HSBC India fund unit head of equities quits

HSBC's (HSBA.L: Quote, Profile, Research) Indian mutual fund unit head of equities, Mihir Vora, has resigned, a top official said on Thursday.
"He has put in his papers but he is still with us for some time to ensure that there is smooth transition," Vikramaaditya, chief executive of HSBC Asset Management (India) Pvt Ltd, told Reuters.
The firm was yet to decide on a replacement, he added.
Vora could not be reached immediately for his comments.
Last month, the fund house lost its head of fixed income Shailendra Jhingan to ICICI Securities, while Pioneer Global, the fund arm of Italy's bank UniCredit (CRDI.MI: Quote, Profile, Research), hired HSBC fund manger Alok Sahoo as head of fixed income earlier this month.
HSBC Asset Management, which had an average assets under management of about 101 billion rupees in December, has promoted Suyash Choudhary as fixed income head.

Source: http://in.reuters.com/article/domesticNews/idINBOM42259920090129

Monthly Income Plan: Sound investment

Those with a low-risk appetite who want an 'equity icing' can go in for MIPs. Any savings instrument that contains equity has turned sour for investors following the 2008 markets crash. But there is one mutual fund product, Monthly Income Plan (MIP), launched in 2000, which has held on despite having exposure to equities.Although MIPs have posted negative returns both in nominal and real terms, experts reiterate a reconsideration of the offering as an investment option.

What are MIPs?

These funds were launched with the objective of providing regular income to the investor. Dividends, if any, were paid out of investment profits at periodic intervals - monthly, quarterly or half-yearly. The regular income objective could be achieved by investing at least 75% of the assets in good quality fixed-income instruments and the rest in equities. The less-risky funds restricted equity exposure to 10% of the assets.

Who should invest?

MIPs' target segment includes retired people or those nearing retirement. The offering could be a good solution for those who want to invest in safer assets and still want some 'equity icing'. The risk profile of these funds places them in the space between income and balanced funds, which in turn attract those with low-risk appetite. Those who prefer to have low-risk investment and still want to participate in an upside, if any, may consider investing into an MIP.

What does one expect?

In an age of turbulence, most of us are not sure where equity will head. Though most experts reckon that equities are quoting at bargain prices, it is difficult to go for them. In such circumstances, MIPs can emerge as a preferred means of getting equity exposure. In a falling interest rate environment, MIPs could deliver good returns going forward.

Possible adversities:

Only a few offerings in the market have maintained consistency in paying dividends. The pressure to deliver regular returns means that fund managers cannot take any long-term bet, and hence, the participation in upside remains limited. A postal monthly income scheme, which offers guaranteed returns, scores over MIPs when returns are uncertain.The fixed-income investments carry credit and interest rate risk. Fund managers are pressurised to perform in both the asset classes - equity and fixed income - which, in classical sense, are expected to move in opposite direction.Being on the right side matters. The extent of equity exposure a fund is allowed to take and active management of equity exposure primarily decides the excess returns generated by the fund. A 10% cap on equity exposure may appeal to investors because of the limited downside seen during bad times. But, the same would appear as a dampener as markets recover. There is a set of investors who would prefer to keep things simple by buying into a diversified equity fund and an income fund, where the proportion of investment in each is decided by the investor and the investor can enjoy the best of both the offerings.

Source: http://economictimes.indiatimes.com/quickiearticleshow/4014371.cms

Caveat emptor ::: LIC Jeevan Aastha

Is the phenomenal response to the Life Insurance Corporation’s (LIC) Jeevan Aastha scheme (that closed on Wednesday) a tribute to the life insurance
behemoth’s cleverness in structuring a winning product? Or is it — collections are estimated to cross Rs 8,000 crore — more a reflection of some smart, and not-so-transparent, selling by LIC? The answer is a bit of both. LIC certainly demonstrated an uncanny ability to assess the pulse of the market right, designing an assured returns product that seems tailor-made for uncertain times. But much of the success of the scheme is because LIC was less-than-fully transparent about the benefits. Unfortunately, the insurance regulator, IRDA, too, seems to have turned a Nelson’s eye to the not-so-subtle mis-selling going on right under its nose. Prima facie, Jeevan Aastha is a single premium assurance plan with guaranteed benefits on death or maturity. In an environment where banks have reduced interest rates on fixed deposits (FDs), it seemed to offer the best of both worlds — a higher (tax-free) return than FDs and insurance cover as well. Not surprisingly, it met with a huge response, though a careful calculation shows returns are likely to be much less — in the range of 6.75% to 7.25% per annum in most cases! This paper has often argued the need for greater financial literacy on the part of investors (and greater transparency on the part of players). Even so it is doubtful many investors, even those who are fairly clued-in, would have been able to pierce the veil behind LIC’s complicated ‘benefit illustration’. For instance, insurance proceeds are normally tax-free. But if the premium payable on any insurance plan exceeds 20% of the sum assured, the proceeds become fully taxable. In the case of Jeevan Aastha, the single premium is often likely to be more than 20% of the maturity proceeds rendering the maturity amount taxable. However, LIC chose not to disclose this. Caveat emptor must be the guiding principle especially where money is involved. Nevertheless, it is high time financial players stopped playing a cat-and-mouse game with investors, counting on their naiveté to garner funds. Where they do not, the regulators must step in and compel them to do so.

Source:http://economictimes.indiatimes.com/Opinion/Caveat_emptor/rssarticleshow/4019117.cms

Refinance window open till September

The Reserve Bank of India (RBI) On Tuesday extended the tenure for two refinance facilities, including one to provide support to mutual funds and finance companies, for banks by three months to September 2009, though the use of both windows remains minimal.

Soon after the collapse of Lehman Brothers in the US in September, the global financial market freezed and liquidity dried up from the markets. The effects were also seen India.
The central bank had opened refinance windows to ensure that mutual funds and non-banking finance companies (NBFCs) in India get adequate resource support to meet redemption pressure and are able to conduct normal operations. Later, the housing finance companies were also allowed to use this facility
Now, there is adequate liquidity in the system and funds are available due to a slew of steps, including a 400-basis-point cut in the cash reserve ratio. The actions of the Reserve Bank since mid-September 2008 have resulted in an augmentation of actual/potential liquidity of over Rs 3,88,000 crore.
A senior Bank of Baroda official said that currently there was no demand from mutual funds as they do not face redemption pressure. In the early part of the third quarter (October), MFs were facing liquidity problems due to a sudden rise in redemptions, immediately after the collapse of Lehman Brothers.
Under the first refinance facility, RBI provides assistance through repo window up to Rs 60,000 crore on an outstanding basis. Banks can avail additional liquidity support of up to 1.5 per cent of their net deposit liabilities only for lending to MFs, HFC and finance companies. Banks can still use eligible securities worth Rs 59,170 crore to draw funds under refinance facility, indicating very low usage of facility.

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.