'Our guiding principles will ultimately differentiate Axis from the rest'

AXIS Asset Management Company, the wholly-owned subsidiary of Axis Bank, recently got the regulator's approval to launch its funds. Axis AMC plans to draw on its strong client base of the bank to build the asset management business, says Axis AMC MD & CEO Rajiv Anand in an interview. Excerpts:

How soon do you plan to launch your funds, and how will Axis AMC distinguish itself and grow in this already crowded market?
We have received regulatory approvals for two schemes — Axis Liquid Fund and Axis Treasury Advantage Fund. And these schemes will be launched in the first week of October. Axis Bank has a presence in over 525 Indian towns through 861 branches and has over 75 lakh customers. Our gameplan is to leverage these strengths.
We want to build our business on three strong pillars, i.e., investor-oriented communication, forging long-term relationship and enduring wealth creation as opposed to just short-term opportunistic wealth creation. These guiding principles will ultimately differentiate Axis from the rest.

Is there any scope for further product innovation?
As the Indian investor evolves and our markets develop further, there will be product innovation opportunities. We are, for example, very interested in creating retail debt products, which can deliver superior tax-adjusted returns with low volatility.
Having said that, with current levels of penetration of mutual fund products in India, what we need is more innovation in communicating the benefits of the product and telling retail investors how mutual funds fulfil an investor's needs.

Do you have any plans for inorganic growth? Do you intend to bring in a foreign partner?
We are open to inorganic growth. However, the fit — especially from an investment philosophy perspective, should be right. Needless to say the price has to make sense. Currently, we have no plans to bring in a foreign partner.

What is your view on equity market? Are you comfortable with valuations after the recent run-up?
It is difficult to assess markets in the short term, more so in an environment where asset classes across the world are moving synchronously on low-opportunity cost of funds. We believe that the current low interest rate environment and relatively high growth in the Indian economy justifies current valuations. Going forward, markets should deliver returns in line with the profit growth of Indian companies.
This we believe should be in the vicinity of 15% over the next three years. We believe that corporate profits drive stock prices over the medium and long term and hence, we anticipate similar growth from equities over this period. While stock markets are no longer cheap after the sharp run-up seen in the markets, investors would do well to maintain their targeted equity allocations and benefit from this long-term appreciation opportunity.

What is your view on the interest rate scenario in India?
From a policy perspective, RBI will continue to balance growth and inflationary expectations. RBI will also have to consider expansionary fiscal policy and its impact on long-term rates. Further, global interest rates, specifically in the US, are expected to remain low for an extended period of time.
As far as the gilt curve is concerned, we believe the long-end prices factor in most of the negatives, including inflation at 6% by March 2010, fiscal issues and likelihood of monetary tightening. However, the shorter end may see some upward movement if RBI acts to remove some of the excess liquidity in the system.

Debt schemes are doing well. Do you recommend pure debt schemes or hybrid funds such as MIPs to investors?
Investors must build their portfolios based on risk assessment. What this means is that investors must understand their investment holding period and ability to take losses.
For investors with low-risk appetites, hybrid funds provide a very good option as the fixed income component cushions the volatility of equities while over long periods equities provide significant capital appreciation.

Source: http://economictimes.indiatimes.com/articleshow/5082268.cms

MF assets dip as corporates pull out funds

Contrary to expectations that the revival in the equity market would have boosted the assets managed by mutual fund houses, nearly 58% of the 36 fund houses that have disclosed their average assets under management (AAUM) figures for September 2009, have seen a drop in assets compared with the previous month.
According to the data released by the Association of the Mutual Fund Industry (Amfi), the total industry AAUM for September 2009 stands at Rs 7,42,919 crore against Rs 7,49,915 crore as on August 2009, registering a decline of about 1% since the previous month. This is the second instance of a month-on-month decline in mutual fund assets in 2009 so far, the earlier one being in March.
According to the industry experts, the marginal decline is mainly on account of outflow of corporate funds from the debt and liquid schemes for making advance tax payments for the half year ended September. However, banks have continued to park in their idle funds with the mutual funds, though the proportion of the same appears to have dropped vis-à-vis the recent past.
According to the data released by the Reserve Bank of India, banks had an outstanding balance of Rs 1,56,573 crore with the mutual funds till September 11, 2009. This shows a rise of about 4% in the mutual fund investments by banks, compared with the investments worth Rs 1,51,136 crore by the end of August 2009.
But it is a grim situation where equity assets are concerned. Equity schemes have failed to register any significant growth despite rise in the equity markets and improving valuations of the existing schemes. With Sebi banning entry load with effect from August this year, distributors are not interested in selling mutual fund products due to inadequate commissions, said fund house officials.
In terms of fund house-wise growth, among India's larger and well-renowned fund houses, Reliance Mutual's AAUM rose marginally about 0.8% to Rs 1,18,251 crore and ICICI Prudential has reported an increase of about 3%. MFs managed by HDFC and UTI have, however, seen their AAUM shrink by about 4% and 0.5%, respectively, since August 2009.
Interestingly, it is the relatively smaller fund houses that have shown a healthy rise in their asset figures for the month. Fund houses like Taurus, Shinsei and JP Morgan have reported around 25% increase in their AAUM positions for the month ended September 2009, while Benchmark and Bharti AXA’s assets rose by 13% and 20%, respectively, this month.

Source: http://economictimes.indiatimes.com/articleshow/5082916.cms

Valuations may be high, but India growth story is secure, feel FIIs

Indian markets are looking expensive and the continued inflows are being driven more by a desire to avoid underperformance rather than conviction in the fundamental story, say some of the leading foreign institutional investors (FIIs) invested in the India equities market.
After having net sold shares worth $8 billion in 2008, foreign investors have mopped up close to $12 billion worth of equities so far in 2009.
“Valuations are expensive (18 times FY10 earnings), relative to the rest of the world. But India’s growth story is more secure than many other countries. And there is a lot of liquidity in the world chasing growth. As such, institutional investors believe that the earnings growth and GDP are strong enough to sustain these valuations,” says Jyotivardhan Jaipuria, MD and Head-Research of BoA Merrill Lynch.
India has long been touted as being at an advantage, given that its growth is less co-related to that of the global economy. And with central banks around the world pumping in liquidity to kick-start their respective economies, the stock of money in the system has shot up drastically. With no return on deposits in any part of the world, there is a lot of money chasing the few growth economies.
But there are those who believe that this in itself calls for investors to exercise caution. “There is an element of risk in that if the newsflow is not as good as expected, the market may react adversely. The market needs pause to allow valuations to catch up with earnings growth. In the long term, this is good for markets,” added Mr Jaipuria. Sandeep Kothari, portfolio manager at Fidelity Mutual Fund is positive on the market but like most of his peers, is concerned about valuations.
“The economic cycle is turning and the business is strengthening. The question is how much markets have run up and what is in the price and what is not. One is worried you could see a last phase of frenzy like you saw in 2007. We are yet to see that kind of retail participation,” he added.
FIIs maintain that flows are unlikely to slow down till such time central banks start pulling back the stimulus money. There is a perception that markets are likely to surrender some of their recent gains before long. However, the general perception is that it is likely to be a gradual decline.
Whatever the case maybe, the recent upsurge has seen the Sensex overshoot most of the fair value targets set by foreign brokerage houses. While Citi had set a 15400 target for the Sensex, Deutsche Equities target was over 16000. “Our fair value Sensex target for the year is 16500. However, liquidity and high levels of risk appetite could lead the market to overshoot our fair value target in the short term. India remains a highly attractive market from a long-term perspective, offering a structural growth story,” said Abhay Laijawala, head of research, Deutsche Equities India.

Source: http://economictimes.indiatimes.com/news/economy/indicators/Valuations-may-be-high-but-India-growth-story-is-secure-feel-FIIs/articleshow/5074163.cms

NSE, BSE may join hands for mutual fund trading

The proposed online portal will help investors buy and sell mutual fund units and get onsolidated statements

A working group of the Association of Mutual Funds in India, or Amfi, has recommended that India’s two largest bourses, along with other firms, jointly build a transaction platform for mutual funds trading in India.
The group has suggested jointly engaging three consortia that have bid to build the platform: National Stock Exchange and National Securities Depository Ltd; Bombay Stock Exchange and Central Depository Services Ltd; and registrars Karvy Computershare Ltd and Computer Age Management Services Ltd.
“We have recommended an open architecture where strengths of all three consortia will be leveraged for the benefit of the mutual fund industry,” said Jaideep Bhattacharya, who heads the Amfi committee and is chief marketing officer of UTI Asset Management Co. Ltd.
The committee, which submitted this proposal to Amfi last week, has also suggested that mutual fund trackers Morningstar India and rating agency Icra Ltd provide the data support for this platform.
Amfi expects the platform to go live by March.
The proposed online portal will help investors buy and sell mutual fund units and get consolidated statements. With the abolition of upfront commission, few distributors are keen on servicing small investors and the transaction platform will come in handy for them.
“We have received proposals on the operationalization of the platform. A decision will be taken in a week or two. The final clearance has to come from Sebi,” said A.P. Kurian, chairman, Amfi.
According to him, the platform would provide a better reach for the industry, higher efficiency in transactions and cost control over a long term. “Similar platforms exist in developed markets like Australia and Canada. It is our effort to bring such world-class service to our investors,” he told Mint.
Officials from the bidding companies refused to comment as the proposal is yet to be finalised. The chief executive officers of four leading asset management companies confirmed the broad structure of the proposal but refused to comment as they are not familiar with the details. “A presentation is likely to be made for the members in a couple of weeks, after which a decision will be made,” one of them said.
In a parallel move, Amfi is exploring the listing of open-ended mutual fund schemes on an exchange platform.
The system has to be tweaked in such a manner that the relevant mutual fund will be the counterparty for transactions and the registrar will have to create and extinguish units for every purchase and sale, respectively, say industry experts.

Source: http://www.livemint.com/2009/09/28235001/NSE-BSE-may-join-hands-for-mu.html?h=B

'Banks have not developed the system model to distribute third-party products'

Italy-based Pioneer Investments, which signed an asset management joint venture agreement with Bank of Baroda (BoB) last year in a major move to extend its presence in India’s mutual fund market, is set to increase its presence in 300 branches of BoB in the next year. Its CEO-Asia, Angus W Stening, puts emphasis on the need for banks to be the main distribution channel after the Securities and Exchange Board of India (Sebi) tweaked norms, in a conversation with Chandan Kishore Kant. Excerpts:

What impact would Sebi’s new norms on entry load have on the Indian mutual fund industry?

It will definitely be a catalyst for the change in the distribution dynamics. The independent financial advisors (IFAs) will always play a role for all sorts of products. This industry has been an IFA-driven market from the start. However, have we seen a change in the first two months? No, we have not.
Now the question is, will the financial advisors move away from mutual funds to deposits or life insurance products? Absolutely, they will. But will the investors stop buying mutual funds, as they have to give commissions to the advisors? No, that will not happen.

Which part of the distribution channel will have to be more active now?

It will be the banks. I think this is one regulatory change which will make banks more active in the distribution side of the business, particularly the public sector banks. How they do that and how they structure has to be seen. The banks now have to be a part of the process.

Why banks? Why not the financial advisors?

The banks are more trusted and regulated institutions. The national reach of the branch network of banks and their customer base is amazing in India.
The public sector banks, in particular, have the reach which a foreign bank may not be able to achieve. Why is there a lower penetration in distribution of mutual fund products? A concern which Reserve Bank of India (RBI) rightly pointed out in its annual report. It is because the banks have not developed the system model to distribute and the processes to manage the distribution of third-party products. And this change in norms will require that.

What’s your plan for expansion in India?

Our target is to have presence in 300 branches in the next 12 months. These will be access points for the investors to buy our products.
Clearly, we want to take that number up as time goes on. Bank of Baroda (BoB) is a good partner and has provided us access to public sector space. We need to create a distribution channel. Since July last year, we focussed on the training of staff in the Baroda branches. At the same time, we are very focused on costs. We don’t want to take a conservative approach but a measured approach.

Won’t you look for channels outside Baroda branches?

I don't have a retail chain outside Baroda and I don’t plan one for at least the next 12 months. Our focus is to support Baroda. We both feel we need to invest in our point of sales locations.
What you do in this business is develop a prototype model and replicate it around the nation. When we start to see some traction, then only can we start opening up and broadening our distribution base to non-Baroda for retail.

What portion of your asset under management comes from retail and institutions?

Currently, institutional participation is as high as 95 per cent. For the retail space, we need to have a product pipeline.

You are hugely dependent on institutions.

Absolutely, yes. I think initially in the first six months, else could we go across Rs 5,000 crore in equities? No.

Where do you see your retail participation in future?

India has not got a 50-year track record in equity investment. I will be happy to get 25 per cent of the assets from retail and 75 per cent from the institutions.

You don’t sound bullish on growth from smaller cities and towns, which is in contrast with what the local CEOs talk of.All I’m saying is that we are not there now. And, possibly could not be there, as we are very much at the beginning. Managers have to look at this for a long-term business and turn away from short-term opportunistic goals. The structural change from Sebi in terms of front-end load is going to have long-term implications.

Will you invest in the branding of your JV with BoB?

We don’t have to do a joint venture brand. Since we have a strong brand and Bank of Baroda is equally a strong brand, then why the need to invest in a third brand?

Source: http://www.business-standard.com/india/news/%5Cbanks-have-not-developedsystem-model-to-distribute-third-party-products%5C/371452/

L&T Fin pays Rs 45 cr for DBS Chola AMC

L&T Finance — the financial services arm of engineering major Larsen and Toubro — announced its entry into India’s mutual fund industry on Thursday, by buying DBS Cholamandalam Asset Management for Rs 45 crore.
The buyout values DBS Cholamandalam AMC — a unit of the joint venture between the Murugappa Group and Singapore’s DBS, at 1.55% of its total assets under management of Rs 2,893 crore on August 31.
Equirus Capital was advisor to L&T Finance for the deal, while Edelweiss Capital advised DBS Chola. Industry officials said the valuation is one of the lowest among the deals in the domestic mutual fund industry in the recent years.
In June, Japan’s Nomura bought a stake in LIC Mutual Fund for a valuation of about 2.5% of the fund’s assets under management. Last year, IDFC bought Standard Chartered Bank’s asset management business for a price that worked out to 5.7% of assets under management. Both these deals were considered expensive for the buyers, as a major chunk of the assets was debt at the time of acquisition.
Some in the industry believe that the deal is expensive for L&T as well, given the asset management company’s debt-laden asset mix. DBS Cholamandalam’s total assets comprises close to Rs 253 crore in equity and the rest in debt, according to data from Morningstar India, quoting AMFI figures.
The mutual fund industry has been abuzz with talks about DBS Cholamandalam AMC being on the block since 2007, though the company has officially denied it all the while. The current valuation is just a shade of what was offered to buy the AMC in 2007, said a person, who was familiar with the talks during the last stake sale attempt in 2007.
“The promoters were asking for 8% of the assets in 2007, when assets were over Rs 5,000 crore. What was offered was 6%,” said the person, on condition of anonymity. DBS Cholamandalam officials were unavailable to comment on the matter.

Source: http://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-svs/engineering/LT-Fin-pays-Rs-45-cr-for-DBS-Chola-AMC/articleshow/5058414.cms

Mutual fund agents, distributors get new Code of Conduct

Apex sectoral body AMFI has issued a fresh code of conduct for mutual fund intermediaries like agents and distributors, mandating them to disclose all commissions received from different schemes.
The revised code of conduct was issued by the Association of Mutual Funds in India (AMFI) following market regulator SEBI's circular asking the mutual fund distributors to disclose all the commissions payable to them from various schemes.
In a statement today, Sebi said all intermediaries of mutual fund companies would have to follow the code of conduct strictly.
"If any intermediary does not comply with the code of conduct, the mutual fund shall report it to AMFI and Sebi. No mutual fund shall deal with those intermediaries who do not follow code of conduct," Sebi said.
Reacting to the move, mutual fund tracking firm Value Research Online CEO Dhirendra Kumar said, "It puts onus on the Mutual Fund. Since intermediaries are not accountable to SEBI, mutual funds would have to ensure that they (intermediaries) are brought to task."
The code also requires intermediaries to adhere to guidelines issued by Sebi, highlight risk factors of each scheme, abstain from indicating or assuring returns, maintain confidentiality of all investors deals and ensure that all communications are sent on time, among others.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Mutual-fund-agents-distributors-get-new-Code-of-Conduct/articleshow/5047949.cms

Sebi may segregate retail, institutional MF schemes

In a bid to protect the interests of retail investors, the Securities and Exchange Board of India (Sebi) is planning a clear segregation of retail and institutional schemes. Sources said Sebi might ask fund houses to create separate portfolios and net asset values (NAVs) for retail and institutional schemes.Sebi is working on the move as during the liquidity crunch of October 2008, fund managers sold the most liquid stocks in their portfolio to meet redemption pressures, leaving retail investors in a spot.
At present, although mutual funds offer both retail and institutional plans, these are separate only in the name as their portfolio and NAVs are the same. The only difference is the expense ratio, which is more for retail investors. Sources said Sebi was looking at doing away with this disparity as well.
Vineet Arora, head of products & distribution at ICICI Securities, said, “It is a welcome move. There is an obvious difference in behaviour between retail and institutional investors. Institutions tend to panic more than retail investors. Since redemption pressures are more from institutions, schemes for them will have to keep more cash, which may impact returns.”
Mutual funds charge 2-2.5 per cent from retail investors in equity schemes. The fee for institutional investors is only 0.5 per cent. The expense ratio is the percentage of a mutual fund’s net assets/corpus that goes towards meeting its expenses. The ratio covers fund management fees, marketing and selling expenses, and registrar fees. Funds with lower expenses give better returns, which is one reason why institutional schemes post better returns than retail ones. A case in point is ICICI Prudential’s Focussed Equity Fund institutional plan, which has posted 19.64 per cent returns compared with the retail plan’s figure of 18.49 per cent. There are several schemes where such a disparity exists.
Deepak Sharma, CEO, Sarthi Wealth Management Consultants, said, “The segregation is necessary after the kind of outflows witnessed in October 2008. It will ensure that retail investors are not at a disdvantage during large-scale redemptions.”
Recently, Sebi Chairman CB Bhave had expressed concern over the mutual fund industry’s over-dependence on funds from corporate houses. The Reserve Bank of India has also picked holes in the business model adopted by mutual funds. “A high dependence on corporates for funds implies a lesser role for the retail investors,” it said in its Annual Report 2008-09.
According to a Celent report, institutional investors contribute 56 per cent of the industry’s assets while retail investors account for only 37 per cent. By comparison, retail contribution in China is 70 per cent.

Source: http://www.business-standard.com/india/news/sebi-may-segregate-retail-institutional-mf-schemes/371171/