Returns-hungry HNIs flock to offshore funds

Subrahmanyam Guttina, a Bangalore-based software professional with a multinational firm, allocated a small portion of his money to a relatively-unknown US asset manager Superfund in the peak of the market downturn in 2008, based on the advice of his wealth manager. During the year, products of Superfund, which manages money through futures strategies in various assets, fetched 35-80% returns while values of equity market schemes of domestic mutual funds eroded 30-60%.

"Superfund provides a good diversification strategy and it has been performing consistently well. I've stayed invested for about two years in Superfund," Guttina said.

Two years later, wealth managers are again recommending products of asset managers, including Superfund, SPDRs, I-Shares and Maquarie Farmland to their rich clients as a hazy outlook for Indian stocks has heightened uncertainty about returns from domestic equity-linked products. Investors hope to generate "inflation-adjusted" returns through these investments.

Funds like the precious metal based-SPDR funds, I-Share ETFs and theme-based funds by Maquarie, among several others, have collected in excess of Rs 500 crore over the past five months. Superfund has mobilised over Rs 200 crore from rich Indian investors since March this year, according to wealth managers.

"We have seen increased unsolicited interest from NRIs and super HNI families," said Aaron Smith , managing director, Superfund Financial. "Indian equities have been the centerpiece for most wealthy Indian investors portfolio. However, with markets correcting deep in 2008 and lacklustre performance of the Nifty over the past one year, sophisticated investors are looking at absolute return strategies that can deliver alpha regardless of the particular market cycle," Mr Smith said.

Investors are using RBI's liberalised remittances scheme (LRS) route to invest abroad. Under the LRS , an Indian resident can invest up to $200,000 in overseas assets in one financial year.

Specialised overseas funds differ a lot in terms of investment strategies when compared to 'international funds' (or feeder funds that invest into offshore funds). Most Indian international funds in India are long-only global equity funds, which perform when equity markets move up. Superfund Green Gold has returned 20.1% per annum since inception in 2005 and 44.2% in the past 12 months, Mr Smith said.

Global equity markets have underperformed Indian shares in recent years. But when Indian equities are in a downturn, international funds run by domestic mutual funds deliver much lower returns than specialised overseas funds.

"Overseas domiciled funds don't have any bearing on Indian asset classes. This, in a way, helps these funds generate non-correlated returns," said Anil Rego, CEO of Bangalore-based wealth management firm Right Horizons.

"Specialised overseas funds are designed to perform in times of a market downturn. Most funds adopt long-short strategies that enable funds to generate returns in times of deep correction," Mr Rego said.

According to wealth managers, funds like Superfund allow investors to hold their funds in different currency denominations - that is, US dollar, euro or gold, the prices of which are linked to London markets. Wealth managers are advising Indian investors to hold their Superfund units in gold to insulate the portfolio from currency risk.

"Overseas domiciled funds help clients invest in non-rupee assets. These funds are based on newer ideas... They have a different product mix and they follow trend strategies which generate higher portfolio returns," said Hrishikesh Parandekar , CEO, Karvy Private Wealth.

Apart from higher returns, overseas funds allow investors to have multi-asset, multi-geography exposures. Maquarie's Farmland Fund, which invests in farmlands of Brazil , China , Australia and New Zealand , is very popular among Indian high net worth investors.

Source: http://economictimes.indiatimes.com/personal-finance/savings-centre/savings-news/returns-hungry-hnis-flock-to-offshore-funds/articleshow/9118199.cms

RBI caps bank exposure in liquid funds

The Reserve Bank today extended the 10 per cent ceiling of bank investment in liquid schemes of mutual funds to include short-term debt funds.

The bank investment in such debt schemes of mutual funds with weighted average maturity of portfolio of not more than 1 year, would be subjected to the cap, RBI said in a notification.

“With a view to ensuring a smooth transition, banks which are already having investments in these (liquid) schemes of mutual funds in exces of the 10 per cent limit, are allowed to comply with this requirement at the earliest but not later than six months from the date of this circular,” it said.

The Reserve Bank in its ‘Monetary Policy Statement for 2011-12 had directing banks to cap their investments in the liquid schemes of mutual funds at 10 per cent of their networth.

“This an effort to increase the purview of earlier circular. RBI is focusing on stability of banking and mutual fund industry,” SMC Global Securities Strategist & Head of Research Jagannadham Thunuguntla said.

The RBI said same money was circularly moving between banks and the debt-oriented mutual funds (DoMFs), which could potentially lead to systemic risk.

Banks normally put in their surplus funds in liquid schemes of mutual funds, which invest in debt securities having maturing within 90 days. Also short term debt schemes of duration of less than a year gives banks higher returns within a short period.

In turn, DoMFs invest heavily in certificates of deposit (CDs) of banks.

“Such circular flow of funds between banks and DoMFs (debt-oriented mutual funds) could lead to systemic risk in times of stress or liquidity crunch. Thus, banks could potentially face a large liquidity risk,” the RBI had said.

Experts said the fund flow into the over 7.43 lakh crore mutual fund industry, which is still battling with the entry load ban of 2009, could further slowdown with the implementation of this circular.

The aim of DoMFs is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, government securities and money market instruments.

Source: http://www.indianexpress.com/news/rbi-caps-bank-exposure-in-liquid-funds/813135/0

Battle to be UTI AMC's chief hots up

NSE’s Ramakrishna and ING Vysya Bank’s Bhandari front runners for the post.

The current joint managing director of the National Stock Exchange (NSE), Chitra Ramakrishna and ING Vysya Bank’s managing director and chief executive officer Shailendra Bhandari, are front runners for the post of chairman of UTI Asset Management Company (AMC), sources in the industry and finance ministries, said.

UTI AMC is the fourth-largest mutual fund in the country with assets of Rs 69,100 crore ($15 billion) under management, making its chairman’s post a coveted one.

The AMC has been headless since U K Sinha, its former chief, moved on to take charge of the Securities and Exchange Board of India (Sebi) in February. Both Ramakrishna and Bhandari were shortlisted after they were suggested by a head hunting firm, Egon Zehnder, chosen to identify potential candidates for UTI AMC. Egon had interviewed of 30 candidates.

The decision to select a chairman vests with a search committee of three board members: Anita Ramchandran, Mumbai-based founder of HR firm Cerebrus Consultants; Prithvi Haldia, owner of Delhi-based Prime Data Base and a representative of T Rowe Price (TRP), the single largest shareholder of UTI AMC. Shareholders will have the final say.

Intense lobbying for the post has, however, given rise to a controversy and delayed decision making.

TRP, which holds 26 per cent stake in the fund house, twice alleged the government was trying to influence appointment of the chairman.

It said decision making was being influenced to get Indian Administrative Services officer Jitesh Khosla, the brother of finance minister Pranab Mukherjee’s personal advisor Omita Paul, as chairman.

Reportedly, Khosla was not shortlisted even after being interviewed by the search committee.

TRP first made this allegation in a letter to the finance ministry and later to other majority shareholders of UTI AMC, which include State Bank of India, Life Insurance Corporation, Punjab National Bank and the Bank of Baroda.

Though UTI AMC is a board-managed company, the government can influence the decision-making through the public sector banks, which are large shareholders. The US-based TRP manages assets of $510 billion worldwide and is keen to increase its stake in UTI. TRP’s vice chairman, Edward Bernard was scheduled to meet Mukherjee to discuss the matter when the latter was on his US visit last month. However, it could not be confirmed if the meeting happened.

UTI AMC also had plans to come out with an initial public offer.

Ramakrishna, 48, is the second-most senior official at NSE, the country’s leading equity derivative exchange, and has been with it since its inception in 1992. Prior to this, she was with IDBI Bank, a promoter of NSE. Ramakrishna holds a degree from the Chartered Institute of Management Accountants, UK, and is also a member of the Institute of Chartered Accountants of India.

Apart from NSE, she holds senior positions in other companies promoted by the exchange. Ramakrishna was part of the committee on financial sector reforms headed by Raghuram Rajan in 2008.

Bhandari had joined HDFC Bank as executive director and treasurer in 1994, after a stint with Citibank. Between 2000 and 2004, he moved to asset management, joining ICICI Prudential Mutual Fund as managing director and chief executive officer. He then joined Centurion Bank and led its merger with another private bank, Bank of Punjab. This was in 2005, before another acquisition, this time of the Kochi-based Lord Krishna Bank in 2006. Centurion Bank of Punjab was subsequently acquired by HDFC Bank.

An alumnus of Delhi’s St Stephen’s College and IIM Ahmedabad, Bhandari also headed the private equity arm of Tata Capital for a brief while before moving to ING.

Source: http://www.business-standard.com/india/news/battle-to-be-uti-amcs-chief-hots-up/441660/

Mutual funds back in demand, assets rise 6% in June quarter

The assets of the country’s mutual fund industry have grown by over 6%, or R42,546 crore, during the April-June quarter on a sequential basis with inflows coming into both equity as well as debt funds.

As per data provided by the Association of Mutual Funds in India (Amfi), average assets under management (AAUMs) of 41 funds for the April-June quarter stood at R7,43,083 crore against R7,00,537 crore for the January-March quarter. In the previous quarter, Indian MF assets had also seen a rise by over 3%.

A Balasubramanian, CEO of Birla Sun Life MF, says, “We have seen incremental flows coming into the equity schemes through systematic investment plans (SIP). Also relatively lower redemption was witnessed in June on the debt side as compared to the previous quarter.”

Among the top 10 fund houses, IDFC MF (32.49%) and SBI MF (14.88%) saw huge increase in their assets for the April-June quarter. According to market participants, in the last three months, several fund houses had launched short-term fixed maturity plans (FMPs) which had also seen huge response from the retail investors. With higher interest rates existing in the economy, investors are preferring FMPs to park their short-term money. “With equity markets remaining volatile in the last quarter, lot of hot money have also flown into the equity funds” said a chief marketing officer of a leading fund house on condition of anonymity.

However, 11 of 41 fund houses registered a dip in their AAUM for the quarter ended June. It included names such as Reliance MF, DSP BlackRock MF and Franklin Templeton MF. Country’s top fund house, Reliance MF’s assets stood at over R1,01,259 crore during the quarter witnessing a marginal fall of R317 crore or 0.31% while that of HDFC MF rose R5,750 crore to R92,032 crore for the quarter. Interestingly, smaller fund houses like Taurus MF, Baroda Pioneer MF, IDBI MF and Deutsche MF saw huge increase in their assets.

Source: http://www.financialexpress.com/news/mutual-funds-back-in-demand-assets-rise-6-in-june-quarter/812644/0

The VIP way to lower investment cost

Investing pre-defined, equal sums every month in mutual funds (and sometimes even stocks) through what is called SIP (systematic investment plan) is a route taken by most investors. This helps them benefit through rupee cost averaging, as it involves periodic buying across market cycles.

Be that as it may, over the last couple of years another way of investing, called the VIP (value averaging investment plan), has emerged that could potentially beat SIP in terms of average cost per unit. The bottom line; higher returns.

Read on to know more about the VIP method and if it suits your investment appetite and style.

Better cost averaging

Those taking the SIP route invest the same amount every month, irrespective of market conditions at the time of investment. It is, therefore, a passive strategy, suitable for investors who wish to just sit back and relax after putting in the committed amounts.

But VIP is different. As the name suggests, it seeks to generate more value buying. It involves buying more number of units in a fund when the markets are moving down and lesser number of units when there is an upswing.

So how does that make it different from SIP? The answer is in the quantum of units bought. An example here would illustrate this in a better way.

Let us say a mutual fund scheme that you wish to purchase is at an NAV of Rs 10.

In the SIP mode, you would get 100 units for Rs 1,000 invested in the first month. You would get the same number of units in the VIP mode as well. In the second month if the NAV increases to Rs 11, through the SIP mode, you would be able to buy 90.9 units (1,000 divided by 11). But through the VIP route, the monthly commitment is to contribute only an amount that increases your portfolio value by Rs 1,000 every month.

So, you have Rs 1,000 of the first month and the same sum in the second month, which can together buy 181.8 units (Rs 2,000 divided by 11). As the portfolio already has 100 units purchased in the first month, the investor would now need to buy only 81.8 units. Similarly, if the NAV falls to Rs 10 again in the third month, through the SIP mode you would continue to buy 100 units, but the VIP mode would buy you 118.2 units.

Refer the table to see how the units purchased through the SIP and VIP routes through NAV fluctuations and how the average cost per unit is lower through the VIP mode.

This makes for the critical difference between cost-averaging and value-averaging investment methods.

FundsIndia.com has also done a real-life testing of VIP on Indian mutual funds vis-à-vis a SIP in different mutual fund schemes.

Over 2004-07, 2005-08 and 2006-09, in blocks of three-years in a five-year period, the performance of HDFC Top 200, DSPBR Equity, Reliance Growth and FT Nifty Fund were compared for monthly SIP and VIP returns. The result showed that VIP outperformed SIP by over 1.6 per cent compounded annually over this time frame.

Cash flows important

However, note that investing through the VIP route would require a more active role from you. This means that when markets correct sharply, you need to be able to commit higher sums than what you would have were it a normal SIP. So a certain surplus must be kept in your account to buy additional units during steep corrections.

Here, again, fund houses such as Benchmark and investment Web sites such as FundsIndia.com allow you to set a minimum and a maximum amount that can be taken from your account every month.

The base amount can be a nominal, say Rs 1,000.

The maximum available to be invested can be set at even 10 times the nominal amount. For the minimum amount, you have the option to set it to even zero, as continuous market up-moves may sometimes necessitate desisting from buying units.

Remember to set a target return and a portfolio maturity value for VIP for the investment route to be more effective. For instance, a 12 per cent return and a Rs 5 lakh target will make allocations easier.

As with all investment modes, a longer horizon is a must for VIP to work.

Does it suit you?

The value-averaging way of investment is, therefore, more suited for investors who can handle fluctuating cash flow requirements towards investments. It also requires you to actively track the markets (more than what a traditional SIP investment would require).

While the VIP route exposes to you the opportunity cost of accumulating lesser number of units or none at all during continuously rising markets, it makes up for it in the long run by way of enabling purchase of more number of units at lower levels. But if you have tightly-defined surpluses and multiple commitments such as loan repayments running in tandem, the SIP method may be more suited.

Source: http://www.thehindubusinessline.com/features/investment-world/personal-finance/article2153695.ece