SEBI proposes change in PMS fee model

The Securities and Exchange Board of India (SEBI) has proposed that portfolio management service (PMS) firms should charge profit sharing/performance related fees on the basis of high water mark principle.

In a consultative paper issued on July 27, the market regulator said that once the portfolio rises to a certain peak and the portfolio manager charges fee for it, the next time he could charge a fee only if the portfolio value is above the previous peak.

For example, consider that frequency of charging performance fees is annual. A client’s initial contribution is Rs 10,00,000, which then rises to Rs.12,00,000 in its first year, a performance fee/profit sharing would be payable on the Rs 2,00,000 return. In the next year, the base value of the portfolio becomes Rs 12,00,000 and the portfolio manager can charge fee only if the portfolio rises above Rs 12,00,000. If in the second year, the portfolio drops to Rs 11,00,000, no performance fee would be payable. If in the third year the Portfolio rises to Rs.13,00,000, a performance fee/profit sharing would be payable only on the Rs1,00,000 profit which is portfolio value in excess of the previously achieved high water mark of Rs 12,00,000.

For the purpose of charging performance fee, the frequency should not be less than quarterly.

In case of partial withdrawal of funds by investors, all fees and charges should be charged proportionately and the high watermark should be adjusted accordingly.

The regulator further said that in order to ensure transparency and adequate disclosure regarding fees and charges, the client agreement should contain a separate annexure that should list all fees and charges payable to the portfolio manager.

“The client is required to separately sign the annexure on fees and charges and add in his own handwriting that he has understood the charge structure,” SEBI said.

Head of the PMS group of a mutual fund house said on the condition of anonymity that it is good step towards bringing more clarity on the issue of fee. “Investors would certainly benefit if there is more clarity on such issues,” he added.

Source: http://new.valueresearchonline.com/story/h2_storyView.asp?str=101395

Fund managers' reaction to RBI rate hike

RBI has raised key rates by up to 50 bps. Check out what the fund managers have to say.

Navneet Munot, chief investment officer, SBI Mutual Fund

The rate hikes underscore the strong demand in the economy. The investment cycle is showing strong signs of picking up, as there are capacity constraints in most sectors. Going forward, investment will be a bigger driver of growth than consumption.

Krishna Sanghavi, head of equities, Kotak Mahindra AMC

There is no doubt about the growth in the economy. And the rate hikes were very much in line with expectations. But from a stock perspective, the more crucial issue is whether the growth in corporate earnings will meet market expectations.

Anoop Bhaskar, head-equity, UTI Mutual Fund

The rate hikes don’t change our view on (shares of) interest rate-sensitive sectors. In India, demand for consumer loans is influenced more by availability, rather than cost of funds. As long as income visibility is good, there will be strong demand for retail loans

Anand Shah, head-equities, Canara Robeco AMC

The message from the RBI to banks is clear: be less aggressive in lending. Banks with a better CASA ratio and strong branch network will benefit in a scenario, where cost of funds increases. At the same time, NBFCs could be adversely hit.

Vetri Subramanium, head-equity, Funds Religare AMC

The monetary policy clearly signals that RBI is more worried about containing inflation at the moment. We expect more rate hikes — 75-100 bps — over the next nine months. The net interest margin of banks could shrink due to flattening of the yield curve

Source: http://economictimes.indiatimes.com/news/economy/policy/Fund-managers-reaction-to-RBI-rate-hike/articleshow/6225237.cms

RBI may hike repo by 25 bps, reverse repo by 50 bps: Mint

In an interview with CNBC-TV18, Tamal Bandyopadhyay, Deputy Managing Editor, Mint spoke about today’s RBI meet and his reading of the likely outcome from it.

Below is a verbatim transcript of the interview. Also watch the video.

Q: A poll conducted by us among bankers finds that a majority expect a 25 bps hike in the key policy rates tomorrow. Which camp are you part of?

A: I would also largely think on that line—25 bps at least. But where I differ with the bankers is when most of them are expecting a 25 bps each—both in reverse repo and repo—but I would think this is a time to narrow the corridor, which means 25 bps repo, but 50 bps for reverse repo. The logic behind this is repo is a rate at which RBI infuses liquidity in the system. So when you have tight liquidity repo the upper end becomes a rate but when the liquidity is ample or sufficient in the system then reverse repo rate becomes the policy rate.

If you are absolutely sure that from now on the liquidity will continue to be tight everyday then it makes sense to have an identical hike on both the policy front but if the liquidity returns for few days then the reverse repo becomes the rate and at that time you find reverse repo is too low a rate. Ideally, it should hike the reverse repo by a higher percentage points say by 50 bps and repo by 25 bps, I will not be surprise if that happens.

Q: If any of these possibilities happens would that lead to an immediate HIKE in lending rates by banks?

A: This will be a real test for the base that the banks introduced in the beginning of July. Ideally they should but many banks have been saying till not the credit growth has not been the kind of credit growth they were expecting which is quite surprising because overall the industry goes 21% odd but quite a few banks have been saying that credit growth is not been that much and on the other side of it the kind of indirect pressure that comes from government and other not to hike the rate immediately.

So if it’s a 25 bps hike maybe they would wait till according to them the credit actually picks up a few weeks before taking a call, there may not be any immediate hike, that’s possible.

Source: http://www.moneycontrol.com/news/economy/rbi-may-hike-repo-by-25-bps-reverse-repo-by-50-bps-mint-_472588.html

Sebi's good intentions crippled the Great Indian Mutual Fund

On August 1, 2009, nearly a year back, the Securities and Exchange Board of India (Sebi), the stock market regulator, banned mutual funds from charging entry loads.

Mutual funds used to typically charge an entry load of 2.25% of the net asset value of a schemeand use that money to pay agent commissions.

In the new regime Sebi wanted the agent and the investor to negotiate and arrive at a commission, which the investor could pay the agent by issuing a separate cheque.

At least that was the plan.

While this made it cheaper for retail investors to buy mutual funds, the fall in commissions for its agents and distributors effectively left few people to sell it to them.

Now nearly one year on, the effects continue to be felt. “The situation is still difficult. We are still seeing net redemptions,” said the head of a mid-sized mutual fund.

Assets under management for equity funds, which have the most amount of retail participation among the various segments have seen net redemptions in 8 out of 11 months since the ban on entry loads.

There have been net outflows of Rs 8,160 crore since August 2009 in case of equity mutual funds.

As one industry person said, unlike other products such as toothpaste or toilet paper nobody wakes up in the morning and feels a pressing need to buy a mutual fund.

The Ulip conundrum

With insurance products offering higher commissions, distributors are said to have dropped the mutual fund in lieu of a more expensive investment product-the unit linked insurance plan, whichis an investment plan with a dash of insurance.

Ulips have been paying significantly higher commissions than mutual funds over the years, though structurally they are more or less the same.

Between July 2009 and March 2010, for which the latest data was available, Ulips managed to raise Rs 108,803 crore in total. That clearly illustrates the power of commission in a country, which is gradually coming out of financial illiteracy.

There was an attempt to bring parity between Ulips and mutual funds when Sebi issued a circular asking Ulips to register with Sebi, but an ordinance that placed control definitively in the hands of the insurance regulator (Irda) and away from the hands of the market regulator put paid to a glimmer of hope for mutual funds.

Fund houses grappling with changes are said to be finding it difficult to engage the customer, said industry insiders.

“The change was brought about too fast, business models need time to re-align. As a result, engagement with end customer has gone down because everybody is focused internally,” said the head of a foreign mutual fund.

What also does not help is the fact that insurance companies are allowed to use celebrities to advertise while mutual funds are not.

So you have the likes of Sachin Tendulkar, Virender Sehwag and even super star Amitabh Bachchan advertising insurance. “Now how do you expect us to take on a me too product being advertised by Amitabh Bachchan, our superior performance not withstanding?” asks the head of sales of a mid sized mutual fund.

Long-term Ulips?

Insurers have often stressed on the fact that Ulips are a long term product. In fact that claim also falls flat in lieu of the fact that over a period of five years, the average return of an equity mutual fund has beaten the average return of equity oriented Ulips by more than 20%.

The 25 best mutual funds on the other hand have given an absolute return of more than 80% in comparison to equity oriented Ulips.

Effective competition is supposed to act in the best interest of the consumers. But that does not seem to be happening in the context of the retail investor in India who can choose between the high commission paying Ulips and very low commission paying mutual funds.

The obvious reason as explained above is there are perverse incentives at work. But the truth is a little more complicated than that.

Let’s deviate a little into an interesting example that Sheena Iyengar gives in her book The Art of Choosing about bottled water brands.

“The two best-selling brands of bottled water in the U.S. are owned by Pepsi (Aquafina) and Coke (Dasani), you’d be... unlikely to see them aggressively advertising their health benefits relative to soft drinks, one of the few they could legitimately make.”

The moral of the story: A bottled water brand cannot say it is healthy to drink water if it happens to be owned by a company which also sells soft drinks.

Similar is the case with the Indian mutual fund industry. Not one mutual fund till date has made an effort to communicate its better performance over Ulips in the last five years. Not one mutual fund has made an effort to communicate its low commissions vis a vis Ulips.

If one side of the market cannot communicate what its strengths are then there is no way a market can function efficiently and people of course will continue to buy high commission paying Ulips.

And why is that? The biggest Indian mutual funds are all promoted by companies which have insurance subsidiaries. Be it Reliance, Birla, SBI, ICICI, HDFC, Kotak, Religare Bharti Axa, ING, Tata, HSBC, Canara or LIC.

All these promoters run both insurance companies as well mutual funds. So there is no way any of the mutual funds can come out and compare their performance with Ulips and say their performance is better. It is not in the interest of their promoters.

Over and above that some of these promoters also run banks.

And for banks, insurance commissions are lucrative and an easy way of boosting their other income.

In fact a recent survey titled the “India Bancassurance Benchmarking Survey 2010”, carried out by Rajagopalan Krishnamurthy of Towers Watson points out: “The responses to the survey confirm the assessment that bank distribution in the case of life insurance is currently highly skewed in favour of Ulips.

Ulip sales account for more than 85% of premiums generated by banks.”And since collecting these premiums pays high commissions, banks like to sell only Ulips.

So basically it’s not in the interest of any of the players in the market to disturb the current high commission paying set up. And you my dear investor are the least of their considerations.

The regulator’s perspective

The chairman of Sebi, C B Bhave expressed the regulator’s perspective at a mutual fund summit in June, saying that the regulator will prefer to put the investor before the industry.

The assets under management for the industry currently stands at Rs 6.75 lakh crore with Income funds accounting for Rs 3.28 lakh crore. The huge amount of money in income funds points out clearly to the oft repeated fact that the Indian mutual fund industry caters primarily to institutional investors.

There have been other attempts by the regulator to make the

mutual fund more “retail investor” friendly.

Recently Sebi has tried to bring in parity in the expenses charged to institutional and retail investors. Large institutional clients would be charged much lesser for their investments in debt funds

compared to retail clients. This, argued the regulator, amounts to the retail investor subsidising the institutional one.

Fund houses are said to have protested on the ground that the cost of servicing a retail investor too, is different from that of an institutional client.

Sale of mutual funds through exchanges began after Sebi’s November 13, 2009, circular stating that mutual fund schemes may be permitted to be transacted through registered stock brokers of recognised stock exchanges.

Despite points of presence inacross India, the initiative has so far failed to take off.On average, there have been 1,032 trades daily for the month of July, less even than one for every one of the 1500 cities that just the National Stock Exchange boasts a presence in.

A number of other mutual funds are also reportedly looking for banking partners to strengthen their distribution.

Some in the mid-sized segment are looking at selling a stake including one that is fond of gerunds and another which had tied up with a company known for its telecom operations.

Consolidation may not take place through acquisitions or mergers. “Consolidation in terms of AUMcould happen with more of the money going towards fewer of the players,” said the head of one of the largest AMCs.

Meanwhile, for many other mutual funds the ending does not seem as happy.

One mutual fund chief executive officer summed it up, late one night, after the passing of the ordinance which placed Ulips outside Sebi’s purview. “We are dying.”

Source: http://www.dnaindia.com/money/report_sebi-s-good-intentions-crippled-the-great-indian-mutual-fund_1415133-all

Mutual fund investors go demat, exchange volumes spurt in July

As executive director of the Securities and Exchange Board of India (Sebi) and later as chairman of National Securities Depository Ltd (NSDL) in the 1990s, C.B. Bhave dragged the Indian equity market into the paperless era.

He is now attempting an encore as chairman of Sebi, the capital markets regulator. In November, Bhave began a process to shred the paper in the mutual fund business through dematerialization, or demat.

Large distributors of mutual funds are now goading clients to hand over their paper certificates to NSDL, India’s largest depository, and hold them in electronic form instead. Industry experts say this would help distributors save postage, stationery and infrastructure costs.

There could be a long-term benefit as well: Demat of mutual funds could provide a big push to the trading of units on stock exchanges.

Ashu Suyash, managing director and country head, Fidelity Fund Management Pvt. Ltd, with Rs7,879 crore in assets, said, “This is the next part of the move to allow MFs (mutual funds) to be traded on exchanges. Without demat, the exchange platforms were not getting traction. This move will be an enablement.”

Krishnamurthy Vijayan, CEO, IDBI Asset Management Co. Ltd, with Rs1,300 crore in assets, said the demat process will help exchange platforms. “All capital market investments will be available in one statement, making life simple for investors,” he said.

Mutual fund buying on exchanges got off to a slow start, but activity has picked up in July. The daily average number of transactions grew more than 10-fold, to over 1,000 transactions worth nearly Rs6 crore in July.

In November 2009, Sebi floated the idea of trading units on exchanges to help the Rs6.75 trillion MF industry, which was on the back foot after a June 2009 Sebi order banning payment of agent fees from investor money.

However, till now only new purchases could be made through these platforms. With the introduction of demat, even old fund holdings can now be transacted on exchanges.

NSDL alone has over 10 million active demat accounts with assets worth Rs59.5 trillion. In comparison, the MF industry has over 40 million investor accounts with assets in excess of Rs6.75 trillion, most of it paper.

Surjit Mishra, executive vice-president and national head, mutual funds, Bajaj Capital Ltd, a financial products distributor, said that contrary to popular belief, a good number of MF investors already have demat accounts for their direct equity investments. “Roughly 50% of MF investors already own demat accounts. By converting their MF investments into demat form, they will get great ease in transaction and accounting.”

According to Mishra, this will improve further as people can now use the demat to sell and exit existing investments. “Without demat, only new (mutual fund) investments can be done and only those investments made through the exchange platform could be refunded. With the introduction of demat, existing investments can also be transacted. The number of transactions will go up,” he added.

Entities such as Integrated Enterprises India Ltd, a distributor and depository participant, are pushing dematerialization. “We are actively promoting the demat route,” said V. Krishnan, head of mutual funds at Integrated. According to him, the response has been good. “We have got very good response during the recent new fund offers of HDFC Asset Management Co. Ltd and ICICI Prudential Asset Management Co. Ltd. In June, we opened about 100 new demat accounts. This month the number has crossed 500 already and may cross 600 eventually.”

The growing popularity of exchange-traded funds, or ETFs, as an important class of funds is also driving home the importance of demat accounts. At least two new fund offers are for ETFs.

However, one major hitch is the direct transfer of units to client accounts. In share transactions, shares are first transferred to pool accounts of brokers before being moved to a client’s account. This gives the broker a chance to ensure that payment is received before the shares are transferred. But in a mutual fund transaction, the units are directly transferred to client account. “This puts the risk on the broker. Therefore, only pre-funded transactions are being executed at present. We have asked the regulator for the pooled account facility in mutual fund units also. Once this is allowed, most brokers would begin to show interest,” Krishnan.

Source: http://www.livemint.com/2010/07/26225314/Mutual-fund-investors-go-demat.html

‘Value can be found outside the index' : PRATEEK AGARWAL, HEAD-EQUITY, BHARTI AXA INVESTMENT MANAGERS

If the volatility in the market reduces, we expect to see the space outside the index perform significantly better than the indices themselves.

When markets remain range-bound, stock-picking increasingly becomes a challenge. While few sectors continue to outperform market, investors tend to move with majority and pick stocks within such sectors. In an interview with Business Line Mr Prateek Agarwal, Head-Equity, Bharti AXA Investment Managers, identifies sectors that hold potential to outperform and also sectors that lack sheen.

Healthcare and FMCG stocks outperformed the markets in the recent times. Do you anticipate the trend to continue?

In general, the healthcare and FMCG space is expensive but there can be exceptions in the mid-cap space. On account of high volatility in the market, premium was being paid for cash generating stable businesses and this benefited these sectors. As focus turns to growth, we expect this space to underperform. The pharma space also benefited on account of M&As which have taken place at valuations that are not otherwise justifiable. Hence, we believe that the chances of disappointment are high in this space.

Despite the rate hike concern, auto retail sales continue to be robust. What is your outlook for the sector?

We continue to be positive on the space. While interest rates have a bearing on the total cost of ownership, for most buyers, fuel may be a larger cost. While both of these costs may go up over the medium term, we expect sales to remain buoyant because the income levels are growing at rates faster than the increase in cost of ownership of a vehicle. One sense of increase in incomes is the growth in the nominal GDP which is running in excess of 15 per cent.

Given that mid and small-cap stocks are more sensitive to interest rates do you anticipate any slowdown in earnings due to increase in interest rate?

While mid and small cap stocks have a larger leverage than large cap stocks, and hence, may be affected more due to an increase in interest rates, they would also benefit on operating leverage. Spare capacities would be put to use as the economic growth strengthens. Hence, the mid-cap part of the market may actually deliver earnings growth in excess of the large-cap part of the market.

Residential property demand is still below the peak levels even as interest rate concerns loom large. Do you think the current valuation of the sector holds potential to deliver market return over one-two years?

We are positive on the real estate sector outlook. We are already witnessing buoyancy in absorption rates across the country and prices have moved up significantly from the bottom and volumes are sustaining at higher price levels also. While housing market has recovered, the commercial space is yet to fully recover and may take time.

However, with economic growth expected in excess of eight per cent, it is only a matter of time before the commercial space sees demand. We believe that the stocks in this space offer significant value.

After being hit by competition and regulations, telecom stocks are slowly back in action. Do you anticipate a bounce back in the sector?

The focus on the telecom sector was on account of M&A activity. While such news flow would continue to make the stocks volatile and may present trading opportunities, we believe that the competitive intensity would remain high. Hence, we believe that it may underperform the market in the near term.

Market has been range bound over the past six months, do you believe the current valuation will see fresh investment?

We believe that the valuations are now at the top end of the comfort zone, and hence, we do not expect a very significant move in the index and expect the index performance to trail the earnings growth trajectory. However, while the index is not cheap, value can be found outside of the index. If the volatility in the market reduces, we expect to see the space outside the index perform significantly better than the indices themselves.

Source: http://www.thehindubusinessline.com/iw/2010/07/25/stories/2010072550711000.htm

'Opportunities aplenty, but dig deep for value' : Arindam Ghosh, CEO, Mirae Asset

Financial services shares are likely to outperform in the near-to-medium term, feels Arindam Ghosh, CEO Mirae Asset. In a chat with ET, Mr Ghosh Financial services shares are likely to outperform in the near-to-medium term, feels Arindam Ghosh, CEO Mirae Asset. In a chat with ET, Mr Ghosh says that the risk-reward premium has narrowed down considerably, and that investors will have to hunt deeper to spot values. Excerpts:

The market has been grappling with the volatility arising from the debt crisis in Europe. The recent upswing apart, where do you see the market headed?

The Indian economy is chugging along well, with GDP growing at about 8% plus. The recent trend in monsoon, too, is satisfactory, although the overall picture would be clearer after a few weeks. The results from Q1 earnings are reasonably impressive so far and we are on track for a 17-18% growth year-on-year this quarter, which is actually one of the leanest quarters of the year.

It is a well-recognised fact that today, India offers a unique combination of strong demographics, rising incomes, low consumption and favourable government policies, factors that allow India to be among the preferred economies in terms of the potential to deliver high return on equity (RoE) to investors. Given these aspects, we remain positive on the market and are confident that the market will continue its upward stride albeit for a few hiccups resulting from any adverse news on the global front.

What would be your investment approach in the current market?

The risk-reward premium has narrowed compared with the past year’s lows, as the market has moved to the reasonably-priced zone. Concerns relating to the possibility of a double-dip recession in the developed world and hard-landing due to inflation may persist for some time. Having said that, there are many investment opportunities to hunt deep to spot values.

We continue to remain positive on the financial sector, which has the largest component of the index at about 25%. Financials, in our opinion, will be among the leading sectors for the market. Besides, we are positive on large-cap IT firms and, on a selective basis, on stocks in pharma and consumer segments.

Why are retail investors shying away from mutual funds? Do you feel it largely has to do with distribution issues, following the removal of entry load?

While the industry has faced challenges in the recent past, we believe that the changes will eventually benefit all stakeholders in the long term. Also, it won’t be prudent to assign reasons for relatively low inflows entirely to this factor since other headwinds — market levels, global news and sovereign debt concerns — have also played a part.

An important factor is that a sizeable number of investors have been waiting for a correction to invest, given the swift uptrend in the market recently. Amid all this, one should not forget that mutual fund as a product is the most cost-competitive, transparent and affordable tool for retail participation in equities in the Indian market. We are confident that in the long term, the inherent advantages of this product would ensure that retail investors in large numbers recognise this aspect and join the mutual fund bandwagon.

Where would you advise retail investors to invest — equity, debt or SIPs?

Investors need to have confidence in India’s growth prospects and thereby invest in equities since this asset class offers the best returns in the long term. For retail investors, we would advise them to invest in equities through the SIP mode, since this is an affordable and time-tested strategy. Also, investors need to judiciously plan their asset allocation to ensure that they have a well-diversified portfolio.

Source: http://economictimes.indiatimes.com/Opinion/Interviews/Opportunities-aplenty-but-dig-deep-for-value/articleshow/6216810.cms?curpg=1

Mahindra Finance expects to enter mutual fund biz by Mar 2011

Mahindra Finance, the financial services arm of auto major Mahindra and Mahindra, today said it expects regulatory approval for entering into the asset management business during the fiscal.

"We have applied for asset management company and we hope to get SEBI (Securities and Exchange Board of India) approval during the year," Mahindra Finance Managing Director Ramesh Iyer told PTI.

Following the approval, the company would launch mutual fund schemes, he said.

The company is planning to go on its own, he said, adding that for setting up the business, the company will hire specialised people with domain knowledge.

Currently, there are 39 mutual fund players in the country with total average assets under management of more than Rs 6.75 lakh crore at the end of June.

The total average assets under management of the 39 fund houses in the country plunged by Rs 1.27 lakh crore, or 16 per cent, in June.

Mahindra Finance, a non-banking finance company, is into vehicle finance, insurance brokerage, rural housing finance and refinance of old vehicles.

At present, the company has a network of 487 offices spread across the country, which will touch 500 by the end of September this year, Iyer said.

Meanwhile, Mahindra Finance recorded 85 per cent jump in net profit for the first quarter ended June 30 to Rs 80 crore compared to Rs 43.13 crore in the same quarter a year ago.

The company also reported a growth of 23.51 per cent in income from operations during the first quarter to Rs 404.46 crore, as against Rs 327.48 crore in the year-ago period.

The company's gross disbursement registered a growth of 76 per cent to Rs 2,854 crore at the end of June 30, compared to Rs 1,617 crore in the same period of the previous year.

The company maintained its quality of assets through continued focus on NPA reduction, coupled with buoyant rural cash flow, Iyer said.

Source: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/Mahindra-Finance-expects-to-enter-mutual-fund-biz-by-Mar-2011/articleshow/6216024.cms

Mutual funds step up selling

Mutual funds (MFs) sold shares worth a net Rs 298.10 crore on Thursday, 22 July 2010, higher than Rs 201.20 crore on Wednesday, 21 July 2010.

The net outflow of Rs 298.10 crore on 22 July 2010 was a result of gross purchases Rs 596.30 crore and gross sales Rs 894.40 crore. The BSE Sensex surged 135.92 points or 0.76% to 18,113.15 on that day.

MFs sold shares worth net Rs 2276.60 crore in July 2010 (till 22 July 2010). Mutual funds had sold equities worth a net Rs 1093.10 crore in June 2010.

Source: http://www.apollosindhoori.cmlinks.com/MutualFund/MFSnapShot.aspx?opt=9&SecId=10&SubSecId=22,24

Franklin Templeton MF Announces Change in Fundamental Attributes of Templeton Monthly Income Plan

Franklin Templeton Mutual Fund has announced change in Fundamental Attributes of Templeton Monthly Income Plan with effect from 26 July 2010. The following are the proposed changes.

Revised Name of the Scheme: Templeton India Low Duration Fund

Type of Plan Introduced: Growth Plan.

Asset Allocation Pattern: The scheme would allocate upto 100% of assets in debt including corporate debt, PSU, Gilts and Securitized debt with low to medium risk, upto 20% in Money Market instruments with low risk profile and up to 15% in Equity and Equity linked schemes with medium to high risk profile.

Load Structure: Entry load charge will be nil for the scheme. Exit load charge will be 0.50% of the NAV if investors who redeem/switch out such investments within 3 months from the date of allotment.

Minimum Application/Redemption Amount: Minimum investment Rs 10000 additional/redemption amount of Rs 1000.

This addendum forms an integral part of the Scheme Information Document. All the other terms and conditions will remain unchanged.

Source: http://www.apollosindhoori.cmlinks.com/MutualFund/MFSnapShot.aspx?opt=9&SecId=10&SubSecId=22,24

UTI Dividend Yeild Fund declares 5% dividend

The record date for the dividend is July 27, 2010.

UTI Dividend Yield Fund declares tax-free dividend of 5% (Re.0.50 per unit on face value of Rs.10). Pursuant to the payment of dividend, the NAV of the dividend option of the scheme would fall to the extent of payout and statutory levy if any.

The record date for the dividend is July 27, 2010.

All unitholders registered under the dividend option of UTI Dividend Yield Fund as on July 27, 2010 will be eligible for this dividend. Also investors who join the dividend option of the scheme on or before the record date will be eligible for the dividend.

The NAV per unit as on July 21, 2010 was Rs. 14.91 under the dividend option.

Source: http://www.indiainfoline.com/Markets/News/UTI-Dividend-Yeild-Fund-declares-5-percent-dividend/4888707747

MFs: Where are the investors?

There are just 10 mn MF investors compared to 60 mn homes with life insurance.

For an industry boasting 38 active players spread across 150 cities, with over Rs 6.7 lakh crore of average assets under management (AAUM) in June, mutual funds in this country have barely 10 million investors. Perhaps, even less.

The data till June-end available on the website of the Association for Mutual Funds in India (Amfi) showed the MF industry had almost 48 million folios. Amfi started publishing data of the number of folios with fund houses in November last year.

One folio is equivalent to investing in a single scheme. Industry experts admit most MF investors have at least four-five schemes, which translates into four-five folios per person. In many cases, this number is much more. In fact, there are customers with 100-150 schemes.

“The MF industry, as a whole, has been unable to convey the message to investors about its attractiveness,” said Rajeev Deep Bajaj, vice-chairman and managing director, Bajaj Capital, adding that the number of investors has stayed static for almost six months. Between November 2009 and June-end, the industry added only 70,503 folios.

If one looks at numbers from the Centre for Monitoring Indian Economy (CMIE), the number of MF investors is even lower. As on December 2009, CMIE’s Consumer Pyramids estimated that out of 235 million households, only two million invested in MFs. CMIE assumes one household has five members, but it’s unrealistic to assume all five would have invested in MFs.

In comparison, 87.66 million households invest in gold. The life insurance industry has 59.7 million households covered by insurance policies. Close to 46.06 million households have fixed deposits. Only 0.39 per cent, or 920,000, households directly invest in equities, according to CMIE.

Though there are 17 million demat accounts with NSDL and CDSL, only a handful seem active. Among the top five fund houses, UTI Mutual Fund, which has been there for over four decades, had slightly over 10 million folios, the highest. The other four are Reliance MF with 7.40 million; HDFC MF with 4.04 million; ICICI Prudential MF with 2.94 million; and Birla SunLife MF with 2.47 million folios.

Both distributors and fund houses are fighting to attract the same customer.

The good part is that though a large part of the money – almost 75 per cent – is in the debt segment, a bulk of retail folios are for equities and balanced funds – 43.56 million. This implies that investors are willing to put money in equities.

Hemant Rustagi, CEO, Wiseinvest Advisors, said, “There have been limitations, in terms of operations, lack of advisors in numbers and quality and phases of extreme volatility in stock markets. Still, the highest growth has been there in equities.” The lack of penetration is mainly due to the fact that MFs need to be pushed, aggressively sometimes. “Many investors still find MFs complex. There should be an industry association platform to promote them,” added Bajaj.

Though new players have entered the market, they have been not been able to add many new investors. Look at one new player, Axis Mutual Fund. In November, it had 491 folios in income/debt schemes. At present, the number of folios is 158,694. At the same time, the total number of folios between November and May rose by only 70,000 (from 47.87 million to 47.94 million). And, many other players gained folios as well. For example, HDFC Mutual Fund’s folios rose by almost 400,000 in the same period. Clearly, the same investor has multiple folios.

Source: http://www.business-standard.com/india/news/mfsareinvestors/402204/

Sebi wants mutual fund trustees to be more accountable

The Securities and Exchange Board of India (Sebi) wants trustees and independent directors to become more proactive in the functioning of fund houses and enhance their roles to ensure investor protection.

The market regulator aims to make trustees and independent directors of asset management companies (AMCs) familiar with the best practices and keep them updated with the technical know-how of the mutual fund (MF) business.

To achieve this, Sebi plans to conduct workshops for trustees and independent directors of AMCs, through National Institute of Securities Markets (NISM).

The first workshop, here on September 15, is to cover topics such as discharging fiduciary duties, insight into debt and money markets and reviewing fund performance beyond returns.

“This is a step towards making trustees more accountable in the functioning of AMCs,” said Aditya Agarwal, country head of Morningstar India, an MF tracking firm.

Sebi also wants trustees to have more involvement in reviewing the performance of MF schemes. In a recent event organised by Tamil Nadu Investors’ Association, K N Vaidyanathan, executive director of Sebi, who is in charge of MFs, had said trustees should question the variations in performance of similar types of MF schemes offered by a fund house.

“A lot of regulatory changes have come in the MF industry in the recent past. Sebi’s objective is to make trustees and independent directors more knowledgeable about the business,” said the managing director of an MF house. NISM will run at least three workshops every year, which will focus on technical subjects and the regulatory perspective.

Sebi norms require at least four trustees to supervise the functioning of an MF house and at least two-thirds of them need to be independent persons, not associated with the sponsors or the AMC. The general power of monitoring and directing an AMC is vested with the trustees, who have a fiduciary responsibility to investors.

Source: http://www.business-standard.com/india/news/sebi-wants-mutual-fund-trustees-to-be-more-accountable/402205/

Diversified MFs outperform mkts

Though the equity markets have remained flat in the first six months of 2010, more than 90% of equity-diversified funds have outperformed the benchmark index. This is in keeping with a trend seen over the past 10 years, which suggests that, typically, fund managers have managed to score over the index whenever the market has been either flat or in the midst of a bull-run. In 2009, for instance, when Sensex gained 81%, more than 97% of equity-diversified schemes outperformed the benchmark.

However during bear phase, fund managers tend to lag behind. For instance, whether it was during 2000, 2001 or 2008, equity-diversified funds lagged behind the benchmark indices . In 2008, when Sensex reported a negative return of 52%, only 3.5% of equity-diversified schemes were outperformers.

From January 2010 till date, Sensex has given a return of only 2.1%. However, Birla Sun Life MNC Fund has given its investors a return of 22.5%, which is the highest in the equity-diversified category. The HDFC Mid Cap Opportunities Fund has delivered 18.4% while Canara Robeco's FORCE fund has given 19% returns. However, given that over 250 schemes qualify for the category, the average return has been just over 5%, with six schemes showing a negative return. These include JM Basic which gave a negative return of over 6% while Bharti AXA Equity fund also giving negative return of approximately 3%. Tata AMC MD Ved Prakash Chaturvedi, whose Tata Dividend Yield Fund has given 17% returns, said, “We invested in companies that were likely to announce big dividends and that has paid off. We were looking at stocks where we could unlock value.”

Canara Robeco Mutual Fund head-equities Anand Shah said, “Two things matters the most if any fund wants to beat the benchmark, one is stock picking and other is the selection of a sector. In our case, in the first six months this year we had a good exposure to the banking sector which has helped us.” Fortis Mutual Fund senior portfolio manager Amit Nigam said, “During the bullrun and when markets are flat, mid-caps usually outperform large-caps and fund managers have some exposure to the mid-caps which helps them beat the index.”

Source: http://www.financialexpress.com/news/diversified-mfs-outperform-mkts/649950/

Sebi for recorders to check front running in MFs

In a move to enforce discipline and check front running in mutual funds, Sebi has asked mutual fund houses to install recording facilities in dealing rooms and disallow traders from using their personal mobile phones. Sebi, in a letter to mutual fund players, has directed that all dealing records be preserved for eight years. Further, Sebi has asked asset management companies to ensure that the terms of reference of the review of internal auditors are submitted to the board of trustees. Moreover, Sebi wants that AMCs ensure that the recordings are checked periodically by designated executives.

IDBI Mutual Fund MD&CEO Krishnamurthy Vijayan said, “Most of the funds have already been following these practices. Perhaps the regular may have found a couple of instances where this was not happening which is probably why the directive has been issued. “ These directives from Sebi come in the wake of the regulator unearthing a massive front running trade involving an employee of HDFC AMC and three other clients during April to July 2007.

Source: http://www.financialexpress.com/news/sebi-for-recorders-to-check-front-running-in-mfs/649951/

MFs check investor exodus, add over 21,000 accounts in June

After losing investors for three consecutive months in a large-scale exodus, mutual funds seem to be gaining investors' confidence again, as they managed to get over 21,000 new accounts last month.

However, new investors seem to be coming in for debt schemes only and fund houses continued to lose investors in equity schemes for the fourth consecutive month in June, 2010.

According to data available with industry body AMFI, the total number of investor folios with a total 38 fund houses in the country increased to 4,79,41,251 at the end of June, 2010, against 4,79,19,901 a month ago.

However, the cumulative increase of 21,350 folios, or investor accounts, seems to be entirely on account of new investors in debt schemes, with 1.90 lakh new folios added.

At the same time, the folios for equity-focused mutual fund schemes dipped by more than 1.37 lakh during the month.

This takes the total investor exodus from equity schemes to close to 7.5 lakh in the past four months -- that is, from March till June, 2010.

The fund houses have been working hard to regain investors and have been asking market regulator SEBI for remedial action, including an expanded distribution model for these investment products.

Debt schemes had seen an increase in the number of investor accounts last month also, but such schemes account for under 10 per cent of the total number of MF accounts.

As per the Association of Mutual Funds in India (AMFI), the total number of equity-focused scheme folios stood at over 4.05 crore at the end of June, 2010, while the figure for debt schemes was little over four lakh.

The total number of folios had reached as high as 4.83 crore, including 4.13 crore accounts in equity-focused schemes, at the end of February, 2010.

Since then, the number of accounts in equity schemes have declined by about 7.5 lakh, although non-equity schemes have registered an increase of close to four lakh folios.

The fund houses are getting increasingly concerned about investor exits, particularly in the backdrop of market regulator SEBI scrapping the entry-load for MF schemes.

While this step was taken late last year in the investors' interest, the distributors have become less interested in selling equity MF schemes since then, while products like ULIPs, which are life insurance products but invest heavily in stock and bond markets just like MFs, are being sold aggressively because of high commission payouts.

Concerns over investors' flight away from MFs have been compounded by the fact that the stock market has been gaining in the past four months and the number of demat accounts, which are needed for investing in the stock market, has also grown during this period.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/MFs-check-investor-exodus-add-over-21000-accounts-in-June/articleshow/6183612.cms

MFs Look For Life Beyond Entry Load Ban

Hey, if you happen to meet the Sebi chief, please ask him what is the expiry date of the mutual fund industry.’’ This SMS has been doing the rounds among mutual fund players for sometime. The message is revealing on two counts: one, it tells you how bitter the industry is about the regulator and the changes it has introduced in the recent past. Two, it also smacks of a sense of resignation on the part of the MF industry, which manages over Rs 6.75 lakh crore on behalf of both institutional and individual investors. Incredible it may sound, but sadly the brightest investment minds that can weather the ups and downs of the stock market don’t seem to find answers to the troubles faced by the industry.

“Nobody is questioning the intentions of Sebi. Indeed, we have to keep the interests of investors in mind if we have to attract them. But the entry load ban was something the industry was not prepared for. It came [too] soon and the industry or the distribution force didn’t have time to adapt,’’ says a senior mutual fund manager, who prefers not to be named. “Ever since C B Bhave has taken over as the chairman of Sebi, he has initiated a lot of changes in regulations, be it documentation, expense, benchmarking, disclosure... The industry didn’t object to any of them, but the entry load ban was something it just couldn’t cope with.’’

Sebi banned entry load (upfront commission paid to mutual fund distributors) on mutual fund investments in August last year. This has hit the industry hard, as many independent financial advisors (IFAs) abandoned MF schemes overnight and switched to selling unit-linked insurance plans (Ulips) from insurance companies because of the attractive commissions on them. Ulips used to offer very high commissions (up to 40-50%) on the first year premium at that time.

“The regulator wanted these distributors who were acting like a medical shop to become doctors overnight. The idea was that you offer investors good advice and earn a fee, but the idea just didn’t take off,’’ says another mutual fund head on condition of anonymity. “Probably, it is the Indian mindset. Most people want everything free or at a steep discount. Probably, distributors aren’t good enough to demand a fee. In short, most MF advisors figured out that getting their clients to cut another cheque for the advice is not going to happen anytime soon and they just fled from the scene,’’ he adds.

According to industry players, there were around 40,000 IFAs active in the country before the upfront commissions were banned by Sebi. The number of active IFAs has reduced to 3,000 since then, they claim. “If the trend continues, it would be terrible for the industry,’’ says Surajit Misra, EVP & national head-mutual hunds, Bajaj Capital. “Unlike banking or insurance, the mutual fund industry is yet to become a brand people are comfortable with. So, you need someone to convince the investor to put money in a mutual fund scheme.’’

Sure, the MF industry has a point there. However, critics point out that the industry is hiding behind the entry load ban and not willing to take the blame for creating a sales force, predominantly concentrated on tier I and II cities, which was happy churning the portfolios of their existing clients without bothering to bring new investors into the system. “I agree the industry is literally at a crossroad. But we should also share some blame for the situation,’’ says the marketing head of a leading mutual fund house. “We were pampering our distributors and forgot to remind them that the industry would survive only with long-term money from investors. We were happy if we got some inflows every month. It just didn’t matter if the distributor was taking the money out from one fund and putting it in another.’’

He has point. The argument against the entry load ban is this: insurance companies can still pamper their agents, but the MF industry can’t do the same. And gone are the days when MFs would fly their prized distributors to exotic foreign locales for a holiday for bringing in more money.

Nobody could blunt the criticism from fund houses better than the Sebi chief himself. In a gathering of fund house honchos last month, the market regulator clarified that he didn’t have any false notion that anybody would serve investors free. “All we were saying is that let the investor decide what he wants to pay for the service. You don’t decide how much he should pay,’’ he told the audience. As if sensing the skepticism of the industry, he also said that the fund houses should try to communicate better with investors if they want to justify the rationale behind the industry’s existence. Bhave also ridiculed the industry’s obsession with the asset under management (AUM) figure, which funds try to boost by chasing institutional money. Perhaps, he was hinting that the salvation for the industry lay in going back to its original mandate of collecting money from lay investors and managing it for them.

However, dumbstruck MF officials didn't seem pleased with Bhave's utterances at the meet. Many of them said sarcastically that, perhaps, they better start selling Ulips since the demise of MF industry was only a matter of time. Sadly, they don't have that choice anymore. Ulips are not that lucrative now. Once again, they would blame Bhave. His battle with theIRDA has resulted in some key changes in Ulips — the commissions are lower, and the insurance cover and lock-in period have gone up.

Some feeble optimistic voices can be heard from the industry these days. One set of people is still concentrating on how to get the distribution force back into the game. One of the main suggestions — the AMFI has made a representation to Sebi in this regard — is to include the service fee in the MF application form.

“We all agree in principle with what Sebi is saying about letting the investor decide what he wants to pay for the advice. Since the implementation of it has not been smooth, we have to find a practical way to solve the problem. We have proposed that let there be a column in the application form where the investor can write what he wants to pay for the advice,'' says AP Kurien, chairman, AMFI. “We can have a cap on the fee. Let it be X% and we can put that in bold letters so that it will catch investors' attention.''

Bajaj's Misra also thinks that is the only way out of the tricky situation. “The idea of writing two cheques is just not happening. It will take a lot of time. The one way out is to include the fee in the application form itself,'' he says.

Another set of people has already started speaking about increasing the awareness about MFs among individual investors, especially those in smaller cities as tier I cities — particularly the four metros — account for around 80% of the money managed by MFs. They also propose educating the distribution force so that it offers better advice and is in a position to demand a fee from investors. “We are focusing on advisors. We want them to offer effective personalised advice to investors so that they won't hesitate to pay for the advice. We are also focusing more on the retail investors. We are educating our advisors about bringing in more investors who want to invest for the long term,'' says A Balasubramanian, CEO, Birla Sun Life MF.

Source: http://timesofindia.indiatimes.com/biz/india-business/MFs-Look-For-Life-Beyond-Entry-Load-Ban/articleshow/6184976.cms

Consolidated MF statements soon

Single consolidated statement of mutual fund (MF) holdings will soon become a reality for MF investors. This, in other words, would mean MF investors holding MF units in different fund houses will soon be able to get one single statement. Market regulator Securities and Exchange Board of India (Sebi) has apparently asked all the registrar and transfer agents (RTAs) to club investor data together. Computer Age Management Services (CAMS), Karvy MF Services, Deutsche Investor Services and Franklin Templeton today provide RTA services to the mutual fund industry.

“This was an expected move from Sebi given that in a recent summit,” Sebi executive director KN Vaidyanathan had hinted on introducing the single view statement. “We are planning to put in place a mechanism where the investor will get a single view of their investments,” he said. CAMS president & CEO NK Prasad said, “We are working on it for a long time, but we haven't received any final approval from the regulator. Some of the issues are being discussed and we hope it will be sorted out.”

If implemented, this move will be of immense benefit to MF investors. Today there are operational issues that a mutual fund investor has to grapple with. For instance, an investor is given multiple folio numbers, for investing in different schemes and fund houses. And over the years, he accumulates multiple folios which he can't keep track of. And usually, at the end of the financial year, multiple mails of fund houses hound him with statements informing cost of your units and its current NAV. In the process, investor lose track of his investments. Some fund houses are also known to smartly ignore investors who they categorise as 'dormant' and don't communicate to them.

Market sources expect such platform for single view statement to be ratcheted up in next one month or so. Recently, National Securities Depository (NSDL) had started a similar facility for holding mutual fund units in dematerialised form. But the Sebi initiative, is more awaited as it is likely to come at zero cost for investors.

Source: http://www.financialexpress.com/news/consolidated-mf-statements-soon/647111/

Industry witness rise in folios

Total Assets Under Management (AUM) of Mutual Fund (MF) industry fell 15.20% or Rs 1.12 lakh crore to Rs 6.30 lakh crore in June 2010. This has been the second consecutive month the industry has faced fall in total assets. Total AUM of equity funds had increased 3.86% to Rs 1.78 lakh crore in June as equities turned out to be favorable. BSE Sensex and S&P CNX Nifty had risen 4.46% and 4.45% respectively in June 2010, compared to a loss of 3.50% and 3.63% respectively in May 2010.

The weightage of equity funds increased to 28% of the total assets of the industry in June as against 23% in May. However, this category had a net outflow to a tune of Rs 1446 crore in June as against net inflow in May. Withdrawal by banks and corporates had been the major reason for the decline in assets in June. Banks had withdrawn from schemes to lend it to 3G and BWA bidding. On the other hand, the corporates had withdrawn their money to meet their advance tax payment commitments.

Similarly, equity folios (representing the number of investor accounts) of mutual funds saw a sharp decline of over 1.47 lakh in June. Investors seem to be redeeming equity fund units on the back of rising equity markets and uncertainty over its direction, going forward. The fall in equity folios can be attributed to the fact that investors were moving away from the equity markets. Total equity folios stood at 4.05 crore in June as compared to 4.07 crore in May. However, total folios (including debt and others) saw a marginal increase of 21,350 and were at 4.79 crore in June with most new folios coming into debt schemes. The income/debt schemes folio increased by 190287 in June over May or by 4.92%. In the previous six months (between November to May-end), the number of folios rose a mere 49,153, which in context to June rise of 21,350, clearly show the rising interest of investors in mutual funds.

Fund house wise, the investors gave highest preference to UTI Mutual Fund. The country's oldest fund house in terms of assets crossed the 10-million mark. It also added the largest number of folios–1.18 lakh in June compared to the month of May, when its folio size reduced by 32788. DSP BlackRock Mutual Fund followed it by adding 44821 folios. IDBI AMC and HDFC added more than 20,000 extra folios in June. Peerless contributed zero folios in month of June, whereas SBI Mutual Fund folios fell the most by 49161.

Source: http://www.apollosindhoori.cmlinks.com/MutualFund/MFSnapShot.aspx?opt=9&SecId=10&SubSecId=22,24

UTI Mutual Fund converts its scheme into open ended scheme

UTI Mutual Fund has declared that its UTI India Lifestyle Fund, which is a close ended scheme, will be converted to an open ended scheme. The change will be effective from 16th July, 2010. After the conversion to open ended scheme the fund will charge 1 per cent exit load, if units are redeemed within 1 year from the date of allotment. UTI India Lifestyle Fund is an equity scheme, with investment objective to provide long term capital appreciation and/or income distribution from a diversified portfolio of equity and equity related instruments of companies that are expected to benefit from changing Indian demographics, Indian lifestyles and rising consumption pattern. The scheme is benchmarked against CNX 500.

Source: http://finance.indiamart.com/cgi-bin/mutual_top_stories.cgi?news_headline=UTI+Mutual+Fund+converts+its+scheme+into+open+ended+scheme@MF045

MF industry allows only the best to survive: Waqar Naqvi

Waqar Naqvi, chief executive officer (CEO) of Taurus Mutual Fund, shares insights about the MF business and the challenges that the industry and his company would face.

He has close to two decades of experience - mostly in the AMC business. He has been instrumental in the transformation of Taurus Mutual Fund from one of the bottom-five players to a growing mutual fund.

>With new players expected to come, in what are the career opportunities that this industry would offer?

People with nerve, ethics and patience would find excellent opportunities coming their way in sales and distribution, financial planning, product development, customer service, compliance, HR and fund management due to expansion plans of existing players as well as new entrants. The MF industry allows only the best to survive.

>How are you planning to drive up retail participation in your AUM mix?

Taurus Mutual Fund`s average AUM stood at Rs 24.38 billion on June 30, up from Rs 3.68 billion when we took over in early 2008. It has been a concerted effort on our part to spread investor awareness for our customers, both institutional and retail across Tier-I, Tier-II and Tier III cities.

All our equity schemes, including the Taurus Ethical Fund, have shown robust and consistent performance since inception. Performance of our schemes in the fixed income segment has been commendable. The fact that Value Research rates Taurus Infrastructure fund five stars and Taurus Tax shield four stars stands testimony to our fund performance. We intend to stick to the basics and work hard and smart. There is no shortcut to success.

>What checks and balances do you have in place to prevent front-running by fund managers?

Taurus has a well defined and comprehensive surveillance system to check front-running.

Access to dealing room is restricted. All telephone lines inside the dealing room are recorded and the records checked every evening. Cell phones are also not allowed in the dealing room. All activities such as instruction to place the order (by fund manager) and the placing of an order (by dealer) are done online. Our Bloomberg systems start tracking the order processing activity immediately.

The Head of Operations can see the movement of the order online. This system also records the time gap between the actions of fund manager, dealer and their communication of the same on a real-time basis.

This rules out front-running. It is more a matter of not allowing indiscipline in the internal policies and following them assiduously irrespective of the trust and longevity of employees.

>How do you tackle the issue of mis-selling?

Mis-selling by the sales personnel can be avoided by not having too many schemes; it helps the sales personnel as he need not remember so many schemes.

Continuous updates on products and financial markets both debt and equity also gives them the knowledge to address queries and not indulge in mis-selling.

The risk manager, compliance officer, internal auditor, sales head and yours truly also interact with sales people and channel partners regularly to ensure this is avoided.

In addition, our customer service personnel interact with every client on phone to ensure that clients have been correctly briefed about the objective and expectations. This is also recorded at our end and reviewed periodically.

>What changes in the distribution channel mix do you envisage in the next 5-6 years?

The MF industry today reaches the investor through Independent Financial Planners (IFAs), banks (predominantly foreign and Indian private banks have been selling), national level distributors (NDs), online channel, stock exchanges and walk in direct business. There is a huge space which public sector banks can fill in. However, they seem to be suffering from inertia, which I feel, would vanish soon. We foresee a slight juggling of the percentage share between banks, IFAs and NDs.

We intend to stick to the basics and work hard and smart. There is no shortcut to success.

>The SEBI Chairman had observed recently that 60% of the schemes are underperforming. Are we going to see closure or merger of schemes across fund houses?

When our new team took over in March-April 2008, we had four equity schemes, one equity-linked savings scheme (ELSS) and three debt schemes. Today, we have 12 schemes and have added two equity, one liquid and one monthly income plan. Taurus has been a fund house that has not launched schemes similar to each other. We have a very clear demarcation between our schemes and intend to keep it that way. Hence, we do not see a need for closure or merger of schemes at Taurus.

>Many mutual funds are moving towards an online platform. How is this going to help in Tier-2 and Tier-3 towns?

Online platforms and no-load schemes have been available for a few years now. They have not seen any traction worth taking note off. India, Asia and perhaps the world is still an entity which wants to relate people to people. We have not seen a major inflow of online transactions in Tier-I metros till date, hence online transactions taking off on Tier-II and Tier-III seems to be some distance away.

Source: http://www.myiris.com/shares/company/ceo/showDetailInt.php?filer=20100715101746707&sec=fm

Fee sops fail to boost MF sales via exchanges

The National Stock Exchange (NSE) recently extended the existing fee waiver on mutual-fund transactions till March 31 next year to encourage more buying and selling of schemes through its platform. But, asset management industry officials and brokers remain sceptical about the potency of such steps to drive this platform, where investors can buy and sell schemes just like shares, as an alternative investment route for mutual fund investments.

“The fee waiver is a very small step. For this platform to be a success, it requires greater efforts from mutual funds and brokers to consider it as the the most sought-after route,” the head of a Mumbai-based brokerage’s wealth management arm. “Even today, mutual funds continue to keep distributors in good humour to sell their schemes rather than find an alternative plan,” he added.

The platforms were introduced by stock exchanges in December after distributors stopped selling most mutual fund schemes following the Sebi’s step to ban AMCs from using investors’ money to pay distributors.

Over seven months after its launch, the activity on NSE’s platform for mutual funds is yet to pick up. In June, 832 orders worth around Rs 5.8 crore were placed through NSE’s platform compared with 1,079 contracts worth Rs 4.47 crore in December. The activity on BSE’s platform has seen a slight spurt in July, with around 1,860 orders worth Rs 16.7 crore so far this month. In June, 884 orders worth Rs 15 crore were carried out on the BSE, compared with 739 contracts valued at around Rs 18.5 crore in December. The mutual fund industry saw redemptions worth Rs 1,19,449 crore in June.

“There is a huge scope for this platform. But for that, mutual funds need to approach brokers instead of just focussing on distributors,” said Sanjiv Shah, executive director, Benchmark Asset Management, which mostly offers ETFs that can only be bought and sold on exchanges through stock brokers.

Though brokers publicly maintain there is scope for selling mutual fund products, most of them, in private, are less enthusiastic. This is because brokers earn a majority of their revenues from regular trading of stocks by clients, while mutual funds schemes cannot be bought or sold in the same manner as shares. Due to lack of clarity about revenues from this business in the foreseeable future, most brokers are unwilling to invest in a big way to service mutual fund trades.

Retail investors also do not have any incentive to choose stock brokers over distributors at this juncture. This is because buying or selling mutual funds through stock exchanges requires opening a demat account and many mutual fund investors do not have one. Also, there is no cost advantage for investors who purchase mutual funds schemes in smaller numbers, mutual fund officials said.

But, some in the industry are a lot more optimistic about the platform’s prospects. “There will be a tipping point sometime, but I don’t know when... maybe a couple of years later or even sooner,” said Benchmark’s Shah.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Fee-sops-fail-to-boost-MF-sales-via-exchanges/articleshow/6164925.cms

SEBI plans a standard set of disclosure norms for MFs

The Securities and Exchange Board of India (Sebi) is planning a standard set of disclosures for mutual fund fact sheets, advertisements and scheme information documents (SID), a person familiar with the matter told ET. This will not only give a clearer picture about the performance of the schemes, but will also help investors compare similar schemes of different fund houses.

The regulator is aiming at more of quantitative disclosures, and not just qualitative disclosures as is the case at present.

For instance, take returns. The thinking within Sebi is that returns alone do not define performance. A scheme may generate high returns by taking more risks, but this may not be palatable to the conservative investors in that scheme. Once the risks taken by fund managers are quantified, investors can compare the performance of various schemes before deciding on the one that suits their temperament.

Around three years ago, the Association of Mutual Funds in India (Amfi) had issued a standard format for fact sheets. But many fund houses do not adhere to that.

One of the shortcomings of that format was that it left the definition of certain parameters to the discretion of fund houses. As a result, the performance of a scheme cannot be compared with that of its peer group.

For example, certain funds disclose the volatility on a monthly basis, while other funds disclose the annualised volatility. The funds do not disclose the risk-free rate they have taken as the standard while calculating the Sharpe ratio — the measure of risk-adjusted returns. Many funds do not disclose portfolio turnover, which tells an investor how often the fund manager churns his holdings.

Sebi has proposed certain quantitative parameters to assess the performance of various types of schemes. For instance, in case of equity schemes, fund returns will have to be mentioned on an annualised basis after accounting for short-term capital gains tax and the dividend paid out during that period. Further, funds should also calculate volatility as the annualised standard deviation of the weekly returns over the concerned period.

Similarly, the recurring expenses being charged by the scheme are also important for the investor as most funds in their SID only disclose the maximum expenses they would charge. These generally comprise the outer limit and do not reflect the actual expenses being charged. Similarly, in debt schemes, the fund must reveal the short-term and long-term risk-free rates to help the investor assess whether the fund manager has actually attained higher returns

for them.

Sebi also wants the mutual funds to give advertisements that give a holistic view of the performance of asset management companies (AMCs). The fund houses will have to publish advertisements that have specific quantitative parameters apart from just the scheme and benchmark returns.

“Most of the AMCs were advertising only the list of their best-performing schemes, while there is no mention of those schemes which are either faring poorly or giving average returns,” said a person familiar with the regulator’s proposals.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/SEBI-plans-a-standard-set-of-disclosure-norms-for-MFs/articleshow/6164921.cms

MFs now don't find it economical to service small retail investors

It’s now getting close to a year since the SEBI’s abolition of entry load on mutual fund loads. Over this year, much has been said and written about how an old business model will have to change and how people will transition to a new one and so on.

But looking at what has happened, one negative impact of SEBI’s directive is very clear. It is now utterly uneconomic for anyone in the mutual fund industry to serve smaller retail investors. Unless some unforeseen miracle happens, from now on, mutual fund investment is an activity that will be entirely limited to wealthy individuals.

Let’s see why this is so. Consider an investor who is a typical starting small saver in my experience. He would probably invest something in the range of Rs 10,000. If he’s figured things out a bit better, he would also start an SIP (systematic investment plan), probably about Rs 2,000 a month for a period of one year, to begin with. As things stand now, the advisor who has done the job of convincing this investor to invest stands to get about remunerated with about Rs 75, to begin with. Later, after a year, he starts getting a continuous commission of about Rs 25 a month, likely paid quarterly.

This is the trail commission for the total accumulated investment of Rs 34,000 as well as an estimated gain of 10% a year. Eventually, the customer might invest more and the money will accumulate. However, that requires a certain period of customer support and hand-holding and contact. The question is, is there money in the system to pay for these services?

If you multiply the above numbers by five or ten, then there is. A rich investor — the word rich is now taboo, so, we now use the awkward euphemism high net worth individual — who puts in Rs 1 lakh and then Rs 10,000 or 20,000 a month would be a customer who would not find any problem in being serviced well. However, at the basic level, there isn’t.

Is there no way that a customer can be serviced at lower investment levels? There is, but only if that customer already has some other financial connection with the service provider and the cost of customer contact and acquisition can be amortised over a larger business. In practice, this means banks. It’s only your bank that could find it economic to sell you a mutual fund for a small amount. Unfortunately, that’s not a great solution for the customer. Of all the various kinds of entities that distribute mutual funds, banks have the worst track record of systematic mis-selling. In any case, banks are far more interested in guiding all possible customers towards products with the highest possible commissions.

In effect, that’s the situation now. Simple business economics, combined with the way mutual fund regulations have evolved, has ensured that the small investor is unlikely to become a mutual fund customer.

Mind you, this is not an argument for creating upfront incentives. No matter what today’s problems are, it must not be forgotten that the root of all mis-selling in all financial products is distorted incentives.

Therefore, higher upfront commissions — or any upfront commissions at all — are certainly not a solution. From the investor’s point of view, the best outcome is a long period of good returns and the only solution is a compensation system that rewards the intermediary for that.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/MFs-now-dont-find-it-economical-to-service-small-retail-investors/articleshow/6157209.cms

Birla Sun Life MF Declares Dividend under Four Schemes

Birla Sun Life Mutual Fund has announced 16 July 2010 as the record date for the declaration of dividend on the face value of Rs 10 per unit under the dividend options of following schemes:

1. Birla Sun Life India GenNext Fund: Dividend - Rs 1 per unit, subject to the availability of distributable surplus. The scheme recorded NAV of Rs 14.58 per unit as on 8 July 2010.

2. Birla Sun Life Midcap Fund - Plan A: Dividend - Rs 1.50 per unit, subject to the availability of distributable surplus. The scheme recorded NAV of Rs 25.58 per unit as on 8 July 2010.

3. Birla Sun Life Freedom Fund: Dividend - Rs 1.50 per unit, subject to the availability of distributable surplus. The scheme recorded NAV of Rs 17.99 per unit as on 8 July 2010.

4. Birla Sun Life Basic Industries Fund: Dividend - Rs 2.50 per unit, subject to the availability of distributable surplus. The scheme recorded NAV of Rs 30.47 per unit as on 8 July 2010.

Source: http://www.bloombergutv.com/stock-market/mutual-fund/commentary/407452/birla-sun-life-mf-declares-dividend-under-four-schemes.html

IDFC India Consumption Fund files offer document with Sebi

IDFC Mutual Fund has filed an offer document with Securities and Exchange Board of India (SEBI) to launch IDFC India Consumption Fund, an open ended equity fund. The new fund offer (NFO) price for the scheme will be Rs 10 per unit.

The investment objective of the scheme is to generate capital appreciation by investments in a diversified portfolio of equity and equity related securities, which are likely to benefit by increasing consumption demand in India.

The scheme shall offer growth and dividend option. Reinvestment facility is also available under the dividend option

The scheme would allocate 65% to 100% of assets in equity & equity related securities. Atleast 95% of investments in equity and equity related securities shall be in companies engaged in consumption related sectors. It would further allocate upto 35% of assets in debt & money market instruments.

Entry load will be nil for the scheme. Exit load charge will be 1% if redeemed within 365 days from the date of allotment/investment.

Minimum application amount will be Rs 5000.

The minimum subscription (target) amount of Rs 1 crore is expected to be raised during the NFO period.

The scheme's performance will be benchmarked against BSE 200.

The fund manager of the scheme will be Mr. Kenneth Andrade.

Source: http://www.bloombergutv.com/stock-market/mutual-fund/commentary/407648/idfc-india-consumption-fund-files-offer-document-with-sebi.html

Tata Mid Cap Fund declares dividend

Tata Mutual Fund has announced a dividend of 15% (Re 1.5/- on the face value of Rs10/- per unit) under the dividend option of Tata Mid Cap Fund. The record date for dividends has been fixed as July 16, 2010.

All unit holders registered under the dividend option of the scheme as on July 16, 2010 will be eligible for this dividend. The NAV of the Scheme as on July 9, 2010 under the dividend option was Rs. 16.793.

Tata Mid Cap Fund is an open-ended equity fund. The investment objective is to provide income distribution and / or medium to long term capital gains by investing predominantly in equity / equity related instruments of mid cap companies.

Source: http://www.moneycontrol.com/news/mf-news/tata-mid-cap-fund-declares-dividend_469432.html

Sebi wants MFs to charge single levy

Fund houses may soon have to stop charging variable fees, a move that could benefit retail investors

The Securities and Exchange Board of India, or Sebi, is set to ban asset management companies (AMCs) from launching multiple investment plans catering separately to different classes of investors under a single scheme, in a move that could alter the country’s investment landscape.

A Sebi official, who did not want to be named as he’s not authorized to talk to the media, told Mint that the regulator will not allow any AMC to launch such multiple plans under one fund going forward, to ensure that fund houses give up the practice of levying different expense structures for different categories of investors.

Liquid funds and liquid-plus funds (later renamed ultra short-term funds) typically have separate plans under single schemes. The charges are different under different plans, though the portfolio under the scheme remains the same.

The move may administer another shock to the Rs6.75 trillion mutual fund industry, already reeling from the ban on entry loads imposed in August. Nearly Rs3.5 trillion, or 50% of the industry’s assets, are managed under liquid and liquid-plus schemes.

“Sebi wants AMCs to stop launching different plans with non-uniform expense structures under a single scheme,” the official said. “Single-plan schemes with single expense structures are required to ensure that there is no discrimination between small and big investors.”

Recently, the regulator sent letters to the AMCs, saying, “It is observed that some mutual fund schemes have different expense structures for different investor classes, e.g. retail/institutional/super-institutional plans, while there are other schemes that charge a single expense structure for the scheme. This practice has led to concerns of subsidization of one investor class by another and charging of different fees for managing the same portfolio of securities.”

The letter adds, “In light of these concerns, we are in process of reviewing different expenses charged within the same scheme with same portfolio.”

Experts said Sebi’s move will hurt the profitability of fund houses, significantly impact the commissions of distributors, and may also disincentivize large institutional clients who have parked money across hundreds of liquid and liquid-plus schemes.

Liquid and liquid-plus schemes are those where the corpus is allocated in short-term papers and money market instruments such as certificates of deposit, commercial paper, pass-through certificates, and collateralized borrowing and lending obligations. Maturities range from overnight to 90 days, and give 3.75-5% returns. Institutional investors park money in such schemes to benefit from tax arbitrage.

Officials at three AMCs said that Sebi restrained them from launching separate plans under ultra short-term funds when they approached the regulator in recent months for filing offer documents.

“Sebi refused to approve multiple plans under a single scheme when we approached them with offer documents for a liquid fund and an ultra-short term fund. So, we’ve launched the liquid scheme with a single plan,” said the official at one of the three AMCs. Officials at the other two AMCs said, “Sebi wants single plans with single expense structure under a given scheme.”

All existing schemes with multiple plans will also be required to conform to the new norms, and do away with varying expense ratios.

According to the CEO of a foreign AMC, if fund houses are forced to launch single plans under single schemes, all class of investors will be required to pay the same expense ratio under a given scheme. “To have a single expense ratio structure, retail investors will be required to pay much lower than what they are paying now and large institutional investors will be required to pay higher than what they are paying now,” he said on condition of anonymity.

If institutional investors are required to pay higher expenses, it may lead to huge outflows of institutional money parked in liquid and liquid-plus schemes. On the flip side, it may attract more retail investors as they will be paying lower expense fees.

With average maturities narrowing after 1 August when new valuation norms for debt funds come into force, a lower expense ratio will bode well for retail investors. Following Sebi’s move, AMCs may hike the minimum investment for such schemes to avoid paying high distribution commission for small ticket-size plans. Also, exit loads may be imposed for ultra short-term funds to attract long-term money from the investors.

“Sebi wants us to bring more retail investors into such liquid and liquid-plus schemes. Lower expense ratio will ensure this,” said the chief marketing officer at a domestic fund house. Most of the officials did not want to be identified as the matter involves the regulator and is sensitive.

Typically, AMCs launch liquid and liquid-plus schemes with three different plans—retail, institutional and super-institutional. While retail plans cater to the small investor who can invest as low as Rs5,000, institutional plans cater to large investors that can invest Rs50 lakh to Rs5 crore. Super-institutional plans cater to those who can invest over Rs5 crore.

These three plans have three different expense ratios, the charge that AMCs levy on investors, on an annual basis, for managing their money as well as other costs such as brokerage, fees paid to the fund’s registrar and transfer agent (RTA), bank charges, custody charges, trustee fee, distributor charges, etc.

Sebi’s concern is over the practice of charging retail investors more than large investors. While retail plans typically charge an expense ratio of 60-70 basis points (one basis point is one-hundredth of a percentage point) annually, the institutional plan levies a charge of only 40-50 bps. Investors in super-institutional plans pay only 25-30 bps.

Most of the liquid and liquid-plus or ultra short-term schemes have a large difference in the cost structures of retail and super-institutional plans. For instance, in the HSBC Ultra Short Term Bond Fund, the institutional-plus plan charges an expense ratio of 0.4%, as against 1.05% under scheme’s institutional plan, and 1.3% under the retail plan.

Under all such schemes, only about 10 bps account for expenses against RTAs, bank charges, custody and trustee fees combined. The rest is shared between the AMC and its distributors, with most of the money going to the distributors.

The regulator may issue new norms banning multiple plans under a single scheme shortly after gathering feedback from the industry.

Source: http://www.livemint.com/2010/07/11224332/Sebi-wants-MFs-to-charge-singl.html