New disclosure rules for MFs to boost transparency

To help investors assess the quality of their investments and calibre of their fund managers, India’s capital market regulator for the first time has asked the Rs. 6.8 trillion mutual fund industry to disclose every detail of the schemes it sells.

In a recent letter, the Securities and Exchange Board of India (Sebi) has asked the country’s 44 fund houses to provide details of all their schemes, the common benchmark and their returns, returns since inception of a particular scheme, and benchmark of the schemes and their returns.

Besides, they have been asked to disclose the scheme returns vis-a-vis the common benchmark and the scheme benchmarks; their returns in the past six months with respect to the benchmarks; their returns during the fiscal year 2009, 2010 and 2011, and their compounded returns in the past three and five years.

For equity schemes, 30-share bellwether equity index Sensex and the broad-based 50-stock Nifty are common benchmarks. For short-term and long-term debt schemes, one-year treasury bills and 10-year government bonds are common benchmarks, respectively.

According to data available with Capitaline, which provides data on Indian industry and capital market, as on 31 December, there were 336 equity-oriented schemes, of which 324 were at least a year old.

Out of these 324 schemes, 142 schemes underperformed the Sensex and Nifty, with a fall of more than 24.2% in their net asset values. For the three-year period ending 31 December, 123 equity schemes underperformed the Sensex with less than 16.7% returns. Similarly, for a five-year period, 79 equity schemes underperformed the Sensex.

Sebi has also asked the asset management firms to disclose the assets under management (AUM) of the schemes, both current, past fund managers of the schemes and their tenures.

To assess the growth and the present condition of the industry, Sebi has also asked the fund houses to disclose the number of investor folios for each scheme for the first nine months of the current fiscal year and three past years —2011, 2010 and 2009.

“Sebi wants mutual funds to make more disclosures about the performance of their schemes and their fund managers. This is essential to enhance transparency and help investors take an informed decision while investing,” said a person with direct knowledge of the development, who spoke on condition of anonymity.

Legally, Sebi cannot force a fund house to perform but if the performance of the schemes and the fund managers are revealed to the investors in detail, they will be able to judge better, the person added. Mint has reviewed a copy of the Sebi note.

As on 10 February, according to Value Research India Pvt. Ltd, a New Delhi-based fund tracker, schemes that invest in gold top the returns chart with an average one-year return of 36.65%.

Equity FMCG (fast-moving consumer goods) schemes follow with 35.77% yields for the period.

All other equity-oriented schemes fetched lower average returns than even debt-oriented ones in the industry. Infrastructure and technology sector-based schemes were the worst performers with -3.06% and -1.65% average returns, respectively, during the past one year, according to Value Research.

The 30-share bellwether index of BSE, Sensex, is currently trading 1.64% above its level a year ago. The 50-stock Nifty of the National Stock Exchangeis 4.15% above its year-ago mark.

Till now, fund houses were required to only disclose the returns of the schemes vis-a-vis their benchmarks and since inception.

“Sebi wants fund houses to disclose upfront the details of the schemes and the fund managers in all investor application forms, brochures, advertisements, promotions and any such activity undertaken to reach out to prospective investors,” said the CEO of a large private sector fund house, who declined to be named.

Of late, the regulator has been informally insisting the fund managers to perform and reduce the number of schemes to simplify the selection process of funds by investors. In line with this, in 2010, Sebi allowed fund houses to merge schemes with similar fundamental attributes but without any significant corpus in the portfolio.

While the earlier move will simplify the selection process in terms of number of schemes to choose from, the latest move will let an investor junk the non-performing schemes from their portfolio.

The disclosures will also help the regulator to assess the state of the fund industry and clear only those new fund offers that are genuinely helpful for the investors and not merely a product to earn commissions from investors.

Incidentally, last June, in a mutual fund summit held in Mumbai, Sebi chief U.K. Sinha had asked the fund houses to reveal the track record of their fund managers.

Sinha has been taking a number of initiatives to help mutual fund investors take better decisions while investing as well as ensure growth for the industry. His moves are well in line with the steps taken by his predecessor C.B. Bhave.

In the 2010 summit, Bhave had criticized the industry for merely floating thousands of schemes without much meaning for the investors.

“Even if you put before me 3,000 investment products, I won’t know how to choose from those products. I’ll have no idea of which scheme is good for me. If you really want to reach to the so-called small investors in whose name you do everything, does he need 3,000 options? Is there really so much of innovation that is going on? Are these schemes really so different from each other or were there incentives operating in the market that made us generate these 3,000 options?” Bhave had asked.

Source: http://www.livemint.com/2012/02/12225310/New-disclosure-rules-for-MFs-t.html

Should investors consider international schemes as part of investment portfolios?

The year 2011 was not a good one for investors in the Indian equity markets. While the Sensex and the Nifty returned -24% for the year, the average returns by diversified equity mutual fund schemes ranged from -23% to -25% depending upon the market capitalisation exposure from large caps to mid and small caps.

With India turning out to be one of the worst performing markets in 2011 - under performing not only the emerging markets of Brazil, Russia and China, but also developed economies like the US and the UK- equity schemes with investment exposure in these foreign lands ended up generating far superior gains than their domestic peers.

Positive gains in the range of 6% - 8% accrued to schemes like Birla SL International Equity-A, Fidelity Global Real Assets and JP Morgan JF ASEAN Equity last year while others like Franklin Asian Equity, Sundaram Global Advantage and Principal Global Opportunities generated marginally negative returns ranging from -1.6% to -2.6%. Though negative, these returns were better than the double-digit negative returns posted by the domestic equity schemes.

Off the above, Birla SL International Equity and Franklin Asian Equity are direct mutual fund schemes, meaning that these invest directly in the stocks of international companies while the others are feeder funds, ie, they invest in foreign equity through other, usually their parent international mutual fund schemes that are managed overseas.

Also, while Birla SL International Equity-A is a pure international equity mutual fund, Franklin Asian Equity gives investors a taste of both domestic as well as foreign equity within Asia.

Glance at their portfolios and one will find investment in stocks of some of the popular international companies that many investors would crave to own, like, Coca Cola (US), Wal-Mart (US), Apple (US), Nestle (Switzerland), Visa (US), Samsung Electronics (South Korea) and Hyundai Motor (South Korea) among others. The annual returns from these stocks in 2011 ranged from 5% to 43%, which not many Indian companies could have flaunted last year.

This brings us to a million-dollar question -should investors consider these international schemes as a part of their investment portfolios? If yes, what is the desirable exposure one needs to have in these global funds? The golden rule of investment says -never put all eggs in one basket, the more diversified is the portfolio, the better are the chances of minimising losses. Considering this rule, some exposure to international funds does not appear to be a bad idea, especially if one were to consider the performance of global indices vis-a-vis Indian indices in both good and bad times.

For instance, despite Indian equities being amongst the better performers globally in years 2006 and 2007, the Chinese equity market returned far superior returns in comparison.

Again, though USA was the crux of the financial crisis in 2008, the Nasdaq returns of - 40% turned out to be superior to the Nifty's - 52% in that year. Even the stupendous recovery one witnessed in India in 2009 with Nifty clocking 75% gains was belittled in comparison to the gains made by the equity markets in emerging economies like Brazil (83%), Russia (126%) and China (79%).

These comparisons do make a strong case for Indian investors to consider international schemes as a part of their investment portfolios. But having said that, one cannot be oblivious to the fact that the Indian economy is not only one of the stronger domestic consumption economies in the world, but also has a forecasted GDP growth rate of about 7%, second only to China.

The biggest drag for the Indian economy last year was high interest rates and inflation that prevented investments in the capital sector and dragged down corporate financials. However, with interest rates showing signs of easing, one may expect liquidity to flow back into the economy and push growth. Also, any progress by the government on the policy front, as is being anticipated from Budget 2012, is expected to be extremely positive for the Indian equity markets.

In the event of these expectations coming true, Indian markets may eventually turn out be one of the better performers in 2012, justifying investment in Indian equities with a medium to long-term perspective.

It may thus be prudent to conclude that though investment in global schemes is desirable, the exposure to these schemes should be limited to the extent of diversification and providing a hedge to one's investment against volatility and uncertainties of the Indian equity markets.

Source: http://economictimes.indiatimes.com/features/investors-guide/should-investors-consider-international-schemes-as-part-of-investment-portfolios/articleshow/11851362.cms?curpg=2

Mutual Fund assets rose 8% to Rs 6.59 trillion by January end: Crisil

The Indian mutual fund industry's assets increased to Rs 6.59 trillion in January, registering an increase of Rs 477 billion on a month-on-month basis.

According to Crisil Research, the 8 per cent rise last month over December was on higher inflows in money market funds and mark-to- market gains in equity funds.

Money market funds witnessed inflows of Rs 264 billion in January, taking the total assets under this category to Rs 1.48 trillion compared with Rs 1.21 trillion in December. Meanwhile, as a result of the uptick in the equity market, assets under equity funds surged by Rs 184 billion or 11 per cent to Rs 1.80 trillion.

The equity market represented by the benchmark S&P CNX Nifty rose around 12 per cent in January spurred by positive global and domestic cues, the first monthly gain for the market since October 2011. Gilt funds recorded highest inflows since September 2010 of over Rs 5.21 billion in January, the second consecutive month of inflows.

"Sentiments for gilt funds have risen on views of peaking of interest rates and easing of monetary policy going forward. This is expected to benefit long-term debt funds including gilt funds," the report said.

Meanwhile, Income funds (including ultra short-term debt funds) saw outflows of Rs 29 billion in January, the third consecutive month of outflows, primarily because, investors preferred "long-term debt avenues on views of peaking of interest rates in the domestic economy" the report said.

Fixed Maturity Plans (FMPs) continued to garner majority of the new fund offers (NFOs) during the month. In January, 49 FMPs were launched garnering Rs 78.44 billion compared with three other NFOs launched, which in total garnered only Rs 6.57 billion.

An analysis of month-on-month mutual fund flows and AUM distribution, shows that Money Market Funds, Gilt Funds and Gold ETF funds were the three categories which witnessed a net inflow of Rs 264.29 billion, Rs 5.21 billion and Rs 0.82 billion respectively.

In January, income funds witnessed a net outflow of Rs 29.26 billion, followed by equity funds which saw outflow of Rs 3.80 billion and, balanced funds - Rs 1.01 billion, Crisil said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/mutual-fund-assets-rose-8-to-rs-6-59-trillion-by-january-end-crisil/articleshow/11838492.cms

With equity, debt schemes in focus, MFs may do well in ’12

Mutual funds are expected to fare better in 2012 with equity and debt schemes likely to be in the limelight. The expectations are based on factors like a possible revival in stock market fortunes along with hopes of a rate cut in the near term. Gold funds, however, are expected to lose their shine in the current calendar year as analysts talk about a price correction.

According to an Icra study, 2012 could see the return of interest in equity funds that would react positively to domestic policy actions like rate cuts by Reserve Bank of India (RBI) along with global newsflow related to a gradual improvement in the economic scenario in Europe.

Debt funds, according to Icra, could witness enhanced interest due to expectation of rate cuts over the short term that will result in better risk adjusted returns for investors. The tight government fiscals could, however, limit the upside over the short term, it adds.

The recent ruling of reducing the marked to market window from 90 days to 60 days and that all securities in the liquid schemes be valued could ensure that investors with a longer term investment horizon stand to benefit, says Icra.

Meanwhile, gold exchange traded funds (ETFs) are expected to witness slight loss of steam due to lower likelihood of 2012 being a repeat of 2011 in terms of spectacular returns that gold provided. Another possible reason for a slight cooling down is the fact that upside gained from gold could increasingly be looked at as collateral to cover for downsides in other asset classes, it explains.

The month-end Assets Under Management (AUM) of the Indian MF industry has witnessed a dip of 2.38% to R6,11,402 crore (as per AMFI monthly data) as compared to last year’s figure of R6,26,314 crore.

The month-end AUM stood at its peak in the month of April 2011, which rose by 32.61% at R7,85,374 crore, on account of eased liquidity conditions in the market which paved the way for investors to park their money in the liquid and income schemes.

HDFC Mutual fund topped the chart with an AUM of R88,628.03 crore followed by Reliance Mutual Fund at R82,305.81 crore. Despite being largest on the AUM front, HDFC MF surged marginally by 0.85%, while Reliance MF fell drastically by 19.36%. Amongst the top five AMCs, ICICI Prudential Mutual Fund and Birla Sun Life Mutual Fund were the major gainers as their average assets rose by 5.4% and 4.7%, respectively.

The recent launch of gold fund of fund (FoF) schemes by various AMCs has been one of the reasons for the rise in the AUM. Also, uncertainty in the equity market has pushed investor’s interest to invest in less risky assets class like gold via ETF route. The AUM of Gold ETF has jumped 160% from R3,516 crore in December 2010 to R9,153 crore in December 2011.

The Indian mutual fund industry comprises of 44 players, with addition of three asset management companies (IIFL, Indiabulls and Union KBC) in the year 2011.

Source: http://www.financialexpress.com/news/with-equity-debt-schemes-in-focus-mfs-may-do-well-in-12/909661/0

CRR cut puts bank stocks back on fund managers' radar

Banks are back on fund managers’ radar. With a 50 basis points (bps) cut in their Cash Reserve Ratio (CRR) and rising anticipation of reduction in key policy rates, mutual fund (MF) equity managers are taking a quick buy call on the banking counter.

In January alone, amid a bull run in the equity markets, the equity asset allocation of fund houses to banks rose by 176 bps. The development came after they had consistently reduced exposure to banks over the previous couple of months. Since June last year, this asset allocation had reduced by close to 200 bps till December. In calendar 2011, when the benchmark indices lost a fourth of their value, the bank index lost a whopping 31 per cent.

Kaushik Dani, equity head at Peerless MF, says, “There is a rising sense that interest rates have peaked out. With cuts in CRR, the next policy may see cuts in other key rates.” This will augur well for the banking sector, he adds.

Amid the overall bullish sentiment, bank indices outperformed benchmark indices and have gained close to 30 per cent since January 1. State Bank of India, ICICI Bank, Punjab National Bank and Canara Bank have gained between 25 and 45 per cent.

Aviral Gupta, equity head at Indiabulls MF, says, “Anticipation of cuts in interest rates have boosted confidence in the sector.”

Overall exposure of equity assets of MFs to banks was 17.23 per cent in January against 15.47 per cent in the previous month. In absolute terms, of all invested equity assets, Rs 32,380 crore were pumped into banks in January. Equity experts see further appreciation in bank stocks as interest rates moderate.

However, while allocating more assets to banking, fund managers have reversed gears for the information technology sector, on the back of a rising rupee.

There was a cut of 100 bps in IT exposure and it is once again back to single digit. And, in and fast moving consumer goods, asset allocation has declined 50 bps.

“Defensive stocks are now highly priced. We are choosing those stocks in the segment which have a strong growth factor,” explains an equity head.

Source: http://www.business-standard.com/india/news/crr-cut-puts-bank-stocks-backfund-managers%5C-radar/464103/