SEBI bans indicative yields on debt funds

India's market regulator on Monday banned funds from suggesting indicative yields on debt plans and cut the maximum maturity of papers liquid funds could invest, a move that could dent popularity of these schemes.
The Securities and Exchange Board of India (SEBI) said mutual funds must not disclose indicative yields and portfolios of debt funds, a practice widely followed in the industry to sell fixed maturity plans.
"This practice should be prohibited as the indicative portfolio and indicative yield may be misleading to the investors," the regulator said in a statement.
In an another statement, the regulator also lowered the maturities of papers that liquid or money market funds could invest into from the current requirement of one year.
It said liquid funds can invest in securities with maximum maturity of 182 days with effect from Feb 1 and 91 days with effect from May 1.
There are currently more than 350 fixed maturity and liquid funds managing about 1.6 trillion rupees, according to data from the Association of Mutual Funds in India.

Source: http://in.reuters.com/article/domesticNews/idINBOM21581720090119

Unitech's debt obligation reduced to Rs 600 crore up to March '09

India's second largest listed real estate developer Unitech on Monday claimed that its debt obligation up to March '09 has reduced from Rs 2,500 crore to Rs 600 crore on account of repayment and roll over of loans. Of the Rs 600 crore loan, which the company is now expected to pay back by March, 60% is due to banks and rest to mutual funds. The company claimed it paid back close to Rs 950 crore and the rest was rescheduled to a later date.
Unitech had a total debt of Rs 8,300 crore on its balance sheet as of September, of which Rs 2,500 was supposed to be repaid by March 2009. Unitech MD Sanjay Chandra said over Rs 1,000 crore loan has been restructured so far, but didn't give the exact figure.
Some of the loans that have been rescheduled include those which were due after March. Without clarifying how much Unitech still owed its lenders following the repayment and restructuring of loans Mr Chandra said, "We don't have substantial repayment obligation now. Nothing that worries us."
Unitech had raised Rs 900 crore at 19% interest rate from 8-9 mutual fund houses, including Reliance and Kotak, in November 2008. This was due for repayment on Monday. The company said it paid back a 'substantial' amount on Saturday, while the rest was rolled over.
"We are trying to replace our short-term mutual fund debt by long-term bank loans," said Mr Chandra, adding that he expected to replace Rs 2,500-crore short-term loans by long-term loans in the next two months. He said he has been able to raise fresh debt, mainly to retire old ones, but refused to give the amount of fresh debt raised.
Unitech in a hurriedly concluded EGM on Monday also obtained approval of shareholders to raise Rs 5,000 crore through fresh issue of equity or convertible instruments. "The way restructuring is happening and the pace at which it is happening, we don't need fresh capital. But if there is a window of opportunity, we will go for it," said Mr Chandra. He declined to comment on the shares promoters have pledged with other financial institutions.
On the issue of share buy-back of AIM-listed Unitech Corporate Park(UCP), Mr Chandra said a decision will be taken by the UCP board next week in Dubai. UCP holds real estate projects being executed by Unitech in India. Unitech's wholly owned subsidiary Nectrus Ltd will buy back shares using management fee it gets from UCP once the board gives a green signal.

Source: http://economictimes.indiatimes.com/Markets/Real_Estate/Unitechs_debt_obligation_reduced_to_Rs_600_crore_up_to_March_09/articleshow/4003452.cms

The amendment to LIC Act

On December 23, 2008, the government introduced in Parliament a Bill for amending the Insurance Act, to raise the capital of the Life Insurance Corporation from Rs. 5 crore to Rs. 100 crore. On the face of it, the intention behind the proposed amendment may appear to be good. Unfortunately, it is not so.

Needless exercise
It is a recognised fact that a life insurance company does not require any capital. There were, and still are, many life insurance companies known as Mutuals. Standard Life of the U.K. (which operated in India even before 1900 and is now again in India in partnership with Housing Development Finance Company) was a mutual company till June 30, 2006. In India itself, Bombay Mutual, before nationalisation of insurance, was a well known example. The mutual companies have no capital — only working capital, during initial years. Policyholders are the owners of these companies and the entire profit, after tax, goes to them.
The Rs. 5 crore provided by the government at the time of formation of LIC was more in the nature of working capital than real capital. Today, the Controlled Fund of LIC exceeds Rs. 7 lakh crore, with a solvency margin reserve of more than Rs. 30,000 crore. This reserve, built up by transfers from surplus (profit) after tax, is akin to general reserve and, therefore, for all purposes, equivalent to capital, but with one difference. Ninetyfive per cent of this capital belongs to policyholders.
With policyholders thus providing almost 95 per cent of the capital, LIC is virtually a mutual company. In this context, an addition of Rs. 95 crore to capital is a drop in the ocean and serves no purpose, except perhaps to facilitate passing of a part of the business to the private sector, Indian and foreign.
Can a minority shareholder unilaterally alter the capital structure of a company? This question has to be first answered before the bill, in its present form, is taken up for discussion in Parliament.
As per the LIC Act, the Central government is not eligible for more than five per cent of the valuation of surplus emerging each year. This was in line with the standard set up by Oriental Assurance Company before nationalisation. In the case of private insurers, as per the Insurance Act, the shareholders are eligible for 100 per cent of the surplus emerging from without profit policies and 10 per cent of the surplus emerging from with profit policies. The unit linked policies come under the without profit category. With these policies constituting more than 95 per cent of the portfolio of private insurers, almost 98 per cent of surplus goes to shareholders in the case of private insurance companies. Policyholders to suffer
If the proposed amendment to the LIC Act goes through, the shareholders’ share of profits of LIC will immediately jump from five per cent to 10 per cent and then gradually increase, during the next ten years, to more than 40 per cent. That is, within the next ten years, even assuming only a modest growth rate, the shareholders of LIC would get more than Rs. 15,000 crore a year, or Rs. 1,250 crore a month, as compared to the present level of Rs. 1,000 crore a year. This, at the cost of policyholders.
These figures would explain the objective behind the proposed amendment.
Such a move to siphon off the profits of LIC will result in enrichment of private pockets, drastically reduce the levels of bonus to policyholders, render the corporation uncompetitive and eventually weaken it beyond recognition. Simultaneously, the demand to withdraw government guarantee to LIC has been resurrected. The government can be allowed to withdraw the guarantee but, on one condition. Convert the LIC into a mutual company and make the policyholders, who have contributed 95 per cent of the capital, the owners.
The amendment to the Insurance Act made in 1999 has conferred on us a distinction. After this amendment, India is perhaps the only country not to allow formation of mutual insurance companies. But, this position can be easily rectified through a minor amendment to the Act. In this context, it is worth mentioning the view held by the International Association of Insurance Supervisors (IAIS). According to this body (not binding on member states), an insurance company can be either a joint stock or a mutual company.
For giving up its control of LIC, the government may be compensated through payment of a fixed sum, say Rs. 1,000 crore a year, for the next 20 years. One may feel that the quantum of compensation is high. But, the price of freedom always is.
If such a scheme is implemented, it would result in immediate increase in the levels of bonus to policyholders, making LIC a much stronger organisation.
In 1993, a national survey was got conducted by the Malhotra Committee, spanning cities, towns and villages. The survey showed that LIC’s emblem was readily recognised by more than 99 per cent of the persons covered by the survey. The LIC is not just a national institution. It is a symbol of national integration and its emblem is treated as a symbol of security. It is the duty of every right thinking Indian to stand up against any attempt to dilute this status.

R. RAMAKRISHNAN

ACTUARY

Source:http://www.hindu.com/biz/2009/01/12/stories/2009011250031600.htm

Bharti AXA MF Launches Regular Return Fund

Bharti AXA Mutual Fund has announced initial offer period of Bharti AXA Regular Return Fund, which is an open ended income scheme. The fund opens for new issue on 28 January 2009 and remains open till 24 February 2009. The NFO price for the fund is Rs 10 per unit. The scheme will re-open on 16 March 2009. The Scheme seeks to generate regular income through investments in fixed income securities and also to generate long term capital appreciation by investing a portion in equity and equity related instruments.The scheme will offer two plans viz. eco and regular plan with growth & dividend options. Dividend option will further offer dividend payout and reinvestment facility. Dividend reinvestment option will have with monthly, quarterly and annual frequency of dividend re-investment. Dividend pay-out option for regular income will be having monthly, quarterly and annual frequency. Eco plan is available for purchase transactions of up to Rs 2 lakh only. Where the value of any purchase transaction is greater than Rs 2 lakh, then such investments can be placed only in regular plan. Both plans will have common portfolio. The minimum investment amount for both eco and regular plan is Rs 10,000 and in multiples of Re 1 thereafter. Additional investments in an existing folio can be made for Rs 1000. The Mutual Fund seeks to raise a minimum subscription amount of Rs. 1 crore during its New Fund Offer period.

Mutual Funds turn sympathetic towards Unitech

Mutual funds, over time, have become sympathetic to Gurgaon-based realt estate company Unitech Ltd. Though the company will have to repay debt to the tune of Rs 1,100 crore to mutual funds over the next one week, there are many magnanimous fund managers out there who are willing to rollover the debt for some more time.
"Most funds have invested into asset-backed papers. Moreover, if there is rollover of debt, investors stand to gain significantly from increased yields (anywhere between 14 and 16%). Considering Unitech's large asset bank, a default is simply out of question," said the CEO of a domestic fund house.
According to a survey conducted by Matrix Financial Services, various mutual fund schemes have an exposure of over Rs 1,433 crore in Unitech Ltd, through several debt papers issued by the company. Several schemes of Reliance MF, HSBC MF and Sundaram BNP Paribas MF have exposure (to Unitech debt) in the range of Rs 50 crore and Rs 300 crore.
"Unitech does not have a credit problem; it is only constrained by a severe liquidity crunch. From what we understand, the company is ready to pay 40% of the money due to mutual funds in the coming week. We are ready to rollover the remaining 60% for another 20 days or a month," said the fixed income manager of a fund house attached to a PSU bank.
Close to downgrading Unitech's long-term rating to 'B (Ind)' from 'BBB (Ind)' about a week ago, Fitch Ratings, on Wednesday, downgraded Pass Through Certificates (PTCs) that are directly linked to the rating company's national long-term and short-term ratings of Unitech Ltd.
The downgrade signals the company's continued delay in raising the required funds as earlier projected and increasing uncertainty regarding its ability to service its interest cost and fulfil its immediate debt payment obligations.
"In case, there is a potential payment delay on account of liquidity issues expected from an issuer of a bond in a fund's portfolio, one of the ways this kind of challenge is temporarily met is by replacing the bond with another instrument of the same issuer. However, this would affect the cashflow position of the fund," Crisil fund service head Krishnan Sitaram.
If there is a redemption request at that time, the options of meeting that can then be by selling that security or some other security in the portfolio or by availing of a bank loan, Mt Sitaram added.
The company has convened an EGM on January 19 to discuss various nagging issues. According to mutual fund sources, the company is also meeting a couple of banker on January 16 and 17 to decide on loan restructuring.
"We'll be comfortable with a rollover. Many of our investors are willing to reinvest in fresh short-term paper issued by Unitech. Many will also be looking to invest in other debt plans. I guess, there wouldn't be a big repayment issue," said the debt fund manager of a Mumbai-based fund house.
Given the weak operational cashflows, the company will resort to asset sales or debt restructuring over the near-term. According to a BNP Paribas report, forced asset sales in the current environment could further erode equity value. Management indicated that it is in the process of raising Rs 800 crore to tide over the near-term liquidity crisis. Failure to do so could lead to forced sale of underlying assets - primarily land, the report said.

Source: http://economictimes.indiatimes.com/articleshow/3987776.cms

Fitch affirms 'AAA (ind)' rating of IDFC Liquid Fund

Fitch Ratings has today affirmed IDFC Liquid Fund's National rating at 'AAA(ind)'. The rating reflects the fund's highest standards for credit quality and its conservative investment approach, relative to other liquid funds in India. The agency has considered the fund's investment policies, management capabilities, risk management procedures and supporting controls in ensuring consistency with management's objectives.
As of 29 December 2008, 96% of the portfolio was invested in assets rated 'F1+ (ind)'/'AAA (ind)' or equivalent, while the minimum credit rating of securities held was 'F1' or equivalent. Fitch notes that the portfolio management team intends to maintain the fund's credit quality when choosing new investments. However, the poor liquidity of lower rated securities in the Indian debt market may put the portfolio credit quality under stress, should assets held in the portfolio be downgraded.
The fund faces concentration risk as at end-December 2008; a large portion of the fund's assets are invested with debt securities of just three issuers, of which the largest, in terms of portfolio exposure is a Government supported entity, hence partially mitigating this concentration risk.
The investment manager of the mutual fund is IDFC Asset Management Company Pvt. Ltd. The sponsor of the mutual fund is IDFC, a diversified financial institution providing a range of financing products and services with infrastructure as its focus area.
Fitch's National fund credit ratings are assigned on a scale of 'AAA(ind)' to 'C(ind)', on a rating scale similar to that of Fitch's National Long-term credit ratings, with 'AAA(ind)' indicating the highest credit quality standards within the country. The assigned rating provides a relative measure of the fund creditworthiness only in comparison with other funds in India as it is a National rating. It is therefore not internationally comparable. Fitch's bond fund credit rating do not consider the effect of market risk on net asset value ("NAV") movements, and are not an indication of the stability of the fund's NAV. Such issues are assessed in Fitch's bond fund volatility ratings.

Source: http://news.moneycontrol.com/india/news/pressnews/fitch-affirmsaaaind-rating-idfc-liquid-fund/14/00/379201

Reliance Mutual Fund Plans To Launch A New Scheme

Reliance Mutual Fund plans to launch a new scheme called Reliance Infrastructure Fund- an open-ended equity scheme.

The Scheme will offer two plans- retail and institutional option and both plans will offer- growth plan with growth option and bonus option and dividend plan with dividend payout option and dividend reinvestment option. The scheme may invest upto 65%-100% in equities and equity related securities including the derivatives. At least 65% of investment would be made in equity/equity related securities of companies engaged in infrastructure sectors and infrastructure related sectors. Apart from this, the scheme will invest upto 35% in debt and money market securities including investments in securitized debt. Investment in securitized debt should be upto 30%.

Source: http://indian-mutualfund.blogspot.com/

NFO :: Fidelity Wealth Builder Fund

Fidelity International's Indian asset management company today announced the launch of its Fidelity Wealth Builder Fund, an open ended fund of funds scheme offering asset allocation options with three Plans. The investment objective of the fund is to seek to generate reasonable returns based on the Plan selected with minimum and maximum asset allocation between debt and equity. The fund manager will use a two-tier investment approach – asset allocation and fund selection – to invest in Fidelity’s funds. This is a zero entry load Fund with free switching between Plans permitted.
The NFO will be open from January 14 to February 5, 2009. The Fund will open for ongoing purchases and redemptions from March 2, 2009.
Ashu Suyash, Managing Director and Country Head - India, Fidelity International, said, “Asset allocation decisions can drive as much as 91.5% of investment returns variability, as studies have shown. In the current market conditions of heightened volatility, a fund like the Fidelity Wealth Builder Fund provides investors a convenient route to benefit from disciplined asset allocation. We are in an environment where attractive returns are likely in the bond market and there is potential for bear-market rallies in equities on the back of increasingly attractive valuations.”
The Fidelity Wealth Builder Fund offers three Plans with varying levels of exposure to debt and equity that investors can choose from depending on their risk appetite.

Under Plan A, the Fund will invest up to 85% in debt schemes and around 15% in equity schemes.

Under Plan B, the Fund will invest around 30% of net assets in equity schemes and the remaining in debt schemes and

under Plan C, the Fund will invest at least 50% of the net assets of the Plan in debt schemes and 50% of the net assets of the Plan in the equity schemes.
Ms. Suyash added, “To encourage investors who have turned risk averse, the Fidelity Wealth Builder Fund is a fund with no entry load. Whether investors invest through their advisers or directly, they will not be charged an entry load. Moreover, the Fund also offers investors free switch-in and switch-out facility between the Plans, if, over time, investors’ outlook for debt and equity changes.”
The Fund will offer Growth and Dividend options. A dividend is proposed to be declared, subject to availability of distributable surplus, on a Quarterly basis under Plan A and Plan B. Under Plan C, the dividend may be declared by the Trustee, at its discretion, from time to time subject to the availability of distributable surplus.
The Fidelity Wealth Builder Fund will have a custom benchmark for each Plan created using the CRISIL Composite Bond Fund Index and the BSE 200 in the proportion of the split between debt and equity for each Plan.
The Fund has no entry load but an exit load of 1% will be applicable for redemptions within a year from the date of purchase.

The minimum initial investment is Rs. 5000. Investors can invest in the Fidelity Wealth Builder Fund even through the SIP route with a minimum amount of Rs. 500 per installment with the total of all installments not being less than Rs. 5000. In addition, the systematic transfer and systematic withdrawal plans are also available.