Overseas mutual funds' returns decline 7% in past 12 months despite rupee depreciation

Domestic mutual funds, which invest in overseas equities, have failed to live up to the expectations of investors who desired higher returns and effective portfolio diversification. Despite a favourable rupee movement, international funds have delivered poor returns as a result of declining global markets and softening commodity prices.

International funds, as a category, have returned minus 7% over the past 12 months. Though, this genre of funds has performed better than domestic equity schemes, it has ceased to be high-return funds, as was the case some months ago. Funds, like HSBC Emerging Markets Fund, ING Latin America Equity, Mirae Asset China Advantage, JP Morgan Greater China Equity, Sundaram Global Advantage and Franklin Asian Equity, among several other funds, have fallen 11-22% over the past one year.

"Concerns of a global meltdown, including a hard-landing in China and policy-tightening across countries, have prompted commodity prices to fall. Almost all emerging markets have also corrected 10-20% since the beginning of this year. These factors have impacted returns on international funds," said Gopal Agrawal, chief investment officer of Mirae Asset Global Investments, which manages a global commodity fund and a China advantage fund.

According to fund researchers, international funds would have fared even badly had the rupee not weakened by about 12% since August this year. In general terms, funds that invest in foreign currency-valued assets benefit when local denominations weaken. For instance, an investor who redeems a one dollar worth of investments - made when the rupee was 44 to a dollar - will now get about 49, excluding capital appreciation, when converted to the rupee.

"Weakening of the rupee has not helped international funds. The reason for this is that currencies in countries, like Australia, Brazil and Indonesia, have weakened in tandem with the Indian rupee. There's not much of arbitrage opportunities on the currency side," Mr Agrawal said.

Most EM currencies, like Brazilian real, Russian rouble and Indonesian rupiah have depreciated significantly over the past few months. The currency of Brazil, where most Indian funds have exposure, has weakened from 1.55 per US dollar to 1.9 per USD. Emerging market wonder Indonesian rupiah has fallen from 8500 per USD to 9100 per USD over the past few months.

"Increased global volatility over the past quarter or so had an impact on emerging markets. Indian markets, which were underperforming for the most of the year, managed to hold their ground relatively better during this period," said KN Sivasubramanian, chief investment officer of Franklin Templeton Investments India.

Source:  http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/overseas-mutual-funds-returns-decline-7-in-past-12-months-despite-rupee-depreciation/articleshow/10319413.cms

Govt MFs gain little from global wedlock

Foreign partners also find the going tough.

When US-based T Rowe Price picked up stake in UTI Asset Management in early 2010, the fund house was managing Rs 78,203 crore and was the fourth-largest asset manager by assets. The fund house has since lost Rs 12,924 crore, or 16.5 per cent, of its assets. Today, it has been pushed to the fifth slot on the assets under management (AUM) table.

Similar is the case with LIC Nomura Asset Management. It lost over Rs 2,300 crore, or around a quarter of its assets, in the last three months. As of September, the fund house’s average AUM stood at Rs 7,075 crore, a fraction of the Rs 35,901 crore it had when.

Even as other state-owned fund houses such as Baroda Pioneer, Canara Robeco and Union KBC which had inducted strategic foreign partners, have grown since the entry of these global names, they have an AUM of Rs 7,000 crore or less. In an industry with assets of Rs 7.13 trillion, this accounts for a market share of less than a per cent. Canara Robeco MF has an average AUM of Rs 6,920 crore.

Many foreign players who wanted to gain a foothold in the Rs 7.13-tn Indian asset management industry, preferred to partner with state-owned players.

Foreign partners had shown interest in the fund houses sponsored by state-owned banks due to their untapped distribution muscle. With thousands of branches and significant reach beyond the metros, these were ideally placed to take mutual funds to the masses. This vast network became even more critical, when post 2009, Sebi rules made the agency distribution model expensive and difficult. In the last four years alone, there have been five such deals. However, none has resulted in spectacular success.

Canara Robeco MF has an average AUM of Rs 6,920 crore. In March 2007, when Dutch major Robeco Groep NV picked up 49 per cent, the officials said the firm would look at garnering a market share of five per cent in five years.

Baroda Pioneer, where Italian company Pioneer investments picked up 51 per cent in October 2007, manages Rs 3,398 crore. When the investment was made, the fund house ranked 31 out of 32 fund houses. In the latest listings, it stands at 29 among 42. The JV between Union Bank of India and KBC Asset Management is relatively new and launched its first fund earlier this year. It manages assets worth Rs 893 crore. The only exception to this difficult state of affairs in cross-border marriages is that of State bank of India, the country's largest lender, with French bank Societe Generale, which has a 37 per cent stake. Seven years on, SBI Mutual fund continues to stay in the Top 10 with a corpus of Rs 47,731 crore. Even this joint venture could not live up to its objective of “being the second largest MF in four years”, as stated by then SBI chairman AK Purwar.

A KPMG report on the mutual fund industry says, “Public sector banks, with a large captive customer base, significant reach beyond the top 20 cities in semi-urban and rural areas, and the potential to build retail investor base, have played a very limited role in mutual funds distribution, so far.”

Tapping the potential is easier said than done, note experts. N Prasad, a former chief investment officer, says convincing the person at the point of sale is a difficult task. “The multinational guys may bring in the best chief of sales. He might be excellent in strategies. But, he has to ultimately depend on the officer at the bank branch.”

Prasad says inertia at the point-of-sale level is a difficult problem. “It is not just about incentivising, the person has to be first convinced about what he is selling. This has become more difficult after 2008 and even the die-hard sellers are losing confidence in equities,” he adds.

Many foreign players flocked India, attracted by the equity boom between 2003 and 2007, when the Sensex zoomed from the 3000-level to 20,000. Not many had counted for events following the collapse of Lehman Brothers. The post-Lehman crisis has not only eroded equity valuations and confidence in equity products, but also led to substantial regulatory changes on the debt side as both the Reserve Bank of India and Sebi took measures to prevent a repeat of the liquidity crunch. These measures have led to substantial loss of assets for MFs as corporates and banks pulled out.

The Sensex closed little above at 16,500 today, the level it had first crossed in September 2007— not a great advertisement for funds trying to sell equity schemes as long term investment.

But, some private players that launched in the last few years have managed to grow their assets despite lacklustre equity markets. Religare Asset Management, which launched in 2008, has an AUM of Rs 11,042 crore, while Axis Mutual fund — it launched its first fund last year — already has over Rs 7,500 crore in assets.

Source: http://www.business-standard.com/india/news/govt-mfs-gain-littleglobal-wedlock/452231/

Fitch harmonises Indian fund rating scales with SEBI

Fitch Ratings has changed its Indian mutual fund rating scales in line with the guidelines issued by the Securities and Exchange Board of India (SEBI) dated 15 June 2011.

Prior to this change, Fitch had two different rating scales in keeping with its global practices. First, a money market fund (MMF) rating scale (with an 'mmf' suffix) - applicable to funds whose objectives are capital preservation and investor liquidity. Secondly, a bond fund rating scale, where credit and volatility ratings are assigned together to reflect credit and market risks.

Fitch's fund rating methodologies (for money market and bond funds) are consistent with SEBI-recommended scales and definitions. As such, SEBI guidelines clearly suggest two distinct rating scales for long-term and short- term funds and the proposed rating definition focuses on "safety regarding timely receipt of payments from the investments". Fitch's global methodologies have always focused on both credit and market risks for the evaluation of mutual funds and its new rating scales and methodologies for money market and bond funds mirror SEBI's categorisation.

Fitch will therefore rate short-term funds whose market and liquidity risks are considered extremely low by the agency, notably Indian liquid funds, on the short-term scale. As such, the outstanding Indian MMF rating of 'Fitch AAA(mmf)(ind)', applicable to liquid funds, will be converted to 'Fitch A1+mfs(ind)' under the new scale. Short-term funds with marginally higher risk profiles - in terms of liquidity, maturity and credit quality - will be rated 'Fitch A1mfs(ind)'. As such, the ratings of short-term funds will be capped at 'Fitch A1mfs(ind)' unless the asset management company manages liquidity and market risks at a level comparable to a liquid fund.

Short-term funds whose risk parameters do not allow capital preservation and/or investor liquidity under stressed market conditions, as per Fitch's criteria, will be rated on the long-term scale. Consistent with Fitch's MMF rating criteria, as detailed in the global MMF and national criteria, short-term fund ratings will continue to evaluate the impact of credit, liquidity and market risks on the ability of such funds to preserve capital and provide liquidity to investors.

Fitch will continue to rate long-term bond funds on the long-term scale. Consistent with its bond fund rating criteria, the ratings will continue to reflect the current and prospective credit quality of the underlying assets, their maturity and concentration. For such funds, Fitch will continue to simultaneously provide a volatility rating, mainly reflecting portfolio duration and liquidity. The agency believes that long-term bond funds can exhibit different sensitivities to market risks for the same underlying credit quality, and therefore an additional rating is needed to provide a full picture of a fund's risk profile.

Fitch's fund ratings will continue to include an assessment of the fund manager's capabilities and the fund's operational set up.

Fitch will shortly review its fund ratings and subsequently publish a report on the evaluation of Indian fixed income funds.

Source: http://economictimes.indiatimes.com/news/international-business/fitch-harmonises-indian-fund-rating-scales-with-sebi/articleshow/10302676.cms

Axis MF Introduces Micro SIP Under Axis Gold Fund

Axis Mutual Fund has announced the introduction of Micro SIP under Axis Gold Fund which will be available during the New Fund Offer (NFO) period. The new fund offer period will close on October 14, 2011.
 

Axis MF has also introduced Easy SMS Facility (Mobile Transaction Facility) for all open-ended schemes of Axis Mutual Fund (except for Axis Gold ETF), with effect from October 17, 2011.

Source: http://www.valueresearchonline.com/story/h2_storyView.asp?str=18206

Reliance MF Decides to Modify Features Under its Schemes

Change in Exit Load clause for Reliance SIP Insure:

There will be an exit load of 2%, if the accumulated units acquired or allotted under Reliance SIP Insure are redeemed or switched out before the maturity of committed SIP Insure tenure or before completion of 55 years of age whichever is earlier as opted in the respective scheme either by the SIP Insure unit holder or by the nominee, as the case may be. 

Change in Exit Load for Reliance Floating Rate Fund - Short Term Plan

The exit load charge will be 0.25%, if unit are redeemed within 3 months from the date of allotment and Nil, thereafter.

Introduction of Reliance Smart Step Feature:

Reliance Small Cap Fund, Reliance Index Fund - Nifty Plan and Reliance Index Fund-Sensex Plan shall be added in the list of Eligible Transferee (Equity) Schemes in Reliance Smart Step feature which is available in all the open ended debt schemes (except Interval Funds).

Introduction of Reliance Salary Advantage facility in the following schemes:

 Reliance Salary Advantage is being introduced in Reliance Money Manager Fund, Reliance Short Term Fund, Reliance Gilt Securities Fund, Reliance Liquidity Fund, Reliance Liquid Fund - Cash Plan, Reliance Index Fund - Nifty Plan, Reliance Index Fund - Sensex Plan, Reliance Small Cap Fund, Reliance Infrastructure Fund, Reliance Arbitrage Advantage Fund, Reliance Natural Resources Fund and Reliance Long Term Equity Fund.

The above changes will be effective from 10 October 2011.

Source: http://www.adityabirlamoney.com/MktNews/NewsDetails.aspx?srno=509465&secid=10&subsecid=22,24

Canara Robeco MF declares dividend under two schemes

Canara Robeco Mutual Fund has declared dividend under dividend options of Canara Robeco Equity Diversified Fund and Canara Robeco Balance Fund

The quantum of dividends will be Rs 1.00 per unit under Canara Robeco Equity Diversified Fund and Rs 1.50 per unit Canara Robeco Balance Fund as on record date. The record date for the dividend pay out has been fixed as October 14, 2011. The schemes recorded NAV of Rs 23.0300 per unit and Rs 50.4000 per unit, respectively as on October 7, 2011

Source: http://www.rsec.co.in/market-and-news/mutual-funds/mutual-fund-news-details/canara-robeco-mf-declares-dividend-under-two-schemes-/153677