Quantum Tax Savings Fund NFO

Quantum Mutual Fund has launched its first open-end equity-linked savings scheme – Quantum Tax Savings Fund.
Investment Strategy:

The fund will maintain a diversified portfolio of stocks picked up from the BSE 200 index on the basis of attractive valuations. The fund can fully allocate its assets in equity and up to 20 per cent in debt and money market instruments.
Fund Manager:

Atul Kumar is the fund manager of the scheme. He has eight years of experience in the equity market. Currently, he is the Fund Manager –Equity at Quantum AMC and manages Quantum Long Term Equity Fund. The fund has generated a negative return of 51.61 per cent as against its benchmark BSE TRI Sensex which fell by 54.5 per cent (Jan 2008-Nov 2008).

Basic Details:

NFO Opens: December 10, 2008

NFO Closes: December 13, 2008

Benchmark: BSE 30

Plans: Growth & Dividend

Options: Dividend Payout & Dividend Re-investment

Load Structure: Entry Load - Nil, Exit Load – Nil

Minimum Application Amount: Rs500

Lock In Period: 3 years

Fund Manager: Mr. Atul Kumar

King of Good Times

Due to its concentrated bets in growth stocks, the returns of JM Financial's funds can deviate substantially from category norms. In a bull run, it may have some of the savviest skippers going. But its dramatic fall in slumps is a turn off.
If you find that hard to believe, consider JM Emerging Leaders and JM Basic. Both these funds were amongst the top 5 performers of 2007, JM Basic bagging the coveted No. 1 slot. In this market slump, Emerging Leaders fell by 72.46 per cent and Basic, 66.17 per cent, when the category average was a 49.74 per cent fall (Year-to-date return as on October 13). As for JM Equity, it makes for no comparison with its siblings. It actually underperformed the category average in 2007, when the other two were on a roll, and fell harder than the average when the market slumped. Make no mistake. We think Sandip Sabharwal, Chief Investment Officer-Equity, is a skilled manager who has the courage to ride his convictions. But that said, we think this fund house is only appropriate for aggressive investors. And even then, they may want to limit their exposure, given the high risk and performance fluctuations.
When JM Financial Mutual Fund started in 1994, its first products were a complete basket of a diversified equity, balanced and income fund. But over time, it became recognised as a debt fund house.
The fund house historically maintained a very aggressive posture in managing its debt funds, which was evident from the high average maturity profiles most of the time. This, coupled with a relatively lower expense ratio for the short-term funds, held it in good stead. But over the years, the performance of its debt funds have faltered.
In two years they launched a slew of thematic and sector funds. One of Sabharwal's first moves was to revamp the portfolio of JM Basic. The fund soared and was India's best performing equity fund in 2007.
All in all, this is an opportunistic fund company which bets on momentum and growth stocks and sports high beta equity portfolios.

Debt funds, gilts in demand

Banks are investing their surplus funds in government securities and debt mutual funds as credit demand from companies has dried up in the face of the economic slowdown.
Data available with the Reserve Bank of India show that barring on the first day no bank has borrowed from the apex bank through its repo auction in this month. All bids were in the reverse repo counter.
Under the repo auction, the RBI lends money to banks. Under the reverse repo auction, the RBI borrows money for the short term from banks against government securities.
The reverse repo auctions of the RBI had attracted many banks since the first week of November.
The average daily volume of transaction rose sharply from the beginning of this month.
However, after the RBI cut the reverse repo rate to 5 per cent from 6 per cent on Saturday, the auction volume fell steeply to Rs 1,070 crore on Monday from a daily average of more than Rs 25,000 crore in the first five days of the month.
In the face of a tight liquidity condition in the economy in September that led to a redemption crisis in the mutual fund industry, the RBI reduced the cash reserve ratio (CRR) steeply from 9 per cent to 5.5 per cent between October 6 and November 2.
The CRR is the percentage of deposits that banks compulsorily keep with the apex bank.
The CRR cut was followed by a reduction in the statutory liquidity ratio (the percentage of deposits that banks have to invest in government securities) to 24 per cent from 25 per cent and repo and reverse repo rates to 5 per cent and 6.5 per cent, respectively.
Liquidity in the banking system was so tight that there was very little reverse repo auction throughout October. All banks turned borrowers in the repo market.
After the cash reserve ratio was cut on October 6, the daily volume of transactions fell from Rs 70,295 crore on October 1 to Rs 550 crore on November 3.
Banks became lenders in the reverse repo market for the most part of last month, when the average daily volume in the reverse repo market far exceeded the volume in the repo market.
In the current month, there was repo trading only on one day, and the daily average volume shot up in excess of Rs 25,000 crore from Rs 4,000 crore in November.
According to a senior official in a private sector bank, “Banks would rather prefer to park their excess liquidity in short-term investments rather than reduce lending rates when the demand for credit itself is going down.”
Source: http://www.telegraphindia.com/1081210/jsp/business/story_10231853.jsp

Mutual Funds to see heavy redemption in coming days

Mutual Fund houses which saw their asset under management fall by nearly 18% in month of October are getting ready for another round of redemption which could see an outflow of Rs 360 billion from their corpuses, reports Business Standard.
About 720 schemes which are going to mature by March 2009, will witness an outflow of over Rs 360 billion. Many debt schemes such as fixed maturity plans (FMPs), quarterly and monthly interval plans, fixed horizon plans and money market-related schemes are set to mature during the coming months.
In December itself, there will be an redemption as a result of maturity of debt and money market schemes which will amount to around Rs 150 billion, while redemption in January will be to the tune of Rs 60 billion. February may see the largest round of redemption, with around Rs 130 billion flowing out of the mutual fund industry, mainly from the maturing quarterly interval plans launched in November.

Debt funds suffer from single entity exposure: Crisil

While the portfolio credit quality of most Indian mutual fund (MF) schemes is strong, a majority of the schemes have single industry or company concentration, says a latest release from ratings agency Crisil.
Funds with large and illiquid single company exposures could be affected by redemption pressures. The single company exposures of these funds could increase as they sell more liquid assets to meet redemptions. The high credit quality of most debt funds’ investments partly offsets the risk arising from concentrated holdings, the release said.
Crisil defines portfolios with more than 25 per cent of assets under management (AUM) in a single company or industry as “significantly exposed”.
The agency conducted a study where they analysed 860 schemes, which covered 96 per cent of AUM of debt mutual funds.
The study revealed that investments that are rated AAA and P1+, the highest rating categories, constituted 82 per cent of the portfolios analysed. The AA category adds another 6 per cent to this figure.
Roopa Kudva, managing director & chief executive officer, Crisil, said, “Most debt funds have not compromised on credit quality in search of returns. Investors, therefore, have little reason to fear defaults eroding the value of their investments. Nevertheless, lack of adequate portfolio diversification remains an issue.”
Half of the schemes have significant exposure to the banking sector and 38 per cent have a significant exposure to non-banking finance companies (NBFCs) . Exposure to the real estate sector is only 5 per cent of debt funds AUMs. More importantly, not more than 3 per cent of debt mutual funds have significant exposure to the real estate sector.
Of the 58 debt schemes that have AUMs of Rs 1,000 crore and above, only two are significantly exposed to single companies.
Of the remaining 802 schemes in the study, 249 have significant exposure to at least one company. This indicates that while larger schemes are well-diversified as far as single-company exposure is concerned, 30 per cent of the smaller schemes have significant single-company exposure.
These concentration levels reflect the limited investment opportunities in the Indian debt market. “Over the years, banks and NBFCs have largely been the issuers. Manufacturing companies have preferred to raise funds abroad because it was cheaper there and also it was more difficult in India procedurally.
However, the procedure to raise funds in India through issuances has eased considerably. The liquidity crisis globally has also led to more manufacturing companies coming to the Indian market to raise funds. The issuer base is thus widening,” said Kudva.

Source: http://www.business-standard.com/india/storypage.php?autono=342735

Small debt funds face concentration risk: CRISIL

CRISIL`s analysis reveals that the portfolio credit quality of most Indian debt mutual fund schemes is strong. However, a majority of schemes have single-industry concentration, and many small schemes have single-company concentration. Funds with large and illiquid single-company exposures could be affected by redemption pressure: single-company exposures could increase as these funds sell the more liquid assets in their portfolios to meet redemptions. The high credit quality of most debt funds` investments, though, partly offsets the risks arising from concentrated holdings.
The 860 schemes analyzed cover 96% of the assets under management (AUM) of Indian debt mutual funds; gilt schemes are excluded, since they do not have sector or company exposure. Investments that are rated `AAA` and `P1+`, the highest rating categories, constitute 82% of the portfolios analyzed for the study; the `AA` category adds another 6% to this figure.
``Most debt funds have not compromised on credit quality in search of returns, and investors therefore have little reason to fear defaults eroding the value of their investments. Nevertheless, lack of adequate portfolio diversification does remain an issue,`` said Roopa Kudva, managing director and chief executive officer, CRISIL.
A concentrated portfolio increases the risk of investors losing a large chunk of their capital in the event of a single default. CRISIL has defined portfolios where more than 25% of AUM is exposed to a single industry or company as `significantly exposed`. By this definition, almost all debt schemes have significant exposure to at least one sector. Half of the schemes have a significant exposure to the banking sector, and 38% have a significant exposure to the non-bank financial company (NBFC) sector. Contrary to widespread perception, exposure to the real estate sector is relatively low.
``We estimate that only 5% of debt mutual funds` AUM consists of real estate sector debt. More importantly, not more than 3% of debt mutual funds have significant exposure to the real estate sector,`` said Tarun Bhatia, head, financial sector ratings, CRISIL.
More risky than single-industry exposure is single-company exposure, because it implies even lower diversity. Of the 58 debt schemes that have AUMs of Rs 10 billion and above, only two are significantly exposed to single companies. However, of the remaining 802 schemes in the study, 249 have significant exposure to at least one company. This means that, while the larger schemes are well diversified as far as single-company exposure is concerned, 30% of the smaller schemes have significant single-company exposure.
These concentration levels reflect the limited investment opportunities in the Indian debt market. Most funds have worked towards mitigating concentration risk by investing in highly-rated credits as the rating distribution statistics above indicate.
``Over the longer term, the solution to concentration risk lies in having a more vibrant debt market with a much wider issuer base than exists in the country today,`` Kudva added.

Source:http://www.myiris.com/rss_index.php?fileR=2008%2F12%2F09%2F20081209162347121

Investors flock to big, PSU MFs for investment safety

After a tumultuous time during the October liquidity crisis, investors might just be taking a “flight to safety”, banking on public sector mutual funds and the bigger names in the industry.

Corporate investors are shifting preferences in their choice of fund houses instead of chasing returns, distributors and officials said.
Investors are rushing to invest in public sector entity-sponsored fund houses with a view government may come to rescue and bail out in case of any unforeseen circumstances.
While PSU-sponsored fund houses are cashing-in on money, top mutual funds are also benefiting due to their brand name, expertise and fund management skills, industry officials said. “There has been a complete shift in the choice of investors. People have begun associating more with the bigger names. Choice of fund house has become the first criteria for investment followed by better fund managers and lastly, returns,” a senior official at a distribution house said.
October witnessed unprecedented redemption in liquid, short-term debt, and fixed maturity plans amid acute liquidity crisis that pushed interbank call money rate close to 22 per cent.
Doubts over FMP portfolios further added to the pressure leading to the investor sentiment taking a rough bruise. In the course of events, a study by Mumbai-based distribution house, which is famous for corporate reach, notes how only the big players have been consistent with their inflows.
According to this study, fund houses that have garnered sizeable business in November include Birla Sun Life Mutual Fund, ICICI Prudential Mutual Fund, HDFC Mutual Fund, Tata Mutual Fund and Reliance Mutual Fund.
What must be noted that the fund houses listed are among the top ten of the country and that in spite of witnessing a drop in their monthly average assets have remained in the good books of investors.
In November, average assets under management of the 35 fund houses in India fell by 6.91% to Rs 4.02 lakh crore over the previous month. The top 10 mutual funds’ average assets dropped 4.46% to Rs 3.074 lakh crore. Barring UTI Mutual and Tata Mutual, rest all fund houses suffered fall in average assets.
UTI Mutual Fund, LIC Mutual Fund and SBI Mutual that are among the public sector fund houses have seen sizeable inflows, a distributor said. An example of which would be the last quarterly FMP launched by SBI Mutual Fund that garnered Rs 1,700 crore in its new fund offer (November 20-25).
This huge success comes at a time when investors shunned FMPs due to a lack of clarity on likely norms. The crisis faced by the industry led to Securities and Exchange Board of India getting into the act and revising norms for close-ended mutual fund schemes.
“The mindset might be changing. Investors are sticking to Indian mutual funds while new money is definitely going to big names,” said the executive director of an investment advisory firm.
On Thursday, the regulator banned premature exits in close-ended schemes and made listing of such schemes compulsory. Among the other fund houses that held fort were JP Morgan Mutual Fund, DWS Mutual Fund, Kotak Mahindra Mutual Fund and Canara Robeco Mutual Fund, a distributor said. “Smaller fund houses will face problems,” said Juzer Gabajiwala, head, mutual fund distribution, Ventura Securities.

Source: http://www.business-standard.com/india/news/investors-flock-to-big-psu-mfs-for-investment-safety/00/21/342631/

Primary CP issues take a back seat

Primary issuances in the commercial paper (CP) market were absent as mutual funds preferred to remain on the sidelines due to the uncertainty regarding rates, dealers said.

Rates also fell 50 basis points after the Reserve Bank of India (RBI) on Saturday lopped 100 basis points off its reverse repo and repo rates to 5 per cent and 6.5 per cent respectively.
“Mutual funds are receiving inflows from banks, but are refraining from investing and are preferring to hold on to cash,” said a dealer at a private mutual fund.
Corporate advance tax payments on December 15 have made mutual funds wary about investing as they expect redemptions from banks and companies.
Banks were offering certificates of deposit (CDs), but there were no buyers in the market On Monday, dealers said.
Banks are also not keen on issuing papers as they expect rates to fall further in the coming weeks.
“Mutual funds are not seen investing in papers for a week or so until redemption pressure eases,” said a dealer at a mutual fund.
Non-convertible debentures (NCDs) with put/call option were also not dealt in the market On Monday, dealers said.
Three-month CPs were quoted at 12-13 per cent, unchanged from Friday, while three-month CDs were at 7.50-7.75 per cent versus 8.10-8.30 per cent.
Secondary marketVolumes were subdued in the secondary market too as most mutual funds were seen investing in secondary corporate bonds, dealers said.
“Mutual funds and banks were selling papers in the secondary market to book profits,” said a dealer at an insurance company.
CDs maturing in December were dealt at 6-6.10 per cent compared with 6.50-6.60 per cent on Friday.
CDs maturing in March were dealt at 7.40-7.60 per cent compared with 7.75-8 per cent.
Vijaya Bank’s March maturity CDs were dealt at 7.41 per cent On Monday.

Source: http://www.business-standard.com/india/storypage.php?autono=342619