Consolidated MF statements soon

Single consolidated statement of mutual fund (MF) holdings will soon become a reality for MF investors. This, in other words, would mean MF investors holding MF units in different fund houses will soon be able to get one single statement. Market regulator Securities and Exchange Board of India (Sebi) has apparently asked all the registrar and transfer agents (RTAs) to club investor data together. Computer Age Management Services (CAMS), Karvy MF Services, Deutsche Investor Services and Franklin Templeton today provide RTA services to the mutual fund industry.

“This was an expected move from Sebi given that in a recent summit,” Sebi executive director KN Vaidyanathan had hinted on introducing the single view statement. “We are planning to put in place a mechanism where the investor will get a single view of their investments,” he said. CAMS president & CEO NK Prasad said, “We are working on it for a long time, but we haven't received any final approval from the regulator. Some of the issues are being discussed and we hope it will be sorted out.”

If implemented, this move will be of immense benefit to MF investors. Today there are operational issues that a mutual fund investor has to grapple with. For instance, an investor is given multiple folio numbers, for investing in different schemes and fund houses. And over the years, he accumulates multiple folios which he can't keep track of. And usually, at the end of the financial year, multiple mails of fund houses hound him with statements informing cost of your units and its current NAV. In the process, investor lose track of his investments. Some fund houses are also known to smartly ignore investors who they categorise as 'dormant' and don't communicate to them.

Market sources expect such platform for single view statement to be ratcheted up in next one month or so. Recently, National Securities Depository (NSDL) had started a similar facility for holding mutual fund units in dematerialised form. But the Sebi initiative, is more awaited as it is likely to come at zero cost for investors.

Source: http://www.financialexpress.com/news/consolidated-mf-statements-soon/647111/

Industry witness rise in folios

Total Assets Under Management (AUM) of Mutual Fund (MF) industry fell 15.20% or Rs 1.12 lakh crore to Rs 6.30 lakh crore in June 2010. This has been the second consecutive month the industry has faced fall in total assets. Total AUM of equity funds had increased 3.86% to Rs 1.78 lakh crore in June as equities turned out to be favorable. BSE Sensex and S&P CNX Nifty had risen 4.46% and 4.45% respectively in June 2010, compared to a loss of 3.50% and 3.63% respectively in May 2010.

The weightage of equity funds increased to 28% of the total assets of the industry in June as against 23% in May. However, this category had a net outflow to a tune of Rs 1446 crore in June as against net inflow in May. Withdrawal by banks and corporates had been the major reason for the decline in assets in June. Banks had withdrawn from schemes to lend it to 3G and BWA bidding. On the other hand, the corporates had withdrawn their money to meet their advance tax payment commitments.

Similarly, equity folios (representing the number of investor accounts) of mutual funds saw a sharp decline of over 1.47 lakh in June. Investors seem to be redeeming equity fund units on the back of rising equity markets and uncertainty over its direction, going forward. The fall in equity folios can be attributed to the fact that investors were moving away from the equity markets. Total equity folios stood at 4.05 crore in June as compared to 4.07 crore in May. However, total folios (including debt and others) saw a marginal increase of 21,350 and were at 4.79 crore in June with most new folios coming into debt schemes. The income/debt schemes folio increased by 190287 in June over May or by 4.92%. In the previous six months (between November to May-end), the number of folios rose a mere 49,153, which in context to June rise of 21,350, clearly show the rising interest of investors in mutual funds.

Fund house wise, the investors gave highest preference to UTI Mutual Fund. The country's oldest fund house in terms of assets crossed the 10-million mark. It also added the largest number of folios–1.18 lakh in June compared to the month of May, when its folio size reduced by 32788. DSP BlackRock Mutual Fund followed it by adding 44821 folios. IDBI AMC and HDFC added more than 20,000 extra folios in June. Peerless contributed zero folios in month of June, whereas SBI Mutual Fund folios fell the most by 49161.

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

UTI Mutual Fund converts its scheme into open ended scheme

UTI Mutual Fund has declared that its UTI India Lifestyle Fund, which is a close ended scheme, will be converted to an open ended scheme. The change will be effective from 16th July, 2010. After the conversion to open ended scheme the fund will charge 1 per cent exit load, if units are redeemed within 1 year from the date of allotment. UTI India Lifestyle Fund is an equity scheme, with investment objective to provide long term capital appreciation and/or income distribution from a diversified portfolio of equity and equity related instruments of companies that are expected to benefit from changing Indian demographics, Indian lifestyles and rising consumption pattern. The scheme is benchmarked against CNX 500.

Source: http://finance.indiamart.com/cgi-bin/mutual_top_stories.cgi?news_headline=UTI+Mutual+Fund+converts+its+scheme+into+open+ended+scheme@MF045

MF industry allows only the best to survive: Waqar Naqvi

Waqar Naqvi, chief executive officer (CEO) of Taurus Mutual Fund, shares insights about the MF business and the challenges that the industry and his company would face.

He has close to two decades of experience - mostly in the AMC business. He has been instrumental in the transformation of Taurus Mutual Fund from one of the bottom-five players to a growing mutual fund.

>With new players expected to come, in what are the career opportunities that this industry would offer?

People with nerve, ethics and patience would find excellent opportunities coming their way in sales and distribution, financial planning, product development, customer service, compliance, HR and fund management due to expansion plans of existing players as well as new entrants. The MF industry allows only the best to survive.

>How are you planning to drive up retail participation in your AUM mix?

Taurus Mutual Fund`s average AUM stood at Rs 24.38 billion on June 30, up from Rs 3.68 billion when we took over in early 2008. It has been a concerted effort on our part to spread investor awareness for our customers, both institutional and retail across Tier-I, Tier-II and Tier III cities.

All our equity schemes, including the Taurus Ethical Fund, have shown robust and consistent performance since inception. Performance of our schemes in the fixed income segment has been commendable. The fact that Value Research rates Taurus Infrastructure fund five stars and Taurus Tax shield four stars stands testimony to our fund performance. We intend to stick to the basics and work hard and smart. There is no shortcut to success.

>What checks and balances do you have in place to prevent front-running by fund managers?

Taurus has a well defined and comprehensive surveillance system to check front-running.

Access to dealing room is restricted. All telephone lines inside the dealing room are recorded and the records checked every evening. Cell phones are also not allowed in the dealing room. All activities such as instruction to place the order (by fund manager) and the placing of an order (by dealer) are done online. Our Bloomberg systems start tracking the order processing activity immediately.

The Head of Operations can see the movement of the order online. This system also records the time gap between the actions of fund manager, dealer and their communication of the same on a real-time basis.

This rules out front-running. It is more a matter of not allowing indiscipline in the internal policies and following them assiduously irrespective of the trust and longevity of employees.

>How do you tackle the issue of mis-selling?

Mis-selling by the sales personnel can be avoided by not having too many schemes; it helps the sales personnel as he need not remember so many schemes.

Continuous updates on products and financial markets both debt and equity also gives them the knowledge to address queries and not indulge in mis-selling.

The risk manager, compliance officer, internal auditor, sales head and yours truly also interact with sales people and channel partners regularly to ensure this is avoided.

In addition, our customer service personnel interact with every client on phone to ensure that clients have been correctly briefed about the objective and expectations. This is also recorded at our end and reviewed periodically.

>What changes in the distribution channel mix do you envisage in the next 5-6 years?

The MF industry today reaches the investor through Independent Financial Planners (IFAs), banks (predominantly foreign and Indian private banks have been selling), national level distributors (NDs), online channel, stock exchanges and walk in direct business. There is a huge space which public sector banks can fill in. However, they seem to be suffering from inertia, which I feel, would vanish soon. We foresee a slight juggling of the percentage share between banks, IFAs and NDs.

We intend to stick to the basics and work hard and smart. There is no shortcut to success.

>The SEBI Chairman had observed recently that 60% of the schemes are underperforming. Are we going to see closure or merger of schemes across fund houses?

When our new team took over in March-April 2008, we had four equity schemes, one equity-linked savings scheme (ELSS) and three debt schemes. Today, we have 12 schemes and have added two equity, one liquid and one monthly income plan. Taurus has been a fund house that has not launched schemes similar to each other. We have a very clear demarcation between our schemes and intend to keep it that way. Hence, we do not see a need for closure or merger of schemes at Taurus.

>Many mutual funds are moving towards an online platform. How is this going to help in Tier-2 and Tier-3 towns?

Online platforms and no-load schemes have been available for a few years now. They have not seen any traction worth taking note off. India, Asia and perhaps the world is still an entity which wants to relate people to people. We have not seen a major inflow of online transactions in Tier-I metros till date, hence online transactions taking off on Tier-II and Tier-III seems to be some distance away.

Source: http://www.myiris.com/shares/company/ceo/showDetailInt.php?filer=20100715101746707&sec=fm

Fee sops fail to boost MF sales via exchanges

The National Stock Exchange (NSE) recently extended the existing fee waiver on mutual-fund transactions till March 31 next year to encourage more buying and selling of schemes through its platform. But, asset management industry officials and brokers remain sceptical about the potency of such steps to drive this platform, where investors can buy and sell schemes just like shares, as an alternative investment route for mutual fund investments.

“The fee waiver is a very small step. For this platform to be a success, it requires greater efforts from mutual funds and brokers to consider it as the the most sought-after route,” the head of a Mumbai-based brokerage’s wealth management arm. “Even today, mutual funds continue to keep distributors in good humour to sell their schemes rather than find an alternative plan,” he added.

The platforms were introduced by stock exchanges in December after distributors stopped selling most mutual fund schemes following the Sebi’s step to ban AMCs from using investors’ money to pay distributors.

Over seven months after its launch, the activity on NSE’s platform for mutual funds is yet to pick up. In June, 832 orders worth around Rs 5.8 crore were placed through NSE’s platform compared with 1,079 contracts worth Rs 4.47 crore in December. The activity on BSE’s platform has seen a slight spurt in July, with around 1,860 orders worth Rs 16.7 crore so far this month. In June, 884 orders worth Rs 15 crore were carried out on the BSE, compared with 739 contracts valued at around Rs 18.5 crore in December. The mutual fund industry saw redemptions worth Rs 1,19,449 crore in June.

“There is a huge scope for this platform. But for that, mutual funds need to approach brokers instead of just focussing on distributors,” said Sanjiv Shah, executive director, Benchmark Asset Management, which mostly offers ETFs that can only be bought and sold on exchanges through stock brokers.

Though brokers publicly maintain there is scope for selling mutual fund products, most of them, in private, are less enthusiastic. This is because brokers earn a majority of their revenues from regular trading of stocks by clients, while mutual funds schemes cannot be bought or sold in the same manner as shares. Due to lack of clarity about revenues from this business in the foreseeable future, most brokers are unwilling to invest in a big way to service mutual fund trades.

Retail investors also do not have any incentive to choose stock brokers over distributors at this juncture. This is because buying or selling mutual funds through stock exchanges requires opening a demat account and many mutual fund investors do not have one. Also, there is no cost advantage for investors who purchase mutual funds schemes in smaller numbers, mutual fund officials said.

But, some in the industry are a lot more optimistic about the platform’s prospects. “There will be a tipping point sometime, but I don’t know when... maybe a couple of years later or even sooner,” said Benchmark’s Shah.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Fee-sops-fail-to-boost-MF-sales-via-exchanges/articleshow/6164925.cms

SEBI plans a standard set of disclosure norms for MFs

The Securities and Exchange Board of India (Sebi) is planning a standard set of disclosures for mutual fund fact sheets, advertisements and scheme information documents (SID), a person familiar with the matter told ET. This will not only give a clearer picture about the performance of the schemes, but will also help investors compare similar schemes of different fund houses.

The regulator is aiming at more of quantitative disclosures, and not just qualitative disclosures as is the case at present.

For instance, take returns. The thinking within Sebi is that returns alone do not define performance. A scheme may generate high returns by taking more risks, but this may not be palatable to the conservative investors in that scheme. Once the risks taken by fund managers are quantified, investors can compare the performance of various schemes before deciding on the one that suits their temperament.

Around three years ago, the Association of Mutual Funds in India (Amfi) had issued a standard format for fact sheets. But many fund houses do not adhere to that.

One of the shortcomings of that format was that it left the definition of certain parameters to the discretion of fund houses. As a result, the performance of a scheme cannot be compared with that of its peer group.

For example, certain funds disclose the volatility on a monthly basis, while other funds disclose the annualised volatility. The funds do not disclose the risk-free rate they have taken as the standard while calculating the Sharpe ratio — the measure of risk-adjusted returns. Many funds do not disclose portfolio turnover, which tells an investor how often the fund manager churns his holdings.

Sebi has proposed certain quantitative parameters to assess the performance of various types of schemes. For instance, in case of equity schemes, fund returns will have to be mentioned on an annualised basis after accounting for short-term capital gains tax and the dividend paid out during that period. Further, funds should also calculate volatility as the annualised standard deviation of the weekly returns over the concerned period.

Similarly, the recurring expenses being charged by the scheme are also important for the investor as most funds in their SID only disclose the maximum expenses they would charge. These generally comprise the outer limit and do not reflect the actual expenses being charged. Similarly, in debt schemes, the fund must reveal the short-term and long-term risk-free rates to help the investor assess whether the fund manager has actually attained higher returns

for them.

Sebi also wants the mutual funds to give advertisements that give a holistic view of the performance of asset management companies (AMCs). The fund houses will have to publish advertisements that have specific quantitative parameters apart from just the scheme and benchmark returns.

“Most of the AMCs were advertising only the list of their best-performing schemes, while there is no mention of those schemes which are either faring poorly or giving average returns,” said a person familiar with the regulator’s proposals.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/SEBI-plans-a-standard-set-of-disclosure-norms-for-MFs/articleshow/6164921.cms

MFs now don't find it economical to service small retail investors

It’s now getting close to a year since the SEBI’s abolition of entry load on mutual fund loads. Over this year, much has been said and written about how an old business model will have to change and how people will transition to a new one and so on.

But looking at what has happened, one negative impact of SEBI’s directive is very clear. It is now utterly uneconomic for anyone in the mutual fund industry to serve smaller retail investors. Unless some unforeseen miracle happens, from now on, mutual fund investment is an activity that will be entirely limited to wealthy individuals.

Let’s see why this is so. Consider an investor who is a typical starting small saver in my experience. He would probably invest something in the range of Rs 10,000. If he’s figured things out a bit better, he would also start an SIP (systematic investment plan), probably about Rs 2,000 a month for a period of one year, to begin with. As things stand now, the advisor who has done the job of convincing this investor to invest stands to get about remunerated with about Rs 75, to begin with. Later, after a year, he starts getting a continuous commission of about Rs 25 a month, likely paid quarterly.

This is the trail commission for the total accumulated investment of Rs 34,000 as well as an estimated gain of 10% a year. Eventually, the customer might invest more and the money will accumulate. However, that requires a certain period of customer support and hand-holding and contact. The question is, is there money in the system to pay for these services?

If you multiply the above numbers by five or ten, then there is. A rich investor — the word rich is now taboo, so, we now use the awkward euphemism high net worth individual — who puts in Rs 1 lakh and then Rs 10,000 or 20,000 a month would be a customer who would not find any problem in being serviced well. However, at the basic level, there isn’t.

Is there no way that a customer can be serviced at lower investment levels? There is, but only if that customer already has some other financial connection with the service provider and the cost of customer contact and acquisition can be amortised over a larger business. In practice, this means banks. It’s only your bank that could find it economic to sell you a mutual fund for a small amount. Unfortunately, that’s not a great solution for the customer. Of all the various kinds of entities that distribute mutual funds, banks have the worst track record of systematic mis-selling. In any case, banks are far more interested in guiding all possible customers towards products with the highest possible commissions.

In effect, that’s the situation now. Simple business economics, combined with the way mutual fund regulations have evolved, has ensured that the small investor is unlikely to become a mutual fund customer.

Mind you, this is not an argument for creating upfront incentives. No matter what today’s problems are, it must not be forgotten that the root of all mis-selling in all financial products is distorted incentives.

Therefore, higher upfront commissions — or any upfront commissions at all — are certainly not a solution. From the investor’s point of view, the best outcome is a long period of good returns and the only solution is a compensation system that rewards the intermediary for that.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/MFs-now-dont-find-it-economical-to-service-small-retail-investors/articleshow/6157209.cms

Birla Sun Life MF Declares Dividend under Four Schemes

Birla Sun Life Mutual Fund has announced 16 July 2010 as the record date for the declaration of dividend on the face value of Rs 10 per unit under the dividend options of following schemes:

1. Birla Sun Life India GenNext Fund: Dividend - Rs 1 per unit, subject to the availability of distributable surplus. The scheme recorded NAV of Rs 14.58 per unit as on 8 July 2010.

2. Birla Sun Life Midcap Fund - Plan A: Dividend - Rs 1.50 per unit, subject to the availability of distributable surplus. The scheme recorded NAV of Rs 25.58 per unit as on 8 July 2010.

3. Birla Sun Life Freedom Fund: Dividend - Rs 1.50 per unit, subject to the availability of distributable surplus. The scheme recorded NAV of Rs 17.99 per unit as on 8 July 2010.

4. Birla Sun Life Basic Industries Fund: Dividend - Rs 2.50 per unit, subject to the availability of distributable surplus. The scheme recorded NAV of Rs 30.47 per unit as on 8 July 2010.

Source: http://www.bloombergutv.com/stock-market/mutual-fund/commentary/407452/birla-sun-life-mf-declares-dividend-under-four-schemes.html