No bringing back MF entry load: SEBI

The Securities and Exchange Board of India has virtually ruled out a re-think on its move to do away with entry load on Mutual Fund (MF) products.

Delivering his address at the Assocham Mutual Fund Summit on Wednesday, Mr K.N. Vaidyanathan, Executive Director, SEBI, said the distributors of MF units and other such agents should stop complaining and stay focused to enable retail investors have maximum return on their investments and stop thinking in terms of their commission.

This is necessary because with reasonable commission, the distributors and agents will be able to generate volumes of scale to enable them to earn money, which they cannot envisage in the initial phases, he said.

Source: http://www.thehindubusinessline.com/2010/01/22/stories/2010012251251500.htm

DLF to Exit Mutual Fund JV With Prudential Financial

DLF Ltd., India's biggest realty company by sales, will exit a mutual fund joint venture in the country with Prudential Financial Inc. because of a proposed regulatory change, a person with direct knowledge of the matter said Monday.

"The move is prompted by a proposed regulatory change, which makes it mandatory for a company to have five years of experience before selling mutual funds," the person, who didn't wish to be named, told Dow Jones Newswires.

The move is also in line with the New Delhi-based company's strategy to focus on real estate development, the person added.

DLF currently owns 39% in the joint venture--DLF Pramerica Asset Managers Pvt. Ltd.--while Prudential owns the remaining 61%.

"DLF will sell its 39% stake to Prudential," the person said, without disclosing details of the likely valuation of DLF's stake in the venture.

Spokespeople from Prudential weren't immediately available for comment.

The person said also that the time frame for DLF's exit from the joint venture is yet to be decided.

In November 2008, DLF and Prudential had received an approval from the markets regulator, the Securities & Exchange Board of India, to jointly sell mutual funds and said they will jointly invest $45 million in DLF Pramerica.

DLF Pramerica was planning to start selling mutual funds in 2009.

Earlier Monday, The Economic Times newspaper reported that DLF plans to exit the venture to reduce its debt of nearly 120 billion rupees ($2.6 billion).

DLF has been exiting its non-core businesses as part of its strategy to focus more on property development. The company's founders recently sold its multiplex-chain, DT Cinemas, to Indian multiplex operator PVR Ltd. The real estate developer also previously announced plans to sell its wind power business.

Still, DLF has a separate life insurance venture with Prudential, DLF Pramerica Life Insurance Co. Ltd., in which the Indian realty firm owns a majority 74% stake, while the remaining stake is held by the U.S.-based insurance company.

"The life insurance business is continuing and is doing very well for DLF," the person said.

The life insurance business began operations in September 2008 with an equity base of 1.1 billion rupees. In November 2008, DLF had said that the companies will jointly infuse 10 billion rupees of capital over next five to six years in the life insurance venture.

Source: http://online.wsj.com/article/SB10001424052748703569004575010112446094370.html

Things to know before investing in Tax Saving Funds

Equity Linked Saving Schemes (ELSS) or tax saving mutual fund schemes as they are otherwise known as, are a popular tax saving investment. The major reason for this popularity has been the introduction of Section 80C of the Income Tax Act, from April 1, 2005. This section allows the investor to invest up to Rs 1 lakh in various investment products and get a tax deduction for the same. The list of investment products also includes ELSS. Earlier, till March 31, 2005, investment in these tax saving schemes only allowed for a tax deduction of up to Rs 10,000 under Section 88.

However, that being said, there are various things an investor needs to keep in mind before deciding to jump into an ELSS investment.

Section 80 C spoils you for choice: As has been mentioned above, ELSS is not the only investment avenue that comes under Section 80C. Other investments such as Life Insurance, Public Provident Fund (PPF), National Savings Certificates (NSCs), Senior Citizen Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS) etc also offer a similar tax benefit. Then there are mandatory payments such as your PF, tuition fees of children and even housing loan repayments that are covered under Sec. 80C. Let us say an individual contributes Rs 40,000 to the PPF every year and Rs 30,000 is his provident fund deduction. So for him it makes sense to invest only the remaining Rs 30,000 [Rs 1 lakh – (Rs 40,000 + Rs 30,000) = Rs 30,000] for tax deduction under Sec. 80C. This is primarily because if he invests more than Rs 30,000, he will cross the overall level of Rs 1 lakh and the deduction is limited to Rs 1 lakh.

Lock-in of three years: Like all investment avenues under Section 80C, ELSS funds also involve a certain lock in. In this case the lock in is for three years. Hence an ELSS investment cannot be withdrawn for a period of three years from the date of investment. This lock-in is like a double-edged sword. On the one hand, it fosters long-term investment, which is very essential while investing in equity. And on the other, if you find yourself in a situation where you require funds in an emergency, you will have to resort to other means / investments --- the ELSS fund will be closed to you for three years. Withdrawals are just not allowed, not even with a penalty.

Tax saving schemes carry the risk of investing in equity: ELSS funds are promoted as good investments as they enable the fund manager to take long-term calls on account of the enforced three year lock-in. In other words, the fund manager doesn’t have to worry about keeping funds liquid to cater to daily redemptions that can happen in normal open ended schemes. However, it has to be kept in mind that ELSS funds for all practical purposes are similar to normal diversified equity mutual fund schemes. The funds in these schemes are invested in the stock market. Hence the returns these schemes generate depend on the kind of stocks the fund manager invests in and the overall state of the market. So if an investor invests in a tax saving scheme, and three years down the line, when the lock-in ends and the markets are not doing well, his total returns will take a beating. Yes, this has not happened in the past as the Indian market is in a lateral bull phase (barring the occasional hiccups). However, the potential of capital loss is very much there and it has to be considered. So investors need to consider their risk taking ability in terms of age and responsibility before deciding on investing in ELSS.

The bottom line? Whether ELSS or any other investment, do not invest because the investment offers a tax benefit. Ask yourself whether you would have invested in the particular instrument per se --- the tax benefit should be the incidental icing on the cake. This will ensure that all your investments will be as per your risk profile and goal oriented and not only on for the temporary purpose of saving tax.

Source: http://www.moneycontrol.com/news/mf-experts/things-to-know-before-investingtax-saving-funds_436668.html

India Inc may lose tax cover on MF investments

Capital markets regulator Securities and Exchange Board of India (SEBI) wants the government to scrap tax benefits for corporates investing in mutual funds (MFs), a proposal, if accepted by the government, could deal a body blow to local asset management companies and other firms.

The regulator has also proposed to the government that the securities transaction tax, or STT, which is levied on buying or selling of stocks and on derivatives trade, should be cut by one-third and that a uniform stamp duty be levied and collected by a central agency.

These proposals have been forwarded to the finance ministry, in the run-up to the Budget, said a person with the knowledge of the proposal. The letter to the finance ministry says, “Tax benefits to corporates investing in schemes of mutual funds may be withdrawn.”

It is not just the capital markets watchdog that is uncomfortable with MF industry’s unhealthy dependence on short-term funds from corporates.

Though this helps fund houses grow their assets and boost valuations, policymakers are worried about the systemic implications of any swift outflow of such institutional funds that could hobble some of the fund houses. This was evident during the second-half of 2008, when the Reserve Bank of India (RBI) had to keep liquidity support open to help MFs meet their redemption obligations.

RBI has also been unhappy at the way banks have been parking their surplus with MFs, which in turn finds its way back to banks. The central bank has nudged banks to restrict their investments in MFs.

Any move, either to do away with the tax benefits or to tweak the tax rates, could hurt the local MF industry whose growth is linked to the flow of funds from corporates. Over 50% of the money that Indian MFs attract for their debt schemes comes from corporate treasuries and banks. According to latest data, the assets under management of the Indian MF industry are a little under Rs 7-lakh crore.

SEBI’s proposal is aimed at putting an end to the rampant misuse of debt schemes of MFs by corporates, who park short-term corporate treasury funds to enjoy a tax arbitrage. While income from their treasury operations attract the corporate tax rate of 33.99% (including surcharge and education cess), treasury investments in debt funds attract a dividend distribution tax (DDT) of only 22.66%.

“If the tax benefit is removed, it will discourage corporates from using mutual funds as a treasury instrument... as we want to develop mutual funds as a vehicle for retail investors to take exposure in the securities market,” said a SEBI official.

Recently, RBI had told banks to go slow on their MF investments. In the last fortnight of December 2009, banks withdrew more than Rs 1-lakh crore from MFs. RBI deputy governor Shyamala Gopinath too had expressed her concerns about tax arbitrage through mutual fund investments.

“Mutual funds’ fixed-income products enjoy certain tax exemptions not available to banks. But this is outside the regulatory purview. However, if these policies introduce any vulnerability in the financial system, there is a need to address this through appropriate macroprudential and microprudential regulations,” Ms Gopinath said at a Fixed Income and Money Market Dealers Association (FIMMDA) meet.

SEBI has also asked the government to drastically reduce the securities transaction tax (STT) on equity transactions, as it increases the transaction cost. The regulator has recommended that STT should be slashed by one-third, as the rate has effectively tripled with the withdrawal of STT as a rebate under Section 88E in the last Budget.

Besides proposing a uniform stamp duty that will levied and collected by a central agency and shared among states based on an agreed formula, SEBI has recommended a goods and services tax (GST)-type concept for stamp duty collection on securities trades.

Market players say that there are several anomalies in the stamp duty, as it is levied by states with each levying different rates for different securities instruments. There are also disputes among states. Transaction costs in India are one of the highest in the world, with government levies, such as stamp duty and STT, accounting for almost 75% of the cost.

SEBI also wants Indian Depository Receipts(IDRs), instruments through which Indian investors can invest in equity shares of foreign companies, to be treated as securities for tax purposes. It has also recommend to the government that IDRs should not be taxed on transfer.

Source: http://economictimes.indiatimes.com/markets/indices/India-Inc-may-lose-tax-cover-on-MF-investments/articleshow/5461454.cms

Amfi may drop plan to launch MF platform

Association of Mutual Funds in India (Amfi), the industry body of fund houses, today hinted that it may drop the plan to launch its own mutual funds transaction platform, as others have already launched similar facilities.

"We are re-examining the proposal as many parties, including BSE, NSE and Cams and Karvy have launched their platforms. We have to see whether there is a space for one more platform," Amfi Chairman A P Kurian told reporters here.

The NSE was the first to launch its mutual funds transaction platform in association with UTI MF, which was followed by the BSE and others. Initially, Amfi had planned to make its platform operational by March this year.

NSE Managing Director & CEO Ravi Narain today said, the exchange has received a modest response from investors to its mutual funds transaction platform but expects the response to improve in the period ahead.

Asked about the banks parking their money in the financial instruments issued by MF companies, Kurian said banks tend to invest in instruments, which, they feel are profitable.

Reserve Bank is understood to have asked banks to bring down their investments in mutual funds, as the regulator feel that this would affect the bank credit flow to the needy sectors.

Source: http://www.business-standard.com/india/news/amfi-may-drop-plan-to-launch-mf-platform/83535/on

JP Morgan Asset Management announces top-level changes

JP Morgan Asset Management on Tuesday announced the promotion of Christopher Spelman as Chief Executive Officer (CEO) of its India business and the appointment of Nandkumar Surti as Chief Investment Officer (CIO).

The company also announced the resignation of its Executive Chairman, Krishnamurthy Vijayan, who will leave the company shortly to take up a senior position at another company.

In his new role, Spelman will be responsible for asset management business including sales and marketing, product development, operations, staffing and budgetary controls, a press release issued here stated. Spelman has been with JP Morgan for over 12-y ears.

Mr Nandkumar Surti, the erstwhile CIO of Fixed Income at JP Morgan Asset Management, will now be the CIO for the entire India asset management business. Mr Surti joined the firm in 2006 and has been instrumental in building a strong fixed income busines s for JP Morgan Asset Management in the country, release added.


Source: http://www.thehindubusinessline.com/blnus/14191825.htm

India Post to again sell UTI MF schemes

With UTI Mutual once again offering commissions, India Post has started selling the fund house’s schemes. India Post had stopped selling UTI’s schemes after market regulator, Sebi banned entry loads in August last year.

For its efforts, India Post is getting upfront commissions between 0.75-1% on selling their products to the India Post, say UTI officials.

AS Prasad, deputy director general, Financial Services at India Post said, “UTI mutual funds have agreed to our terms and conditions and we have started selling their products. Our main aim is to reach out to the people, who are not investing in mutual funds. Apart from UTI MF, we are also in talks with other fund houses for selling their schemes.”

Before the ban on entry load, India Post was selling schemes of Franklin Templeton, Principal MF, SBI MF, UTI MF and Reliance Mutual Fund through designated post offices across India. According to officials from the India Post, in the last fiscal it earned a commission, exclusively through mutual funds, of over Rs 10 crore.

Jaideep Bhattacharya, chief marketing officer at UTI MF says, “This tie-up will bring in large number of retail investors, who are saving with post offices into the mutual funds net. We will continue to reach out to more investors across various geographies and provide them with various facilities, which will make investing simple and hassle free.”

In December 2009, UTI MF reported over one crore-investor accounts, the first fund in the industry to do so.

India Post started distributing mutual funds in January 2001, first by signing an exclusive tie-up with IDBI-Principal.

Source: http://www.financialexpress.com/news/india-post-to-again-sell-uti-mf-schemes/569302/

Sir John Templeton's 16 investment rules

SIR John Templeton, the founder of Templeton Funds was a multi-faceted personality, a legendary investor, fund manager and an astute philanthropist. He wrote 16 rules of investment success, which can be found here. They are the crux of his investment ideas and philosophy. Let us examine their relevance in the Indian context.

Rule 1: Begin with a prayer
Prayer helps you think clearly and make fewer mistakes. Meditation is known to reduce anxiety and stress, helping in better decision making.

Rule 2: Invest for maximum total real return
It is important to only consider the total real return i.e. the money you make in your investment lifetime after inflation and taxes. Many investors get carried away by short-term movements. They tend to ignore the long-term opportunities.

Rule 3: Remain flexible and open-minded
Flexibility comes from being agile. Open-mindedness is learning from new ideas and perspectives. Many old-timers missed India 's IT sector growth in the early 90s, which gave multi- bagger stocks like Infosys and Wipro. They neglected the infrastructure and banking sectors, whose stocks multiplied within a couple of years. Hence it is important to be flexible and open-minded.

Rule 4: Invest, do not trade or speculate
Almost all successful people in the stock market are investors and not traders. They invest for long-term and are patient. There are many investors who have become millionaires solely on return of one stock in their portfolio over a decade. Sure they bought lot of other stocks which went no-where but the one or two stocks that did well made all the difference. Traders think of the market as a casino where you play daily to win, investors think of markets as a long-term wealth building exercise.

Rule 5: Search for bargains
Just as we buy garments at discount sale, we need to buy and not sell stocks when markets are crashing. In October 2008, many high dividend yielding stocks were sold for meager amount. People who bought them have reaped huge profits.

Rule 6: Don't buy market trends or economic theories
Remember the India story told when the sensex was at 21,000 and markets dipped to 7,500 within a year. The boom gave way to gloom, economists and market experts were expecting a correction not a crash. Thus, you should not rely on economic theories and market trends while investing as they are told only after the event has occurred.

Rule 7: Diversify across assets and across markets, there is safety in numbers
Last year, when stocks dipped, gold and bond mutual funds thrived, an investor who had invested across all three assets would have got negative return in stocks but would have made good returns in bonds and gold. Thus, it is advisable not to put all eggs in one basket.
Investment opportunities come with risks. When markets are high, investors want 100 per cent equity exposure and forget the downside risk. When markets have crashed they want 100 per cent safety and ignore the upside potential.

Rule 8: Do your homework or hire experts who will do it for you
Some of us invest based on tips and rumors, that is speculating not investing. You should read and research all investment ideas well, take time to understand the upside and downside of each investment before buying. Or else, you must engage quality financial advisors before investing.

Rule 9: Aggressively monitor your investments
No investment is forever. Expect change and react to it. There are no permanent bull market and bear market.
Way back the BSE Sensex had bluechip companies like Scindia Steamship, Asian Cables, Crompton Greaves, Mukand Iron, and Premier Auto. Today, these companies have become small or midcaps. Some are not even quoted. Indices and markets keep changing. Investors should be on guard always.

Rule 10: Don’t Panic
Many people panic and exit the market when there is a dip. It is better to sell before a crash not after. Panic and euphoria are the two facets of same investors. Both selling after a crash and buying after a huge rally make no sense.

Rule 11: Learn from your mistakes
The only way to avoid mistakes is not investing which is the biggest mistake of all. Those who didn't invest after losing money in 1994 crash wouldn't have made money in 1999 boom. Those who lost money and exited in 2000 would have missed one the best times to invest in India from 2002 - 2008.

Rule 12: Beating the markets is a difficult task
Even professional fund managers have tough time doing it. Hence, an investor should remember that getting above market returns year after year is difficult.

Rule 13: Buy low
So simple in concept, yet so difficult to practice. Humans tend to think in herds and not alone. Only a brave person would have invested in October last year when people were shell shocked and wanted to forget about stocks.

Rule 14: Anyone who has all the answers doesn’t even know the questions
Markets make even the most brilliant fund managers humble. We have seen big fund managers make wrong decisions. An investor who thinks he knows everything doesn't usually know anything. Success is a process of seeking out answers to newer questions.

Rule 15: There is no free lunch
Never invest based on a tip or rumor. Everyone talks about their profits however small and no one talks about their losses however big.

Rule 16: Do not be fearful or negative too often
There will be corrections and crashes in the markets, but markets do recover and reward diligent and patient investors. This century or next it's still buy low and sell high.