Investors stay away from 91-day t-bill derivatives

The 91-day treasury bill (t-bill) futures contract, launched a month before, appears to be losing favour with investors. The volumes are down to a pittance as major institutional entities, including banks, are still shying away from the segment. The current market condition is also not conducive for taking a directional call on the interest rates, say experts.

The National Stock Exchange (NSE) launched 91-day t-bill futures contracts on July 4 and the first day saw turnover in excess of Rs 730 crore. The next couple of days also saw the volumes staying above the Rs 300-crore mark. The past few days, however, have seen the volume dropping to one-tenth of the initial days.

On August 1, the volume was a paltry Rs 14.70 crore — the lowest since launch. On most days in the recent past, the volumes have been in the range of Rs 20-40 crore. The underlying market, meanwhile, saw a volume of Rs 740 crore and Rs 175 crore on August 2 and August 3, respectively, according to data available with Clearing Corporation of India.

Corporate houses, which deal in floating rate bonds, are expected to use this instrument to hedge against interest rate volatility. Even the mutual fund industry, which has a lot of debt funds, can use futures on 91-day t-bill for hedging purposes. Banks, however, are expected to be the biggest user as they invest significantly in t-bill as part of their treasury operations. Experts, interestingly, say while the product does not suffer from any inherent flaw, the market condition currently is not ripe for taking a directional call on interest rates.

“Trading has not picked up in the current interest rate environment as the yields have only moved up and players are unable to take call on future. For trading momentum two way quotes are necessary,” says T S Srinivasan, general manager and head of treasury, Indian Overseas Bank. Another head of treasury with a medium-sized private bank said future contracts offer hedge against rate risk. “Players will be inclined take a cover only when there is substantial upheaval in the interest rate. At present, the expectation is of steady upward rise in yields so less reason to buy future on 91-day bill. Also, if one takes cover, the upside gain is limited.” he explained.

The stock exchange, meanwhile, is firing all cylinders to convince more and more players to trade in the instrument, which was seen as a probable game-changer for the interest-rate futures (IRF) segment. NSE has plans to organise awareness seminars across the country in the near future.

“The product will become liquid only when the members are told how to use this product or how to trade in it,” said a senior NSE official. “What is lacking is market development and knowledge. We will conduct seminars to educate our members,” he added.

The IRF segment was launched in 2009 with futures on 10-year government bonds. The contracts were allowed to be settled with delivery of government securities with a tenor between nine and 12 years. The segment, however, failed to enthuse market participants with the biggest fear being that of dumping of illiquid bonds. Market players want the entire segment to be moved to cash-settlement basis, a demand that the Securities and Exchange Board of India is looking into.

Source: http://www.business-standard.com/india/news/investors-stay-away91-day-t-bill-derivatives/444766/

Edelweiss MF launches 'Edelweiss Select Midcap Fund'

The scheme seeks to invest 80% to 100% of the net assets in equity and equity related securities of companies ranked between 101 to 300

Edelweiss Mutual Fund has launched Edelweiss Select Midcap Fund, an open-ended equity scheme, with an objective to generate long term capital appreciation from a portfolio predominantly comprising of equity and equity related securities of mid cap companies.

"The quant model of the fund will help to capture the market trend by analyzing the factors that are currently driving stock performance. It will also make the fund process oriented, adaptive in nature and will result in consistent performance across time periods," said Vikaas M Sachdeva, chief executive of Edelweiss Asset Management Co, in a release.

The scheme seeks to invest 80% to 100% of the net assets in equity and equity related securities of companies falling in Top 101 to 300 companies by market capitalization listed in India, up to 20% of the net assets in equity and equity related securities of other companies listed in India and up to 20% of the net assets in debt and money market instruments. It will not invest in securitized debt.

The new fund offer (NFO) of the scheme opens on 4th August and will close on 18th August. The minimum application amount is Rs5,000. Investors will have the choice of two options growth and dividend. Further, the dividend option offers dividend reinvestment, payout and sweep facilities.

Source: http://www.moneylife.in/article/edelweiss-mf-launches-edelweiss-select-midcap-fund/18630.html

MFs seek clarity on new Sebi norms

Association may take up the issue in today’s meeting.

The Indian mutual fund industry is as much confused as relieved, following the new guidelines from capital market regulator Securities and Exchange Board of India (Sebi) on transaction charges.

Sources said Industry body, the Association of Mutual Funds in India (Amfi), has scheduled a meeting tomorrow to bring clarity on the issues.

“In order to help mutual funds penetrate into retail segment in smaller towns, the distributor would be allowed to charge Rs 100 as transaction charge per subscription. No charge can be made for investments below Rs 10,000. An additional amount of Rs 50 can be charged to first-time mutual fund investors,” Sebi had said in a note on Friday.

But there was confusion among investors when Sebi chairman U K Sinha added: “A transaction charge of Rs 100 will be allowed to be charged. However, if there is a new customer who does not have an existing folio, the charge can be Rs 150.”

Fund players said there was confusion about the transaction charge of up to Rs 150 on the operational front, which needs to be cleared on a priority. They said the confusion was primarily over defining a “new” and “existing” investor. Further, fund managers have sought clarity on whether the transaction charge was only on equity funds or would include debt funds as well.

The chief marketing officer of a large-size fund house, requesting anonymity, said: “There is confusion over the issue of whom should we treat as a new investor and an existing one.” For instance, he said: “If an investor is already invested in ‘A’ fund house and s/he does not have a folio with ‘B’ fund house, if the investor starts investment with ‘B’, should ‘B’ consider it as a new folio or an existing folio?”

“Since, ‘B’ fund house does not have the investor’s folio, it will be a new folio for it. But that investor is not new to the fund industry,” he noted.

Agrees the chief executive officer of another fund house. “The issue is, should we consider a new investor as a new folio from the industry’s perspective or from the fund house’s perspective? In that case, when should Rs 100 be charged as transaction fees and when should Rs 150 be charged?”

The confusion gains importance as out of the close to 40 million retail folio base of the mutual fund industry, it is not necessary that there be 40 million investors. Fund managers say, the actual number of retail investors may not be more than 25 million, as there are several cases where an investor owns more than one folio in one or more fund houses.

Source: http://www.business-standard.com/india/news/mfs-seek-claritynew-sebi-norms/444539/

Disclose sectors you'll shun: Sebi to MFs

Market regulator Sebi today asked mutual fund houses to disclose the list of sectors in which they will not invest the corpus in debt schemes, a move which will help investors take a conscious decision before investment.

"In order to enable investors to make a more informed decision regarding the quality of securities and risk associated with different close-ended debt oriented schemes, it is decided that MFs shall disclose the list of sectors they would not be investing," Securities and Exchange board of India (Sebi) said in a circular.

Henceforth, MFs shall have to disclose the type of instruments in which the debt schemes propose to invest namely Commercial Papers, Certificate of Deposits, Treasury bills.

Earlier in 2009, Sebi had barred mutual fund houses from disclosing the indicative portfolio as well as give any indicative yield for close-ended debt oriented schemes.

But experts said that investors were not getting proper information about the nature of securities in which the Mfs were investing their corpus. Experts had said the move also dented the popularity of these schemes.

In case of Asset Management Companies, after the closure of offers, they will have to report the publicised percentage allocation and the final portfolio in the next meeting of trustees.

"Variations between indicative portfolio allocation and final portfolio will not be permissible," SEBI said.

Source: http://www.financialexpress.com/news/disclose-sectors-youll-shun-sebi-to-mfs/825662/0

Fidelity may shift base from Hong Kong to India

Fidelity Mutual Fund may be forced to shift its trading desk from Hong Kong to India with the capital market regulator, Sebi, deciding that operations of all local fund houses be based within the country. The Indian asset management subsidiary, as well as the FII arm of Fidelity, run their trading desks in Hong Kong, which also serve as the regional trading centre for the US financial services group.

A Fidelity International spokesperson, in response to an ETquery, said, "TheSecurities and Exchange Board of India guidelines, with this mandate, have appeared recently and we are still reviewing them." The Sebi, in a circular after its board meeting on Thursday, directed local mutual funds registered in India to wind up their operations overseas and bring them back here within one year. "All the operations of a mutual fund, including trading desks, unit holder servicing, and investment operations, shall be based in India," the securities market regulator said.

The Sebi has been planning for some time to direct domestic mutual funds to base their operations in India, said a top mutual fund industry official, familiar with the matter. The circular did not spell out the reason for this decision, but mutual fund officials said the step could bring all domestic mutual fund operations under its radar. "This will allow mutual funds better inspection and keep better track of all the operations of mutual funds. If a mutual fund has operations overseas, this is not possible," said another mutual fund industry official.

The Sebi had shot down requests of two fund houses, which recently set up operations in India, to set up trading desks overseas, said a person familiar with the matter. "Local regulators may run into jurisdiction hurdles if they try to actively track trades that happen abroad," said a person familiar with the change in this policy. The new norm also comes in the wake of a Sebi enquiry into the Fidelity Group's trading operations done in shares of several domestic companies last year.

The Sebi, in its observations that it shared with Fidelity, sought clarity on whether the group has put the interests of its foreign institutional clients ahead of the domestic mutual fund investors. "There were multiple trades happening, such as the FII was buying at a different price and the mutual fund was buying at a different price on the same day. Similarly, they were selling at different prices on the same day," said the person familiar with Sebi's observations.

In response to a questionnaire from ET on the matter, Fidelity said it does not buy or sell stocks as an entity, but has individual portfolio managers for each fund. "There will be times when one portfolio manager may buy a particular stock while another portfolio manager may sell the same stock. No stocks have been bought by different FII entities and/or domestic schemes at different prices at the same time," the Fidelity spokesperson said. "Fidelity has in place stringent systems and processes to prohibit access to information including ensuring that trading orders of different funds are not shared internally, avoid conflicts of interest, ensure best execution and above all to ensure that interests of investors are protected at all times," the response said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/fidelity-may-shift-base-from-hong-kong-to-india/articleshow/9437581.cms

Updating your folio: New bank details

We sometimes hear an investor say, “I have changed my bank account and did not inform the mutual fund. I have received a dividend cheque with the old bank details printed therein. Please resend the cheque with the new bank details.”

Credit to an investor account may usually not happen if the account has been closed and the investor has to request for a fresh cheque.

It is therefore imperative to update the current bank details in your folio. We give below a checklist for investors to ensure correct and speedy payout of dividend and redemption proceeds.

Core-banking account number: There could be a change in bank details as an investor's bank may have installed Core-Banking Solutions. Investors should remember to update the new account number.

This can be updated by sending a written request duly signed by the unit holder(s), along with a cancelled cheque leaf with the investor's full account number printed therein, to update the same.

IFSC Code: IFSC or Indian Financial System Code is the electronic address of the bank branch where funds would be transferred. It is an alpha-numeric code containing 11 characters, allotted by the RBI to uniquely identify bank branches in India.

Investors who register their IFSC codes in their folios will be eligible to get electronic payouts through National Electronic Fund Transfer (NEFT) / Real Time Gross Settlement (RTGS). Attach a cancelled cheque leaf reflecting the code, along with a signed request to get the same updated.

Mode of payout: While sending a request to update the IFSC code in the folios, investors may also request for the mode of payout of dividend / redemption proceeds in the folio to be changed to electronic.

Opting for the electronic mode of payout ensures a faster, safer and more definite receipt of payout compared to cheques.

Registration / Deletion of bank account(s): Mutual Funds now offer a facility to individual investors to register up to five bank accounts in a folio.

To register additional bank accounts, investors have to fill in the registration form. Forms are available at the mutual fund websites / service centres. Investors have to attach a cancelled cheque leaf with their name and account number printed therein or a copy of the bank pass book / statement of bank account containing the name and address of the account holder and account number.

This copy should be certified by the bank manager with his / her full signature, name, employee code, bank seal and contact number.

Registering for this facility enables you to receive redemption proceeds into any one of the registered bank accounts of your choice without having to provide for bank details and the supporting documentation at the time of redemption.

A point to note is that mutual funds now have a cooling period before payout of redemption proceeds if an investor opts for a change in bank details at the time of redemption. Some funds may even not process a change in bank details if requested along with redemption.

The same form used for registering additional bank mandates has a section for deleting a bank account and investors should ensure that accounts not in use are deleted.

Default Bank Account: At the time of registering multiple bank accounts, investors have to specify any one bank account as a ‘Default' bank account. Dividend proceeds are processed only into this ‘Default' bank account. Investors may specify any of the bank accounts for the credit of redemption proceeds. If no account is specified in the redemption request, redemptions will be processed into this default bank account.

Source: http://www.thehindubusinessline.com/features/investment-world/mutual-funds/article2308792.ece

Regulating investors is not Sebi's job

In the tumultuous years of the early 1990s, a time when exchange liberalisation was followed by one of India's biggest financial scams, there was a bit of passing the parcel game going on. While foreign money was welcome, it had to go through a gate. TheSecurities and Exchange Board of India (Sebi) was given the parcel of registering foreign institutionalinvestors (FIIs) in the Budget of 1992-93 not out of any philosophy but merely as a regulator who was somehow concerned with investors and capital markets.

This handing over of the mandate, if analysed, does not go with Sebi's mandate of regulating the market, developing the market or of protecting the interest of investors. While few people give it second thought, it is not the mandate ofSebi to regulate investors but it's rather to protect them. Further the mandate of protecting investors is not restricted to Indian investors but all investors. This is sensible because protecting all investors will further the cause of developing a well-regulated capital market which gives importance to corporate governance and accountability to shareholders.

The muddled regulations of FIIs andventure capital (VC), though born in 1992, arise from amendments made in 1995 to Sebi Act and this muddle is clear from the unclear language of the Act. Section 11 talks of registering and regulating "Foreign institutional investorsa¦and such other intermediaries" as may be specified. FIIs are investors and not intermediaries like brokers, merchant bankers, etc.

Doing violence to the language also does violence to the philosophy of why Sebi was set up. Similarly the same section also speaks of registering and regulating "venture capital funds and collective investment schemes, including mutual funds". Of course, mutual funds are neither collective investment schemes nor venture capital funds. In the same light, venture capital funds are pools of investors rather than intermediaries and don't need to be regulated.

So are there arguments in favour of Sebi registering and regulating FIIs? There are, though they don't hold water. The first argument is that Sebi needs to regulate large foreign investors because they have the ability to disrupt Indian capital markets with their huge cash inflows and outflows.

This can be dismissed in both theory and practice. It is not Sebi's mandate to regulate the inflows and outflows in the market. In addition, once anFII is registered, it has in fact no controls on how much money it can invest and how much it can take back the next day, which could be done by theReserve Bank of India (RBI) under exchange control regulations.

The second argument is that FIIs could be a vehicle for money laundering. Again, both the theory and practice refute this argument. Foreign money comes into India through banking channels and theRBI imposes strict money laundering restraints on the banking system. Having a second regulator does not add useful service to this remit.

rguments can also be made that Sebi provides important disclosure standards for participatory notes and other second-level investments by FIIs on others' behalf. Whatever disclosure standards that Sebi imposes can well be imposed by the central bank in a single window system of exchange control rather than create a pointless registration process with a second regulator.

Similarly, regulating venture capital is also not ideal. But the issues relating to VCs are more nuanced. Venture capital funds are pools of money contributed by sophisticated investors which are managed by a professional manager and invested mainly in highly risky unlisted equity and hybrid securities.

Sebi has two sets of regulations - one for foreign VCs and another for domestic VCs. In both, there are extensive sets of investment restrictions which prohibit, for instance investing substantial amounts in listed equity. In return, Sebi and the income tax authorities grant it certain beneficial treatment and tax exemptions. The unstated rule is that registering as a VC is optional and if one is willing to register and take on the investment restrictions, then one is entitled to certain benefits.

In addition, Sebi's investor protection mandate also comes into play as investors in the domestic VC are majorly Indian investors who need the regulator's protection. Sebi imposes a minimum investment of Rs 5 lakh per investor in a domestic VC to ensure that only sophisticated investors enter this high-risk investment arena.

While having optional registration is a welcome move, it would be useful if Sebi could make that a formal position stating the same. In addition, in order to prevent unsophisticated investors from entering this gladiator's arena where few investee companies do well or even survive, a threshold limit of Rs 5 lakh is too low and should be increased many fold to prevent unsophisticated investors from burning their fingers. Such a regime would serve the needs of investor protection remit of a securities regulator rather than serving as a shadow foreign exchange controller.

Source: http://economictimes.indiatimes.com/opinion/guest-writer/regulating-investors-is-not-sebis-job/articleshow/9402863.cms?curpg=2