Seamless MF Trading On Its Way

Trading in funds involves a lot of paperwork. But, it is set to become as simple as trading in shares

New vs Old

• Only agents and distributors can use the present systems. The new one could allow retail investors to circumvent one level and log in directly into the system to transact
• At present, investors get integrated statements from their agents and also individual statements from fund houses. This is a duplication of sorts. The new system will probably aim towards one statement only
• As of now, paperwork is still required—forms and cheques for each transaction. The new platform may reduce this by keeping most things online
• With more transactions online, the reduced paperwork could lead to lower costs
  As of now, advisors spend a lot of time on transactions and data management. With things going online, focus will be more on advisory

Isn’t it ironical that when you need to invest in, say, five different mutual fund (MF) schemes, you need to submit five forms and five cheques, but when you want to invest in equity shares of five companies, you either phone your broker or log on to the Internet and complete your transaction? You get a consolidated account statement of all your equity holdings from your depository participant (DP), but get statements from as many MFs as you have invested in.
Wouldn’t it be easier if MF transactions could happen as they take place for equity shares? Thanks to the Securities and Exchange Board of India’s (Sebi) chairman Chandrasekhar Bhaskar Bhave, the Association of Mutual Funds of India (Amfi) has appointed a committee of six MF officials to devise a platform for trading in MF units. The objective is three-fold: to make buying and selling of MF units less cumbersome, to increase penetration of the product by encouraging participants across India, and, subsequently, to reduce costs.
MF platforms are not entirely new in India. Three platforms already exist, one of which was launched recently. MF distribution and transacting through dedicated platforms promises to be the next big wave in the industry.

What is an MF platform?
Ideally, MF platforms are a common meeting point for MF houses, agents and investors. What you get to see on a website has a whole machinery working at the backstage that integrates your data and investments and channelises it to appropriate partners. Typically, agents have to open accounts on such platforms to be able to trade MF units on behalf of their investors. These platforms also double as an agent’s back office. So, he need not invest in sophisticated software or spend time manually preparing complex reports for clients. He can just use the ample tools available on the platform (like in a website), cull out statements of holdings with the latest net asset values (NAV) and other information about the portfolios, and send you newsletters or statements, or even answer any queries.

In countries like the US and Canada, platforms also enable investors to open accounts and trade in MF units directly, bypassing agents. Advanced platforms enable you to trade in MF units electronically and help eliminate, or, at least, minimise the paperwork.
MF platforms in India, however, are as yet not open directly to investors; only agents can access them. They are simply a link between agents and MF houses. NJ Fundz Network, launched in July 2003, is by NJ Invest, one of India’s largest MF distribution houses. FUNDSNet, launched in 2006, is by Computer Age Management Services (Cams), India’s largest registrar and transfer (R&T) agent. iFast (launched in May) is run by iFast Financial India, a Singapore-based entity that already has a successful platform in Singapore, managing assets of around $1.8 billion.

How does it work?
There are differences in the way the three existing platforms work.

FUNDSNet. When agents join the FUNDSNet network, they get a username and a password. With these they can store their data and information. All that the agent needs is a computer, a printer, a scanner and a good Internet connection. When he gets a form and a cheque, he scans both and the images, as they are being scanned, reach FUNDSNet. Since FUNDSNet is a subsidiary of Cams, it can, therefore, also accept MF applications and attest a time stamp on the application.
The advantage with this facility is that if the distributor sends in an application at 2.59 p.m., he can still get the same day’s NAV. (The cut-off time for accepting MF applications is 3 p.m., after which the next day’s NAV is applicable). So, with FUNDSNet, the agent doesn’t have to go to the local R&T’s or MF’s offices before the cut-off time to submit the application. For collecting cheques, FUNDSNet has a tie-up with HDFC Bank.
All records of an agent’s clients, subsequent transactions, additional purchases, switches and redemptions are stored on the FUNDSNet servers and are accessible by agents. Data maintained on this platform is password-protected.
There are several online tools and calculators also available, using which agents can bring out complex reports for their clients. So, the agent doesn’t need to invest in software to handle client information.

NJ Fundz Network. Agents who join the NJ platform become NJ Invest’s sub-brokers. This platform does not allow scanning and electronic dispatch of application forms. The rest of the process is similar to FUNDSNet’s although the tools offered by the two platforms may differ.
The advantage with NJ is that it provides schemes from all MFs, unlike FUNDSNet, which offers schemes only from the 17 MF houses that are serviced by Cams.
NJ also has a training program for new recruits and assists them in getting the mandatory Amfi certification.
NJ’s platform also offers sophisticated tools that absolve the agent of the need to maintain a full-fledged back-office replete with systems and staff. “We help develop an advisor’s business and train him to handle clients. It is more of a business development platform,” says Jignesh Desai, joint managing director, NJ India Invest.

Reducing costs
The existing platforms are more attuned to agents’ needs. A more inclusive platform would be able to cut down paperwork, make transacting easier, and reduce costs. India’s latest MF platform, iFast, is a step in this direction. It offers schemes in the form of a Portfolio Management Service (PMS). Whenever you wish to invest, your agent will collect your money and invest the entire amount in Deutsche Asset Management’s PMS (DeAM Wrap Portfolio), a division of Deutsche MF which is partnering iFast.
As against a discretionary PMS, where one common portfolio caters to several PMS investors, this is a non-discretionary portfolio, where each investor would be able to invest in a unique bunch of schemes across MFs. You need to give only one cheque to DeAM PMS and fill only one form. Depending on the advisor’s choice, DeAM will invest across schemes.
Apart from the modalities, iFast also differs from the other two platforms in its cost structure, which hinges on advisory rather than on sales. So, with iFast, if you want to invest in, say, five schemes, you will not have to pay entry loads on all of them. You can pay a consolidated amount (0.15-2.50 per cent) as the entry load. No entry load is charged on switches though the exit load is applicable. Apart from this, there is the agent’s annual fee of 0.5-1.5 per cent of your prevailing portfolio value. This would include a charge to your agent for using the iFast platform.
iFast discourages frequent churning since switches are free and ensures that your money grows. Thus, with Sebi having abolished entry loads, advisory platforms such as iFast could get an edge over the rest, eventually.
In terms of solutions and tools offered, iFast is somewhat similar to NJFundz Network. The disadvantage is with iFast’s PMS structure. The minimum investment required is Rs 5 lakh, which could be a deterrent, and, being a PMS, it also attracts a higher dividend distribution tax for all its investors (22.44 per cent, including surcharge and cess). Besides, if your agent gets logged on to iFast, he won’t be able to integrate your current portfolio, at present, with the schemes that you would be buying from iFast.

The next level
The mother of all platforms, the Amfi MF trading platform, aims to remove most of your troubles of investing in funds. Although the Amfi committee refused to comment on how the platform and its modalities would work, sources close to the development say it would be Internet-based, where agents would be able to buy and sell units on an investor’s behalf without leaving their offices.
Sources also say that a tie-up with National Stock Exchange terminals (78,000 at present), is being contemplated. This way brokers would double as MF agents. Ultimately, the Amfi trading platform aims to switch to a system where investors would have to fill just one form and give one cheque, and would receive one account statement, much like a demat account, irrespective of the number of schemes they invest in. This platform has Sebi’s blessings and is currently being developed by Amfi, an industry body. Sources claim that on account of this, Amfi would hold some ground in convincing Sebi to bring in sweeping changes in its MF guidelines to ensure that the platform does not result in duplication.
Take, for instance, a common account statement. Although all three existing platforms allow agents to get a common account statement for their investors, the latter still continue to get another set of account statements from all their MFs. The present guidelines require all MFs to send statements to their investors.
Although with iFast, you need to fill just one form and submit one cheque for multiple MF investments, the PMS structure and lack of integration of new and existing portfolios are not user-friendly since it leads to increased paperwork, among other things. Further, though FUNDSNet allows your agent to scan and transmit your forms and cheques, you still have to hand over the physical forms and write out cheques.
Things would change once Amfi’s platform goes live. Paperwork, and, therefore, cost, are expected to go down. Also, online transactions would help advisors focus more on giving advice and less on transacting and data maintenance. To an extent, the changes are already starting to happen for small-time advisors who are unable to set up their own infrastructure. But, once the Amfi platform gets launched, transacting in MFs would become much easier and penetration would get a further boost.

Source: http://www.outlookmoney.com/article.aspx?250505

No Longer Mutual for the Middleman

SEBI’s ruling on mutual funds will bring in new models of distribution and
eventually make the industry stronger

From August 2009, the Indian mutual fund industry will change its distribution model under an order from the Securities and Exchange Board of India. The regulator has done away with entry load for schemes. This will cause a lot of turmoil for all three parties involved: Mutual fund companies, investors and the distributors who handle 90 percent of the transactions.

How will the industry change?

SEBI wants the industry to follow the model practiced by UK, US and other European countries. This means the investor can decide the amount of advisory fees that distributors receive. So, the distributors will not get the 2.25 percent on every transaction that they now put through. This means there is no incentive for distributors to sell mutual fund products, unless the investor agrees to pay them separately. Many distributors say that if the commission is removed, they will switch over to selling insurance products where the commission system is intact. In order to survive, they will have to scale up and become advisors. They will be in direct competition with banks to sell mutual funds. Banks hold an advantage since they know the financial status of customers. “This is a transformative change for the industry in India. Now distributors will have to become a complete finance advisor and help investors in giving financial solutions,” says Sourab Tripathi of the Boston Consulting Group.

Why are tier III towns so important?

Until now the top eight cities accounted for 80 percent of the mutual fund markets. Distributors never tapped tier III cities. But, as the market shifts from a fund-based module to a fee-based module, they will have to re-think their strategy. Distributors will now offer annual plans and charge fees accordingly and to increase their business they will be forced to get more investors under their fold than concentrate on the funds of the same investors. In spite of all the initial problems that will be created by this move, over the longer term, it will only benefit the industry.

What models will emerge in the future?

Mutual funds will be sold through four different channels. There will be a basic discount broker model or a courier boy model. Here, the distributor will simply act as the postman. People with knowledge of mutual funds will use them but pay only a very small fee. A further extension of this model will be a “Do it yourself” model through the Net which could charge around one percent on the total invested amount. The other two models will be slightly at the higher end, offering advisory services. These could be the next door independent financial advisor who could charge the investor around 1-1.5 percent while the top-end model will belong to banks which will charge closer to 2 percent. Even banks will not be able to charge high fees as the banking customer will become savvy.

Source: http://business.in.com/article/briefing/no-longer-mutual-for-the-middleman/2552/1

Mr. Bhanu Katoch, Chief Executive Officer, JM Financial Mutual Fund

JM Financial Asset Management Private Limited, the Asset Management Company of JM Financial Mutual Fund is sponsored by JM Financial Limited. JM Financial Asset Management started operations in December 1994 with a launch of three funds-JM Liquid Fund (now JM Income Fund), JM Equity Fund and JM Balanced Fund. JM Financial Mutual Fund offers a bouquet of funds that caters to the diverse needs of both its institutional and individual investors. Recently, JM Financial Asset Management Pvt. Ltd. divested 8% stake to two global Institutional Investors, i.e 4% to Valiant Mauritius Partners FDI Limited and 4% to Blue Ridge Affiliates (namely BRLP Mauritius Holdings II and BROMLP Mauritius Holdings II respectively) thereby infusing Rs 638.6mn. Prior to this, the AMC’s paid up equity capital was Rs 540mn. These prominent hedge funds understand the asset management business globally and have brought with them a significant value-addition from a global markets' perspective.

Mr. Bhanu Katoch, Chief Executive Officer, JM Financial Mutual Fund, is a B.Com, PGDM (Marketing & Sales), MBA, and has around 12 years of experience in the Telecom & Financial Services industries. He started his career with BPL US West Cellular Ltd. Subsequently, he has worked with various organisations in the financial sector like Pioneer ITI AMC, Alliance Capital AMC, Tata AIG Life Insurance Company, ABN AMRO AMC and Lotus India AMC.
Speaking with Yash Ved of India Infoline, Bhanu Katoch says, "Year 2011 to 2016 will be the golden era for the Indian economy and the stock markets."

What is your reaction to the budget?

The finance minister presented an expansionary budget with a clear focus on growth revival. The revised fiscal deficit for FY 2009-10 (6.8% as compared to RE of 6.00% in FY 2008-09) came as a shock to the market. The higher fiscal deficit spooked both the bond and the currency markets. In a knee jerk reaction yields on government bonds rose across the curve. Market has overacted to the relatively higher gross borrowing programme. I think a lot was expected out of the budget. My expectation was more on the direction side rather than any specific roadmap. Although budget was low key and there would be worries on the fiscal front, what comes across as comforting is that the revenue estimates presented in the budget are quite conservative.

What is your reaction to SEBI’s move to do away with entry load? What are you hearing from your distributors?

Industry will adjust to whatever changes are made. In the short term though, there will be some difficulty. This business will become more capital intensive. In the long term, distributors will grow based on the quality of their advice.

What is your AUM?

Our Assets Under Management is Rs80bn. Out of this, Rs25bn is in equity.

Where do you see inflation and interest rates going ahead?

Three factors to keep in mind which will influence inflation forecasts :

a) Monsoons, which were earlier weak but in the past week has improved significantly. Overall, rainfall is still at 36% below normal;

b) Government borrowing programme of Rs4 trn and

c) Global commodity prices including oil (we have seen a price fuel hike of 10% few weeks back). We believe Headline inflation is expected to remain in the negative territory for a few more months and then should move up from there to reach a level of around 6% at the end of March 2010
Interest rates will also be influenced largely by the governments borrowing program and the credit pick-up in the economy in the second half. We expect interest rates to remain benign for the next 3-6 months. The government borrowing program will result in yields moving up further from here to around 7.5%. However, excess liquidity in the system and the credit growth pressures will prevent headline interest rates in the economy from moving up in the short term atleast. We expect interest rates to remain steady in this fiscal.

What is your view on the stock market?

Indian economy has shown strong resilience amidst the global turbulence and is likely to show a robust growth of 6.5 to 7.0%. As a result, India and few of the other Asian economies are likely to be the destinations of choice for growth investors across the globe. Risk aversion has reduced and liquidity is now quite robust. India as a growth economy is likely to attract significant capital over the next 2 years through the FDI/FII route. After a massive rally in the previous quarter, the market which was looking for a reason to correct got the same in the form of a low key budget. Although there would be worries on the fiscal front, what comes across as comforting is that the revenue estimates presented in the budget are quite conservative. Deficient monsoon would be an important worry particularly for companies that are dependent on domestic consumer demand. However, in the context of the GDP growth itself, the maximum worst case impact is estimated to be about 1 percent. One can look at this correction as a technical correction in a structural bull market. It is expected that Sensex EPS is likely to grow to Rs 900 in FY10 and Rs 1050 in FY11 v/s Rs 830 in FY09. As this year progresses, we will continue to see systematic upgrades in EPS estimates as the outlook improves. Thus it is anticipated that Sensex may touch a level of 16800 in the next 6 to 9 months period at which the markets would trade at around 16 PE which has been the historic mean for the Indian stock markets.

What is your view on the rupee?

Post the budget the rupee had seen negative sentiment as there was a disappointment over the lack of anticipated measures that would have boosted FDI inflows, including the raising of FDI limits and divestment of state-owned financial institutions. The FDI flows are a key component of the balance of payments and have played an important role in offsetting portfolio outflows, as well as funding the current account deficit, which is now re-widening on rising commodity prices. Besides this, the higher fiscal deficit implies increased pricing of sovereign risk in the medium-term, while the larger than expected fiscal funding requirement implies greater risk to be priced in the short-term. Thus, we expect rupee to weaken gradually and move in the range of 48-51 in the current fiscal. Over the long term however Rupee will only strengthen against the dollar.

Which are the sectors you are bullish?

We are bullish on Infrastructure, Financial Services and commodity sectors. We think infrastructure will be one of the key beneficiaries of government's thrust on this sector and expect investments to accelerate in this sector. This will benefit a large no of companies associated with this sector - either directly or indirectly. In fact we believe infra is a long term sustainable story in Indian context. Technology can also do very well with signs of US recovery.

What is your view on the commodity markets?

Commodity markets will be driven primarily by expectations of a revival in demand from US and Europe and a continuation of growth in Asia including China and India. The current rally seen in past three months in some base metals like copper and oil was primarily driven by these expectations. However, the base demand continues to be low in US and Europe as economic recovery remains elusive. The only drivers for commodity demand has been Asia where China and India's growth rates have kept the outlook slightly positive. We believe that commodity prices could remain range bound for a quarter or so before showing an uptrend on the back of better economic growth forecast. Commodity markets will also be positively influenced to some extent by the excess liquidity that has got created in the world due to the large stimulus packages announced by various countries. The combination of revival in demand and liquidity should keep commodity prices higher over the next 12-18 months.

What is your view on the bond market?

The estimated gross market borrowing for the financial year 2009-10 is pegged at Rs4.51 trillion as against the market expectations of Rs4.00-4.10 trillion. The revised fiscal deficit for FY10 came as a shock to the markets. Higher fiscal deficit clearly spooked the bond and currency markets.
RBI has been actively and efficiently managing the borrowing programme since the start of the financial year and will continue to do so. Although both RBI and Finance Ministry have clearly ruled out the option of private placement of government bonds. Therefore we believe that RBI will continue to support the yields by buying back securities in the open market and simultaneously intervening in the secondary market.
We expect RBI to respond and ease rates by another 25 basis points in the impending policy to support the Governments objective of growth and support the large borrowing programme. Although this may the last round of monetary easing Abundant liquidity (Avg LAF reverse repo amount 1.25 trillion), lower inflation and overall macro economic environment will continue to support the yields. There are no immediate concern on sovereign ratings downgrade, as the proposed budget deficit of 6.8% of the gross domestic product is within the international rating agency expectations and already accounted for in the present rating of India (source: post budget statement by International rating agency S &P).

What is your advice to retail investors?

The two big emotions that play hard on Investment decisions are fear and greed. An extreme of either proves to be equally devastating. The fear of losing your money triggers panic selling at one hand, whereas the fear of missing out induces mindless buying on the other. Hence, it becomes important for Individuals to have a balanced and more informed approach in the long term, an approach that is free of emotions.

Source: http://www.indiainfoline.com/news/showleader.asp?storyId=800&lmn=1

New liquid MF norms to hit cos investment

Companies such as Hero Honda, Infosys and Bajaj that park their surplus cash in liquid mutual funds investing in shorttenure financial instruments could see lower returns after the new Securities and Exchange Board of India (Sebi) guidelines became effective from May.
As per new SEBIi guidelines, such funds can only invest in securities with a maximum tenure of 91 days. There was no limit earlier on the tenure of securities that liquid funds could invest in.
Liquid funds are short term debt funds that offer investors the option of withdrawing their money at very short notice ranging from overnight to just over a week.
“Liquid schemes are the favoured instruments for parking surplus cash as they offer instant liquidity. Such schemes can now invest only in short-tenure securities which carry low risk and hence, offer lower returns,” IDFC Mutual Fund head fixed income Arjun Parthasarathy said.
As per industry estimates, the annualised returns from liquid funds for companies could come down from 7-8 .5% earlier to just 4.5-5%. Although companies also have the option of parking their cash in fixed deposits, liquid funds are preferred as they offer better tax-adjusted yields and there is no penalty on premature withdrawal of funds as in the case of the former.
Two-wheeler major Hero Honda has about Rs 3,000-3,500 crore in surplus cash and invests about 98% of it in mutual funds. According to a person with knowledge of the situation, the firm’s annual treasury income of Rs 200-220 crore may take a hit of about 10-12% or Rs 20-25 crore as a result of the reduction of returns from liquid funds.
Bajaj Auto CFO Kevin D’Sa said the firm has surplus cash of about Rs 1,400 crore and the company’s entire money is in “strong fixed income securities”. Fixed income securities consist of certificates of deposits, treasury bills and commercial papers. Liquid funds invest in most of these securities.
Infosys had invested about Rs 1,500 crore in liquid funds in the quarter ended June. It had no investments in mutual funds in the Jan- March quarter and has typically parked its cash largely in bank deposits. “As per our policy, we invest only in fixed deposits and liquid mutual funds. We have invested in liquid funds in the last quarter. If the fixed deposit yields are higher in future, we could think of putting more money there,” Infosys CFO V Balakrishnan said.

Source: http://economictimes.indiatimes.com/Mutual-Funds/New-liquid-MF-norms-to-hit-cos-investment/articleshow/4797283.cms

Gold ETF investors in India grow by 100%

High gold prices are not deterring India’s commodity investors to put more money into gold exchange traded funds (ETFs).
With gold prices escalating to new high almost every month, investors in India have started to show a totally new-found interest in these gold funds. Gold ETFs are new in India, but they have given an impressive more than 20 per cent returns in the last one year.
Gold fund managers in India say the ETFs collections are going up and investors are growing up by a 100 per cent year-on-year. “Gold ETFs are continuing to pick up in India. Gold collection ETFs rose 24.6 per cent to 5.931 tonnes from 4.761 tonnes a year ago,” Arvind Chari, fund manager, Quantum Mutual Fund that runs a gold ETF in India said.
He said gold ETFs are emerging as the fasting growing investment segment in India. “I am sure more ETFs are likely to come in other commodities like silver in India,” he pointed out.
Launched in 2007, Gold ETFs in India are managed by six fund houses including Benchmark Asset Management, UTI Mutual Fund, Kotak Mahindra Mutual Fund, Reliance Capital Asset Management, Quantum Mutual Fund and the State Bank of India.
Though Gold collections under the ETFs are growing in India year on year, they remain negligible when compared to India’s imports of around 700 tonnes annually.
ETFs track the performance of a particular index; their base price is basically equivalent to the value of the index. ETFs are not limited to gold. There are ETFs of almost all metals and most-traded agro-commodities. Eg: Gold, silver, copper, wheat, corn, cotton etc. At present, in India gold is the only commodity ETF.
The main problem for rapid growth of gold ETFs in India is said to the lack of awareness and complicated investment norms. Moreover, people still find charm in holding physical gold. The five gold ETF funds put together hold just above five tonnes of gold.
According to the World Gold Council, Indian households own about 15,000 tonnes of gold, comprising around 10 per cent of global stocks.

Source: http://profit.ndtv.com/2009/07/18180423/Gold-ETF-investors-in-India-gr.html

We may increase India investment allocation - Nomura

Until recently, no Japanese financial institution was able to make a dent in the Indian markets despite several attempts over the years. That changed after Nomura acquired Lehman Brothers’ business in Asia, the Middle East and Europe in 2008. The company recently picked up a 35% stake in LIC Mutual Fund — the seventh-largest MF in India.

Takumi Shibata, deputy president and COO of Nomura Holdings and Nomura Securities, who played a key role in the Lehman acquisition, gives ET correspondent the lowdown on Nomura’s plans to step up BPO operations in the country and increase allocations of its funds for investments into the equities market.

What are Nomura’s plans for India? Will you look at more JVs?

Nomura is very keen on establishing itself as a trustworthy financial institution, covering various segments of business — investment banking, equities, fixed income and asset management. We have 2,300 employees in the Powai business process outsourcing unit, who provide services to Nomura’s front, middle and back offices. Of these, 1,300 are IT specialists and security analysts who handle Nomura’s business around the globe.
The BPO, which currently houses 2,300 employees, has a capacity of 4,000 staffers. Our ambition is to use our presence over there more effectively. It makes sense to keep i-banking, equities and fixed income as integral parts of our global network, whereas the AMC has a strong local character, especially for marketing products.

Have you scouted for partners for i-banking and securities?
We looked at opportunities in the past when we were still in the process of increasing our global network in India. But the situation has changed after our success in acquiring European, Middle eastern and Asian business of Lehman. Now that we have formed a global network, we can say for investment banking business we don’t have to look for a local partner.

What about plans for a retail brokerage?

We are a minority shareholder in a retail brokerage business in Thailand. By the same token, we could consider such a presence in retail markets elsewhere. As of now, we are not actively looking at any acquisition opportunities for retail business. We want to focus our attention on building an institutional broking business. We already have a full range of equity businesses in India with all the major houses trading through us. We are gaining market share month on month.

Will the firm look at increasing its proprietary investments in India?

Given the new world order for the financial services industry post the banking crisis, it will bequite unwise for any intermediary to expand investments into illiquid assets. So, we will be cautious in committing our firm’s capital to illiquid investments, which basically means proprietary investments. Yes, we will continue to invest, but we will do so in a very careful and controlled manner. Of all the countries around the world, India is a growing economy, which is a rarity in the current times. The relative share of Indian opportunities looks favourable.

Are you launching an India-specific fund?
We are always looking at opportunities and are ready whenever there is a surge in demand. We have about nine separate funds investing in Japan and two funds in Europe which invest into India. It could well be that we might try to increase the volume of those funds. One of them has 100% fund allocation to India and the rest would have proportional allocation. I would be very surprised if Indian equities have lower allocation in the global equity index.

What’s your broad view on equities?

On an ongoing basis, banks are making money. At the same time, they are suffering from losses on their loan books — auto loans, credit cards, prime loans and also declining rents for commercial properties. All these factors will translate into NPAs. As long as banks make more money than they lose, the crisis is manageable. We hope we don’t really have another round of crisis. Also, in 2009, the global economy is set to shrink for the first time since World War II. When it becomes certain that the world economy is on the road to recovery, we will have much firmer stock markets. Past rallies could be described as bear market rallies and the real recovery will produce a real rally later. Of course, there are exceptions like China and India, where growth prospects still remain.

Nomura acquired Lehman in September 2008. Are you happy with the way things have panned out?

We are very happy with our acquisition. It was a golden opportunity to acquire a reputable client-oriented business. We did not take lines of business and assets and the trading name of Lehman Brothers or anybody who was engaged in committing the firm’s capital to illiquid classes of assets like direct PE type investments, property and construction loans.
We have been very careful in choosing what we acquired, which essentially was limited to the investment banking business, equity markets and fixed income business. Our hypothesis was that investment banking would go back to its roots and short-term money would no longer be used to invest in long-term assets. It was on this premise that we devised our strategy to acquire pieces of Lehman Brothers.

The rise of yen has surprised investors...

One major difference now from yesteryear is that the interest rate differential among major currencies is not that much. So, carry trade is done in much smaller volumes than before. In the past, it was easy to borrow in a low-yielding currency called yen and invest in Australian or US dollars to enjoy the yield differential. That yield differential is shrinking.

There have been questions on the dollar’s relevance as a reserve currency. What’s your view?

The weight of the US dollar in foreign currency reserves will need to go down slightly. No major central bank in the world is interested in creating losses for their own accounts. We know that the euro will become more important.
It does not mean the greenback will become less important. We cannot read the true purpose of countries calling for a super currency. But my personal interpretation is that it’s a shot across the wall, telling the US to take good care of its currency. The dollar will continue to be a major reserve currency and a major settlement currency for years to come.

Source:http://economictimes.indiatimes.com/Interview/Takumi-Shibata-Deputy-President-and-COO-Nomura-Holdings-Securities/articleshow/4796714.cms

Maturing FMPs - where will the money go?

Fixed Maturity Plans (FMPs) have had a great relationship with Asset management companies and with the investors. FMPs were initially instruments which were mutual funds with `banklike` products. You could buy a FMP with maturity ranging from 30 days to 180 days. Then a couple of FMPs were launched with 300 days maturity, then 366 and then at least one FMP had a maturity of 3 years!
The returns also started very modestly from 6% and went right up to 12%+ …but one fine day FMP became a bad word. Suddenly liquidity concerns arose. I remember doing an article saying `are FMPs risky` on my blog.
Now many FMPs are maturing - in the month of April to be precise. The million dollar question is (am I antiquated using the word million when Obama has moved to Trillion? Sorry) where will the maturity money go?
Rather the question is - Where does the industry (mutual fund) want the money to go?
Well FMP was a fixed income product, so it should go into a similar fixed income product - Tata Motors Fixed Deposit, Tata Capital debenture …and some more instruments like that, correct? No.
It should go into Income and Gilt funds, correct? No.
It should go into short term funds, floaters and liquid funds, correct? Well NO again!
The answer is very funny. First of all it depends on who is redeeming it. If the original investor is a HNI there is a good chance that he will again look for some tax efficient way of DEBT investing. So for him the options could be floater / liquid funds till the government sends clear signals about interest rates. This could also be a sensible option in such a bad economic scenario!
If the person who is redeeming was investing on a `flavor of the month` basis, ALL the fund houses will offer him some scheme which will be tempting - e.g. no entry load if the funds get transferred to a GOLD NFO, or something to that effect!
Rest assured that all fund houses will come out with some scheme or the other - hoping to keep the cash flow with itself - even if the customer is not keen to buy!

Source: http://www.myiris.com/financial/storyShownew.php?dir=2009/07/10&fileR=20090710150619194

JP Morgan JF Greater China Equity Off-Shore Fund

Scheme opens on 09-JUL-09

Scheme closes on 31-JUL-09

Objective: Equity

Type: Open

Information: The primary investment objective of the Scheme is to provide long term capital appreciation by investing in JPMorgan Funds

Issue Price(Rs.): 10

Minimum Subscription: Rs 10000 per application and in multiples of Re. 1 thereafter.

Plans Available: Growth Option

Source: http://www.myiris.co.in/mutual/announce/newSchemeDetail.php?scheme_fam=JP+Morgan+JF+Greater+China+Equity+Off-Shore+Fund&fcode=JPMORGAN_MF&icode=JPMORJFGREC_SC