De-jargoned: trigger

What is it? What does it do? What to do with it? Who offers it?

What is it?
Suppose you invest in a mutual fund (MF) scheme at a net asset value (NAV) of Rs10. Your target is Rs15. Time goes by and you soon forget about it. Before you realize you have already reached your target, markets turn volatile, your NAV falls to Rs11 and you have missed your chance. Is there anything you could have done to avert this? Enter Trigger.

What does it do?
Through this facility, you can pre-set a target and opt for an automatic redemption or at least get a reminder once you reach the target. You can set your target in your application form at the time of investment. Most MFs offer targets in terms of NAV or Sensex or Nifty levels or gains in the total corpus.

What to do with it?
You can either choose to get reminded once your trigger gets activated or you could tell your fund to automatically redeem your corpus. Further, instead of getting cash in your hands, you could opt for an automatic switch from, say, an equity fund to a liquid fund. This books profits and yet continues to earn liquid fund returns.

Who offers it?
Initially, a few MFs such as UTI and Principal used to offer it. Now many MFs such as Birla Sun Life, HDFC and Reliance offer it. This facility is not compulsory and it will depend on the customer whether he wants to opt for it. So if you choose a reminder trigger, you may still continue to stay invested. Nothing changes and life goes on.

Source: http://www.livemint.com/2009/12/07220826/Dejargoned-trigger.html

Buying, selling and keeping funds just got simpler

Life on the mutual fund (MF) street is never going to be the same again. After the market regulator, the Securities and Exchange Board of India (Sebi), allowed MFs to be traded on the stock exchanges, the number of Indian cities where you can buy and sell MFs have gone up to about 1,500, up from about 300.

Most MFs take time to expand into India’s hinterlands, partly because of the cost of setting up new branches, but mostly because they prefer to focus on the metros and Tier-I cities to get an easy access to corporate money.

The move to list funds comes barely three months after Sebi abolished entry loads on MF investments. Entry loads were charges, typically 2.25%, that MFs impose at the time of investing. These were eventually passed on to our agents as commissions. These changes won’t immediately impact you in terms of a gain or loss, but they will eventually change the way you buy and sell your MF.

Buying from exchanges
Although all MFs are not yet available at both the stock exchanges, it’s only a matter of time before that happens. Stockbrokers, too, are signing up. If you already have a demat account, you can simply pick up your phone and place an order with your broker to buy a scheme that you want to buy, just the way you would buy an equity share. If you don’t have a demat account, you could walk into any broker’s office with forms, Know Your Customer details like an address and signature proof, PAN card copies and invest.

Apart from buying equity and debt schemes, you’ll get a consolidated account statement across your equity and MF holdings. At present, liquid funds and systematic investment plans are not available on stock exchanges. But that’s only temporary. Remember that your broker needs to be certified by the Association of Mutual Funds of India (Amfi) and has to apply for the trading platform.

Saving costs
Every time your MF sends you account statements, it incurs a cost. The same goes for printing application forms. Now, since you can place an order to buy or redeem your units over the phone, you don’t need to fill any forms. MFs also need not send separate account statements, since your MF holdings, as per the new Sebi norms, will get reflected in the statement that your depository participant sends you.

Back of the envelope numbers show that if the top 15 MFs incur about 2,500 transactions each a day, the total cost incurred to print and dispatch them, assuming the cost of dispatch per statement is Rs15, would amount to about Rs14 crore. Now if only, say, 30% of these transactions shift to the stock exchange, MFs can save about Rs4.22 crore.

Take the case of new fund offer applications. Assuming 40% of the total transactions happen through new funds and accounting wastage of paper in filling up new forms (assume each investor wastes five forms before getting it right), the top 15 funds spend about Rs28.12 crore. Again, if, say, 30% of these transactions shift to the stock exchange, MFs can save about Rs8.44 crore.

That is not all. At present, MFs are mandated to send an account statement once a year even if the investor has not bought or sold a single unit. On this count, too, the top 15 MFs spend Rs264.16 crore annually. Again, if 30% of the transactions were to move to the exchanges, MFs gain Rs79.25 crore.

Says Amit Trivedi, CEO, Karmayog Knowledge Academy, a Mumbai-based MF training institute, “MFs can either plough the savings back into business or into investor education.”

Lower fees
The fund houses may not pass on the savings to you, just yet. The 2.5% charge that equity funds impose on you every year—from which they partly recover their marketing, selling and fund management costs—has little scope to drop further, experts say. Maju A. Nair, associate vice-president (distribution), Sharekhan Ltd, says: “Fund houses will prefer to plough back the savings into their businesses.” Here’s why.

With Sebi banning entry loads, distributors are now supposed to charge a separate fee from the investors. As a result, distributors’ income has taken a hit. In a hurry to compensate them and to ensue they keep pushing funds, many MFs have started paying them out of their own pockets. An industry that has historically suffered low profitability is expected to be further hit since the number of retail folios has not grown much.

The cost that you pay to your agent is expected to drop, though. First, your agent can no longer charge the maximum 2.25% that funds used to charge earlier. The price that your agent will charge you will now depend on the quality of service he can offer you. Second, stockbrokers may not charge you brokerage, at least in the first few months. Says Rakesh Goyal, head (distribution), Bonanza Portfolio Ltd, a Mumbai-based financial services company, “Since MFs pay us upfront as well as trail fees, there isn’t much merit in charging a brokerage fee.”
Challenges

With misselling common in the MF industry, there’s a concern whether stockbrokers would be able to dole out the right advice on funds. “I doubt if stockbrokers are equipped to distribute MFs,” says Prithvi Haldea, managing director, Prime Database, a primary market monitor. Ashu Suyash, CEO, Fidelity India Asset Management Ltd, disagrees. “It’s not fair to generalize. We see stockbrokers offering MFs,” he says. Your neighbourhood distributor may vanish if he doesn’t pull up his socks and begin to do more than just collecting your signature. As stockbrokers are now allowed to sell MFs along with equities in dematerialized form at low costs, small-time distributors will have to offer you more value for your buck, such as quality advice, services like periodic statements, pick and drop of forms and cheques and regular meetings. The other option for them is to turn to financial planning and help investors channelize their income, plan their taxes and borrowings.

Money Matters says: Keep a close watch of what your mutual fund vendor charges you. Your costs should be coming down. And remember, the way you buy and sell funds will change soon. Keep reading Money Matters and we’ll keep you on top of events and changes as they occur. This industry is currently in transition.
Source: http://www.livemint.com/2009/12/08213202/Buying-selling-and-keeping-fu.html

MF NFOs won't create excitement: Value Research Online

In an exclusive interview with CNBC-TV18, Dhirendra Kumar, Chief Executive Officer, Value Research Online, discusses the upcoming mutual fund NFOs (New Fund Offers) and give his outlook.

Q: After some time there are quite a few NFOs (New Fund Offers), which have opened up. Do you think this will meet with a lot of interest and subscription from the general public because flows into mutual funds after recent regulation changes have been quite tepid?
A: No, I don’t think that the good days are back yet. I don’t think investors are getting as excited about NFOs as they used to be in second half of 2007 or early 2008. Also the economics of selling funds has changed, as we don’t have the earlier kind of incentives, which will drive a fund salesman or an advisor to get after investors to persuade them to invest. Apart from that, I think there have also been marked change that we don’t have plain vanilla funds, which pretend to be different and they are being launched. The fact that the quality of NFOs are clearly differentiated except for this asset mutual fund, which is launching a plain vanilla equity fund and Securities & Exchange Board of India (SEBI) has also put some brakes on NFOs by asking that how it is different from earlier funds and asking demanding funds to differentiate from their existing funds. That is one, the economics has changed. So I don’t visualize that the mutual funds will actually come back with the same force as they came a year and a half back.

Q: Do you sense general retail investor apathy because there is equal disinterest in the primary market as well, if you speak to a couple of retail investors they are not excited about initial public offerings (IPOs) etc?
A: No, I don’t think retail investors were ever excited about NFOs. Retail investors where we persuaded, mutual funds have sold when it comes to NFOs because you have nothing else and many are trying, investors get excited only when the market go up. This time around the apathy to existing funds sales or NFOs is primarily because the market went up very sharply in a brief period. Most investors are still in a mode of walking away because a large number of first time investors came in 2007 and early 2008 and now they are breaking even. Association of Mutual Funds in India (AMFI) numbers also reflect that there has been a sustained outflow of funds from existing funds, which is primarily from disenchanted investors, who came in mutual fund for the first time, they lost money, now they are recovering and they are thinking of squaring up.

Q: One fund is from Sundaram BNP Paribas which is a public sector undertaking (PSU) opportunities fund, Religare just closed up one pretty successfully, do you like that theme?

A: Yes it is interesting, it is differentiated but I think that you have a quality universe there. It is possible to build a diversified portfolio but it is not a truly diversified portfolio and it cannot be built because it will have a tilt. The big value unlocking in PSU happens when government decides to sell it off than actually disinvest, it is the resource mobilization exercise and I don’t think anything changes in the company. Not only that the money does not land into company, it goes to either consolidated fund of India or wherever with whatever objective. So I would say that despite a quality universe, I don’t think it presents a compelling choice and it will be a fund for the long haul; I don’t think it is an idea which is slipping away anyway. I would say that nothing stops an existing fund to tilt their portfolios to PSUs if they want to.

Q: What about something like a World Mining Fund from DSP Blackrock? How much of an attractive proposition does that sound like?
A: I think it is a niche fund and it will be an appeal to investors, who have a large portfolio and this is the only novelty in the current range of offerings today. I would say that this is a unique exposure for investors, with a large portfolio can have. This fund actually has a very compelling history and has delivered superior risk-adjusted performance because though NFO, for Indian investor it is not a new fund. I would say that the added dimension of the currency risk dampens it a bit. But for its novelty, it is worth consideration for a large investor, who has a fairly well diversified portfolio spread across all market segments.

Q: Do you think Fidelity’s name will attract investors or this one to you think might just meet with lukewarm response?
A: Fidelity name will attract investors, not only that I think Fidelity will manage its Value Fund with purity. We have a semi-value fund in different shapes, the dividend yield funds about 8-10 of them and the Contra Fund, they approach Value in a different way with a different definition. But there is a contradiction in running a Value Fund in the open-end structure. You will get money then you won’t get value and when there will be compelling value, you won’t get money. Not only that this fund will require patience and the fund mandate is that it will never be more than 10% into cash. So I find that despite this contradiction, statistics show that Value works and Value works over a long period of time whether it works in open-end fund structure, I think the jury is still out.

Q: Is it true that Axis Mutual Fund has become extremely aggressive in the mutual fund market and in that how do you think their NFO will do?
A: Based on my personal experience being Axis Bank customer that this fund will raise money because I haven’t seen the kind of initiatives seen by Axis bankers getting after their customers, with sheer reach of Axis Bank they will be able to do so. This is the only opportunity they can do it because after a point they will be asked question why one should invest. Today they can do without it and they don’t have to answer that. So I think this fund will succeed in raising money and rest we have to see. When it comes to choosing – of course this is the kind of fund where investors have ample choice, investors have a wide array of funds to choose from the diversified equity fund universe compelling history and now we have fund with fifteen-ten year history and atleast 50 of them to choose from.

Source: http://www.moneycontrol.com/news/mf-interview/mf-nfos-wont-create-excitement-value-research-online_429615-1.html

SEBI heat forces funds to revive PMS

Portfolio management service (PMS), a business that was largely ignored by many asset management companies (AMCs), is back on their radar. While many fund houses, which already have PMS arms, are looking to revive this business, new entrants in the mutual fund industry such as Canara Robeco, Shinsei Asset Management and Axis Asset Management are gearing up to start this service meant for wealthy clients.

The reason for enthusiasm among fund houses to revive or launch these specialised fund management services goes beyond just providing exclusive services to clients, said industry officials and distributors. These moves find their roots in the recent SEBI clamp-down on distributor commissions from August, which resulted in the reluctance to sell equity schemes, causing a significant dip in asset growth. Some large fund houses have found that PMS is a better tool to keep distributors in good humour, as it is largely free from the market regulator’s purview. And smaller players in the industry have been quick to follow suit.

“The industry is seeing the PMS route as a way to remunerate distributors nowadays, as there is lot of scope for better pricing here,” said a top official of a private fund house, which is believed to run the largest PMS business among mutual funds. PMS providers are not required to disclose their assets or returns from schemes, unlike mutual funds schemes.

Mutual funds are asking distributors to push their PMS products that have a potential to earn them a higher commission. Despite being a low-volume business, distributors are not complaining as they have been deprived of commissions from selling mutual fund schemes since August after SEBI banned fund houses from charging an entry load from investors.

Officials of the new mutual funds, which are likely to start this service soon, do not agree with the contention that the PMS business is being launched to remunerate distributors.

“The intention to launch PMS is not only to have a free hand in fixing fees and remunerating distributors, but to mainly provide our specialised expertise in fund management to our clients,” said Avinash Ramnath, national sales-head, Canara Robeco Asset Management.

“The intention to launch PMS is part of our plan to service offshore mandates and have an advisory business... A free hand in distributor fees is not our intention to launch it,” said Sethuram Iyer, CIO, Shinsei Asset Management. Officials of Axis Asset Management could not be reached.

Source: http://economictimes.indiatimes.com/SEBI-heat-forces-funds-to-revive-PMS/articleshow/5316984.cms