Cash rich mutual funds risk missing stocks surge

Indian fund investors have missed large part of the surge in domestic shares in the last one month and may be in for more disappointments as their fund managers sit tight on a multi-year high cash levels.
Sensex fell to its lowest level in 2009 on March 9, but has surged almost 30 percent since then, helped by a revival in global risk appetite and some flow of funds into emerging markets, including India.
However, nearly 300 diversified funds have seen their net values rise by an average 20.2 percent, held back by unusually high cash levels, with only nine of them rising more than the main stock index, data from global fund tracker Lipper showed.
"These cash calls would certainly impact fund returns once the market bounces back, which we saw in March," Chintamani Dagade, a senior research analyst with Morningstar India, said.
He said most of the large-cap diversified stock funds held double digit cash levels throughout 2008 in a bid to soften blow from falling shares, which went on to end the year down more than 50 percent, their sharpest fall on record in any year.
However, the strategy did not work for most funds. Net asset values of stock funds recorded their worst annual fall of 54.7 percent during the year, giving up the entire gain made in the previous two calendar years, with nearly half of the actively managed funds also underperforming the benchmark index.
Most funds continue with the strategy and some have raised the cash levels further ahead of general elections in April-May, anticipating a volatile share market, resulting in a major underperformance in the last one month.

Source: http://economictimes.indiatimes.com/Cash-rich-mutual-funds-risk-missing-stocks-surge/articleshow/4374019.cms

Index funds versus individual stock picking

“Where should I invest my hard-earned money?”

This question invariably puts investors into a serious dilemma as to which investment option should they consider. They get deeply consumed in the process of assessing, determining and considering options which would render optimal returns to them, involving minimal risk and offering safety to their capital.
Investment in equities (individual stock picking) and various types of mutual funds are two very obvious investment vehicles that would come to investors` mind. Equity funds, debt funds, balanced funds, index funds and so on are the several types of mutual funds, which can be considered. Which type of fund is better amongst them? The answer to this question would depend upon the investment goal, risk appetite and time horizon of the investor.
Let us compare individual stock picking and index funds in detail:
Individual stock picking is nothing but merely equity investing. It is the most popular investment vehicle amongst investors. It is considered a high risk- high returns investment vehicle.
But the Bear Market Run carrying on since last year has been responsible for the erosion of capital of several investors. On a broader side, the returns depend on the financial health of the company (of which you have purchased the shares), the performance of that particular sector and the overall market performance in general.
On a narrower side (investors' side), the returns depend on investors' investment objectives, risk taking capacity and tenure of the investment. If the particular sector or company's shares are not performing well, the investors incur losses. Risk of losing money is high in case of equities due to volatile nature of markets.
Index Funds are a category of mutual funds which invest into a whole index [Sensex (30), Nifty (50)] rather than a specific stock. This strategy is also called ‘indexing’. The goal of most index funds is to follow the index performance. Index funds buy all the stocks of a particular index. This is a passively managed scheme.
The fund managers of these schemes do not get involved actively in shares selection and the process of investing. However, the volatility of markets (indices) is uncertain. The performance of the indices cannot be foreseen by any one. In India, the indices (Sensex, Nifty) are small as compared to US index of S&P 500.
Benefits of index funds
Economical: Indexing is a passive investing strategy; it does not involve any active management by the fund managers as in the case of the actively traded funds. The main objective of index funds is to reflect the performance of indices. The cost of analysts` salaries, research cost, and brokerage is saved in case of the index funds.
Better Performance: The performance of passive funds is likely to be better than actively or professionally managed funds. In the long run, any particular stock cannot beat the whole index performance.
For the week ended Mar. 20, 2009, Index funds were the biggest gainers among all classes of mutual funds with 3.16% gain as the 30 share index, Sensex rose 210.07 points, or 2.40%, to 8,966.68 in the week ended Mar. 20, 2009. On the other hand, the broad based NSE Nifty rose 87.8 points, or 3.23%, to 2,807.05 in the same period.
NAVs of the index funds category gained 3.16% in the week Mar. 20, 2009.
Among the index funds, Nifty Junior BeES gained 4.33%, Benchmark S&P CNX 500 Fund added 3.49%, J M Nifty Plus Fund rose 3.33%, LICMF Index Fund - Nifty Plan climbed 3.27%, Birla Sun Life Index Fund gained 3.24%. (Myiris).
Diversified Portfolio: Index funds invest in all stocks from different companies and different sectors of a particular index, leading to a wide range of stocks, which helps in the diffusion of risk.
Returns: Returns in index funds are largely dependent on the performance of whole indices; the Sensex and Nifty being benchmarks of the index funds` performance in India.
Saves time and money: The hard core research of specific stock or sector is not required in case of index funds as these funds track the performance of whole indices and not a stock and sector in particular. This saves time and money also as nothing comes free and research is not an exception.
Disadvantages of index funds
Market risk: When the market undergoes a fall, you also lose in case of index funds as these funds are entirely based upon the ups and downs of the market
Less Flexibility: Index funds lack in flexibility, as investors don’t get the opportunity to invest into stocks in that particular index. This is so because there is no scope of selecting stocks of personal choice, based on quality and research.
Conclusion:
To conclude, index funds can possibly offer higher returns in the longer period of time, subject to performance of indices or markets. Index funds thus seem to be a better option between the two, as their advantages considerably outweigh the disadvantages. Diversification, lower cost and maintenance give them an edge over individual stock picking.
Source: http://in.reuters.com/article/personalFinance/idINIndia-38898620090406?sp=true

SBI gives top rate of 9.7 per cent among PF fund managers

State-owned lender State Bank of India has given a return of 9.7 per cent on provident fund deposits, which is over 50 basis above the top rate of 9.1 per cent offered by private sector provident fund managers for the quarter ended December 2008.
The other three fund mangers – all from the private sector - including Reliance AMC (9.1 per cent), ICICI Pru AMC (9.0 Per cent) and HSBC AMC (8.5 per cent) offered returns below the SBI's payout during the 17 September to 31 December 2008 period, an Employees' Provident Fund Organisation (EPFO) source said.
The EPFO, managing about 4.4 crore provident fund depositors, allowed the three private fund managers to manage its incremental deposits of about Rs25,000 crore per annum in July last year.
The aim was to improve the returns on EPFO's investments, which was earlier confined mostly to government securities and special deposit schemes.
The EPFO has invested Rs30,461 crore in central government securities, which earns a return of 7.25 per cent, and Rs20,000 crore in state government securities and loans, which fetches 7.5 per cent return.
Meanwhile, an advisory committee of the EPFO had, last month, rejected a finance ministry proposal to invest up to 15 per cent of its funds totaling around Rs1,82,000 crore in the stock markets. The rejection of a proposal to park this corpus amount in publically-listed companies and mutual funds for higher returns came in the wake of continuing volatility in the stock markets.

Source: http://www.domain-b.com/finance/banks/SBI/20090406_pf_fund.html

Future of MFs is in smaller cities: Birla MF CEO

Birla Sun Life Mutual Fund has retained its number 5 position among the top five fund houses, though its corpus declined by 3 per cent to Rs 47,096.23 crore as at end March. Birla MF is working on schemes that will act as a hedge to the market volatility and safeguard investors against capital erosion. ET spoke to Chief Executive Officer Anil Kumar to know more. Before shifting to Birla MF, Kumar was global head of Citibank’s NRI business last three years. He is an alumnus of IIM Ahmedabad and NIT Warangal.
Excerpts from the interview:
Q. What is your road map for the future in these troubled times?
A. We will continue our focus in launching innovative products capable of hedging against volatility in the market. We are looking at re-launching old schemes on similar lines, and are exploring the possibility of launching arbitrage and exchange traded funds.
We have consistent policy of declaring dividend in our schemes. Whenever we have surplus income, we will keep declaring dividend. Birla Sun Life Tax Relief ’96 declared 50 per cent dividend in 2008-09 despite these troubled market times. It was 200 per cent dividend in 2007-08.
Q. What do you give priority in running your AMC?
A. We give top priority to portfolio quality and security, size of fund corpus and ultimately our brand image. Identifying customer needs at the right time is a crucial aspect. Recession helped big fund houses to prove their worth in this respect.
Anticipating effects from the collapse of Lehman Brothers, we launched a short term debt fund that would invest in commercial deposits and commercial papers of PSU banks in the third week of September 2008. By October, it managed to raise Rs 3,800 crore from all classes of investors despite the economic turmoil.
Q. What prospects do you see for sustainability of the MF industry in India?
A. MF industry is in a “sweet spot” in India but it has a long way to go, as penetration is still very low. However, the market potential is huge. Only 5-6 per cent of household deposits in India find their way to MFs, which is lower than even the BRIC countries.
In the last five years, the industry has been growing at CAGR of 35 per cent. The future of the MF industry lies in Tier-II and Tier-III cities. The rate of deposits in these cities is proportionately higher, irrespective of market condition. Tapping this source will help MF grow manifold.
Further, opening up of the pension funds will help increase mutual funds reach. As a fund house, we will be looking at these new avenues to expand our product kitty.
Q. What are the product offerings you plan for smaller cities?
A. We are mostly promoting systematic investment plans through different equity schemes. We are also selling balance fund and debt schemes. We approach investors with two-pronged communication: 1) invest with 3-5 year time horizon 2) diversify your asset allocation with a mix of equity, balance and debt schemes.
Q. What sectors are you looking at for investment growth?
A. We look at sectors from a long term perspective. Infrastructure, FMCG and capital are three good sectors to look at. Realty, though currently going through a correction phase, has huge potential as there will be huge demand for housing in the long run due rising urban migration.
Q. Is the recently market rally indicative of a recovery?
A. It is difficult to take a definite call on this. Any negative global cue and uncertainty over general elections can play spoilsport. With sectors like steel, auto and cement showing signs of improvement, we however see revival/stability of economy by last quarter of the current calendar year.
Q. Can the MF industry, along with insurance companies, be an alternative to FII dominance in driving equity indices?
A. MFs and insurance companies are growing at a much faster pace. There is scope for further growth given the large untapped market space. During Q3 of FY 2008-09, MFs were sitting on cash of around Rs 15,000-20,000 crores. Had the same amount been invested in equities, it could have diluted FII impact. Larger participation by domestic institutions can definitely counter FII impact.

Source: http://economictimes.indiatimes.com/Future-of-MFs-is-in-smaller-cities-Birla-MF-CEO/articleshow/4366264.cms

Birla Sun Life posts highest growth of 31.17% amongst Top 5 MFs

The nine Mutual Funds, which posted the growth, are Birla Sun Life Mutual Fund, Baroda Pioneer MF, Canara Robeco MF, Escorts MF, HDFC MF, IDFC MF, JP Morgan MF, Kotak Mahindra MF and LIC MF.
Nine Mutual Fund companies out of 37 Mutual Funds (33 AMCs) grew their average assets under management (AAUM) by Rs. 384.10bn as of March 31, 2009, as compared to March 2008 (Source AMFI data).
And this growth arrested the slide and ensured that the industry’s AAUM y-o-y (March 2009 to March 2008) fell by 7% and not 14% (double the fall posted as of March 2009 as compared to March 2008).
The nine Mutual Funds, which posted the growth, are Birla Sun Life Mutual Fund, Baroda Pioneer MF, Canara Robeco MF, Escorts MF, HDFC MF, IDFC MF, JP Morgan MF, Kotak Mahindra MF and LIC MF. In fact, only Birla MF and HDFC MF amongst the Top MFs have posted a positive growth.
Birla Sun Life Mutual Fund (BSLMF) posted an absolute increase of Rs. 111.90bn
and a growth of 31.17% in its AAUM of March 2009 over March 2008. This growth is higher than that of HDFC MF (29.44%), Reliance MF (-10.97%), ICICI Prudential ( - 5.32%) and UTI MF (-0.47%).
BSLMF contributed 29.13% (absolute of Rs. 11,190.19 crore) to the overall growth in AAUM of Rs. 38,4.10bn. Amongst the 9 MFs that have posted positive growth, only BSLMF and HDFC MF have posted an absolute increase of over Rs. 100bn in AAUM while LIC MF comes close with Rs. 90.36bn.
BSLMF also increased its market share to 9.7% (up nearly 43%) as of March 2009 as compared to March 2008. The growth in market share of 43% is much higher than any of the peers. BSLMF has grown in a declining market; increased market share and added new customers.
Over the past one year the Birla Sun Life Mutual Fund, one of the India’s top 5 mutual fund houses, has registered impressive growth across parameters viz. Average AUM, distributor base, or customer base. Since January 2008, the AAUM has grown 40%, distributor base has doubled to over 26,000 and number of branches to 109. It has also doubled its customer folio base to 21.5 lakh.
Anil Kumar, CEO, BSLMF and BSLAMC, said, “Birla Sun Life Mutual Fund has become the fastest growing fund house in India due to its strong heritage and track record of consistent performance across equity and debt asset classes. We are proud of having earned the unique distinction of being the only Mutual Fund house to have won the most coveted CNBC TV18 Crisil award for the second time in a row.”
Birla Sun Life Mutual Fund has bagged the most coveted and respected industry award - CNBC TV 18 Crisil – ‘Mutual Fund House of the Year’ award for the second successive year. Birla Sun Life Mutual Fund has created history in the Indian mutual fund industry by bagging this prestigious award twice in succession for the years 2007 and 2008, demonstrating its clear focus on fund performance and product innovation.
Additionally, for the year 2008, Birla Sun Life Mutual Fund also received Debt Fund House of year award. Three of the funds also won the best fund award in their respective categories – Birla Sun Life Income Fund, Birla Sun Life Short Term Fund – Retail, Birla Sun Life Gilt Plus – Regular plan.

Source: http://www.indiainfoline.com/news/innernews.asp?storyId=98151&lmn=1

SBI Mutual Fund targets Rs 12 crore in Orissa from GETS

The SBI Mutual Fund, the leading fund house of the country, expects to mobilise Rs 12 crore from Orissa for its newly launched SBI Gold Exchange Traded Scheme (GETS). It targets to mobilise about Rs 70 crore in the east and Rs 200 nationally from this scheme.

“ We hope to mobilise about Rs 12 crore in Orissa for the GETS and Rs 70 crore in the east”, Manoj Kumar Sinha, zonal head, SBI Fund Management Private Ltd. told Business Standard.
Sinha said, though the people were investing in gold physically, they were not investing through GETS, incurring additional costs in the process. The potential investors can diversify their investment and invest efficiently through this scheme. The new fund offer (NFO) for GETS will close on 28 April 2009. Launching of the GETS was significant as the company didn’t have this product in its product basket.
The minimum investment will be Rs 5000 and there is no upper limit. It will focus on the retail and the High Networth Individuals (HNIs) for mobilisation of the targeted funds. One month after the closing, the fund will be listed in the National Stock Exchange.
Orissa was one among the best performing regions of the company and net business during the last fiscal in the state was about Rs 400 crore. In terms of asset under management (AMU), SBI Mutual Fund enjoys a market share of 25 percent, he added.
Chittaranjan Panda, chief manager, Bhubaneswar said, the company intended to penetrate more areas in the state. Though it has network expansion plan, it is yet to be finalised. The company has 2 branches at Rourkela and Bhubaneswar and 6 districts are covered through business associates.

Source: http://www.business-standard.com/india/storypage.php?autono=354072

Fresh reforms for MF industry

The Securities and Exchange Board of India (Sebi) is finalising a second round of reforms for the mutual fund (MF) industry. The regulator is considering a slew of measures intended to protect investors’ interests and to ensure that fund houses have smoother and better regulated operations.

fixed maturities plans (FMPs) after last October’s liquidity crisis when funds faced heavy redemption.
It had earlier proposed that investors write a separate cheque for commissions paid to fund distributors in addition to the usual investment cheque in the name of the fund house.
Although distributors did not support this idea, Sebi favours the separate cheque system as distributors will get a commission based on the services they render.
At present, asset management companies (AMCs) pay the distributors directly with investors bearing an entry load. There is a disconnect in this system as distributors are directly paid by fund houses for services they are supposed to provide to investors. If approved, the proposal is expected to end up reducing the commission as investors would prefer to negotiate the same, depending on the services they receive.
Sources at Sebi point out that stock brokers were earlier charging huge commissions. It was only after competition increased that the rates automatically reduced, but the brokers have still survived.
The Association of Mutual Funds in India (Amfi), on its part, is working on an alternative arrangement and will soon submit three options to Sebi based on the experience overseas.
Last October’s liquidity crisis had also raised the issue of increasing networth requirements for AMCs from Rs 10 crore at present to Rs 50 crore. The idea was that, in case of huge losses, the high networth requirements would help a fund to survive its problems.
The argument against this was that some of the fund managers had floated mutual funds and high networth criteria may hinder such ventures. The view gaining currency now within the regulator is that assets under management of mutual funds floated by fund managers are not that big and, hence, increasing the networth requirement is important.
Also, last October’s crisis saw most of the redemption pressure coming from corporates. As a result, the regulator may ask funds to float separate schemes for corporates and non-corporate investors.
Sebi is also overhauling the seven-year-old risk management circular for mutual funds. The proposed amendments would focus on improving governance and risk management practices. Sebi is also insisting on separate portfolio and operation functions, proper empowerment for persons supervising risk management, ensuring that investments are carried out as per what is mentioned in offer documents and that investments follow established norms, among others.

Source: http://www.business-standard.com/india/news/fresh-reforms-for-mf-industry/353913/

AMFI suggests two-way load structure for MF products

The Association of Mutual Funds of India has suggested a two-way load structure for selling mutual fund products to investors comprising variable load and without any load.
Speaking on the sidelines of industry body Ficci's seminar here Association of Mutual Funds of India (AMFI) Chairman A P Kurian said the association has proposed what he called Plan A and Plan B.
Under Plan A, a variable load or commission could be charged depending upon the service or advice rendered by the distributor while under Plan B, there would be no load or commission charged to investors but the distributor would be compensated by the asset management company.
However, in that case, annual expenses charged to the schemes may need to be increased by 0.75 per cent, he said.
At present, investors need to pay a uniform commission of 2.5 per cent to distributors for mutual funds.
However, there is a view that the charges imposed on investors should be variable or linked to the extent of service rendered by the distributor.
The charges could be higher in case a distributor offers both service as well as advice, the quality of advice, etc., and charges could be less if the service rendered is minimum.

Source: http://economictimes.indiatimes.com/MF-News/AMFI-suggests-two-way-load-structure-for-MF-products/articleshow/4351351.cms