Benchmark Mutual Fund launches first-ever Shariah compliant ETF

The market for Shariah funds is set to grow with Benchmark Mutual Fund launching the first-ever Shariah Benchmark Exchange-traded scheme in India. It’s an open-ended listed index scheme.

The scheme will be benchmarked against the S&P CNX Shariah index, an index that was launched by Standard & Poor’s and India Index Services & Products. Each unit is priced at 1/10th of the S&P CNX Nifty. The scheme will open for subscription on February 4 and close on February 25.
The S&P CNX Shariah index comprises stocks that are Shariah compliant. As a result, the fund will not invest in business activities related to pork, alcohol, gambling, financials, advertising and media (newspapers are allowed and sub-industries are analysed individually), pornography, tobacco and trading of gold and silver.
At present, the Nifty Shariah Index comprises 37 constituents as on January 13, 2009 and includes stocks such as Reliance Industries, Infosys Technologies, ONGC, Gail, Hindustan Unilever, Reliance Capital, State Bank of India, Tata Motors, HDFC, ICICI Bank among others.
Shariah-based equity investments do not allow investors to invest in excessive debt companies (no investments in companies that have debt-to-marketcap exceeding 33 per cent), companies with high outstanding receivables (net receivables in excess of 45 per cent of market cap) and companies that do not have at least 25 per cent of its capital in fixed assets.
“There is a big Muslim population here. We hope they will be interested in investing in this fund especially since this is the first fund of its kind,” said Rajan Mehta, executive director at Benchmark asset management.
While Shariah funds have had a limited run in the Indian markets so far, they could pick up given the kind of products that are coming into the market. HSBC Asset Management has also launched a Shariah portfolio scheme for affluent Indian investors.
The HSBC Amanah India Shariah Portfolio is an actively managed open-ended equity offering wherein investors can invest in conformity with Islamic Shariah principles. The minimum investment amount for this customised product in Rs 25 lakh.
In November 2008, markets regulator, Securities and Exchange Board of India (Sebi) also gave the go-ahead to Taurus mutual fund and its joint venture partner, Parsoli Corporation to set up a Shariah-compliant mutual fund. However, the fund house is yet to launch the product.
Globally, Shariah-compliant investments total around $65 billion. Of these, around 53 per cent of the assets or $35 billion, is held in mutual funds out of which $33.6 billion is managed by local fund managers and $1.4 billion is managed by foreign fund managers, according to the Asia Investor magazine website.
Saudi Arabia is the largest market in the world for Shariah mutual funds measured in terms of number of funds or by assets.
In Asia, Malaysia is also the most important market for Shariah funds. Internationally, other prominent markets for Shariah products are Middle East countries, Indonesia, Pakistan, United States and South Africa.

Source: http://www.business-standard.com/india/news/benchmark-mutual-fund-launches-first-ever-shariah-compliant-etf/01/09/347466/

SEBI Seeking Transparency

Last week, SEBI rolled out yet another set of new rules governing the operation of mutual funds in the country. Like the ones in early December, these new rules too are a response to the crisis faced by debt funds during the October and November. In December SEBI moved to shut off the early redemption route out of closed-end funds. It mandated that liquidity should be provided not by the fund companies themselves but by listing them on stock exchanges. The October crisis was precipitated by investors pulling out money from funds whose portfolios were not designed for early redemptions.
Now, SEBI has moved forward another few steps and blocked a range of questionable practices that exist in the debt funds. Firstly, the regulator has banned fund salesmen from stating indicative yields or portfolios to investors. This practice is common in Fixed Maturity Plans. Effectively, fund companies often work out a debt portfolio in consultation with the actual borrowers and then go and hawk this portfolio to investors. Since the portfolio and its yield were known beforehand, these were openly shared with potential investors. During the credit crisis things didn't really work out the way they were supposed to and many funds deviated from the portfolios and underperformed the yields.
SEBI has now banned this mode of working. Obviously, no fund will now publish these indicators publicly. However it remains to be seen whether informal, oral communication of this nature between funds and large investors actually get stopped.
SEBI has also made a set of changes to the rules governing Liquid Funds. These funds are intended for parking money that investors can spare for very short-term periods of times ranging from days to weeks. They are supposed to be run in a maximally risk free manner. This basically means that they should be investing in debt instruments with very short maturity, because such investments react minimally to interest rate changes. During the crisis, it came out that plenty of liquid funds had invested some of their corpus in longer-maturity investments in order to gain some extra returns. Although this would have worked out fine had the crisis not occurred, the very purpose of liquid funds is to ensure that the investments perform as expected regardless of any crisis. As such, what liquid funds were doing was stretch the safety part of their mandate in order to deliver some extra returns.
The regulator has now mandated that liquid fund managers rein in their maximum maturities to six months by February 1 and further to three months by May 1. They are supposed to get out of all those securities that are over these limits. This will go a long way in giving these funds the kind of safety level that they should have. Yet another change that SEBI has done is a more curious one. There is a class of funds that is called 'Liquid Plus' funds. SEBI wants their names changed to something else because, in the words of the circular, 'the nomenclature of "Liquid Plus Scheme" should be discontinued since it gives a wrong impression of added liquidity'. Liquid Plus schemes actually have less liquidity and the 'plus' part refers to the fact that they try and give greater returns than vanilla liquid funds. Liquid Plus funds are also more tax-efficient than liquid funds.
I would have thought that both these category of funds are primarily used by professional investors who wouldn't be misled by nomenclature but anyhow, greater transparency is always welcome. It must be pointed out that all the ills that these rules plug loopholes that basically allowed fund managers to serve up higher returns to investors who wanted those returns. Like the rest of the financial world, neither of the two were overly mindful of risk. Now, having received the fright of their lives, everyone will stay well within limits till the next cycle starts.

Source: http://www.valueresearchonline.com/story/h2_storyview.asp?str=12633

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