Rajiv Gandhi Equity Scheme must include mutual funds to control the risk for investors: Akshay gupta, CEO & Managing Director, Peerless Mutual Fund

Akshay gupta, CEO & Managing Director, Peerless Mutual Fund

Peerless Mutual Fund focuses on smaller tier II and tier III towns. Its CEO and managing director Akshay Gupta tells Babar Zaidi how the proposed Rajiv Gandhi Equity Scheme will add depth to the markets, how difficult it is to convince first-time investors and why the scheme should include mutual funds as well.

What's there for small investors in the Rajiv Gandhi Equity Scheme?
Paying tax is a big concern for Indians and this new deduction will certainly be a big incentive to enter the market. Right now there are about 3.5 crore equity investors in India, but over 10 crore people earn more than Rs 2 lakh a year. My guess is that many of them will want to avail of this new exemption after they exhaust their Section 80C limit. They may not invest Rs 50,000, maybe Rs 10,000-20,000. Even so, this will bring long-term money into the market. It is a step in the right direction because it will give a fillip to equity investing. Besides, Rs 50,000 a year is a sizeable limit and will add depth to a market that is on FII steroids.

Should mutual funds be included?
Mutual funds should certainly be a part of this because a fund manager can handle the risk much better than a first-time investor in equities. There are indications that the scheme will be confined to the top 100 stocks but I don't think this is enough of a safeguard for small investors. Satyam Computer was an index-based stock and look what happened. Institutional investors had started exiting Satyam much before the scam broke out. Similarly, they got rid of Unitech much before the writing was on the wall. However, small investors got stuck with these stocks. Mind you, both Satyam and Unitech were in the top 100 stocks by market capitalisation. If a small investor is left holding such scrips and cannot get out before the lock-in period, he will be ruined.
 

What is the way out?
The government should open the scheme to mutual funds. Let mutual funds manage it and diversify the risk for the investor. Remember, these are first-time investors, who may not understand the risks involved. An investment of Rs 50,000 is a big sum for a person earning Rs 5 lakh a year-it's more than the money he earns in a month. Mutual funds will allow him to invest systematically through SIPs, which will reduce his risk.

Peerless Mutual Fund focuses on tier II and tier III towns. What has been your experience there?
The concerns of the first-time investor are no different from those of the repeat investor. The risk-reward ratio is the uppermost concern. They compare the returns with those of fixed deposits and real estate. The memory of the Indian investor is very short and his investment strategy is sharply focused on certainty of returns. He will prefer to lock in at 9% assured returns offered on a fixed deposit for five years even though equity investments would yield a better return.

How difficult it is to convince a first-time investor to put money in stocks?
It is an uphill task. You have to show them charts of SIP returns, tell them the India growth story and explain why stocks will do well in the long term. In smaller towns, real estate is the preferred investment choice, followed by gold and fixed deposits. People don't understand stocks as an asset class, so it is very difficult to convince them to invest in equity mutual funds. In large cities, people are familiar with stocks and the acceptance ratio is far higher.

Are the KYC norms a major hurdle in smaller towns?
They are because a lot of people don't have the basic documentation in place. Investors in tier II cities have PAN cards but in tier II towns, many don't have these. They have either not applied or may have applied but the issuance has become an operational hazard.

Have the unified KYC norms been of any help?
They have, but I will be happier if all the regulators come together and have a common KYC platform. I believe this is happening and will ease the investment process for the customer as well as lower the costs for the industry.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/rajiv-gandhi-equity-scheme-must-include-mutual-funds-to-control-the-risk-for-investors-akshay-gupta-ceo-managing-director-peerless-mutual-fund/articleshow/12482361.cms?curpg=1

FMP mania grips investors.

It's the season of fixed maturity plans (FMPs). Mutual fund houses launched as many as 149 FMPs in March, as investors rushed to lock themselves into high interest rates and also take advantage of the double-indexation benefits provided by this product. Uncertain and volatile equity markets also contributed to demand for these fixed income products, mutual fund executives said.

FMPs are close-ended funds with a fixed tenure and invest in a portfolio of debt products, whose maturity coincides with the maturity of the product. The primary objective of an FMP is to generate income while protecting the capital, by investing in debt and money market securities.

The fourth quarter of FY12 was robust in terms of FMP launches. During the period, the domestic fund industry launched 313 FMPs. According to data from fund tracking firm Value Research, there is a rise of 30 per cent in FMP launches in March this year compared with the same period last year.

“Prevailing rates are very attractive. Investors have a feeling that they may not get such high rates for long and hence such a good demand for FMPs,” said Jaideep Bhattacharya, chief marketing officer of UTI Mutual Fund. Currently, FMPs are offering as high as 10-11 per cent, in many cases better than bank fixed deposits.

In the last few weeks of the financial year, there’s been a mad rush to invest in FMPs. This is thanks to the availability of the benefits of double indexation for those who stay invested in these instruments for a little over a year. That is, those who invest this March in an FMP which matures after 13-14 months, will get the benefits of both FY12 and FY13.

Since inflation has been high throughout the year, the inflation index, too, will be high for this financial year. As a result, when investors redeem the FMPs next year in April or later, they will get handsome indexation benefits. This will reduce their tax burden substantially.

“By entering during such times, investors avail the double indexation benefits,” said Sanjay Sachdev, chief executive officer of Tata Mutual Fund. “Investors have a clear preference for fixed income products and the trend has been visible for quite some time now. People are parking their funds in FMPs to benefit from the high interest rates,” he added.

Since the investments made during the last few days of the fiscal spill over into a financial year that represents a two-year holding period, though the actual holding tenure is just over a year, investors can avail of indexation benefits, say officials.

Industry executives say institutional investors had always been fond of such products. Now, there is a large participation from retail investors, too.

“Investors are wary of volatile equities and they are waiting for an appropriate time to enter. But for the time being, they are showing preference for fixed income products,” said UTI MF’s Bhattacharya.

However, industry executives do not see continuation of large number of launches in the coming months as interest rates are expected to come down.

Source: http://www.business-standard.com/india/news/fmp-mania-grips-investors/469780/

CNBC-CRISIL Awards - HDFC is Best Equity, Best Fund House, Birla Best Debt Fund house

HDFC Mutual Fund bagged the Best Fund House and Best Equity Fund House awards while Birla Sun Life Mutual Fund walked away with the Best Debt Fund House of The Year Award. Reliance Gold Savings Fund, which allows investors to invest through SIP without a demat account, won the Most Innovative Fund Of The Year Award.

The winners

Large Cap Equity Funds	Fidelity Equity Fund
Diversified Equity Funds	Mirae Asset India Opportunies Fund
Small and Mid Cap Equity Funds	HDFC Mid-Cap Opportunities Fund
Equity Linked Savings Schemes	Fidelity Tax Advantage Fund
Index Funds	Kotak Sensex ETF

Balanced Funds	HDFC Balanced Fund
Income Funds	UTI Bond Fund
Monthly Income Plans	HDFC Monthly Income Plan

Income Funds	Short Term  JPMorgan India Short Term
Ultra Short Term Fund	Retail  HDFC  Cash  Management
Liquid Funds	Retail  Principal Cash Management

Source: http://www.cafemutual.com/News/InnerNews.aspx?srno=1197&MainType=New&NewsType=Industry&id=21

NSE to launch corporate debt ETF

The National Stock Exchange plans to introduce a ‘Corporate Debt Exchange Traded Fund (ETF)' in this calendar year.

 

ETFs are essentially index funds that are listed and traded on exchanges. In this sense, an ETF is a basket of stocks or assets such as gold or even money market instruments. Its trading value is based on the net asset value of the underlying assets that it represents.

According to a source, “We believe that exchange traded funds on corporate debt can help in bringing more liquidity and depth in the corporate bond market. Investors will be able to invest in a basket of corporate bonds, getting thereby the benefit of a portfolio for investment.”

One medium

The new product is in line with the Government's emphasis on expanding and deepening the corporate debt market. It will help investors put money in a basket of corporate bonds with just one medium. The price discovery will be better. Simultaneously, the new product will give better enter and exit facility, the source added.

ETFs have gained wider acceptance as financial instruments whose unique advantages over mutual funds have caught the eye of many an investor. These instruments are beneficial for investors who find it difficult to master the tricks of the trade of analysing and picking stocks for their portfolio.

Various mutual funds provide ETF products that attempt to replicate the indices on NSE to provide returns that closely correspond to the total returns of the securities represented in the index.

At present, NSE provides ETF in four different categories — equity, debt, gold and world indices. There is no exchange fee on debt and world indices ETFs, while charges vary on gold and equity ETFs.

Gold ETF attracts an exchange fee of Rs 1 for a lakh while equity ETF is charged between Rs 3-3.25 a lakh. There are indications that the corporate debt ETF may get fee waiver too.

Source: http://www.thehindubusinessline.com/markets/stock-markets/article3258855.ece

IFAs find the new capital protection products innovative

Investors are also keen to invest in such capital protection funds where some portion in invested in the equity market ‘options premium’.

In the current challenging market scenario, AMCs have had to think out of the box to make their schemes popular. DSP Blackrock Mutual Fund and Reliance Mutual Fund have both launched Dual Advantage Fund (FMP) where 80 percent of the investment is locked in debt securities and 20 percent is invested in equity and equity related options premium.

The unique feature of this product is that it gives the investor the potential to profit from the ‘options market’ while keeping the investment stable.  Being a FMP, the product is a close-ended scheme with a lock-in period of 3 years. “The important thing about such NFOs is the time of launch. I feel it is a good time when such capital protection products have been launched and there is a rising demand among the investors to buy such product,” said Mukesh Dedhia, Mumbai based IFA.

Amar Pandit, CEO, My Financial Advisor strikes a word of caution.“In such products, the credit quality of the debt investment is important. It is a pretty innovative product where the capital is protected and the investor can also take advantage of the equity market. An investor should only invest in such products when they already have a proper asset allocated portfolio,” said Amar.

Vinod Thakkar, IFA from Kolkata finds many takers for such products. “These capital protection funds provide dual advantage but the only draw-back is that the investment is that it is locked for three years. In the East, most of the investors want to lock their money in debt so such products have a good demand and a number of my clients have invested in these products,” said Vinod.

DSP Blackrock has garnered Rs 168 crore investments through two versions of Dual Advantage Fund launched in February and March this year. “In these funds, investor money is converted from 80 percent debt investment to 100 and the extra returns earned through the equity market is like an icing on the cake. We have got a good response in our earlier products and we are thinking of launching more such products in the next quarter,” said Ajit Menon, Executive Vice President and Head Sales and Marketing, DSP Blackrock.

Himanshu Vyapak, Deputy CEO, Reliance AMC agrees. “This is a new route that the investors are taking without eroding their capital as 80 percent is invested in debt. Even in such a volatile market, we have got positive response from investors as the product does not have too much risk attached to it.We have been able to gather Rs 185 crore from the earlier version of the Dual Advantage Fund where 20 percent of money is invested in equity related options premium and in the current NFO which is closing today, we feel we will be able to raise Rs 300 crore,” said Himanshu.

A few other fund houses are also in the queue for launching such kind of products.

Source: http://www.cafemutual.com/News/InnerNews.aspx?srno=1193&MainType=New&NewsType=Industry&id=21