Sundaram BNP Paribas MF's PSU NFO

Sundaram BNP Paribas Select Thematic Funds PSU Opportunities, an open ended equity scheme, is the first fund by Sundaram BNP Paribas Mutual Fund that will invest in the companies falling under the public sector, which straddle segments as diverse as banking, insurance, oil, power, mining, defense, engineering and transportation infrastructure & services. The scheme seeks to provide a dedicated way to tapping wealth creation in this space.

The fund house is looking to profit from the central position that PSUs have again acquired in India to drive future economic growth. >For the industry as a whole, this is the second such thematic fund after Religare’s PSU Equity Fund. These two funds will actively invest in PSUs, though there are other passively managed funds investing in this segment, but not on an exclusive basis.

The fund would invest at least 65 per cent in equity and equity-related securities of PSU, but looks to hedge some bets by stating that it may invest up to 35 per cent of its assets in stocks other than the targeted theme or even in fixed income/money market instruments. The fund can also invest up to 35 per cent in overseas securities related to the theme. It can also invest in bonds and other fixed income instruments issued by public sector entities.

The fund has been benchmarked to the CNX PSE Index.

Fund Family
Sundaram BNP Paribas AMC was founded in 1996. At present, the total assets under management (AUM) as on October, 2009 is Rs 13,505.82 crore. Out of the total of 39 funds, 12 are open-end equity funds and the total assets in equities, as on October, 2009, stands at Rs 6,874.92 crore.

Fund Managers
47-year-old J. Venkatesan, fund manager-equity, would manage the fund. He holds an M.Com degree and Grad CWA and CAIIB. He has more than 24 years’ experience (13 years at Canara Mutual Fund and 7 years at Canara Bank).

29-year-old S. Bharath has been designated Fund Manager - Overseas Securities. He holds a B.Com, MBA degrees and is an ICWA. He has a total of 7.5 years' experience of which 2.2 years was with Navia Markets Ltd.

Basic Details

Type: Open Ended Equity Scheme

NFO Opens: November 25, 2009

NFO Closes: December 23, 2009

Plan / Options: Dividend and Growth

Minimum Application Amount: Rs 5,000 SIP Investment: Rs 750 (Quarterly) and Rs 250 (Monthly)

Minimum Additional Application/Redemption: Rs 500

Benchmark: CNX PSE Index

Exit Load Structure: One per cent if redeemed within 12 months. Nil if redeemed on or after 12 months

Annual Recurring Expense (maximum): 2.25 per cent (including investment management fee of 1.25 per cent)

Source: http://new.valueresearchonline.com/story/h2_storyView.asp?str=101031

SIP investors beat equity MF peers in returns race

Whoever said volatility is bad for equity investments? Those who invested in mutual funds through the systematic investment plan (SIP) route have benefited the most from fluctuating share prices over the past 2-3 years. While top equity diversified funds have returned 16-18% in three years, SIP investors have earned returns in the range of 25-28% (investing into the same funds) during the same period.

Supposing an investor has invested Rs 1,000 every month (between November 23, 2006 and November 23, 2009), he would have pocketed a 31% return on his Sundaram BNP SMILE Fund, 29% each on ICICI Prudential Discovery Fund and Birla Sunlife Dividend Yield Fund and 28% on his HDFC Equity Fund.

The investor would have made more ‘risk adjusted’ money than investing directly into stocks (Sensex three-year return being 25% on a compounded basis). In all cases, the investor would have made more money than any high networth individual (HNI) who had invested lumpsum into any of the above funds, unless the HNI managed to enter at the lowest level.

“SIP portfolios have yielding better returns because of the deep-market correction in mid-2008. Volatility provides a perfect setting for high-return SIP investments,” said Gopal Agarwal, equities head, Mirae Asset Investment.

According to fund managers, though there will be a slight erosion in net asset value (NAV), a market crash will not have much of an impact on the overall performance of the SIP. In fact, investors get more units for the same amount of money in falling markets. The units bought at lower price-levels will appreciate when the market turns around, adding to the overall portfolio value.

Lumpsum investors can only invest at one level of the market (in this case at 13,680 levels, Sensex as on November 23, 2006). Their investments went through a cycle of dips and surges, but they could not buy fresh units at lower market levels.

“The variance in the performance of SIP and lumpsum investments is mainly due to the fact that SIP investors would have picked up additional units during the downturn. SIPs route is ideal for small investors as it makes market fluctuations work for them,” said Jaya Prakash K, head-products, Franklin Templeton Investments.

Though one cannot make a direct comparison of benefits (between SIP and lumpsum MF investment), SIP is usually considered a sound investment strategy in range-bound as well as volatile markets, as you would not be locking your capital at one go. Performance of SIPs in the short term, however, depends on the extent of liquidity in the market, liquid cash position (non-invested part of the fund) and portfolio composition.

“Lumpsum investments (in MFs) look good in a constantly rising market; SIPs are better in falling and volatile markets,” said Anand Shah, head-equities, Canara Robeco Asset Management.

“Over a longer term (10 years and more), both investment styles yield decent return pattern for investors. For instance, if you had made two investments at the peak level and at the trough level in a given month, the difference in return at the end of 10 years would be hardly 1%,” Mr Shah added.

It is in this context that wealth managers are asking affluent investors to adopt value averaging strategies while making lumpsum investments. In value averaging investment (VAI), the investor sets a target growth rate or amount for his portfolio each month, and then adjusts the next month’s contribution according to the relative gain or shortfall made on the original asset base.

Though VAI has no historical references, returns (asset growth) could well be very close (or a bit high) to those offered by investments through SIPs, say experts.

Source: http://economictimes.indiatimes.com/articleshow/5265557.cms?flstry=1

Mutual funds bet big on growth sectors

The 30-stock Sensex has risen around 10% from its recent low of 15,404 points on 3 November to close at 17,131 on Tuesday

Driven by better-than-expected corporate earnings in the quarter ended 30 September and recent government announcements on disinvestments, mutual fund managers are showing their optimism by betting on high-growth sectors despite a doubling of stock prices in the past seven months.

The 30-stock Sensex, the bellwether index of the Bombay Stock Exchange, has risen around 10% from its recent low of 15,404 points on 3 November to close at 17,131 on Tuesday. It has gained 77.57% since 1 January.

A Mint analysis of the portfolio data of diversified equity schemes shows that fund managers have significantly higher allocations for automobile, construction and metal sector stocks.

The analysis looked at the month-end portfolio data of diversified equity schemes between 31 March and 31 October. The data was provided by mutual fund tracker Value Research.
While energy and financial stocks continue to command the most investment, allocation to sectors such as consumer goods has come down significantly.

Allocation to auto stocks rose to 4% at the end of October from 2.85% in March. Investments in construction companies almost doubled, from 2.5% to 4.9%. Technology stocks saw increased allocation, up from 4.9% to 7.25%.

The aggressive allocation strategy is a reflection of rising confidence in the economy and businesses, fund managers said.

“Overall economy numbers and other indicators like auto and property numbers are much stronger than expected,” said Suresh Soni, chief executive officer of Deutsche Asset Management (India) Pvt. Ltd, which manages Rs13,795 crore in assets. “However, internationally, central banks are not withdrawing the accommodating monetary policy and have said they will continue the easy monetary policy for a specified period. This has put us in a sweet spot, which is propelling optimism.”

Chennai-based N. Prasad, who runs an independent research firm and is former chief information officer of Sundaram BNP Paribas Asset Management Co. Ltd, said: “Most fund managers are increasing allocation to economy-sensitive stocks in their portfolio. (There’s) nothing wrong with this strategy as most confidence indices are turning positive.”

According to Prasad, the fiscal deficit is no longer a big worry. “The government disinvestment programme is expected to bring it back to FRBM targets.”

The FRBM (Fiscal Responsibility and Budget Management) Act aims to bring down the government’s fiscal deficit to 3% of India’s gross domestic product.

Another important factor that has contributed to the increasing weightages is the movement in stock prices.

Ritesh Sheth, fund manager, SBI Funds Management Pvt. Ltd, which manages Rs38,322 crore in assets, said: “It is not clear whether this increased allocation can be fully attributed to the purchases by fund managers. A lot of it would be due to the price action. For example, a sector like telecom is facing an uncertain period. People are keeping away because there are a lot of ifs and buts. One is not sure on what basis the profitability of these companies need to be calculated in the short term. So, everyone is waiting for the dust to settle.” Allocation to the telecom sector has halved.

Fund managers have also been burnt by a high cash strategy that affected fund returns between March and June. Funds had cash levels of 15-20% and missed the rally triggered by return of the United Progressive Alliance to power at New Delhi in May.

A study of equity funds by Crisil FundServices, a research unit of ratings firm Crisil Ltd, also shows that funds with lower cash holdings have outperformed others in the long run.

While funds with higher cash holdings cut their losses in a falling market, they tend to miss out on a subsequent rally. Further, equity funds with minimal cash holdings fared only marginally lower in a downturn, but benefited considerably more from a rally.

The most notable performance in the downturn came from fully-invested funds that made timely and prudent investment calls in sectors such as pharmaceuticals and consumer goods, the Crisil report said.

“Investing in defensive sectors to negotiate a down market proves to be a more effective strategy as such funds can bounce back faster during a market correction,” said Krishnan Sitaraman, director, Crisil FundServices.

“Investors invest in equity funds primarily because they are perceived as value creators and it helps them diversify from their debt investments. By taking cash calls, funds defeat this very basic objective of investors,” Sitaraman added.

However, Prasad cautioned that valuations could be a dampener for fund managers’ optimism. “Market looks rich largely because earnings are below the long-term trend level of 21%,” he said.

The Sensex, India’s most tracked index, has climbed at least 110% since the lows of March, a rate of growth surpassed only during its rise in the early 1990s during a stock market scam engineered by trader Harshad Mehta.

The index is trading at 20.96 times the estimated earnings for the fiscal year to March. The average range of valuation for the index has traditionally been 14-17 times of earnings.

Soni of Deutsche Asset Management said valuations have to be seen from the perspective that they had been depressed unrealistically when market hit historic lows. “In the near term, it’s a concern. But in the medium term, it’s not.”

Source: http://www.livemint.com/2009/11/24232136/Mutual-funds-bet-big-on-growth.html

Brokers keen on MF trading

Say move to deepen market but existing distributors may get annoyed.

The recent move by the Securities and Exchange Board of India (Sebi) to facilitate mutual fund transactions through the existing stock exchange infrastructure has found many takers, with broking companies keen to venture into this new area within a fortnight.

Brokers said trading in MF units would help them enhance volumes. In return, investors would save costs, they said. However, they added that this would be different from equity transactions and require a dedicated team.

Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services, said, “We are set to offer this value-added service as it will provide transparency, reduce costs from investors’ perspective and increase volumes.”

A majority of existing asset management companies (AMCs) do not have a wide network and are limited to a few cities. On the other hand, broking companies have spread to semi-urban regions and are now focusing on retail investors.

Dinesh Thakkar, chairman and managing director of Angel Broking, said, “There is no reason why should we not get into mutual fund trading. AMCs do not have the reach that broking firms can provide.”

Oswal said: “Our existing infrastructure, with a distribution network having access to 560 cities across the country, will be adequate to offer this service. What will we require is mutual fund advisors.”

Trading of MF units on any day would be at the net asset value (NAV) fixed for that particular day, said brokers. Though most brokers are enthusiastic, some say how things turn out is yet to be seen.

Mohan Natarajan, executive vice-president at Edelweiss Capital, said, “Tracking equity and mutual fund markets are two different things. In mutual funds, it is the fund manager’s call which matters. Moreover, the fund market is not as volatile as equity markets. In case it remains an investors’ game, volume may not be there.”

Fund houses agree that using the exchanges’ infrastructure will expand the distribution network significantly. “However, it could annoy existing distributors and small town advisors,” said the chief investment officer of a leading domestic fund house.

Existing MF distributors and financial advisors are taking this as another challenge to their already shrinking business after the ban on entry load in equity schemes came into effect in August.

According to them, it is doubtful if the issue of low penetration of MF products can be addressed by using the existing infrastructure of stock exchanges.

“Though the market regulator wants to increase mutual funds’ reach to the masses, how will such a move increase retail participation? Existing clients of broking firms are likely to go for this service. Moreover, how many brokers would like to take care of small mutual fund investors who invest far less money than equity investors?” said a leading MF distributor who did not wish to be named. According to the equity head of a foreign MF, “Using the exchange’s network will enhance the fund market, resulting in easy transactions. However, the platform has to be more complicated to take care of the various intricacies involved in trading, such as track record of funds, etc. Else, it will be difficult to make investors understand what to buy.

Source: http://www.business-standard.com/india/storypage.php?autono=377522

NSE's new MF service system from Nov 30

The National Stock Exchange on Tuesday said it is proposing to introduce a new mutual fund service system (MFSS), which will enable its members to use the existing infrastructure for transaction in MF schemes.

The NSE proposes to introduce new MFSS for facilitating transaction in MF schemes through the stock exchange infrastructure, the NSE said in a circular, adding the new MFSS will commence from November 30.

Market regulator SEBI, in a recent circular, gave its approval for facilitating transactions in MF schemes through the stock exchange infrastructure.

"The infrastructure that already exists for the secondary market transactions through the stock exchanges with its reach to over 1,500 towns and cities, through over two lakh stock exchange terminals can be used for facilitating transactions in mutual fund schemes," SEBI had said.

The stock exchange mechanism would also extend the present convenience available to secondary market investors to mutual fund investors, the market regulator had said.

The existing MF scheme, introduced in December 2000, will be substituted with the new MFSS, the exchange added.

Source: http://economictimes.indiatimes.com/NSEs-MF-service-system-from-Nov-30/articleshow/5265292.cms

It is payout time for mutual funds

In a bid to woo investors, mutual funds have embarked on a dividend declaration spree. Over a dozen fund houses, large and small, including Reliance, UTI, ICICI Prudential, SBI, Tata Mutual Fund, DSP BlackRock, Religare, Bharti Axa, Taurus, are doling out dividends in the range of 10-50 per cent.

At a time when new incremental inflows are not coming in, dividend declaration works as a mechanism to attract more investors and fresh inflows, said Mr Krishnan Sitaram, Head of Fund Services, CRISIL.

In the run up to the tax planning season, tax-free funds are seen declaring dividends to lure investors. It is easier for distributors also to sell the product on the back of such an incentive (such as a dividend declaration).

Fresh inflows into equity funds have fallen by more than 50 per cent as on October-end, compared with the July-end numbers. According to industry body AMFI’s figures, investments into equity funds were at Rs 4,261 crore in October as against Rs 8,737 crore in July. The benchmark index Sensex has gone up by over 13 per cent since July.

Declaring dividends works as a goodwill gesture and also works as a tool to attract more money from new investors, said Mr Rakesh Goyal, Senior Vice-President, Bonanza Portfolio.

Typically, when the equity market goes up there is value appreciation in the equity schemes. Hence, fund houses give dividends to reward investors, said Mr Srinivas Jain, Chief Marketing Officer, SBI Mutual Fund.

Mr K. Venkitesh, Head of Distribution of Geojit Financial Services, agrees, “Dividend declaration is more of a selling tactic as it gives immediate returns, although the NAV of the mutual fund scheme falls after dividend is declared.”

Unlike the way corporate houses pay dividends, mutual funds simply sell off part of the funds assets to pay dividends. So on the record date of the dividend, the NAV of the fund drops and also the worth of the investor’s investments decreases to that extent, explained an analyst.

According to Mr Krishnan, dividend is not re-invested in the corpus of the scheme, and to that extent it is not a positive for the long-term investor who would have rather waited to gain on that re-invested amount also.

Source: http://www.thehindubusinessline.com/2009/11/25/stories/2009112551011000.htm

Trading in mutual funds in a fortnight

You may soon be able to buy and sell mutual fund units through your broker's terminal, according to the chairman of the Securities and Exchange Board of India. "Trading in mutual fund units is expected to start in 10 to 15 days," he said in an interview with CNBC Awaaz. Brokers have applied for the necessary certifications and expect to be battle-ready anytime soon.

"The buying of mutual funds would be like any other equity shares transaction on T+1 settlement (one day after the trade has taken place) through exchanges," said Mayank Shah, CEO of Anagram Capital. Brokerages are signing up withvarious asset management companies and exchanges for trading throughterminals.
"It would not be a problem for us. Not many changes would be required in our system and dealing in MFs would be like any other equity product. This would reduce paperwork and units would be in demat form," said Dinesh Thakkar, CMD of Angel Broking.
Sebi had issued a circular on November 13, which allowed the use of stock exchange infrastructure for sale of mutual funds. It is expected that this would increase the reach of themutual fund industry, which is dealing with increased difficulties in distribution following the ban on charging of entry loads.
As well as increasing penetration among retail investors who currently do not invest in mutual funds, investors who have exposure to mutual funds may take the demat route, feels Nitin Rakesh, CEO at Motilal Oswal AMC. "There could be a migration period lasting a few months. HNIs already have demat accounts and the number of retail investors with such accounts should also increase soon".
"Anything that spreads the availability of the product would be welcome, and the entire process should begin soon," said Suresh Soni, CEO of Deutsche Asset Management (India).

Source: http://www.dnaindia.com/money/report_trading-in-mutual-funds-in-a-fortnight_1315664

Religare Tax Plan To Pay Dividend Of INR1 Per Unit

Religare Mutual Fund Monday declared a dividend of 10%, or INR1 a unit, under the dividend option of its Religare Tax Plan.
The record date for the dividend is Nov. 25, the Indian fund house said in a statement.
Religare Tax Plan is an open-ended, equity-linked savings scheme that invests mainly in equity and equity-related securities.

Source: http://www.religaremf.com/pdf/Notice-ReligareTaxPlan-Nov1909.pdf