NSE suggests ETF route for Rajiv Gandhi equity plan

Even as the exact contours of the newly-proposed Rajiv Gandhi Equity Savings Scheme (RGESS) are being worked out, another suggestion has landed in the finance ministry’s lap.

The country’s largest equity bourse has made a representation to the ministry, suggesting the funds coming from the tax-saving scheme be invested in the stock market via exchange traded funds (ETFs).

According to sources, the National Stock Exchange (NSE) has recommended the ETF route for RGESS funds as a diversified and less risky way to invest in stocks.

Introduced in this year’s Budget, RGESS will give tax benefit to small investors putting money directly in equities. However, the idea of encouraging unexperienced retail investors to take direct exposure to stocks has faced widespread criticism.

Many entities, including the Securities and Exchange Board of India (Sebi), had suggested the scheme be routed through mutual funds. However, recent reports suggest the finance ministry isn’t keen on letting mutual funds operate the scheme.

Experts say encouraging small investors to invest directly in the market would be very risky. The ETF option is worth considering, they say.

Investing in ETFs is akin to investing in a basket of securities. ETFs are gaining popularity globally as an investment vehicle for taking passive exposure to asset classes, including equities and gold.

However, equity ETFs are yet to gain much currency in India. Even as there are about 19 such ETFs available in the Indian market, they have less than Rs 1,200 crore of total assets under management, according to data from Value Research.

According to experts, if NSE’s proposal is accepted, it will be a big boost for the country’s ETF market, with several new launches likely.

According to estimates, the RGESS scheme has the potential to attract up to Rs 50,000 crore of retail inflows every year into the stock market.

“The current crop of equity ETFs is mostly confined to Nifty and Sensex. The government can prescribe an ETF on the top 100 stocks or a public sector undertaking-specific ETF if it’s okay with the idea,” said an ETF fund manager with a domestic fund house, who did not wish to be identified.

The launch of new ETFs could benefit stock exchanges as well since they charge a one-time listing fees for letting them use their platform. According to Sebi, listing of ETFs on stock exchanges is mandatory.

Source: http://www.business-standard.com/india/news/nse-suggests-etf-route-for-rajiv-gandhi-equity-plan/475947/

There is scope for 100 more AMCs to come: Sundeep Sikka

Even though Reliance Mutual Fund has lost the top position in terms of assets under management (AUM) to HDFC Mutual Fund, it still remains the most profitable fund house in the country. In an interview with Chandan Kishore Kant and Jinsy Mathew, Chief Executive Officer Sundeep Sikka says the fund house is not concerned about the ranking and is trying to increase the share of retail money in its total AUM. Excerpts:

After remaining at top for almost five years, how has life changed for you after being dethroned by HDFC MF in mid-last year?
There is an obsession with AUM and that is where one gets de-focused when we talk about mutual fund industry. It is not so that only No. 1 gets money and No. 2 does not. Going by that logic, if only No. 1 has to get the money then there would have been no industry anywhere. I think that's not the right way to see it. We, as a fund house, have been focused on adding more and more retail investors and creating wealth for them. What we did in the last 5-7 years has resulted into one of the largest retail bases with around 70 lakh investors, which includes 20 lakh investors through Systematic Investment Plans (SIPs). As long as we are able to keep getting new retail investors to the industry, there is nothing to do with the ranking.

Would you blame the banks and corporates, which had their liquid investments in Reliance Mutual Fund, for pulling you one notch down?
It's not the question of blaming anyone. Seventy per cent of industry's assets are institutional while rest is retail. Institutional money will continue to be a function of liquidity in the economy. Ultimately that money parked with mutual funds has to be used for projects as and when the capex is there. Liquidity will have an impact on the AUM of the industry, but that is not our core focus. Our liquid money, as a percentage of our total AUM, is at an all time low. We are trying to replace corporate money with retail investors. Sixty per cent of the Indian household savings is with the banks. It's going to change. When will it change? I don't know but what we are trying to do is to be ready to grab the opportunity whenever this change happens.

The industry is passing through one of the toughest phases. With investors fleeing and market conditions continue to remain poor, how things would pan out for the Indian mutual fund industry?
We should stop seeing the industry from a quarterly or half-yearly perspective. A lot of things are being done from a long-term perspective, say 5-10 years. We need to focus and launch simple products for investors so that the household savings in India can be moved into mutual funds. As an industry, we are at a very nascent stage, with less than 2 per cent of the population investing in mutual funds. This industry has potential to become five-ten times bigger in the next 10 years. There is a clear slowdown in the industry. In the last 2-3 years, because of market conditions, investors have not made money. Since 2008, it has taken lot for the industry to reconcile and get used to new business models. And the new business models are bit more expensive because we have seen a break down in the distribution network. What I mean is the link between the AMCs and the investors, lot of distributors are out of the industry which has pushed up cost of acquisition (of investors). From longer term point of view, volumes will compensate the falling margins and we need to have volumes as it is becoming a low margin game.

Your deal of selling 26 per cent stake to Nippon Life is being opposed by trade union in the Employees Provident Fund Organisation (EPFO). What went wrong?
We have applied to EPFO as we planned to get Nippon Life as a partner. Nippon will be taking 26 per cent stake. We are in line with the rules and regulations and one would appreciate the fact that this is the largest FDI deal in the sector. We are in the process of taking those approvals. Deal was finalised, MoU was signed and share holding will change only after getting approvals from all the concerned authorities. I am sure we will see the deal getting cleared. Competition Commission of India (CCI) already has cleared this and I don't see any problem from EPFO.

This year has witnessed several deals in the mutual fund space. Is there scope for more mergers and acquisitions?
India has yet to see the potential of asset management space. A lot of foreign players are seeing much more in India than may be the industry itself. Every new foreign player coming in clearly explains that their global footprint is incomplete without India. So in India where 2 per cent of the population is investing in mutual funds far less than what they put in bank deposits, I believe there is a scope for 100 more AMCs to come. Every AMC will need to develop its niche and work out its business model. Industry is going to become far more bigger from here. It's too early for us to discuss about the number of players, as right now industry can grow manifolds from here.

What is needed then for the industry during such times?
The industry has changed a lot from 2008 till now. Every shareholder and the management has to sit down and work out its own business plan. This industry definitely requires lot of patience from sponsors than what it used to have earlier. For a long term point of view it will be profitable but it will require lot more investment. Mutual fund sector needs shareholders' patience, long term vision and execution capabilities to be successful. This industry is going to be big and profitable in times to come in the long run.

What is Reliance MF doing in such tumultuous times?
We are not looking at the short-term period of one or two quarters. We will keep investing in this time too. We are investing heavily on technology to increase our reach and reduce our transaction costs. We will keep investing for future. Short term cycle should not impact the long-term vision. There can be problems in short-term, but that does not stop us from investing for long-term. We are getting ready for the big opportunity, whenever it comes, and we are investing in all respect of our business.

Source: http://www.business-standard.com/india/news/there-is-scope-for-100-more-amcs-to-come-sundeep-sikka/475790/

Sebi asks govt to route Rajiv Gandhi Equity Scheme through MF

To minimize risk associated with direct stock investment for new investors, market regulator Sebi has asked the government to route tax-saving Rajiv Gandhi Equity Savings Scheme through MF.

Chairman of Securities and Exchange Board of India (Sebi) U K Sinha today said the regulator has submitted a proposal in this regard to the Finance Ministry.

"The thinking in Sebi is that first time investors may not have adequate information about the stock market...they should enter the market through institutional investor," he said.

"...is it right to expose an uninformed investor directly into the equity market or provide him access through Mutual Fund (MF)," he said.

He was responding to queries on RESS announced by Finance Minister Pranab Mukherjee in his Budget speech.

The minister had announced 50 per cent tax deduction to retail investors with annual income of less than Rs 10 lakh for investment up to Rs 50,000 in a year with a lock-in period of three years under the scheme.

A retail investor can avail the scheme only once in a life time. This is the first-ever tax benefit scheme announced by the government to encourage retail investors participation in the equity market. By offering this scheme, the government aims at channelising household savings into stock markets.

Sinha also expressed concerned that penetration of MF industry in the retail sector is not improving.

However, he said "we are happy in one way that compared to 2010-11, in (2011-12) net inflow in equity schemes of MF is much higher".

In 2010-11, net inflow in equity schemes of MF had declined by 13,000 crore, but in the following year it is positive by few hundred crores, he said adding the number of folios have declined.

Sinha said Sebi has set up a mechanism and was in talks with a "group of people" on how to increase the penetration of the industry.

On the Equity Linked Saving Schemes (ELSS), Sinha said there would be clarity once the Direct Taxes Code (DTC) Bill is finalised.

Source: http://articles.economictimes.indiatimes.com/2012-05-19/news/31778176_1_mutual-fund-retail-investors-mf

Strong dollar pushes up international funds performance

According to Value Research, a mutual fund tracking entity, International equity funds as a category have been successful over last one year by restricting losses to 3.52% outperforming other categories of diversified equity funds. Multi Cap and large cap funds as a category have lost 9.55% and 10.56% over one year.

Though Indian equity markets are weak for some time now with Nifty losing 11.41% and 11.71% over last one year and three months respectively, US dollar is the another reason for such outperformance by international funds. "Weak rupee does help funds holding dollar denominated assets and shows improvement in performance," says Hiren Dhakan, associate fund manager, Bonanza Portfolio.

The case in point is Motilal Oswal Most Shares NASDAQ-100 ETF. It has delivered 31.14% returns over one year leaving behind most Indian diversified equity funds. The fund is an index fund and tracks NASDAQ-100 index. Over last three months the fund has delivered 9.55% returns when the underlying index is down 1.57%. The upside the fund has seen is an outcome of weak rupee against dollar.

Another fund from the international fund category that has done well with 11.70% is ING Global Real Estate Fund followed by Birla Sunlife International Equity Fund with 6.92% yearly return. "This may not be a great entry point in these funds, as global macro economic scenario is not encouraging and rupee is at a low against USD. Any positive move in rupee against USD, may wipe out returns offered by these funds," add Hiren Dhakan.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/strong-dollar-pushes-up-international-funds-performance/articleshow/13407074.cms

Top AMCs rake in more profits despite hard times.

India's top asset management companies (AMCs) have continued to remain profitable, no matter whether mutual fund investors made money or not in the tough market conditions. Rather, top players have posted growth in their profitability during financial year 2011-12.

Reliance Mutual Fund, despite losing its top slot to HDFC MF during the year, continued to remain the most profitable asset manager in the industry, with Rs 276 crore as net profit in FY12, a growth of 5.6 per cent against Rs 261 crore in the previous financial year. HDFC MF, the country’s largest fund house, grew faster to Rs 269 crore, growth of 11 per cent compared with Rs 242 crore in FY11.

ICICI AMC, the third largest fund house, grew the fastest in terms of profitability, at 22.5 per cent to Rs 88 crore against Rs 72 crore earlier. However, Birla Sun Life AMC’s profit declined a big 30 per cent in FY12. The numbers of UTI AMC were not available.

Sundeep Sikka, chief executive officer (CEO), Reliance AMC, says, “The biggest factor which helped us increase our profits is our focus on retail customers from a long-term perspective. Though acquisition of retail is expensive, in the long term it becomes profitable. It’s an annuity business and our commitment to investors is for the long term.”

The top five control 54 per cent of the industry’s assets (there were 44 fund houses managing an average assets under management (AUM) of Rs 6,64,792 crore as on March 31). These players reported rise in profits in a year that saw erosion of a little over five per cent of the industry’s AUM, while equity AUM dipped 6.7 per cent.

According to Dhirendra Kumar, CEO of fund tracker firm Value Research, “The mutual fund business is a low capital one. Once a fund house reaches the threshold, it keeps making profits. And, the more the equity assets, it will kick up the profits of AMCs.”

Source: http://www.business-standard.com/india/news/top-amcs-rake-in-more-profits-despite-hard-times/474964/