Reliance MF assets rise in July; that of ICICI, UTI decline

The country's largest fund house, Reliance Mutual Fund, witnessed an increase of over Rs 800 crore in its average assets, while that off ICICI MF declined by Rs 5,000 crore in July.

According to data available with the Association of Mutual Funds in India (AMFI), Anil Ambani Group firm Reliance MF witnessed an addition of Rs 859 crore to its average assets under management (AAUM) at Rs 1,02,179 crore during the month.

Besides this, the country's third largest fund house, ICICI Mutual Fund, witnessed an erosion of Rs 5,080 crore from its AUM in July to Rs 68,715 crore.

UTI MF also saw its asset base declining by Rs 2,238 crore during July to Rs 62,208 crore.

Of the 33 fund houses that have so far disclosed their AUM figures, 18 have registered growth.

The assets of SBI MF grew by Rs 4,779 crore to Rs 38,513 crore while that of Baroda Pioneer MF rose by Rs 879 crore to Rs 3,954 crore.

However, certain fund houses -- including Birla SunLife MF, L&T MF, Tata MF and Taurus MF -- witnessed a substantial erosion from their asset book.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Reliance-MF-assets-rise-in-July-that-of-ICICI-UTI-decline/articleshow/6249310.cms

Want investment advice? Ask for the menu card

Looking for advice on how and where to investin mutual funds?

First, order for the menu card.

Huh? Yes, it’s the result of new Securities and Exchange Board of India (Sebi) norms that require investors to pay up commission to agents directly, unlike earlier where a portion of the investment made used to be handed over to the distributor as commission directly.

It is learnt that a distributor incentral Mumbai is handing out pamphlets to people stating “Fee for mutual fund form — Rs 25, Investment only (cheque collection) — Rs 100, mutual fund advice — Rs 250 per investment. For monthly and yearly advice fees, contact us....”

Other independent financial advisors (IFAs) are forming groups and mulling a standard charge across the board. “Pursuant to the present Sebi regulatory issues and the need to charge

the clients for the advice and levels of services offered by us,

we are in the process of preparing a tariff card and notice to

investors based on Sebi notifications (on) the need/ practice to charge fee,” a mail sent to DNA Money by a group of IFAs said.

There are 63 IFAs who form this group.

Another network operating in Mumbai called MF Chain, which involves around 25-odd distributors in the city holding large chunks of assets under them too have decided on a fee structure.

“Location-wise the assets are segregated. So, a distributor servicing in Bandra will not service a client in Borivali as that area is serviced by another distributor,” said a source privy to the information.

“There is a price list that is formed. Because these distributors are operating all across the city it will not be possible for investors to negotiate,” said the source.

He claimed the entire idea to is just like other associations that are run by barbers, laundry operators in Mumbai. “The rates are fixed,” he said.

“As an IFA he can knock out 30% of his competition by fixing rates across. The competition will not be from IFAs, it will be from banks and national distributors,” he added.

Delhi too has a broker syndicate called DFDA, where leading independent financial advisors unite to earn asset under management muscle. “Their agenda is sangathan mey shakti hai (there is strength where there is unity),” a head of a mutual fund house said.

Other distributors too have started asking for yearly fee from investors. Kirit Nagda, who runs Relationship Life & Services, told DNA Money on an earlier occasion, “We have started charging a yearly fee of Rs 2,000 per family.”

Many have realised that when they ask for per transaction fee, they are not sure whether the client will come back to them the next time. “A yearly fee ensures that the client will come to me for each transaction during the year,” said a distributor.

There is another Vadodra-based advisor Durgesh Pandya, has now initiated a life-time advisory fee of Rs 40,000. “Some of my customers have agreed to pay up,” he claims. But asked aren’t people wary of him not continuing in the industry forever, he replies, “People trust me as they have been investing through me for the past five years now. They also invest crores in each transaction, so if you see on a per transaction basis the advisory for life-time turns out to be cheap for them.”

This fixing of fee is against the idea of Sebi. C B Bhave, chairman of Sebi had said while addressing the mutual fund summit last month, “Don’t tell the investor how much he has to pay. Investors should be able to negotiate a fee for the value that the advisor is providing.”

Source: http://www.dnaindia.com/money/report_want-investment-advice-ask-for-the-menu-card_1417988

Equity exposure boosts MIPs’ yields

With the markets remaining buoyant, monthly income plans (MIPs) have increased their equity exposure significantly. The best performing schemes in the category have nearly touched the mandatory ceiling and this has enabled them generate higher returns. MIP's typically have 10-30 % exposure to equity.

While a higher equity exposure has helped these schemes log in 6.4% to 8.4% returns since mid-October during which markets have traded within a band and with a largely upward trend, MIPs with lower equity holdings have remained laggards , analysis shows.

The net asset value (NAV) of top ranking MIPs touched their 52-week highs on July 22-23 and as a result many schemes have given dividends ranging from 1.5% to 2%. In all, four MIPs feature in the top 10 debt schemes for the six month period (till July 26). "MIPs have increased allocation to equity as there is much less uncertainty about the market (movement ) in the near term," says Lakshmi Iyer, head, fixed income and products, Kotak Mahindra mutual fund.

Moreover, the performance of the fixed income portfolio of MIPs was not in line with expectations in the past two months prompting fund managers to shore up equity allocations, she says. Some large fund houses have seen a significant increase in sales of hybrid and MIP products in the past year, say industry officials. Though MIPs have managed to ride on the market momentum now, equity allocations in the future would largely hinge on market direction, say industry officials.

Since MIPs, which invest mainly in government securities and corporate bonds, usually make payouts on a monthly basis they would not be able to take aggressive market calls, officials say.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Equity-exposure-boosts-MIPs-yields/articleshow/6246274.cms

As NAV math changes, raters seek volatility gauge

With volatility in debt funds set to increase on account of a change in their valuation methodology with effect from today, rating agencies and institutions are hard at work trying to figure out the appropriate rating mechanism for these funds.

Debt mutual funds collect money from investors and invest the proceeds in bonds and other securities.

Hitherto, these funds were rated on the basis of their credit quality, or the quality of the securities they held.

However, now they may also have to be rated to account for the daily fluctuation in the market prices of their securities.

As per an order of the Securities and Exchange Board of India (Sebi) issued in February this year, money market and debt securities with residual maturity over 91 days (or with maturity up to 182-days) have to be valued on a mark-to-market basis. The order takes effect today.

This change is likely to increase the volatility of investments in these funds, something the rating agencies are trying to accommodate in their models, although there is no regulatory mandate to this effect yet.

The changed norm also introduces the possibility that some funds could show negative returns.

According to an industry source, a number of mutual funds which outperform have a markedly different maturity and liquidity profile when compared to their peers. While this increases the risk of negative returns when following a mark to market system, it would not be reflected in the credit rating.

In effect, there would be no easy way to distinguish a fund which has been given the highest credit rating but is more volatile than another with the same credit rating but with lesser risk of

seeing negative returns. And without such a rating, the net

asset value of debt funds may be set for a rocky ride, with unwary investors running the risk of getting hurt.

Going by experts, it is this possibility of a ‘safe’ investment —- as debt investments are generally deemed to be —- showing negative return that has investors looking for a means of rating not just the soundness of the papers the fund holds but also the downside risk that it may carry.

“There has been some interest in the market recently with investors as well as funds asking about rating on the basis of volatility in addition to credit quality of paper,” said Deep N Mukherjee, director, Fitch Ratings.

Since Sebi announced its decision in February, eight out of the top ten fund houses have approached the agency for a volatility based rating, said Mukherjee.

Others may consider following suit sooner than later. “There have been some discussions on the introduction of a volatility aspect to ratings, but something concrete is yet to emerge,” said D R Dogra, managing director at Care Ratings.

“Internationally, the volatility rating is used widely. Going forward, one may want to look at the possibility of its introduction in India,” said Karthik Srinivasan, co-head of financial sector ratings at ICRA.

Currently, debt funds account for two-thirds of the Rs 6.3 lakh crore worth of assets under management of mutual funds.

Source: http://www.dnaindia.com/money/report_as-nav-math-changes-raters-seek-volatility-gauge_1417588

Hefty gains for MFs in downturn

Buy when there is blood in the streets, even if the blood is your own. The old adage on investing seems to have helped funds that were launched even in the thick of the stock market downturn in 2008-09. Most diversified equity mutual funds (MFs) that were launched between April 2008 and March 2009, a period during which benchmark indices plunged to new lows, have managed to beat benchmark indices and their category average.

Of the 10-odd diversified equity MFs that were launched during the period, a vast majority have moved ahead of key indices for the 1-year and the year-to-date period. Several funds have given a yearly return of between 22.2% and 39%. Principal Emerging Bluechip that hit the market during the height of the global financial crisis was the best among the lot gaining 44% in one year compared to the category return of 28.1% and the 17.1% return generated by sensex.

"During March 2009, when sensex was at (around) 8000 levels, the equity allocations of top ranked new entrants in the diversified equity category was above 90% as compared to 80% of its peers," said Tarun Bhatia, director, capital markets, CRISIL Research. "So when the markets rebounded from the lows of March 2009, the call of higher equity allocations of these funds paid rich dividends and the rest of the funds had to play catch up."

In fact, first time entrants bagged top ranks in the equity category in the latest CRISIL Mutual Fund Ranking announced for the quarter ended June 2010. The equity category saw 10 new entrants - six funds in the diversified equity segment and two funds each in the large cap and small & mid-cap equity categories. In all, three out of the six new entrants in the diversified equity category bagged the CRISIL Fund Rank 1.

The toppers also scored high on the risk-adjusted returns parameter compared to their category peers, CRISIL said. "Any fund that invests in a downturn gets a good brand value," said Sankaran Naren, CIO, equity, ICICI Prudential MF. "A downturn helps (a fund) in increasing absolute returns. Investors are more interested in getting better absolute returns," he said. Absolute return measure how much an asset has gained over a particular period and investing in a downturn helps in boosting it as units are picked at a low point.

Source: http://timesofindia.indiatimes.com/business/india-business/Hefty-gains-for-MFs-in-downturn/articleshow/6245757.cms

SEBI proposes change in PMS fee model

The Securities and Exchange Board of India (SEBI) has proposed that portfolio management service (PMS) firms should charge profit sharing/performance related fees on the basis of high water mark principle.

In a consultative paper issued on July 27, the market regulator said that once the portfolio rises to a certain peak and the portfolio manager charges fee for it, the next time he could charge a fee only if the portfolio value is above the previous peak.

For example, consider that frequency of charging performance fees is annual. A client’s initial contribution is Rs 10,00,000, which then rises to Rs.12,00,000 in its first year, a performance fee/profit sharing would be payable on the Rs 2,00,000 return. In the next year, the base value of the portfolio becomes Rs 12,00,000 and the portfolio manager can charge fee only if the portfolio rises above Rs 12,00,000. If in the second year, the portfolio drops to Rs 11,00,000, no performance fee would be payable. If in the third year the Portfolio rises to Rs.13,00,000, a performance fee/profit sharing would be payable only on the Rs1,00,000 profit which is portfolio value in excess of the previously achieved high water mark of Rs 12,00,000.

For the purpose of charging performance fee, the frequency should not be less than quarterly.

In case of partial withdrawal of funds by investors, all fees and charges should be charged proportionately and the high watermark should be adjusted accordingly.

The regulator further said that in order to ensure transparency and adequate disclosure regarding fees and charges, the client agreement should contain a separate annexure that should list all fees and charges payable to the portfolio manager.

“The client is required to separately sign the annexure on fees and charges and add in his own handwriting that he has understood the charge structure,” SEBI said.

Head of the PMS group of a mutual fund house said on the condition of anonymity that it is good step towards bringing more clarity on the issue of fee. “Investors would certainly benefit if there is more clarity on such issues,” he added.

Source: http://new.valueresearchonline.com/story/h2_storyView.asp?str=101395

Fund managers' reaction to RBI rate hike

RBI has raised key rates by up to 50 bps. Check out what the fund managers have to say.

Navneet Munot, chief investment officer, SBI Mutual Fund

The rate hikes underscore the strong demand in the economy. The investment cycle is showing strong signs of picking up, as there are capacity constraints in most sectors. Going forward, investment will be a bigger driver of growth than consumption.

Krishna Sanghavi, head of equities, Kotak Mahindra AMC

There is no doubt about the growth in the economy. And the rate hikes were very much in line with expectations. But from a stock perspective, the more crucial issue is whether the growth in corporate earnings will meet market expectations.

Anoop Bhaskar, head-equity, UTI Mutual Fund

The rate hikes don’t change our view on (shares of) interest rate-sensitive sectors. In India, demand for consumer loans is influenced more by availability, rather than cost of funds. As long as income visibility is good, there will be strong demand for retail loans

Anand Shah, head-equities, Canara Robeco AMC

The message from the RBI to banks is clear: be less aggressive in lending. Banks with a better CASA ratio and strong branch network will benefit in a scenario, where cost of funds increases. At the same time, NBFCs could be adversely hit.

Vetri Subramanium, head-equity, Funds Religare AMC

The monetary policy clearly signals that RBI is more worried about containing inflation at the moment. We expect more rate hikes — 75-100 bps — over the next nine months. The net interest margin of banks could shrink due to flattening of the yield curve

Source: http://economictimes.indiatimes.com/news/economy/policy/Fund-managers-reaction-to-RBI-rate-hike/articleshow/6225237.cms

RBI may hike repo by 25 bps, reverse repo by 50 bps: Mint

In an interview with CNBC-TV18, Tamal Bandyopadhyay, Deputy Managing Editor, Mint spoke about today’s RBI meet and his reading of the likely outcome from it.

Below is a verbatim transcript of the interview. Also watch the video.

Q: A poll conducted by us among bankers finds that a majority expect a 25 bps hike in the key policy rates tomorrow. Which camp are you part of?

A: I would also largely think on that line—25 bps at least. But where I differ with the bankers is when most of them are expecting a 25 bps each—both in reverse repo and repo—but I would think this is a time to narrow the corridor, which means 25 bps repo, but 50 bps for reverse repo. The logic behind this is repo is a rate at which RBI infuses liquidity in the system. So when you have tight liquidity repo the upper end becomes a rate but when the liquidity is ample or sufficient in the system then reverse repo rate becomes the policy rate.

If you are absolutely sure that from now on the liquidity will continue to be tight everyday then it makes sense to have an identical hike on both the policy front but if the liquidity returns for few days then the reverse repo becomes the rate and at that time you find reverse repo is too low a rate. Ideally, it should hike the reverse repo by a higher percentage points say by 50 bps and repo by 25 bps, I will not be surprise if that happens.

Q: If any of these possibilities happens would that lead to an immediate HIKE in lending rates by banks?

A: This will be a real test for the base that the banks introduced in the beginning of July. Ideally they should but many banks have been saying till not the credit growth has not been the kind of credit growth they were expecting which is quite surprising because overall the industry goes 21% odd but quite a few banks have been saying that credit growth is not been that much and on the other side of it the kind of indirect pressure that comes from government and other not to hike the rate immediately.

So if it’s a 25 bps hike maybe they would wait till according to them the credit actually picks up a few weeks before taking a call, there may not be any immediate hike, that’s possible.

Source: http://www.moneycontrol.com/news/economy/rbi-may-hike-repo-by-25-bps-reverse-repo-by-50-bps-mint-_472588.html