MFs' back-office services may come under Sebi watch

Fund accountants and administrators, who have been providing back-office services to the mutual fund industry for close to a decade now may soon come under the regulatory framework of market regulator the Securities and Exchange Board of India (Sebi).

Sebi is planning to introduce the concept of professional fund accountants and administrators in the country. At present, it is the custodial service providers that provide administrative support to fund houses.

Basically, fund administration services involve security pricing, net asset value (NAV) calculation, maintenance of books of accounts, NAV reporting and preparing financial statements, among others, for fund houses. These are critical functions, as they have to be done on a daily basis.

At present, custodians are registered with Sebi, and governed by the custodian regulations. However, these regulations do not cover fund accounting and fund administration activities, which are value added services provided by custodians.

In case of a lapse on part of the fund accountants, knowingly or unknowingly, the regulator is powerless to act against them in the absence of any specific regulatory framework. Also, since asset management companies (AMCs) enter into a bi-lateral agreement with the service provider (i.e custodian), fund houses are required to comply with the Sebi regulations and not the service provider.

Barring a few top fund houses which do fund accounting in-house, most fund houses have outsourced their back-office activities to custodians.

The thinking within Sebi is that since these service providers are appointed by the AMC, the valuation methodology may lack an independent view.

In some markets such as Indonesia and Thailand, regulations require fund accounting and administration to be performed by a registered professional entity which independently performs these activities and reports to the regulator.

According to industry sources, the regulator had recently discussed this issue with market participants. “As far as the functioning of the AMC is concerned, this will bring in more transparency,” said a senior official with a foreign custodian bank.

“In terms of day-to-day functioning, there will not be much of a difference, but it will increase our accountability and there could be some restrictions as well,” the official added.
Source: http://economictimes.indiatimes.com/MFs-services-under-Sebi-watch/articleshow/5201415.cms

‘Transparency, lower costs will help draw more investors to MF’

Indian equity markets have corrected in the past days following a sharp rise till mid October after hitting the lows in March this year. Suresh Soni, CEO of Deutsche Asset Management (I) Pvt Ltd, feels that despite the economic recovery showing signs of revival, some amount of fear with respect to impact of deficient rainfall and a likely rise in inflation in coming months will have some impact in the markets. However, he also feels that key drivers for the markets ahead will be corporate earnings, domestic demand, global liquidity and commodity prices. Soni spoke to Chirag Madia of FE over the impact of introducing ban on entry load in the mutual fund industry. The ban will bring in a change from the earlier days when concentration was a lot more on selling equity scheme. Also the fall in total cost of transaction will motivate new investors to invest in equity mutual funds.

Excerpts:
In the last few trading sessions, we have seen breadth of the markets remaining weak with a downfall after the surge in the Indian markets. How do you see the Indian markets’ performance in the coming days?

Equity markets don't move in a straight line. We had seen a sharp rise in the markets till mid-October after hitting the lows in March this year. There has been some correction since then and the markets have fallen by around 10%. We are not particularly worried by the magnitude of the fall and would term this as a normal correction after the sharp rise. While the economic recovery is still underway, there are some apprehensions with respect to the impact of deficient rainfall and likely rise in inflation in coming months. There will possibly be a period of consolidation and then based on the outlook for earnings growth from companies markets will move ahead.

How do you look at the Indian markets from a short-term as well as long-term perspective and in which direction the markets are heading in the current scenario?

From a near-term outlook, the markets may see some consolidation. However, we remain positive on the medium-term outlook. Indian economy is demonstrating strong resilience and we have seen significant turnaround in the industrial activity. We are seeing strong growth numbers in sectors such as automobiles and consumer durables.

Now the results season is almost over and we have seen monetary policy of the central bank last week. What will be the major factors that will be moving the domestic markets?

Over the last six months, the markets have risen on the back of strong liquidity flows, improved industrial performance and reasonably strong corporate earnings growth. Global liquidity and domestic demand has been supportive of markets so far this year. Going forward, we think that the key drivers for the markets would be corporate earnings, domestic demand, global liquidity and commodity prices.

Which are the sectors which you are looking at as fund houses now?

The economy is beginning to demonstrate growth. We are also witnessing aggressive investments infusing into the infrastructure sector. The infrastructure sector remains a key growth area. Apart from that we are positive on capital goods sector as well. We also see significant investment opportunities on a bottom up basis in specific stocks.

As you said infrastructure sector will remain a key growth area in the next few years. Why your fund house has not launched any infrastructure fund or any theme-based fund as in the past few months, many fund houses launched infrastructure funds?

At DWS, we do not launch funds unless we see a clear investment opportunity, product gap or a strong theme. Currently, we are working on some new products and are in talks with the regulator. Once we get necessary approval, we will talk about that.

Indian mutual fund industry is going through a transition period. How much has the industry changed since the ban on entry load in the mutual fund industry by the market regulator, Securities and Exchange Board of India (Sebi)?

We think that the move from a long-term outlook is a welcome move. Sebi's move brings a much needed transparency to the whole process of buying mutual funds and also lowers the transaction costs for the investor. Though it can be argued that in the near-term this poses some challenge in penetration of mutual funds especially in smaller towns.
Post regulation, the industry has seen some amount of slowdown in equity inflows. However, we are seeing a lot more balanced selling as opposed to selling just equity schemes. For example, we have seen a pick-up in sales of hybrid and fixed income funds in the past few months. This is a change from the earlier days when the concentration was a lot more on selling equity schemes.
The other trend one has seen is that, there is some anxiety in the mind of distributors, because of significant reduction in their earnings potential on equity funds. But we do believe that over a period of time, business volumes will increase as compared to what they are today. The cost of transaction coming down should motivate new investors to invest in equity mutual funds and also encourage existing investors to increase their allocation to mutual funds.
We believe that with increased transparency and lower transaction costs, more investors will choose to invest through mutual funds rather than going directly to the equity markets. In the long-run, what is good for the investor is good for the industry.

In the past few weeks, we are witnessing the numbers of fixed maturity plans (FMPs) again coming in the market. What's your take on this development?

The fixed income funds, open-ended or close-ended, have important place in investors' portfolio because the investors perceive these funds more as a low risk investment.
During the last year's liquidity crises, there was some loss of investor confidence in FMPs. Following that, there had been a tightening of regulatory norms governing FMPs. There was a period of adjustment from say, fourth quarter of last year till about mid this year, to the new regulations. Post this period, FMP's in their new form have started picking up. There is enough space for both open-ended or close-ended fixed income schemes and fixed income funds as a category would only grow.

Source: http://www.financialexpress.com/news/transparency-lower-costs-will-help-draw-more-investors-to-mf/537832/0

MF industry assets hit record high of Rs 7.62 lakh cr

Assets of the mutual fund (MF) industry touched an all time high of Rs 7.62 lakh crore, while the country’s largest fund house, Reliance MF, saw a decline of over Rs 1,400 crore in its average assets under management (AUM) at the end of October.

The industry’s average AUM grew by Rs 19,391 crore, or 2.61 per cent, in October, which analysts believe was mainly on the back of increased inflows in fixed income plans.
The combined average AUM of the 36 fund houses hit the historic Rs 762,301.82-crore mark at the end of October, data by the Association of Mutual Funds in India (AMFI) showed.
“Fund houses have witnessed a decline in assets of their equity portfolio. But inflows into fixed income schemes helped the industry to record a growth in assets,” Taurus MF Managing Director R K Gupta said.
Reliance MF maintained its position as the country’s largest fund house despite a decline of Rs 1,469.51 crore in its AUM during the month. At the end of October, the AUM of Reliance MF stood at Rs 116,781.92 crore.
“Reliance MF has increased equity exposure than other portfolios. Since all investments in equities need to be mark-to-market at the end of the month, the AUM of the fund house suffered a decline during October,” Gupta noted.
The assets of the country’s second-largest fund house, HDFC MF, inched closer to the Rs 1 lakh crore-mark with addition of Rs 2,888 crore during October. At the end of October, the AUM of HDFC MF stood at Rs 93,316.03 crore.
ICICI Prudential MF added Rs 405.36 crore to its assets, while the fifth-largest fund house, UTI MF, witnessed the biggest jump of Rs 3,258.55 crore in its AUM during October.
Fund houses that saw their average AUM rising in October includes Canara Robeco MF, Sahara MF and SBI MF.
Of the 36 fund houses, as many as 10 reported a decline in assets. Marketmen feel that with a sharp decline of 7 per cent in the Indian equities during October, there has been a decline in AUMs of many fund houses.
In October, the Bombay Stock Exchange Sensex fell 7.2 per cent to below 16,000 as volatility increased across global markets.
While the AUM of Religare MF fell by Rs 357 crore to Rs 13,497 crore during the month, the assets of ING MF declined by Rs 156.08 crore to Rs 1,804.20 crore.
Other fund houses that saw a decline in their assets includedDeutsche MF, Principal MF, HSBC MF and Fidelity MF.
However, Gupta cautioned that there could be a slight decline in the assets of fund houses during this month as “it is likely that RBI might impose restrictions on banks’ investments in MFs in coming days.”

Source: http://www.business-standard.com/india/news/mf-industry-assets-hit-record-highrs-762-lakh-cr/375321/

Demand for debt will sustain amid rate rise - fund mgr

Investor appetite for debt will sustain for the rest of the fiscal year on waning supplies even as the market readies itself for a series of aggressive poilicy rate increases, a senior debt fund manager said on Wednesday.
Federal supply will drop as the government will sell less than half the amount it sold in the first half and its appeal as a savings instrument will stay as the nation lacks social security, said Maneesh Dangi of Birla Sunlife Mutual Fund.
"After a long time we are seeing the demand-supply situation is favouring bonds including state loans. This November-December we should have a bit of rally in bonds," said Dangi, who has 420 billion rupees of assets under management.
"In a country like ours where the social security is not in place demand for debt would always be larger than equity. Equity is s very small component of Indian savings about 6-7 percent 94 percent is still fixed income," he added.
The benchmark 10-year bond yield which had slipped to a record 4.86 percent after a hefty rate cut by the Reserve Bank as part of its stimulus package.
The 10-year yield has risen more than 200 basis points so far in 2009 mainly due to excessive debt supplies in the market.
The 10-year benchmark was trading at a yield of 7.27 percent at 4.50 p.m. and Dangi expects the yield to drop to 7 percent in a couple of weeks. He sees it trading in a 6.90-7.50 percent range for the next three months.
The Reserve Bank of India last week laid the groundwork for a rise in interest rates by tightening credit to the commercial property sector, lifting its inflation forecast and warning of a threat from asset price bubbles.
While policy rates are expected to rise in coming months, the prices suggest an aggressive hiking cycle, he said.

EXTENT OF HIKES
"I agree with the market that there would be rate hikes. The rate-easing cycle has ended and asset prices will in general reflate now, but I don't agree with the market on the extent it would be," he said.
He said traders expect the central bank to raise its policy rates by more than 100 basis points within the next three months.
In January, we would see a 50-basis-point increase in the repo and reverse repo rates and the cash reserve ratio (CRR), he said.
This expectation of sharp increases means bond yields may not rise as much when policy rates are actually increased, he added.
"Now the rate hike cycle... you know it's going to be there but the anxiety of the market is so much that it wants a premium to move from the easy to tight cycle which is why they are trading at such levels... but when rate hikes begin they will start to normalising," Dangi said.
Dangi said he expected the central bank to put in place liquidity control measures which would help counter the effect of the incremental foreign fund inflows without penalising markets.
"We are relatively looking up right now which has a lot to do with the fiscal stimulus and the base effect," he said.
He said that demand for fixed maturity plans would improve in the run up to March after rate tightening starts.
"We can't indicate rates anymore now but yes, the delivery of return would improve in the run up to March because as we get into the rate hiking cycle, the premium is likely to increase in the shorter end."

Source: http://in.reuters.com/article/businessNews/idINIndia-43677720091104?sp=true

Mr. Ved Prakash Chaturvedi, Managing Director, Tata Asset Management Ltd

Mr. Ved Prakash Chaturvedi, Managing Director, Tata Asset Management Ltd has worked with various leading financial services organisations in India. These include CRISIL (Indian business of Standard & Poors), Banque Nationale De Paris, SBI Funds Management. Mr. Chaturvedi has a Bachelor’s Degree in Electronics Engineering and an MBA from the Indian Institute of Management, Bangalore. Chaturvedi is also a Director on the Board of Association of Mutual Funds in India (AMFI), Member of the SEBI Advisory Committee of Mutual Funds, Member of the Capital Market Committee of the Indian Merchants’ Chamber (IMC) and a Committee Member of the Confederation of Indian Industry (CII) National Committee on Mutual Funds.

Tata Mutual Fund manages around Rs202bn (average AUM for the month) as on September 30, 2009 worth of assets across its varied offerings. Tata Mutual Fund offers an investment option for everyone, whether you are a businessman or salaried professional, a retired person or housewife, an aggressive investor or a conservative capital builder.

Replying to Yash Ved of India Infoline, Ved Prakash Chaturvedi says, “Economic growth in many emerging markets has decoupled from the economic growth in developed markets.”

What is your view on the Indian stock markets ?

In our view an incipient recovery is under way in the Indian equity markets. However, there are apprehensions with respect to the deficient rainfall and with respect to the Chinese and global situation. On balance, global sentiment determines fund flows to emerging markets and to India and hence will continue to be a driver of market levels here.
Equity markets do not go up or down in a straight line. We have seen a very sharp run-up in our equity markets in the last few months. There will be possibly a period of consolidation and then based on the outlook for earnings growth from companies markets will move ahead.
Most analysts expect that fiscal year 2010-11 will be a year where we can expect EPS growth from companies as business confidence returns. If this scenario materializes, then we can expect some good cheer in Indian equity markets over this period.

What is your view on the Indian and global economy?

If evidence of the last 24 months is to be believed it does seem that economic growth in many emerging markets has decoupled from the economic growth in developed markets. In fact, for 2009 it seems that most of the global growth will actually come from emerging markets. However, it needs to be remembered that the largest pool of capital still lies with developed economies. Thus, investment flows into emerging markets continue to be driven by sentiments prevailing in developed markets. Thus, though economies have decoupled market movements still bear co-relation to developed market movements owing to the fact that sentiment there impacts fund flows and sentiment in emerging markets. This situation is likely to continue for some more time.
We cannot comment on the outlook for economic growth in developed markets as we do not track those markets proactively. However, our general view is that once the uncertainties of the global economy slowly fade away, business confidence and consumer confidence across the globe will slowly recover.

How do you see inflation and interest rates going ahead?

The coming few months will possibly see focus on inflation. It is a fact of life that when too much liquidity is injected into our system and money supply increases while the supply of goods and services do not increase proportionately it is a driver of inflation. It should also be kept in mind that since in our country inflation is measured on a year-on-year basis, the “base effect” will also cause headline numbers of inflation to start looking up as we go into 2010. The drought situation is also to be considered. Thus, inflationary expectations are likely to return in the next 18 months at some point of time.

How much schemes are you currently dealing with?

We currently have a range of 38 investment schemes – 20 Equity schemes, 14 Debt & Cash schemes and 4 Balanced or Hybrid schemes.

What is your view rupee on the rupee?

Over the long period of time, the rupee and emerging market currency should strengthen against the US dollar. But in short time frame, things will be more volatile.

Which of the sectors you are bullish?

We are positive on infrastructure, construction, engineering and capital goods.

Your message to the retail investors?

Our message is that long term story in India is very good as growth rates are likely to continue. Investors should understand risk appetite and carefully invest so as to benefit to growth of Indian economy.

Source: http://www.indiainfoline.com/Research/LeaderSpeak/Default.aspx?ReportNo=720

Diversification of assets overseas is must for portfolio

Nakul Karnik, an IIM graduate and an analyst with a knowledge processing outsourcing unit, tracks the Middle East and North Africa (MENA) markets. He believes that there are strong growth opportunities there. Putting his money where his mouth is, Karnik has invested some of his savings in exchange-traded funds listed in the US. These funds track opportunities in the MENA markets and have made Karnik good money.

Unlike Karnik, not all investors have the resources to invest in global markets nor do they have access to US-listed exchange-traded funds. For such investors looking to diversify overseas, mutual funds provide the opportunity.

WHY INVEST OVERSEAS?
Investing abroad at a time when FIIs are pouring money in India may sound a bit odd. But there is a logic behind this. Given the impact that geo-political events have had on regional markets, diversification makes sense. Besides developed markets offer better avenues of investment.
For instance, opportunity to invest in a search engine, water resources, precious metals mining and clean energy can be easily tapped overseas. These investments are future growth opportunities but they are not available in India.

This diversification within and across asset classes improves the portfolio on the qualitative front. “Diversification of your assets overseas is a must for your portfolio. As a starting point, one could look at parking about 5-10% of one’s portfolio overseas.” Hrishikesh Parandekar, CEO, Karvy Private Wealth.

HOW TO INVEST
RBI permits individuals invest up to $200,000 per year. One can identify various themes or growth drivers before committing money. “GDP growth rates of countries can be an easy yardstick to identify opportunities worldwide, though they has to be seen in the light of other variables,” says Deepak Arackal, vice-president & quantitative investment manager, ING Investment Management India.

Themes such as global energy, global real estate and infrastructure in emerging economies are popular. The best way to tap these themes for the individual investors is mutual funds.

THE FUNDS
The funds operate on multiple models. The first is actively-managed portfolios from India, where the local fund managers buy and sell stocks in foreign markets. Templeton India Equity Income is one of the oldest schemes in this segment.

The second is the fund of funds model. The Indian fund manager invests the money in various funds listed overseas and actively monitors these investments. Quantitative and qualitative parameters are employed to take investment decisions. The third model is a feeder fund model and is a kind of fund of fund. Here the Indian fund invests in a fund listed overseas. Principal Global Opportunities Fund is one of the oldest offering here.

“A fund that offers exposure to markets that have low correlation with Indian markets makes a good option from the diversification point of view,” says Maju Nair, AV-P, Sharekhan. The investor should pick a fund that caters to his needs.

The arrangements of money management at the fund level need not influence the investors’ decision. “But given the taxation treatment, it makes sense to invest in a fund that invests at least 65% of assets in Indian equities and rest in foreign equity,” says an official with an Indian private banking set-up.

WHAT IS ON OFFER?
The Indian mutual fund offerings in this segment are primarily focused on emerging markets equity, energy and commodities worldwide. A look at the adjacent table will give you an idea of the returns generated by such schemes. But there is more to the story than just the returns.
Templeton India Equity Income, a scheme with the longest track record in this category, is managed by Mark Mobius along with Vikas Chiranwal. The scheme invests at least 65% of money in Indian equities and rest of the money is invested in some hand-picked equities across the world.

No wonder the scheme boasts of 14% returns since launch in April 2006 and assets of Rs 1,158.47 crore as on September 30, 2009. On the other hand, top performer, Mirae Asset Global Commodities Stocks Fund, posted 92% returns in one year and invests in the commodity stocks worldwide. The fund was launched in July 2008.

A look at the portfolios of the funds throws up some details of the opportunities the investors can tap. As on September 30, 2009, Reliance Natural Resources Fund had a small exposure to an ETF that invests in water resources, an otherwise difficult to invest theme for an Indian investor.

Sundaram BNP Paribas Global Advantage Fund, on the other hand, boasts of a portfolio comprising 11 fund holdings offering exposures across markets and asset classes. Birla Sunlife International Equity Fund offers two plans, one that invests 65% of the assets in Indian equity and rest overseas and the other that is allowed to invest its entire money in foreign equity.

RISKS
Like any other investments, risks follow returns. Risks related to the geo-political scenario in foreign lands is a key risk and many of us may not be able to read it clearly. “Multiple currency exposures also enhance risks and so is the case with regulatory environment that regulates transparency and compliance levels,” says the official with private banking set-up.

Those who are keen to invest overseas should understand that this may not be just one more vehicle to make more money. A look at the returns connote that many of the funds enlisted here have underperformed the Indian market indices. Hence, the qualitative value addition that bring to your portfolio should be given closer look than just the returns.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/MFs-can-help-you-reaching-clean-energy-firms/articleshow/5194434.cms

Dubai MFs eye India

Dubai-based mutual funds are keen to tap the Indian market. That country’s finanacial regulator, Dubai Financial Services Authority (DFSA), has discussed with the Securities and Exchange Board of India (SEBI) the possibility of allowing Dubai mutual funds to be directly marketed and sold in India.
“We have indicated to SEBI that we are interested in an arrangement wherein Dubai International Financial Centre (DIFC) region’s mutual funds can be marketed and sold directly in India, Mr Paul M Koster, Chief Executive, DFSA, told Business Line on the sidelines of a recent Dubai- India economic partnership conference in the city.
The DIFC region is the financial hub of Dubai and has 1,643 registered mutual funds, out of which five are domestic (to Dubai) funds with a collective assets under management (AUM) of $290 million as of November 2008.
“DFSA’s proposal might mean a paradigm shift in the policy regime in India as far as mutual fund regulations are concerned,” said a senior India-based regulatory expert.
Currently, no regulation exists that would allow an international fund to market and sell its products directly in India, said Mr A.P. Kurian, Chairman, Association of Mutual Funds in India.

Source: http://www.thehindubusinessline.com/2009/11/03/stories/2009110351840100.htm

The Importance Of Being Positive

What a long journey it has been from last Diwali to this one. Leading up to the festival on 23rd October, 2008, there was real fear in the air. For a whole generation of people used to working and saving and investing in a benign environment, those few days redefined what panic could be. Certainly, most of us have seen market crashes before, in 2001, 1992 and perhaps earlier too. We've also seen periods of general economic crisis. However, this was different. The panic that we all felt in our hearts was of a different quality. It reset our mental standard for what we thought was a bad situation. Many, many of us were staring at a 360 degree disaster that encompassed not just our savings and investments, but also jobs, businesses, real estate as well as future prospects in all of these.
Or so we thought. In these short 354 days from one festival to the next, there has been a complete transformation of the mental framework in which we are making investments. In a manner of speaking, people are saying that if we could survive that, then we can survive anything. In a strange and perverse way, the extreme panic has retreated, after the economic recovery happened, in a manner that has restored confidence to a level that is actually more than what existed in 2007. Then, many of us were circumspect about there being a bubble and what would happen if and when it did burst. Now, we feel that it has thrown the worst at us and we're still OK. In the ordinary scheme of things, the normal comment any cautious soul would pass on this would be to advise circumspection.
However, maybe this is not that sort of a time. Perhaps one should imbibe a bit of the Diwali spirit and say that yes, we made it through the worst of times. There are any number of problems in the world and the investment markets could well be running ahead of themselves. All that is true, but at the end of the day it boils down to what attitude you'd like to take. I guess these last twelve months have proven that no matter how dark the outlook is, if you have to act on belief alone then it's better to believe that things are going to be better than that things are going to get worse.
If a bunch of pessimists compete with a bunch of optimists on the investment returns they can generate (and of course, there's no other difference between them), then the optimists are far more likely to win.

Source: http://new.valueresearchonline.com/story/h2_storyView.asp?str=100928