RBI calms jittery market, as call rates top 12%

Second LAF window opened, SLR norm temporarily relaxed

Interbank call money rates surged to more than 12 per cent this morning, even after banks on Friday net borrowed Rs 1,17,660 crore from the Reserve Bank of India (RBI) repo window — the highest in two years. Around noon, RBI announced measures to cool the market.

The central bank opened a second liquidity adjustment facility (LAF) window, which it said would be offered on Monday, too. The facility will also be available on Saturday, when it is normally closed.

Simultaneously, RBI temporarily eased the statutory liquidity ratio (SLR) requirement for banks. They will not be penalised if their minimum SLR holding dips to 24 per cent of deposits if they pledge government securities to borrow through Saturday’s repo auction. The leeway is ad hoc and applicable only for the Saturday repo.

Banks have to invest up to 25 per cent of their net demand and time liabilities in government securities to maintain SLR. Any shortfall typically invites penal action from RBI.

As a result of the central bank’s actions, call money rates closed at 7.15 per cent. This was still its highest level this financial year, according to Bloomberg data. In the second LAF auction, banks borrowed only Rs 350 crore, as the window opened too late, say bankers. RBI described Friday’s shortage as “frictional liquidity pressure”.

“The regulator should not wait until panic spreads, which was the situation in the morning,’’ said a dealer.

The liquidity shortage this week averaged Rs 90,000 crore, mainly because of the Coal India initial public offering, which mopped up a record Rs 15,500 crore. Pressure rose as the IPO received 15 times the bid amount. Money from refunds is expected to flow back next week, providing some relief.

Given the scarcity of funds in the banking system, some bankers argue that RBI should leave rates untouched. Many money market dealers and bankers expect a 25-basis point increase in key policy rates on Tuesday, as RBI continues its action against inflation.

Mutual funds are feeling the pressure of redemption by corporates, banks and financial institutions. Rs Rs Banks have sucked out money from liquid funds to a large extent this month. With several IPOs in the pipeline and due to the central bank's intervention, which is squeezing liquidity, banks are no longer parking money with mutual funds," said the chief executive officer of a mid-sized fund house.

“One of the factors precipitating the problem is the lack of government spending, despite maintaining huge balances with RBI,” explained a senior State Bank of India official. Government balances with RBI stood at Rs 25,662 crore on October 22.

However, overall liquidity is unlikely to improve in a hurry, as several companies have lined up fund-raising plans in the busy season. There will be additional pressure from year-end investment liquidation by foreign institutional investors, say fund managers. Adding to the strain on liquidity will be the third tranche of advance tax, which falls due in mid-December.

Moreover, the government has lined up several big-ticket public issuances over the next few months, including those of Shipping Corporation of India, Hindustan Copper, Manganese Ore India and Power Grid Corporation. In January, Indian Oil Corporation is expected to come to the market with an offering of around Rs 19,000 crore -- the largest to date. The private sector also plans to tap the market with mid-sized and large issues.

“The present liquidity situation may improve, but it will take time. I don’t expect any immediate rate hike by RBI, as it will aggravate the situation. There is no real credit uptake and not much is expected in the third quarter, except from the infrastructure sector,” said Bhaskar Sen, chairman & managing director, United Bank of India.

However, the central bank may still be compelled to go for another rate hike, say some bankers. This is because headline inflation has stayed much above RBI’s tolerance level. Food inflation is now becoming structural in nature.

“The market has factored in a 25-basis point hike in both policy rates. As a result, short-term rates have gone up. I don’t think RBI will react to the present liquidity tightness, as it may be temporary, and will probably go ahead with a rate hike,” said Jahangir Aziz, India chief economist at JP Morgan.

Source: http://www.business-standard.com/india/news/rbi-calms-jittery-market-as-call-rates-top-12/413200/

Reliance MF limits subscription of units in Reliance Small Cap Fund

Reliance Mutual Fund has decided to limit the subscription of units in Reliance Small Cap Fund, an open ended equity scheme, with effect from 1 November 2010 till further notice. The limit on subscription of units has been done with a view that increasing the size of the corpus of the scheme further may prove detrimental to the interest of the existing unit holders. The aforesaid limit will be applicable subject to the following conditions:

1. Fresh/additional subscription/switch-ins will be allowed/accepted for an amount less than or equal to Rs 5 lac per investor (including all folios) at any point in time going forward till further notice.

2. Subscriptions through Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) will be continued with each installment being less than or equal to Rs 5 lac per investor (including all folios) till further notice.

For this purpose, investor identification (per investor) will be done on the basis of Permanent Account Number (PAN) of first holder of the folio or PAN of guardian in case of minor. The aforesaid restriction will not affect SIP or STP registered prior to 1 November 2010 and the unitholders under the dividend reinvestment and payout option.

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

SEBI move: MF industry could see consolidation

The mutual fund industry may soon see consolidation of its plethora of schemes as SEBI makes the process easy, said analysts.

The Securities and Exchange Board of India recently issued a circular mandating that the current scheme, resulting from a merger or consolidation of schemes, will not undergo any change in its fundamental attribute.

The large number of schemes in the industry may soon see a reduction in their numbers, if fund houses choose to take advantage of the SEBI circular, say analysts.

Reactions

“Product rationalisation is important for a growing industry and leads to improved efficiencies. The change in regulations should help in reducing operational complexity for this process, without diluting investor interests,' said Mr Jaya Prakash K, Head-Products, Franklin Templeton Investments.

This circular is investor-friendly and has been modified to suit investor needs, believe analysts. “This circular is very beneficial for the investor as it gives them the choice to exit or continue with the scheme, depending on the surviving scheme and its attributes. From an investor's point of view, this gives a clearer view of the funds involved,” said Mr Raju Singh, mutual fund analyst at SBI Cap Securities.

This circular is in direct contradiction to an earlier circular from SEBI in June 2003.

Then, the regulator had mandated that the surviving scheme would undergo a change in its fundamental attributes. This confused the investor, said analysts.

“The earlier circular was lenient, while this is a little bit more stringent. This circular gives a clearer rationale for the surviving scheme. Fund houses will now have to launch their schemes carefully as they will be very wary of SEBI's action,” said Mr Dhirendra Kumar, CEO, Value Research.

“This is a trivial matter and will not make too much of a difference to the industry,” he added.

Analysts believe that there are way too many products in the industry and merger of some of the schemes will reduce confusion and boost investor confidence.

“There are several schemes in the industry today which have an AUM of just about Rs 10 crore, some of even Rs 1 crore. So, why not merge these small schemes into one big scheme?” asks a mutual fund analyst who did not wish to be named.

However, there are certain limitations with respect to mergers of these schemes, as the investment mandate for each fund is different.

Source: http://www.thehindubusinessline.com/2010/10/28/stories/2010102852871300.htm

UBS eyes MF business in India once again

Zurich-headquartered UBS is looking to start asset management business in India. According to Christof Kutscher, group MD, head of Asia-pacific, “In Asia, we have picked up assets in China, Korea, Taiwan and Japan. India is a big gap in our offering. We are waiting for the right opportunity to enter the Indian asset management business.”

Currently, there are over 41 fund houses in the country while another 22 are awaiting approvals from the market regulator. Major foreign fund managers, including Fidelity, Franklin Templeton, T Rowe Price, ING and Mirae, already have a presence in the Indian asset management business and currently around eight mutual funds are predominantly foreign-based.

In the last one year, three companies—Pramerica MF, Peerless MF and Motilal Oswal MF—started their mutual fund operations. As per data provided by Association of Mutual funds in India (Amfi), the total average assets under management of the 41 fund houses stood at over Rs 7.13 lakh crore in September 2010. Kutscher added the bank will soon look for a partner and was keen on taking a controlling stake. This is not the first time that UBS is looking to enter the asset management business in India. In 2007, it had planned to acquire Standard Chartered’s mutual fund business in the country but the deal was later called off. The bank also plans to increase its footprint in the wealth management segment. UBS group already has a presence in the banking industry after it received a banking licence from RBI in 2008-09. It is also one of the top brokers for international entities investing in Indian equities. UBS India Securities Private’s brokerage and advisory services have been available from its Mumbai office since 1990.

Source: http://www.financialexpress.com/news/UBS-eyes-MF-business-in-India-once-again/702892/

Reliance MF to continue investing in PSU IPOs: Sundeep Sikka

Country's top fund house Reliance Mutual Fund today said it is bullish on the government's divestment plan and would like to have a pie in the state-owned majors like Indian Oil and ONGC, which are slated to go public over the next few months.

"We have been participating in the public offers by the state-run companies in past and will keep investing in the coming issues also. We see it as a right opportunity to have a pie the government-run entities," Reliance Mutual Fund Chief Executive Officer Sundeep Sikka said.

However, he did not say whether the Anil Ambani group's RMF has set aside any amount for divestment

The fund has also participated in the just concluded Rs 15,400 crore initial public offering (IPO) by Coal India Ltd, the largest share sale issue so far in the country.

The Centre, which is targetting Rs 40,000 crore mop-up through various stake sale offers during the current financial year, is likely to kick-off the next year in a big way.

The public offerings of three blue-chip Navratna companies -- Steel Authority of India (SAIL), Indian Oil Corporation (IOC) and Oil and Natural Gas Corporation (ONGC) -- are expected to hit the Dalal Street in the first quarter next year, Disinvestment Secretary Sumit Bose said last week.

According to Sikka, there is enough appetite in the market to absorb these big public issues. He said these big ticket offerings, along with other issue by some corporate houses, would not choke the primary market.

"There is enough money in the market to absorb these papers. Institutional investors are willing to investment in the India growth story," he said.

Expressing his views on the huge FII inflows in the Indian stock market, Sikka said India is the favourite spot for overseas investors as they see better return here compared to other emerging economies as well as from advanced countries.

Foreign institutional investors (FIIs) have infused a record Rs 1 lakh crore in the Indian stock market so far this year, alarming policy makers and regulators.

Talking about the company's expansion plan, Sikka said his fund house will have presence in the country's all the 600 cities and about 1,000 towns in the coming years and will also hire people in large number to manage them.

He, however, did not divulge any timeframe for expansion plans. At present, Reliance Mutual Fund has presence in about 270 cities.

At the end of September, RMF had an average assets under management of Rs 1.07 lakh crore and an investor count of over 72 lakh folios, as per the data available with the Association of Mutual Funds in India.

Source: http://economictimes.indiatimes.com/markets/ipos/fpos/rights-issues/Reliance-MF-to-continue-investing-in-PSU-IPOs-Sundeep-Sikka/articleshow/6802427.cms

Keep lemons out of your fund portfolio

Sumved Sane (name changed), a lawyer, calls successful equity investing a gamble or a game of luck. He is not a reckless trader or a naïve investor. He has been an equity mutual fund investor for the past five years. However, though the BSE Sensex has almost trebled since January 2005, Sumved’s money has only doubled.

His obsession with new fund offers (NFOs) and best-performing funds based on short-term returns has landed him mostly in the company of underperforming funds.

Sumved is not alone. Innumerable investors fall for eye-popping short-term returns or follow a star fund manager or invest in hot sector funds or become victims of NFO campaigns.

Investors need to be frank with themselves — if they feel that they don’t have the expertise to choose the right fund, then they should avoid doing so. There are other ways to make decent returns that are definitely better than what underperformers will give them. Read on to discover more:

Index Funds: Around 64% of large-cap equity funds underperformed the S&P CNX Nifty over five years to June 2010, according to the second edition of S&P Crisil SPIVA fund scorecard. So, while star fund managers can go to town claiming that India remains a stock-picker’s paradise, there is growing evidence that active fund management is indeed facing problems.

This is where index schemes come in: They do away with the fund-manager risk and offer cost-efficient returns. All you have to do is to invest in a fund with the minimum tracking error — the difference between the performance of the scheme and that of the benchmark index.

If you are a long-term investor with no view on a particular sector, it is better to own a diversified benchmark index than a sectoral index. Stick to your asset allocation and keep rebalancing your portfolio at regular intervals. You must also book profits as the index fund will not book it for you.

But be prepared to face the advocates of actively-managed schemes. “Index funds weather the downturn in a market better than most of the diversified equity funds, but in the long run outperformance can be brought to the portfolio using good diversified equity funds with a good long-term track record,” says Abhinav Angirish, managing director, investonline.in, a mutual fund distributor.

But here, we are dealing with investors, who do not possess the necessary skills to spot the best diversified schemes. So, they shouldn’t mind a slightly weaker performance of an index scheme — if at all there is any, that is.

Fund Of Funds: You have two options here. One, you can choose Asset Allocation Funds offered by fund houses such as Birla Sun Life, ICICI Prudential, IDFC and Franklin Templeton. They invest in a judicious mix of debt and equity funds factoring in the risk profile of the investor. If you are conservative, go for conservative option in Asset Allocation Funds.

The second option is to go for schemes that invest into various equity funds. This option aims to bring the best of equity diversified funds into your portfolio. Schemes such as Kotak Equity Fund of Funds and ING Optimix 5 Star Multi Manager Fund invest in a portfolio of good diversified equity funds and generate good long-term returns. You will have to pay up to 0.75% of the total money invested by you in the FoF as annual fees.

Of course, the funds in which the money is invested have their own expenses, leading to duplication of costs. “Fund of funds is treated as a debt fund for taxation purposes and that reduces the post-tax returns offered by these funds compared to equity funds,” points out Dhruv Raj Chatterji, senior research analyst with Morningstar India. “Most of the fund of funds schemes that invest in Indian mutual fund schemes, have failed to offer top quartile returns consistently,” says Angirish.

But again, we are looking at this option only for the convenience of avoiding the task of choosing the best-performing schemes.

Research Services: When you don’t have the time or skills to identify the right schemes, why not hire the services of someone? In most cases, the research comes free. The service providers make their living on the ‘commissions’ they earn on your investments in various schemes. The commissions may push the investor’s interest to the backseat. In that case, you can always look for independent advisory services.

“Subscribing to independent research ensures that there is no conflict of interest and you get unbiased advice,” says Vipin Khandelwal, CEO, personalfn.com, an independent mutual fund research provider. Such services come out with recommendations on individual schemes and also offer ideal portfolios.

They keep their subscribers informed about updates in their recommended schemes. For example, a change of fund manager in a recommended scheme may not be noticed by an investor, but the research house may not only report it but also advise the future course of action that the investor should take. For independent opinion, you have to pay an annual fee and also take care of your transactions.

Portfolio Management Services: If you have more than Rs 5 lakh to invest and do not want to get into research and executing transactions, portfolio management services may be an option worth exploring. Broking firms invest your money in a judicious mix of equity and debt schemes, taking into account your risk profile and your return expectations. Some of them charge a fee of up to 1% of the money invested for offering these services.

Services include timely monitoring and monthly updates on your portfolio. You will get a pass-through statement that will tell you how many stocks you own on a consolidated basis. For example, if the broker has invested in five different schemes and out of these four have invested in Reliance Ind , the pass-through statement will tell you how much of your money is invested in Reliance Industries.

It gives a clearer picture to the investor of the risks involved.

“We book profits at regular intervals taking into account the asset allocation of the client,” says Hiren Dhakan, associate fund manager, Bonanza Portfolio. The power of attorney enables the brokerage to do this, which a fund distributor cannot do. But given little publicly available information about the performance of these services, investors have to choose their service providers with utmost care. Remember, you can again be in the company of an underperformer.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/Keep-lemons-out-of-your-fund-portfolio/articleshow/6806277.cms

SIP irons out mkt rate fluctuations from your investment

An SIP or Systematic Investment Plan is a way to invest in mutual funds at regular intervals. In SIP method of investment, the investor has to invest a fixed amount in a particular mutual fund regularly, say monthly or quarterly.

The minimum period of investment is one year and mutual funds are sold in units. Investor can purchase the units at market rate for a fixed amount. For example, you can invest Rs 12,000 in a mutual fund at one time or you can use SIP and invest Rs 1,000 every month for 12 months (January 2010 to December 2010). If the net asset value of the fund on say January 7 was Rs 50 per unit, the investor will purchase 240 units of the mutual fund. However, if the investor uses SIP to purchase the mutual fund, the number of units purchased on January 7 will be 20. Every 7th day of the month, the fund house will sell the number of units worth Rs1,000 to the investor. The total number of units purchased under SIP will be 249 units (rounded off). Note that when prices are rising, the total number of units purchased under SIP would be lesser. If the market rates are falling, the investor will get a greater number of units for the same investment.

Some companies also have daily SIPs. Here the investor has to invest a fixed amount daily in the mutual fund. For example, Bharti AXA and IDFC permit daily SIP. If the market is relatively stable, the number of units purchased through daily SIP and monthly SIP will not vary much.

An investor can issue post dated cheques or give instructions to banks to release payment regularly.

Why should you invest in SIP?

SIP has several advantages for the investor. To begin, people who cannot afford to make lump sum investments and hence shy away from mutual funds can invest through SIP. SIP permits small regular payments and modest investors can use this method to invest in mutual funds. For example, it may be difficult to invest a lump sum of Rs12,000/ but it is more affordable to keep aside Rs 1,000 per month. Most mutual funds permit a monthly SIP investment of an amount as little as Rs500 per month.

Another big advantage of SIP is that it irons out the market rate fluctuations from your investment. Since units are purchased every month, the numbers of units purchased by the investor are more representative of the market rate. SIP has the benefit of averaging the purchase cost of the investment. If the net asset value falls in the following months, you actually stand to gain in the long run since you purchase more units of the mutual fund in contrast to if you make a single investment. SIP promotes regular investment. In addition one can also hold a diversified portfolio.

The minimum investment for SIP is Rs 500 per month in most cases. Hence if you have Rs 1500 to invest per month, you can purchase 3 mutual funds instead of one. A diversified portfolio reduces the risk factor of your investment.

Source: http://www.financialexpress.com/news/sip-irons-out-mkt-rate-fluctuations-from-your-investment/700775/0

Axis MF Launches Gold Fund

Axis Mutual Fund has launched a new fund named as Axis Gold ETF, an open ended gold exchange traded fund. During New Fund Offer (NFO) period, each unit of the scheme will be issued at a face value of Rs. 100 plus premium equivalent to the difference between the allotment price & the face value of Rs. 100. The new issue will be open for subscription from 20 October and close on 3 November 2010 after which the scheme will re-open on or before 16 November 2010.

The investment objective of the scheme is to generate returns that are in line with the performance of gold.

The scheme will allocate 95% to 100% of assets in gold with medium risk profile. It would further allocate upto 5% of assets in money market instruments with low to medium risk profile. The cumulative gross exposure through gold, money market instruments and derivative positions, if any, shall not exceed 100% of the net assets of the scheme. Cash or cash equivalents with residual maturity of less than 91 days shall be treated as not creating any exposure.

The entry and exit load charge will be nil for the scheme.

The schemes performance will be benchmarked against Domestic Price of Gold.

The minimum application amount for retail investor is Rs. 5000 and in multiples of Rs. 1 thereafter. For Authorized Participants: 1 kilogram (KG) gold per application and in multiples of 1 kilogram (KG) gold thereafter. The gold should be of finesses of 995 parts per 1000, i.e. 99.5%.

The fund seeks to collect a minimum subscription (minimum target) amount of Rs. 1 crore under the scheme during the NFO period.

The scheme will be managed by Anurag Mittal

Source: http://www.indiainfoline.com/Markets/News/Axis-MF-Launches-Gold-Fund/3341403604