Now you can SIP into New Pension System, too

The New Pension System (NPS), as the New Pension Scheme is now known, can henceforth be subscribed to through the systematic investment plan (SIP) route.

ICICdirect.com on Monday launched the facility on its broking site.

Under the facility, a customer can subscribe to NPS, select a fund manager of his choice, view and access registration details and also place contributions online.

One can start an SIP for as low as Rs500 a month and also track the net asset values online. ICICIdirect will charge Rs40 for opening an account and Rs20 for every subsequent transaction.

The launch of SIP facility on the NPS is expected to boost its subscriber base.

“The total corpus of NPS is Rs7,000 crore, whereas collections from the unorganised sector under the scheme is only Rs40 crore. The Bajpai Committee report is expected by January 2011, which will help in studying as to why the contributions from the unorganised sector are low,” Yogesh Agarwal, chairman, Pension Fund Regulatory and Development Authority said.

NPS is managed by seven pension fund managers, namely, SBI Life, ICICI Prudential, Reliance Life Insurance, IDFC Pension Fund, Kotak Life Insurance, UTI and LIC, which is for the government.

Currently, only Tier I NPS accounts are available on ICICIdirect, wherein account holders cannot withdraw money up to the age of 60. Tier II, to be launched in a few months, will offer the facility to withdraw the money as many times as a customer wishes to. But unless you have invested in Tier I, you cannot opt for Tier II account.

Some experts though continue to have reservations about the NPS.

“A balanced fund looks more attractive. In the NPS, information is not easily available. Also, if it is 50% equity and 50% debt and the returns are taxable, I won’t recommend the scheme. If a person is ready to wait for the long term, he can earn better returns in mutual funds. Return on the NPS is around 11%, whereas a balanced fund would easily give 12% return in the long run and it is more tax-efficient,” said Rajendra Dhulla, financial planner, partner with Pratham Services.

The government had announced Swavalamban Scheme in the Union Budget 2010-11, to which the government will be contributing Rs1,000 per NPS account each year for the next three years. The benefit will be available to persons who join the NPS with a minimum contribution of Rs1,000 and maximum contribution of Rs12,000 per annum. In order to open an NPS account, a minimum contribution of Rs6,000 per annum is mandatory, whereas in case of NPS Lite, the minimum amount is Rs1,000 per annum.

Source: http://www.dnaindia.com/money/report_now-you-can-sip-into-new-pension-system-too_1477697

Invest a small part of portfolio

Newspaper reports on the commodity rally made Shyam Shukla curious about international mutual fund schemes. The impressive returns in the last six months — higher than the Bombay Stock Exchange Sensitive Index, or Sensex — are also on his mind.

“Financial experts say diversification helps get the best results. Since overseas funds are giving decent returns, diversifying in the foreign markets can improve the returns of my portfolio,” argues the 25-year old telecommunication engineer from Raipur.

Shukla is not alone. International funds invest in companies listed in overseas markets. Many of these are feeder funds, which means the Indian scheme invests its entire corpus in an international master fund. For instance, DSP BR World Gold Fund invests in BlackRock Global Funds — World Gold Fund.

In total, there are 25 schemes that invest in equities of commodity companies or special themes across the world. Then, there are emerging market schemes that invest in Mexico, Brazil, Hong Kong and Korea. Rajat Jain, chief investment officer-equities, Principal Mutual Fund, says, “International funds are the best way to diversify, as an investor can participate in different kinds of markets.”

“Principal Mutual Fund’s Global Opportunity Fund invests across 25 different equity markets,” adds Jain.

According to Value Research, a mutual fund rating agency, international funds have returned 19.25 per cent over six months till December 3. In the same period, the Sensex and the Nifty have given slightly less, over 17 per cent. Equity-diversified funds (largecap and midcap) returned 16.5 per cent.

But industry experts feel the short-term data may not be too definitive. “Six months is too short a period to conclude about a fund’s performance. And, this category has a mix of commodity and equity funds,” says Hemant Rustagi of Wiseinvest Advisors.

The short-term spurt in returns of international funds is mainly on the back of the rally in commodities, in which most international funds invest. Funds such as Birla SunLife Commodity Equities, DSPBR World Mining and World Gold are some of the top performing funds in the category (returns 25-30 per cent) and invest in gold in six months. Equity funds such as HSBC Emerging Markets, Principal Global Opportunities and Franklin Asian Equity have performed on a par with the Sensex (returns between 15-20 per cent). Over one year, overseas funds have returned a dismal nine per cent against the Sensex’s and the Nifty’s 16.18 and 16.78 per cent, respectively. Consequently, experts feel one could take exposure to these funds, but only partially.

There are other risks, too. These funds are dollar-denominated and influenced by currency fluctuations. The money invested is first converted into dollars from rupee, and then, into the local currency. So, a lot depends on the performance of the local currency. At the time of redemption, the conversion happens the other way round. To overcome this, risk funds could invest in markets where the currency behaves like the rupee, say experts.

These funds are taxed as debt funds. Therefore, there is a tax of 10 per cent with indexation and 20 per cent without indexation on capital gains. One of the main arguments against these funds is that since the Indian markets have been doing exceptionally well, returns from foreign equities may not be too high. Also, a debt fund treatment will eat into the returns further.

“There are enough Indian funds to help a retail investor diversify and our markets have done better than the foreign markets,” says Pankaj Mathpal, a certified financial planner.

However, when commodities are on the rise, the feeder funds really perform exceptionally. Experts say high networth individuals, or even retail investors, could look at investing 5-10 per cent of their money in such funds.

Source: http://www.business-standard.com/india/news/investsmall-partportfolio/417362/

Sebi asks MFs to disclose details on gold-focused schemes

Market regulator Sebi today directed mutual funds to disclose whether money collected for gold- focused schemes was actually invested in the precious metal.

"It has been decided that physical verification of gold underlying the Gold ETF units shall be carried out by statutory auditors of mutual fund schemes and reports (given) to trustees in half-yearly basis," the Securities and Exchanges Board of India (SEBI) said in a circular.

The half-yearly reports, which MFs first have to submit to their trustees, need to then be forwarded to Sebi.

In the reports, the MFs will have to mention whether the funds invested in Gold ETFs was in line with the amount mentioned in the Scheme Information Document and if the same has been audited, as per the Sebi circular.

"This shall come into effect from the half-yearly report ending April, 2011, by trustees to Sebi," the market watchdog said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Sebi-asks-MFs-to-disclose-details-on-gold-focused-schemes/articleshow/7055873.cms

Twist in the tale: Bhave likely to get extension

With just two months left for his tenure to end and three months after the government set up a search committee to find his successor, Securities and Exchange Board of India (Sebi) Chairman C B Bhave may end up getting an extension.

People familiar with the development said this might be necessary taking into account some important ongoing investigations against big companies and market operators. It is believed that an extension will ensure the continuity of the investigations.

The sources, however, added this “school of thought is still in its infancy” and no written communique had been sent either by the Prime Minister’s Office or the Ministry of Finance to the selection panel formed to choose the next chairman.

In what could be just a coincidence, a meeting of the search committee on Friday to interview the shortlisted candidates was cancelled at the last minute.

“One cannot say for sure if he will get an extension, but the idea has definitely been discussed,” said a senior industry official on condition of anonymity. “The factors that strengthen his case are the ongoing investigations and the transparency he has brought in the way some market intermediaries function,” he added.

The recent past has seen the market regulator take a tough stance against entities, including Sahara Group, Murli Industries, Ackruti City, Welspun Corporation and Brushman India. The Mumbai-based high networth individual, Sanjay Dangi, has also been barred on allegations of market manipulation. The regulator is also in the midst of a high-profile legal tussle with the MCX Stock Exchange, currently being fought in the Bombay High Court.

Another theory doing the rounds is that the government will be in no mood to attract fresh controversy by appointing a new chairman when it is already grappling with a number of allegations at the Centre.

“There is always a lobby favouring and opposing each candidate. One cannot predict until the file is signed,” says another veteran who has worked with three Sebi chiefs. “Bhave emerged from nowhere the last time and it cannot be ruled out again. The government can play safe by giving him an extension for two years. Mutual funds may be opposing him, but that is not a neutral view. Also, we keep hearing that candidates are not showing keen interest in the top job this time,” he explains.

While media reports earlier suggested that a total of seven candidates were in the fray for the post, only three-four managed to make it to the final list. While UTI Chairman and MD

U K Sinha is said to be one of the front-runners, others in the fray include Ministry of Company Affairs Secretary R Bandyopadhyay and Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty. According to some media reports, State Bank of India Chairman O P Bhatt has opted out. The selection committee is headed by Cabinet Secretary K M Chandrasekhar and comprises Finance Secretary Ashok Chawla, Financial Services Secretary R Gopalan and Personnel Secretary Shantanu Consul.

Source: http://www.business-standard.com/india/news/twist-intale-bhave-likely-to-get-extension/417322/

Mirae Opportunities Fund to pay Rs 1.50/unit

Mirae Asset India Opportunities fund on Monday declared a dividend of Rs 1.50 per unit (face value – Rs 10 per unit) under the dividend option – regular plan. The record date of the dividend is December 10, said the company in a press release.

The NAV of this dividend option of the fund was Rs 16.030 as on December 1. Pursuant to payment of dividend, the NAV of the scheme (dividend option) would fall to the extent of payout and statutory levy, if any.

This is the second dividend payout by Mirae Asset mutual fund in the last two years.

Mirae Asset India Opportunities fund is an open-ended equity oriented fund and has given 70 per cent returns compared with the benchmark index BSE 200's return of 54 per cent.

Source: http://www.thehindubusinessline.com/2010/12/07/stories/2010120753041100.htm

Invest in consistent mutual funds to beat market volatility

The current bull run is marred with ample volatility due to global liquidity, scams, inflation, interest rates, fears of war, increased FII pullouts and economic worries around the globe. Some aggressive investors turn market volatility in their favor by churning quick profits.

However, such wild price movements could lead to heavy losses in an investor's portfolio. Are mutual funds affected by market volatility? Since the underlying investments of mutual funds include picks from stock markets, the volatility of the markets transcends up to these funds. Irrespective of the strategies employed by fund managers, mutual funds cannot remain totally immune to market fluctuations.

The extent of volatility is determined by the extent of fund's exposure to equity.

Market volatility can be beaten by owning actively managed mutual funds or non-index mutual funds. The fund manager identifies stocks that are susceptible to negative market swings and adopts strategy to minimize the impact of a fall. A more volatile fund is associated with larger risk, especially when you require money over a short term.

This is when a fund's volatility becomes critical.

It is true that past performance cannot accurately predict future returns. However, this data provides an insight into the fund's volatility. The standard deviation of a mutual fund is a measure of variation of returns across a period of time.

A fund's beta is another common measure of volatility. Here, beta compares a fund's performance to a benchmark, typically an index. The beta coefficient refers to the return that a stock or portfolio of stocks is expected to achieve in relation to the returns provided by the stock market as a whole. The closer a mutual fund's beta is to one, the less volatile it is. If the beta value is greater than one, it is more volatile.

To beat volatility, invest in mutual funds that have exhibited consistent growth over the years.

Here are a few investment options for the risk averse:

Balanced fund

Young investors who seek decent returns for moderate risk can explore balanced funds. These invest partly in equity and partly in debt instruments. While equity investments lend growth prospects to the portfolio, debt investments provide the much needed stability and capital preservation. Most balanced funds have equity to debt investments in the ratio of 65:35.

Debt mutual fund

For those investors who are close to their retirement years, assured of liquidity, capital preservation and regular flow of income are prime concerns. They usually aren't concerned in making quick profits by taking considerable risks. Debt mutual funds are not only less risky but also provide higher posttax returns than the traditional debt products.

Invested in fixed income instruments, debt mutual funds pass on interest income earned to investors in the form of dividend. These dividends are subjected to Dividend Distribution Tax and the same is withheld by the fund house before disbursement.

Systematic investment plan (SIP)

Investment discipline or systematic investing is key to building a long term robust portfolio. Instead of investing a lump sum, the investor can choose to invest in a particular mutual fund scheme on a periodic basis. He not only benefits from the power of compounding but also from Rupee Cost Averaging. This is the ideal investment vehicle for long term investors. Some fund houses offer SIP investments as low as Rs. 250 per installment, making it very attractive.

Fund houses are now providing more investment frequency options for investors - daily, weekly, monthly and others. A daily SIP takes advantage of intra-month swings in prices of stocks, which comprise that scheme's portfolio.

Monthly income plan (MIP)

Yet another option for investors with low risk appetite is MIPs. Funds in this category invest a small portion of around 15 percent to 25 percent of the portfolio in equity and the rest is pumped into debt and money market instruments. Investors must know that unlike what the name suggests, monthly income is not assured but is dependent on market performance.

Investors can get higher returns owing to the fund's equity exposure, compared to fixed deposits and pure debt funds. Medium or risk averse investors can invest in new hybrid products that have exposure to both equity and debt markets.

These hybrid funds have equity exposures varying from 15 percent to 50 percent and an investor can choose such schemes which are in line with their risk appetite. These plans offer a balance of sensible risk with growth potential.

Source: http://economictimes.indiatimes.com/features/financial-times/Invest-in-consistent-mutual-funds-to-beat-market-volatility/articleshow/7042076.cms?curpg=2

PAN to be mandatory for mutual fund investments

All mutual fund investors, new as well as existing, will need to mandatorily furnish their PAN (Permanent Account Number) details from next year irrespective of the size of their investment.

The move is part of the revised Know-Your-Customer (KYC) compliance norms to be adopted by fund houses from next year in order to comply with money laundering prevention rules.

Currently, individual investors need to quote PAN only for investments of Rs 50,000 or more, although non-individual investors are required to quote their PAN for all amounts.

All the fund houses have been asked by industry body Amfi to comply with new KYC norms, which would include collecting details like PAN, address proof and photograph of all their new and existing investors, with effect from January 1, 2011.

The Amfi (Association of Mutual Funds in India) decision follows a direction from market regulator SEBI earlier this year to tighten the KYC norms to check fraudulent practices and money laundering activities.

Earlier in 2007, SEBI had made it mandatory to furnish PAN - which is allotted by the Income Tax Department - for all stock market transactions as part of efforts to check fraudulent practices.

The fresh move will lead to MF investors going through some additional paper work, but it is expected to also benefit them as the entire KYC documentation would be centralised across all the fund houses with the help of PAN details.

Subsequent to this, existing investors would not need to go through any paper work for fresh KYC compliance at the time of their new investments.

With Amfi asking all the fund houses to implement new and standardised KYC norms with effect from next month, the fund houses have started the process of collecting the required documents from their investors.

In a circular issued to all the fund houses and distributors, Amfi has said that the industry has signed up CDSL Ventures Ltd (CVL) to undertake the centralised record keeping of all KYC documents.

On completing the one-time process of common standard of KYC with CVL, the investors will be able to transact across multiple mutual funds without having to repeatedly submit their documents with each mutual fund, Amfi said.

The KYC norms were first implemented in the mutual fund industry in February 2008 for all investors putting in Rs 50,000 or more in mutual fund schemes.

Subsequently, the rules were revised with effect from October 1, 2010 and all the investors other than resident individuals were asked to furnish PAN irrespective of the amount. However, resident individuals were allowed to invest up to Rs 50,000 without quoting their PAN details.

There are 44 fund houses in the country, who collectively manage over Rs 7 lakh crore of assets in more than four crore investor accounts.

Source: http://www.thehindubusinessline.com/blnus/05051720.htm

More foreign investors prepared to invest long term in India

Regulatory changes will place the Indian mutual fund industry in a better shape, but it might take time for fund houses to adapt to those changes, Stewart Edgar, chief executive officer (Asia- Pacific) at BNP Paribas Investment Partners, said in an interview. Edited excerpts:

What is your outlook for the growth of mutual fund industry in India, after a spate of regulatory changes that has led to a shrinking of the asset base?

I think we will gradually see assets growing. Mutual fund business is cyclical. But in growing markets like India, you could look five years ahead and expect yourself to be in a better position. And I feel the last few years have been good by shaking out people who were not prepared to stay for the long term and also in terms of forcing people to think about their long-term strategy.

It is actually a good time to be in India because there is a lot of regulatory change and a lot of them, we welcome.

You can always debate the speed of those changes, but as and when asset management companies absorb those changes, the industry will be in a better shape than before. We are not into the new era yet, and it might take two or three years for us to reach where we need to be.

There is a view in India that we have far too many product offerings from asset management companies and there is enormous mis-selling because of that. What do you think?

I think it is a bit difficult to judge the right number of products because it depends on how you define a product. In case of a vast country like India, where needs of clients could be different, I don’t think products themselves should be limited in number; rather products should be designed to suit particular needs.

The key for me in all markets is that the distributor needs to take huge responsibility in making the client understand what a product does and what it does not do.

Some regulators in Asia-Pacific have been slow to recognize the difference between what a distributor does and what an asset manager does.

The market rally this year has mostly been led by foreign investors, with local investors in India being net sellers in most of the months. How do you view this divergence?

This is not something unique to India, we have seen this happen in other markets like Indonesia and China, where locals have bought when the market dipped and sold when it rose, with foreigners on the other side of the trade.

As far as the foreign interest is concerned, I think that is fairly strong and there are more foreign investors who are prepared to make long-term equity investments in India than before. And when local investors realize that the foreign investors are here to stay, we might see a convergence in the views of both local and foreign investors.

For instance, in the rally in Indonesia, for the first six months or so, foreign investors largely led while local mutual funds saw redemption.

However, now people realize that you can’t keep selling and you need long-term exposure to equity, and I think a similar story will play out for India as well.

Source: http://www.livemint.com/2010/12/03210327/More-foreign-investors-prepare.html?atype=tp