Give your fixed-income plans an MF edge

Anybody and everybody has a view on individual stocks and the expected levels of the index in the next few minutes, hours and day; and so doessomebody else’s driver. However, it all seems surrealistic and mysterious when it comes to investing in fixed-income products. The result: take the simple way out and invest in bank deposits — when the investor does not want to take risks.

Among the individual investors (as opposed to the corporate), mutual funds are known as vehicles for investing in technology stocks or mid-cap stocks (read “ways to make a fast buck” ); but little is known about the category called debt funds or fixed income products.

The Clear Cut Advantage

Investing in fixed-income products through mutual funds carries a distinct advantage over bank deposits and post office monthly schemes in that the returns are earned by way of dividends that are tax free in the investors’ hands as opposed to interest earned on deposits which are taxable. Hence, while comparing these products it is important to check the post-tax returns — and these could vary depending on your tax slab as well.

Match the following

It is so easy to get misled by comparing returns of two investment products when the time horizons are not similar. This is especially true in fixed-income investing, as is apparent from the different returns you get on bank deposits when you vary the tenure of the deposit. Here then is a simple table which puts into perspective mutual fund fixed income schemes versus their well-known counterparts. The statutory warning that past performance is no guarantee for future performance holds true even on the downside, and that is especially true for longer tenure (medium-term in the example given in the table) debt funds.

Important factors to consider

Since the debt market does not have enough depth yet, it is important to invest in schemes that have larger AUM. This will avoid volatility on account of frequent entries/exits from such schemes by other larger investors. The expense ratios of the scheme play a vital role in determining investor returns. What was revealing was that 5 short term schemes of different fund houses, each having over Rs 2,000 crore as AUM had expense ratios ranging from 0.64% to 1.49% pa.

Of course, recent performance and pedigree of the fund manager will carry weight in selection of a debt fund. So take the starting steps, create a portfolio of debt schemes of different maturities, and of course contact your financial advisor before investing.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/Give-your-fixed-income-plans-an-MF-edge/articleshow/5896175.cms

MFs buy up to 6-month corporate deposits

Certificates of deposit maturing up to six-months were mostly issued today because mutual funds (MFs) were only keen on investing in shorter-tenure papers, dealers said.

“MFs received inflows in their liquid schemes and so preferred to invest in shorter-tenure papers,” said a dealer with a MF.

Around Rs 900 crore worth of CDs were today placed in the market.

Most traders also expect the rates to remain stable for sometime and so choose to invest in papers maturing up to November.

Rates on short-term papers have fallen 50-60 basis points since mid-April.

Banks too are not in rush to raise funds as liquidity is still abundant in the banking system. In April, banks placed around Rs 19,000 crore worth of CDs.

Three-month CDs were quoted at 4.20-4.40 per cent, compared with 4.15-4.35per cent on Monday, while three-month commercial papers were quoted at 4.40-4.60 per cent, compared with 4.50-4.70 per cent on Tuesday.

One-year CDs were quoted at 6.10-6.30 per cent, compared with 6.15-6.35 per cent.

Source: http://www.business-standard.com/india/news/mfs-buyto-6-month-corporate-deposits/393785/

Bond yields fall; rally seen short-lived

The yield on the most traded 8.20%, 2022 bond was at 7.88%, down 12 basis points from Monday’s close

The bond yields fell on Tuesday as traders were optimistic that Friday’s $3.4 billion bond auction may draw a good response as the papers announced for sale are actively traded now.

Yields fell further in late trade after CNBC-TV18 channel reported citing an unnamed finance ministry source that the government may increase the limit for foreign institutional investors (FII) in government debt to $10 billion and in corporate debt to $20 billion.

The yield on the most traded 8.20%, 2022 bond was at 7.88%, down 12 basis points (bps) from Monday’s close.

The yield on the new 10-year bond, the 7.80% bond maturing in 2020, was down 11 basis points at 7.63%. The benchmark 10-year bond yield was at 7.95%, down 10 basis points on the day.

Volumes were a heavy Rs174.90 billion on the central bank’s trading platform.

“Traders were sitting light in anticipation of an aggressive rate hike and there were also concerns on the market appetite for debt because of weekly auctions,” said K. Ramkumar, head of fixed income at Sundaram BNP Paribas Mutual Fund.

“But market demand on the contrary is strong and hence there is buying now.”

Indian bond traders are revising their interest rate views after recent dovish comments by top policymakers, while Greece’s debt woes are driving hopes of benign global rates and boosting sentiment.

Demand for bonds at weekly auctions is also aggressive. The central bank set the coupon for the new 10-year bond at 7.80%, lower than market estimate of 7.87% at Friday’s auction.

But there are doubts whether the rally would sustain as the government is set to sell Rs150 billion of bonds on Friday.

“The immediate direction for the market would be if there is a demand for bonds at current levels in the auction,” Sundaram Paribas’s Ramkumar said.

The central bank is set to auction Rs50 billion each of the 7.02% bonds maturing in 2016 and 8.20% bonds maturing in 2022 on Friday. It will also auction Rs30 billion of the 8.26% 2027 bond and Rs20 billion of the 8.32% 2032 bonds.

Traders are keenly awaiting the March industrial output data and wholesale price inflation for April due next week. These numbers would give a sense of the strength of the economic recovery and price pressures.

In interest-rate futures on the National Stock Exchange, the June contract implied a yield of 8.2342% and the benchmark five-year interest rate swap was at 6.82/85%, from its previous close of 6.81/84%.

Source: http://www.livemint.com/2010/05/04182946/Bond-yields-fall-rally-seen-s.html

'IRDA steps won't make ULIPs more attractive'

Will the new Insurance Regulatory and Development Authority (IRDA) guidelines on unit-linked insurance plans (ULIPs) make them more investment- friendly? Investment experts don't think so. Sure, they aver that these steps are mostly in the right direction, but they insist that these are, at best, "cosmetic changes" that would help the insurance regulator's case on Ulips in the court.

However, the much-debated issues such as "cost cutting" and "transparency" continue to dog these insurance products, which have emerged as the most-preferred insurance plans of Indian customers in the last few years. "They are tweaking the product, but the real issues such as expenses and transparency are not addressed," says Gaurav Mashruwala, a certified financial planner. "At best, these changes strengthen IRDA's case in court as all Ulips would now have an insurance element in them," he adds.

Financial experts often take potshots at ULIPs as they believe that these products, essentially an investment product with a mostly cosmetic insurance component, have been grossly mis-sold to the gullible public without disclosing the real cost or risks involved in them. The issue gained currency since the market regulator Securities and Exchange Board of India (Sebi) sent notices to insurance companies asking them to register Ulips with them as they are essentially investment products, which the IRDA has been vehemently denying.

Many financial experts believe that the recent efforts by IRDA to make ULIPs more investor friendly is just an effort to score over Sebi in its turf war. "Most of these measures, including the recent one on disclosing commission, were taken only to make sure that IRDA is on a strong wicket. However, the frontloading of commission, rampant mis-selling on claims of past performance or not having to pay premium after three years are yet to be addressed," says an expert who doesn't want to be named. Upfront commissions on ULIPs — in some cases it could be as high as 80-90% — have been a bone of contention ever since these products were issued.

However, they gained currency lately after Sebi abolished entry load on mutual fund investment since August last year. "In terms of cutting down on costs, nothing has been done yet. Sure, the IRDA has come up with a concept of gross yield and net yield to curtail cost, but most people don't understand the concept," says Amar Pandit, certified financial planner, My Financial Planner.

Suresh Sadagopan, chief financial planner, Ladder 7 Financial Advisors, says the only difference the new changes would make is that the insurance companies would offer only "type II ULIPs" from now. Insurance companies offer two kinds of ULIPs. The first kind of policy would offer the sum assured or fund value, whichever is higher. The second one would offer both the sum assured and the fund value.

Source: http://timesofindia.indiatimes.com/biz/india-business/IRDA-steps-wont-make-ULIPs-more-attractive/articleshow/5891130.cms

China May ‘Crash’ in Next 9 to 12 Months, Faber Says

Investor Marc Faber said China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst.

The Shanghai Composite Index has failed to regain its 2009 high while industrial commodities and shares of Australian resource exporters are acting “heavy,” Faber said. The opening of the World Expo in Shanghai last week is “not a particularly good omen,” he said, citing a property bust and depression that followed the 1873 World Exhibition in Vienna.

“The market is telling you that something is not quite right,” Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong today. “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.”

An index tracking Chinese stocks traded in Hong Kong dropped 1.8 percent today, the most in two weeks, after the central bank raised reserve requirements for the third time this year. The Shanghai Composite has slumped 12 percent this year, Asia’s worst performer, as policy makers seek to rein in a lending boom that’s spurred record gains in property prices. China’s markets are shut for a holiday today.

Copper touched a seven-week low and BHP Billiton Ltd., the world’s biggest mining company, fell the most since February on concern spending in the world’s third-largest economy will slow and after Australia boosted taxes on commodities producers. Rio Tinto Ltd., the third-largest, slid as much as 6 percent.

Chanos, Rogoff

Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China.

China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade.

The government has banned loans for third homes and raised mortgage rates and down-payment requirements for second-home purchases. Prices rose 11.7 percent across 70 cities in March from a year earlier, the most since data began in 2005.

The government has stopped short of raising interest rates to contain property prices. Within an hour of the central bank announcement on reserve ratios, Finance Minister Xie Xuren said that officials remained committed to expansionary policies to cement the nation’s recovery.

Stocks ‘Fully Priced’

The nation’s economy grew 11.9 percent in the first quarter, the fastest pace in almost three years. The government projects gross domestic product growth for the year of about 8 percent.

The clampdown on property speculation may prompt investors to turn to the nation’s stock market, Faber said. Still, shares are “fully priced” and Chinese investors may instead become “big buyers” of gold, he said.

BlackRock Inc. is among money managers reducing their holdings on Chinese stocks on expectations that economic growth has peaked. The BlackRock Emerging Markets Fund has widened its “underweight” position for China versus the MSCI Emerging Markets Index to about 7.5 percent from 4.6 percent at the end of March, the fund’s London-based co-manager Dan Tubbs said.

Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd, the nation’s three largest banks, are trading near their lowest valuations on record as rising profits are eclipsed by concern bad loans will increase.

Local Governments

Citigroup Inc. warned in March that in a “worst case scenario,” the non-performing loans of local-government investment vehicles, used to channel money to stimulus projects, could swell to 2.4 trillion yuan by 2011.

Housing prices nationwide may fall as much as 20 percent in the second half of the year on government measures to curb speculation, BNP Paribas said April 23. Under a stress test conducted by the Shanghai branch of the China Banking Regulatory Commission in February, local banks’ ratio of delinquent mortgages would triple should home prices in the country’s commercial center decline 10 percent.

Shanghai is projecting as many as 70 million visitors to the $44 billion World Expo, more than 10 times the number who traveled to the 2008 Beijing Olympics. More than 433,000 people visited the 5.3 square-kilometer (3.3 square-mile) park on its first weekend.

Source: http://www.bloomberg.com/apps/news?pid=20601100&sid=aFaODIq8xczc

AUM increases 3% in April

After a dismal March, which saw the average assets under management (AAUM) for India’s mutual funds fall, April has been much better with the AUM up around 3%. That’s despite the fact the data does not include numbers for four of the country’s top five fund houses including Reliance, HDFC, ICICI prudential and UTI. Increase in AUM figures is partly due favourable market conditions and increase in inflows into schemes.

According to the data provided by the Association of Mutual Funds in India (Amfi), the AAUM of 30 fund houses stood at over Rs 3,88,477 crore gaining 3.29% in April against Rs 3,76,099 crore in March. Currently, there are 38 mutual fund houses operating in India.

Ved Prakash Chaturvedi, MD, Tata Mutual Fund said, “With the start of new financial year, big banks and companies investors allocate money to be invested in mutual fund. In April we have seen money coming in, which was taken out in March. Also the equity markets remained upbeat in April which also helped the mutual fund industry.”

In March, fixed-income schemes saw outflows of over Rs 1.64 lakh crore while equity schemes had seen redemptions of approximately Rs 2,000 crore. Birla Sun Life Mutual Fund saw a rise in its aum of over Rs 7,165 crore to Rs 69,508 crore in April compared to Rs 62,343 crore in March.

Dhirendra Kumar, CEO of Valueresearch said, “After end of every quarter we witness money flowing into the mutual funds. However huge flows were seen only after monetary policy by the Reserve Bank of India, as some money was waiting to be invested in the mutual funds.” In the month of March huge redemptions were seen in the income as well as equity schemes as banks and corporates pulled the money out of mutual funds.

Several small size mutual funds like Taurus mutual fund, L&T Mutual fund, Peerless Mutual Fund and Baroda Pioneer Mutual Fund registered positive AAUM for April against March. On the other hand, many fund houses like Shinsei Mutual Fund, HSBC Mutual Fund, Fortis Mutual Fund and Benchmark Mutual Fund saw erosion in their monthly AAUM.

Big fund houses like Kotak Mahindra Mutual fund, LIC Mutual Fund and IDFC Mutual Fund saw dip in their AAUM, due to some redemptions pressure. In April the AAUM of Kotak Mahindra Mutual Fund stood at Rs 33,743.48 crore down by 2.70% compared to Rs 34,681.08 crore in March.

Source: http://www.financialexpress.com/news/aum-increases-3-in-april/614520/2

IDBI AMC launches NFO for IDBI Nifty Index Fund

IDBI Asset Management (IDBI AMC), a wholly-owned subsidiary of state run IDBI Bank, on Monday announced its first new fund offer (NFO) for 'IDBI Nifty Index Fund', which is meant for Indian investors.

"A Nifty Index Fund offers multiple advantages to existing as well as first-time investors. An investor can own the top 50 blue chip companies across 22 sectors, which represent the India growth story," IDBI AMC CEO and Managing Director Krishnamurthy Vijayan said in a statement.

The NFO, which was open for sale from today, will close on May 31, it said, adding that it will reopen for continuous sale and repurchase from June 30.

The face value of each unit will be Rs 10 and the minimum investment will be Rs 5,000. Under Systematic Investment Plan (SIP), investors can pay Rs 500 per month for 12 months or Rs 1,000 per month for six month or Rs 1,500 per quarter for a minimum four quarters continuously, it added.

Nifty Index Fund, it said, will seek to achieve the investment objective by minimising the tracking error between the Total Returns Index of S&P CNX Nifty Index and the scheme.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/IDBI-AMC-launches-NFO-for-IDBI-Nifty-Index-Fund/articleshow/5887103.cms

Sebi tightens norms for fund distributors

Capital market regulator, Securities and Exchange Board of India (Sebi), which believes that unit-linked insurance plans should be supervised by it as they contain an investment component, is now gearing up to issue norms for mutual fund distributors.

Sebi chairman CB Bhave has indicated that Sebi will be coming up with new set of guidelines for mutual fund distributors. “Guidelines for MF distributors are on the anvil, “ he said speaking to reporters on the sidelines of launch of Application Supported by Blocked Amount (ASBA) by the state-owned lender, Indian Bank, in Mumbai on Monday.

It may be recalled that entry loads for mutual fund schemes had been withdrawn in August last year. These loads, paid by the investors were passed on to distributors as commissions.

Meanwhile, Sebi is unhappy over the way the ASBA is being implemented by banks. Expressing concern that ASBA is not being made available, Bhave said that banks should make the facility available at more branches in the 40 cities which account for 80% of subscriptions. Surprisingly, only 20% of IPO investors were putting their money through ASBA. Banks must ensure that all the branches of the banks falling under those 40 cities were equipped with ASBA facility, said Bhave. the absence of the ASBA facility, in adequate number of bank branches, sub brokers of the stock exchange were feeling left out, said Bhave. Banks must ensure that all the branches of the banks falling under those 40 cities were equipped with ASBA facility, said Bhave. Talking about the benefits of ASBA, Bhave said that it has brought down refund related investor complaints.

On issue of last day bid in IPOs, Bhave said that Sebi has amended issue of capital and disclosure requirement (ICDR), and given a facility to issuers if they so choose, they can close the issue for institutional investors on day X and for other investors on day X+1.

Coming on listing norms for IPO, Bhave hinted that the Sebi was planning to bring down the closure of IPO to 7 days by December, from the currently existing timeframe of 12 days.

Source: http://www.financialexpress.com/news/Sebi-tightens-norms-for-fund-distributors/614521/