Back on 24th Jan 2011

Due to some reason we will not be able to post till 24th Jan 2011.

HDFC Mutual, Franklin accused of using client funds to promote brand

The latest round of promotions by HDFC Mutual Fund and Franklin Templeton Asset Management has prompted speculation among competitors and financial advisors that these companies may be using investors’ funds to boost their brand .

The multi-crore campaigns by these funds, though are not illegal, have raised ethical issues when the regulator has been working to cut costs for investors, including banning of entry loads. All mutual fund schemes’ advertisements go through the Securities & Exchange Board of India (Sebi) before going public.

Billboards and signs at traffic lights across Mumbai and Delhi that have sprung up display the companies prominently instead of individual funds which normally is the case. One such advertisement reads — ‘choose a healthy investment-HDFC Mutual Fund SIP’. The other — ‘Invest in Franklin Templeton Mutual Fund’. At the bottom of the boards, one of their funds’ name is written in a small font, the corpus from which possibly the cost of promotion is met.

“Fund houses could be paying for such advertisements from fund accounts,” said Dhirendra Kumar, chief executive at MF tracker Value Research.

“Older schemes have residual funds collected from entry and exit loads which need not be routed back to the NAV of respective funds. Fund houses use residual money to promote the fund under which the money is collected. In this case, I feel, residual money has gone into promoting fund houses,” he said.

“The campaign is not to promote the fund house,” said a HDFC Mutual Fund spokesperson. “It is carried out to promote investments in our four schemes through SIP. We aim to reach out to investors with a message of adapting a disciplined approach to equity investment through SIP as a preferred option.”

Franklin Templeton and Sebi did not respond to queries seeking their views. Asset management companies (AMCs) are struggling with slumping subscriptions to their equity schemes, after the regulator banned entry loads on funds which it believed was unjustified. Ever since, mutual funds have been working ways to promote schemes and draw investors.

This probably may be one of the ways to attract investor attention. While HDFC MF has named its ‘Capital Builder Fund’, ‘Growth Fund’ and ‘Core and Satellite Fund’ on the billboard, Franklin Templeton has highlighted its ‘India opportunities fund’, among others.

“From what it seems, both fund houses are on the right side of the law, but they have not carried out their ad campaigns in the right spirit,’’ said Ashutosh Wakhare , head trainer at Moneybee Institute, which trains investment advisors. “Fund houses should promote themselves using their own money.”

This is not the first time that mutual fund advertisements have come under an ethical debate. In 2008, after receiving complaints from some investor organisations, Sebi had asked AMCs to reduce the speed at which the ‘investment disclaimer’ is read out in television advertisements.

Source: http://economictimes.indiatimes.com/personal-finance/hdfc-mutual-franklin-accused-of-using-client-funds-to-promote-brand/articleshow/7233403.cms

Indian Bank to enter life insurance, restart MF biz

Public sector Indian Bank plans to venture into life insurance. It is looking at floating a consortium with domestic and foreign partners, for which it has already initiated talks. Besides, it would also appoint a consultant to advise it on re-entry into the mutual fund industry.

Speaking to Business Standard, Chairman and Managing Director T M Bhasin said Indian Bank was a bancassurance partner for HDFC Life Insurance and the agreement would mature in March. Last year, the bank earned a commission of Rs 26 crore through the tie-up and was targetting Rs 40 crore this year.

“We are now planning to float a new life insurance company on our own,” he said.

It may be noted that Bhasin was involved in Canara HSBC Oriental Bank of Commerce Life Insurance co, a joint venture (JV) between two of the largest public sector banks — Canara Bank and Oriental Bank of Commerce — and HSBC Insurance (Asia Pacific) Holdings. Bhasin represented Oriental Bank.

He said the bank had invited an expression of interest (EoI) from consultancy services to advise it on its proposed investment, which would either be a JV or based on equity participation.

The new company would take another six months to materialise and would be through a consortium, wherein Indian Bank and the domestic partner would have the majority stake and the foreign partner would hold 26 per cent, he said.

“We have got a few offers from both domestic and foreign firms. They are offering us equity at concessional rates. By charging on a monthly, per branch basis, we would use our branch networks effectively,” he said.

The 104-year Chennai-based Bank has more than 1,800 branches and over 19,000 staff. It has a customer base of around 200 crore. As on date, total business amounts to Rs 1.70 lakh crore.

“This foray will further strengthen our brand and the equity will also get appreciated in the long-term”.

The bank would also hire consultancy services for its proposed foray into mutual funds on a JV basis. It was planning to rope in a suitable partner for the same, said Bhasin.

Indian Bank is one of the pioneers in the mutual fund industry. It set up its mutual fund business in 1989, which became of the top performing mutual funds in the nineties. But in 2001, the bank transferred its schemes to Tata Mutual Fund.

Source: http://www.business-standard.com/india/news/indian-bank-to-enter-life-insurance-restart-mf-biz/420863/

Mutual funds’ AUM drops 5% in October-December quarter

The average assets under management of the mutual fund industry declined by a hefty 5% during the October-December quarter , with country’s largest fund house Reliance MF’s assets shrinking by over Rs 5,000 crore.

The industry’s AUM fell by Rs 37,904 crore, or 5.31%, in October-December period. The combined average AUM of 40 fund houses stood at Rs 6,75,376.97 crore at the end of December, according to industry body Amfi.

At the end of December 2010, the AUM of Reliance Mutual Fund stood at Rs 1,02,066.21 crore, a decline of Rs 5,682.32 crore or 5.27% from the assets managed in September-end.

HDFC MF also saw its asset base shrink by Rs 5,222 crore, or 5.61%, to Rs 87,883.09 crore. ICICI Prudential MF’s assets declined by Rs 3,886 crore, or 5.57%, to Rs 65,841 crore. Among the other fund houses, UTI MF’s assets fell by 3.29% to Rs 65,387 crore and LIC MF’s by 5% to Rs 18,695 crore.

However, a few fund houses, like Axis MF, Benchmark MF, Fidelity MF, Mirae Asset MF and Pramerica MF, among others, saw their assets rise in the range of 4-75% during this period.

Mirae Asset Global Investments (India) chief executive Arindam Ghosh said, “We have introduced different product mix during the December quarter. This has led to an increase in inflows into several schemes. We mostly have equity funds.”

Source: http://economictimes.indiatimes.com/markets/stocks/market-news/mutual-funds-aum-drops-5-in-october-december-quarter/articleshow/7220422.cms

Tata MF announces dividend under Tata Equity P/E Fund (Dividend Trigger Option A-5%)

Tata Mutual Fund has announced 10 January 2011 as the record date for declaration of dividend under Tata Equity P/E Fund (Dividend Trigger Option A-5%) on the face value of Rs. 10 per unit.

The fund house has decided to distribute Rs. 1.75 per unit as dividend on the record date. The scheme recorded NAV of Rs. 40.6090 per unit as on 3 January 2011.

Tata Equity P/E Fund (Dividend Trigger Option A-5%) is an open ended equity fund. The investment objective is to provide reasonable & regular income alongwith possible capital appreciation to its unitholders.

Source: http://www.indiainfoline.com/Markets/News/Tata-MF-announces-dividend-under-Tata-Equity-PE-Fund-Dividend-Trigger-Option-A-5-percent-/3469840759

Sundaram PSU Opprtunities Fund declares maiden dividend

Sundaram Mutual Fund has declared a maiden dividend of 10% (Rs 1.0 per unit on a face value of Rs 10) under the dividend option of Sundaram PSU Opprtunities Fund. The record date for dividend has been fixed as January 07, 2011.

All investors registered under the dividend option of Sundaram PSU Opprtunities Fund as on January 07, 2011will receive the dividend. The NAV of the scheme as on January 03, 2011 is Rs 11.855 per unit.

Sundaram PSU Opprtunities Fund is an open ended equity scheme. The primary investment objective of the scheme is to generate consistent long term returns by investing predominantly in equity / equity related instruments of public sector companies.

Source: http://www.moneycontrol.com/news/mf-news/sundaram-psu-opprtunities-fund-declares-maiden-dividend_510209.html

Where to invest in 2011

Another year has just commenced. Dilip Maitra recommends some fundamental principles of investing in a year which is likely to see a stronger economic performance.

Another year has just commenced. Dilip Maitra recommends some fundamental principles of investing in a year which is likely to see a stronger economic performance.

Indians are lucky, our banks offer one of the highest interests in the world. And there are many other options to earn a good return on investments. The year 2010 was fairly good in terms of return to investors as major stock indices like BSE Sensex and NSE Nifty both were up 17 per cent at the end of the year. Though interest rates were low most of the year, they started rising towards the last quarter. Investors in gold of course minted money as the price of the yellow metal jumped 15 per cent during the year. Even the property prices increased slowly but steadily.

Will 2011 be as good or better for the investors? Where should we invest our money and how much? While we do not have precise answers for everything, through this article we shall present various investment options for the common man.

We know that life is full of uncertainties and no one can predict how the stock markets will behave, interest rates will move and rate of inflation will climb. But amidst the uncertainty, we must plan for an investments strategy that is likely to be effective in providing a reasonable return on our money and, more importantly, protect us from losing money.

Different needs

Before we begin, it is important to understand a very basic fact: In the world of investments, there is no “one size fits all”. Investors have different goals, needs, risk appetite and time horizons. Ideal investment strategy should be worked out in line with the investor’s risk profile and time horizon. In every investment, options discussed below risk and time span for investment will vary from person to person.

Once you are clear about your risk-taking ability, it is time to choose from various available options. Someone, who wants to play absolutely safe, for example, should stick to fixed deposits in banks or keep money in post offices. If the time horizon is long, investing in endowment life insurance policies can also be considered as another safe option. Mutual funds can be considered for relatively higher return by those who are ready to take slightly more risk. Buying equity shares of companies and properties can give very high returns but they also carry the highest amount of risk.

To balance between risk and return, one can also think of a mixture of the above three. A prudent asset allocation strategy will help you decide how much money should be invested where. A low risk option, for example, can be an allocation of funds in 50:25:25 proportions for bank deposits, mutual funds and shares.

Don’t be passive

Another very important need is to remain active. Unfortunately, most people in the salaried class/ fixed income earners are passive investors. Our salary gets deposited in the bank each month, we withdraw money or issue cheques for expenses and whatever is left in the savings account earns a paltry interest of 3.5 per cent. Very few realise the fact that by leaving money in savings account we are actually getting a negative return (losing money) because inflation is always higher than savings interest.

As the current rate of inflation is around 8 per cent, to make sure that the return is positive (or we do not lose money) the minimum return must be higher than the rate of inflation.

Playing safe

For those who do not want any risk, the best option is to go for fixed return schemes or term deposits in reputed banks or invest in various instruments offered by post offices.

Thanks to the tight money policy followed by the Reserve Bank of India in recent months, all banks have significantly raised interest rates. For a two to three years fixed deposit, it is now possible to earn 8.55 per cent interest (0.50 per cent more for senior citizens), giving a cumulative yield of around 9 per cent, from government-owned banks. Fixed deposits in some private banks, non-banking financial institutions and private companies will earn higher returns — it can even go up to 12.50 per cent for a 3 year period (yield 14.90 per cent), but the risk is also greater.

At present, post office deposits are less attractive as schemes like NSC, PPF, monthly income schemes now earn interest at around 8 per cent or less. Of course, the Senior Citizen Savings Scheme earns 9 per cent for a five-year deposit, but it is available to people above 60 years of age.

Another interesting fixed income instrument is the Long Term Infrastructure Bond introduced in the current financial year by some of the infrastructure financing companies.

Under this scheme, one can buy infrastructure bonds for 10 years to earn interest at 8.25 per cent. Investment in this bond is locked in for 5 years, with buyback at the end of 5th, 6th, 7th, 8th, and 9th year. These bonds are listed and traded on stock exchanges and can be sold and purchased like shares. The more interesting feature is that on an investment of Rs 20,000 an investor can save tax up to Rs 6,000 under the section 80CCF of the IT Act, giving an effective yield of 11.01 per cent at the highest tax slab.

Remember that term deposits will levy penalty in case of premature withdrawal. If you are forced to keep large sums of money in savings account for unplanned emergency withdrawals, there is a better option. Many banks now offer automatic transfer (called sweeping) of surplus fund (above a specified amount) from savings to fixed deposits. In case of withdrawals above the available amount, fixed deposits are broken to the extent needed and money gets swept back to savings. Such schemes provide the flexibility of savings account but earn higher interest. In 2011, fixed deposit will be a good bet as the interest rates are expected to rule high in the first four to five months of the year.

Silver out-shined gold

Indians are obsessed about gold and our country is the largest purchaser of gold in the world. Why? We Indians buy gold jewellery not only for gifting or wearing, but also for investment. Most gold jewellery buyers think that acquiring the yellow metal is one of the safest investment options because the gold prices always go up.

But in 2010, silver, the poor cousin of gold, performed much better as an investment option than gold. At the current price of around Rs 47,000 a kg, silver price is 74 per cent higher than Rs 27,000 in the beginning of 2010. On the contrary, at the current price of 19,500 per ten gram, gold has appreciated around 15 per cent on a 12 months horizon.

Silver prices have reached the record peak mainly because of a worldwide shortage of the metal in comparison to its demand.

Though gold has appreciated slower than silver, it is still a good bet to invest in gold. As two of the world’s strongest currencies - the US dollar and Euro Zones Euro have remained relatively unstable in the last six months or so, many large investors are buying gold as a safe investment option and hedge against currency depreciation. Bullion experts believe that gold and silver prices will continue to remain bullish in the long term though there could be corrections in the short term.

But investment in gold and silver should ideally be in the form of coins and bars. Most Indians buy gold in the form of jewellery whose price includes between 10 to 15 per cent of the value as making charge, wastage, etc. When the same jewellery is sold, one is paid only for the gold, minus the making charges and impurities. Moreover, in the short term, one can also lose money in gold or silver if the prices -which depend on market forces, decline. On the other hand, a fixed income instrument over a period of three to five years can get a decent guaranteed return.

The growth story

If you do not mind taking some risk in life and want to get rich quickly, then investing in equity shares of companies is the option. The year 2010 was a revival year for stocks in the country after a bad 2008 and 2009 when the global financial crisis battered prices down for most shares. In 2010, the BSE Sensex, one of the two most important indicators of stock prices, gained 16 per cent to 20,390 at the end of the year from 17,558 in the beginning. Another important indicator, NSE Nifty also gained 17 per cent to 6,012 from 5,232.

There were several factors pushing the stock prices up. Finding India an attractive investment destination, global investors, known as foreign institutional investors (FIIs), pumped in a massive $28.60 billion in 2010 (till December 23, 2010) or Rs 1,29,857 crore in Indian stocks, 64 per cent more that $17.45 in 2009. FIIs had good company with the large domestic financial players like Life Insurance Corporation, public and private banks and high networth individuals. Another indicator of the boom in the stock market is that Indian companies, public and private, raised a record Rs 71,114 crore from 70 public issue of shares in 2010. The earlier best was Rs 45,000 crore in 2007.

Will the honeymoon continue? Most market experts think that share markets in 2011 will continue to do well if there are no major disturbances in the developed countries.

Investors poured in money because they were won over on Indian growth story despite the minor hiccups of some scams. India is the second fastest growing economy in the world (after China) with an expected GDP growth of around 9 per cent to make.

All other major indicators also tell positive stories: Industrial production is growing at a healthy rate of 10 per cent, exports up 27 per cent, capital formation jumped nearly 25 per cent, our savings rate is high at around 35 per cent and employment outlook is better than the previous year. In short, the Indian economy will support rising stock markets if there are no unusual developments.

But stocks are risky

Despite all these positive factors will dream run continue? No one knows. As share prices go up and down, and many a times for reasons totally unrelated to a company, investing in stocks is the riskiest. Sometime you can make a windfall gain and sometime you may lose the entire money. While both is possible, if you must invest in stocks follow the following basic rules;

Do not speculate: If earning a good return is the objective, invest for long term - three to five years. Do not speculate based on so called “Buy Tips”. More often than not the tips are engineered to serve a purpose of interest parties.

Do not try to time the market: Many say that it is wrong to buy stocks in a rising market and sell in a falling market. The question is how long will the bull or bear phase run? The wild and prolonged fluctuations in stock indices over a long period have proved that it is difficult to time ‘buy’ or ‘sell’ decisions. Since you can not predict the market, you can’t time it.

Do a lot of home work: On the face of it, making money in stocks looks easy. But for a serious player it involves a lot of research and applying common sense. One not only needs to study the company but also the industry it belongs to, check the future trends in market and technology, the government’s policies and the overall status of the economy. If, for example, the banking sector looks exciting for the next five years one can buy shares of the most profitable banks in the industry even if its pricing looks high.

Go for growth: Pick up stocks of companies that have good growth potential due to its own strengths and also because the industry it belongs will do well. Infosys, Wipro, TCS in software, HLL in FMCG, Reliance in oil refining and petrochemicals, Maruti in cars are some of the good examples of growth stocks. If they are too expensive, go for small and medium size companies with good growth potential.

De-risking strategy: Even after you have done an extensive research, finished all your calculations, factored in all possible scenarios before investing in stocks, everything can come to naught all of a sudden for reasons totally unpredictable and unexplainable. So the most important golden rule: do not put all your eggs in one basket. Diversify and well diversify your portfolio among industries and companies. If one wants to play somewhat safe in stock investing one should fix a limit for ‘profit’ and ‘stop loss’. This means that one should sell shares once their value has appreciated to a self-determined level or sell them if they have depreciated up to point. Such acts will limit the downside risk and upside gain.

Mutual funds

Mutual Funds (MF) collect money from large number of investors buying units of a scheme and invest the fund according to the pre-stated plan. Since the asset management company of a MF has a team of experts to decide where and when to invest, it is right to assume that a MF is a safer option than an individual investing directly. There are different types of funds roughly classified as gilt fund, debt fund, balanced fund and equity fund. While the first two are safer options but provide low return. Balanced funds invest both in debt and equity shares while equity funds focuses only on equity shares of listed companies.

Over the years Indian mutual fund has matured with many fund houses and investment options. Though there is a wide choice, selecting a fund for investment will again depend on your risk appetite. A thorough research, with time series data, on the performance of the fund is a must to get an idea how a scheme has done in relation to the overall market and competition. Though past performance cannot guarantee a good return in the future, research is always better than blind play.

MFs also often come up with new schemes and investors are made to believe that buying into a new fund at par of Rs 10 is cheaper than an existing scheme. But this is a fallacy as the price of a unit in a scheme is based on the net asset value (NAV) which is simply representative of the assets backed by each unit of the mutual fund.

Source: http://www.deccanherald.com/content/125685/where-invest-2011.html

Indian stock markets likely to remain buoyant in 2011

The robust economic growth and record inflows from foreign institutional investors were responsible for the rally in Indian stock markets during the calendar year 2010. The Bombay Stock Exchange benchmark index ‘Sensex' gained 3044.28 points to end the year at 20509.09. Though the index moved up by 17.4 per cent during 2010, it is felt that this is far below expectations that one could have anticipated.

However, in terms of absolute performance it compares quite favourably with Brazil, Russia, India, China (BRIC) nations. With the exception of Russia, which went up by 23 per cent, Indian markets outperformed Brazil which was up by 1 per cent and China which was down by 14 per cent. China witnessed lot of speculative money chasing Chinese stocks started exiting when the country began monetary tightening. The first such occasion was in the early part of 2010. In the last two months, China had raised its rates twice.

Best performing indices

The behaviour of Indian markets was primarily driven by domestic consumption-based opportunities. Therefore, the best performing indices were automobile, which was up 33 per cent and fast moving consumer goods (FMCG) which was up 27 per cent. Healthcare, banking and information technology were other three notable sectoral performers.

“We are entering 2011 with lot of scepticism in our hearts. The pessimism on the local front is coming from politics and the global front is from economics. If we look at historical precedents — in May 2004 when the United Progressive Alliance (UPA) came to power and in May 2006 when commodity prices crashed — scepticism has normally been the formation for a rally in the markets,” said Sanjay Sinha, Chief Executive Officer, L&T Mutual Fund.

There is a consensus estimate that the earnings in financial year 2012 will grow between 18 per cent and 22 per cent. However, a major event or a radical shift in commodity prices or exchange rate can derail this growth expectation. Therefore, according to Mr. Sinha, as long as earnings growth is not at risk and the sentiment is pessimistic one can expect more structural rally to build in the Indian markets.

Currently the market is trading broadly in fair range of valuations. “At Sensex level of about 20000, the market is discounting financial year 2012 consensus estimates by about 16 times,” said Harsha Upadhyaya, Fund Manager, UTI Asset Management Company.

These valuations can be sustained if the earnings estimates going forward do not disappoint.

It is likely that the market will move up in line with corporate earnings growth (estimated at 18-20 per cent annually over the next two years) in the medium- to long-term. However, Mr. Upadhyaya said the short-term market movements were driven more by liquidity and sentiment, and “hence difficult to predict.”

While domestic inflation and hardening of interest rates and uncertain global economic backdrop are key downside risks to the market, the upside may come from re-rating of Indian equities due to sharp increase in foreign flows as India continues to be one of the high growth regions in the world.

Stock-specific approach

At current market levels, “we do not see any significant pockets or sectors of undervaluation.

“We may need to be more stock-specific in our approach as we step into 2011. As we see inflation as one of the likely risks going forward, we believe that the sectors insulated from inflation-related negatives may out-perform the broader market.”

Mid- and small-cap segments of the market usually move in spurts. The valuation gap relative to the large-cap segment was huge at the start of up-move and hence witnessed sharp rally in mid and small-cap stocks that outpaced large-cap stocks by a wide margin for about a year between mid-2009 and mid-2010.

After this rally, the valuation differential between the two segments has narrowed significantly and the absolute valuations of mid- and small-cap segments have also risen. The markets have already witnessed mid- and small-cap segments underperforming relatively against the large-cap segment by 10-15 per cent in the past six months or so. “From hereon, we believe one needs to be stock-specific even in mid- and small-cap segments as in the broader market,” Mr. Upadhyaya added.

In terms of sectors, consumer durables, pharmaceuticals, industrials, energy and financials are likely to do well, Mirae Asset Global Investment Group stated in a report on Market Outlook 2011. The FII stated that it continued to prefer consumption where trends remain healthy, led by rising incomes, favourable demographics and an easier financing environment.

It sees a shift beyond consumer staples to automobile, media, cable distribution, retailing, healthcare and airlines — all beneficiaries of higher income levels. Increasing rural consumption on the back of higher crop realisations, rising wages and wealth effects through higher land and gold prices, will provide a multi-year theme.

The introduction of a Direct Tax Code will provide further relief to the salaried class and boost consumption. It also prefers pharmaceuticals over consumer staples as the market for Western medicines still has low penetration rates, the domestic industry is estimated to be expanding in the high double-digits per annum, and a huge patent expiry of drugs in the developed markets remains an added demand trigger.

“We continue to like financials high RoEs (return on equity), low NPAs (non-performing assets) as a good proxy on the strong domestic economy, and IT as a beneficiary of strong offshoring trends by global companies to cut costs.” Industrials could be the dark horse of 2011 if the government gets its act together on infrastructure spending and the private sector embarks on capacity expansion after 18 months of strong demand.

“Though in the near-term, it may remain weak on European sovereign debt concerns, we believe any significant correction would be a good opportunity to increase exposure to a long-term growth story like India where demographics, entrepreneurship, free press and development-focussed governance will likely produce a golden period of returns for equity investors in the coming decades,” Mirae Asset Global Investment Group advised investors. However, it alerted that a significant rise in oil prices, a reversal of global liquidity and no up-tick in the investment cycle were the biggest risks to the India story.

Key factors

The key factors behind strong performance in 2010 were strong resilience of the domestic economy during the global financial meltdown, India's demographic dividend, strong consumer demand, less reliance on exports, benign oil prices and strong global liquidity.

Mirae Asset Global Investment Group expects Indian markets to remain strong in 2011 on robust corporate earnings, improving ROE and expectations of strong global liquidity.

A significant upturn in the investment cycle would be the key driver for continuous strong performance.

Source: http://www.thehindu.com/business/markets/article1025316.ece?homepage=true