MFs' asset base rises 3% in Feb

The average assets under management, or AAUM, of the Indian Mutual Fund (MF) industry — declared so far — grew around 3% month-on-month in February 2010 on the back of short-term institutional fund flows. The 31 fund houses which have declared their AAUM numbers so far have reported gross AAUM of close to Rs 5,75,233 crore against Rs 5,56,858 crore in January 2010.

Amongst the larger fund houses, UTI Asset Management Company has reported an increase of around 6.4% while ICICI Prudential’s AAUM shows an increase of 2.7% in February. The largest fund house of the country, Reliance, is yet to release its numbers. There are 38 fund houses that are currently operational in the country, including the newly-launched Peerless Mutual Fund which has disclosed a first-time average asset base of around Rs 121 crore.

Jaideep Bhattacharya, CMO, UTI Asset Management, attributes the increase in assets to corporate inflows into liquid schemes and bank money which has begun to flow in once again. “Within the banking spectrum, it is the private and the foreign banks that have been the major investors,” he adds.

Mr Bhattacharya pointed out that though high net worth individuals invested in a falling market, equity inflows have not been substantial. Moreover, despite this being a tax-saving season, equity-linked savings schemes were witnessing moderate inflows, he added.

According to Rajiv Anand, CEO, Axis Mutual Fund, whose fund house has seen an around 42% jump in AAUM since January 2010, “There have been fairly good inflows into money market instruments from the corporate side. However, on the equity front, including the ELSS, net inflows have been rather flat”.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/MFs-asset-base-rises-3-in-Feb/articleshow/5635018.cms

Look at MIPs as FDs with a kicker and risk

If you think buying a mutual fund’s (MF) monthly income plan (MIP) will pay you dividends every month, you are mistaken. According to rules laid by the Securities and Exchange Board of India (Sebi), MFs cannot assure dividends or principal.

But if you don’t look at MIPs as avenues to deliver regular dividends and instead treat them as investments that can fetch you higher returns than what your bank fixed deposits would give you over the long term, MIPs can work out for you. Here’s why.

The machinations

MIPs, or conservative equity allocation funds as we call them in Mint50, our 50 fund portfolio of investment worthy mutual funds, are hybrid funds that invest a chunk of their assets in debt securities (typically up to 80-90%) and the rest in equities.

MIPs try, but not promise, to pay dividends regularly, either monthly or quarterly. To ensure regular payments, it manages its debt component conservatively. The returns kicker comes from its equity investments.

Shobit Gupta, head (fixed income), Principal PNB Asset Management Co. Pvt. Ltd says: “The idea is to provide as much security as possible against interest rate volatility.”

And here’s where one MIP can drastically differ from the other—in terms of returns as well as risk profile. From investing nothing in equities, MIPs invest up to 25% in equities. The more it invests in equity, the higher is its risk profile.

For instance, Birla Sun Life MIP Savings 5 invests up to 5%, Birla Sun Life MIP invests up to 15% and Birla Sun Life MIP 25 invests up to 25% in equities. Others such as HDFC MF prefer to call its conservative option (that invests up to 15% in equities) as a “short-term plan” and its aggressive option (that invests up to 25% in equities) as a “long-term plan”.

Do they skip dividends?

MIPs may aim to pay regular dividends but they can’t assure you any dividends as per Sebi norms. Since they invest in equity and debt markets, just like any other MF scheme, and can’t have regular returns MIPs skip dividends regularly. Data provided by MF tracker Morningstar tells us that between 2005 and 2007, MIPs skipped dividends for two months in each year on an average.

In 2008, when equity markets crashed, two funds, Canara Robeco MIP and DSP BlackRock Saving Manager–Moderate, did not declare a single dividend throughout the year. While the former lost 11%, the latter lost 0.68% in 2008. Only two of the 38 funds in this category have not skipped a single dividend between 2005 and 2009.

Quarterly plans have a better track record as they need to distribute dividends only four times a year instead of every month. Of the 38 funds in this category, eight funds have paid dividends in every quarter between 2005 and 2009.

Do high dividends matter?

Don’t look at the quantum of dividends that your MIP declares. When funds make money in the market, they pay dividends. However, not all gains get distributed as dividends.

For instance, if you had invested Rs1 lakh in the growth option of HDFC Monthly Income Plan–Long Term Plan at the start of 2007, you would have earned 18.18% returns by the end of the year. But if you had opted to receive quarterly dividends instead, you would have earned 7.39% as dividends. The rest would have come by way of capital appreciation.

“Consistency of dividends is more important. It’s not necessary to declare high dividends. As far as possible, fund houses avoid skipping dividends,” says Ritesh Jain, head (fixed income), Canara Robeco Asset Management Co. Ltd.

The excess dividends get accumulated and paid out during troubled times when funds fail to earn from the markets. For instance, in 2008, despite bad markets, 19 funds skipped only up to four monthly dividends.

What should you do?

Look at MIPs more as a long-term product instead of an investment that yields monthly income. If you had invested in a 5-year AAA-rated debt paper on 31 December 2004 and stayed invested in it for five years, you would have earned 6.99% at the end of 2009. MIPs returned 9.04% in the same period. “The kicker in returns came due to their equity investments. Over a long term, they can outperform traditional fixed income instruments,” says Amit Trivedi, CEO, Karmayog Knowledge Academy, a Mumbai-based MF training institute.

Watch out for your MIP’s stated asset allocation in its offer document and match it with what the fund actually does. For instance, ICICI Prudential MIP’s offer document says it will invest in equities “between” nil and 15%. This means it can manage its equity portion more dynamically. In troubled times, it can sell a chunk of its equity portion and get into cash or short-term debt.

HDFC MIP–Long Term Plan’s offer document says its “normal equity allocation” will be 25%. The fund has consistently remained invested in equities between 20% and 25%. Choose your style.

Source: http://www.livemint.com/2010/02/28212443/Look-at-MIPs-as-FDs-with-a-kic.html

A primer on FMPs

In a rising interest rate regime, fixed maturity plans can offer good returns. But exit in the interim is difficult because of listing.

When interest rates start going up, investors seek options that will give them good returns. There are various options – fixed deposits, debt funds, corporate deposits, non convertible debentures and fixed maturity plans (FMPs) of mutual funds.

FMPs are schemes with a pre-specified tenure. The basic objective is to generate steady returns over a fixed period. Thus, investors are assured of returns if they stay in these products for the entire period.

Since these products are of different maturities, investors have the option of buying schemes that suit their requirements. Since these schemes are closed-ended in nature, investors earlier had to pay an exit load. However, last year, the Securities and Exchange Board of India (Sebi) made it mandatory for FMPs to be listed in the stock exchanges.

At best, these schemes can be best equated with a fixed deposit in a bank, but with a caveat. The maturity amount of a fixed deposit in a bank is 'guaranteed', but only 'indicative' in case of an FMP.

Last year, Sebi issued a directive whereby fund houses were instructed not to declare any ‘indicative portfolio’ and ‘indicative returns’ to investors in FMPs. However, while buying it, one can look at the returns that are being offered at a particular time.

But what investment strategy do these FMPs follow? These are invested in fixed income instruments, like certificate of deposits (CD), commercial papers (CP), money market instruments, corporate bonds; debentures of reputed companies or in securities issued by Government of India and fixed deposits selected by the fund manager.

These have lower risk of capital loss due to their investment in debt and money market instruments and are least exposed to interest rate risk as the fund holds the instruments till maturity getting a fixed rate of return. Here, fund managers primarily invest in AAA, P1+ or such kind of good rated credit instruments with maturity profile of the securities in line with the maturity of the plan so there is also low credit risk with minimal liquidity risk involved.

Since the instrument is held till maturity, there is a cost saving in respect of buying and selling of instruments.

FMPs have better tax efficiencies whether you invest in the short term or in the long term. The long-term capital gains (investment of more than a year) enjoy indexation benefit (Indexation is a technique to adjust income payments by means of a price Index , in order to maintain the purchasing power of the public after inflation).

Importantly, if you stay invested for just over a year, there are double indexation benefits. For instance, if you buy an FMP of 14 months in February 2010, scheme will mature in April, 2011. In this case, the investor will get inflation indexation benefits for the years 2009-10 and 2011-12. After that, the tax rate is 10 per cent without indexation and 20 per cent with indexation.

In case of short-term capital tax, it is similar to interest income from bank fixed deposits. The returns are added to the income of the investor and taxed as per his/her slab.

However, remember that these schemes are not-so liquid anymore. Since they have to be listed at the stock exchanges, exiting before the scheme matures is difficult. For one, there are few buyers. And even if there are buyers, the units have to be sold at a discount. As a result, enter these products only if you are sure that

Source: http://www.business-standard.com/india/storypage.php?autono=387057

DSP BlackRock FMP - 13 M - Series 2 Floats On

DSP BlackRock Mutual Fund has launched a new fund named as DSP BlackRock FMP - 13 M - Series 2, a close ended income scheme. The New Fund Offer (NFO) price for the scheme is Rs 10 per unit. The new issue will be open for subscription from 2 March and close on 9 March 2010.

The primary investment objective of the scheme is to seek capital appreciation by investing in a portfolio of debt and money market securities. It is envisaged that the scheme will invest only in such securities which mature on or before the date of maturity of the scheme. The scheme may also use fixed income derivatives for hedging and portfolio balancing.

The duration of the scheme is 13 months from the date of allotment.

The scheme offers two options viz. growth and dividend payout option.

The scheme will allocate up to 100% of assets in debt securities with medium risk profile. It would further invest up to 100% of assets in money market instruments with low to medium risk profile. Debt instruments may include securitized debts up to 100% of the net assets and fixed income derivatives up to 100% of the net assets.

The minimum application amount is Rs 10000 and in multiples of Rs 10 thereafter.

The fund seeks to collect a minimum subscription (minimum target) amount of Rs 10 crore under the scheme during the NFO period.

Entry load and exit load charge will be nil for the scheme. Units of the scheme will be listed on the National Stock Exchange of India (NSE).

Benchmark Index for the scheme is CRISIL Liquid Fund Index.

Source: http://profit.ndtv.com/2010/03/01113655/DSP-BlackRock-FMP--13-M--Ser.html

SBI Debt Fund Series - 15 Months Fund - 5 Floats On

SBI Mutual Fund has launched a new fund named as SBI Debt Fund Series - 15 Months Fund - 5, a close ended debt scheme. The New Fund Offer (NFO) price for the scheme is Rs 10 per unit. The new issue will be open for subscription from 2 March and close on 8 March 2010.

The investment objective of the scheme is to provide regular income, liquidity and returns to the investors through investments in a portfolio comprising of debt instruments such as Government Securities, PSU & Corporate Bonds and Money Market Instruments maturing on or before the maturity of the scheme.

The scheme offers two options viz. growth and dividend payout option.

The scheme will invest in Government of India dated Securities and Treasury Bills, PSU & Corporate Bonds/Debt Instruments. Investment in Money Market instruments would be up to 100%. Exposure to securitized debt may be to the extent of 40% of the net assets.

The minimum application amount is Rs 5000 and in multiples of Rs 1 thereafter.

Entry load and exit load charge will be nil for the scheme.

Benchmark Index for the scheme is CRISIL Short Term Bond Fund Index.

Source: http://profit.ndtv.com/2010/03/01145655/SBI-Debt-Fund-Series--15-Mont.html

Sensible MF investing not about following events

On the day of the Union Budget, in the hours after the Budget speech was over, I was engaged in a very interesting exercise in estimating the impact of the budget on various mutual funds. Value Research was conducting this exercise for this newspaper and you must have seen the results in the shape of a full-page feature on these pages on Friday the 27th. The idea was to select a representative sample of funds from across different categories which would be impacted by the Budget.

When the Budget came out, the process turned out to be more complex than we had estimated it would. It wasn't as if the Budget would not have any impact on any funds-far from it. The stock markets certainly didn't think so, and nor did the bond markets.

What made the exercise more complex than I'd expected was the selection of a set of mutual funds that would be impacted more than others. The slope of the impact wasn't flat, but it was very broad. To my mind, this reveals something about how this budget; about how the Budget process has evolved; and most importantly, about the process of choosing good mutual fund investments. The time when the Union Budget could make or break individual companies or whole sectors of the economy are long gone. There were companies that will be found to have done better as a result of something that the Budget did and there would be mutual funds that would do better. But these would not be a direct impact of something Mr. Mukherjee said. The budget would create conditions that some businesses would be able to exploit better than others. Similarly, there would be some investment managers who would understand these differentials better than others and thereby make more money, but that is a secondary impact. There would be other business leaders and investment managers who would take the same inputs and not be able to create the same outputs.

What I'm saying is that basically, there is no longer a Budget impact so much as businesses which use the conditions created to make an impact. This leaves the investors in an interesting position. There is a type of investing that needs to understand the impact of the Budget instantly but that's the type that involves making a trade at 11:30 a.m. and reversing it at 3 p.m. investing is not even the right word to use for that activity. On a more tempered time-scale, specially for mutual fund investors, benefiting from the impact of the Budget-this budget, or any other-is more about sticking to the same core values that one would do anyway. Sensible and goal-oriented mutual fund investing is not about following fashions and events. It's about sticking to a small number of funds which are genuinely diversified and are not limited to any sector or theme or situation. It's also about investing gradually and not trying to time the market or a particular event. And it's about businesses that benefit from the general growth and prosperity over years and decades.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/Sensible-MF-investing-not-about-following-events/articleshow/5629575.cms

Mkt will take 5.5% fiscal deficit no positively: Madhu Kela

Madhu Kela, Head Equity Investments, Reliance Mutual Fund says Budget may surprise positively. “Market will take 5.5% fiscal deficit number positively.”

Kela feels excise duty hike will not significantly impact the auto industry. ”Will look for higher disinvestment number from government.”

Here is a verbatim transcript of an exclusive interview with Madhu Kela on CNBC-TV18.

Q: Most of the times we dont see a post-Budget sell-off, do you think it is likely this time around?
A: I am happy we are seeing some pre-Budget sell-off this time. The market undertone is like what it is today. Then there are chances that post-Budget market will look up rather than selling off.

Q: Do you think that the market has already priced in or is going in with very low expectations therefore the chances of a relief rally are higher going forward?
A: Budget proves to be a non-event in a matter of three-five days. Market at a point was overvalued. It needed some chance to correction. If the market corrects 15-20% from the peak and if we go into the Budget after that, Budget may positively surprise people this time.

Q: For this Budget how central is this fiscal deficit issue? What would the market ideally like to hear on the fiscal deficit front?
A: The market would focus on the absolute number which the government will come up with. The market will focus on the roadmap and the body language of the FM as to how to fiscal deficit will get controlled over the next 12-24 months. For a macro-institutional, this is a very big thing. They will continue to watch.

Q: What is the number that the market would be happy with?
A: If the number is 5.5% or so, the market will take it positively.

Q: Would it want to see a concrete roadmap on how this is to be achieved instead of just a promise?
A: Yes, the market would like to see a concrete roadmap. Based on the roadmap that is proposed, the analysis will be done on whether it is achievable or not and people would like to take a view post that.

Q: Do you have a number in mind and would the market like to hear specific names of large companies?
A: I think that has already come. In the last 10-15 days, government has been very proactive. They have already given lists of companies that they would like to disinvest. It is not very difficult to estimate a number. I would not like to hazard a guess. However, I would like to see a much higher number. Given their own plan, what they have spoken in the last two months, these are the companies that will disinvest. I think it is a significantly large number.

Q: From an earnings perspective, the assumptions are that through FY11 the earnings will grow at a robust pace. The risk to that is withdrawal of stimulus and how it would affect some of the companies that have benefited from it. In the Budget, are those company earnings at risk at all?
A: Maybe marginally at risk. If you look at auto sector, the EBITDA margins have expanded from 12% to 20%. If the stimulus is withdrawn and if there is a compromise of 1-2% on EBITDA margins, then I don’t think it significantly changes the course of earnings for these companies. Markets have been anticipating this. These stocks have been underperformers for the last three-four months.

Q: Hero Honda management said that the growth would go to single digits if this stimulus is withdrawn, would you go with that argument for a sector like autos?
A: My hunch is that it is not linked to 1-2% price increase or decrease. The volume growth is linked to the overall feel good factor. The government will be sensible enough because they know that this recovery has happened. I do not expect them to go that far so that the fundamental recovery will be at risk.

Q: Do you see any major direct tax changes? In the US budget we have seen things like capital gains tax go up because of fiscal deficit pressures. Do you see the government doing anything around direct tax changes?
A: That will be a very worrisome factor. The introduction of long term capital gains may not be fundamentally a big thing. However, sentiment wise, it will dampen sentiment significantly.

Source: http://www.moneycontrol.com/news/mf-interview/mkt-will-take-55-fiscal-deficit-no-positively-madhu-kela_443888.html

UTI Master Equity Plan Unit Scheme declares dividend

UTI Mutual Fund has declared a dividend 15% (Rs 1.5 per unit on a face value of Rs 10), in UTI Master Equity Plan Unit Scheme. The record date for the dividend is March 3, 2010.

All investors registered under the above scheme as on record date March 3, 2010 will receive this dividend. The NAV under the dividend plan of the scheme as on February 25, 2010 is Rs 44.04.(Check out - Recent MF Dividends)

UTI Master Equity Plan Unit Scheme is and closed ended equity oriented scheme. The scheme primarily aim at securing for the investors capital appreciation by investing the funds of the scheme in equity shares of companies with good growth prospects.

Source: http://www.moneycontrol.com/news/mf-news/uti-master-equity-plan-unit-scheme-declares-dividend_443951.html