Fear grips the market again; what should you tell your investors?

Concerns over a possible Greek exit from the euro-zone and a lacklustre Indian economy have given Indian markets a double whammy. The Finance Minister’s announcement that austerity measures are needed has only added to the anxiety. In these tough times, what should you tell your investors? Read on to find out what top industry officials are saying.

Rajiv Anand, MD & CEO of Axis Mutual Fund, recommends that investors should invest through equity diversified funds and increase allocation to SIPs.

If you don’t think that India is going to grow at 7%, then you should buy fixed income. If you think that India is poised for a 7% growth then there is huge amount of value in stocks currently. If you want to build a high quality portfolio for the long term, then I think the market is providing you that opportunity now. If investors stay invested in diversified equity funds then they can’t go wrong.

Every year there is a different event. Events come and go. Today we are talking about Greece and in a year we’ll talk about some other event. Yes, there is no denying that there are issues in Europe but investors are probably not seeing that commodity prices have come down globally and are expected to fall even further. This is positive for India. Over a period of time that will percolate into the Indian economy.

We have heard distributors complaining that SIPs have not performed when there was a secular market upturn from 2003 to 2008. Now when the markets are falling people are complaining that they are not getting any returns. SIP is about disciplined investing and you need to eliminate emotions from investments. I would urge that investors should increase allocation in SIPs. Have faith and patience and you’ll be rewarded.

Ravi Gopalakrishnan, Executive Director, CIO–Equity, Pramerica Mutual Fund, suggests staying with large caps.

Volatility will continue for some more time. Apart from the global uncertainty we have our own problems as well. So it’s a double whammy. The European situation needs to stabilise, at least momentarily. Strong actions particularly on the reforms side are needed.

SIPs should always continue. Equity will remain to be the best asset class over the medium to long term. Markets only allow opportunities during these uncertain times. I would advise investors to look at diversified large cap funds because any recovery in the market will reflect in large cap stocks first. If there is any further uncertainty large caps are better placed to tackle volatility.

Debashish Mallick, MD & CEO of IDBI Mutual Fund, says that investors can look at index funds if they face difficulty choosing stocks.

Investors with risk appetite can invest in equities now through diversified funds. I would suggest steering clear from sector or thematic funds. SIPs should continue. Lump sum investment can also be done over next three months or more. At this juncture index funds also look good because the broader market has gone down. If you are unable to choose which stock to invest in, index funds are ideal.

Source: http://www.cafemutual.com/News/InnerNews.aspx?srno=1379&MainType=New&NewsType=Industry&id=21

Should investors abandon equities for good?

Things are really bleak. Most investors haven't made any money in the past five years from the market. That is why it is very difficult to convince them about the long-term prospects of equity at the moment," says the head of a large mutual fund in a rare moment of candour.

"If they are willing to listen, I can still try to convince them that the current trend is an exception, not the norm. Probably we are witnessing one of the darkest periods in history," he adds.

There are many market participants - investment consultants, mutual fund officials and distributors, financial planners and so on - who share his bleak view.

The trouble is the situation is partly their creation. Not long ago, the same people were telling investors that long term means three years in the market. And they would also add in the same breath that stocks would beat all other asset classes in the long term.

Investors interpreted the message like this: if you invest in stocks for three years, you never lose money. In fact, you make a pot of gold.

However, things have changed. Investors are not so naive anymore. They have seen that their investments haven't returned anything in the last few years. As for the experts, they can't offer the same lines anymore to the harried investors who have lost or at best made single-digit returns from the market in the "long term".

Worse, some of these investors are not even ready to listen to any amount of reasoning. They have mostly made up their mind that they are better off with conventional investment avenues like bank deposits, bonds and so on. They have already parted company with the stock market or are in the process of doing so.

The trend was in the making for a long time, confirmed by outflows from mutual fund schemes and the lower number of systematic investment plans (SIPs) in the recent past.

"Yes, we face similar questions. But I try to tell them that they are speaking with the benefit of hindsight. But we didn't know at that time that the stock market would behave this way or the bank FDs and bonds would give this kind of returns," says Suresh Sadagopan, founder, Ladder7 Financial Advisories.

"Despite so many point-to-point comparisons doing the rounds about underperformance of equity, long-term historical data proves that equity beats all other asset classes. So the theory that you should take the stock market route to meet your long-term goals still stands," he adds.

How long is 'long term'?

That brings us to the million dollar question that investors are asking the so-called experts: How long is "long term".

"I believe five years can be counted as long term, even in the current scenario. I try to make them understand that they shouldn't panic at the current situation because this is highly unusual. Typically, we see the Indian stock market moving cyclically every three years," says Hemant Rustagi, CEO, Wiseinvest, a wealth management firm.

Source: http://economictimes.indiatimes.com/personal-finance/savings-centre/analysis/should-investors-abandon-equities-for-good/articleshow/13178968.cms

ICICI Prudential Mutual Fund Introduced SIP Insure

In a bid to provide both investment and life insurance cover for investors, ICICI Prudential mutual fund has introduced SIP Insure.

SIP insure is an add-on, optional feature available across 16 equity schemes of ICICI Prudential mutual fund. The cost of the insurance will be entirely borne by the Asset Management Company. No additional documents or medical tests will be required. However, investors only have to fill-up some details.

Feature will have uniform insurance cover. In the first year, the insurance cover will be ten times the monthly SIP installment. In the second year it will be fifty times the monthly SIP installment. From the third year it will be hundred times the monthly SIP installment. However, it will be subject to maximum insurance coverage of Rs 20 lakh a investor.

The life Cover will continue even if SIP stops. Minimum entry age is 18 years while maximum entry age is 46 years. The cover will continue up to the age of 55 years.

Source: http://www.policymantra.com/blog/news/3633-icici-prudential-mutual-fund-introduced-sip-insure.html

MFs assets shrink further, but don’t blame the entry load ban

Assets under management by Indian mutual fund houses breached the Rs 6 lakh crore mark in March 2012 on the downside, plunging to Rs 5,87,217 crore, while investor folios registered a decline of 7.2 lakh over the  September 2011 -March 2012 period,  according to data released by the Association of Mutual Funds in India.

Many in the mutual fund industry have blamed Sebi’s 2009 ban on entry loads – the charge deducted from your investment to pay for distribution costs – as the prime reason for this shrinkage. With little incentive to push mutual funds, sales of new units have fallen.

According to Crisil Research, mutual funds have lost close to eight lakh folios in the last fiscal. Many retail investors stopped their systematic investment plans (SIPs) and have  redeemed their fund investments as the equity market declined over 11 percent last year. The Reserve Bank order restricting bank investments in mutual funds to 10  percent (of their respective net worth) resulted in a 77 percent drop in bank folios, said the report.

Against this backdrop, the industry is hoping Sebi will reintroduce the entry load. A Mint article list three reasons for entertaining this hope:

“First, the industry claims MF folios have reduced, indicating that investors have moved out. Second, asset management companies (AMCs) aren’t making enough money and Fidelity Worldwide Investment’s sale of its Indian arm is being seen as some sort of endorsement to what they claim has made the MF industry unviable. And third, MFs claim that inflows have fallen, which means that investors simply aren’t investing in MFs, especially equity funds.”

But can the blame for the industry’s recent woes be laid at the door of a single investor-friendly reform measure?

Many experts believe that restoring the industry’s fortunes by bringing back the entry load could be a miscalculation. The end of entry loads (which could go upto 2.25 percent) improved the investible corpus and initial net asset values of investors. If marketed well, this should have got mutual funds more investors, not less.

The example of no-commission airline ticketing is illustrative. “Take the example of Air Asia, which is doing phenomenally well even without middlemen and agencies like makemytrip.com or yatra.com. A few years ago travel agents were fat cats, getting a lot of commission for tickets. Then came e-commerce and now  tickets are mostly booked on the net wherein commission is cut out and tickets are priced cheaper.  The mutual fund industry works the same way. Cut out the middleman’s charges and the business will still flourish,” an investment advisor told Firstpost.

Agents should be compensated for marketing and distribution through a system called high trail commission. For example, if an investor holds a fund for 10 years, then the agent should be credited by the fund for holding on to that client folio. This Trail Commission ensures that agents provide service on a long-term basis to investors, which discourages fly-by-night operators whose basic intention is to sell a product on a one-time basis to earn higher commission, explained a broker, on condition of anonymity.

To resume entry loads will surely be seen as a retrograde step that eats into investors’ savings and fattens the wallets of AMCs and their distributors.  However, the ban should have been carried out in a phased  manner. HN Sinor, chief executive of the Association of Mutual Funds in India, recently said  that Sebi made a mistake by implementing the entry load ban in a ‘cut-and-dried manner.’

Moreover, MF folios have not fallen only because of the entry-load ban. High bank deposit rates, a volatile, range-bound equity market, and uncertainties over ELSS  ( equity-linked-saving scheme) funds  due to the Direct Tax Code overhang is what has actually led to a fall in inflows in the last one year. Further, tax-free infrastructure bonds, which offer assured returns at a fixed rate, turned out to be a major draw, attracting inflows from investors as opposed to ELSS schemes.

“Based on returns and uncertainty in the global and local markets, investors have switched from equity to debt and gold— all mostly with plans with the mutual industry itself. The current diminishing assets under management are mirroring global uncertainty,” an ICICI Bank wealth manager told Firstpost.

Also the mutual funds sector saw high net worth individuals (HNIs) pulling their money out of the equity schemes of mutual funds in 2011-12 due to the bear market scenario. Clearly when the market goes down, high net worth investors  (HNIs) shift money to safer havens like tax-free bonds and term deposits.These instruments bear a coupon rate exceeding 9-9.5 percent on an annualised basis, making them more attractive than equity funds.

And not just HNIs, even domestic institutional investors  have opted to park money in gold funds ( these have gone up almost 30 percent in one year) as returns from equity have been negative for the last two years now.  Hence, even if equity markets have fallen, retail investors have found solace in fixed maturity plans that usually give a positive return of 9 percent plus on an annual basis. According to this Mint study, FMPs have almost doubled since September 2009.

Many asset management companies  that run mutual fund schemes merged their schemes last year, which was also one of the major reasons for decline in the number of folios. The mutual fund industry witnessed around 45 mergers in 2011-12 compared to only 58 mergers between 2006 and 2010.

Hence, a boost to the mutual fund industry can only come when equities start delivering superior, risk-adjusted returns. The current gloom suggests one might be better off holding on to cash, gold or property.

Source: http://www.firstpost.com/investing/mfs-assets-shrink-further-but-dont-blame-the-entry-load-ban-310103.html

Fund Performance: Worst Equity Funds

Schemes from JM Financial, LIC Nomura and HSBC have done disastrously

In the three-year period ending March 2012, the Sensex went up from a low of 9,708 to 17,404, providing an impressive 21.48% annual compounded return. Equity funds may or may not do well in a sideways market, but if they have not made good money in a bull market, it is a huge disappointment. Which are these laggards?

In the list of the bottom 15 mutual fund schemes, there are three schemes each from HSBC Mutual Fund, JM Financial Mutual Fund and LIC Nomura Mutual Fund. HSBC has been a horrendous performer. None of its seven equity schemes was able to beat the benchmark. HSBC Progressive Themes Fund, which invests in predominantly mid-cap and small-cap stocks, managed to deliver just 10.80% returns, less than half of its benchmark BSE 200 which returned 23.68% in the same period. HSBC Dynamic Fund and HSBC Equity Fund fared poorly as well.

LIC Nomura Mutual Fund has often figured in our list of underperformers. Four of its five equity schemes have underperformed; three of these are present in the bottom 15. Only LIC Nomura MF Growth gave a return of 21.72% compared to its benchmark S&P Nifty which returned 20.57%.

All the four funds of JM Financial Mutual Fund, which we had labelled as the worst Indian fund house, have grossly underperformed as well. JM Multi Strategy Fund and JM Basic Fund underperformed their benchmarks by around 10 percentage points each.

Reliance Mutual Fund’s schemes were top performers at one time. Some schemes are doing well but Reliance Equity Fund made it to the bottom of the list with a return of just 10.93%. Three of Reliance’s 10 schemes underperformed the benchmarks. Reliance Top 200 Fund returned 21.93% and Reliance Natural Resources Fund returned 17.50% while BSE 200 which is the benchmark for these funds gained 23.68%.

Another disappointing performer is IDFC Mutual Fund. IDFC Premier Equity Fund has been among the top performers since its launch in September 2005. However, in the last three-year period, just three of IDFC’s seven funds managed to beat the benchmark. IDFC 50:50 Strategic Sector Equity Fund made it to the bottom of the list with a return of just 15.67%. The other three funds which underperformed their benchmarks include IDFC Classic Equity Fund, IDFC Imperial Equity and IDFC India GDP Growth, all of which returned 17%-18% in the three-year period.

The funds of Religare Mutual Fund, most of which were launched in 2007, have not been consistent performers. However, two schemes, Religare Mid N Small Cap Fund and Religare Mid Cap Fund, made it to the top 10 performers’ list with returns of 40.63% and 38.89%, respectively. At the same time, Religare AGILE Fund, a large-cap oriented fund, returned just 14.21% and came at the bottom of the list.

When UTI Contra Fund was launched in March 2006, we had said that it was a marketing gimmick and, hence, asked you to stay away. It mopped up a huge Rs1,200 crore from nearly 270,000 investors. Investors who are still invested would be sad to see the Fund in the bottom 15 list having returned just 16.14%. Out of the 13 funds of UTI Mutual Fund, five have underperformed their benchmark.

ING OptiMix Multi Manager Equity Fund managed to return just 16.80%. The other four funds from the fund house managed to give an average return of 28%. DWS Alpha Equity Fund returned just 16.13% and the only other fund from Deutsche Mutual Fund, DWS Investment Opportunity Fund returned 17.26%

Source: http://www.moneylife.in/article/fund-performance-worst-equity-funds/25715.html