India fund outflows flag more bond pain amid worst Bric losses

Local investors are exiting Indian debt funds at the fastest pace since September, a sign of more losses ahead for bonds that are the worst performers among the largest emerging markets this quarter.

Fixed-income funds saw an outflow of Rs.2,500 crore in April, a third straight month of withdrawals, data from Association of Mutual Funds in India (AMFI) show. Investors left just in time to avoid a global bond market rout that saw the benchmark 10-year rupee sovereign yields surge 19 basis points in the last two weeks.

Birla Sun Life Asset Management Co. and Tata Asset Management say returns could worsen further as a rebound in oil prices and a drop in the rupee limit the scope for the Reserve Bank of India (RBI) to cut interest rates. Investors in Indian government notes lost 0.5% this quarter, compared with returns of 7.3% in Russia, 3.5% in Brazil and 1.1% in China securities, JPMorgan Chase and Co. indexes show.

“We may not see the kind of returns expected earlier,” said A. Balasubramanian, chief executive officer (CEO) at Birla Sun Life in Mumbai. “Oil’s reversal can be a source of volatility as far as inflation is concerned. The rates trajectory won’t be the same and markets will adjust to the new indicators on oil and the monsoon.”

The rupee’s drop past the 64 a dollar level on Thursday reduces chances of an interest-rate cut at the central bank’s 2 June meeting, according to Bank of America Merrill Lynch.

‘Equity-like returns’

The 10-year sovereign yield jumped 13 basis points, or 0.13 percentage point, in April, the most since September 2013, as a 21% rally in Brent crude and the weather department’s forecast of below-normal monsoon rains reignited concern about consumer inflation, which eased to 5.17% in March.

Brent prices are key to India’s inflation outlook as the nation imports about 80% of its oil and the commodity’s 49% plunge in the 12 months through March helped slow price gains, paving the way for two interest-rate cuts in 2015.

Fixed-income funds took in Rs.12,200 crore in January, AMFI data show. That’s when RBI governor Raghuram Rajan lowered benchmark borrowing costs for the first time since May 2013. Investors withdrew Rs.11,600 crore in the next three months.

“We saw a lot of traction into the income funds around January as distributors and analysts sold them as ‘get equity-like returns in debt,’ which was too good to be true but some people did bite into the story,” Killol Pandya, a senior debt-fund manager at LIC Nomura Mutual Fund Asset Management Co. in Mumbai, said in a 7 May phone interview. “Expectations were that a lot of rate cuts will happen and they’ll be front-loaded, but that whole sentiment has seen a reversal.”

Monsoon rains

Inflows into so-called gilt funds, which invest solely in sovereign debt, slowed to Rs.1,640 crore in April, the smallest since September, according to AMFI data.

The June-September monsoon season is crucial for Asia’s third-largest economy as agriculture accounts for about 15% of its gross domestic product (GDP). Insufficient rains can potentially hurt crop output and stoke food costs.

The RBI will consider factors including the “likely strength” of the monsoon rains before deciding on future actions, Governor Rajan said in the latest policy statement on 7 April when he kept the benchmark repurchase rate unchanged.

“There’s a chance that the June rate cut gets pushed back because of the rebound in oil prices and the rise in global bond yields,” Rajeev Radhakrishnan, Mumbai-based head of fixed income at SBI Funds Management Pvt., a unit of India’s largest lender, said in a 8 May phone interview. “The sudden drop in the rupee will also impact monetary policy. To that extent, investors will position themselves.”

‘Damage done’

LIC Nomura’s Pandya said he doesn’t expect large outflows from debt funds because interest rates are still headed lower, even if less than earlier expected.

“The damage is already done,” Pandya said. “Investors who are risk averse and expect a reasonable rate of return will continue to stay invested in these funds. There is money to be made, just maybe a bit less than before.”

Swap traders are paring bets for easing. The cost to lock in borrowing costs for a year climbed nine basis points in April, data compiled by Bloomberg show. It is unchanged in May.

The rupee slumped 1.5% in April in Asia’s worst performance as foreign inflows into Indian bonds and stocks slowed from previous months. Overseas funds sold a net $494 million of rupee-denominated debt on 7 May, the biggest single-day outflow since 14 January, amid a global selloff.

“The fixed-income segment may not look the same as it did a quarter back,” said Arvind Sethi, the Mumbai-based CEO at Tata Asset, which manages Rs.27,000 crore. “Some of the optimism built in the yields will correct from here on.” Bloomberg

Source: http://www.livemint.com/Money/NntYKKpmjqBmeHSyNknu9M/India-fund-outflows-flag-more-bond-pain-amid-worst-Bric-loss.html

India's mutual funds base to top $325 bn by 2018: Sundeep Sikka

Riding on the overall positive mood on the Indian economy, the asset base of the mutual fund industry in the country is set to grow faster at 18.6% per annum to top Rs.20 lakh crore ($325 billion) by 2018, says a top industry expert.

"The overall positive environment that we have seen over the past year is giving a big boost to the confidence level of retail investors in India," said Sundeep Sikka, chairman of the Association of Mutual Funds in India (AMFI) that has as members all the 44 such firms registered with the watchdog.

"I think the positive returns in the mutual fund industry, along with the push being provided by the government create both physical and financial assets and will also play a big role in promoting mutual funds," said Sikka, also president and chief executive of Reliance Capital Asset Management (RCAM).

Accordingly, he said, the time for mutual fund asset base to reach the Rs.20 lakh crore figure was being advanced by two years, even as the total number of individual mutual fund folios, which is 4 crore at present, is set to touch 10 crore in the next five years.

Referring to the past fortnight, Sikka said the domestic funds industry were able to counterbalance the exodus of foreign institutional investors. While these overseas funds pulled pout some Rs.8,000 crore from Indian stocks, domestic fund houses were net buyers of Rs.9,500 crore.

"In fact, in the past one year, our mutual funds have been able to provide a counterbalance of over Rs.70,000 crore, thanks to the net investment into equity schemes," he said, adding the decision to allow 15% of provident fund money into equity and similar assets will give a further push.

Giving some more data on the past-year performance of the mutual fund industry in India, Sikka said assets under management rose 31% to Rs.11.8 lakh crore, some 22 lakh new folios were added during the year, and retail funds mobilised at Rs.1.63 lakh crore has seen a three-fold jump.

"The kind of wealth investors have created in the last few years will lead to a situation where more and more new investors will keep coming to the industry. Existing investors will also keep increasing their allocations," said Sikka.

He said companies like Reliance Capital -- a part of the Anil Ambani-led group that has assets worth over Rs.250,000 crore ($40 billion) in its fold -- are also educating people and creating awareness, notably in smaller towns. "This will fetch a lot of first time investors into the industry," he said.

"At present, only 2% of the overall investment money comes to mutual funds."

Sikka was also positive about several developments, all with the potential to fetch more money into the mutual fund market. Flows from: Idle money in banks, from investments otherwise made in company deposits, and amount that goes into gold that has been losing sheen over the past few years.

"Ideally we would like to see every Indian household as a mutual fund investor. In India, where there is little social security, and long term wealth can be created in the capital markets through equity, it is in the interests of investors and the country that money starts moving for capital formation."

Source: http://www.business-standard.com/article/news-ians/india-s-mutual-funds-base-to-top-325-bn-by-2018-rcam-s-sikka-115051000079_1.html

Time to review your portfolio

Today NSE is trading at a trailing PE of 20.80 At this point of time one should start thinking of portfolio balancing if one is not rebalancing over a period of time. Time to step up and call your financial doctor for your portfolio health checkup. Certainly this is the decade to make money like anything. Happy investing!!!

SEBI prevents attempt to mis-sell an investment product

SEBI today prevented an attempt to mis-sell an investment product to an investor in Delhi by a person claiming as agent of mutual funds.

SEBI had received a complaint from an investor (hereinafter referred to as ' complainant') that some unknown persons claiming to be 'agents' and 'brokers' of Mutual Funds and insurance companies have been contacting the complainant saying that the deceased son of the complainant had invested in Mutual Funds and they are maturing in a short while. In order to get the full amount, the complainant must issue a cheque in advance for a new mutual fund scheme or insurance policy failing which the complainant will lose a substantial portion of the maturity amount as broker commission. The 'agent' informed the complainant that the son had made investments in Mutual funds which are about to mature and on maturity the complainant will get only Rs. 5 lacs. However, the 'agent' further stated that if the complainant makes a further investment of Rs.2.5 lacs, the complainant will get maturity proceeds to the tune of Rs.12.5 lacs.

Thereafter, the Investigations Department of SEBI conducted preliminary investigations where it was found that the phone numbers from which the 'agent' had called were in some others' name and the Company was also in a different name. Sensing a clear attempt to defraud, cheat and misappropriate as well as missell financial products, SEBI deputed an official to visit the 'complainant' at the time of the visit of the 'agent'. The assistance of the Economic Offences Wing of the Delhi Police was also taken. On perusal of the forms and after preliminary enquiries, the suspicions were confirmed that indeed there was an organised attempt by several people to defraud and missell and accordingly an FIR to that effect is being lodged with Delhi Police.

It is suspected that the number of victims of such fraudulent attempts could be much higher, which would be revealed in due course after further investigations by Delhi Police and SEBI.

SEBI cautions investors that investors should verify the credentials of people approaching them as agents / employees before making any investment through such agents / employees.

Direct, Indirect or Nothing?

Investing through direct plans of funds makes sense when investors are certain that going through an intermediary offers no value...

Since the beginning of this year, mutual fund investors have had the option of investing in funds directly with the fund companies in special 'direct' plans of all funds. While investors could have invested directly earlier too, there was no advantage in doing so. However, since January 1, SEBI has asked fund companies to create special direct plans in which the commission that would otherwise have been paid to intermediaries goes to the fund's NAV, and thus to investors.

Even though it's early days yet, a handful of investors have started coming in through direct plans. This number could only grow in the future. It appears that compared to corresponding indirect plans, direct ones will have higher returns of the order of 0.4 per cent to 0.7 per cent per year. Over a long period, that does accumulate. During the last decade, the median large cap equity fund had returns of 18.81 per cent a year. That means an investment of Rs 1 lakh would have grown to Rs 5.37 lakh. A direct plan with returns of half a per cent more would have delivered Rs 5.60 lakh.

Investors should maximise value but you have to decide whether over ten years this differential is large enough to forego the services of an intermediary. The answer depends entirely on what services your fund advisor offers you and whether you can substitute them yourself. Ideally, an advisor would be helping you with investment advise as well procedural help. If you don't think these are worth the extra money and you are confident of your do-it-yourself abilities, then you should go direct.

However, I find that the most important service that intermediaries provide is often not given enough importance--many a time, their sales pitch goads you into investing when you may not have done so. The worst investment is often when you don't invest at all and making you invest could be the most valuable service of all.

Source: http://www.valueresearchonline.com/story/h2_storyview.asp?str=22627

Mutual fund products: Sebi issues colour codes, labelling

Market regulator Sebi has issued a guidelines on 'product labelling' with colour coding for mutual funds (MFs), a move that would help investors assess the risk associated with the schemes.

The guidelines would be effective from July 1, 2013, for all existing and forthcoming schemes, Securities and Exchange Board of India (Sebi) said in a circular yesterday.

As per the norms, product labels carrying details about the schemes would be disclosed on the front page of initial offering application forms.

Besides, the labels would have to be placed in common applications forms and advertisements.

The regulator has also decided up on colour codes to indicate the level of risk associated with the product.

A blue colour coded box would indicate low risk, yellow would signify a medium risk, while brown would be represent schemes with high risk, Sebi said.

"In order to address the issue of mis-selling, a committee was set up to examine the system of product labelling that would provide investors an easy understanding of the kind of product/scheme they are investing in and its suitability to them," Sebi said.

Based on the recommendations by the committee, it has been decided that all the mutual funds would 'label' their schemes on certain parameters, it added.

The labels would include details about the nature of schemes "such as to create wealth or provide regular income in an indicative time horizon (short/ medium/ long term)".

Moreover, mutual funds would have to state a brief about the investment objective in a single sentence followed by kind of product in which investor is investing (equity or debt).

As per the guidelines, mutual funds would also have to include a disclaimer that "investors should consult their financial advisers if they are not clear about the suitability of the product".

Sebi said that the product label has to be placed in proximity to the caption of the scheme in the initial offering -- Key Information Memorandum (KIM) and Scheme Information Documents (SIDs) -- and common applications so that they are prominently visible to investors.

Source: http://www.indianexpress.com/news/mutual-fund-products-sebi-issues-colour-codes-labelling/1090399/0

AMFI to waive registration fees from first time mutual fund distributors

Industry body Association of Mutual Funds in India (AMFI) today decided to waive registration fees, estimated at Rs 3,000, for first time distributors for a period of five months beginning February 1.

The initiative is aimed at enlarging distribution network and attracting new cadre of distributors or Independent Financial Advisors (IFAs) for selling mutual fund products, AMFI said in a release here.

AMFI has "decided to waive registration fees for all registrations of first time distributors for a period of five months from February 1, 2013 to June 30, 2013."

The objective is to create larger number of 'feet-on-street' to distribute mutual fund products, AMFI Chief Executive H N Sinor said.

In November last year, AMFI had slashed registration fees to Rs 3,000 for three years per distributor from Rs 5,000.

The distributors registering under the category of individuals, including senior citizens and new cadre of distributors, need not pay the registration fees during the five-month period, the release said today.

After two years of successive decline, the mutual fund industry managed to register rise in assets base nearing Rs 8 lakh crore with an increase of about Rs 2 lakh crore in 2012.

As per industry data, the total assets under management (AUM) of all the fund houses put together rose by 30 per cent on strong inflows in fixed income, gold schemes and liquid funds.

Market regulator SEBI last year introduced a new cadre of distributors, who have been allowed to sell units of simple and performing schemes to increase the strength of mutual fund distribution network.

Source: http://www.indianexpress.com/news/amfi-to-waive-registration-fees-from-first-time-mutual-fund-distributors/1060214/0