Mutual funds in big rebound from 2008

If your mutual funds sank — and with it your heart — after hitting highs in January 2008, it is time to cheer up. As many as 221 schemes out of the 572 equity schemes have already crossed the net asset values (NAV) they hit when the Sensex closed at its life-time peak on January 8, 2008. NAV data of all equity schemes including balanced schemes (split between debt and equity) and Monthly Income Plans or MIPs (that invest up to 20 per cent in equity) as on Tuesday shows fund managers have brought gains in value from the losses incurred since then.

However as many as 351 schemes have yet to reach the highs they witnessed in 2008.

Sectoral schemes such as those that put money in pharmaceutical, consumer goods and banking stocks come out on top, with MIPs and balanced funds also doing well.

The ones that have yet to regain their NAV levels are the ones that have high exposure to infrastructure and realty or those in which fund managers did not do well enough.

"Balanced funds can handle the volatility better and can move into cash to a larger extent (when required) and hence perform well," said Surya Bhatia, a Delhi-based financial planner.

The performance varies among various fund houses. HDFC Mutual Fund tops with 19 out of its 21 schemes having crossed their NAVs at the time when Sensex was at its highest peak. DSP Black Rock, Reliance, ICICI Prudential and Birla Sunlife mutual funds follow.

Source: http://www.hindustantimes.com/Mutual-funds-in-big-rebound-from-2008/Article1-600590.aspx

Mid-cap MF schemes catching up with index

Every second scheme outperforms CNX Midcap in 10-month period.

With mid-cap indices performing better than the Nifty and Sensex, mid-cap schemes of mutual funds have also picked up momentum and started outperforming the CNX Midcap index. The last 10 months have seen more than half of the mid-cap schemes outperforming the CNX Midcap index.

While the mid-cap index gave returns of 5.5 per cent last month, the average return posted by 40 mid-cap schemes stood higher at 5.82 per cent.

Twenty one of the 40 mid-cap schemes listed gave returns of more than the benchmark return of 5.5 per cent. The story is similar in the 3-month, 6-month and the 10-month periods. In the 3-month period, with the average return being 14.33 per cent, 26 funds outperformed the CNX Midcap index. In the six-month period when the average returns was 18.93 per cent, this number came down to 21.

Over the last one –year valuations of the mid-cap stocks have increased leading to an increase in the returns of these schemes, say fund managers.

“First of all, there has been a re-rating of mid-cap stocks in the market. During the economic downturn people, due to risk aversion, had avoided investing in mid-cap and small-cap companies because they were afraid that these companies would not survive. But on the contrary, these stocks have done very well. They have been trading at a discount of 35 per cent and recording growth,” said Mr Gopal Agrawal, Deputy CIO and Head-Equity, Mirae Asset Global Investments.

Market valuations rise

The market valuations have been on the rise which has resulted in increasing large-cap stock prices. Analysts say that as the valuations get higher, the large-cap stocks start to lose their charm as they become too expensive. “Whenever markets attain a particular level, valuations of the large cap stocks increase. Right now, we are at a level where these stocks are not cheap anymore. So, the attention of the investors is on the midcap stocks. In fact, in the last two months, mid-cap indices have outperformed even the Sensex and the Nifty.” said Mr. Kaushik Dani, Fund Manager - Equity, Peerless MF.

While mid cap funds may do well in a rising market, their returns across a complete market cycle have been sedate. Between 2007 and 2009 these funds had underperformed the index.

Out of the 40 midcap funds, on an average only about 12 schemes managed to do well against the Midcap index.

However, fund managers feel that in a stable economy mid-cap companies will continue to do well. “Investors need to have these stocks in their portfolio depending on their profile and their ability to take volatility. They should, at least, have 15 per cent of their portfolio invested in midcap stocks as these stocks will give higher growth.” said Mr. Anoop Bhaskar, Head - Equity, UTI AMC.

Others, however, feel that the catching up of mid-cap stocks has already played out. “Going forward what will be important is individual stock selection. This will be the key for outperforming the index. Now that the bigger themes in the market have played out, investors will be looking at both the mid-cap and large-cap stocks. With valuations narrowing down, it isn't about large-cap or mid-cap stocks anymore,” said Mr Mahesh Patil, Head, Equity - Domestic, Birla Sun Life.

“Our strategy was to take a call on conviction ideas. We reduced the total number of companies in the portfolio from 35-40 to around 25-30, but increased our asset allocation in these companies. Our focus was on sectors like banking and financial services, consumer goods, hospitality and even the aviation sector which was not doing well at that time.” said Mr Sadanand Shetty, Vice-President and Senior Fund Manager – Equity for Taurus Mutual Fund.

“The long-term outlook remains positive. Good quality mid-cap stocks are available. India is a very large market, where most of the mid-cap and small-cap stocks are of superior quality. So, the interest of the investors should remain in this segment,” said Mr Dani

Source: http://www.thehindubusinessline.com/2010/09/15/stories/2010091551851000.htm

Redemption-hit funds find hope in rising SIP accounts

In a silver lining to the dark clouds hovering above the domestic mutual fund industry, there has been a steady increase in the number of fresh equity SIP (systematic investment plan) accounts opened over the past few months. Ironically, the rise in SIP accounts is happening at a time when there is significant redemption in equity schemes.

Data provided by CAMS, the registrar to around 57% of overall mutual fund portfolios, reveal that SIP accounts have grown over 45% over the past one year. Fresh SIP accounts have gone up from 1.59 lakh in July 2009 to 2.31 lakh (in July) this year. Equity fund investors redeemed close to `4,000 crore in June and July and about `2,900 crore in August this year. Number of equity folios have fallen 2% since this April.

“It is ironic that we are seeing the opening of new accounts at one end and redemption at the other. SIPs are steadily gaining in number over the past few months. We expect August numbers to be significantly higher than previous months,” said NK Prasad, president & CEO, CAMS.

According to Mr Prasad, fund houses are aggressively promoting SIPs, since investors have been reluctant to invest lumpsum into equity schemes in a rising market. Fund houses with smaller ticket sizes — often lower than `500 and marked as micro SIPs — see more account openings. Weighted average investment in one SIP account is about `2,200 per month. The duration of investment (on an average) has gone up from 12-15 months to about 36 months now, he added.

SIPs have been steadily gaining popularity among retail investors over the years. The number of live SIPs have gone up from 7 lakh accounts in 2003 to 22.5 lakh in 2010. The first quarter of 2010 witnessed SIP subscriptions accounting for 19% of the total inflows in equity mutual funds as compared with 2% in calendar year 2005, according to the recently-released BCG-CAMS report on equity mutual funds.

According to distributors, fund houses are trying to widen their reach by tying up with more banks and financial advisors who are willing to sell equity mutual funds.

“Declining upfront commissions are forcing distributors to look at trail-based income now. On the part of advisors, it is easy to sell SIPs as no further follow-ups are required,” said Rajesh Krishnamoorthy, managing director, ifast Financial, adding, “with about 93% of SIP transactions happening over ECS, the advisor need not worry about monthly investments as well. These factor make SIPs easy to sell.”

According to Mr Krishnamoorthy, some fund houses are also offering upfront trail commission to distributors on assumptions that the investor will stay invested more than the ‘stipulated investment period’ (reached upon by the fund house and distributor). In case, the investor redeems his investment prior to stipulated investment period, the fund house will claw back a portion of the upfront trail paid to distributor.

Most fund marketers are placing their hopes on rising SIP numbers to counter redemption in equity portfolios. They are expecting the profit booking in equity portfolios to continue for some more time.

“People who had invested in 2008 are booking profits at current levels,” said the marketing head of a bank-promoted fund house.

“The only way to counter it is by adding more SIP accounts. We’re trying to reach out to more people; the idea is to widen our reach to newer places. We are also planning to launch a few ‘flavour-of-the-season’ NFOs to bring in more investors,” the marketing head added.

Source: http://economictimes.indiatimes.com/Analysis/articleshow/6556091.cms

Baroda Pioneer unveils PSU equity fund

Baroda Pioneer AMC today announced the launch of a PSU equity fund — an open-ended scheme — which will invest in a diversified basket of equity stocks of domestic public sector undertakings (PSUs).

The new fund offer will open for subscription on September 13 and close on September 24, said a news release from the company.

“PSUs operate in high growth sectors such as banking, infrastructure, oil and gas, power, minerals and are, thus, very diversified. Only a few of the consumer-related sectors are not included in the PSUs basket. We will be investing in around 35 stocks of the PSUs.” said Mr Rajan Krishnan, CEO, Baroda Pioneer AMC.

The fund will invest 65 per cent in equity and equity-related instruments and the balance will be invested in debt and money market instruments. The minimum application will be of Rs 5,000 and in multiples of Re.1 thereafter.

Source: http://www.thehindubusinessline.com/2010/09/14/stories/2010091451281100.htm

Investors in bank stocks are making eye-popping returns

True to the hackneyed phrase, investors with an exposure to the banking sector are ‘laughing all the way to the bank’. With banks leading the market rally in the past couple of months, investors in bank stocks, bank-focused mutual fund schemes and bank ETFs have made eye-popping returns on their investments. The million-dollar question now is should investors continue riding the market tide on the banking surfboard or book profits and wait for tide to subside.

Many are quick to point out that bank stocks have run up too fast and a mild correction is inevitable. Then, there are others who believe there is some more steam left in banking stocks and investors should stay put in bank stocks, banking funds and bank ETFs for some more time.

“The outlook on banking stocks remains positive, as of now. We are starting to see macro-economic indicators turning positive; normal monsoon (resulting in good crops) will help rural economy grow. These factors will have positive impact on banks,” said Rajat Rajgarhia, director-research, Motilal Oswal Financial Services.

“We’ve come close to the monetary tightening cycle; investor sentiment would be favourable towards banks from hereon. Banking stocks will be volatile, as they will chase earnings in the coming quarters. Investors should invest in banks,” Mr Rajgarhia added.

To get an idea of the rally, the BSE Bankex index has risen 51% over the past one year; the broader Sensex has gained just about 17% during the same period. As on Monday, retail investors hold `63,524 crore of banking shares.

“There is an expectation that bank portfolios will fare better once there is pause in the ongoing monetary tightening. Considering India’s economic growth, the outlook on the banking sector is positive. But then, bank stocks have run up and it’s time to take some money off the table,” said Lakshmi Iyer, head-fixed income & product, Kotak Mutual Fund. “From a fund’s point of view, we’re not buying at current prices; we’re just holding on to our bank portfolio. We’ll cash in a portion of it in the next rally,” Ms Iyer added.

About 27 bank stocks have generated more returns than the banking index. UCO Bank, Karur Vysya Bank, IndusInd Bank, Allahabad Bank, OBC, Dena Bank and Canara Bank have gained 90-160% over the past one year. Five out of seven banking funds have beaten the banking index by a decent margin. Leading the mutual fund tally is Reliance Banking fund, which has generated a 62% return in one year. Banking ETFs have also logged robust gains; Kotak PSU Bank ETFs have gained over 65% over the past one year.

Most equity analysts say that Indian banks still have significant upside potentials from current levels. According to a Morgan Stanley research report, the loss in market share — in terms of loans, deposits and fee income — has abated. The international broking is rooting for PSU banks, as it expects these banks to do well, thanks to improving profitability. While most brokers are gung-ho about banking stocks in the long-term, many are apprehensive of a correction over the next few sessions.

“Banking stocks have run up very smartly over the past few months. We are not giving any further target upgrades; most banks are trading at target prices or a wee bit above it. It’s time for investors to book profits in smaller portions; it looks a bit risky to make short-term investments in banking stocks,” said Bhavesh Kanani, banking analyst, Sharekhan.

Source: http://economictimes.indiatimes.com/markets/stocks/stocks-in-news/Investors-in-bank-stocks-are-making-eye-popping-returns/articleshow/6550160.cms

Fund houses expand businesses to global addresses

Local fund houses are expanding their fund management and advisory businesses to overseas destinations to boost profits and to expand their asset base. Encouraged by a good investor response to Indian assets — especially equities and realty — leading fund houses are now in the process of opening branch offices in tony addresses world-wide, according to fund managers.

Top fund houses, such as Reliance Mutual Fund, ICICI Prudential Mutual Fund, Birla Sunlife Mutual Fund, HDFC and UTI, have plans to open offices in the UK, the US, Singapore, Japan and the Gulf. Most fund houses are now selling their offshore products through foreign distributors by paying huge commissions. Domestic funds are setting up overseas branches to establish a “better connect” with investors in those countries. They are trying to position themselves from being plain investment advisors to foreign investment banks to offshore fund managers.

“Having permanent establishments in foreign countries — from where you raise money — reflect your long-term commitment towards investors in those countries,” said Sundeep Sikka, CEO, Reliance Mutual Fund, which has subsidiary offices in Malaysia, Singapore, the UK, Dubai and Mauritius.

According to Mr Sikka, Indian fund houses are getting a significant amount of money from overseas investors. “Foreign investors are showing a good interest in Indian shares. Foreign investors are warming up to the idea of having an onshore fund manager to manage their investments in emerging markets, including India,” he said.

ICICI Pru MF and Birla Sunlife Mutual are also looking at options to start businesses in top cities. The aim of these funds is not to attract NRIs, but to service foreign investors. Kotak MF already has offices in London, New York and Dubai, while UTI Mutual Fund has offices in a few capitals in Europe, including London. Kotak MF and Birla Sunlife are managing a few India-focused funds from these destinations. According to fund managers, HDFC Mutual Fund is also looking to set up offices in the Gulf, after it received the mandate to advise Abu Dhabi Investment Authority (ADIA) on India investments.

“Selling mutual funds is becoming very difficult in India. The regulator has scalped our profit margins by a good measure; we are left with no option, but to approach overseas investors. We help these investors invest in Indian equities and real estate,” said the chief investment officer (CIO) of a bank-promoted fund house who spoke on the condition of anonymity.

According to the CIO, even foreign tie-ups are not helping Indian fund houses raise money from overseas investors. “Foreign partners don’t pass their clients to us... this is forcing us to seek our own clients in overseas markets,” the CIO added.

Managing foreign investors’ money is a high-margin business for most asset management companies. Depending on fund performance, foreign investors are charged anywhere between 2.5% and 4% as asset management charges by domestic fund houses. Investment advisory business yields just about 1-1.5% as advisor fees. Apart from funds, subsidiary (branch) offices also sell private equity and PMS products (after getting regulatory approvals) in foreign markets.

Local fund houses are now expecting large inflows into their offshore funds over the next few months. India-focused funds have managed superb returns over the past one year, making it very popular among foreign investors. About 75 India-dedicated offshore funds beat the Sensex, which gained about 17% in one year. About 37 funds returned more than 25% — the average category returns posted by domestic equity funds.

Source: http://economictimes.indiatimes.com/Personal-Finance/Fund-houses-set-sail-for-tony-global-addresses/articleshow/6527692.cms

Fund houses say no to zero exit load

Domestic fund houses have expressed reservations against making equity schemes free of exit load, fearing this will be suicidal for a struggling and unstable fund market. The fund houses said this would increase churning of portfolios and hurt existing investors.

The concerns surfaced after Bharti AXA Mutual fund last week reduced the exit load on its equity schemes to zero. The fund house, which made the move effective from September 1, said this would provide investors the comfort of exiting whenever they want due to the current volatility in the equity segment.

At present, fund houses charge an exit load of one per cent for a one-year investment.

At a time fund houses are losing business due to last year’s ban on entry load, industry players say zero exit load will worsen the situation.The first four months of the current financial year have seen a net outflow of Rs 7,613 crore compared with a net inflow of Rs 7,290 crore in the corresponding period last year. “No exit load will lead to an increase in inflow-outflow of funds and benefit only unscrupulous investors. Mutual fund schemes will become a trading arena for them. This will affect other investors who will start taking short-term calls on their investments,” said a chief executive officer (CEO) of a mid-sized fund house.

A majority of the CEOs Business Standard spoke to denied any possibility of following the no-exit-load strategy. They said exit load was a deterrent for investors to stick with their investments for at least a year. Serious investors, they added, would not come to equity funds if exit load was removed.

“The overall impact won’t be good for investors as well as the fund houses. The existing investors will be hit as the net asset value will become more volatile if new investors start taking trading calls,” said the CEO a top fund house.

The executive director of an independent body which tracks the industry said, “The move to introduce zero exit load is an unfortunate and strange development when fund houses are hardly getting anything from their current business. It will invite speculators to equity funds.”

Mutual funds should not be taken as an opportunistic investment, said the CEO of another mid-size fund house. Rather, he added, it was an asset allocation tool for those with a long-term perspective. “I do not know what purpose will it serve,” he said.

Some small fund houses which have not reached a critical size in terms of equity assets are worried. They said bigger fund houses might not have any impact on their funds. “However, for a small fund house like ours, such a move from our peer may bring undue competition for attracting more funds,” said the CEO of a fund house which manages around Rs 100 crore.

Source: http://www.business-standard.com/india/news/fund-houses-say-no-to-zero-exit-load/407574/

Q&A: Sanjay Sinha, CEO, L&T Mutual Fund

Sanjay Sinha, CEO, L&T Mutual Fund, tells Neha Pandey the price-to-earnings ratios of Sensex and Nifty look fairly valued. Edited excerpts:

Where do you see the markets in short-, medium- and long-term?
If three factors — liquidity, valuations and events — are supportive, there is a possibility of revisiting the highs of 2008 before this financial year ends. Between one and three years, we expect an annualised return of 15-20 per cent.

Over five years, two things will guide the markets: First, compared to the global markets, the Indian markets have a strong possibility of outperformance; and second, if the strong growth trajectory that we have entered into extends beyond five years, Indian equities will outperform.

How does price-to-earnings (PE) ratios of Sensex and Nifty look?
At present, we are fairly valued. We are at 17 times the PE ratio for financial year 2010-11. The earnings projection for financial year 2011-12 is 14 times, which is below average compared with what Sensex and Nifty managed last season. On forward perspective, they are undervalued and there is room for more.

Are there any sectors that have been laggards and are expected to bounce?
We have a contrarian call on metals. This is an extremely high-beta sector, which makes investors feel scared. But, the International Monetary Fund has hinted at 4.5 per cent growth for the global economy. This will result in high demand for commodities and so the prices might not stay firm.

Where do you see the interest rates cycle and inflation?
Both will moderate by year-end. The base effect will come into play, and with a good monsoon, corporate expansion or the supply side pressure on inflation should mitigate. Today, liquidity is very tight and is affecting interest rates. With an increase in government spending, liquidity should improve and rates should moderate.

What should a first-time investor opt for?
An investor should always begin with a systematic investment plan (SIP). Since your income comes in tranches, your savings must be built in a similar way. Start your SIP the day you start earning and plan it till your retirement. However, the components of SIP can keep changing throughout your career.

A lump sum investment is made by those who want to make an opportunistic play in the equity market. However, if you want to create wealth over a long term to counter inflation, stagger your investments with a clear balance between different assets classes. Meanwhile, you can gain an expertise in stocks and then invest directly.

How do you rate a daily SIP (DIP) versus a monthly SIP?
DIP deals with volatile market conditions. At times, investors are edged to enter the market because of fluctuations, which can be mastered with rupee-cost averaging. If you feel that by allocating money on a monthly basis, you are unable to capture the rupee-cost averaging due to volatility in intra-month, DIP is an option for you. When markets become volatile, you can supplement your SIP with DIP or substitute it.

Source: http://www.business-standard.com/india/news/qa-sanjay-sinha-ceo-lt-mutual-fund/407148/