MUTUAL FUND TRANSACTIONS OVER STOCK EXCHANGES

NSE finally launching transactions on 30th November, 2009 after SEBI allowing Indian Stock Exchanges about the same. We wish to clarify certain points about the new system.

In the essence, SEBI Circular says if you are looking to invest in mutual funds, you could get it done through a stockbroker also. Presently, Investors were having these points for transactions:

Point 1: Going directly to a mutual fund house
Point 2: Giving an application form to a distributor (an IFA or a bank)
Point 3: Using an online investment platform

So, now NSE Terminals are new Transaction Point in IndiaThis is significant development. With the abolition of entry load, and the consequent decreasing of distributors (See our article No more Hawkers in the street), SEBI was looking to increase the avenues available to individuals to invest. Also, mutual fund companies or their processors do not have offices in significant parts of the country.

With the introduction of new system, investors should clarify themselves about certain points, which are as follows:

Units of Mutual funds can now be traded - wrong concept
There is no change, Investors will be investing or disinvesting Units from Mutual Funds Companies. These NSE Terminals will be simply additional transactions points. Keep in mind Indian Mutual Units (Except ETFs and some Close ended schemes) are not tradable.

1. For open-ended mutual fund schemes - which are the dominant kind of retail investment instruments - investors will continue to buy units from the mutual fund house and redeem it from them as well.
2. There will be no "price discovery" - that is, the market or exchange will not determine the price for the mutual fund units. The NAV will continue to be calculated at the end of the day by the mutual fund houses.

Units of Mutual funds will continue to be bought and redeemed from the mutual fund house, and will be done at the applicable NAV as it is being done today.

Investors will need demat accounts for mutual funds - not necessarily

The ongoing system of Units in separate Statement will continue. Hence, it is not necessary to have a demat account.

An investor who wants to invest in mutual funds through his stockbroker may need to have a demat account. The SEBI circular also states that existing mutual fund units can be converted to the demat format as used by the stock depositories. That is, if you choose to conduct all your mutual fund transactions through your broker, you may bring in their existing non-depository registered units for consolidation in one place. All this is true. But this does not, however, mean that this would be the only place to hold the units or a demat account would be mandatory. One can continue with the existing system.

NSE Terminals will not be the only channel for mutual fund investments

As mentioned above, the existing system for investment and disinvestment will continue. So Investors should not that exchanges will become the additional point for investing in mutual funds. Mutual funds will continue to be available through advisors, banks, online platforms that do not require a demat accounts as well as from fund houses directly.

Every new development is always having both positive and negative features. Nothing is good or bad, our suitability matter.

Positive: This will bring about easy consolidation of your holdings in one place. Upto now, mutual fund units are scattered between different back office operators of the mutual fund companies. When you start trading through exchanges, all your units will be available in a consolidated fashion in their depository account. This facility is currently available only to those of you who use online mutual fund investment platforms.

Negative outcome: Mutual funds, as a class of product, are not stocks, and should not be treated like stocks. Mutual fund schemes are medium-long term instruments and are not to be traded regularly. If a broker starts pumping and dumping schemes with their clients like they are stocks, they will be doing a disservice to the market.

To summarize:: As mentioned earlier every new development always carry new features. We will keep investors informed about further new changes taking place. SEBI announcement seem to be a positive step made towards making mutual funds widely available to investors in all corner of country, we should understand it in perspective of the larger investor-friendly measures that SEBI has been taking over a course of time. It is duty of all of us to share and appreciate all good developments. On the other hands, we should not come under the trap of someone to start trading of units. Mind this Investment is always a long-term affair.

Source: http://www.indianmutualfundsonline.com/View/32.aspx

Mutual fund industry makeover: season 2

Ease of entry and exit and low entry and exit costs are two attributes that any retail offering works hard to get right

For equally good food, which cafe would you pick—one that has good parking and is on the ground floor or another that has difficult parking and is two flights up a dark stairway? I find myself choosing the first over the other most times. I also find my selection process sensitive to costs of access such as parking fees. I tend to avoid places that will charge more than the usual Rs10 as parking.

Ease of entry and exit and low entry and exit costs are two attributes that any retail offering works hard to get right. Financial products are just the same. Unless buying, keeping, tracking, consolidating and selling are cheap and easy, retail products such as mutual funds will remain boutique, ones that are sold and not bought.
In this backdrop, look at what is causing the latest round of hand-wringing in the mutual fund industry. The capital market regulator has allowed mutual funds to list on stock exchanges, and on Monday, 30 UTI schemes were listed and began trading on the National Stock Exchange. Others would follow.
While the public statements of brokers, fund houses, banks and distributors are all politically correct, offline, the venom is vitriolic. Fears of funds turning into casinos, of brokers not willing to sign up, and an overall feeling of “this will not work” are plenty. This comes soon after one round of venting after the 1 August move over to no entry and exit charges in funds—also known as loads—which incidentally is being watched carefully by regulators across the world to see how it works, as it is a global first. The past six months have seen change, both in the plumbing of the mutual fund innards and in the way they intersect with the lives of investors.

If we go beyond the noise, what’s happening is this: Mutual funds were envisaged to be a bus that retail investors could ride to get the benefit of fund management through a fraud-free route. However, the short-term nature of capitalism along with the valuation hunger—the larger the corpus of money a fund house manages, the larger will be its valuation in a stake sale or while listing—ensured that the institutional business got the maximum attention, innovation and service and the retail investor was given peripheral attention and even then it was the use of the new fund offer route to gather assets.
A crucial part of this was the distributor who had access to the retail investor—you and me—and was mostly happy to sell us garbage as long as he was paid his cut. Of course, the story is much worse in another part of the market, but let’s deal with just funds here in isolation.
But the Indian investor, like the voter, is no fool. There must be a reason that we still keep the bulk of our savings in low-yielding, sticky and tax-inefficient bank deposits. We’ve not had the confidence to step over to managed funds because we don’t trust the advice. And they are difficult to transact compared with direct equity.
Now view the regulatory changes in the light of this backdrop. By removing loads, the market regulator has removed the key cause of mis-selling of funds. Sellers, including relationship managers of banks, would tell you that a Rs10 NAV (net asset value) was cheaper than an older fund with a Rs50 NAV, hence you should buy the new one. Of course, the new one earned him more commission and, anyway, who was tracking his lie about the NAV?
Now there is one cost that you need to look at—the expense ratio that is capped at 2.5% a year today and likely to come down as we go along. Look at the stock market listing of funds as step two of the no-load move. And here the main participants driving the change are on firm ground; they saw this happen in the last decade when the stock markets went demat with online screen-based trading. Costs, transaction time and fraud have all come down exponentially.
Once the market and the actors in the drama have digested this new piece of change, the mutual fund world will look something like this: There will be large distribution houses, including banks, that will offer us a 20-50 basis points transaction fee for buying and selling mutual funds, just as we do stocks. One basis point is one-hundredth of a percentage point.
This will typically carry no view on what you should buy. If you want advice, you will have to pay for it, either through advisers attached to these large entities or through independent financial advisers and planners who will charge a fee, just like a doctor or lawyer or architect.
As we go along, the rules will come in that will deter advice that is motivated, tied to a particular company or in any other manner compromises your investment decision. While there is no perfect world, there is a world with no parking tickets, cafes that serve great food that are easy to enter, have toilets that work, and are not built like traps.

Source: http://www.livemint.com/2009/12/01222206/Mutual-fund-industry-makeover.html?h=B

Mkt may make fresh highs in a year: Axis AMC

The stock markets on Monday opened the week — and the month — on a positive note. After a scare last week that Dubai may default on its debt that resulted in a two-day correction, the markets bounced back on Monday.
The National Stock Exchange’s 50-share Nifty index rose 90 points to settle above the psychological 5,000 mark, clearly helped by strong growth in India’s quarterly GDP, which turned in at 7.9%.
In an interview with CNBC-TV18, Rajiv Anand, CEO and MD, Axis Asset Management Co, discusses his view on the market and how it may pan out ahead.
Below is a verbatim transcript of Rajiv Anand’s exclusive interview on CNBC-TV18.

Q: You have seen strong GDP numbers. They are following what the stock markets have done from retrospective effect. Are you convinced that the uptrend continues to remain intact and how would you be positioned on the markets right now?
A: I think the numbers were a positive surprise but just a hint of caution there. I think a large part of that bounce has really come from government spending, which is up 26% odd so on the private consumption side while we seem to have broken a six quarter downward trajectory that still continues to be a little weak.
Going forward, I think, two things will kick in: the impact of the weak monsoon and private consumption weakness will continue going forward is really the moot point. But looking at these numbers, we do believe that the investment spend should look much better as there is growing confidence that this economy is going to do well going forward.

Q: You keep a careful eye on the bond market as well. What are they talking about in terms of how soon tightening might begin because that might be the obvious offshoot of such a fantastic GDP figure that tightening will happen sooner and faster?
A: I think the bets were on something in April but I think those bets have been pushed back a little bit. I think market expectation is that perhaps you could get a CRR hike sometime in December but remember that from an exit policy perspective most of the emergency stimulus is already out of the way. SLR is gone from 24% to 25%, emergency funding for NBFC in mutual fund is out of the way. Open market operations (OMOs) of the Reserve Bank of India supporting the government borrowing programme are out of the way.
The exit strategy has already started and the point clearly RBI is making is that the exit strategy is certainly going to be a non-disruptive one so therefore to that extent it will continuously be a balance between managing that inflation and the liquidity in the system.
At the same time, I think, the RBI is also not totally convinced that this growth trajectory will continue. Like the point that I just made about the fact that it seems to be hinged upon government spending and that is really not the kind of growth that you would see on a sustained basis, so it is going to be a balanced exit strategy and I certainly do believe that it will not be disruptive.

Q: What about the global impact, last week, the markets got fumbled because of the news from Dubai has that sort of been chucked off or would you still watch?
A: I think what the market is basically saying is that while there could be potentially be some sort of problem in Dubai, Abu Dhabi — which has got all the oil and more importantly all the money — will basically take care of Dubai. But I am not very sure that it is as simple as that.
It is a play that will unfold in the days or weeks to come and it will be interesting to see especially the larger international banks that have exposure in Dubai — how exactly that plays out and whether there is a technical or otherwise default in Dubai and then what exactly these banks will react.
I am not very sure that it is as simple as the markets are making it out to be while the number at USD 60 billion odd is the larger picture and the current number is about USD 3-4 billion. The problem is a little more complex than the markets are making it out currently.

Q: What about the banks? How do you approach that pocket now?
A: We are quite positive as far as banks are concerned. For two reasons, one is we do believe that gross domestic product (GDP) growth will continue to be strong in this country and I think if that is going to happen that growth needs to get funded and domestic banks or local banks need to play that active part so the asset side will continue to do well in an environment where savings are growing at a vicinity of 35%. Banks, with the distribution that they have, to be able to sell investment products etc are well positioned to manage the liability side as well as the fee-based income so net-net it is a great basket to be in and we are quite positive as far as banks and some of the non-banking financial company (NBFC) are concerned in this country.

Q: You have your pulse pretty much on the entire domestic fund flow picture. We have seen domestic institutions; insurance companies and mutual funds come from a pretty heavy profit booking and every time we go above that 5,000 mark. FIIs have come aggressively in the derivatives market what is your sense. Do you sense that there is enough economic data point right now possibly a much better earnings season, a much better second half to point towards some bit of buying even above these 5,000 levels or do you sense domestic institutions like yourself who can change till it remains slightly cautious at these levels?
A: I think the markets over the last three months if you look at the headline level are up 6-7% but the midcap index is up about 15-16%. So the story is not really at the index level but it has become a lot more stock-specific because clearly if you look at a valuation perspective, we are probably not cheap, probably at the higher end of fair value, so to speak. To that extent there is some element of churn that one is seeing and what one is also seeing is some element of profit taking by the retail investor out of mutual funds as the markets reach the 17,000 or thereabout so I think there is little bit of — I won’t call redemption pressure but — some money being taken off the table.
That is really what is leading to some element of profit taking. I think January to March is a big quarter as far as local insurance companies are concerned so I think we do believe that you will see a lot of money coming in from the insurance companies.
You are also seeing on the mutual fund we ourselves for example our first fund Axis Equity fund open for subscription at this point as do a couple of the other mutual funds. So I think going forward we certainly will see some amount of money coming into the domestic institutions.

Q: It is up in the air and we won’t hold you to it but what are the chances that by December — end of this calendar year — the market will have taken out its intermediate high? Do you sense that momentum is leaning that far?
A: As far as we are concerned, the macro picture looks good. The micro numbers look good and more importantly we have got liquidity on our side and domestic flows will continue to be good and I also believe that foreign inflows into the country will continue to be strong. So I think I won’t be surprised if we see a new high on this market in the next one year. I am really not sure where we will be in December but I think we will see a new high in the next one year.

Source: http://www.moneycontrol.com/news/mf-interview/mkt-may-make-fresh-highsa-year-axis-amc_428184.html

More Mutual Funds line up to trade on NSE

No clarity yet on brokerage fee, securities transation tax yet.

At least 10 domestic mutual funds (MFs) would list their schemes within a week on the National Stock Exchange’s (NSE’s) Mutual Fund Services Platform, which was launched on Monday.
UTI became the first MF to list its scheme, which got more than 300 applications worth around Rs 75 lakh.
The platform will enable investors with demat accounts to buy MF units on the exchange. UTI Asset Management Company Chairman and Managing Director, UK Sinha, said, “The tie-up will be an additional facility provided to investors and will work along with the existing distribution network.”
NSE has over 200,000 trading terminals spread across 1,500 towns and cities.
Securities and Exchange Board of India Chairman CB Bhave said, “The platform will benefit investors in a major way. Other stock exchanges and depository participants will launch the platform soon.”
Transactions on the platform will be processed on the same business day on which the investor’s funds are credited to the MF’s bank account. Investors also have the added advantage of obtaining the same day’s net asset value (before 3 pm).
In addition to online subscription and redemption, investors may apply for new fund offers and additional subscriptions. The facility will also enable switching of units.
No entry load will be charged for applications not routed through a broker or distributor but forwarded to MF houses online. There is no clarity on levy of brokerage and securities transaction tax. NSE officials declined comment on this.
NewsWire18 adds: However, NSE would not levy any fee on mutual fund transactions through brokers on its online platform for a few months, Managing Director Ravi Narain said on Monday.
India’s largest bourse also plans to offer systematic investment plans and liquid schemes on the platform, Narain said. Participants will be able to access the system from 9 am to 3 pm.
Meanwhile, five mutual funds, Birla Sun Life Mutual, ICICI Prudential Mutual, Fidelity Mutual, Reliance Mutual, and Tata Mutual, were in talks with NSE and NSDL for trading schemes on the platform, said NSDL Managing Director and Chief Executive Officer Gagan Rai.
NSDL, the only depositary participant roped in by NSE for its platform, would waive all depositary charges for the first few months, Rai said.
“We are still in the process of working out. But I can assure you that charges (after the first few months) will be much less than the normal depositary charges,” he said.

Source: http://www.business-standard.com/india/storypage.php?autono=378151

Geojit BNP Paribas launches MF Investments through NSE

Subsequent to Mr. C. B. Bhave, Chairman of Securities and Exchange Board of India (SEBI), inaugurating National Stock Exchange of India’s Mutual Funds Service System (MFSS), Geojit BNP Paribas Financial Services launched trading in UTI Mutual Funds through its countrywide network of offices.
Speaking on the launch of this service, Mr. C. J. George, Managing Director, Geojit BNP Paribas said, “It is our constant endeavour to provide our clients with new value added services. We will leverage our well developed infrastructure and distribution channels to reach this service to our expanding client base of over 500,000. While we are starting with UTI MF now, most of the funds will soon be available for investment through this route.”
MFSS has been launched with trade permitted initially only in select schemes of UTI Mutual Fund. Clients of Geojit BNP Paribas can invest in or redeem mutual funds in such schemes through the fully automated on-line order collection system called NEAT-MFSS by contacting the nearest branch on all market days. Through this service, investing in mutual funds and redemption will become as simple as investing in the stock market.
“There will not be any comAmission charged from clients during the month of December 2009 to attract investors into this service model,” C.J. George added.

Source: http://www.moneycontrol.com/news/mf-news/geojit-bnp-paribas-launches-mf-investments-through-nse_428107.html

‘Indians have missed out on mkt opportunity’

The country’s equity markets seem to depict strong volatility. However, they remain among the top-performing zones globally. S A Narayan, managing director, Kotak Securities, spoke with Akash Joshi and Udita Lal of FE on the state of the markets and shape of things to come. Experts
So with the markets improving, what is the outlook at the moment?
It is much better obviously. However, I don’t think there’s strong retail participation. I think Indians have missed out. Indians have made money only on stocks not sold. Not many have bought with conviction or built portfolio. So, you see the mutual fund net collections in the Indian scenario are very low. As the markets keep going up, we seem to be booking profit. Indian investors are very cautious. More seems to be driven by easy money available internationally. The only place it has been sticky is insurance.
Do you see international liquidity drying up in the near future?
I think there is time for it to dry up. The next big question the world will be asking is how do we get out of this. But I don’t think it has come to a point where anybody is comfortable with that. Will it be a concerted strategy by all developed economies or will each do it the way it feels is right because when the countries acted together on infusing liquidity, all of them had the same problem.
But that cannot be said for all of them coming out may be in the same pace or manner. Australia was the first one to start showing signs of recovery. I think India will start soon. But for us, it will be relevant when the US and Europe show signs of recovery. I think in three or four months, I see nothing being done. All of them still don’t want to take a call now. Obviously, it bothers them that a new asset bubble is coming in shape globally both in the commodity and equity side because of easy availability of liquidity. Regulators are worried because every bubble cracks in a big way.
There are a lot of traders still complaining about cost of compliance and the cost of trading, especially with the STT. Is that really so impairing?
STT is of course costly but from where we went to where we are today, you obviously increased STT and we made it, one because it is deductible from the tax to have an expense and two it is more affecting those who are arbitraged. Whereas, if I am an FII, it makes no difference to me.
The locals are at a disadvantage against FIIs. So, to that extent, it is unfair to make locals at par with FIIs when it is allowed. An arbitrage opportunity which could be exciting for an FII cannot be hit by a local because his cost structure is much higher. Third, obviously FIIs enjoy added advantage of being able to raise money at almost zero percent. So, if there is an arbitrage in the market at say 6 or 7%, an FII will definitely hit and be happy with it because it makes 4 to 5% spread but the locals cannot. So, to that extent it is not fair on the locals.
Where do you see the market headed in 2010?
Up to March, we will be reasonably okay. It will continue to focus on pullback of liquidity. I believe volatility will be very high in 2010.
From the Indian point of view, the worry is whether oil prices will be around $80 per barrel or will it touch the $100 range. Of course, we have a little bit advantage here because the rupee is strengthening over the dollar. But if the oil substantiates at the same level, it might create a problem.
By April-May-June you will be more or less clear on the US recovery story. The clarity will help because if there is recovery, technically the world starts authorising new consumer base to start selling. Recovery in Europe will take more time. What we are looking for is the exact time the excess liquidity is absorbed back by the markets.

Source:http://www.financialexpress.com/news/indians-have-missed-out-on-mkt-opportunity/548170/0

Clearing corporations to reform bond market

Trading will continue to happen on a bilateral basis, but after a deal is struck, the buyer and seller will transfer funds and securities, respectively, to the clearing corporation

1 December is likely to be remembered as the day the revival of the corporate bonds market in India was set in motion. All entities regulated by the Reserve Bank of India (RBI) and the Securities Exchange Board of India (Sebi) will compulsorily start settling their trades in corporate bond from Tuesday through clearing corporations of stock exchanges. This includes a large number of active participants such as banks, primary dealers and mutual funds.
Currently, corporate bonds are traded and settled bilaterally. Once a deal is struck, the buyer transfers the funds to the seller, who then hands over the bonds to the buyer. Since the bonds have to be handed over only after the funds have been received, it creates huge settlement risk from a buyer’s perspective.

Settlement through a clearing corporation will be vastly different. Trading will continue to happen on a bilateral basis, but after a deal is struck, the buyer and seller will transfer funds and securities, respectively, to the clearing corporation. It’s only after both parties have honoured their obligations that the clearing corporation will release funds to the seller and securities to the buyer. Counterparty risk will reduce considerably, leading to lower transaction costs, increased liquidity and better price discovery.
Of course, there’s still the chance that one of the parties would default, in which case the clearing corporation would return the funds or securities.
This is unlike the equities market, where the clearing corporation guarantees all trades. If, say, the seller defaults, the clearing corporation procures the securities from the market and transfers them to the buyer. Whatever loss the clearing house would have incurred in procuring the securities from the market at prevailing prices (vis-à-vis the traded price) is recovered from the margins collected from the seller. This process is difficult in the corporate bond market because they are far less liquid compared with equities, and hence isn’t being attempted.
But defaults are normally few and far between, and would hardly take away from the larger good a central clearing system will bring. Thanks to the reduction in settlement risk, players will be more comfortable trading.
According to a fund manager at an insurance company, foreign institutional investors haven’t been active in the corporate debt market primarily because of the counterparty risk involved in the settlement process.
What’s more, details of most trades will be captured by clearing corporations because of the compulsory settlement diktat, resulting in a higher degree of post-trade transparency. The transparent dissemination of corporate bond prices and quantities traded will also facilitate better participation by market participants. Once the settlement system is in place, it’ll pave the way for a corporate bond repo market. Ultimately, all this will help in reviving the primary market for corporate bonds.
There are likely to be some teething problems, however, with the new settlement system. The circulars by RBI and Sebi apply only to entities regulated by them. Pension funds, for instance, which are relatively large players in the corporate bond market, haven’t been issued any circular by India’s Pension Fund Regulatory and Development Authority (PFRDA).
Some market participants say that pension funds are likely to be slow adopters of the new system, and one large section of the market may be relatively inactive in the near term. It’s not that pension funds can’t register with clearing houses of stock exchanges, but regulated entities in India generally act cautiously and are unlikely to be proactive in registering unless a circular is issued.
Of course, this could be detrimental for them since a large section of the market, namely banks and mutual funds, will have to compulsorily settle through a clearing corporation. Unless they, too, register, they would have to trade with each other or with brokers, which will entail bigger spreads, and hence higher transaction costs. While this learning happens in the first few months of the new settlement system, trading with at least some of the small pension funds spread across the country could be affected.
This is a classic example of inefficiencies in some sections of the Indian markets because of multiple regulators. The corporate bond market will be governed be Sebi, but participants are regulated by multiple regulators such as RBI, Sebi, PFRDA and the Insurance Regulatory and Development Authority. One may argue that all new ventures have teething problems and that they would eventually get sorted out. But as one market intermediary points out, regulators should be involved in ironing out operational difficulties rather than making things more difficult.
Another example of the confusion caused by having multiple regulators is RBI’s decision to continue with the diktat that all its regulated entities have to necessarily use the reporting platform of the Fixed Income Money Market and Derivatives Association of India (Fimmda) to report their corporate bond transactions. Now that all RBI-regulated entities will be compulsorily settling their trades through clearing corporations, all their trades will be captured, and there’s no need for an additional level of reporting. Quite evidently, this makes the circular on reporting trades redundant.
Perhaps there is need for better coordination among regulators to see the obvious.

Source: http://www.livemint.com/2009/11/30222605/Clearing-corporations-to-refor.html?h=B

'Beyond a point, wealth creation is more important than protection'

Birla Sun Life Mutual Fund, India’s fifth largest, is looking to increase the proportion of its equity assets to total assets from 16 per cent to 25 per cent in the next few years. CEO A BALASUBRAMANIAN, speaks to Neha Pandey and Joydeep Ghosh on wealth creation and impact of regulator arbitrage. Excerpts:

Are you happy with the industry’s debt-equity mix?

The equity portion could be much higher than the current exposure, somewhere around 25 per cent, for the industry as a whole. However, fixed income assets cannot be ignored, too, as they cater to the regular income needs of the conservative investor class. We believe this pie will continue to grow.

What is Birla Sun Life’s mix?

Our equity portion is roughly 16 per cent. Some of the bigger players have around 25 per cent. With our recent drive in creating awareness for our schemes, we would expect our equity assets to come closer to the top five industry average sooner than later.

Why have inflows in equities suffered?

The Indian investor does not realise the importance of wealth creation over the long term. Today, we are still talking about only five per cent penetration. In comparison, insurance penetration is much more, because people are seeking protection for themselves. But beyond a point you don’t need protection, you need wealth.

There is a regulator arbitrage because MF distributors have to negotiate their commission, whereas insurance agents are being paid as per the product specifications. How is this impacting the industry?

Regulator arbitrage is narrowing. While it exists today, it may cease to be there tomorrow. But investment decisions cannot be made on the basis of regulator arbitrage. Both investors and sellers have to decide what is best for them over the long run. Sellers cannot advise on the basis of commissions.

The industry is paying an upfront fee and higher trail commissions. How will it impact balance sheets?

This is a temporary phenomenon. The question is how much the fund house will be able to pay and for how long. It could be one year or more… but these numbers are variable in nature and will get revised.

In the past six months, stock market valuations have shot up significantly. What is your outlook on markets?

In the long term, for a three-five-year period, things look quite positive. For one, the overall economy’s confidence level is on the right track, in terms of the industrial production numbers. Second, interest rates are likely to be supportive. Third, the policy initiative from the government will be more favourable.

Will there be a spike in interest rates in the near future?

Despite inflation concerns, rates will not go up in a hurry unless there is a significant growth in credit off-take. The numbers to be watched are the bank credit numbers, which are quite low now.

What would you advise a new investor?

If you want to invest in equities, have a five to 10-year perspective. If you double the money in three to five years, one should be happy. Today, global investors are looking at India as it offers them growth substantially higher than the global growth. In such a scenario, even Indian investors should hold on to their conviction and stay tuned to the market. Going by the thumb rule, returns should be nominal GDP plus 6 per cent. So, in case of a 7 per cent growth and 4 per cent inflation, the nominal GDP would be 11 per cent. The returns would be around 17 per cent per annum in a normal scenario.

On the debt side, where should one invest?

One can invest in income and gilt funds with a two-three year horizon. Income funds are quite dynamic because the fund manager takes a view on interest rate movements regularly. But FMPs (fixed maturity plans) can be avoided, because rates are quite low.

Source: http://www.business-standard.com/india/news/%5Cbeyondpoint-wealth-creation-is-more-important-than-protection%5C/378155/