Irda may up lock-in for Ulips to 5 yrs

In an attempt to check mis-selling, the Insurance Regulatory and Development Authority (Irda) is planning to increase the lock-in period for unit-linked insurance plans (Ulips) from three to five years.

Talking to reporters on the sidelines of an insurance seminar, Irda member R Kannan said the regulator was taking steps to address concerns over mis-selling.
He said the move would reduce the problem of policyholders letting covers lapse and also benefit companies as it would help them minimise their administrative and marketing costs. “We are waiting for a consensus on the issue,” Kannan said. A senior executive at a large private sector insurance company said that the minimum tenure for a Ulip was five years at present, but partial withdrawals were allowed after three years.
“If the intent is to allow partial withdrawals only after five years, then it is good since insurance is a long-tenure product,” he said.
The chief executive officer of one of the country’s largest life insurance companies said that he had not heard of any industry-level discussion on the issue. He, however, added that the move would be beneficial for both policyholders and insurers. “Given the cost structure, returns would be better in case of a mutual fund if the investment tenure is five to six years. It makes sense to invest in Ulips only if you want to invest for at least seven or eight years,” he added
However, Future Generali Chief Actuary G N Agarwal said the move would benefit the mutual fund industry as the interest of Ulip buyers might be affected since they have to wait for five years before they could exit.
In recent months, Irda has tried to tighten regulations on Ulips. First, it put in place systems to ensure that policies were not front-loaded in terms of premium payment. Last month, it also reduced the charges levied on Ulips, though the circular was expected to be modified to factor in industry concerns.

Source: http://www.business-standard.com/india/news/irda-maylock-in-for-ulips-to-5-yrs/366307/

MFs to face greater obstacles with entry load gone

The mutual fund industry in India, although 15 years old, is still to develop into a
credible competitor to other segments of the financial services industry, especially insurance. On the face of it, mutual fund investments (in equity schemes) seem more attractive than insurance products, but on the ground the reverse is true. More Indians trust life insurance companies with their savings than they do with mutual funds. According to figures from the Central Statistical Organisation (CSO), life insurance funds accounted for 12% of total household savings in India. In contrast equity & debentures only attracted 7% of household savings in financial year ending March 2008.
There are 35 asset management companies (AMCs) in India managing Rs 6,70,012 crore, according to independent investment information provider, Value Research. The industry’s penetration is estimated at 4-5 % as against 10-15 % for insurance. There are around 3 million agents for insurance products and just 80,000 distributors for mutual funds.
Both industries, which started almost half a century ago in India with a single player, now have several competing companies. Still, low customer awareness levels and poor financial literacy have largely stymied the popularity of financial products in India.
But in the case of insurance, rampant misselling has made it more popular than mutual funds. While insurance is indeed an investment for covering your life, it is sold more as a tax-saving investment tool. In rural areas, agents mis-sell it as a fixed deposit and the idea has been so well rooted that in many Indian villages, it is still popularly known as ‘Lal FD’ . There is little scope for mis-selling in case of mutual funds - the mis-selling is limited to the extent that the agent assures investors a return that the fund may not able to deliver.
In terms of selling, both mutual funds and insurance are ‘push’ products. However, a distributor has a higher incentive to sell the latter because of the opportunity to earn a higher commission. An agent selling insurance earns a commission of 30-40 % of the initial premium and a trail commission of around 5%. However, the commission in case of mutual funds is never more than 2-2 .5%.
Insurance generally is a product that cannot be sold multiple times to one investor. Hence, the agent has to be given a high commission to push the product. In case of mutual funds, the agent gets multiple opportunities to sell more than one product to the same investor.
As a result, distributors and mutual fund houses exhibit limited interest in continuously engaging with customers post closure of sale as the commissions and incentives are largely in the form of upfront fees from product sales. Limited use of the public sector banks’ network and post offices to distribute mutual funds has also impeded the growth of the industry. The insurance industry, on the other hand, has been able to leverage this to its advantage.

While setting up an AMC is relatively easy, getting business during a downturn and
withstanding redemption pressures during times of low liquidity is the difficult part. The insurance business is one with a long gestation period and requiring sufficient capital to cover incremental actuarial liability. The breakeven time for an insurance business in India is at least seven years. In this scenario, the most important challenge for the company is to have a robust agency network.
Mutual Funds have to face a stricter regulatory environment as the industry is regulated by the conservative capital market regular Sebi. As a result, there is limited flexibility in fixing fees and pricing. Insurance companies have a relatively less stringent environment as the industry is regulated by Irda, which is less conservative in its regulation. This allows more flexibility for companies to structure their products and fees.

Source: http://economictimes.indiatimes.com/Features/Investors-Guide/MFs-to-face-greater-obstacles-with-entry-load-gone/articleshow/4850274.cms?curpg=2

India Post stops MF distribution

The ban on entry load on mutual funds (MFs) has struck its first blow to the asset management industry, with the government-run India Post stopping the distribution of MF schemes through its designated post offices.
India Post — a 'national distributor' in the real sense, thanks to its expansive distribution channel covering over 210 post offices — has informed mutual funds (with which India Post has exclusive tie-ups) that it will not sell schemes until there is clarity on distribution commission.
"We will not sell mutual funds until we get some clarity on entry load. We'll see how the issue unfolds over the next few weeks. The final decision will depend on how Sebi settles the issue without really hurting the distributor,"a senior official at India Post told ET.
A circular sent to the heads of concerned postal circles states that: "in view of Sebi guidelines, empowering investors through transparency in payment of commission and load structure which will come into force on August 1, it has been decided to suspend the retailing of MF products on all MF companies with effect from August 1."
But the department will distribute Franklin Templeton's Build India Fund as "it will get commission as per the existing terms (referring to the earlier commission structure) and conditions for retailing the NFO,"the circular added.
India Post sells schemes of Principal MF, SBI, UTI, Franklin Templeton and Reliance Mutual Fund through designated post offices in India.
According to the official, India Post has sold mutual fund schemes worth Rs 150 crore last fiscal. Ballpark estimates suggest that the postal behemoth would have earned anywhere between Rs 5 crore and Rs 10 crore on it, including upfront and trail commissions.
India Post started distributing mutual funds in 2001, first by signing an exclusive tie-up with IDBI-Principal. The India Post website says the department has stationed one AMFI qualified personnel at every designated post office to sell mutual funds.
"We've not yet received any official communication regarding it. But if it is true, the long-term impact is going to be very drastic. India Post — though not much of a big contributor to AUMs currently — has all that it takes to be a big rural distributor in future,"said the channel head of bank-promoted fund house.
India Post's decision to stop fund distribution stems from the recent Sebi ban on entry loads in mutual funds. According to the new rules, investors now have the freedom to directly negotiate on the fee that they pay for the services of distributors, or brokers, during the purchase of mutual fund schemes.

Industry watchers are concerned that many more distributors may stop selling mutual fund products because of unviable profit margins.
Though not officially confirmed, Bajaj Allianz Financial Distributors, the third joint venture business between Bajaj Finserv and Allianz SE, is seriously considering to shut operations soon. The Pune-headquartered distribution company has a presence in over 30 locations, and has exclusive tie-ups with fund houses such as Fidelity MF, Principal MF and Taurus Mutual.

Source: http://economictimes.indiatimes.com/India-Post-stops-MF-distribution/articleshow/4861637.cms

The sharp contraction in the U.S. economy "seems to be ending"

The sharp contraction in the U.S. economy "seems to be ending" but recovery will be slow with risks still looming from the weak labor and housing markets, the International Monetary Fund said on Friday.
The IMF, in its annual report on the U.S. economy, stuck to earlier forecasts that gross domestic product will shrink by 2.6 percent in 2009 and then rise by 0.8 percent in 2010.
The report was prepared before U.S. data on Friday showed the economy contracted by a 1.0 percent annual rate in the second quarter.
"As a result of their increasingly strong and comprehensive policy measures, the sharp fall in economic output seems to be ending, and confidence in financial stability has strengthened," the IMF said in its report, which followed consultations with U.S. officials and institutions.
"Nevertheless, with financial strains still elevated, the recovery is likely to be gradual, and risks are tilted to the downside," it said.
The IMF said unwinding fiscal and monetary stimulus measures would have to wait until a sustainable recovery is underway. But they need to develop exit strategies from stimulus programs, strengthen financial regulation and in the medium term cut budget deficits.
Charles Kramer, head of the IMF's North American Division, said the United States may need more stimulus measures if economic and financial conditions worsen significantly.
Still, he said, policy-makers should be thinking about how to end the generous fiscal and monetary policy measures put in place over the last 10 months.
"We should emphasize that now is not the time to implement the exit, but it's a good time to be developing and communicating exit strategies to underpin confidence," Kramer told reporters on a conference call.
The IMF's North American division deputy, Marcello Estevao, said rising unemployment is the greatest threat to recovery efforts.
"The weakness in the labor market is going to reflect into the weakness in the housing market. When people lose jobs, wages don't grow as much, it's harder for people to pay their mortgage, Estevao said.
"There is substantial uncertainty exactly how this feedback would play out. And that is one of the reasons we have this very gradual recovery outlook for the U.S."
He said the IMF sees U.S. GDP growing "a little bit" in the second half, with a sustained recovery not starting until the second quarter of 2010.
The IMF's forecast for unemployment was unchanged, seeing 2009 unemployment averaging 9.3 percent and rising to 10.1 percent for 2010.
DIVERSE FED TOOLKIT
The IMF directors said the Federal Reserve would need to maintain a diverse set of tools to respond to evolving market conditions, and it recommended that assets it holds from bailed-out financial institutions, known as the Maiden Lane facilities, be transferred to the U.S. Treasury to protect the central bank from credit risk.
The value of assets that the Fed has taken over from American International Group (AIG.N), for example, have been reduced by several billion dollars in recent months.
The IMF welcomed the Obama administration's efforts to revamp the U.S. financial regulatory system, and said this should aim to discourage size and complexity among financial firms to limit potential systemic risks in the system.
The IMF also maintained its view that the U.S. dollar was "moderately overvalued," though Kramer noted the dollar has been volatile because of safe-haven flows into U.S. assets during the crisis and the subsequent unwinding of that as the crisis eased.

Indian equity regulator causes panic among Mutual Fund investors

Panic and doubts have started arising in the minds of the Indian mutual funds investors regarding the sustainability of the viability of the Indian Mutual Fund Agencies (AMC) after Securities and Exchange Board of India (SEBI) abolished the entry load. A fragile mutual fund industry is facing glut of fresh applications and the pressure of redemption’s. Investors are also dismayed with the exit charges levied by AMC’s under the directive of SEBI. AMC’s have increased the exit load durations, some up to 3 years. As per today’s circular, SEBI website circular says that “The mutual fund may charge the load within the stipulated limit of 7% and without any discrimination to any specific group of unit-holders.” It further writes that “It is observed that the mutual funds are making distinction between the unit holders by charging differential exit loads based on the amount of subscription.” Mutual Fund AMC’s have either not charged any exit load or decided on less period of investment duration, for applications above Rs. 5 crores. This will definitely deter the fresh investments.
Worried AMC’s are finger pointing at SEBI but are afraid to speak out in the public. AMC’s reasoned that the AMC directors in SEBI had rejected the proposal. Subsequently the proposal was put on vote on SEBI intranet and they are not aware of the results of the poll. The decision by SEBI Chairman S D Bhave was a bolt from the blue for the AMC’s and AMC’s allege that the proposal was never discussed with them after the initial rejection.
Distributors have started getting queries on the safety of the funds from their clients. While investors are aware of the dwindling fresh applications, the August redemption figures will be published only on September 10th and it might be too late for investors.
Industry feels that SEBI has harmed the investors more than the AMC’s and distributors.

Source: http://frontierindia.net/ea/indian-equity-regulator-causes-panick-among-mutual-fund-investors/287/

Mutual fund investing mistakes to avoid

The equity markets are on the rise. New fund offers are again the rage. And once again, you are receiving solicitations from your so-called financial advisors to invest in mutual funds so that you don’t miss the boat. At times like these it's important to keep some tips in mind.

1. Invest in Funds backed by experienced Asset Management Companies and Asset Managers: If you had the choice, you’d probably go to an experienced doctor rather than someone fresh out of medical school. Same with mutual funds. Invest through an experienced asset management company and a fund manager, both of whom have operating and investment history in India.

2. Cheapest is not the best: This is probably the most common and silly mistake that investors make when investing in mutual funds. For some reason they think that a Rs 10 net asset value (NAV) is better than a Rs 20 existing fund of the same category and type because the former is cheaper.
What matters is the amount of money you are putting in. Rs 1 lakh put into a either fund will grow the same amount assuming that both funds invested in the same underlying securities. So, whether Rs 10 grows to Rs 12, a 20% increase, or Rs 20 goes to Rs 24, it’s the same thing.

3. Don’t invest in a new fund if a previous one of the same category exists: At the time of a new fund’s launch, there is a lot of hype created through advertising aimed at enticing you to invest.
However, there might be a fund of this type already existing, which might be a better option because it has had an operating history for a while, as well as proven risk management experience in that category. You are better off avoiding the new fund at launch and investing in the older fund of the same category.

4. Understand your risk appetite: Not all medicines are suited to all patients. Some patients can handle a higher dosage depending upon their age, their allergies, their size etc.
Similarly, not all mutual funds are meant for everyone. Before you invest blindly, understand the risks involved and evaluate whether you can handle the risks associated with the fund and its underlying exposure.

5. Build a strong foundation: Just like a house needs a strong foundation, so does your mutual fund portfolio. You need to make sure you have a safe and stable exposure to index funds, large cap diversified funds before you start exposing yourself to sector and industry specific funds, which are usually of a higher risk.

6. Be realistic about returns: Trees don’t grow to the sky, and neither do stock market returns. Be realistic about what returns you can expect. Your money is unlikely to double in the next two years through mutual funds, and don’t fall for the salesmanship of your advisor.

7. Give your money the chance to compound: By chopping and changing your portfolio and getting in and out of funds frequently you are disturbing the process of compounding and not giving your money the ability to grow. Be patient, even if in the short term a fund might not be doing well.

Source: http://in.reuters.com/article/personalFinance/idINIndia-41544820090805?sp=true

Kautilaya's management principles in play

Mutual Funds adopt all means to entice investors
The mutual fund industry is adopting Kautilaya's management principles of Saam, Daam and Dand to lure and retain investors.
The fund houses are exploring all possible means to attract new investors and retain the existing ones. On one hand the new Securities and Exchange Board of India (Sebi) regulations are forcing them to use the dand principle by raising exit load on the schemes and on other hand, using the Saam principle they are launching new schemes focusing on infrastructure stocks to optimize their returns and raise their asset base. The daam principle comes in focus with huge dividend announcements, aiming at enticing investors' money towards mutual funds.
In the past one month, many fund houses have hiked exit loads in their equity and debt schemes. The fund houses adopted this measure to discourage investors from exiting the schemes and re-investing when the Sebi's decision to ban entry load come into force from 1 August 2009.
In an investor friendly move, Sebi took decision of banning entry load for all schemes. On exit load charged to the investor, a maximum of 1% of the redemption proceeds would be maintained in a separate account that could be used by the asset management company to pay commissions to distributors and take care of other marketing and selling expenses, Sebi said, adding that any balance would be credited to the scheme immediately. It shall be applicable by 1 August 2009.
Fund houses like Reliance Mutual Fund (MF) revised the exit load from zero to 2% for Reliance Regular Savings Fund, an open-ended scheme, in case of redemptions before one year. UTI MF hiked the exit load from 0.75% to 3% under UTI Mahila Unit Scheme, in case of exit before 1 year.
Bharti Axa will now charge 2% exit load for investments of less than Rs 5 crore in its Regular and Eco Plan, an equity fund if redeemed within 1 year from the date of allotment. It used to charge 1% for redemptions before six months. Birla SunLife, HDFC MF, ICICI Prudential MF, ING MF, Kotak MF, LIC MF, Tata MF and IDFC have also revised loads for specific schemes.
The other side of the coin says that the Sebi's ban on entry load is likely to reduce the number of fresh NFOs and might incite fund houses to rush into launching the already cleared NFOs before the 1 August 2009 deadline. Since last week of June 09 till date as many as 7 NFOs have come into the market and many are waiting to get clearance from Sebi and hit the floor.
However these NFOs may not be able to garner good subscription amount as investors may wait until 1 August to invest. Also the entry load ban may make NFOs more unattractive among distributors and thus the number of new NFOs may make down drastically. As many as 16 funds and lined up for clearance from the regulator considering the months of June and July 09. Meanwhile three schemes' viz. Sahara Super 20 Fund, Mirae Asset Short Term Bond Fund and Franklin Build India Fund have their NFO running currently.
To attract investors and cash on the benefits of increased government focus on infrastructure development the fund houses have launched many schemes focusing on infrastructure sector. In June and July 09 till date around 6-7 funds have filed their offer document with Sebi focusing on infrastructure and rural growth.
The fund houses are free flowing dividends to hold back investors in the scheme on the back of volatile markets. The number has increased to a record of more than 250 schemes announcing dividend in the month of June 09. With the improvement in market conditions and to revive investors' confidence the fund houses are showering dividends. The quantum of dividend ranged between 10%-60%. Tata Life Sciences & Technology Fund announced dividend of 20%. Similarly Franklin India Prima Fund offered tax-free dividend of Rs 6 per unit. Birla Sun Life Basic Industries Fund announced dividend of 50%. Recently SBI MF has also announced dividend of 50% in Magnum Sector Funds Umbrella (MSFU)-Contra Fund.
Thus by applying all means the fund houses are assaying to lure investors besides revitalizing their interest in the schemes.

Source: http://economistinsightblog.blogspot.com/

Canara-Robeco JV set to tighten grip on MF biz

Canara Robeco Mutual Fund, a joint venture between Canara Bank and Robeco of Netherlands, is all set to utilise the reach of its parent company with 500 trained bank staff in branches across the country.
Canara Bank, over the past two months, has hired 300 individuals and trained them along with 200 existing employees to be able to sell mutual funds through a certification by Association of Mutual Funds of India (AMFI).
"It will take some time to fully utilise the network of Canara Bank as we would need to train the employees and as of now 500 persons across the country are ready to sell mutual funds," said Rajnish Narula, CEO, Canara Robeco Mutual Fund.
This is only the second joint venture (JV) other than SBI mutual fund that has a joint venture where the Indian partner has the majority stake.
The JV is looking to expand more through their partners and will limit its branch expansion from an existing 23 branches to 30 branches in the next three years.
"We are looking to expand our branch network only into cities which are of strategic importance and for a deeper penetration we will rely
more on the distributors," said Narula.The joint venture that was formed in March 2007 has seen a significant growth in terms of the assets under management (AUM).
The AUM has grown from Rs 2,185 crore in March 2007 to Rs 7,624 crore in June 2009.
Canara Robeco also feels that it has gained some mileage over the past two years in terms of its acceptance.

Source: http://www.tradingmarkets.com/.site/news/Stock%20News/2466692/