 back-office employees. It is present at 22 locations across India and has at least 118,000 customer accounts. It posted a Rs38 crore loss for the year ended March.
Axis Asset Management, which is yet to launch its first fund, has 50 employees, including four fund managers and 10 back-office employees.
“Integration of employees is an issue that has to be looked into carefully. These kinds of acquisitions often result in retrenchment (of staff) which is avoidable,” said the DBS Cholamandalam official.
“We are aiming to have 100 employees and 8-10 schemes in our portfolio by March 2010. We have targeted a market share of 3% in terms of AUM in the next four-five years, which would place us among the top 10 fund houses in the country,” said Anand of Axis AMC.
India’s Rs7.49 trillion by assets mutual funds industry has 36 players, with Reliance Capital Asset Management Ltd topping the list with an average AUM of Rs1.17 trillion in August. It is followed by HDFC Asset Management Co. Ltd with average assets of Rs93,874.19 crore and ICICI Prudential Asset Management Co. Ltd with Rs77,966.86 crore.
Though the valuation of DBS Cholamandalam is seen as expensive by some fund managers, some deals in the past have been closed at higher valuations. For instance, Infrastructure Development Finance Co. Ltd (IDFC) in March 2008 took over Standard Chartered Bank’s asset management business in India for $205 million (nearly Rs995 crore today), valuing the firm at 5.67% of its AUM. IDFC retained the StanChart AMC’s staff.
In December 2007, Eton Park Capital Management Lp acquired a 5% stake in Reliance Capital Asset Management for Rs501 crore, valuing the AMC at 13% of its AUM.
In November, Religare AEGON Asset Management Co. Ltd (now known as Religare Asset Management Co. Ltd as Aegon exit the joint venture) bought Lotus India AMC, a joint venture between Fullerton Fund Management Group and London-based Sabre Capital Worldwide for around Rs110 crore, which valued Lotus AMC at about 2% of its AUM of Rs5,500 crore. About 90% of Lotus AMC’s assets were debt.

Source: http://www.livemint.com/2009/09/09230153/Axis-AMC-two-others-in-race-f.html?h=B

IDBI, Union Bank to foray into asset management biz in 6 mths

In a bid to diversify their operations, two state-run banks -- Union Bank and IDBI Bank -- are planning to venture into asset management space and have approached the market regulator SEBI for approval.
While IDBI Bank had filed application for licence in January this year, Union Bank of India had submitted its papers with the regulator in February.
All these proposals are at the advance stage of clearance, official sources said.
During the course of the year these banks are expected to get licence and thereafter they can start asset management, sources added.
Meanwhile, the country's third largest private sector lender, Axis Bank has already got the regulator's approval to start asset management business.
The Union Bank of India has set up an asset management firm with KBC Group of Belgium. The joint venture, in which Union Bank owns 51 per cent stake expects to start operations during the current fiscal.
Another public sector lender IDBI Bank has board approval to set up the asset management company either as a wholly-owned subsidiary or as a joint venture.
Currently, there are five mutual funds either fully or partly owned by Indian banks, along with foreign partners.
These include Baroda Pioneer Mutual Fund, Canara Robeco Mutual Fund, ICICI Prudential Mutual Fund, Principal Mutual Fund and SBI Mutual Fund.
The combined average AUM of the 30 fund houses stood at Rs 5,38,736.43 crore at the end of July as monthly AUM figures of many fund houses were not available.
Last month, the total average AUM of 35 fund houses had surged nearly five per cent to Rs 6,70,936.61 crore, according to the data available on the website of the Association of Mutual Fund of India (AMFI).
Fund houses which saw an increase in their average AUM in July include Canara Robeco MF, Deutsche MF, IDFC MF, Religare MF and LIC MF.
Some of the fund houses like HDFC MF witnessed additions of Rs 5,168.20 crore to its assets under management (AAUM), while ICICI Prudential MF's AUMs grew by Rs 3,159.09 crore in July.

Source: http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/IDBI-Union-Bank-to-foray-into-asset-management-biz-in-6-mths/articleshow/4977898.cms