4 lakh SIP accounts closed in recent months

Over four lakh systematic investment plan (SIP) accounts have been closed during the last few months, the RBI said in its annual report.
This would constitute over 10 per cent of the SIP accounts with the Indian mutual funds industry, which, according to Value Research, has an estimated 35 to 40 lakh SIP accounts.
The RBI, however, did not spell out the reasons for the closure of such a large number of SIP accounts.
“I have some reservations on such a high number of SIP accounts getting closed over the last few months,” Mr Dhirendra Kumar, CEO, Value Research, said. The Association of Mutual Funds in India does not furnish details on SIP accounts in its monthly mutual fund data.
“A downturn in the market and subdued NAV (net asset value) movement of the mutual fund units could have catalysed and accelerated the discontinuation of SIP accounts,” Mr Kumar said.

Source: http://www.thehindubusinessline.com/2009/08/28/stories/2009082852040100.htm

Sebi mulls 5-fold rise in ticket size for portfolio services

Plans to raise networth requirement for floating portfolio services.

The Securities and Exchange Board of India (Sebi) is planning a five-fold increase in the ticket size for investing in portfolio management service (PMS) schemes — from Rs 5 lakh to 25 lakh.
After making it mandatory to segregate accounts of PMS investors, the market regulator is also mulling to raise the networth requirement for floating a PMS. Sources in the know said that Sebi might raise it to Rs 5 crore from the current requirement of Rs 2 crore.
Sebi is actively considering these moves following a number of complaints from small PMS investors, who were taken for a ride in terms of returns as well as default on client obligations by the players. The market regulator basically wants to bring in better quality standards and ensure that only serious players are in the business.
Experts said that Sebi would like smaller ticket sizes to go into mutual funds and bring only sophisticated and savvy investors into PMSs.
Brokerages such as Sharekhan, Reliance Money and Motilal Oswal offer portfolio schemes starting at Rs 5 lakh. Sharekhan has products based on technical analysis such as Nifty Thrifty and Beta Portfolio with a minimum investment of Rs 5 lakh and a lock-in period of six months. Reliance Money, too, has portfolio management services starting at Rs 5 lakh.
Manish Porecha, head of PMS at Sharekhan, said: “If the investment ticket size is increased, it will be a welcome move for us as we will have to focus on fewer but quality customers. Having said that, there is a lot of appetite for PMS at the beginner’s level. There are lots of such investors who do not want to go to mutual funds, but at the same time want professional fund management. It will stop such investors from testing the market.”
PMS as a product has been fraught with discrepancies as there are minimal disclosure requirements, less accountability and several grey areas in regulation. These discrepancies leave it to the mercy of brokers and PMSs to interpret it in ways that suit them.
According to sources, Sebi is also looking at getting the accounts of PMS providers audited on a periodic basis to bring in more transparency. Last year, the regulator had asked stock brokers/clearing members to carry out complete internal audits on a half-yearly basis by independent qualified chartered accountants.
“Sebi has been discussing these issues with the PMS industry and might come up with new norms very soon,” said a source, who did not wish to be named.
“These steps are aimed at investor protection, similar to what the regulator did in case of mutual funds. They want to ensure better operational efficiencies and impose compliance cost in PMSs,” said Sriram Venkatasubramanian, head, FCH Centrum Wealth Management.
According to rough estimates, close to Rs 50,000 crore is being managed under PMSs. There are more than 300 Sebi-registered portfolio managers. However, experts said that there were a large number of unregulated entities practising it under the garb of colective investment schemes in Tier-II and III towns.
A lot of PMS providers show handsome indicative returns to woo clients. However, the actual returns that they give are quite different from the projected ones. Also, there are issues of preferential treatment to bigger and important clients, frequent churning of portfolio and higher management fees. While Sebi is looking to address these concerns, experts are of the view that it will be difficult for the regulator to regulate every aspect of portfolio management services.

Source: http://www.business-standard.com/india/news/sebi-mulls-5-fold-rise-in-ticket-size-for-portfolio-services/368181/

Common online platform for MF soon

Mutual funds may be among the most popular investment products, but the mechanics of investing in them are not very investor friendly.
For example, it can take up three days for changes that you make to your portfolio to become effective. To make life easier, the industry is now creating an online platform, but how does it help?
Now, it could take as long as three days to try to switch from units of one fund house scheme to another, but the upcoming mutual fund industry online platform promises to end all that.
CB Bhave, chairman of Sebi, said, “In case of the mutual fund industry, we don't have a central database. If you have investments in 15 different schemes then you will get 15 different statements."
The Association of Mutual Funds of India (AMFI) is acting on Bhave's words and plans to launch a common mutual fund platform in six months, with depositories NSDL/CDSL, and mutual fund registrars KARVY/CAMS as partners.
The platform will help investors view their entire portfolio on a single portal and switch between schemes of different fund houses.
AP Kurian, chairman of AMFI, said, "Our internal target to start operations is March 2010. The other operating platforms will get linked into this. This will be a master platform."
The four partners will share the initial cost, while fund houses will pay for the services on the platform. But the industry isn't complaining as it looks for ways to boost slumping sales and reduce costs.
Even more so, after the new norms on entry/exit loads that reduced commissions.
Jaideep Bhattacharya, chairman of AMFI panel, Common Industry Platform, said, "If you look at the profits of an Indian AMC, it is 6 bps lower than the world average and we are 4 bps higher when it comes to the global average of costs. So, we have to find a way to reduce costs and a technology platform will do just that."
Meanwhile, for several mutual fund investors, a common database will save a lot of hardships and will mean convenience at the click of a button.
For the industry that is desperately looking to lower transaction costs, such a platform could be a game changer, a challenge though would be to set it up in about six months’ time.

Source: http://profit.ndtv.com/2009/08/26233059/Common-online-platform-for-MF.html

'Insurance firms must control costs'

Growth in life insurance industry has come to a grinding halt after several years of high double-digit growth. To improve returns under the unit-linked insurance plans (Ulips), the regulator capped the amount insurance companies can charge the fund. The cap improves returns for policyholders, but it reduces margins for insurance companies. Life Insurance Council secretary general and former LIC chairman S B Mathur speaks to Mayur Shetty of the challenges for the sector. Excerpts:

What is the industry reaction to the regulatory cap on charges by life insurance companies?
Normally, in a competitive environment, charges should be determined by demand and supply. But given the developments in other sectors, capping of charges was inevitable in the short to medium term. It will definitely improve yield to policyholders. At the same time, companies will have to be very careful with their expenses — management costs or distribution costs or investing in future growth. Distribution is always an investment that is expensive in the short term and probably profitable in the long term. If the idea is to create some parity or level playing field with mutual funds, then there are other factors that influence the cost of insurance products.

Insurers have to sell 18% in rural areas. Why don’t we exempt Ulips from rural obligation as mutual funds are not bound so?
Besides, there is the issue of tax that raises cost for policyholders. For instance, the industry pays Rs 4,000 crore of service tax. Who bears the cost of these taxes? Likewise under income tax law, companies suffer double taxation as surpluses transferred from shareholder funds to policyholder funds to pay bonuses are taxed twice. Life companies pay a few hundred crores as stamp duty, which is merely a collection of revenue for the government. Ironically even this revenue collected for the government is subjected to service tax.

Will the cap push back break-even dates for life companies?
It could in some cases as companies that began their businesses a few years ago did so with a business plan. These plans will have to be recast in terms of net inflows.

The draft direct taxes code proposes to tax benefits of insurance policies. What is your reaction?
In life policies, payout is typically in a lump sum. If this gets added to income and there is no compensatory provision, then a person in a 10% tax bracket could move to a 30% bracket. Secondly, it is unfair because in a country like India as there is a corrosion in real value of savings. This also does not make sense taking into account the Indian ethos.
In India people not only save for the long term but also for the medium term such as school admissions, higher studies of children and their marriage and for buying a house. Retirement savings is not the only objective. I do not see the tax code promoting savings. In every sphere we borrow western concept without relating them to Indian environment. We saw that happen with a pension product that LIC introduced in 1969: the most popular selling product in the west — pension for life without return of capital — was a non-starter in India.

The IRDA has proposed a combi-product with life and non-life features...
There are some issues with the combi-product. Firstly, there are no real economies as they are two independent products clubbed together and sold by a common intermediary. The common intermediary has to be qualified life and non-life agent. So, a whole lot of agents will be disqualified. While the customer gets both policies at one place, he does not get the economies of scale. The combi-product will have to compete with stand-alone products with better features.

There is some confusion over whether a company can go public within 10 years of operations?
Earlier 10 years was prescribed as the time limit for dilution of promoters holding. The present guidelines clearly says dilution can happen only after 10 years. But in a situation where capital is scarce, there should be some dispensation allowing companies to go for IPO if promoters have the confidence.

What is your view on concerns that Indian promoters would become minority partner if FDI cap is raised to 49%?
Our understanding is that 49% would be an enabling provision. The level of promoter stake will depend on the agreement between two partners.

Source: http://economictimes.indiatimes.com/Opinion/Insurance-firms-must-control-costs/articleshow/4938748.cms

Fund houses make 50-basis point upfront payment to distributors

Sebi ban on entry load triggers the decision.

In a bid to compensate the distributors following market regulator Securities and Exchange Board of India’s (Sebi’s) ban on entry load, some mutual funds have decided to make at least 50 basis points (bps) upfront payment to them. A few others are going up to even 100 bps.
Sebi had banned entry load from August 1 and made it clear that distributors would have to negotiate the commission with customers and be paid through a separate cheque.
Admitting that it would put a burden on asset management companies (AMCs), fund houses said they had no option but to resort to such a move in order to attract investments through the distribution network.
Not everyone however can go beyond 50 bps. The chief executive officer (CEO) of a foreign mutual fund house having operations in India said only those with high profitability can manage to pay more than 50 bps.
Mutual fund scheme distributors said that the upfront payment structure was already in place. “Though the amount of upfront payment depends on how deep the AMCs’ pockets are, the average is 50 bps,” said a distributor.
“Especially if the exit load period is reduced to only the first year of investment, there is not much scope and there will be pressure on pricing,” said Akhilesh Singh, business head (wealth management) of Emkay Financial Services.
“Since 90 per cent of our business comes through the distributor network, we have to compensate them from our own pocket to the extent possible,” said the chief marketing officer (CMO) of one of the leading domestic fund houses seeking anonymity.
AP Kurian, chairman of the Association of Mutual Funds in India (Amfi), said: “There is no uniform call on how the distributors will be compensated. Since business models of different fund houses vary from each other, we have left it to them to take individual calls on how to approach the issue.”
Unless distributors were incentivised in such a situation, one could end up losing ground in a competitive scenario, added the CMO.
The CEO of another fund house said, “We have informed our distributors that we will pay a reasonable brokerage of 1 per cent. Though it will be a burden, but distributors have to be taken care of since they are our business partners.”

Source: http://www.business-standard.com/india/news/fund-houses-make-50-basis-point-upfront-payment-to-distributors/368183/

The broker goes for broke. Season two

By gradually tightening the commission norms, Sebi has tried to nudge the industry for the last three years towards performance-based selling to the retail market

It is always the transition generation that finds it the most difficult to adjust to change. I was a rookie business journalist in 1992 when the Harshad Mehta scam broke and the securities market reform began. I remember talking to a small stock broker in Delhi discussing the incipient changes. Sitting far away from the trading floor and with my livelihood not at risk, I found it easy (though a bit callous, on hindsight) to tell him that his business was history. That the market would corporatize. That costs would come down and unless he either expanded very fast or became an employee, business was over. With the size of business he serviced, on the new brokerage structure that would emerge, he would not be able to survive.

Out of the shambles of the stock market scam emerged new institutions that looked at more order in the markets. Screen-based trading, depositories, brokerage disclosure were all new concepts that were resisted every inch of the way by the market incumbents. The stock market was a closed club of brokers. I still remember the cantankerous old fox of the Delhi Stock Exchange explaining the bhai-chara (brotherhood) system to me in his Punjabi-twanged, expletive-filled narrative. The sub-text of the story was: They were all broker-brothers who were able to sort out all their problems. Investors? Well, they bought at the highest price of the day and sold at the lowest price, since the outcry (guys gesturing and hollering at each other to make the trade on the floor of the stock exchange) system prevented the investor from knowing at what time and what price the trade got executed. Sounds primordial today, doesn’t it? Investors wanting 100 shares were looked at as if they were beggars, charged rates that were more than 5% of the trade. And service? Well that was for the big boys.
One issue that got the brokers really worked up was the decision to get them to declare their brokerage on the contract note. There was a violent reaction, brokers threatened to go on strike. They prophesied doom for the markets. For the economy. For the National Stock Exchange (NSE). Employees of NSE actually got threats after they found a trail of money from the brokers leading to the underworld. Now, almost 20 years later, India has one of the most efficient markets in the world, brokerages are down to 20-40 basis points (you pay 20 paise each time you transact Rs100 worth of shares) and the time when delivery of shares (if you were lucky enough to get your signatures matched) took more than a month, seems like from another planet.
Judging by the activity just under the surface in the mutual fund industry, it’s Season Two time. By gradually tightening the commission norms, the Securities and Exchange Board of India (Sebi) has tried to nudge the industry for the last three years towards performance-based selling to the retail market. Throwing money at the distribution chain and chasing corporate and high net-worth customers was not the way it was supposed to be. With mutual funds going no-load (you no longer pay the embedded cost in the price), the reactions in the industry are as expected. While some fund houses (the product manufacturer) are giving public statements opposing the move, privately they are laughing. For too long the tail twisted the dog—there are stories of how large distributors would not even take calls from mutual fund heads unless they were promised a commission of 8%. Other fund houses that target assets under management, are hiring lawyers, chartered accountants and sharp-shooter compliance officers to find that last remaining loophole that will allow them to still milk the system. That one last time.
The 55,000 mutual fund distributors plus banking distribution chains are working on two fronts. Defensive and offensive. The lowest of the low-life used all of July to heavily churn their customers (you). Check your July statement to see the transactions for the month. Each time the bank or your agent bought you a fund, you paid the bank/agent/advisor Rs2.25 on Rs100 of transaction. Do this three times on a corpus of Rs10 lakh and they made at least Rs60,000 off you, just in a month. If you found you’ve been churned, find another point of sale. If this was defensive, the offensive strategy is to quickly cobble together an association, lobby with the ministry of finance, the Prime Minister’s Office, or whoever would listen, and go to court. A New Delhi-based distributor-led attempt to litigate against the no-load order fell flat on its face, first when the fund houses refused to pay for the legal fees and two, when the court threw the case out. If history is any beacon to the future, it will settle down. You will end up paying less, in a more transparent manner, the market will expand and the occasional jay walker will still get hit, but the systemic problem will get over.
What you have to do: There are no free lunches. Sebi is not saying that you can buy funds for free. All it is saying is, by making mutual funds no-load, the person servicing you will really be your agent, rather than the agent of the mutual fund. And as your agent, you need to pay him directly for the service he gives. You pay your doctor, your lawyer, your shrink. Now you pay your financial adviser. If you’ve been happy with your adviser, begin paying for that service. Or get shoddy service and get hit by products that harm. Advice from a Mumbai-based value-for-money distribution house: Look beyond the glitz of the sales team and examine your statements carefully. If not, well, it’s your money, no amount of regulation can help you.

Source: http://www.livemint.com/2009/08/25215204/The-broker-goes-for-broke-Sea.html?h=B

Birla Sun Life MIP outperforms bank FDs and MIS

Birla Sun Life Mutual Funds open-ended monthly income plan (MIP) II-Savings 5 plan has performed well with the fund generating a CAGR return of 12.5 per cent over a three-year period against the benchmark Crisil MIP Blended Index returns of 8.4 per cent as on July 31

An investor who has invested Rs 1-lakh in the scheme since its inception in May 2004, would have received Rs 540 as average monthly income in the form of dividends against Rs 440 from a bank FD and post-office monthly income scheme till July 31, Birla Sun Life CEO A Balasubramanian told reporters here.

During the same period while the Rs 1-lakh invested initially would not have appreciated in conventional saving options, it would have grown to Rs 1.12-lakh in this fund.

More importantly, the income from the conventional investment options are taxable but income from BSL MIP II Savings 5 is not taxable.

Post-tax monthly income for FD and PO MIS is calculated on a rate of interest of 8 per cent per annum and 7.25 per cent per annum, respectively.

Birla Sun Life Asset Management Co is one of the top five asset management firms in India with an average asset under management of Rs 57,331-crore as on July 31.

Source: http://www.zeenews.com/news558243.html

HDFC MF to launch Short Term Opportunities Fund

HDFC Mutual Fund has filed an offer document with securities and exchange board of India (SEBI) to launch HDFC Short Term Opportunities Fund, an open-ended income scheme.

The new fund offer (NFO) price for the scheme is Rs 10 per unit.

Investment objective:
The investment objective of the scheme is to generate regular income through investments in debt / money market instruments and government securities with maturities not exceeding 30 months.

Plan:
The scheme offers growth and dividend option. Dividend option offers sub-option with payout and re-investment facility.

Asset allocation:

The scheme will invest 60% to 100% of asset in debt and money market instruments including securitized debt, with a risk profile of low to medium. Investments in securitized debt, if undertaken, shall not normally exceed 75% of the net assets of the scheme. 0% to 40% of investment will be in government securities with low risk profile. In addition to the instruments stated above, the scheme may enter into repos /reverse repos as may be permitted by RBI. From time to time, the Scheme may hold cash. A part of the net assets may be invested in the collateralised borrowing & lending obligations (CBLO) or repo or in an alternative investment as may be provided by RBI to meet the liquidity requirements.

Load structure:

The entry load for the scheme is not applicable. In respect of each purchase/switch-in of units, an exit load of 1% is payable if units are redeemed/switched-out within 1 year from the date of allotment. No exit load is payable if units are redeemed/ switched-out after 1 year from the date of allotment.

Minimum application amount:

The minimum amount is Rs. 5,000 per application and any amount thereafter. In case of investors opting to switch into the scheme from the existing schemes of HDFC Mutual Fund (subject to completion of lock-in period, if any) during the NFO Period, the minimum amount is Rs. 5,000 per application and any amount thereafter.

The minimum subscription (target) amount of Rs. 10 million is expected to be raised during the NFO period of HDFC Short Term Opportunities Fund.

Benchmark index:
The scheme`s performance will be benchmarked against CRISIL Short Term Bond Fund Index.

Fund managers:
The fund managers of the scheme will be Anil Bamboli and Anand Laddha.

Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20090825181420707&dir=2009/08/25&secID=livenews