No trail commission if MF account is transferred

Association of Mutual Funds in India (AMFI) has announced that distributors will not get trail commission in case the investor transfers his Mutual Fund (MF) account. The unpaid trail commission will be put in an investor education find. SEBI had earlier allowed investors to change distributors without No Objection Certificate from current distributor; this had led to a sharp rise in the transfer of accounts. As per the new guideline, AMC will not pay trail commission to either the old or the new distributor if MF account is transferred.

Source: https://www.karvymfs.com/karvy/InformationCenter/News_Get.aspx

FINANCIAL PLANNING: Gaurav Mashruwala

Many financial planners are advising me to invest in international equity funds. Do you think it makes sense considering that returns in India are much better compared to the rest of the world?

In all kinds of investments, there is return and risk. They are two sides of the same coin. One cannot exist without the other.

While you are right in saying that returns in India are the highest, you also have to consider the risk associated with these investments.

If you closely look at your balance sheet, you will observe that virtually all your investments are in single currency — Indian rupee. Your house, jewellery, equity, debt, retirement corpus, bank balance, cash balance, land and real estate, etc, are in India. If due to any internal or external factors like geo-political situation, natural or man-made catastrophe or economic turbulence, our economy gets affected, all your investments will be impacted.

For decades, we have never considered these risks purely because we were a closed economy. Our central bank never allowed us to diversify across regions and currencies.

Now, we can access international markets in two ways. One is to invest in mutual fund schemes that are domiciled in India but invest in international markets, either directly or through acting as feeder funds to some international mutual fund schemes.

Another option is to directly transmit funds abroad and invest. According to the Foreign Exchange Management Act, an Indian citizen can invest up to $2,00,000 per year in foreign markets (with few restrictions). The best part about this is that no prior approval is needed from any regulator.

What is the right age to start planning for retirement?

Usually, an individual starts earning between 20 and 25 years of age. If we consider the retirement age as 60, she/he has a working life of 35 years. In these many years, she/he has to support his family, build his/her house, get children educated and married, support parents and build a corpus which will last for 20-25 years after retirement.

Over the years, life expectancy of individuals has been steadily increasing. In first half of the 20th century, an individual use to live for two-three years after retirement. This period increased to 7-10 years around the middle of the last century. Today, people live for 15-18 years after retirement. By the time we reach 2020, an individual may live for about 25 years after retirement.

Planning for retirement should start the day we earn our first income. Set aside very small portion of income for retirement. In earlier years of life, our financial responsibilities are least. Also, the sooner we start, the lesser will be the effort to build a retirement corpus.

If we want a corpus of Rs 1 crore at the age of 60 and if we can invest in an instrument that generates 8 per cent returns per year, the amount that needs to be saved every month from the age of 25 is Rs 4,359. If we start at 45, we need to save Rs 28,898 per month to reach the Rs 1 crore-mark at 60. And if we wait till the last hour and start building the corpus from the age of 55, we will have to save Rs 1,36,098 per month.

Source: http://www.business-standard.com/india/news/financial-planning-gaurav-mashruwala/394860/

Mutual funds rework strategies on new plans

Fund houses look at investors’ requirements before launching new schemes, try to keep costs under control

As the Rs7.47 trillion Indian mutual funds (MF) industry comes to terms with the new no-load scenario and several such measures, mutual funds are reworking their strategies to launch new funds. No longer are new fund offers (NFOs) used as an excuse to gather assets. Apart from an occasional exception, fund houses expect to collect a modest amount. With a drop in distributor commissions and a need to keep costs in check, fund houses are tweaking their strategies to get more bang for their buck. Fund houses are, finally, trying hard to find a balance between what they want to sell and what investors really want.

Is the product relevant?

As NFOs are costly affairs, fund houses claim a lot more thought is going into whether a scheme makes sense or not. Historically, fund houses have launched funds to garner more assets. In April 2006, when the capital market regulator, the Securities and Exchange Board of India (Sebi), banned open-ended funds to charge 6% NFO expenses and later amortize that over a period of five years, fund houses took to launching closed-end funds. According to data provided by mutual fund tracker Value Research India Pvt. Ltd, fund houses had launched 43 open-ended funds and no closed-end fund in 2005 during rising markets. Between April 2006 and December 2006, 10 closed-end funds were launched that garnered Rs7,764.25 crore as against six open-ended funds launched that garnered Rs1,521 crore. In fact, when Sebi announced its decision in July to ban entry loads, a total of eight NFOs hit the market within a span of a month compensating distributors in a last-ditch attempt to woo assets; together these funds mopped up Rs1,260.79 crore in total, as per Value Research.

With entry loads abolished and fund houses having to compensate the distributors out of their own pocket, they have become realistic. “NFOs these days are purely need-based. Instead of aiming to gather assets under management, fund houses are paying more attention these days to see if a gap in an investor’s portfolio can be filled up by launching a new scheme. The days where you’d typically get two-three huge NFOs once a quarter are gone,” says Yogesh Kalwani, head (investment advisory), BNP Paribas-Private Banking. “Apart from abolition of entry loads, Sebi has been particular in ensuring that clones of existing schemes within the same fund house do not enter the market,” says Dhirendra Kumar, chief executive of Value Research.

Kumar also says that up until 2007, investors had forgotten that equity markets also fall, even if temporarily. The fact that investors’ capital has got permanently eroded in “in quite a few funds”, says Kumar, has made investors wiser.

Hard or soft launch

abolished and fund houses having to compensate the distributors out of their own pocket, they have become realistic. “NFOs these days are purely need-based. Instead of aiming to gather assets under management, fund houses are paying more attention these days to see if a gap in an investor’s portfolio can be filled up by launching a new scheme. The days where you’d typically get two-three huge NFOs once a quarter are gone,” says Yogesh Kalwani, head (investment advisory), BNP Paribas-Private Banking. “Apart from abolition of entry loads, Sebi has been particular in ensuring that clones of existing schemes within the same fund house do not enter the market,” says Dhirendra Kumar, chief executive of Value Research.

Kumar also says that up until 2007, investors had forgotten that equity markets also fall, even if temporarily. The fact that investors’ capital has got permanently eroded in “in quite a few funds”, says Kumar, has made investors wiser.

Hard or soft launch

Once fund houses decide on the product they want to launch and its viability, they decide on their decibel level—a “soft” launch versus a “hard” launch. Typically, a “hard” launch—such as DSP BlackRock Focus 25 Fund (DBF25)—would entail printing more forms, engaging as many agents as possible and wall-to-wall advertisements. A “soft” launch—such as Baroda Pioneer Infrastructure Fund or DWS Global Agribusiness Offshore Fund—is one where the fund houses launch a fund quietly. “Typically, we have our regional managers (RMs) shortlist the top 30-50 odd agents in their town and cities that they feel would rake in good business and have our RMs focus all their energies on a select few,” says Rajan Krishnan, chief executive officer, Baroda Pioneer Asset Management Co. Ltd.

Krishnan met Mint in one of a series of meetings with a few journalists over tea to talk about his newly-launched scheme, marking a contrast with glitzy press conferences and lavish luncheons in five-star hotels that characterized NFO launches till about a year ago.

Earlier, MFs could spend as much as 6% of their initial collection on marketing, sales and advertising and charge it to the scheme (the net asset value or NAV would drop by that amount) over a period of five years. If an equity fund NFO collects Rs1,000 crore, an AMC (asset management company) could spend a maximum Rs60 crore as issue expenses. Sebi first banned amortization of NFO expenses in April 2006 for open-ended funds and then in January 2008 for closed-end funds.

While “hard” launches are expensive, “soft” launches help curtail costs. For the first kind, a fund house prints and dispatches around three million forms and spends around Rs5-8 crore for advertising and marketing. The second sort of launch entails around one million forms and Rs2-4 crore for advertising and marketing.

Distributor events are no longer preferred to be held at five-star hotels. A typical luncheon at a banquet room at the Taj Mahal Hotel, Mumbai, would set back the fund house by around Rs2,300 (including taxes, soft drinks and juices) per person. If 100 people were to attend one such meet and the fund house holds 10 such events across the country, the fund house incurs around Rs23 lakh on such an exercise. The total cost now can be brought down to around Rs7.50 lakh.

“The choice of hotels is done carefully. The idea is to not to cut down on quality, but to save costs,” says Karan Datta, national sales head, Axis Asset Management Co. Ltd.

Adds a sales official of a Mumbai-based fund house: “Many fund houses prefer to go for ‘soft’ launches these days; garner a small corpus, build up a decent track record and then target fresh investors.”

Obviously, the collections are expected to be muted in “soft” launches. Market sources say that DWS Global Agribusiness Offshore Fund collected around Rs25 crore. This pales in comparison to the Rs1,500-2,000 crore that DSP BlackRock is expecting for DBF25.

Where to advertise

Advertising is another avenue where fund houses are chasing value. Instead of going after print, TV and outdoor advertisements (billboards), fund houses are picking and choosing.

A marketing official of a fund house whose NFO closed recently says that while a front page solus advertisement would cost between Rs11 lakh and Rs25 lakh (discounted rate), the same money could pay for 15-20 commercials on TV over several days.

MFs are allocating more money to TV than print, some analysts say.

Fund houses need to pare spending on advertising and marketing as much as they can. Say, a fund house spends Rs4 crore on advertising, marketing and sales on an NFO that garners Rs100 crore. It can charge around 1% as management fees, which is its own income from managing the scheme on an ongoing basis.

In other words, assuming the corpus of Rs100 crore stays with the fund house for the first few years, it earns Rs1 crore every year. At this rate, it would take at least four years for the fund house to make money on this NFO.

Source: http://www.livemint.com/2010/05/09223649/Mutual-funds-rework-strategies.html?pg=2

MFs dole out incentives to buoy equity schemes

With fund inflows literally stopping post entry load ban, Indian mutual fund houses are resorting to a solid distribution push to sell their wares. They are giving upfront commission (from their own pockets) to ensure they get lot of retail applicants. Sources in the industry say that distributors are gettting around 1.5-2% for selling balanced, equity and monthly income plans (MIP) schemes, while it is as high as 4-5% for equity-linked saving schemes (ELSS) . Commissions have increased in recent times, according to people in the business of distribution.

With equity markets teetering at higher levels, MIP schemes (with partial exposure to equities) seem to be the flavour of the season. “Fund houses are aggressively pushing MIPs with higher commissions. It Is being pitched as a better alternative to fixed deposits (FD) among high net worth individual (HNI)” said a head of sales of the leading mutual fund house. MIP usually has dividend and growth option with equity exposure varying from 10-25% of portfolio. The corpus of several MIPs has more than doubled in the last four-six months.

A Balasubramanian, CEO of Birla Sun Life Mutual Fund says, “Investors in the last few months have shown interest in the MIPs as it has the component of equity which can give some extra returns.”

Market participants say that, with no new fund offer (NFO) coming in the last few months, fund houses are instead opting to give extra commission on their existing schemes. After the ban on entry load by Securities and Exchange Board of India (Sebi) from August, 2009 there has been continuous outflows from the equity schemes. From August to December in last year equity schemes saw redemptions of over 7,000 crore. However in January and February equity schemes reported some inflows, but again in March and April there were redemptions.

“Fund houses are giving higher commission for MIPs as they are mostly hybrid products with 80:20 ratio of debt and equity. But some fund houses charge expense ratio same as any other equity scheme, so they don’t mind paying the upfront commission of over 2%,” said Dhirendra Kumar, CEO of Valueresearch.

Some of the fund house charge expense ratio of over 2-2.5% p.a for the MIPs.

Apart from MIPs, ELSS schemes are also sold by distributors aggressively as they get a hefty 5% upfront commission — thanks to the three year lock-in.

While there are no trail commissions paid during the lock-in period, from the fourth year trail commission of over 0.5% are paid annually....

Source: http://www.financialexpress.com/news/mfs-dole-out-incentives-to-buoy-equity-schemes/617991/2

Peerless Mutual to launch hybrid fund

Peerless Funds Management Company is planning to launch a hybrid fund focussed at retail investors in the current quarter, according to its Chief Executive Officer, Mr Akshay Gupta.

The fund will invest 80-100 per cent in debt instruments and a maximum of 20 per cent in equity, he told Business Line. “The fund, to be named Income Plus, would be our flagship retail-investor oriented fund,” Mr Gupta said.

Short-term debt fund

The debt-intensive fund would aim at outperforming the returns from fixed deposits, post office deposits and other conventional savings instruments over a two to four years time horizon, he said.

Peerless would also launch, during July-August, a short-term debt fund, he said. “We would launch this fund after the Credit Policy as we expect further tightening in key rates by the RBI in the policy,” Mr Gupta said.

The company would look at launching its first equity scheme only after six months, he said. “We see a 10-15 per cent correction in the stock market and our launch of equity-oriented fund should coincide with the market upturn,” he said.

Peerless Mutual Fund, a subsidiary of the Peerless General Finance and Investment Company, launched operations in February and its asset under management stood at Rs 900 crore as on date. “We have set a target of garnering at least Rs 2,000 crore AUM by March 2011 and Rs 5,000 crore in the next three years,” Mr Gupta said. It targeted to break even in five years, he added. The company now has 30 branches in the country and planned to take it up to 80 in three years, Mr Gupta said. It also planned to engage 5,000 peerless agents and an equal number of independent financial advisors for selling mutual fund in the next three years, he said. The company's initial capital base of Rs 50 crore would be sufficient to fund these expansion plans, he added.

Unlike the customary industry practice, Peerless would initially focus on tier III and IV towns and rural areas for selling mutual funds, Mr Gupta said. This would be in tune with its strategy to tap the existing 80 lakh customer base of the parent company, he added.

Source: http://www.thehindubusinessline.com/2010/05/12/stories/2010051251251100.htm

Bajaj Finserv to launch wealth mgmt arm, AMC by 2011

Bajaj Finserv plans to launch two new companies by 2011. While the first one is a wealth management company that would be operational by September 2010, an asset management company in joint venture with Allianz would begin operations early next year.

Sanjiv Bajaj, managing director, said “The wealth management venture would be named Bajaj Finserv Wealth Management Company. To begin with, we will launch it in five cities, Mumbai, Pune, Aurangabad, Ludhiana and Chandigarh and every six months, we would expand to five new cities.”

The new company would be a 100% subsidiary of Bajaj Finserv and give clients investment and financial advice.

The company is also planning to launch dedicated wealth management stores across the country, which would also sell and advice on third-party products. The company has already tied up with several leading mutual funds providers.

“Our aim is to take wealth management to more people, as very few players experiment in this area. We plan to deal with middle-class investors as we feel there is huge opportunity in this segment,” said Bajaj.

On the asset management firm, he said “We are expecting an approval from the Sebi in the next 10 weeks and it would take us another nine months after that to begin operations.

To be formed in a JV with Allianz, Bajaj did not reveal any further details on the said company.

Bajaj Finserv recently also extended its lending business and is offering retail loans against securities and is also engaged in financing construction equipment.

“The retail loans segment has a market size of Rs 5,000 crore of which we are planning to gain a 3-4% share in the next 18 months and a 10-15% share over the next 3-4 years. In construction equipment financing too, the company is eyeing a 3-4% market share. The expansion plan would be fully funded through internal accruals. On a proposed plan to venture into banking, Bajaj said, “In principle, we are interested in the plan. However we are waiting for the RBI approvals.” The company’s board on Tuesday also passed a resolution to rename Bajaj Auto Finance to Bajaj Finance. The RBI and ROC approvals are however still awaited.

Deployments in the auto finance grew 87% to Rs 4,585 crore from Rs 2451 crores in the last fiscal. Receivables under finance stood at Rs 4,026 crore compared with Rs 2539 crore in the previous year. For 2009-10, profit after tax surged to Rs 559 crore from Rs 71 crore in the previous fiscal. Revenue rose 140% to Rs 23,781 crore from Rs 9,868 crore in FY09.

Source: http://www.dnaindia.com/money/report_bajaj-finserv-to-launch-wealth-mgmt-arm-amc-by-2011_1381955

AIG MF Announces changes in Key Personnel

AIG Mutual Fund has announced changes in Directorship and Chief Executive Officer.

Accordingly, Mr. Sunil Mehta has resigned as an Associate Director from the Board of AIG Trustee Company (India) Private Limited (Trustee Company) with effect from 10 May 2010 and hence he ceases to be an Associate Director of the Trustee Company.

Mr. Ravi Mehrotra has resigned as an Associate Director of AIG AMC with effect from 8 May 2010 and hence he ceases to be an Associate Director of AIG AMC.

Mr. Sunil Mehta replaces Mr. Ravi Mehrotra as the Chief Executive Officer (Interim) of AIG AMC with effect from 10 May 2010.

Source: http://www.apollosindhoori.cmlinks.com/MutualFund/MFSnapShot.aspx?opt=9&SecId=10&SubSecId=22,24

Mutual funds in buying mode

Mutual funds (MFs) bought shares worth a net Rs 123.50 crore on Monday, 10 May 2010, as against an outflow of Rs 13.70 crore on Friday, 7 May 2010.

The net inflow of Rs 123.50 crore on 10 May 2010 was a result of gross purchases Rs 825.60 crore and gross sales Rs 702.10 crore. The BSE Sensex surged 561.44 points or 3.35% to 17,330.55 on that day.

MFs sold shares worth net Rs 549.20 crore in May 2010 (till 10 May 2010). MFs had sold shares worth net Rs 1410.40 crore in April 2010.

Source: http://www.apollosindhoori.cmlinks.com/MutualFund/MFSnapShot.aspx?opt=9&SecId=10&SubSecId=22,24