MIPs get assets boost

With the incentive structure turning attractive and the equities market clocking gains this year, monthly income plans (MIPs) have accumulated assets at a rapid pace in the past few months.

The total assets of all MIPs have grown by about 115% between December 2009 and September 2010. HDFC MIP Long Term and Reliance MIP—which have grown by 269.6% and 783.9% year-on-year, respectively—are now among the top 15 open-end funds in the country with a total of Rs 16,599.70 crore assets under management .

MIPs, which invest mainly in government securities and corporate bonds, typically have 10-30% exposure to equity. Several MIPs have increased their exposure to equities and the buoyancy in capital markets has brought good gains for them. While the category has given about 7.5% returns in the past year (till December 7), the best ones have given double-digit returns.

"MIP is a great bull market product. Equities have done the magic for MIPs," says Raghav Iyengar, executive vice-president, ICICI Prudential Mutual Fund (MF). The markets have gained nearly 18% in the last one year (till December 7), pushing up returns from MIPs.

"Whenever there is an upswing in equity markets, MIPs see an increase in sales," says a top industry official. "Investor experience in equities has not been that great in the past two years. They (investors) are looking for capital protection. MIPs' marginal exposure to equities does just that and helps satisfy the needs of low-risk investors," say an industry official.

"Investors tend to be cautious when the markets are up. Since the fixed-income portfolio of MIPs is quite secure, they have lapped up MIPs in a big way," said an official. Though equity schemes and even fixed-income products have seen outflows, MIPs have seen only inflows in the past six months, he said.

Moreover, the incentive structure for MIPs is much better and has contributed to sales in a big way. Many fund houses offer upfront commission of 1-1.25% to distributors for selling MIPs. The upfront commission for some of the equity funds is similar or lower (0.5-1%). "It becomes easier and lucrative for distributors to push these products," says Dhruva Raj Chatterji, senior research analyst, Morningstar India, an independent investment research firm. Though MIPs have done well in the past one year, it would take a hit if the markets start declining. " Market volatility would be bad for MIPs. There should be reasonable monthly and quarterly gains for MIPs to make payouts," says an official. MIPs make dividend payouts on a monthly basis. But returns depend on availability of surplus.

Source: http://timesofindia.indiatimes.com/business/india-business/MIPs-get-assets-boost/articleshow/7068213.cms

Investors shun equity mutual funds

Equity schemes of mutual funds continued to witness outflows for the sixth consecutive month, in November, following withdrawals by investors and lacklustre sales by distributors who market these schemes. However, the outflow was the smallest since June. On the other hand, income schemes of mutual funds saw money coming in as a large number of investors parked their investments in fixed maturity plans (FMPs).

According Association of Mutual Funds in India (Amfi) data, equity schemes saw a marginal outflows of Rs 41 crore while income schemes saw inflows of over Rs 11,300 crore in November. Overall, the fund industry saw inflows of approximately Rs 18,300 crore with outflows from equity schemes and equity linked saving schemes (ELSS).

UTI Mutual Fund CMO Jaideep Bhattacharya said, “Investors are booking profits in a rising market but we are looking at some very strong numbers where systematic investment plans (SIPs) are concerned.” Bhattacharya added that investors were probably waiting for visibility on the direction of the market. “We hope that in the coming months we might see smart inflows into equity schemes,” he said, adding that money was also coming in through FMPs and monthly income plans (MIP) on a regular basis.

Categories that saw inflows in November included money market funds (Rs 6,111 crore), balanced (Rs 255 crore), gilt (Rs 431 crore) and gold exchange traded funds (Rs172 crore). Over Rs 11,259 crore was collected by the various new fund offers(NFO) of which Rs 11,187 crore came into income schemes and Rs 68 crore into Axis Gold ETF and the remaining in fund of funds (FoFs) investing overseas.

Since the market regulator scraped entry loads in August last year, equity schemes have seen a net redemption of over Rs 24,300 crore. A sales head from the leading fund house, said, “In the last few months, there were no new NFOs in the market but in the last few weeks we have seen some fund houses launching new schemes. However many distributors have stopped selling mutual funds.” Bhattacharya further adds, “In the coming months we are likely to see revival in equity schemes as many new ELSS schemes will be launched before March, 2011.”

Source: http://www.financialexpress.com/news/mf-equity-schemes-see-outflow-for-sixth-month-in-row/722132/0

Funds set to miss Jan 1 date to complete KYC process

It's a race against time for asset management companies (AMCs), as they try to complete the 'know-your-client' process before the regulatory deadline of January 1, 2011. It is a 'Herculean task' for fund houses, considering that less than 10% of the total unitholder base is 'KYC-compliant' at this point of time, industry officials say.

Capital market regulator the Securities and Exchange Board of India (SEBI) has made it mandatory for asset management companies to extend the KYC norms to investors, who have less than Rs 50,000 in funds. The regulator wants fund houses to verify identity and address of the investor, financial status, occupation and such other information to ascertain the source of money coming into the stock market through mutual funds.

Fund houses are finding it difficult to get investors to co-operate. "Investors are not comfortable providing these details," said the sales head of corporate-promoted fund house, adding, "Rich investors in smaller cities, who make several small investments in their close relatives' names, are worried that these details will be used for tax purposes."

Fund houses mobilising money through new fund offers currently, are the worst affected, officials said. "We're speaking to clients who have completed their KYC process to invest in recent NFOs," said a Bangalore-based fund distributor.

"Getting new clients and then forcing them to submit additional documents is a difficult task," the distributor said. Though retrospective in nature, existing investors - including SIP investors - will be able to continue with their investments after January 1, even if they are not KYC-compliant. However, they will not be able to switch their investments or make additional investments without being KYC-compliant.

The fund industry has appointed CDSL Ventures (CVL) to maintain the database of completed one-time KYC. CVL will also act as an additional counter to accept and verify documents and provide 'KYC-acknowledgement'. Investors need to submit address proof, proof of identity and passport size photograph, along with an application form, to complete the KYC process. Investors can make their submission with distributors, fund houses or CVL counters.

"Adhering to KYC norms for investors below Rs 50,000 is an expensive proposal for fund houses. We'll have to pay Rs 34-37 every time we access the CVL database and check credentials of the investor," said marketing head of bank-promoted fund house.

According to industry sources, several fund houses have written to SEBI and Amfi about practical problems involved in extending KYC norms below Rs 50,000 worth of investments. Retail customers dominate equity mutual funds, with over 90% of the investment volume coming from ticket sizes of less than Rs 1 lakh. More than 70% of overall investor folios have investments below Rs 50,000.

Often, small retail investors - with SIP amounts as low as Rs 500 - especially from tier-3 cities and villages, do not have documents to conform to the KYC process. This will hinder the growth of mutual funds in rural India, industry sources said.

Currently, around 5% of the country's gross domestic savings is invested in equities. As per industry estimates, MF investors constitute just about 2% of the entire population.

Out of 32 crore individual wage earners between the age of 18 and 59, only about 55 lakh invest in mutual funds. As on September 30, there were 3,94,39,302 equity folios holding investor money.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Funds-set-to-miss-Jan-1-date-to-complete-KYC-process/articleshow/7068912.cms

Selling pressure continues, metals weigh

Markets are expected to fall further in the last leg of trade on back of weak opening in the Europe and selling pressure in metal
and consumer durable shares. The Sensex has fallen 252 points to 19,682 and the Nifty has declined 75 points to 5900.

Markets are expected to remain weak with Nifty seeing stiff resistance around 6100 level. Monal Desai, VP & Head–Inst Equities (Derivatives), Prabhudas Lilladher said "there is not enough enthusiasm to buy aggressively; hence upside is capped around the 6100 level. Technical analyst, Devangshu Dutta said, "the Nifty looks Weak and could drop to 5850 or 5825 as 5900 is broken. Investors should start shorting and trade with a stop loss at 5925."

Asian markets also ended on a weak note due to the market wobble in Seoul following reports that North Korea might attack another
South Koran Island which was later reported as a drill. South Korea's Seoul Composite ended down 0.4%, China's Shanghia Composite dropped 1%, Hong Kong's Heng Seng ended down 1.4%. Japan's Nikkei Stock Average was up 0.9% and Straight Times was up 0.3%. European markets also opened lower due to losses in financial and mining shares.

Rally in Oil & Gas sector has lost steam after rising sharply on reports that government may raise fuel prices by Rs 2 per litre
after crude surpassed $90/bbl yesterday. Indian Oil Corp (IOC.BO) was up 2.7 percent, Hindustan Petroleum Corporation has risen
3.5%, Bharat Petroleum Corporation has risen 2.5% and Indian Oil Corporation has surged 1.6%.

Whiles most of the sectors are under selling pressure today, fund houses are bullish on India's consumption theme. Rajiv Anand,
Managing Director & CEO, Axis Mutual Fund said, 'like domestic consumption as a theme as we think it is a secular play in India. Also believe that financial service will remain the core part of our portfolios, but are circumspect of global cyclical like commodities and oil and gas."

Bank Nifty dipped to three month low, down 2%. Canara Bank, Axis Bank and Union Bank were down by almost 5%.

Consumer Durables has been the top sectoral loser; Gitanjali Gems has fallen 5.5%, Bajaj Electricals has dropped 4% and Rajesh Exports has declined 3.2%.

Metal stocks have lost sheen, Welspun Corporation has lost 4.9%, Jindal Saw has plunged 3.7% and SAIL has slumped 2.8%.

On the Sensex HDFC Bank (down 3.3%), Reliance Communication (down 3%) and Tata Stell (down 2.7%) have been the top losers. Only one component on the Sensex has been trading in the green, ONGC (up 0.7%).

Broader markets have also witnessed selling pressure, midcap and small index has declined 1.8% and 2.7% each.

Source: http://www.business-standard.com/india/news/selling-pressure-continues-metals-weigh/118572/on

Don’t just do tax-saving, start tax-planning

It’s that time of the year when you should begin your tax-planning exercise. Towards this end, this week’s article reiterates our annual tax-planning tips.

Most taxpayers tend to defer their tax-saving investments till March and then rush into putting their money into something with the sole objective of saving tax for the year.

As long as investing in the chosen instrument results in getting the tax deduction, their immediate purpose is solved. The instrument of choice is more often than not something recommended by a colleague or promoted heavily in the media.

And if you are senior management or a businessman, then you have already been anointed a high networth individual (HNI) and assigned a ‘relationship manager’ whose sole purpose in life is to force-feed you the latest flavours of the season. As a result, while you end up saving on tax, there isn’t any tax-planning.

Take for example Section 80C of the Income Tax Act, which is anyway the only meaningful deduction left. Under this section, as most of you would know, any investment up to Rs 1 lakh made in certain specified instruments can be reduced from your taxable income.

There is a long list of eligible investments including an employee’s provident fund contribution, tuition fees paid for children, principal portion of housing loan installments, investments made in Public Provident Fund (PPF), equity linked savings scheme (ELSS), National Savings Certificates (NSC), Senior Citizen Savings Scheme, Post Office term deposits, life insurance premiums paid, etc.

If you think about it, these are the very investments that one makes anyway and therefore are no different than one’s regular investments. All you need to ensure is that these are integrated into the larger picture in line with one’s risk profile and financial goals.

So how should an investor choose from amongst the various choices available? Here’s what you should do.

Using Sec 80C optimally
First take into account the mandatory payments such as provident fund, housing loan EMIs and tuition fees if applicable. Reduce the total amount spent from the Rs 1 lakh limit. Distribute the balance in a combination of ELSS and PPF.

If you are relatively young and just starting out, put 70% into ELSS and 30% into PPF. As you advance, lower the ELSS and increase the PPF, eventually reaching a 30% ELSS and 70% PPF combination.

Why PPF? Well, PPF is the best fixed income investment that you can make. An annual contribution of Rs 70,000 will get you around Rs 32 lakh in 20 years. Look at it as a fund for the education needs of your children. If your children don’t need it, get your spouse to invest too and you would have a retirement fund ready.

An ELSS is nothing but an equity mutual fund that offers a tax deduction. On account of the tax deduction, there is a lock-in of three years on the investment. This lock-in enables the fund manager to take long-term calls on the market, which is essential for any equity investment.

ELSS investments are the most preferable way to build long-term wealth. However, this investment comes along with the inherent risk of the stock market. Hence the suggestion that the proportion of ELSS in your total tax-saving investment should come down as age advances and the risk taking ability declines.

Recycling old investments
Take the case of one of my friends, Amit, who is into web design. Amit’s lament was that he had over Rs 5 lakh in receivables but customers in general were holding out for longer credit periods.

Since our income-tax laws tax income on accrual and not on receipt, this means he has to pay the tax on the Rs 5 lakh not yet received. He was having difficulty in arranging funds required to pay his employees for the month, so to keep anything aside for tax-saving was a long shot.

In such cases, one can use another tax-planning tool. We call it recycling. Amit can simply withdraw an earlier investment (say from ELSS or PPF) and redeposit the money, even in the very same instrument. He will get the tax deduction for no additional outlay —- in other words, his savings remain the same, but without investing a rupee, he can avail of the 31% tax-saving.

Last but not the least
As mentioned earlier, your tax-saving investments are no different than your regular investments. Consequently, the basic principles of investing remain the same for both sets of investments.

Therefore, next year, instead of waiting till the fag end, start by investing in tax-saving avenues in the very beginning of the financial year, even on the 1st of April. Doing so has a two fold advantage.

First, these investments would earn a return from the beginning of the financial year (April-March). Secondly, it obviates a situation where you may end up simply not having the lump sum required at one go for 100% tax-saving.

Realise that there is no compulsion to make tax-saving investments towards the end of the year. A more efficient strategy is to invest throughout the year in a staggered manner such that by the time the year comes to an end; full advantage of the tax-saving opportunity is taken. And don’t worry about how much or how little you save each month. As Benjamin Franklin has so succinctly put it, “A penny saved is a dollar earned!”

Source: http://www.dnaindia.com/money/column_don-t-just-do-tax-saving-start-tax-planning_1478185

Now you can SIP into New Pension System, too

The New Pension System (NPS), as the New Pension Scheme is now known, can henceforth be subscribed to through the systematic investment plan (SIP) route.

ICICdirect.com on Monday launched the facility on its broking site.

Under the facility, a customer can subscribe to NPS, select a fund manager of his choice, view and access registration details and also place contributions online.

One can start an SIP for as low as Rs500 a month and also track the net asset values online. ICICIdirect will charge Rs40 for opening an account and Rs20 for every subsequent transaction.

The launch of SIP facility on the NPS is expected to boost its subscriber base.

“The total corpus of NPS is Rs7,000 crore, whereas collections from the unorganised sector under the scheme is only Rs40 crore. The Bajpai Committee report is expected by January 2011, which will help in studying as to why the contributions from the unorganised sector are low,” Yogesh Agarwal, chairman, Pension Fund Regulatory and Development Authority said.

NPS is managed by seven pension fund managers, namely, SBI Life, ICICI Prudential, Reliance Life Insurance, IDFC Pension Fund, Kotak Life Insurance, UTI and LIC, which is for the government.

Currently, only Tier I NPS accounts are available on ICICIdirect, wherein account holders cannot withdraw money up to the age of 60. Tier II, to be launched in a few months, will offer the facility to withdraw the money as many times as a customer wishes to. But unless you have invested in Tier I, you cannot opt for Tier II account.

Some experts though continue to have reservations about the NPS.

“A balanced fund looks more attractive. In the NPS, information is not easily available. Also, if it is 50% equity and 50% debt and the returns are taxable, I won’t recommend the scheme. If a person is ready to wait for the long term, he can earn better returns in mutual funds. Return on the NPS is around 11%, whereas a balanced fund would easily give 12% return in the long run and it is more tax-efficient,” said Rajendra Dhulla, financial planner, partner with Pratham Services.

The government had announced Swavalamban Scheme in the Union Budget 2010-11, to which the government will be contributing Rs1,000 per NPS account each year for the next three years. The benefit will be available to persons who join the NPS with a minimum contribution of Rs1,000 and maximum contribution of Rs12,000 per annum. In order to open an NPS account, a minimum contribution of Rs6,000 per annum is mandatory, whereas in case of NPS Lite, the minimum amount is Rs1,000 per annum.

Source: http://www.dnaindia.com/money/report_now-you-can-sip-into-new-pension-system-too_1477697

Invest a small part of portfolio

Newspaper reports on the commodity rally made Shyam Shukla curious about international mutual fund schemes. The impressive returns in the last six months — higher than the Bombay Stock Exchange Sensitive Index, or Sensex — are also on his mind.

“Financial experts say diversification helps get the best results. Since overseas funds are giving decent returns, diversifying in the foreign markets can improve the returns of my portfolio,” argues the 25-year old telecommunication engineer from Raipur.

Shukla is not alone. International funds invest in companies listed in overseas markets. Many of these are feeder funds, which means the Indian scheme invests its entire corpus in an international master fund. For instance, DSP BR World Gold Fund invests in BlackRock Global Funds — World Gold Fund.

In total, there are 25 schemes that invest in equities of commodity companies or special themes across the world. Then, there are emerging market schemes that invest in Mexico, Brazil, Hong Kong and Korea. Rajat Jain, chief investment officer-equities, Principal Mutual Fund, says, “International funds are the best way to diversify, as an investor can participate in different kinds of markets.”

“Principal Mutual Fund’s Global Opportunity Fund invests across 25 different equity markets,” adds Jain.

According to Value Research, a mutual fund rating agency, international funds have returned 19.25 per cent over six months till December 3. In the same period, the Sensex and the Nifty have given slightly less, over 17 per cent. Equity-diversified funds (largecap and midcap) returned 16.5 per cent.

But industry experts feel the short-term data may not be too definitive. “Six months is too short a period to conclude about a fund’s performance. And, this category has a mix of commodity and equity funds,” says Hemant Rustagi of Wiseinvest Advisors.

The short-term spurt in returns of international funds is mainly on the back of the rally in commodities, in which most international funds invest. Funds such as Birla SunLife Commodity Equities, DSPBR World Mining and World Gold are some of the top performing funds in the category (returns 25-30 per cent) and invest in gold in six months. Equity funds such as HSBC Emerging Markets, Principal Global Opportunities and Franklin Asian Equity have performed on a par with the Sensex (returns between 15-20 per cent). Over one year, overseas funds have returned a dismal nine per cent against the Sensex’s and the Nifty’s 16.18 and 16.78 per cent, respectively. Consequently, experts feel one could take exposure to these funds, but only partially.

There are other risks, too. These funds are dollar-denominated and influenced by currency fluctuations. The money invested is first converted into dollars from rupee, and then, into the local currency. So, a lot depends on the performance of the local currency. At the time of redemption, the conversion happens the other way round. To overcome this, risk funds could invest in markets where the currency behaves like the rupee, say experts.

These funds are taxed as debt funds. Therefore, there is a tax of 10 per cent with indexation and 20 per cent without indexation on capital gains. One of the main arguments against these funds is that since the Indian markets have been doing exceptionally well, returns from foreign equities may not be too high. Also, a debt fund treatment will eat into the returns further.

“There are enough Indian funds to help a retail investor diversify and our markets have done better than the foreign markets,” says Pankaj Mathpal, a certified financial planner.

However, when commodities are on the rise, the feeder funds really perform exceptionally. Experts say high networth individuals, or even retail investors, could look at investing 5-10 per cent of their money in such funds.

Source: http://www.business-standard.com/india/news/investsmall-partportfolio/417362/

Sebi asks MFs to disclose details on gold-focused schemes

Market regulator Sebi today directed mutual funds to disclose whether money collected for gold- focused schemes was actually invested in the precious metal.

"It has been decided that physical verification of gold underlying the Gold ETF units shall be carried out by statutory auditors of mutual fund schemes and reports (given) to trustees in half-yearly basis," the Securities and Exchanges Board of India (SEBI) said in a circular.

The half-yearly reports, which MFs first have to submit to their trustees, need to then be forwarded to Sebi.

In the reports, the MFs will have to mention whether the funds invested in Gold ETFs was in line with the amount mentioned in the Scheme Information Document and if the same has been audited, as per the Sebi circular.

"This shall come into effect from the half-yearly report ending April, 2011, by trustees to Sebi," the market watchdog said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Sebi-asks-MFs-to-disclose-details-on-gold-focused-schemes/articleshow/7055873.cms