Govt to adopt common qualifying exam for financial advisors

The government is preparing to implement the suggestion made last week by an expert panel to introduce a common qualifying exam for financial advisors of all kinds ranging from tele-marketers of car and personal loans to sellers of mutual funds and insurance policies.

The proposed exam is aimed at testing their knowledge of not only what they sell, but also of all other financial products chasing the same customer. Officials from the finance ministry, financial regulators and market players will on Wednesday deliberate on the consultation paper titled ‘minimum common standards for financial advisors and financial education’ prepared by the D Swarup committee.

The idea is to crystallise the form of the proposed self-regulator for financial advisors, Financial Well-Being Board of India—which will set the benchmarks for the eligibility and standards for them, said a government official. The panel had recommended that the existing examinations in mutual funds, insurance and others should continue as different modules within the overall scope of the proposed eligibility test.

This is part of the government’s plans to prevent financial advisors from acting merely as the agents of one insurance company or one mutual fund house for which they work, while their job is to give customers insights into the relative benefits of competing products as well.

Under the law, financial planners are supposed to serve the end customer and not their employers since these middlemen get their pay either directly from the end consumer or from his investments without his knowledge. In practice, financial advisors act as the marketing agents of producers of financial productsmutual funds, insurance, loans etc—although the customer pays for his services. The finance ministry wants to put an end to this practice.

Finance ministry officials said the proposed self regulator may be asked to set the educational benchmark for all financial advisors including insurance agents, mutual fund sellers and retail loan pushers.

“Now many financial planners know only about the products they push and are ignorant about the competing products in the market. The proposed self-regulator may fix the benchmark for the examination that all of them have to pass, but sectoral regulators like Sebi or IRDA will be responsible for implementing the standards and holding the exams,” said an official, who asked not to be named. The D Swarup panel had also suggested that all upfront commissions now paid to a financial advisor from the investment made by a customer be removed.

Now, to be an insurance, one needs to pass 12th standard if he lives in a place with a population of 5,000 people or more. Passing 10th standard would suffice for those staying in other places.

To get the licence to sell, one needs to pass a pre-recruitment exam in life or general insurance conducted by the Insurance Institute of India and undergo 100 hours of training at the insurance firm for which he would work. Besides, aspiring insurance agents should also have the requisite knowledge to solicit and procure insurance business and be capable of providing the necessary service to the policyholders.

Source: http://economictimes.indiatimes.com/News/Economy/Govt-to-adopt-common-qualifying-exam-for-financial-advisors/articleshow/4989182.cms

MFs need to improve on transparency, disclosure

The recent move by the Securities and Exchange Board of India (Sebi) banning entry load and capping exit load, among other things, has turned the spotlight on the possible improvement in rights of mutual fund (MF) holders in the country. Sure, we already have regulations in place.

But according to industry observers the Sebi move points to improvement in investor rights. “The rights protection of mutual fund holders have been always been on top of Sebi agenda. It has also moved a great deal in the last few years towards improvement in this direction,’’ says Devendra Nevgi, an independent investment consultant.

Here are the rights that are available to an MF holder as per Sebi Regulations on MFs:
A) An investor is entitled to receive statements of accounts in 6 weeks from the date of request for unit certificates.

B) He also has a right to receive information about investment policies, objectives, financial position and general affairs of the scheme.

C) He is eligible to receive dividend within 42 days of declaration, and the proceeds within 10 days from the date of redemption or repurchase.

D) Trustees are bound disclose to unit holders any information that could adversely impact investments.

E) With prior Sebi approval, 75% of the unit holders can terminate the AMC of the fund.

F) They can also pass a resolution to wind-up the scheme.

G) An investor can also send complaints to Sebi, who will take up the matter with the concerned MFs and follow them up till the issue is solved.

Does that mean that everything is hunky dory with MFs? To a certain extent, say experts. “No fund house will take an investor for granted, as nobody wants bad publicity. Also, fund houses know that the Sebi is extremely serious about investor protection,’’ says an MF advisor who didn’t want to be quoted.

Nevgi says: “If an investor writes to Sebi about not getting dividend or redemption proceeds on time, the regulator takes it very seriously. Even mutual funds treat those matters seriously. So those kind of complaints are very uncommon in the industry,’’ he says. However, he feels there is scope for more improvement. “When it comes to quantitative rights like receiving dividend or redemption cheque on time, things are very much in place. However, when it comes to transparency or frequency of portfolio disclosure, things can still improve.’’

The view is shared by many others. “Transparency is a big issue. There are lot of problems like schemes with strange and funny names. Also there are lot of schemes which are repackaged where the investment objective and investment portfolio are not close to each other,’’ says Nevgi. “Complex schemes are the main issue. Name of the scheme or investment objective can be interpreted the way the manager wants. This can confuse investors. They would realise they invested in a wrong scheme only when things go wrong,’’ says an expert.

Another area which most experts feel could improve is frequency of portfolio disclosure. They point out that since fund houses have the choice of making the disclosure of portfolio twice a year, many fund houses are lacking in this aspect. “Some funds don’t even bother to send detailed portfolio. Investors also should be blamed as they don’t take it seriously. In fact, they should demand portfolio since that is the only way they will come to know how their money is invested,’’ says the MF expert.

Source: http://timesofindia.indiatimes.com/news/business/india-business/MFs-need-to-improve-on-transparency-disclosure/articleshow/4992707.cms

Axis AMC, two others in race for DBS Chola assets

Negotiations are at an advanced stage and the deal could be closed soon; price likely to be around Rs80 crore

Axis Asset Management Co. Ltd, Indiabulls Financial Services Ltd and L&T Finance Ltd have emerged as the top contenders for the assets of DBS Cholamandalam Asset Management Ltd.
Edelweiss Capital Ltd is investment banker for the deal.
A DBS Cholamandalam executive, who spoke on condition of anonymity, said negotiations are at an advanced stage and the deal could be closed soon.
The price is likely to be around Rs80 crore, said an investment banker, who did not want to be identified.
Axis Asset Management is the new kid on the block in the mutual fund business; it has been promoted by Axis Bank Ltd. The bank received the Securities and Exchange Board of India’s (Sebi) nod for entering the mutual fund business last week. L&T Finance has not yet moved the capital markets regulator seeking its nod for starting an asset management company (AMC), while Indiabulls is awaiting an approval.
Rajiv Anand, managing director and chief executive of Axis AMC, said: “We are happy to look at acquisitions if the deal comes at the right price and matches our investment philosophy, but we would not like to comment on any specific deal.”
N. Sivaraman, director at L&T Finance, said: “Asset management business looks interesting to us. We have not yet applied to Sebi. There are multiple options available for inorganic growth.”
“An acquisition can help us get into the business fast. But till such time we take a final decision, it continues to be a speculation,” he added.
Indiabulls Financial Services couldn’t be reached for comment. Spokespersons of DBS as well as the Murugappa Group declined comment on “market speculation”.
DBS Cholamandalam Asset Management is a subsidiary of Cholamandalam DBS Finance Ltd, a joint venture between Chennai-based Murugappa Group and DBS Bank Ltd of Singapore, with each holding 37.5% and the rest being held by the public.
In August, it had Rs2,893.16 crore worth of assets under management (AUM). Of this, equity assets account for Rs252.93 crore under 11 schemes and the rest is debt. The volume of AUM plays a key role in valuing an AMC. At Rs80 crore, the cost of DBS Cholamandalam works out to be around 3% of its assets.
Typically, larger the equity asset base of the fund house, the higher its valuation. Debt funds receive lower valuation as the commission from managing such funds is lower than that on equity funds.
“A 3% valuation for DBS Cholamandalam would be on the higher side as most of the assets of the fund house are under debt and liquid schemes that fetch lower income compared with equity schemes,” said a senior official at a large bank-controlled AMC, who did not want to be identified.
DBS Cholamandalam has 78 employees, including 12 fund managers and 40 back-office employees. It is present at 22 locations across India and has at least 118,000 customer accounts. It posted a Rs38 crore loss for the year ended March.
Axis Asset Management, which is yet to launch its first fund, has 50 employees, including four fund managers and 10 back-office employees.
“Integration of employees is an issue that has to be looked into carefully. These kinds of acquisitions often result in retrenchment (of staff) which is avoidable,” said the DBS Cholamandalam official.
“We are aiming to have 100 employees and 8-10 schemes in our portfolio by March 2010. We have targeted a market share of 3% in terms of AUM in the next four-five years, which would place us among the top 10 fund houses in the country,” said Anand of Axis AMC.
India’s Rs7.49 trillion by assets mutual funds industry has 36 players, with Reliance Capital Asset Management Ltd topping the list with an average AUM of Rs1.17 trillion in August. It is followed by HDFC Asset Management Co. Ltd with average assets of Rs93,874.19 crore and ICICI Prudential Asset Management Co. Ltd with Rs77,966.86 crore.
Though the valuation of DBS Cholamandalam is seen as expensive by some fund managers, some deals in the past have been closed at higher valuations. For instance, Infrastructure Development Finance Co. Ltd (IDFC) in March 2008 took over Standard Chartered Bank’s asset management business in India for $205 million (nearly Rs995 crore today), valuing the firm at 5.67% of its AUM. IDFC retained the StanChart AMC’s staff.
In December 2007, Eton Park Capital Management Lp acquired a 5% stake in Reliance Capital Asset Management for Rs501 crore, valuing the AMC at 13% of its AUM.
In November, Religare AEGON Asset Management Co. Ltd (now known as Religare Asset Management Co. Ltd as Aegon exit the joint venture) bought Lotus India AMC, a joint venture between Fullerton Fund Management Group and London-based Sabre Capital Worldwide for around Rs110 crore, which valued Lotus AMC at about 2% of its AUM of Rs5,500 crore. About 90% of Lotus AMC’s assets were debt.

Source: http://www.livemint.com/2009/09/09230153/Axis-AMC-two-others-in-race-f.html?h=B

IDBI, Union Bank to foray into asset management biz in 6 mths

In a bid to diversify their operations, two state-run banks -- Union Bank and IDBI Bank -- are planning to venture into asset management space and have approached the market regulator SEBI for approval.
While IDBI Bank had filed application for licence in January this year, Union Bank of India had submitted its papers with the regulator in February.
All these proposals are at the advance stage of clearance, official sources said.
During the course of the year these banks are expected to get licence and thereafter they can start asset management, sources added.
Meanwhile, the country's third largest private sector lender, Axis Bank has already got the regulator's approval to start asset management business.
The Union Bank of India has set up an asset management firm with KBC Group of Belgium. The joint venture, in which Union Bank owns 51 per cent stake expects to start operations during the current fiscal.
Another public sector lender IDBI Bank has board approval to set up the asset management company either as a wholly-owned subsidiary or as a joint venture.
Currently, there are five mutual funds either fully or partly owned by Indian banks, along with foreign partners.
These include Baroda Pioneer Mutual Fund, Canara Robeco Mutual Fund, ICICI Prudential Mutual Fund, Principal Mutual Fund and SBI Mutual Fund.
The combined average AUM of the 30 fund houses stood at Rs 5,38,736.43 crore at the end of July as monthly AUM figures of many fund houses were not available.
Last month, the total average AUM of 35 fund houses had surged nearly five per cent to Rs 6,70,936.61 crore, according to the data available on the website of the Association of Mutual Fund of India (AMFI).
Fund houses which saw an increase in their average AUM in July include Canara Robeco MF, Deutsche MF, IDFC MF, Religare MF and LIC MF.
Some of the fund houses like HDFC MF witnessed additions of Rs 5,168.20 crore to its assets under management (AAUM), while ICICI Prudential MF's AUMs grew by Rs 3,159.09 crore in July.

Source: http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/IDBI-Union-Bank-to-foray-into-asset-management-biz-in-6-mths/articleshow/4977898.cms

Axis AMC gets SEBI nod to launch mutual fund business

Axis Asset Management Company Limited (Axis AMC), a wholly owned subsidiary of Axis Bank Ltd, today announced that it has received the final regulatory approval from the Securities & Exchange Board of India (SEBI) to launch its mutual fund business in the country.
Axis AMC now aims to launch its first set of products in October 2009, a company statement said here.
Axis AMC will shortly be filing for both equity and debt products. These offerings should be available by October / November of this year.
"We have received SEBIs approval. The Asset Management industry in India is amongst the fastest growing financial services businesses from across the globe. With a growth rate of over 30 per cent CAGR during the last 6 years, the mutual fund business presents an interesting opportunity, Axis AMC's MD & CEO, Rajiv Anand said in a statement here.
It is a fairly crowded investment market but we think that there is great merit in delivering solutions rather than just launch products. It is this investor centric approach built on customer oriented communication, long term relationships and enduring wealth creation that will seek to differentiate Axis Mutual Fund. We will aim to be amongst the top 10 fund houses in the country within the next 4-5 years, Anand said.

Source: http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/Axis-AMC-gets-SEBI-nod-to-launch-mutual-fund-business/articleshow/4978453.cms

Principal Large Cap Fund (G) Outperforms BSE 100 over All Time Periods

Background:

Principal PNB Asset Management Company (In Association with Vijaya Bank) Pvt. Ltd. is a joint venture between the Principal Financial Group - a Fortune 500 company, Punjab National Bank and Vijaya Bank. It has started the operation in India on September 2000. The fund house manages assets worth Rs 9450.83 crore at end of August 2009.
Principal Large Cap Fund (G) an open-ended equity scheme launched in September 2005. The Investment Objective of the scheme would be to provide capital appreciation and/or dividend distribution by predominantly investing in companies having a large market capitalization. The minimum investment amount is Rs.5000 and in multiples of Rs 500 thereafter. The unit NAV of the scheme was Rs 22.52 per unit as on 7 September 2009.
Portfolio:

The total net assets of the scheme increased by Rs 0.22 crore to Rs 428.25 crore in August 2009.
Principal Large Cap Fund (G) took fresh exposure to four stocks in July 2009. The scheme has purchased 4.99 lakh units (2.82%) of Sesa Goa, 70116 units (2.63%) of Hero Honda Motors, 8.32 lakh units (1.72%) of Allahabad Bank and 1.49 lakh units (1.16%) of GAIL (India).
The scheme exited completely from Lanco Infratech by selling 3.24 lakh units (3.05%), Bharat Petroleum Corporation by selling 2.00 lakh units (2.26%), Tata Steel by selling 1.99 lakh units (2.05%) and Cipla by selling 2.00 lakh units (1.33%) among others in July 2009.
Sector -wise, the scheme took fresh exposures in Automobiles – Motorcycles / Mopeds at 2.63%.
Sector-wise, the scheme did exit completely from Engineering at 3.05%, Steel – Large at 2.05%, Pharmaceuticals – Indian – Bulk Drugs Formulation at 1.33% and Construction at 1.23% in July 2009.
The scheme had highest exposure to Reliance Industries with 1.19 lakh units (5.48% of portfolio size) followed by State Bank of India with 1.19 lakh units (5.08%), Oracle Financial Services Software with 1.09 lakh units (3.95%) and Oil & Natural Gas Corporation with 1.40 lakh units (3.81%) among others in July 2009.
It reduced its exposure from Reliance Industries by selling 55187 units to 1.19 lakh units (by 3.81%), Bharti Airtel to 2.79 lakh units (3.11%), Tata Consultancy Services by selling 2.00 lakh units to 1.49 lakh units (1.74%) and Dabur India by selling 5.00 lakh units to 2.97 lakh units (1.68%) among others in July 2009.
Sector-wise, the scheme had highest exposure to Banks – Public Sector at 11.25% (from 8.24% in June 2009), followed by Refineries at 10.17% (17.39%), Computers - Software – Large at 8.20% (9.51%) and Mining / Minerals / Metals at 6.59% (1.59%) among others in July 2009.
Sector wise, the scheme had reduced exposure from Refineries to 10.17% (by 7.22%), Telecommunications – Service Provider to 2.68% (by 3.11%), Computers – Software - Large to 8.20% (by 1.31%) and Personal Care - Indian to 4.31% (by 1.11%) among others in July 2009.
Performance:

The performance of the scheme is benchmarked against BSE 100. The scheme has outperformed the benchmark index over all time periods.
The scheme has posted returns of 7.03% outperformed the BSE 100 that increased by 6.46% over 1 month period ended 7 September 2009. Over 3 month's period, the scheme advanced by 12.88% outperformed the BSE 100 that gained 6.39%. It rose by 22.19% outperformed the benchmark index that was up by 10.95% over 1 year period.

Source: http://www.apollosindhoori.com/Default.htm

Sensex back at 16k, India best performer among Asian peers

A renewed burst of purchases by foreign funds pushed major stock indices to a 15-month high on Monday, leading to concerns that the market has run far ahead of itself.
The Sensex of the Bombay Stock Exchange and the National Stock Exchange’s Nifty rose by over 2% on Monday and have more than doubled in the past six months, causing market watchers to wonder if stock prices have discounted the economic recovery too quickly. Many fund managers privately voiced concerns that valuations are slowly expanding into a bubble, but added that strong liquidity and a positive mood in world markets could push stock prices higher for some more time.
“In the short term, we could see the market rising further because there is lot of cash on the sidelines, awaiting a correction,” said Nilesh Shah, chief investment officer and deputy MD, ICICI Prudential AMC. “But unless this cash is deployed in the market, we are unlikely to see any deep corrections.”
The 30-share Sensex closed at 16,016.32, or 2.1% higher, and the 50-share Nifty gained 2.2% to 4782.90. Provisional data showed foreign institutional investors net bought Rs 1,060 crore worth shares on Monday and domestic institutions Rs 150 crore.
The mood in world markets was upbeat following a statement over the weekend by the G-20 grouping of major economies that financial markets were stabilising and that the global economy was improving. India was the best performer in Asia while most European markets gained between 1% and 2%. “Possibility of earnings upgrades and hopes of incremental reforms could further strengthen liquidity,” said Navneet Munot, chief investment officer of SBI Mutual Fund, which managed about Rs 35,000 crore in assets.
Dealers said market operators took advantage of the holiday in US markets today to ramp up stock prices. Despite rising stock prices, turnover has remained on the lower side, underscoring the cautious mood among players. On Monday, traded turnover in the derivatives segment was about Rs 57,000 crore while in the cash market it was Rs 23,000 crore.
Investors continued to lap up second line shares, with gainers outnumbering losers nearly 4:1 on the BSE. “It is purely a liquidity-driven rally,” said Rashesh Shah, CMD, Edelweiss Capital. “Maybe, when the quarterly numbers start coming in next month, investors could get a bit more selective,” he added. Realty stocks were the star performers, with the BSE realty index gaining over 5%. Metal, banking and automobile stocks, too, witnessed good demand while investors shunned FMCG and IT shares.

Source: http://economictimes.indiatimes.com/Market-News/Sensex-back-at-16k-outperforms-Asia/articleshow/4984390.cms

UPDATE 1-L&T eyeing DBS Chola's India fund operation-sources

The financial services unit of India's Larsen & Toubro Ltd is in talks to buy Cholamandalam DBS Finance's domestic mutual fund operation, two sources familiar with the matter said.
"We are working on their behalf," one source said, referring to L&T Finance, a wholly owned unit of L&T. "We can't share details at the moment. Let's wait for the transaction."
Officials at Cholamandalam DBS, a joint venture between India's Murugappa Group and Singapore's DBS Bank that run DBS Cholamandalam Asset Management, could not be immediately reached for comment.
Another source said Edelweiss Capital was the advisor for the asset manager.
The valuation of Indian money managers has fallen from 2007/08 highs. In June, Japan's Nomura said it would buy a stake in LIC Mutual Fund for about 2.5 percent of fund's assets.
DBS Cholamandalam had assets of about $615 million at the end of August, the company's website showed.
Valuations are likely to come under pressure even more following a recent ban on entry fees, which is widely expected to slow growth, add to distribution cost, cut profitability and delay the path to breakeven for money managers
The country's stock market regulator said in July it would abolish front-end or entry fees charged by mutual funds from Aug. 1, a move aimed at cutting costs for investors and to discourage aggressive selling.
A source in Singapore familiar with DBS said the lender has had a rethink about the India joint venture for some time. The venture laid off staff and cut the number of branches last year.
"It's about high time we do so," he said when asked if DBS was planning to divest its stake in DBS Cholamandalam. Cholamandalam DBS shares rose by the maximum daily limit of 10 percent on Monday to 63.35 rupees.
A L&T Finance official in Mumbai and a DBS spokesman in Singapore declined comment.
Senior officials at Larsen & Toubro, India's largest engineering and construction firm, had said last month the diversified company was interested in expanding its presence to asset management and insurance businesses.
Earlier this month, L&T Finance successfully raised about $200 million via a retail bond sale.
Late last year, Religare Enterprises Ltd agreed to buy Lotus Mutual Fund from Singapore state investor Temasek and London-based Sabre Capital Worldwide for about 1-2 percent of assets under management, according to media reports.
By comparison, Infrastructure Development Finance Co agreed to buy Standard Chartered's Indian fund unit for about 6 percent of assets in March 2008. And in 2007, hedge fund Eton Park paid about 13 percent of assets for a piece of Reliance Capital's fund arm.
In August, consultant McKinsey said in a report the industry was likley to witness consolidation as smaller players might not be able to withstand stress on profitability.

Source: http://in.reuters.com/article/domesticNews/idINBOM49323520090907?sp=true