We need to review entry load ban decision again: Amfi CEO HN Sinor

Capital market regulator Sebi and industry players will have to review some of its past decisions, including the ban on entry load, if they want mutual funds to have larger retail participation and deeper geographical reach, said HN Sinor, chief executive of the Association of Mutual Funds in India or Amfi. In an interview with ET, Sinor said Fidelity Mutual Fund's move to exit India and the recent exit of chief executives of four asset management companies are worrisome. Edited excerpts:

Not many are hopeful about the health of the Indian mutual fund industry. What's your view?

Unlike banks, the AMC business has a fragmented structure - it's like a three-legged stool. You have manufacturers on one side, distributors on the second and transfer agents on the third. And on top of this three-legged stool sits the investor. You've to create a 'win-win' situation for all the three legs of the stool. There has to be something for everybody in this business. If you need mutual funds to reach out to larger geographies, we will have to review the cost structure. And if there's some push there, perhaps, we may again see some good days.

By cost structure, do you mean entry load?

One mistake Sebi made was to implement the entry load ban in a cut-and-dry manner. They should have implemented it in a slow, phased manner. The decision to ban the entry load was seen very positively by many; many said it was an investor- friendly move... many also complained about it. In those days Sebi and Amfi felt, the Indian enterprise was very smart and would find a way to come around it.

But today, after two years, I realise, we've not been able to adjust our business model to the entry load ban. We need to dispassionately review the (entry load ban) decision once again. I am not taking any sides here... I am just taking a view from the top. We've to expand this industry, and for doing that if we have to bite the bullet, we should bite the bullet.

Are you suggesting a roll-back of entry load?

We should at least initiate a discussion on that. Saying an emphatic 'no' to this, to my mind, is not a solution today. Any business settles down after 6-8 months of policy changes, but it has not happened here.

Distributors are not seeing it worthwhile to sell mutual funds. Manufacturers are finding it difficult to expand or penetrate beyond 20 cities. It does not make a business case for manufacturers to go and sell the product in Timbuktu to collect just Rs 5 - 10 lakh of investments. In such cases their costs would be very high. Why will manufacturers go to far-flung towns when they can garner a much larger amount at a lower cost from Ghatkopar? It doesn't make sense for fund houses to go beyond the top-20 cities within the current expense ratio.

But Sebi officials say distributors are still making money selling funds.

If you look at the commission pay-outs of distributors, there are just about 200 distributors who draw a gross revenue of over Rs 1 crore. Of the 200, the top-20 are institutions and banks. At an individual level, there are only 185 IFAs whose gross revenue exceeds Rs 1 crore. Of the 16,000-odd active distributors, only 185 are earning a reasonable sum of money selling funds. What will others do? They will resort to tricks like deliberate churning of portfolios or mis-selling of funds. It's this environment which is pushing them to do something which is not right. Globally, there's a cost attached to this business and it is borne by investors.

Are you talking to the regulator for a roll-back?

Sebi has been very receptive to any kind of ideas. But then it's difficult for any regulator to undo something. We need to kick-off the debate once again. We've to discuss it in a dispassionate manner.

How are mutual funds sold in other countries?

Frontloading in Singapore is about 3%; their expense ratio works out to about 2.5%. Investors there pay in excess of 5% to asset managers. Asset management business in India is the cheapest in the world. Cost to investors is lower than anywhere else in the world. We need to look at this aspect with a little open mind. My counterparts in other countries, who have plans to ban frontloading, are closely watching the impact of entry load ban in India. They're not very confident after seeing the India experience. UK came out with a consultative paper in 2009, but now I hear they have postponed their plans.

Fidelity's exit too has not gone well with the fund management industry.

Confidence level is very low in the industry. After Fidelity's decision to move out and the quick exit of four CEOs, even we're a little worried. If officials desert the industry like this, we have a big problem at hand.

Source: http://economictimes.indiatimes.com/opinion/interviews/we-need-to-review-entry-load-ban-decision-again-amfi-ceo-hn-sinor/articleshow/12860300.cms?curpg=2

Reliance MF schemes emerge as top three performers for Q1-2012

Mutual funds are considered a better investment option due to relatively better safety of capital, but they have also scored over the direct stock market investments in terms of returns to investors.

As per a performance analysis of stock market benchmarks and mutual fund equity schemes, as many as 50 large equity MF schemes, with an average asset size of at least Rs 1,000 crore, have given better returns than the market barometer Sensex during the first quarter of 2012.

While the stock market benchmark index Sensex gained 12.6 per cent during the January-March 2012 quarter, the surge was higher for a total of 50 MF schemes and the top three performers belonged to Reliance Mutual Fund.

The returns were over 20 per cent for this period for as many as 11 such funds, including five Reliance MF schemes.

Even for the six-month period ending March 31, 2012, the returns were higher than Sensex for as many as 29 schemes.

Asked about the robust performance of Reliance MF schemes, Reliance Capital Asset Management CEO Sundeep Sikka told PTI: "We had made some changes in our portfolio and had aligned our portfolio according to market conditions, as a result of which our funds were able to post good returns."

While judging a MF scheme, investors should go for a fund house of fund manager who is able to manage the volatility of the markets and has a long term track record of giving good returns, Sikka noted.

The top three performers in the equity mutual fund space were from Reliance MF. Reliance Tax Saver (ELSS) fund posted returns of 26.07 per cent, followed by Reliance Banking Fund with returns of 26.06 per cent and Reliance Diversified Power sector fund with returns of 22.94 per cent.

Others in top 10 included HDFC Mid Cap Opportunities Fund (ranked fourth with returns of 22.71 per cent), ICICI Pru Discovery Fund (5th, 22.57 per cent), Reliance Vision (6th, 22.44 per cent), DSP BlackRock Small and Mid cap fund (7th, 22.18 per cent), UTI Infra fund (8th, 21.71 per cent), IDFC Sterling equity fund (9th, 21.36 per cent) and Reliance Equity Opportunities fund (10th, 21.01 per cent).

In the first quarter of this year the BSE benchmark index Sensex posted returns of 12.61 per cent, while the wide-based Nifty gave returns of 14.52 per cent. The BSE 100 index rose by 15.59 per cent during this period.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/reliance-mf-schemes-emerge-as-top-three-performers-for-q1-2012/articleshow/12837567.cms

Why there are no 'star managers' in Indian mutual fund industry

Vicky Mehta, Senior Research Analyst, Morningstar India

An oft-repeated phrase in the Indian mutual fund industry is "we don't have a star manager culture; instead we follow a team-based, process-driven investment approach".

Fund companies avoid the term 'star manager' like the plague. They never miss an opportunity to proclaim the presence of a strong team and investment process. But are the latter and 'star managers' mutually exclusive? More importantly, what is so revolting about being a 'star manager'?

Think about it, isn't a 'star manager' only like any other professional who excels at his work? For instance, an equity fund manager who has consistently delivered an impressive showing over the long haul and across a market cycle, and who displays a sustainable level of skill, should qualify as a 'star manager'.

That isn't necessarily bad, is it? To draw a cricketing analogy - is having Sachin Tendulkar in the team a disadvantage, simply because he ranks among the best batsmen in the world?

The disapproval
Perhaps the disapproval for star managers stems from certain preconceived notions. For instance, being a star manager is associated with job-hopping. But that isn't always true.

Several of the best-ranked managers in the country have been associated with the same fund company for a decade or thereabouts. Maybe star managers are perceived as being mavericks and poor team players.

Again that hypothesis is questionable. Some of the best managers have built strong and stable investment teams. Several of them have also tended to adhere to an investment style that gels well with the fund company's approach.

Acknowledging key-man risk
Clearly there's more to this star manager aversion. Let's revisit the point about star managers and a team-based, process-driven approach being mutually exclusive.

Fund companies would like us to believe that all members in their investment teams think alike and every decision is based on consensus. But that's rarely the case. Let's not forget that investing is a personalised activity with no definite rights or wrongs.

This in turn, necessitates the presence of skilled managers. Furthermore, while the significance of a robust investment process cannot be overstated, it takes a proficient manager to skillfully execute the process. For instance, a model might throw up a list of 'investment-worthy' stocks; but it is the manager who decides which ones to buy.

If strong investment processes in isolation were adequate, all funds could have been run on quant models and managers would have been redundant. Here's what this boils down to - fund companies try to underplay the key-man risk associated with funds, by declaring that they don't have star managers.

At best it's a defense mechanism to ensure that they don't lose assets when a proficient manager exits. Neither would they like to acknowledge that a manager change can result in a change in the fund's character. Indeed, the degree of keyman risk varies and needs to be estimated on a case-by-case basis.

In some situations, it might be easy for a new manager to step in and run the fund as in the past; while in others, it may not be possible to do so. Nonetheless, it is naive to dismiss manager-risk as being immaterial.

Fund companies deny the existence of 'star managers' to understate key-man risk; investors on their part, must evaluate if the fund remains as good a bet, sans its 'star'.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/why-there-are-no-star-managers-in-indian-mutual-fund-industry/articleshow/12738218.cms?curpg=2

Lock in to FDs now or find other alternatives quickly

The higher than expected 50bps repo rate cut by the RBI will make banks re-price their deposit rates downward. The reason is that borrowing costs for banks in the overnight markets will be 50bps lower at around 8%, which is the repo rate and RBI has given banks leeway to access the MSF (Marginal Standing Facility) at 9% by letting them go below 2% of their SLR (Statutory Liquidity Ratio) limit.

Banks have to hold 24% of their deposits (NDTL or Net Demand and Time Liabilities) in government bonds as SLR. The banking system deposit base is around Rs 60 lakh crores. Banks are holding around 29% of their deposits in government bonds. Hence banks can technically borrowing 5% (the excess SLR) of Rs 60 lakh crores, which works out to around Rs 300,000 crores from the RBI at the repo rate of 8%. Banks can also borrow 2% of Rs 60 lakh crores, which works out Rs 1.2 lakh crores through the MSF window at 9%. Banks will not be worried about liquidity given the Rs 4.2 lakh crores leeway offered to them by RBI at 50bps lower rate of interest post the repo rate cut.

The easing policy signal given by the RBI through the repo rate cut coupled with access to liquidity will make banks lower their deposit rates. Banks by lowering deposit rates and keeping loan rates steady will increase their NIMs (Net Interest Margins). Higher NIM's will lead to higher profits for banks, which comes at the cost of lower rates of interest for depositors.

Fixed deposit (FD) investors should quickly lock on to FD rates before they are brought down. Investors should also increase the tenure of their FD's as they can then earn higher interest rates for a longer period of time.

FD investors should also look for alternative fixed income investments to counter the expected fall in deposit rates. Alternative investments include investing directly in fixed income securities issued by banks, Corporates and the Government of India or indirectly through fixed income mutual fund schemes.

The current yields on one year, two year, five year and ten year maturity AAA rated corporate bonds are 9.6%, 9.3%, 9.35% and 9.4% respectively and the yields are likely to come down on the back of easing policy rates and easing liquidity conditions. Fall in yields will also give capital gain benefits to investors leading to higher returns from investments in fixed income securities.

Government bond yields in the one year, two year, five year and ten year maturity segments are trading at levels of  8.3%, 8.3%, 8.35% and 8.4% respectively. The high borrowing program of the government will keep yields steady despite rate cuts, but yields will start trending down going forward leading to capital gains for investors.

Investors who cannot access the corporate bond and government securities market (Indian fixed income markets are not conducive for direct retail participation) should invest in mutual fund schemes that invest in fixed income securities. Investors looking to benefit from fall in corporate bond yields should invest in short term and long term income funds while investors looking to benefit from fall in government bond yields should invest in long term gilt funds.

Expected one year returns to investors if yields fall by 50bps in corporate bonds and government bonds will be around 9.5% post expenses in short term funds and around 11.5% in income funds. Government bond funds will generate around 11.5% as maturities in government bond funds are generally higher than income funds.

Source: http://www.moneycontrol.com/news/fixed-income-bank-deposits/lockto-fds-now-or-find-other-alternatives-quickly_694312.html

First case of conversion of Gold ETF units to physical Gold in 10 gms!

Mr. Ashok Dhamnaskar, an investor from Mumbai has become India`s First Investor to convert ETF units to physical gold. On Thursday April 12, 2012, Mr. Dhamnaskar redeemed his Motilal Oswal MOSt Shares Gold ETF units to get physical gold.

With Mr. Nitin Rakesh, MD & CEO, Motilal Oswal AMC and his team were present to facilitate the redemption process. Overwhelmed Mr. Dhamnaskar said, ?I was looking for the avenue to buy gold at a cheaper price yet with the best of quality for my son`s wedding. But I found it difficult to get both at the same time. I had to pay premium for pure gold or compromise on the gold quality for cheaper price. That`s when my broker invited me to a seminar organized by Motilal Oswal Mutual Fund, where I was introduced to MOSt Gold Shares, which offered quality gold at a better rate than Banks and Jewellers?. Talking about buying MOSt Gold Shares ETF`s units, Mr. Dhamnaskar said, ?It was as easy as buying gold from any other available avenue, as I used a smarter way to buy gold!"

Mr. Nitin Rakesh, while handing over the Gold bar, said, "Our primary objective for designing MOSt Gold Shares was to offer best of both worlds - investment and consumption; and with investors like Mr. Ashok Dhamnaskar, it`s been effectively achieved".

Motilal Oswal MOSt Shares Gold ETF (MOSt Gold Shares) is an open ended exchange traded fund that invests in gold bullion. MOSt Gold Shares is India`s 1st Gold ETF of its kind which seamlessly enables Investment as well as Consumption of Gold for Retail Investors.

With the auspicious occasion of Akshaya Tritiya just around the corner, MOSt Gold Shares offers an excellent opportunity to investors who are looking to buy gold both for investment & consumption. Investors can easily avoid waiting in the queue at banks or the maddening rush at the jewelers on this day. All they need to do is buy units of MOSt Shares Gold ETFs at prices lower than offered by Banks and jewelers and redeem them for pure imported physical gold whenever they want.

MOSt Shares Gold ETF

The NAV of the MOSt Gold Shares unit will track spot price of 1 gm of gold. Valued at spot gold bullion prices, investors can get pure imported Gold at a price lower than banks & jewelers by redeeming the ETF units for physical gold bars in as low as 10 grams across 22 cities in India. It will provide investors a means of participating in the gold bullion market and take physical delivery of gold when needed. MOSt Gold Shares is supported by RiddiSiddhi Bullions Limited (RSBL), as Primary Authorized Participants & Market Makers. RSBL is one of the largest bullion dealers in India.

MOSt Gold Shares is listed on the NSE and BSE. The fund manager of the scheme is Mr. Rajnish Rastogi. The investment objective of the Scheme is to provide return by investing in Gold Bullion.

Source: http://hdfcsec.com/News/NewsDetails.aspx?NewsID=547794&NewsType=M