Need for consolidation of MF schemes

This will help investors to focus on schemes of their choice

Retail investors are now turning their attention to mutual funds as stock markets have offered only a marginal return over a three-year period. For a time, there was confusion among investors over selection of schemes with fund houses launching schemes in enormous numbers. There are more than 1,000 schemes offered by fund houses. With different investment options available in most of the schemes such as growth, dividend, dividend reinvestment, monthly, quarterly and yearly returns, the total number of investment options available is more than 3,500.

The investors are confused over such a number of options and they find it difficult to choose schemes suitable for them.

According to R. Raja, Senior Vice-President, UTI Asset Management Company, fund houses had already started merging schemes and the consolidation would help the investors to focus on schemes of their choice without confusion.

UTI Mutual Fund, for its part, was constantly making efforts in merging and renaming some of its schemes. Even last month it announced the merger of UTI Infrastructure Advantage Fund Series I with UTI Infrastructure Fund, Mr. Raja said. In an interaction with The Hindu, Mr. Raja said most of the schemes of UTI Mutual Fund offered steady returns to investors and the fund house was managing more than a crore of retail accounts. With equities quoting at attractive levels at present, UTI Mutual Fund was witnessing good inflows into its systematic investment plans (SIPs).

This would help investors take advantage of the buying opportunity and prepare for the next bull-run to make substantial gains, he said. Mr. Raja is, however, cautious over the short-term outlook for stock markets while in the medium to long term he sees a bullish trend as he feels the growth story of India is in tact.

According to Lalit Nambiar, Vice-President, (Fund Manager & Head-Research), the unit-linked insurance plan, UTI ULIP, offered by UTI Mutual Fund, was more popular among investors as it combined insurance and investment and offered tax rebate under Section 80C up to Rs. 1 lakh. This open-ended balanced fund invests up to 40 per cent of its corpus in equity.

The fund house hopes to get more inflows in its other tax saving plans such as UTI ETSP (a diversified scheme investing in large caps for wealth creation) and UTI RBPF (an open ended-balanced fund for pension benefits). For the ULIP, the fund house has a tie-up with Life Insurance Corporation of India through a group insurance scheme.

UTI Mutual Fund, which is managing assets of more than Rs. 65,000 crore, bets on its banking sector fund, pharma and healthcare fund and the dividend yield fund.

Source: http://www.thehindu.com/business/article1481133.ece

Kotak Mahindra Income Plus Scheme to be Renamed as Kotak Monthly Income Plan

With effect from 1 March 2011

Kotak Mutual Fund has decided to change the name of Kotak Mahindra Income Plus Scheme to Kotak Monthly Income Plan with effect from 1 March 2011.

Kotak Monthly Income Plan is an open ended income scheme which has the investment objective to enhance returns over a portfolio of debt instruments with a moderate exposure in equity and equity related instruments.

Source: http://www.navindia.com/story10-22.asp?sno=459311

Multicap funds with dynamic allocation expected deliver better returns: ICICI Sec

Multicap funds with dynamic allocation flexibility among large and midcaps are expected deliver better returns over a period of time,`` notes brokerage house ICICI Sec.

Further providing its outlook on the equity markets, the brokerage house notes that the Indian markets have corrected around 14% from the peak in November 2010. At 18,000, the markets are trading at a P/E multiple of 15x FY12E earnings. This may be considered a reasonable level to start accumulating quality large caps and selective midcaps. The recent market correction has provided investors an opportunity to invest in equity mutual funds. From current levels, every dip should be utilised by investors to invest in equity markets rather than waiting to time for perfection.

Also, it notes that the appetite for equity investment from domestic institutional investors at lower levels seems strong as can be seen from their being net buyers in the recent correction. Higher commodity prices, particularly crude, are a major concern for the Indian economy and equity markets. India`s domestic economy continues to remain on a strong footing with visible growth prospects. The same is expected to drive the equity market over a longer period of time. Investors should avoid taking high cash calls as fund managers themselves manage the portfolio in accordance with market developments.

Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20110221155619198&dir=2011/02/21&secID=livenews

HDFC MF offers multilingual account statements

The HDFC Mutual Fund has announced the launch of various services to enable transactions vied electronic modes.

After the launch 'HDFC MF Multilingual Statement of Account,' that offers statement of account in Hindi, Marathi, Tamil and Gujarati other than English, HDFC Mutual Fund has introduced the statement of account in four more languages, Kannada, Malayalam, Telugu and Bangla.

The new facility will make a mutual fund statement of account reader friendly and available in many Indian languages. The Multilingual Statement of Account (MSA) is available to any unit holder for online access on demand 24x7 through HDFC website in a secured manner.

Unit holders can either opt for an online view of the statement or chose to receive a statement by email to a registered email ID with HDFC. A unit holder can also walk in at any office of HDFC Mutual Fund and request for multilingual statements.

Source: http://news.oneindia.in/2011/02/20/hdfc-mutual-fund-multilingual-statements-launch-aid0102.html

Ready to reset

As the new head of Securities and Exchange Board of India (SEBI), U K Sinha, gets down to do serious business, one of his focus areas is to revitalise the mutual fund industry. After scripting a success story over a decade, the industry witnessed a slump last year.

While India-focused funds clearly dominated the list of top performing open-end equity funds globally over 15 years, by notching up 14 of the top 25 spots, what spelled alarm bells for the Rs 6.65-lakh crore mutual fund industry was the fact that, in 2010, no Indian funds made it to the list of top 25 or even top 100 performers globally, according to the latest report by Morningstar and SBI Magnum Sector Umbrella Contra Div.

The Study On Relative Performance of Indian Equity Funds Versus Global Equity Funds, December 2010 unfolds the story of Indian mutual fund industry, which almost battled for survival in 2010. But experts are hopeful that 2011 will be the year of much needed consolidation for the industry.

Market matrix

“The year 2010 can be well be written off as the annus horribilis for mutual funds,” confirms Sanjay Sinha, chief executive officer, L&T Mutual Fund. “Industry had large volume of redemption, which was very unfortunate. Part of redemption was because of the fear that market levels were not sustainable and this prompted exit by investors.” However, Sinha adds that this fear psychosis is largely playing out. In November 2010 net outflows from equity schemes were down to Rs 41 crore as compared to Rs 7,011 crore in September and Rs 2,869 crore in October.

For observers, it all began in 2009, when SEBI banned the entry load on MF schemes, which spelled that MF houses pay all upfront incentives and commissions to distributors from their own pockets. In due course, distribution agents switched to promote portfolio management services products by banks and private parties including stocks and insurance.

Dhirendra Kumar, CEO of Value Research, says, that the present stagnation is on account of industry churn. Kumar explains that 2003-07 witnessed unprecedented bull run for the segment, in which investors did not ask questions and nor did the regulators.The year 2008 served as the wake up call for the industry on account of overall market decline, 2009 saw regulatory changes with SEBI abolishing entry load and tightening fixed income funds that turning 2010 into a year of pain for the industry with less fresh investment coming in and old investors getting out as they were mis-sold in 2008. “Clearly a year of stagnation.”

Ravi Trivedy, an executive director with KPMG, points out that the current crisis in the industry emanates from the commission structure changing in 2009 wherein investors have to pay 1.5% advisory fee to the distributor/adviser. “This in turn became a hindrance for the investor who had to cut a separate cheque for the distributor for his advice, escalating into a scenario where mutual funds could not scale into a volume business. The second reason is that unlike the insurance business, which built large dedicated sales engines, the MF industry developed an open architecture model based on commissions, which switched to selling other products as MF commissions are no longer lucrative.”

Trivedy adds that it’s not that the mutual fund investment space is shrinking, but it’s definitely stagnating. The Indian market is and has been a sales-led market. Until the sales guys are incentivised, the present mutual fund market dynamics will not change.

However, comparing mutual fund with insurance products, Punit Shah, head of financial services tax at KPMG, agrees that mutual funds will remain better option for retail investors and fixed income plans will grow and SIPs will become popular. “ULIPs may become less attractive investment avenues due to some of the regulatory changes imposed by IRDA after the SEBI and IRDA issues.”

Just when equity funds were worst hit, Kalpen Parekh, deputy CEO of IDFC Mutual Fund, says, that investor preferences evolved considerably with hybrid funds developing as the best bet. “A lot of investment happened in hybrid funds—debt, equity, ETFs and bonds—to enable a wider investment base and better returns. Many fund houses launched asset allocation funds for diversified investments. The hybrid category is estimated at Rs 30,000 crore and is growing month-on-month.”

Parekh acknowledges that the soar spots were indeed equity funds that witnessed massive outflows. “Outflows were on account of a peaking market and retail investors existing at its back. However, in the last two months the market has stabilised with new investors coming to the fold and old investors redeeming less.”

Way forward

On a similar note, Vicky Mehta, a senior research analyst with Morningstar India, says, that he is optimistic about the future of mutual funds in India. “A significant portion of the Indian investing community doesn’t invest in mutual funds, so clearly there is a huge potential that remains untapped and they are an apt avenue for retail investors to invest in market-linked investment avenues.”

Mehta adds, that when SEBI banned entry loads, a doomsday scenario was predicted from several quarters. “This was nothing more than resistance to the fact that status quo was being challenged. Now, fund houses will have to compete by ensuring that their offerings are well-managed and in investors’ best interests. There was perhaps an element of ‘easy money’ in the form of new fund offers (NFOs), which is now a thing of the past. But that is barely a cause for concern.

Regulatory changes introduced in recent past have only helped the investor’s cause. And if something is right for the investor, it’s right for everyone else. These changes will put the mutual fund industry on a strong footing in the years to come.”

Kumar predicts a revival in 2011 with steady flows. “It will be a consolidation phase. But it is unlikely to be a high growth business. The biggest failure for mutual fund industry is that they are not trusted by the regulator, there is an element of suspicion around them. And the most critical limitation is that they have not been able to grow into a volume business as the right apparatus, in the form of economic push, is missing. Till this apparatus is not developed, MF will not be able to spread reach.”

In similar vein, Sinha adds that distribution will be the biggest challenge for the industry. “Industry will have to devise a cost-effective distribution method and the solution to this will come from technology that will touch a larger base. Upgradation of the stock exchange platform and the rising acceptance of paperless forms of investments by distributors and investors will also play a cardinal role in expanding base.”

A red flag, however, Sinha feels, are the new KYC norms, which may cause some obstruction in the flows to mutual funds as they involve considerable paper work to be completed by even the existing mutual fund investors who want to make additional investments.

On the exodus of top managers from the industry, Sinha explains, that departure of fund managers will be part and parcel of a growing industry. There is scope for a large number of new managers to step into their shoes, which is a good development, given the fact that the industry has to expand its footprint in terms of the investor base as well as assets under management.

However, Sinha adds that for 2011, larger optimism comes from the growing base of investors who are choosing SIPs. “The industry runs close to 50 lakh SIP accounts, which are growing month-on-month. This pattern of investment is more structural as compared to previous instances where investors chose mutual funds only as a opportunistic tool to participate in market rally.”

Source: http://www.financialexpress.com/news/ready-to-reset/752268/#

Old challenges, new Sebi chief

The new chairman of the capital market regulator, Securities and Exchange Board of India (Sebi), takes over on Friday and Thursday was the last day of C.B. Bhave who completed three eventful years. Finance ministry veteran and UTI mutual fund chairman U.K. Sinha has large shoes to fill and has two key challenges before him. His actions on two issues will give a pointer on what he will mean for the Indian capital market. The first is the issue of loads in mutual funds. Sebi was the first global regulator to remove the conflict of interest embedded in a mutual fund by making a mutual fund a no-load product. Distributors are now paid by the asset management company (AMC) out of its own money and directly by consumers as a transaction or advisory fee. The mutual fund industry—the banks, the corporate distributors and the AMCs— are looking for a quick reversion to the imposition of a load embedded in the price of a mutual fund and are working to get the new Sebi chief to see it their way. The lack of an organized consumer lobby, of course, does away with the reverse pressure. What Sinha decides on this will define how he views the future of the mutual fund industry.

The second area is his stance on the ongoing debate around ownership of exchanges, and the conflict between profitability and governance. MCX Stock Exchange (MCX-SX) has openly battled Sebi in its bid to set up a stock exchange that would compete with the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The battle has been fought overtly and covertly. The company has gone to court, written to the ministry of finance (MoF) to pass a direction to Sebi telling it to allow the setting up of the exchange. (Though regulators are independent, MoF has the authority to pass a “direction” to get regulators to do what the government wants. It is one of the measures of the last resort available to a finance minister to bring recalcitrant regulators in line.) The covert battle has been fought by seeking to influence public opinion by funding research papers, events, surveys and wall-to-wall advertising in the media.

Market participants watched in astonishment a company battle institutions by targetting individuals rather than the institutions.The new Sebi chief will have to decide whether it is the institution that is above the individual or the individual that will change the course of stock market history.

Source: http://www.livemint.com/2011/02/17211716/Old-challenges-new-Sebi-chief.html?h=B

Fund houses seek to cash in on popularity of ETFs

Several mutual funds houses are working overtime to launch exchange-traded funds, popularly known as ETFs, given their growing popularity among investors as well as the convenience and cost advantage they provide.

SBI Mutual Fund is working on equity-based ETFs while Motilal Oswal Mutual Fund, which launched two such products recently, is working on more equity-based ETFs. Axis Mutual Fund and Benchmark Mutual Fund are among the fund houses that have recently launched ETFs either based on equity or commodity.

There are already 25 ETFs listed on the Bombay Stock Exchange and National Stock Exchange offering investment opportunities in a basket of domestic or global equities and gold.

RS Srinivas Jain, senior vice president and chief marketing officer, SBI Funds Management, said, “We have a gold ETF. Now we are working on four ETFs and hope to launch them in future with regulator’s approval.”

“We as a organisation will focus on ETFs as it is more convenient and cheaper, and also one of the best ways to invest in equity markets,” said Nimesh Mehta, vice president and head - products, sales and distribution, Motilal Oswal Asset Management Company.

As compared to the traditional mutual fund products, ETF's fund management cost is lower. Investors pay only 0.75 per cent as compared to 2 per cent to 2.5 per cent in other mutual fund products.

Motilal Oswal has two equity-based ETF products in the market. MOST 50, which was launched in July last year, offers investment option in S&P CNX Nifty stocks. Motilal Oswal launched another equity-based ETF – MOST 100 this month.

“We are working on more such products and we filed draft offer document for another product – Nasdaq 100 with Securities and Exchange Board of India a month ago,” Mehta said.

Chokkalingam G, executive director and CIO, FCH Centrum Wealth Managers, expects more such products to hit the market by end of the year.

“Global indices based ETF offerings will remove the constraints that domestic investors right now may be facing with domestic equities not looking the best bet and developed market equities rallying since January 2011,” Chokkalingam said.

ETFs debuted on the Indian bourses in early 2007 with the launch of gold-based ETFs. Since then, its popularity is also on the rise.

With the debut of Axis Mutual Fund’s gold ETF, there are 9 gold-based ETFs to choose from for those who wish to take a call on the yellow metal.

Tarun Bhatia, director - capital markets, Crisil, said in a recent report that gold ETFs would see higher inflows in the coming months, and more mutual funds are likely to add gold ETFs to their bouquet of offerings.

Source: http://www.mydigitalfc.com/commodities/fund-houses-seek-cash-popularity-etfs-815

UTI Mutual Fund Appoints Executive Search Firm To Find Next Chairman

Indian asset manager UTI Mutual Fund said Thursday it has appointed an executive search firm to identify a new chairman to replace U.K. Sinha, who has been named head of the country's capital markets regulator.

The search firm will look at both internal and external candidates and the process is likely to be concluded soon, the state-run company said in a statement. It didn't name the search firm.

In the interim, a four-member committee will run the mutual fund. The committee comprises Jaideep Bhattacharya, chief marketing officer; I. Rahman, chief finance officer; Anoop Bhaskar, head of equities; and Amandeep Chopra, head of fixed income.

Source: http://www.automatedtrader.net/real-time-dow-jones/47496/uti-mutual-fund-appoints-executive-search-firm-to-find-next-chairman