Dividends out of realised gains: Sebi

In a move aimed at increasing transparency among mutual funds, the Securities and Exchange Board of India (Sebi) has in a recent directive asked mutual funds to distribute dividends out of realised gains only, and not out of unit premium reserve.

What does this mean? Imagine that the face value of a fund is Rs 10, and over time its NAV rises to Rs 50. The Rs 40 (the gain in NAV) is the unit premium reserve.

Earlier, fund houses would pay dividends out of the unit premium reserve. In effect, they were ‘rewarding’ investors by paying them out of their purchase price itself.

Now Sebi has stipulated that mutual funds must pay dividends out of realised gains (money made by the funds from the sale of the shares held by it).

Earlier, fund houses were using dividend declarations as a sales ploy (effectively saying, “Invest in our fund because we declare higher dividends and we declare them more often.”)

If Sebi is able to implement this ruling tightly, fund houses will increasingly find it difficult to declare high rates of dividends, or to declare dividends frequently.

Two, in the same circular (dated March 15) Sebi has issued a directive regarding the fee charged by no-load funds. Earlier, when you had schemes that charged an entry load and others that were no-load, the no-load schemes were allowed to charge an additional management fee of 25 basis points. Since Sebi’s August 2009 all funds have become no-load. Sebi has now asked no-load funds to stop charging the additional 25 basis points as fee.

Three, earlier open-ended fund could have an NFO period of up to 30 days while close-ended funds could have an NFO period of up to 45 days. Now Sebi has reduced the NFO period for all funds (the sole exception being ELSS funds) to 15 days. Effectively this means that fund houses have less time to garner funds during an NFO and will have to work harder.

Four, earlier a fund housing launching fund-of funds would get some commission from the underlying scheme. Now Sebi has stipulated that any commission or brokerage which the Indian fund house issuing the fund-of-funds receives must be added to the scheme’s account.

And finally, any brokerage or commission paid to the fund’s sponsor, its associates or related people must be disclosed in the fund house’s half-yearly report.

Source: http://new.valueresearchonline.com/story/h2_storyview.asp?str=101308

Hang Seng BeES India’s First International ETF Open for Trading

From today onwards Indian investors can invest in China with India’s First International ETF-Hang Seng BeES listed on the NSE with symbol HNGSNGBEES. The fund was open for public subscription last month from 15-24 Feb.

ETFs are mutual fund units and comprise baskets of securities from the underlying Index, it trades like individual stocks on an exchange and unlike regular open-ended mutual funds, can be bought and sold throughout the trading hours like any stock and charge lower annual expenses than any open-ended index mutual fund.

The fund is first international ETF promoted by Benchmark Mutual Fund and tracks Hang Seng Index that comprises of 42 companies including HSBC Holdings, China Mobile, Bank of China, Cathay Pacific Airways and China Construction Bank Corporation and represents approximately 60% of the total market capitalisation of Hong Kong stock Exchange.

The asset allocation under this scheme will be 90-100% in securities constituting Hang Seng Index and; 0-10% in money market instruments, G-Secs, bonds, debt instruments and cash at call, mutual fund schemes / overseas exchange traded funds based on Hang Seng Index.

Hang Seng BeES is design to take care of the foreign exchange conversions and investors in India can invest in Rupee terms through their Dmat and Trading account or through a NSE member who can execute the order.

The fund is ideal for investors who want to have international exposure and are bullish on China, which even in the face of a global recession has been a source of interest for investors around the world.

Fund Name: Hang Seng Benchmark Exchange Traded Scheme (Hang Seng BeES)

Benchmark Index: Hang Seng Index

Investment Objective: The investment objective of the Scheme is to provide returns that, before expenses, closely correspond to the total returns of securities as represented by Hang Seng Index of Hang Seng Data Services Limited, by investing in the securities in the same proportion as in the Index

Option: The Scheme offers only Growth Option

Load: Entry Load: NIL ; Exit Load: NIL

Source: http://www.businesswireindia.com/PressRelease.asp?b2mid=21972

Remain invested, growth should be back on track

Vinay Kulkarni, senior fund manager, HDFC Asset Management Co Ltd addresses questions about larger issues in the economy as well as those related to his fund. Log on next Wednesday to meet another fund manager.

KEA: Do you think markets are overheated? If yes, then should we book profits?
Kulkarni: Valuations are reasonable. Growth should be back on track in FY11. So, I think one should remain invested.

KEA: I think in 2007 your HDFC Taxsaver’s performance went down sharply compared with many other funds. What was the reason?
Kulkarni: Discomfort with high valuations kept us away from sectors, such as real estate, power utilities and NBFCs. These sectors outperformed the market. Since HDFC TaxSaver was underweight in these sectors, it underperformed in 2007.

Pine: Which sectors do you think would outperform the market in the coming six months and why?
Kulkarni: Currently, we see good prospects for the banking sector, led by robust credit growth in FY11, engineering and infrastructure sector based on revival of the capital expenditure

cycle, IT sector as a play on global economic recovery, pharmaceutical sector based on company-specific positive drivers and the fast-moving consumer goods sector based on the Budget which has left more disposable income in the hands of the salaried class.

Kusum: Post Budget, how do you see the investment environment shaping up?
Kulkarni: The Budget has given a boost to consumption by increasing disposable income in the hands of the salaried class. Also, the return of fiscal discipline should cap inflation expectations. The government’s intention to be an enabler and ensure the right environment for private enterprise is also a boost for private sector entrepreneurs.

Source: http://www.livemint.com/2010/03/17213021/Remain-invested-growth-should.html

Don’t have a demat to invest in ETFs? Go through other funds

If you have not been able to invest in a gold exchange-traded fund (ETF) yet because you do not have a demat account, help is on your way. Mutual fund houses will soon start launching gold fund of funds (FoF) that will invest your money in gold ETFs.

Easy route

Investing in gold has caught the fancy of many investors of late, thanks to the surging price of the yellow metal over the past year.

At present, there are seven gold ETFs in India. However, to be able to invest in them, you need a demat account as they are listed on the stock exchanges. Most investors, especially who do not like to invest in stock markets, do not have demat account and hesitate in opening one and gold FoFs are meant for them.

Gold FoFs will be made available to the public through usual distribution channels, such as agents. To invest, fill up a form the good old way, write a cheque and give it your agent or fund house.

“It also allows investors to invest systematically through systematic investment plans, which is not possible through ETFs. Else, you get lost in price calls and miss out on opportunities,” says Chirag Mehta, fund manager, Quantum Asset Management Co. Ltd.

Could be costly

The convenience comes at a cost, however. As per the Securities and Exchange Board of India (Sebi), FoFs can charge a maximum of 0.75% a year. This is in addition to the charges of underlying schemes (in this case, gold ETFs) that will eventually be passed on to you.

However, some MFs such as Quantum and Benchmark schemes do not intend to charge annual expenses. Investors will only have to bear the expenses of the underlying ETF in which the FoF will invest.

It remains to be seen what the final structure of gold FoFs would be when they are finally launched.

Source: http://www.livemint.com/2010/03/14213349/Don8217t-have-a-demat-to-in.html

Sebi’s new notifications favour small investors

From streamlining the process of declaring dividends to nudging funds to play an active role in corporate governance, Sebi ensures more transparency

You won’t have to wait forever to get your first account statement and units allotted once you have invested in a new fund offer (NFO) of a mutual fund (MF) scheme. The Securities and Exchange Board of India (Sebi) announced this, along with a few other key rules, in a circular issued on 15 March. Here’s what they mean for you.

New fund offers’ duration
All NFOs, except equity-linked saving schemes, will now be open for a maximum of 15 days, down from 30 days for open-ended funds and 45 days for closed-end schemes. Once the NFO closes, your fund will have to allot units and dispatch the account statements within five days, down from 30 days earlier.

While this move is good for investors, some fund managers are concerned. “A 5-day period looks tight. It will be an operational challenge to meet this deadline because to get all the forms, cheques and process from all over India will be difficult in these five days,” says Rajan Krishnan, chief executive officer, Baroda Pioneer Asset Management Co. Ltd.

Asba for MF investors
Asba, orApplications Supported by Blocked Amount, is a payment mechanism initiated by Sebi in July 2008 for those investing in initial public offers or rights issue. Under this, the money that you set aside for your application does not leave your bank account till the shares are allotted to you. As a result, your money keeps earning interest, though the funds are frozen and you can’t use them. Also, it negates the need of a refund if shares don't get allotted to you. Sebi has now extended this facility to MF investors.

Though Asba means little for MF investors because you always get 100% units allotted, it protects your money from market vagaries since Sebi also mandates NFOs to now invest your proceeds only after the NFO closes and allot units within five days after that. Both Asba and the new NFO time frame will be applicable for NFOs launched after 1 July.

Corporate governance
In December 2008, when Srinivas Vadlamani, former chief financial officer, and B. Ramalinga Raju, founder and former chairman of Satyam Computer Services Ltd, met fund managers and analysts on a conference call to explain the rationale of acquiring 100% stake in Maytas Properties Ltd and 51% share in Maytas Infrastructure Ltd for $1.6 billion, all hell broke loose. While Satyam Computer Services was into information technology, Maytas Properties was into real estate and Maytas Infrastructure into infrastructure. Moreover, both were owned by Raju’s children.

Fund managers vociferously opposed the proposed takeover. The reporter has the transcript of that call. They expressed their shock, called the transaction an example of “third grade corporate governance practices” and expressed concerns that this could possibly lead to a scenario where foreign investors would desert Indian companies. Fund managers and analysts forced Satyam to abandon the plans, which would have cost the minority shareholders of Satyam dearly. A few days later, Raju admitted to fraud. Although investors of Satyam lost eventually, it was probably one of the few instances in public light where fund managers and equity analysts protected the right of the minority shareholders and put pressure on a corrupt management to change course.

Sebi now wants MFs to be more active in corporate governance. Sebi feels it is appropriate to allow MFs to voice their opinion as they are vehicles for small investors. Sebi has now made it mandatory for funds to disclose whether they voted for or against moves (suggested by companies in which they have invested) such as mergers, demergers, corporate governance issues, appointment and removal of directors. MFs have to disclose it on their website as well as annual report. “As markets mature, institutional activism will definitely rise,” says Jayesh Shroff, fund manager, SBI Funds Management Pvt. Ltd.

Pay dividends from gains
Typically, when funds pay dividends, they are supposed to pay out of their profits or realized gains. For instance, if you invest in a fund at a net asset value (NAV) of Rs12, Rs10 will go to an account called unit capital, assuming the fund’s face value is Rs10. The balance of Rs2 (Rs12 less Rs10) goes into a separate account called unit premium reserve. If this Rs12 goes up to Rs13, the fund can declare a dividend of Re1—its gains.

However, Sebi noted that some fund houses were paying dividends from their unit premium reserve instead of the realized gains. Industry sources claim that some funds used to do this to attract large investors by giving them advance notice in private and then allowing them to book losses (NAV drops after dividend declaration), claim losses and set them off against other gains.

Less commission for FoFs
Life just got tougher for fund of funds (FoFs) that invest their entire corpus in international funds. Typically, FoFs charge a maximum of 0.75% per annum. Out of this, the MF pays agent commission and incurs costs on running the scheme and keeps what is left, which fund houses claim is a pittance. To compensate, FoFs enter into a revenue sharing agreement with international funds in which they invest. The international fund pays a small portion, typically 50-80 basis points, to the Indian FoF, which would then retain this amount as its income.

Sebi has now put a stop to this revenue sharing agreement. Fund houses aren’t too happy as they claim it would now be unprofitable to launch and manage FoFs. “If asset management companies do not make any money, these FoFs may stop. International countries and assets were a good way of diversifying our money,” claims a fund manager of a fund house that has an FoF.

Money Matters take
From streamlining the process of declaring dividends to nudging funds to play an active role in corporate governance, Sebi has done well in making MFs more transparent. Cutting down the allotment time to five days, down from 30 days, is bound to pose a challenge to MFs and it remains to be seen how they respond.

Source: http://www.livemint.com/2010/03/16220634/Sebi8217s-new-notifications.html

Sebi extends Asba to MFs, clamps restrictions

Under the facility, the money invested will be held in the investor’s bank account and released only after the units are allotted

The Securities and Exchange Board of India (Sebi) has extended the application supported by amount (Asba) facility to mutual fund investors. Investors subscribing to new fund offers (NFOs) of mutual fund schemes can now apply to these schemes without paying subscription money upfront.

Under the facility, the money invested will be held in the investor’s bank account and released only after the units are allotted.

The market regulator also shortened the subscription period for NFOs to 15 days from the current 30 days for so-called open-end funds, and 45 days for close-end funds. The new rule will apply to all new schemes launched after 1 July.

Sebi also provided for more disclosures on commissions paid to associates and related entities of asset management companies. It also imposed restrictions on dividend declarations, and banned commissions from underlying funds while running fund of funds.


Source: http://www.livemint.com/2010/03/15225323/Sebi-extends-Asba-to-MFs-clam.html

JM Financial MF Declares Dividend For Basic Fund

JM Financial Mutual Fund has announced the declaration of dividend on the face value of Rs.10 per unit under dividend option of JM Basic Fund - Dividend Plan. The record date for dividend has been fixed as 19 March 2010.

The quantum of dividend will be 10% (Rs. 1 per unit) as on the record date. The NAV of the plan was at Rs. 13.5641 as on 12 March 2010.

JM Basic Fund is an open ended equity oriented growth scheme, which has the investment objective to provide capital appreciation to its unitholders through judicious deployment if the corpus of the scheme in sectors categorized under ‘'basic industry" in the normal practice and in context of the Indian economy, including but not limited to, energy, petrochemicals, oil & gas, power generation & distribution and electrical equipment suppliers, metals and building material. The fund would continue to remain open-ended with a sector focus.

Source: http://www.apollosindhoori.cmlinks.com/MutualFund/MFSnapShot.aspx?opt=9&SecId=10&SubSecId=22,24

JM Financial MF Declares Dividend For Multi Strategy Fund

JM Financial Mutual Fund has announced the declaration of dividend on the face value of Rs.10 per unit under dividend option of JM Multi Strategy Fund - Dividend Plan. The record date for dividend has been fixed as 19 March 2010.

The quantum of dividend will be 10% (Rs. 1 per unit) as on the record date. The NAV of the plan was at Rs. 14.0684 as on 12 March 2010.

JM Multi Strategy Fund, is an open-ended equity oriented scheme, which has the investment objective to provide capital appreciation by investing in equity and equity related securities using a combination of strategies.

Source: http://www.apollosindhoori.cmlinks.com/MutualFund/MFSnapShot.aspx?opt=9&SecId=10&SubSecId=22,24