New fund offers can signal mutual fund turnaround

Can a few new fund offers (NFOs) from reputed fund houses help the mutual fund industry regain its lost ground? According to industry players, NFOs from reputed players such as SBI MF, Birla Sun Life, DSP BlackRock among others would definitely generate a positive buzz about the industry and it may help bring some of the mutual fund sellers, who have vanished since the entry load ban by Sebi in August, back to the fold.

"DSP is one of the most respected fund houses in the country. When they come out with an NFO, that too a totally different proposition of a heavily concentrated portfolio of 25 stocks, it generates a lot of buzz," says a mutual fund distributor, who doesn't want to be named. According to market sources, DSP BlackRock NFO, which closed for initial subscription on Friday, had collected around Rs 700 crore. The figures couldn't be officially confirmed. The fund house was hoping to collect around Rs 2,000 crore.

"The SBI Mutual Fund NFO is also expected to do well because SBI would back it strongly. Birla and others would also do reasonably well," says Uday Merchant, a mutual fund distributor. However, he is quick to add that mega NFOs collecting Rs 5,000 core or so is now history.

"I don't think people are really interested in NFOs these days. The complete distribution network has collapsed after the entry load ban in August. Earlier, we just had to distribute the NFO form with newspapers and there would be good response from investors. But that is not the case any longer."

"It is a good sign that fund houses are not coming up with pure vanilla schemes to complete their portfolio. DSP is offering a concentrated portfolio; SBI is banking on the PSU theme and Birla on the reform story," says Y Jawahar, VP — head, distribution, Mata Securities.

Source: http://timesofindia.indiatimes.com/biz/india-business/New-fund-offers-can-signal-mutual-fund-turnaround-/articleshow/6005284.cms

Local AMCs turn to offshore advisory biz as inflows dry up

These days, leading asset management companies are focusing more on their ‘offshsore advisory’ business, where they give research-based advice to foreign funds that invest in India for a fee. This comes in the wake of a slowdown in their local investment management business, with money flows into mutual fund schemes drying up, because of the reluctance of distributors’ to sell these products due to lower commissions.

“We are now forced to look at other avenues such as offshore advisory more seriously, because the local market looks dull at the moment, as distributors are just not co-operating to sell mutual fund products,” said a senior official with a private mutual fund, which runs this business.

Top officials of some leading asset management companies are believed to have made overseas visits recently to make a pitch to potential investors for advisory services. Among domestic fund houses, Reliance Mutual Fund, ICICI Prudential Asset Management, DSP Blackrock Mutual Fund and UTI Mutual Fund, among others, are known to have offshore advisory business.

In this business, AMCs get a fee of around 15-50-basis points (100 basis points is equal to 1%) of the transaction size, said industry officials. In some cases, the fee is based on a profit-sharing agreement, but such instances are fewer, they said.

“The offshore advisory business is not easy, as there is heavy competition from broking houses. But this has the potential to make up for the slackening of the local business,” said a top official with another private mutual fund.

Distributors have been averse to selling mutual fund products from August 2009, when the Securities and Exchange Board of India (Sebi) rule to clamp down on fees to distributors came into force. The market regulator barred the practice of charging entry loads by mutual funds, where the fund house deducted 2.25% of the investors’ money to distribute to the brokers. Now, distributors are aiming to sell more of insurance products and companies’ fixed deposits, as they fetch higher fees.

The offshore advisory business of AMCs came under the Sebi lens recently, a reason why fund officials were unwilling to officially comment for this story.

The market regulator felt that some fund houses were not maintaining a ‘Chinese wall’ to operate local investment management, offshore advisory and portfolio management services units, according to a source privy to the matter. AMC officials clarified that the mutual fund, offshore advisory and PMS teams do business separately.

Critics feel AMCs’ focus on offshore business is not in the best interests of the industry in the long-term. “Fund houses should use their time and resources to build a network here rather than overseas, given that India is among the most under-penetrated markets world-wide,” said a sales head with a mutual fund, jointly owned by a foreign institution and a local bank.

Source: http://economictimes.indiatimes.com/Local-AMCs-turn-to-offshore-advisory-biz-as-inflows-dry-up/articleshow/6005510.cms

AMCs split over plan to increase net worth

Domestic fund houses are divided over the proposed increase in the minimum net worth of asset management companies (AMCs) from Rs 10 crore to Rs 50 crore.

The increase has been recommended by the Committee on Review of Eligibility Norm, constituted by the Securities and Exchange Board of India (Sebi).

While large fund houses say this will ensure entry of only serious players, smaller AMCs are opposed to the proposal. The committee said large net worth would signal the company’s seriousness.

Sources say this is becoming a hot issue and is likely to come up for discussion at the general body meeting of the Association of Mutual Funds in India next week.

“Does it mean that fund houses with high net worth are serious and smaller players are not?” said the chief executive (CEO) of a small fund house. “I believe the minimum net worth should be reduced to Rs one crore. We are here to provide services to investors. In the outside world, the net worth requirement (for AMCs) is minuscule and it’s unfortunate that in India we are moving in the opposite direction.”

“Seriousness should not be connected with the money a fund house manages. It has to be linked with ethics, policies and business models. The move favours bigger players,” said another executive.

However, the CEO of a leading fund house said, “On Wednesday, anybody can get into the fund management business. There has to be a certain base capital requirement. I am in favour of raising the net worth.”

Echoing this, the head of another establishment said, “As public money is involved, the capital requirement should be higher. I strongly support this. The net worth of sponsors of mutual fund houses should also be re-looked at.”

The smaller AMCs questioned the committee’s observation that a higher net worth was required to protect investors from market-driven stress as large AMCs would be better placed to obtain liquidity lines from banks.

“Had it been the case, why did larger fund houses knock the doors of the central bank in October 2008, when the industry suffered immense redemption pressure?” said the head of a mid-sized AMC.

Source: http://www.business-standard.com/india/news/amcs-split-over-plan-to-increase-net-worth/396855/

Mutual Funds may have to keep PMS biz separate

ASSET management companies (AMCs) that provide portfolio management services may soon have to maintain a “Chinese wall” between the two businesses, by ensuring that there is no conflict of interest.

Capital market regulator the Securities and Exchange Board of India (Sebi) has proposed to review its mutual fund (MF) regulation that allows asset management companies to carry out other businesses, such as portfolio management service (PMS). Some of the leading fund houses provide the portfolio management service under the same umbrella by sharing infrastructure facilities.

The reasoning within Sebi about this proposal is that investment decisions in the MF business should not be shared with its portfolio management segment. Sebi fears that the AMC might priortise the portfolio management business over the MF business as the fund house is allowed to fix remuneration to distributors according to the services provided.

The issue is expected to be discussed when the regulator’s advisory committee on mutual funds meets on Monday.

The meeting will also discuss whether the Real Estate Investment Trust proposal should be continued or withdrawn or merged with Real Estate MFs. Besides, the committee that has representatives from the industry, law firms and investor associations, is likely to discuss the fungibility of expenses.

Fund houses now charge about 2.5% of the assets under management of the schemes as fund management fees annually . This fee typically covers management fees, operating expenses and trail ommissions. The regulator may consider providing flexibility to fund houses to charge management fees which is currently capped at 1.3% within the fund management fees.

Besides the total expense ratio the regulator has also proposed an enhanced performance measurement disclosure. Although the industry body Amfi, has put in place a lot of methods of disclosures, the regulator may be looking at having uniform dates across all funds that would help retail investors better understand the performance about their MF investments, said a person faimiliar with the development.

At present, schemes end in different periods for all the fund houses. Sebi is also looking at having an institutionalised way of doing the distribution, wherein fund houses will have to supervise the distributors. Besides, the regulator may also ban fund houses from selling equity options.

Source: http://economictimes.indiatimes.com/Mutual-Funds-may-have-to-keep-PMS-biz-separate/articleshow/5992904.cms

Mutual funds may have to disclose derivatives exposure

Mutual funds may have to provide more disclosures regarding investment in equity derivatives, though they would still be allowed to take exposure to these instruments.

The Securities and Exchange Board of India (Sebi) mutual fund advisory committee, which met on Monday to discuss on various issues, has proposed mutual fund houses be more transparent.

“The disclosure requirements have been made more consistent and uniform for all mutual fund houses. As such they are not aggressive participants but take exposure only for hedging purposes, hence they have not been restricted from investing in these instruments” a source familiar with the development told DNA Money.

There were certain apprehensions regarding MF exposure to equity derivatives and that they may be banned from selling options. The selling of options is a risky affair and can lead to unlimited losses if the bets go wrong.

The committee also discussed changes to regulation with regards to mutual funds keeping their portfolio management services (PMS) activities separate. Some asset management companies (AMCs) also provide PMS, and utilise the same infrastructure facilities.

“There needs to be streamlining of the activities and a separate committee would be set up to look into the same though these are initial stages” said the source.

The other main issue on the committee’s agenda was limiting distribution expenses and providing flexibility to MFs to levy fund management charges. However, the committee could not arrive at a decision.

The structure of mutual fund expenses, which AMCs charge customers, stays put for the moment. “The situation remains status quo on the fund management charges” said the source.

The committee, comprising industry and Sebi representatives, was to discuss various ways to charge MF expenses. Currently, MFs charge about 2.25-2.5% of assets under management of the scheme as fund management charges annually, which typically covers management fees (1.25%) and operational, promotional or distributional expenses.

The regulator had proposed to provide flexibility to AMCs by removing the sub-limits on various categories of expenses if the overall cap on total expense ratio is lowered to 1.5% from current 2.25-2.5%.

Source: http://www.dnaindia.com/money/report_mutual-funds-may-have-to-disclose-derivatives-exposure_1390368

Mukesh Ambani may buy MF firm

With JM mutual find valued at 8% of assets under management, Ambani would have to pay around Rs685 crore

Mukesh Ambani, who controls India’s most valuable company Reliance Industries Ltd (RIL), is in talks to buy a majority stake in JM Financial Asset Management Pvt. Ltd, his first attempt to enter Anil Ambani’s territory since the estranged brothers scrapped a “non-compete” agreement between them a week ago.

Negotiations are under way for a deal that values JM Financial Asset Management, the money manager controlled by investment banker Nimesh Kampani, at around 8% of its assets under management, which equals Rs685 crore, said two officials close to the development who didn’t want to be named.

If the acquisition goes through at that valuation, it would be one of the biggest in India’s mutual fund industry.

JM Financial manages assets worth Rs8,569 crore in a total of 27 investment plans.

The non-compete agreement, which was torn up in a move towards possible reconciliation between the brothers, had prevented Mukesh and Anil Ambani from entering each other’s businesses.

Anil Ambani controls Reliance Capital Asset Management Ltd, the country’s largest money manager.

The acquisition of JM Financial will give Mukesh Ambani, 53, a direct licence to enter the mutual fund industry, which has Rs7.7 trillion worth of assets under management.

“As a policy, we do not comment on speculation,” a spokesperson at Reliance Industries said in response to a query from Mint.

Nimesh Kampani’s son Vishal Kampani also termed it “speculation”.

“JM Financial mutual fund forms an important part in the JM Financial group portfolio and we remain focused and committed towards growing this business,” he said over the phone.

Vishal Kampani, who was holding the position of a director in the asset management firm, resigned from his position on 12 March. On 14 March, the fund house informed investors of his resignation.

Bhanu Katoch, chief executive officer of JM Financial Asset Management, also called news of the attempted acquisition speculative in reply to an email from Mint.

JM Financial mutual fund, a part of the Nimesh Kampani-controlled JM Financial group, is one of the country’s first asset managers.

It started operations in December 1994 with the launch of three funds—JM Liquid Fund (now JM Income Fund), JM Equity Fund and JM Balanced Fund.

The non-compete agreement between the Mukesh Ambani company and Reliance Anil Dhirubhai Ambani Group (R-Adag) had restrained the elder brother from venturing into the potentially lucrative financial services space.

Reliance Capital, a part of R-Adag, is engaged in asset management, life and general insurance, consumer finance and other capital market-related businesses.

Reliance Capital Asset Management is the largest mutual fund in the country with assets worth Rs1.11 trillion.

The talks with Mukesh Ambani follow three years after Nimesh Kampani sold his 49% stake in the joint venture investment banking company JM Morgan Stanley Securities Pvt. Ltd to Morgan Stanley for $445 million (Rs2,069.25 crore as of today). “If a partner does not want to be with you, one has to move on,” Nimesh Kampani said then.

JM Financial Asset Management is a loss-making entity in the otherwise profitable JM Financial group. Last year, the money manager made a loss of Rs5 crore.

Under its star fund manager Sandip Sabharwal, JM Financial Asset Management made most of its investments when the stock market was nearing its peak.

Sabharwal, who was known for his aggressive style of investment, has since left the fund.

JM Financial has been on the lookout for a buyer for a couple of months now, said one of the two officials mentioned above.

JM Financial would help its new owner get a decent headstart in the mutual fund business, given that it has a near-full suite of products besides a licence, althoughit hasn’t invested much inexpanding outside the top eight cities, the person said.

People familiar with the situation said JM Financial had earlier talked with the Indiabulls group, which has an asset management licence but has not commenced business for over a year.

But Gagan Banga, chief executive officer of India-bulls, denied they had been in talks.

“We are assessing the regulatory changes and its impact on the industry. We would wait for things to settle down before taking a call on this,” he said.

Valuations typically depend on the portfolio of products held by the asset manager. The higher the equity assets, higher would be the valuation, because companies earn more commission income from the sales and management of equity funds compared with debt funds.

Traditionally, such deals have been struck at 3-4% of the assets under management.

In January, US-based asset management firm T. Rowe Price Global Investment Services Ltd bought a 26% stake in UTI Asset Management Co. Pvt. Ltd for $140 million, around 3.25% of its average assets under management.

Valuation of asset managers plunged after the market decline of 2008.

In July 2009, Nomura Asset Management Co. Ltd bought a 35% stake in LIC Mutual Fund Asset Management Co. Ltd at 2.4% of its total assets.

In September, the financial services unit of engineering firm Larsen and Toubro Ltd announced plans to buy DBS Cholamandalam Asset Management Ltd for Rs45 crore, valuing the firm at about 1.6% of assets under management.

Following the market plunge in 2008, the assets under management of JM Financial had dipped to Rs3,758 crore in March 2009, of which Rs1,480 crore was in equity, before increasing last year when the market recovered.

Source: http://www.livemint.com/2010/05/30233553/Mukesh-Ambani-may-buy-MF-firm.html

LIC Mutual ties up with Nomura for fund management

Life Insurance Corporation of India Mutual Fund (LIC MF) and Nomura Asset Management Company of Japan are entering into a joint venture for adoption of better technology and management of funds.

The approval from the regulatory authorities has been obtained and completion of other formalities isunder process, according to Mr Ravi Chaudary, Chief Marketing Officer, LIC MF.

Addressing the press, after inaugurating the new area office of LIC MF here on Wednesday, he said that the Fund enjoyed a market share of 5.66 per cent and was in the 6 {+t} {+h} position in the country with funds under management to the tune of Rs 42,303.96 crore, spread across 27 products, as at the end of March 2010.

The year on growth has been 83.19 per cent, much higher than the industry growth at 51.6 per cent, he said.

The awareness level about the advantages of the mutual fund is still to spread and LIC MF has taken seriously the education of investors, conducting the programmes in vernacular languages in different parts of the country, to reach out especially the small and medium investors, he further said.

Currently, there are 26 Area offices and 4 more would be coming up shortly. There are plans to open 100 business centres.

A Web site is also to be launched shortly.

Source: http://www.thehindubusinessline.com/2010/05/29/stories/2010052952661300.htm

Equity Index Funds Gain More than Equity Diversified Funds

Equity Fund categories were able to deliver positive returns over the one week period ended 28 May 2010, despite facing losses during the previous week. Equity Diversified fund category gained 1.55%, Tax Savings funds rose 1.64% and Index funds climbed 2.56%. Equity index fund category has delivered better returns than the equity diversified fund category over the one week ended 28 May 2010. Among sector funds, Infotech Funds category was the biggest gainer by 2.74%, followed by FMCG Funds by 2.35%, Auto Fund by 1.79%, Pharma Funds by 1.46%, Banking Funds by 1.30%, Telecom Fund by 0.18% and Media Fund by 0.07%.

Among the sub categories in the debt fund category, Floating Rate Income Funds – Short Term & Long Term and Ultra Short Term Funds gained 0.09% each, Liquid Funds and Short Term Income Funds surged 0.08% and 0.05% over the week end period. While Gilt – Medium & Long Term, Gilt – Short Term and Income Funds lost 0.26%, 0.08% and 0.07%.

The BSE Sensex rose 417.45 points or 2.54% to 16863.06. The S&P CNX Nifty gained 135.40 points or 2.75% to 5066.55.

Major buying was seen in Realty, which gained 4.15%, followed by Oil (3.42%), Power (3.26%), IT (3.06%) and FMCG (2.97%) and Tech (2.30%). However, Consumer Durables dropped 2.15%.

Mid-cap stocks moved up 1.01%, to 6756.01 during the week end period. While the small-cap shares rose 0.94%, to 8494.45 during the week end period. Mid-Cap and Small-Cap index underperformed the Sensex and Nifty.

Equity Diversified Funds

Equity Diversified Fund category gained 1.55% over one week period ended 28 May 2010. This category was able to come out of the losses it incurred during the previous week. Among the schemes in the equity diversified category, Taurus Ethical Fund gained the maximum of 3.47%, followed by JM Equity Fund which climbed 3.17%, HDFC Growth Fund rose 2.84%, ICICI Pru Target Returns Fund & IDFC Enterprise Equity Fund - A jumped 2.75% each among others. Tata Growing Economies Infrastructure – Plan A and Sundaram BNP Paribas Entertainment Opportunities were the worst performers in this category, losing 2.76% and 0.71% respectively.

Tax Savings Funds

Tax savings Funds category gained 1.64% over one week period as on 28 May 2010. This category moved into the positive territory after witnessing loss of 3.18% during the previous week end period. HDFC Long Term Advantage Fund and JPMorgan India Tax Advantage Fund were the top performers with a return of 2.61% and 2.59% respectively during one week period. Among the other schemes in the category, Axis Tax Saver Fund rose 2.54%, Birla Sun Life Tax Plan climbed 2.50% and ICICI Pru Tax Plan surged 2.20% among others. JM Tax Gain Fund and Edelweiss ELSS Fund ended as the worst performers in this category with a return of 0.24% and 0.70% respectively over one week period.

Index Funds

The Index Fund category gained 2.56%, over one week period ended 28 May 2010. All the schemes in this category gained during the week end period, compared with a loss during the previous week end period. HDFC Index Fund-Nifty Plan was the highest gainer in this category as its NAV appreciated by 2.80%. JM Nifty Plus Fund and ICICI Pru Index Fund-Nifty Plan were the next highest gainers by 2.79% and 2.77%. Among the other schemes in the category, SBI Magnum Index Fund climbed 2.75%, LICMF Index Fund – Nifty Plan & UTI-Nifty Index Fund surged 2.74% each and Franklin India Index Fund-NSE Nifty Plan added 2.72%. IDBI Nifty Index Fund and HDFC Index Fund-Sensex Plus Plan were the worst performers in this category as they witnessed a gain of only 1.72% and 2.02% respectively.

Sector Funds

Pharma Funds category gained 1.46% over one week period ended 28 May 2010. All the schemes in this category gained, while Reliance Pharma Fund ending as the top performer with 1.86%.

Bank Funds category gained 1.30% over one week period ended 28 May 2010. ICICI Pru Banking & Financial Services Fund rose 1.77% and Religare Banking Fund climbed 1.73%.

FMCG Funds category rose 2.35% over one week period ended 28 May 2010. SBI Magnum SFU – FMCG Fund was the top performer in this category. In terms of NAV performance, the fund's NAV gained 3.27% over the one week period.

Infotech Funds category rose 2.74% over one week period ended 28 May 2010. ICICI Pru Technology Fund was the top performer in this category. In terms of NAV performance, the fund's NAV gained 3.63% over the one week period.

Hybrid Funds

Among the sub categories in the hybrid fund category, Asset Allocation Balanced Funds surged 1.25%, Equity Oriented Balanced Fund by 1.20%, Debt Oriented Balanced Fund by 0.43%, Monthly Income Plans by 0.22% and Arbitrage Funds by 0.12% during the one week period ended 28 May 2010.

UTI-Variable Investment Scheme and SBI Magnum NRI Investment Fund-Flexi Asset gained 1.61% and 0.89% respectively under asset allocation balanced fund category.

All the schemes in the equity oriented balanced fund category gained during the week end period. HDFC Children's Gift Fund-Investment Plan was the highest gainer in this category as its NAV appreciated by 1.98%. Sundaram BNP Paribas Balanced Fund was the next highest gainer by 1.97%. Among the other schemes in the category, Escorts Balanced Fund climbed 1.93%, HDFC Balanced Fund surged 1.90% and ING Balanced Fund added 1.65%.

LICMF Children's Fund was the highest gainer in debt oriented balanced fund category as its NAV appreciated by 1.46%. UTI Unit Linked Insurance Plan was the next highest gainer by 0.71%. Among the other schemes in the category, UTI-Retirement Benefit Pension Plan climbed 0.70%, Tata Young Citizens Fund surged 0.65% and Templeton India Pension Plan added 0.57%. SBI Magnum Children Benefit Plan and DWS Money Plus Advantage Fund were the losers in this category by 0.23% and 0.03%.

Exchange Traded Funds (ETFs)

Gold ETF category gained 1.63% during the week end period. SBI Gold Exchange Traded Fund was the only scheme in this category to gain by 1.61%, while the other schemes in this category gained by 1.63%.

The other ETF category gained 1.73% during the week ended 28 May 2010. Shariah BeES, Nifty BeES and Kotak Nifty ETF were the top performers by 2.98% each. The only debt ETF i.e. Liquid BeES witnessed gained of 0.06%. PSU Bank BeES & Kotak PSU Bank ETF lost 0.07% each during the week end period and ended as the worst performers in this category.

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