Use simple, less risky products to woo investors: SEBI to MF cos

Capital market regulator SEBI today asked mutual fund companies to come out with simple and less riskier products to enhance retail participation, even as it considered increasing investor awareness about mutual fund investment as the biggest challenge for the industry.

"We are trying that the Mutual Fund companies should launch easier, cheaper and less riskier products to transact ... to involve more people in Mutual Fund segment," SEBI Executive Director KN Vaidyanathan said while delivering a talk on 'Mutual Funds: Opportunities and Challenges'.

The total assets size of Mutual Fund sector in the country is pegged at over Rs 6 lakh crore, constituting 40 per cent of retail investments, while the rest is with institutions and large investors.

Noting that there was enough headroom for Mutual Fund segment to grow, Vaidyanathan said creating investor awareness about the mutual fund sector has been the biggest challenge before the regulator.

"Not many people trust MF segment... it is the biggest challenge before us," he said.

Vaidyanathan said banking sector gets 55 to 60 per cent of total savings in the country, the insurance industry attracts 30-35 per cent, while Mutual Funds segment gets only 10-15 per cent of savings.

According to the SEBI Executive Director, about 3-4 lakh crore was annually pumped into banking, followed by Rs 1.5 lakh crore in insurance (excluding ULIP) and just Rs 25,000 crore was invested in to MF sector.

While dwelling upon steps taken by the SEBI to make MF as investor-centric industry, Vaidyanathan said that abolition of entry load on MF products had yielded Rs 2,500 crore to the investors in just 20 months.

"Amount of entry load saved is Rs 2,500 crore in just 18-20 months...this is possibly the biggest benefit investors have got," he said.

SEBI abolished entry load on MF products varied between 2-5 per cent in August 2009, much to the discomfort of the distributors.

Later when asked if SEBI was framing any guidelines for regulating the wealth management business after the much publicised Rs 450 crore-Gurgaon Citi Bank fraud, he said, "the work is in progress", but refused to put a timeframe in this regard.

When asked about allowing foreign investment into MF industry, he said, "rules are being worked out and that should not be too far away."

Source: http://articles.economictimes.indiatimes.com/2011-04-09/news/29400681_1_entry-load-mf-sector-kn-vaidyanathan

We expect a downgrade in EPS of Sensex basket - UTI AMC

Mr Harsha Upadhyaya is Executive Vice-President and Fund Manager, UTI Asset Management Company. He has been managing funds at UTI AMC since 2006. He manages an AUM in excess of Rs 4,000 crore across five funds. In an interview to Business Line, he gives insights into various issues related to the equity market.

Where is the stock market headed?

The current rally is purely driven by FII flows. Fundamentally no economic indicator has changed. Crude is at $124 a barrel and unlikely to sustain at these levels for long.

Reallocation of Japanese assets across emerging markets could be one of the reasons. In the short term, markets are expected to be range bound with some downside if liquidity flow reverses. The worst case scenario for GDP growth is 7 per cent.

What about valuation?

We expect a 5 to 6 per cent downgrade in the EPS of the Sensex basket that is currently at 1,274. The key issue is whether the money into India will keep coming despite all the negatives. However, the second half will be much better than the first half.

If monsoon is normal, inflation will cool off. Interest rate scenario will change. But the market would remain range bound for the next couple of quarters.

What do you expect from the FY11 earnings season?

We expect a 11 to 12 per cent for Q4 FY11 over the corresponding quarter of last year, i.e. Q4 FY10.

What is your take on the capex plans of corporates in the coming fiscal?

We expect capex to pick up in the second half of this fiscal.

There is always a hesitation to undertake capex during a hardening interest rate regime but that should change in the second half.

What has been the incremental AUM addition to your schemes?

Take the case of UTI opportunities fund that has a long-term focus. We have seen 15 per cent incremental AUM additions and its AUM is now Rs 1,600 crore.

The fund has been consistently outperforming its benchmark — the BSE 100 — since 2007 and it is this consistency and acceptability that has led to the inflows.

What is the frequency with which you churn and what are your cash levels as a percentage of AUM?

We are comfortable with an average cash level of 4 to 5 per cent. We prefer to churn rather than take cash calls. Our frequency of churn including derivatives is 0.9 (less than one) and 0.6 if derivatives are excluded.

Do you write options?

We never did options. Given the kind of investor base and profile that we have, we have restricted ourselves.

We do arbitrage in cash and futures and would continue to do that and would not like enter into derivative transactions that most of our investors do not understand.

What sectors are you looking at going forward?

Our current portfolio has 20 per cent exposure to FMCG, 15-16 per cent in banking and energy distribution and 7 to 10 per cent in cement, IT, auto and auto ancillary. We are underweight on banking and have brought down our exposure from 24 to 16 per cent because of the margin pressures that banks are expected to face.

We usually follow a 70:30 allocation pattern, 70 per cent in large caps and 30 per cent in good quality mid caps.

Source: http://www.thehindubusinessline.com/markets/stock-markets/article1688885.ece

Money moves out of MF income plans

Volatile interest rates over the past year with a rising trend resulted in money flowing out of mutual funds income and liquid schemes in 2010-11. According to the data provided by the Association of Mutual Funds in India (Amfi), income and liquid schemes saw redemptions of over R40,000 crore while equity schemes witnessed outflows of approximately R13,400 crore. Meanwhile, after a gap of three months equity schemes once again witnessed redemptions in March with investors profit booking after the rise in equity markets. The Sensex rose 9.1% while NSE gained 9.38%.

Birla Sunlife AMC CEO A Balasubramanian said, “The reasons for income schemes seeing withdrawals was the rising interest rate scenario.” Sundaram MF head fixed income Dwijendra Srivastava said, “From the very beginning of 2010-11 there were problems like tight liquidity conditions, followed by the 3G and BWA auctions during which the banks and corporates pulled out money from income schemes.”

In June last year, debt funds saw redemptions of over R1.17 lakh crore while the highest outflows took place in March 2011 when R1.28 lakh crore moved out with companies paying advance taxes.

In July Sebi asked fund houses to mark to market debt and money market securities with a maturity up to 91 days whereas earlier this practice has been applicable to securities with a tenure of 182 days. That caused some amount of volatility in NAVs which some investors were averse to. Birla’s Balasubramanian points out, “The new regulation did not have much of an impact on liquid schemes and they delivered a strong return of 8% during 2010-11.”

Canara Robeco MF head investments Ritesh Jain said, “In the last few months banks have upped FD rates making it attractive for savers. As such, lot of liquid money moved into FDs which could be one of the reasons for the redemptions.”

Last year was a difficult one for equity schemes with only four months seeing inflows and the month of September witnessing record outflow sof R7,000 crore.

“Investors are investing in equity schemes through systematic investment plans (SIPs). But still there is lack of participation from the distributors due to lack of commission and as markets are going up we are witnessing outflows,” said a senior official form the leading fund house.

Source: http://www.financialexpress.com/news/money-moves-out-of-income-plans-on-rising-interest-rates/774833/0

Advance tax, dividends erode MFs' assets to 22-month low

Advance tax payments coupled with high dividend payouts led to the mutual fund industry losing 16 per cent of its average assets under management (AUM) in March 2011.

End-March, the AUM dropped to Rs 5.9 lakh crore, the lowest in 22 months. The fall in AUM from February 2011 to March 2011 was Rs 1.15 lakh crore.

March 2011 saw net outflows of Rs 1.2 lakh crore, of which the liquid and income schemes accounted for the most outgo at Rs 98,255 crore and Rs 30,612 crore respectively.

At the end of every quarter, the industry sees large withdrawal of money, particularly from income and liquid funds.

“It is a phenomenon that happens every year when the money goes out of the industry in the form of advance taxes paid and then comes back again next quarter,” said Mr Hemant Rastogi, CEO, Wiseinvest Advisors. Equity schemes experienced net outflows of Rs 124 crore in March 2011.

The outflow was mainly on account of dividends paid on various schemes. As many as 45 funds paid dividends in March. Analysts say this can have a significant impact on the AUM of fund houses.

However, the Sensex and Nifty have performed well during this period increasing by 5 per cent each.

“This is just profit-booking by investors. All the people who had invested when the markets went from 20,000 to 18,000 are now exiting as they feel that the valuations are going up,” said Mr. Akshay Gupta, CEO, Peerless Mutual Fund.

But despite this drop in AUM, analysts and fund house officials are confident that the inflows will come back into the industry.

“Some liquid funds have already started seeing inflows. Equity funds will see inflows once the correction in the market happens,” added Mr Gupta.

Source: http://www.thehindubusinessline.com/markets/article1688889.ece?homepage=true

HSBC Mutual Fund launches HSBC Brazil Fund

HSBC Mutual Fund has launched a new fund named as HSBC Brazil Fund (HBF), an open ended funds of fund scheme. The New Fund Offer (NFO) price for the scheme is Rs. 10 per unit. The new issue is open for subscription from 15 April to 29 April 2011.

The primary investment objective of the Scheme is to provide long term capital appreciation by investing predominantly in units / shares of HSBC Global Investments Funds (HGIF) Brazil Equity Fund. The Scheme may, at the discretion of the Investment Manager, also invest in the units of other similar overseas mutual fund schemes, which may constitute a significant part of its corpus. The Scheme may also invest a certain proportion of its corpus in money market instruments and / or units of liquid mutual fund schemes, in order to meet liquidity requirements from time to time.

The scheme offers growth and dividend payout option. The dividend option further offers Re-investment and payout option.

The scheme will invest up to 95%-100% Units/shares of HGIF Brazil Equity Fund with medium to high risk profile. And invest upto 5% in Money Market instruments (including CBLO & reverse repo) and/or units of liquid mutual fund schemes with low to medium risk profile.

HBF will not invest in the underlying scheme(s) which invest more than 10% of their net assets in unlisted equity shares or equity related instruments.

The minimum application amount is Rs. 10,000 and in multiples of Rs. 1 thereafter.

The minimum subscription (target) amount for HSBC Brazil Fund shall be Rs. 1 crore.

Entry will be nil for the scheme and the scheme will charge an exit load of 1%, if redeemed /switched out within 1 year from the date of allotment, otherwise nil.

Benchmark Index for the scheme is MSCI Brazil 10/40 Index.

Gaurav Mehrotra, Niren Parekh will be the fund managers for foreign securities and Sanjay shah will be the fund manager for investments in Indian market

Source: http://www.indiainfoline.com/Markets/News/HSBC-MF-Launches-Brazil-Fund/3644675496

UTI board battles finmin over new chief

The search for a successor for UK Sinha at UTI AMC has got messy with the finance ministry backing Jitesh Khosla (IAS, 1979 batch) as the CEO of India’s fourth largest mutual fund while a three-member board-appointed HR sub-committee has submitted a shortlist that has two different names.

If the finance ministry insists on its choice, the stage is set for a boardroom battle since the new chairperson has to be unanimously cleared by all shareholders of UTI AMC. These include State Bank of India, Punjab National Bank, LIC, Bank of Baroda and US firm T Rowe Price that was inducted with a 26% stake in the company in January 2010. The others hold 18.5% each.

Some board members have already conveyed their reservations to the finance ministry. Meanwhile, UTI AMC employees met the HR chief this week to express their concern about the fact that the organisation was headless since Sinha left in February to become the chief of the Securities and Exchange Board of India. The HR chief is believed to have told them that while a shortlist of two candidates has been drawn up, the board would prefer a person who has the finance ministry’s approval. While UTI AMC is a private sector company by its constitution, it still retains an informal relationship with the government and its CEO has, therefore, been decided by the ministry till now.

It was to break this connection that investors suggested a new approach to select the chief of the organisation in line with global best practices. The board constituted a three-member search committee which, in turn, left the search to manpower consultants Egon Zehnder International — Egon was the search firm used to find the head for Axis Bank which is owned by UTI.

Egon, in turn, interviewed close to 30 candidates and gave a shortlist to the search committee. At this point, the finance ministry is believed to have pushed for Khosla, who was interviewed by the search committee.

While Khosla was rejected after interviews by the search committee on the grounds that other candidates had solid experience in the financial services business, the ministry has repeatedly pushed his candidature. Khosla is the brother of Omita Paul, adviser to finance minister Pranab Mukherjee. Incidentally, Paul has worked with Mukherjee not only in the finance ministry but also in his earlier stints at the defence and external affairs ministries.

Khosla is now an officer on special duty in the Indian Institute of Corporate Affairs, an autonomous body under the ministry of corporate affairs. An officer of Assam cadre, he was a joint secretary in the ministry till April 2010 and handled the Satyam scam. For the January to March 2011 quarter, UTI AMC had assets under management of Rs 67,189 crore. While it is India’s oldest mutual fund, the fund house has slipped to fourth position now. Repeated efforts by FE to obtain a response from the finance ministry met with no success.

Source: http://www.indianexpress.com/news/uti-board-battles-finmin-over-new-chief/773849/0

Retail investors return to mutual funds thru SIP route

The ban on entry load for mutual funds, which took effect in August 2009, has not been as disastrous for mutual fund sales or for agents selling mutual funds, as was feared.

Not only have retail investors returned in good numbers to mutual funds through the systematic investing route in the year after the ban, the individual distributors who were selling funds did not suffer a big setback in their share of investors' accounts. These are the findings from the data for the period from August 2007 to July 2010, from a mutual fund registrar.

When stock markets were at a high in January and February 2008, mutual funds added new accounts of about 14 lakh a month.

Of this, retail investors, on an average, opened 6.8 lakh accounts. But once the markets tumbled, new account openings fell drastically by over 71 per cent to 2 lakh accounts.

Retail accounts accounted for much of this decline, as accounts opened by high net worth investors (HNIs) dropped by just 24 per cent.

However, data show that new account additions have rebounded in the year since the ban. Between August 2009 and July 2010, they were up by 44 per cent to reach about 3 lakh folios.

Data also throw up another healthy trend, that of retail investors opting to make commitments for longer periods.

From previously committing funds for 24-36 months, the average tenure of SIPs has increased to 61 months in recent times. This is a sign of the longevity of new accounts entering the system.

Independent data from the industry also show that in recent months, more investors are choosing to take the systematic investment plan (investing through monthly instalments rather than one lump-sum) route to enter mutual funds.

SIPs accounted for only 16 per cent of the new folios created about a year ago, but now make up 43 per cent of the new accounts created. The other surprising trend emerging from the data is that individual agents selling funds (called independent financial advisors or IFAs) have not really abandoned mutual funds after the entry load ban, as feared.

Folio additions

IFAs have brought in a total of 9.3 lakh folios during August 2009-July 2010, after the ban. This gives them a 29 per cent share of the new accounts created in this period. That's not lower than the 32 per cent share they held (16.4 lakh folios out of 51.2 lakh) in August 2007- July 2008, before the ban.

National distributors, usually financial service firms, have seen a sharp dent in their market shares after the entry load ban. Though they continue to be the largest contributors to new accounts, their market share slipped from 42 per cent in August 2007 – July 2008 to 34 per cent in August 2009 to July 2010. Public sector banks have made the most of this situation, bagging an 11 per cent share of new business, up from 4 per cent before the ban.

Investors also continued to rely mainly on distributors to buy mutual funds, with the proportion of direct sales (funds to investors) declining from 5.7 to 5.3 per cent in this period.

Source: http://www.thehindubusinessline.com/industry-and-economy/article1682826.ece?homepage=true

Tata Mutual Fund announces dividend under its Equity P/E Fund

Tata Mutual Fund has announced 13 April 2011 as the record date for declaration of dividend on the face value of Rs. 10 per unit under Tata Equity P/E Fund - Dividend Trigger Option A-5% & Dividend Trigger Option B - 10% on the face value of Rs. 10 per unit.

The quantum of dividend will be Rs. 1.50 per unit for dividend trigger Option A - 5% and Rs. 3.00 per unit for Option B - 10%.

Tata Equity P/E Fund is an open ended equity fund. The investment objective is to provide reasonable & regular income along with possible capital appreciation to its unit holders.

Source: http://www.indiainfoline.com/Markets/News/Tata-MF-Declares-Dividend-Under-Tata-Equity-PE-Fund/3640499247