Saturday, October 30, 2010

Fund managers see marginal stocks rise; eye engineering stocks

Indian fund managers expect shares to move up but only marginally, making them averse to raising equity exposure in the next three months, a Reuters poll of 10 domestic fund houses showed on Friday.

Four of them expect shares to rise up to 5 percent, two managers see shares rising up to 10 percent and one bet on a rise of more than 10 percent. Fund managers said they expect shares to consolidate with a marginal rise rather than show a sharp upmove.

"We are not increasing exposure to equity. I will increase exposure in mid-cap and reduce in large-cap and thereby seek alpha," Jayesh Shroff, fund manager at SBI Mutual Fund said.

Alpha is the excess return over the benchmark fixed by the fund.

India's benchmark stock index which is trading at a 19 times forward earnings ended flat in October at 20,032.34 points. The 30-share index is still up 14.7 percent year to date, as foreign funds have invested a net $24.7 billion in Indian primary and secondary equities in the period. About half of the fund managers polled plan to increase exposure to mid-caps, while decreasing in small cap and large-cap stocks.

Engineering tops buy chart

Six money managers said they would increase exposure to engineering stocks as they were positive on the back of the Indian growth story.

"Engineering has not performed very well this year for couple of reasons like they due they were low on returns...if this underperformance was to be bridged over next three months then this trade should play out," said Amit Nigam, senior fund manager at BNP Paribas Mutual Fund .

India's economy is seen growing by 8.5-9.7 percent in the 2010/11 fiscal year, according to a report released by the finance ministry. The International Monetary Fund projects growth at 9.7 percent for calendar 2010.

Fund managers are also betting on the spending in the engineering and construction sector which is likely to accelerate due to backlog in the 11th Five Year Plan.

Indian fund managers said they see the stocks fairly valued at the current levels.

Source: http://economictimes.indiatimes.com/markets/analysis/Fund-managers-see-marginal-stocks-rise-eye-engineering-stocks/articleshow/6835911.cms

Top equity funds maintain growth tempo in Q2

Top-ranking equity funds have been consistent in their performance over the past three months. Seventeen of the 22 equity funds that were ranked one (Fund Rank 1) for the quarter ended June maintained their rankings during the September quarter, according to a press note issued by CRISIL .

"Investors prefer to hold funds that are superior and consistent in their performance over time to avoid churning costs. Top-ranking equity schemes showcased strong performance and outperformed the relevant index during the latest quarter," said Tarun Bhatia, director-capital markets, CRISIL.

Rank 1 diversified equity schemes gave the highest return among all equity categories at 14.95% and outperformed both the S&P CNX Nifty and the S&P CNX 500 which gave returns of 13.50% and 11.41%, respectively, the press note added.

CRISIL's MF rankings covered 452 open-ended funds accounting for 72% of the average assets managed by Indian mutual funds in September 2010. Among fund houses, HDFC Mutual Fund led the tally of top ranked funds - with 16 funds under rank 1 - across equity and debt categories. HDFC MF was closely followed by DSP BlackRock Mutual Fund with eight funds and Birla Sun Life Mutual Fund with seven funds under Rank 1. Taking a category wise split, Fidelity India Growth, HDFC Top 200 and ICICI Prudential Focused Bluechip led the large-cap equity fund group while Birla Sunlife Dividend, DSP Blackrock Opportunities and Fidelity Equity Fund topped the diversified category.

Birla Sunlife Basic Industries Fund and DSP Blackrock Natural Resources Fund managed top slots under thematic funds. DSP Blackrock Micro Cap Fund, DSP Blackrock Small & Midcap Fund along with HDFC Mid-cap Opportunities Fund were ranked best among small & midcap funds.

While Canara Robeco Equity Tax Saver and Fidelity Tax Advantage bagged top slots in the ELSS segment, HDFC High Interest Fund and HDFC Income Fund were ranked first among long-term income funds.

DSP Blackrock Equity Fund, HDFC Equity and HDFC Top 200 were adjudged consistent performers by CRISIL.

CRISIL's fund ranking framework provides a single-point analysis of mutual funds taking into consideration all factors such as risk-adjusted returns, asset concentration, liquidity, asset quality and asset size. The rankings also include categories that focus specifically on long-term consistency in performance. The ranks are assigned on a scale of 1-5, with 'CRISIL Fund Rank 1', indicating 'very good performance'.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Top-equity-funds-maintain-growth-tempo-in-Q2/articleshow/6839618.cms

RBI calms jittery market, as call rates top 12%

Second LAF window opened, SLR norm temporarily relaxed

Interbank call money rates surged to more than 12 per cent this morning, even after banks on Friday net borrowed Rs 1,17,660 crore from the Reserve Bank of India (RBI) repo window — the highest in two years. Around noon, RBI announced measures to cool the market.


The central bank opened a second liquidity adjustment facility (LAF) window, which it said would be offered on Monday, too. The facility will also be available on Saturday, when it is normally closed.

Simultaneously, RBI temporarily eased the statutory liquidity ratio (SLR) requirement for banks. They will not be penalised if their minimum SLR holding dips to 24 per cent of deposits if they pledge government securities to borrow through Saturday’s repo auction. The leeway is ad hoc and applicable only for the Saturday repo.

Banks have to invest up to 25 per cent of their net demand and time liabilities in government securities to maintain SLR. Any shortfall typically invites penal action from RBI.

As a result of the central bank’s actions, call money rates closed at 7.15 per cent. This was still its highest level this financial year, according to Bloomberg data. In the second LAF auction, banks borrowed only Rs 350 crore, as the window opened too late, say bankers. RBI described Friday’s shortage as “frictional liquidity pressure”.

“The regulator should not wait until panic spreads, which was the situation in the morning,’’ said a dealer.

The liquidity shortage this week averaged Rs 90,000 crore, mainly because of the Coal India initial public offering, which mopped up a record Rs 15,500 crore. Pressure rose as the IPO received 15 times the bid amount. Money from refunds is expected to flow back next week, providing some relief.

Given the scarcity of funds in the banking system, some bankers argue that RBI should leave rates untouched. Many money market dealers and bankers expect a 25-basis point increase in key policy rates on Tuesday, as RBI continues its action against inflation.

Mutual funds are feeling the pressure of redemption by corporates, banks and financial institutions. Rs Rs Banks have sucked out money from liquid funds to a large extent this month. With several IPOs in the pipeline and due to the central bank's intervention, which is squeezing liquidity, banks are no longer parking money with mutual funds," said the chief executive officer of a mid-sized fund house.

“One of the factors precipitating the problem is the lack of government spending, despite maintaining huge balances with RBI,” explained a senior State Bank of India official. Government balances with RBI stood at Rs 25,662 crore on October 22.

However, overall liquidity is unlikely to improve in a hurry, as several companies have lined up fund-raising plans in the busy season. There will be additional pressure from year-end investment liquidation by foreign institutional investors, say fund managers. Adding to the strain on liquidity will be the third tranche of advance tax, which falls due in mid-December.

Moreover, the government has lined up several big-ticket public issuances over the next few months, including those of Shipping Corporation of India, Hindustan Copper, Manganese Ore India and Power Grid Corporation. In January, Indian Oil Corporation is expected to come to the market with an offering of around Rs 19,000 crore -- the largest to date. The private sector also plans to tap the market with mid-sized and large issues.

“The present liquidity situation may improve, but it will take time. I don’t expect any immediate rate hike by RBI, as it will aggravate the situation. There is no real credit uptake and not much is expected in the third quarter, except from the infrastructure sector,” said Bhaskar Sen, chairman & managing director, United Bank of India.

However, the central bank may still be compelled to go for another rate hike, say some bankers. This is because headline inflation has stayed much above RBI’s tolerance level. Food inflation is now becoming structural in nature.

“The market has factored in a 25-basis point hike in both policy rates. As a result, short-term rates have gone up. I don’t think RBI will react to the present liquidity tightness, as it may be temporary, and will probably go ahead with a rate hike,” said Jahangir Aziz, India chief economist at JP Morgan.

Source: http://www.business-standard.com/india/news/rbi-calms-jittery-market-as-call-rates-top-12/413200/

Friday, October 29, 2010

Reliance MF limits subscription of units in Reliance Small Cap Fund

Reliance Mutual Fund has decided to limit the subscription of units in Reliance Small Cap Fund, an open ended equity scheme, with effect from 1 November 2010 till further notice. The limit on subscription of units has been done with a view that increasing the size of the corpus of the scheme further may prove detrimental to the interest of the existing unit holders. The aforesaid limit will be applicable subject to the following conditions:

1. Fresh/additional subscription/switch-ins will be allowed/accepted for an amount less than or equal to Rs 5 lac per investor (including all folios) at any point in time going forward till further notice.

2. Subscriptions through Systematic Investment Plan (SIP), Systematic Transfer Plan (STP) will be continued with each installment being less than or equal to Rs 5 lac per investor (including all folios) till further notice.

For this purpose, investor identification (per investor) will be done on the basis of Permanent Account Number (PAN) of first holder of the folio or PAN of guardian in case of minor. The aforesaid restriction will not affect SIP or STP registered prior to 1 November 2010 and the unitholders under the dividend reinvestment and payout option.

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

Thursday, October 28, 2010

SEBI move: MF industry could see consolidation

The mutual fund industry may soon see consolidation of its plethora of schemes as SEBI makes the process easy, said analysts.

The Securities and Exchange Board of India recently issued a circular mandating that the current scheme, resulting from a merger or consolidation of schemes, will not undergo any change in its fundamental attribute.

The large number of schemes in the industry may soon see a reduction in their numbers, if fund houses choose to take advantage of the SEBI circular, say analysts.

Reactions

“Product rationalisation is important for a growing industry and leads to improved efficiencies. The change in regulations should help in reducing operational complexity for this process, without diluting investor interests,' said Mr Jaya Prakash K, Head-Products, Franklin Templeton Investments.

This circular is investor-friendly and has been modified to suit investor needs, believe analysts. “This circular is very beneficial for the investor as it gives them the choice to exit or continue with the scheme, depending on the surviving scheme and its attributes. From an investor's point of view, this gives a clearer view of the funds involved,” said Mr Raju Singh, mutual fund analyst at SBI Cap Securities.

This circular is in direct contradiction to an earlier circular from SEBI in June 2003.

Then, the regulator had mandated that the surviving scheme would undergo a change in its fundamental attributes. This confused the investor, said analysts.

“The earlier circular was lenient, while this is a little bit more stringent. This circular gives a clearer rationale for the surviving scheme. Fund houses will now have to launch their schemes carefully as they will be very wary of SEBI's action,” said Mr Dhirendra Kumar, CEO, Value Research.

“This is a trivial matter and will not make too much of a difference to the industry,” he added.

Analysts believe that there are way too many products in the industry and merger of some of the schemes will reduce confusion and boost investor confidence.

“There are several schemes in the industry today which have an AUM of just about Rs 10 crore, some of even Rs 1 crore. So, why not merge these small schemes into one big scheme?” asks a mutual fund analyst who did not wish to be named.

However, there are certain limitations with respect to mergers of these schemes, as the investment mandate for each fund is different.

Source: http://www.thehindubusinessline.com/2010/10/28/stories/2010102852871300.htm

UBS eyes MF business in India once again

Zurich-headquartered UBS is looking to start asset management business in India. According to Christof Kutscher, group MD, head of Asia-pacific, “In Asia, we have picked up assets in China, Korea, Taiwan and Japan. India is a big gap in our offering. We are waiting for the right opportunity to enter the Indian asset management business.”

Currently, there are over 41 fund houses in the country while another 22 are awaiting approvals from the market regulator. Major foreign fund managers, including Fidelity, Franklin Templeton, T Rowe Price, ING and Mirae, already have a presence in the Indian asset management business and currently around eight mutual funds are predominantly foreign-based.

In the last one year, three companies—Pramerica MF, Peerless MF and Motilal Oswal MF—started their mutual fund operations. As per data provided by Association of Mutual funds in India (Amfi), the total average assets under management of the 41 fund houses stood at over Rs 7.13 lakh crore in September 2010. Kutscher added the bank will soon look for a partner and was keen on taking a controlling stake. This is not the first time that UBS is looking to enter the asset management business in India. In 2007, it had planned to acquire Standard Chartered’s mutual fund business in the country but the deal was later called off. The bank also plans to increase its footprint in the wealth management segment. UBS group already has a presence in the banking industry after it received a banking licence from RBI in 2008-09. It is also one of the top brokers for international entities investing in Indian equities. UBS India Securities Private’s brokerage and advisory services have been available from its Mumbai office since 1990.

Source: http://www.financialexpress.com/news/UBS-eyes-MF-business-in-India-once-again/702892/

Monday, October 25, 2010

Reliance MF to continue investing in PSU IPOs: Sundeep Sikka

Country's top fund house Reliance Mutual Fund today said it is bullish on the government's divestment plan and would like to have a pie in the state-owned majors like Indian Oil and ONGC, which are slated to go public over the next few months.

"We have been participating in the public offers by the state-run companies in past and will keep investing in the coming issues also. We see it as a right opportunity to have a pie the government-run entities," Reliance Mutual Fund Chief Executive Officer Sundeep Sikka said.

However, he did not say whether the Anil Ambani group's RMF has set aside any amount for divestment

The fund has also participated in the just concluded Rs 15,400 crore initial public offering (IPO) by Coal India Ltd, the largest share sale issue so far in the country.

The Centre, which is targetting Rs 40,000 crore mop-up through various stake sale offers during the current financial year, is likely to kick-off the next year in a big way.

The public offerings of three blue-chip Navratna companies -- Steel Authority of India (SAIL), Indian Oil Corporation (IOC) and Oil and Natural Gas Corporation (ONGC) -- are expected to hit the Dalal Street in the first quarter next year, Disinvestment Secretary Sumit Bose said last week.

According to Sikka, there is enough appetite in the market to absorb these big public issues. He said these big ticket offerings, along with other issue by some corporate houses, would not choke the primary market.

"There is enough money in the market to absorb these papers. Institutional investors are willing to investment in the India growth story," he said.

Expressing his views on the huge FII inflows in the Indian stock market, Sikka said India is the favourite spot for overseas investors as they see better return here compared to other emerging economies as well as from advanced countries.

Foreign institutional investors (FIIs) have infused a record Rs 1 lakh crore in the Indian stock market so far this year, alarming policy makers and regulators.

Talking about the company's expansion plan, Sikka said his fund house will have presence in the country's all the 600 cities and about 1,000 towns in the coming years and will also hire people in large number to manage them.

He, however, did not divulge any timeframe for expansion plans. At present, Reliance Mutual Fund has presence in about 270 cities.

At the end of September, RMF had an average assets under management of Rs 1.07 lakh crore and an investor count of over 72 lakh folios, as per the data available with the Association of Mutual Funds in India.

Source: http://economictimes.indiatimes.com/markets/ipos/fpos/rights-issues/Reliance-MF-to-continue-investing-in-PSU-IPOs-Sundeep-Sikka/articleshow/6802427.cms

Saturday, October 23, 2010

Keep lemons out of your fund portfolio

Sumved Sane (name changed), a lawyer, calls successful equity investing a gamble or a game of luck. He is not a reckless trader or a naïve investor. He has been an equity mutual fund investor for the past five years. However, though the BSE Sensex has almost trebled since January 2005, Sumved’s money has only doubled.

His obsession with new fund offers (NFOs) and best-performing funds based on short-term returns has landed him mostly in the company of underperforming funds.

Sumved is not alone. Innumerable investors fall for eye-popping short-term returns or follow a star fund manager or invest in hot sector funds or become victims of NFO campaigns.

Investors need to be frank with themselves — if they feel that they don’t have the expertise to choose the right fund, then they should avoid doing so. There are other ways to make decent returns that are definitely better than what underperformers will give them. Read on to discover more:

Index Funds: Around 64% of large-cap equity funds underperformed the S&P CNX Nifty over five years to June 2010, according to the second edition of S&P Crisil SPIVA fund scorecard. So, while star fund managers can go to town claiming that India remains a stock-picker’s paradise, there is growing evidence that active fund management is indeed facing problems.

This is where index schemes come in: They do away with the fund-manager risk and offer cost-efficient returns. All you have to do is to invest in a fund with the minimum tracking error — the difference between the performance of the scheme and that of the benchmark index.

If you are a long-term investor with no view on a particular sector, it is better to own a diversified benchmark index than a sectoral index. Stick to your asset allocation and keep rebalancing your portfolio at regular intervals. You must also book profits as the index fund will not book it for you.

But be prepared to face the advocates of actively-managed schemes. “Index funds weather the downturn in a market better than most of the diversified equity funds, but in the long run outperformance can be brought to the portfolio using good diversified equity funds with a good long-term track record,” says Abhinav Angirish, managing director, investonline.in, a mutual fund distributor.

But here, we are dealing with investors, who do not possess the necessary skills to spot the best diversified schemes. So, they shouldn’t mind a slightly weaker performance of an index scheme — if at all there is any, that is.

Fund Of Funds: You have two options here. One, you can choose Asset Allocation Funds offered by fund houses such as Birla Sun Life, ICICI Prudential, IDFC and Franklin Templeton. They invest in a judicious mix of debt and equity funds factoring in the risk profile of the investor. If you are conservative, go for conservative option in Asset Allocation Funds.

The second option is to go for schemes that invest into various equity funds. This option aims to bring the best of equity diversified funds into your portfolio. Schemes such as Kotak Equity Fund of Funds and ING Optimix 5 Star Multi Manager Fund invest in a portfolio of good diversified equity funds and generate good long-term returns. You will have to pay up to 0.75% of the total money invested by you in the FoF as annual fees.

Of course, the funds in which the money is invested have their own expenses, leading to duplication of costs. “Fund of funds is treated as a debt fund for taxation purposes and that reduces the post-tax returns offered by these funds compared to equity funds,” points out Dhruv Raj Chatterji, senior research analyst with Morningstar India. “Most of the fund of funds schemes that invest in Indian mutual fund schemes, have failed to offer top quartile returns consistently,” says Angirish.

But again, we are looking at this option only for the convenience of avoiding the task of choosing the best-performing schemes.

Research Services: When you don’t have the time or skills to identify the right schemes, why not hire the services of someone? In most cases, the research comes free. The service providers make their living on the ‘commissions’ they earn on your investments in various schemes. The commissions may push the investor’s interest to the backseat. In that case, you can always look for independent advisory services.

“Subscribing to independent research ensures that there is no conflict of interest and you get unbiased advice,” says Vipin Khandelwal, CEO, personalfn.com, an independent mutual fund research provider. Such services come out with recommendations on individual schemes and also offer ideal portfolios.

They keep their subscribers informed about updates in their recommended schemes. For example, a change of fund manager in a recommended scheme may not be noticed by an investor, but the research house may not only report it but also advise the future course of action that the investor should take. For independent opinion, you have to pay an annual fee and also take care of your transactions.

Portfolio Management Services: If you have more than Rs 5 lakh to invest and do not want to get into research and executing transactions, portfolio management services may be an option worth exploring. Broking firms invest your money in a judicious mix of equity and debt schemes, taking into account your risk profile and your return expectations. Some of them charge a fee of up to 1% of the money invested for offering these services.

Services include timely monitoring and monthly updates on your portfolio. You will get a pass-through statement that will tell you how many stocks you own on a consolidated basis. For example, if the broker has invested in five different schemes and out of these four have invested in Reliance Ind , the pass-through statement will tell you how much of your money is invested in Reliance Industries.

It gives a clearer picture to the investor of the risks involved.

“We book profits at regular intervals taking into account the asset allocation of the client,” says Hiren Dhakan, associate fund manager, Bonanza Portfolio. The power of attorney enables the brokerage to do this, which a fund distributor cannot do. But given little publicly available information about the performance of these services, investors have to choose their service providers with utmost care. Remember, you can again be in the company of an underperformer.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/Keep-lemons-out-of-your-fund-portfolio/articleshow/6806277.cms

Friday, October 22, 2010

SIP irons out mkt rate fluctuations from your investment

An SIP or Systematic Investment Plan is a way to invest in mutual funds at regular intervals. In SIP method of investment, the investor has to invest a fixed amount in a particular mutual fund regularly, say monthly or quarterly.

The minimum period of investment is one year and mutual funds are sold in units. Investor can purchase the units at market rate for a fixed amount. For example, you can invest Rs 12,000 in a mutual fund at one time or you can use SIP and invest Rs 1,000 every month for 12 months (January 2010 to December 2010). If the net asset value of the fund on say January 7 was Rs 50 per unit, the investor will purchase 240 units of the mutual fund. However, if the investor uses SIP to purchase the mutual fund, the number of units purchased on January 7 will be 20. Every 7th day of the month, the fund house will sell the number of units worth Rs1,000 to the investor. The total number of units purchased under SIP will be 249 units (rounded off). Note that when prices are rising, the total number of units purchased under SIP would be lesser. If the market rates are falling, the investor will get a greater number of units for the same investment.

Some companies also have daily SIPs. Here the investor has to invest a fixed amount daily in the mutual fund. For example, Bharti AXA and IDFC permit daily SIP. If the market is relatively stable, the number of units purchased through daily SIP and monthly SIP will not vary much.

An investor can issue post dated cheques or give instructions to banks to release payment regularly.

Why should you invest in SIP?

SIP has several advantages for the investor. To begin, people who cannot afford to make lump sum investments and hence shy away from mutual funds can invest through SIP. SIP permits small regular payments and modest investors can use this method to invest in mutual funds. For example, it may be difficult to invest a lump sum of Rs12,000/ but it is more affordable to keep aside Rs 1,000 per month. Most mutual funds permit a monthly SIP investment of an amount as little as Rs500 per month.

Another big advantage of SIP is that it irons out the market rate fluctuations from your investment. Since units are purchased every month, the numbers of units purchased by the investor are more representative of the market rate. SIP has the benefit of averaging the purchase cost of the investment. If the net asset value falls in the following months, you actually stand to gain in the long run since you purchase more units of the mutual fund in contrast to if you make a single investment. SIP promotes regular investment. In addition one can also hold a diversified portfolio.

The minimum investment for SIP is Rs 500 per month in most cases. Hence if you have Rs 1500 to invest per month, you can purchase 3 mutual funds instead of one. A diversified portfolio reduces the risk factor of your investment.

Source: http://www.financialexpress.com/news/sip-irons-out-mkt-rate-fluctuations-from-your-investment/700775/0

Thursday, October 21, 2010

Axis MF Launches Gold Fund

Axis Mutual Fund has launched a new fund named as Axis Gold ETF, an open ended gold exchange traded fund. During New Fund Offer (NFO) period, each unit of the scheme will be issued at a face value of Rs. 100 plus premium equivalent to the difference between the allotment price & the face value of Rs. 100. The new issue will be open for subscription from 20 October and close on 3 November 2010 after which the scheme will re-open on or before 16 November 2010.

The investment objective of the scheme is to generate returns that are in line with the performance of gold.

The scheme will allocate 95% to 100% of assets in gold with medium risk profile. It would further allocate upto 5% of assets in money market instruments with low to medium risk profile. The cumulative gross exposure through gold, money market instruments and derivative positions, if any, shall not exceed 100% of the net assets of the scheme. Cash or cash equivalents with residual maturity of less than 91 days shall be treated as not creating any exposure.

The entry and exit load charge will be nil for the scheme.

The schemes performance will be benchmarked against Domestic Price of Gold.

The minimum application amount for retail investor is Rs. 5000 and in multiples of Rs. 1 thereafter. For Authorized Participants: 1 kilogram (KG) gold per application and in multiples of 1 kilogram (KG) gold thereafter. The gold should be of finesses of 995 parts per 1000, i.e. 99.5%.

The fund seeks to collect a minimum subscription (minimum target) amount of Rs. 1 crore under the scheme during the NFO period.

The scheme will be managed by Anurag Mittal

Source: http://www.indiainfoline.com/Markets/News/Axis-MF-Launches-Gold-Fund/3341403604

Wednesday, October 20, 2010

Principal MF appoints PVK Mohan as Head-Equity

Principal Mutual Fund has announced elevation of P V K Mohan as Head-Equity with immediate effect. Prior to this, Mohan was working in the company as Senior Fund Manager, Equity.

In his new role, he will focus on Principal Mutual Fund's investment process targeting delivery of consistent returns in equity funds and leading the team of analysts towards the goal, a press release issued here today stated.

Mohan has around 17-years of experience in equity research and fund management.

In his previous assignments he has worked with IL&FS and IL&FS Mutual Fund, DSP Blackrock Investment Managers and ICICI Prudential Asset Management Company . He has a degree in electrical engineering from REC, Calicut, and a PGDM from IIM, Bangalore.

Source: http://economictimes.indiatimes.com/news/news-by-company/corporate-announcement/Principal-MF-appoints-PVK-Mohan-as-Head-Equity/articleshow/6774086.cms

JPMorgan unveils emerging market equity fund

JPMorgan Asset Management India Private Ltd today announced the launch of the ‘Emerging Europe, Middle East and Africa Equity Off-shore fund' (EEMEA).

It is an open-ended fund and will be open for subscription on October 18 and close on October 29, said a news release from the company. The performance of the fund will be benchmarked against the MSCI EMEA (Total Return Net).

It is an equity fund which will invest in a diversified portfolio of companies incorporated in central, eastern and southern Europe, West Asia or Africa, or have offices in these regions.

The EEMEA region includes over 10 countries, from South Africa to Russia.

“Apart from the wealth of natural resources that this region represents, EEMEA is a strong consumption play which is under appreciated by the market. A high-beta Russia and a defensive South Africa make EEMEA a well diversified universe.

This broad remit means that the fund can take advantage of portfolio diversification, thereby enhancing risk-adjusted returns and give investors exposure to a wide range of exciting long-term investment opportunities in these constantly evolving emerging markets,” said Ms Sonal Pandit, Portfolio Manager, Emerging Europe, Middle East and Africa Team of Emerging Market Equities.

Source: http://www.thehindubusinessline.com/2010/10/20/stories/2010102052071300.htm

Bank stocks attract fund houses in September

About 16% of investments flow into the sector.

Bank stocks were clear favourites of the mutual fund houses in September, says a report on the holding pattern of the fund industry.

Around 16 per cent of the investments made by fund houses were in the banking sector, followed by the petroleum, gas and petrochemical products at 11 per cent and software and consultancy services at 7 per cent, according to a report by brokerages Sharekhan and Religare Finvest.

Fund managers maintain that they are and will continue to be bullish on the banking sector, keeping in mind the growth opportunities in the sector.

The banking sector index moved up by 15 per cent during the period.

Another sector that fund managers consider attractive is FMCG. However, it accounted for only 3 per cent of the investments made by fund houses.

The FMCG index gained 5.5 per cent.

South Indian Bank was the top buy for mutual fund houses during August-September with around 5.7 crore shares being purchased. ITC was the top sell with around 1.7 crore of the shares being sold. Gujarat Pipavav Port Ltd was the second highest buy at 1.5 crore shares.

Other big names that featured on the sell list included Reliance Industries Ltd, Reliance Communication Ventures Ltd, Tata Consultancy Services Ltd and Infrastructure Development Finance Co Ltd.

In spite of ITC being the top sell share, it continued to be popular among fund houses; 213 schemes featured this stock, with the number of shares held being at 17 crore. The value of these shares was Rs 3,079.78 crore. The next most popular scrip was NTPC with 14.9 crore shares being included in 162 schemes. However, the value of NTPC share was higher at Rs 3,235.09 crore.

A total of 7.69 crore shares were sold by the fund houses during this period. Out of this, 1.86 crore were sold by DSP Blackrock Mutual Fund. IDFC and Reliance mutual funds occupied second and third spots respectively. IDFC MF sold 1.42 crore shares and Reliance MF sold 47 lakh shares.

The assets under management of the mutual fund industry saw an increase of around 4 per cent between August and September.

Source: http://www.thehindubusinessline.com/2010/10/20/stories/2010102052401200.htm

UTI to launch SIP investments via NSE-MFSS platform

UTI Mutual Fund on Tuesday announced the launch of SIP investments (Systematic Investment Plans) through NSE's-the Mutual Fund Service System (MFSS) platform.

UTI Mutual Fund was the first fund house to partner with the National Stock Exchange (NSE) for selling mutual fund schemes through the NSE-MFSS platform in the month of November 2009.

Keeping with that tradition of bringing the most convenient way of investment to our investors through cutting edge technology, we are the first fund house now to launch SIP investments (Systematic Investment Plans) through this NSE-MFSS platform, the company said in a statement here.

Terminals of NSE brokers will be the official point of acceptance and hence the date of acceptance of the transaction will be the date of entering the request on the terminal.

Investors will also have the added advantage of obtaining the same day's NAV (before 3 p.m.) at a large number of outlets in more than 1500 towns and cities, including remote locations.

The investors will also have an advantage of getting their units allotted in demat mode in addition to the existing physical mode as per their choice.

http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/UTI-to-launch-SIP-investments-via-NSE-MFSS-platform/articleshow/6776822.cms

Monday, October 18, 2010

MF chiefs allay fears over high FII inflows, bullish on infra

The Indian capital market remains fundamentally strong, concerns over high FII inflows are uncalled for and the much-feared flight of capital, if it at all happens, will only result in short-term volatility in the market, domestic fund managers have said.

"Why are you worried about the scenario of selling by FIIs? Let the foreigners sell so that we can buy our own stocks cheap," Reliance Mutual Fund's Head of Equity Investments Sunil Singhania said at an event here.

Both Singhania and Sanjay Sinha, Chief Executive Officer of L&T Mutual Fund , opined that market-prospects were bright both in the medium and the long-term, and that a pull-out by FIIs, if at all, would only result in a short term volatility.

An 18-month rally has seen the BSE Sensex gaining over 150 per cent, rising from 8,000 points to reach the 20,000 mark this month. Unlike the pre-slowdown rally, domestic institutions and retail investors have not participated in the surge, which has primarily been driven by heavy FII buying.

The FII inflows have resulted in a steady appreciation of the Rupee, giving rise to concerns over the price competitiveness of the country's exports. This has led the Reserve Bank to announce that it may intervene in the forex market.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/MF-chiefs-allay-fears-over-high-FII-inflows-bullish-on-infra/articleshow/6763110.cms

MF sector will adapt to Sebi norms

The mutual fund industry has been under pressure over the last one year after market regulator Sebi tightened rules to curb misselling by distributors. Distributors now have to directly negotiate the initial commission with investors. Naval Bir Kumar,president and CEO, IDFC Mutual Fund , says the industry is attempting to cope with the changes in the Sebi norms . But margins, he points out, have dropped and there is aneed to raise productivity.

The tightening on the operational fronts like risk management and disclosure norms was long awaited, Kumar says. "The last one year has been one of transition for the asset management industry and all stakeholders connected with it. The industry is still in the throes of this transition. Over a period of time, however, one would expect the industry to respond with simple, yet innovative products, improved customer service and more productive channels of distribution. With changes coming in all financial products, one would expect more congruence in the way to approach investors, he says.

“We can embrace these changes for the retail market only if we create products whose returns are much less volatile and have the flavour of a fixed deposit. Hence, we have been focusing on capital protection funds, asset allocation funds and other hybrid funds such as monthly income funds (MIPs). We are also increasing the range of products for high networth individuals (HNIs) and launching alternative assets class such as private equity funds to attract HNIs.”

Mutual funds complement, and not compete with, other investment avenues like insurance products. It is probably the only product that has all the advantages of tax benefits, liquidity, returns and transparency, he says.

According to him, so far, most investors based their decisions on short-term goals and the industry, on its part, launched several new fund offers in overheated markets. In a market where the industry was thriving on NFO game, products were launched to suit the flavour of the month and distributors’ interest. Kumar reckons that somewhere along the way, an NFO became the primary medium to raise assets than conventional sales and it spawned an entire machinery to that effect. The focus currently is on building performance and assets in the ongoing schemes. Distributors, clients, media and AMCs have all aligned towards that goal.

Another target group, according to him, is retail investors in Tier-II cities. In developed countries, retail investors enter the markets mostly through pension and insurance funds. However, in India, they usually invest directly. “So far, equity has become a product where investors pour money only at the peak and by that time, there is a correction. To overcome these issues, the industry launched the systematic investment plan (SIP). The product is yet to take off in a big way. For the retail investor, bank deposits continue to be the most preferred saving instrument. The trend is, however, changing and investors are looking at MFs as an alternative investment option now, he said.

With most retail investors continuing to stay away from the markets due to a sharp rise in a very short period, Kumar says that investors should be proactive in their decisions. "Money that retail investors save can help them earn more if they invest in instruments like MFs rather than in fixed deposits. So, investments are an important part of planning for the long term.”

"We need to bring investors back. There are various parts of business — one segment is corporate savings and other is HNIs. We are increasingly looking to target the HNI segment through innovative products like hybrid infrastructure schemes," he says.

Today, around 25% of the industry’s assets come from beyond the top 10 cities, up from 9% in 2003. This is expected to go up. India has been a best performing market globally in the past few quarters. “We have entered moderate interest rate scenario, though inflation continues to be a worry.” But there could be some pressure on interest rates as the private sector is getting aggressive in sectors like infrastructure.

Kumar, however, believes that the markets are overvalued. "India is attracting capital since Europe and the US are yet to come out of the woods. At the same time, low or negative growth in these countries is a risk to India. As of now, there are no worries about asset bubbles and earnings growth is seen stable even with the slowdown in the West."

Source: http://economictimes.indiatimes.com/opinion/comments--analysis/MF-sector-will-adapt-to-Sebi-norms/articleshow/6757321.cms?curpg=2

‘Inflation may surprise on the upside'

Monthly Income Plans and balanced funds have demonstrated that they have beaten inflation over a longer period of investments and should be actively considered by investors. - AMANDEEP CHOPRA, HEAD-FIXED INCOME, UTI AMC


The debt market is hotting up, with short-term debt funds doing well, fixed maturity plans delivering good yields and rates rising. Business Line put a few questions to Mr Amandeep Chopra, Head-Fixed Income, UTI AMC on the attractive options for investors today.

Excerpts from the interview:

What is your outlook on interest rates? Given that RBI has stated that ‘reversal of monetary stimulus' is almost done, how much more do you expect rates to rise?

We expect the interest rates to remain largely range bound. With inflation being on the forefront again, the RBI may go ahead with two more rate hikes of 25 bps each. The market appears to have already factored in at least one more rate hike and may not react to the actual hike unless the central bank continues to be hawkish in its stance.

With the equity market touching new highs and the debt funds continuing to invest in shorter-term instruments, which reduces effective yields, where should debt investors focus today?

While the short-term debt funds will remain an anchor in an uncertain time, investors can look at close-ended funds such as fixed tenure plans and fixed maturity plans and Monthly Income Plans with a stable dividend distribution history like the UTI Monthly Income Scheme.

Given the outlook that we are nearing a peak in interest rates, it would be a good strategy to allocate a small portion of overall investment portfolio, say 5 per cent, to income funds such as UTI Bond Fund.

What is your outlook on inflation? What are the safe investment options for those looking to beat inflation over the long term?

Inflation may surprise on the upside in the near months as it has remained pretty sticky based on the recent data releases. However, we expect it to moderate from January 2011 onwards, yet remain above the RBI's target levels.

Monthly Income Plans and balanced funds have demonstrated that they have beaten inflation over a longer period of investments and should be actively considered by investors.

Recent months have seen a slowdown in bank deposit growth. Are retail investors allocating the money to other debt investments?

The real rate of return on bank deposits is low due to high inflation at present, and it appears that there has been no significant credit growth yet that can compel banks to hike deposit rates, hence retail investors are chasing higher yield and riskier asset classes like equity, real estate and commodities.

Unless the credit growth on a year to date basis picks up substantially the deposit rates may maintain status-quo.

Over the last few months yields of longer-dated securities have somewhat stabilised. Are mutual funds moving to long dated instruments or will they stay with short-term debt?

Based on our view, we have increased duration of our long term funds - UTI Bond Fund and UTI Gilt Advantage.

FMPs have made a strong comeback in recent months with MFs raising a large sum through these funds. Can 3-month to 1 year FMPs offer better yields than bank deposits today on a pre-tax basis?

Yes, based on prevailing short-term rates – 3-month at 7 per cent and 1 year at 8 per cent, FMPs can offer better returns than deposits.

Quite a few companies are opening up FD programmes again. How should an investor choose between fixed deposits and debt mutual funds?

The factors to consider are diversification of the invested portfolio which a single company's fixed deposit cannot offer. Liquidity too may be non-existent in a company FD.

With introduction of infrastructure bonds and renewed interest in the debt market, will there be improvement in corporate debt trading volumes?

Yes, we have already seen improvement in debt market volumes for year-to-date FY2010 with more issuers and larger issues hitting the markets. With no surprises on enhanced supply of G-Secs, we can see more activity in corporate bond markets in the second half.

Source: http://www.thehindubusinessline.com/iw/2010/10/18/stories/2010101850521300.htm

Friday, October 15, 2010

Q&A: Harshendu Bindal, Franklin Templeton Investment

'Profits are likely to remain stagnant'

Franklin Templeton Investment (India), which manages Rs 42,142 crore, has the distinction of purchasing India’s oldest fund house, Kothari Pioneer Mutual Fund, in 2002. President Harshendu Bindal tells Joydeep Ghosh & Neha Pandey that the domestic fund industry’s profits of 12-15 basis points are much lower than the international standards. Edited excerpts:

While the stock market has been rallying, action at mutual fund houses, in terms of launch of new fund offers (NFOs) and fund collections, has been muted. Why?
It is due to a combination of factors. During 2006-08, we witnessed many NFOs due to buoyant market conditions. The pricing environment was also attractive. Many new players were entering the industry and building their product range.

Today, the conditions are quite different due to regulatory changes and most fund houses are focusing on selling existing products.

With the distribution community undergoing a change, they might not be able to push equity products. Our conversations with many of our distribution partners indicate that they may remain positively disposed towards the equity asset class but are not finding the environment conducive.

Despite their strong track record over market cycles, some of our equity funds like Templeton India Growth Fund or Bluechip Fund (with annual returns of about 26 per cent over the last 10 years), have not witnessed as much interest as they should. Whereas, if a bank announces 10 per cent rate on its deposits, investors line up outside its branches.

Recently, it was reported that the fund industry posted a net profit of around Rs 970 crore in 2009-10. On assets of Rs 6-7 lakh crore, we are talking of 12-15 basis points. What is the global experience?
In the US, profits are higher at 22 basis points of the average assets under management. This is true even in developed markets where margins have been under pressure due to regulatory developments.

However, it is a volume game. Without economies of scale, it becomes difficult.

The numbers in India are on the lower side (due to the large portion of money market assets). Only 10-12 players are making money in the industry. In India, you need a certain economy of scale, which only few players enjoy.

Also, the Rs 970-crore figure has to be looked at in the context of the previous financial year, which was one of the worst for the industry. The tightening liquidity impacted their money market books and the equity markets were down. This year, the markets have picked up and the asset mix is improving, so revenues were better.

Will this trend continue?
I think profits are likely to remain stagnant or fall. Now that fund houses have to pay distribution fees from their pocket, margins will go down further. So, the recent profits look great, but people have to be cautious. Our financial year ends in September and the latest numbers are not in, but the last three-four years have been profitable.

Are your profits operational, or is the purchase of Kothari Pioneer in 2002 for Rs 350 crore still being amortised?
The amortisation was completed three years back and we are actually in good shape with cash flows. We have benefited from our mix of assets – around 70 per cent of these are in long-term funds.

Reports suggest Franklin has been selling banking and automobiles, which others have been bullish on. Any particular concerns?
We are actually positive on the banking side. In the Indian context, the long-term story is an interplay of growing consumption and investment due to infrastructure spending. Given the low penetration of most financial services, the long-term outlook for the sector remains positive.

In our portfolios, our fund managers’ stock-selection depends on various factors, including relative valuations. Hence, rebalancing the portfolio should not be seen as a top-down call. We are bottom-up stock pickers. As a sector, we generally have a positive view on banking and financial services index.

Investors have booked profits aggressively. But they are not entering the market. Why? Even the number of folios is down.
In terms of composition of assets, around six months back, 60 per cent of the money was in the money market and 40 per cent on the long-term side. Now, it’s close to 50-50. In fact, it will be slightly higher on the long-term side. To me, it is a good sign that long-term assets are increasing, but it’s more to do with lower allocation to the money market amid tighter systemic liquidity.

Long-term money is coming on the hybrid and fixed-income side. However, on the equity side, we are witnessing outflows. Luckily, most investors are booking good profits, which is not a bad sign.

The flip side is if markets correct, will they come back? Hopefully they will. If we look at 2010, there were decent net positive flows in months when the markets corrected.

Lumpsum or systematic investment plan (SIP)?
SIP is my personal favourite. You can do STP (systematic transfer plan) or SIP, but systematic investing is always the better way to get exposure to the equity markets. Lumpsum sometimes becomes a question of timing in the investor’s mind.

Daily or monthly SIP?
A daily SIP may work for those convinced about daily averaging. However, it may encourage short-term behaviour and also may not make sense from an operational perspective. I feel we should encourage long-term investments and not look at short-term trends. A monthly SIP seems ideal, given the monthly income flows.

Source: http://www.business-standard.com/india/news/qa-harshendu-bindal-franklin-templeton-investment/411602/

Thursday, October 14, 2010

Principal MF Declares Dividend For Its Emerging Bluechip Fund

Record date for dividend is 15 October 2010.

Principal Mutual Fund has approved the declaration of dividend on the face value of Rs. 10 per unit under dividend option of Principal Emerging Bluechip Fund. The record date for dividend distribution is 15 October 2010.

The quantum of dividend will be Rs. 1 per unit, subject to the availability of distributable surplus as on the record date. The NAV of the scheme was at Rs. 27.69 per unit as on 7 October 2010.

Principal Emerging Bluechip Fund (G) an open-ended equity scheme with an investment objective to achieve long-term capital appreciation by investing in equity & equity related instruments of mid cap & small companies.

Source: http://www.indiainfoline.com/Markets/News/Principal%20MF%20Declares%20Dividend%20For%20Its%20Emerging%20Bluechip%20Fund/3328003833

Investors pull out Rs 12.8k cr from equity MFs

Investors of equity mutual funds (MFs) are laughing all the way to the bank. With the markets trading close to their all-time highs, investors have pulled out a record Rs 12,804 crore from equity MF schemes in September, which is about 50% more than the previous high hit in October 2007.


Equity MF redemptions surged 63.7% month-on-month in September, pushing fund houses to sell stocks to meet the huge spurt in exits. Fund houses net sold stocks worth Rs 7,236 crore to meet redemptions in September, the highest in 2010, Sebi data shows.

The sell-off in September is more than twice that of August and has not lost steam in October. Fund managers have net sold equity to the tune of Rs 2,573 crore so far in the month.

"It was almost like an avalanche. Large redemption requests came when sensex crossed 20,000 points," said a senior industry official. "Most investors, who wanted to redeem, have done it now since investments were made when sensex was trading between 15,000 and 21,000 points," said Jaideep Bhattacharya, chief marketing officer, UTI MF.

A lot of investments that came through new fund offers in 2006-08 are also being redeemed. "The markets have run up quite sharply. So, investors are pulling out money from equities and allocating it to monthly income plans, liquid funds and bank deposits," he said. Investors are also channelling the money into IPOs for short-term gains, say industry officials.


The sudden spurt in redemptions has resulted in a sharp jump in net outflows, which have touched Rs 14,624 crore so far this year. Net outflows from equity schemes have topped Rs 7,011 crore in September alone, more than double that of the preceding months, Association of Mutual Funds in India (AMFI) data shows. In all, investors have made total redemptions of Rs 63,948 crore in the first nine months of the calendar year, AMFI data shows.


However, redemptions have started to come down in the past week, say industry officials. "If sensex sees a mild correction, money would start flowing back," an official said. But some analysts said that there would be more redemption when sensex crosses 21,000 points. With nearly 50% of diversified equity mutual funds yet to recover lost ground, officials believe that another round of redemptions would happen once the market moves up.

Source: http://timesofindia.indiatimes.com/articleshow/6745044.cms?prtpage=1

Wednesday, October 13, 2010

Q&A: Nimesh Shah, MD & CEO, ICICI Prudential AMC

Look at sectors which are underpriced

With the domestic equity market close to its earlier peak, fund managers are cautious. Some sectors have outperformed the benchmark indices while others are still trading at lower valuations. In an interview with Mehul Shah and Chandan KK, ICICI Prudential AMC’s Managing Director and CEO Nimesh Shah says investors should avoid sectors which have already rallied and focus on spaces that are still underpriced. Edited excerpts:

What is the mood among retail investors?
Retail investors have gone through the entire cycle of ups and downs in the last three years and that too in a smart manner. I am quite impressed by the way they have behaved in mutual funds. They were not the first one to redeem when the markets crashed. Rather, they showed a good approach by waiting till the markets turned around.

What should retail investors keep in mind while selecting a mutual fund scheme?
One should not look beyond three to four categories, namely largecap, midcap, flexicap categories. Then, there are sector-specific funds. Historically, retail customers come in a particular sector when that has already rallied. An investor should be able to understand which sector would do well and should not look at those that have already outperformed.

Your infrastructure fund has completed five years. Is it a good time to invest in these kind of funds?
Between the last peak and now, infrastructure funds have not done well compared with other funds. May be it is the right time to pick funds in the infrastructure space. India has just started investing in the infrastructure sector. The country is nowhere near the world’s scale. This sector has not done well over the last three years, but the growth in the economy has continued. So, companies in this space have to grow. This sector is also underpriced as stocks have not appreciated much.

How is the profitability on the retail equity business front with the entry load ban?
We are scale players and have Rs 16,000 crore assets under management (AUM) in the retail equity business. To a certain extent, the profitability has got affected, but I do not expect all businesses to make money every quarter. This is a business we want to invest in and want to grow over a period of time, no matter whether I make money or not in a quarter or a year. Apart from this, our institutional and portfolio businesses are making reasonable profits. The only challenge is the retail equity business.

With debt valuation norms coming into force, how has the business changed?
What the regulator has done is a great risk mitigation thing for sponsors, investors and companies. For sponsors, this is the best thing from the risk adjustment point of view, as their risk has gone down considerably. With the liquid funds of less than 90-day duration and the rest of the portfolio being mark-to-market, the industry should go for a lesser duration. Moreover, for asset management companies, it will become a more logical business to run.

Are you considering no-exit load for equity schemes?
I am against removing the exit load. We do not want speculators to come into mutual funds. I want investors. The exit load to a certain extent ensures that if an investor comes in, he is conscious of the fact that he has to stay. I would rather have exit loads, so that there is a slight deterrence. We believe an investor can make money in equity if he stays for a long time.

Source: http://www.business-standard.com/india/news/qa-nimesh-shah-mdceo-icici-prudential-amc/411168/

It’s time to add value to services

In recent times, with the objective of ensuring full transparency, both the Sebi and Irda have forced the hands of the asset management and insurance companies, respectively, to overhaul product pricing, and in many cases, the products themselves
The wealth management industry in India has truly gone through a paradigm shift in the last one year or so. Till the shift came in, common practices of entry load structure and exit load compulsions for mutual funds, charge structures for unit-linked insurance plans (Ulips) were borne by the customer. A portion of these load structures and charges were given as commission to banks, distributors and financial institutions. The customer was being made to pay a charge that should have been ideally given by the product manufacturer to his partner.

Positive changes

In recent times, with the objective of ensuring full transparency, both the Securities and Exchange Board of India (Sebi) and Insurance Regulatory and Development Authority (Irda) have forced the hands of the asset management and insurance companies, respectively, to overhaul product pricing, and in many cases, the products themselves.

The first change was initiated in August 2009 by Sebi, abolishing the entry load structure for all equity mutual funds. A more recent change was pushed through by Irda in September 2010, bringing in a new charge structure for Ulips. Both the regulators have ensured that changes are to the benefit of the end user. This is clearly a welcome change. As a distributor of third-party investment and insurance products, I know that the new products to be launched will be even more customer-friendly.

As for the existing ones, customers are already benefiting from the simplicity of the load structure. Another key benefit of these new initiatives will be from the client’s point of view. Clients will now be more aware of the structure of these products and the specific benefits that would accrue to them.

The distributor’s role here is also huge and I know for certain that the time and effort spent on educating the client on the product benefits is a lot more now. For instance, product illustrations adopted by insurance companies are becoming far more comprehensive.

The way ahead for wealth management industry

Business models have evolved and shall continue to evolve over time. Often changes, of the kind now seen, act as triggers. In the case of the wealth management industry, most banks are now adopting a fee-based model charged on advisory instead of pure product-driven distribution strategies. From the client’s perspective, they will pay a fee to the distributor only if they see value in the overall offer that they buy into.

Overall planning: This will change the way products are sold to clients in the future. The role for a pure “transacting intermediary” will shrink. The intermediaries, in order to command attention from clients, will instead have to move towards an overall wealth management approach that involves financial planning and client asset allocation leading up to need-based sale of suitable investment or insurance products. Effective education of product benefits and matching it to the requirements of the client will be followed as a standard practice.

Customizing products and value addition: Banks and wealth management firms are now evolving the manner in which they sell an investment proposition to their clients. Providing customized and comprehensive investment solutions, focusing on technology and increasing convenience and analytical support will be the de rigueur composition of all banks and wealth management firms. They will now have to increasingly ensure that clients recognize the value-add in their services in order to willingly obtain fee from them.

New role of relationship manager: At the core of any wealth management proposition for a bank is the relationship manager. In the future, the role of an relationship manager will change; new regulations acting as the trigger here too. In short, banks will have to evolve into becoming a one-stop total solutions provider to their clients.


Source: http://www.livemint.com/2010/10/11230820/It8217s-time-to-add-value-t.html?h=B

Longer stay in India to increase NRIs' tax liability

Domestic households savings contribute significantly to India’s overall domestic savings rate. The credit goes to the Indian tax laws to a certain extent, as they provide tax incentives to individuals to invest in some specified tax-saving instruments. Section 80C of the Income Tax Act (Act) provides for a deduction of `1 lakh in certain investments (tax saving instruments)/payments made during the year.

The various investments which are eligible for deductions under Section 80C are equity-linked savings schemes (ELSS) offered by LIC and mutual funds, unit-linked insurance plans (Ulips) for self and/or spouse, children, life insurance policies for self, and/or spouse, children, employees’ contribution to recognised provident funds (PF), approved super-annuation fund, contribution to public provident fund (PPF); deposits in post office schemes such as National Savings Certificate (NSC), Senior Citizen Savings Scheme (SCSS), if it applies and the post office five-year time deposits, term deposit with a scheduled bank for a period of at least five years, investments made in bonds issued by the National Bank for Agriculture and Rural Development (Nabard) and debentures issued by specified companies.

In addition to the above investments, the following payments also qualify for deduction under Section 80C: payment of tuition fees for full-time education in any Indian university, college, school, educational institution (available for any two children), and repayment of the principal portion of a housing loan.

Besides Section 80C, one can also make an investment up to `20,000 in specified infrastructure bonds to save tax. Further, an individual gets a deduction of up to `15,000 (`20,000 where the individual is a senior citizen) for the health insurance of self and his family. There is an additional deduction of `15,000 where the health insurance is taken for the parents (`20,000 where any of the parents is a senior citizen).

However, the situation may undergo dramatic changes after the Direct Taxes Code (DTC) comes into play. DTC, 2010, proposes to restrict the deduction of `1 lakh only to some approved fund(s)— such as an approved provident fund, pension fund, super-annuation fund, PPF among others. However, an additional deduction of `50,000 has been proposed to cover payments such as life insurance premiums (premium not to exceed 5% of sum insured), health insurance premiums and the tuition fee. That means an individual won’t get any tax incentives for existing tax-saving instruments other than those covered in the DTC.

Non-resident Indians (NRIs) visiting India, will need to be more vigilant, post the DTC regime. Under DTC, if their stay in India exceeds 60 days during a year and 365 days for the past four tax years, then they may be considered as residents of India. Currently, they become residents only when their stay exceeds 182 days. Once they become a resident, they may have to pay tax on their global income, if their stay in India for the past seven tax years exceeds 729 days and if they are residents in two out of the past 10 tax years. In a nutshell, NRIs run the risk of triggering worldwide taxation soon if they spend a significant time in India.

The DTC proposals relating to individual taxation have undergone significant change since the DTC was proposed in August 2009. One will really need to wait for the final bill, which will become operational from April 1, 2012.

Source: http://economictimes.indiatimes.com/personal-finance/tax-savers/tax-news/Longer-stay-in-India-to-increase-NRIs-tax-liability/articleshow/6733168.cms

Tuesday, October 12, 2010

Industry witness fall in folios

The mutual fund industry, for the third consecutive month has witnessed a loss in folios. The fund houses bared a 5.85 lakh reduction in folios in September 2010, thanks to 6.53 lakh folio. reduction in growth/equity oriented schemes.

Total Assets Under Management (AUM) of Mutual Fund (MF) industry fell 7.38% or by Rs 52353 crore to Rs 6.57 lakh crore in September. Fund flow into mutual fund (MF) industry turned out negative in September as there had been net outflow of Rs 71838 crore compared with net inflow of Rs 36185 crore in August. There had been huge outflows from liquid funds, income funds and equity funds. The outflows from income and liquid funds accounted for Rs 64745 crore while outflows from equity funds stood at Rs 7011 crore.

Profit booking had been causing outflows from equity funds during September with the Sensex and Nifty rising over 11.6%. Some of the investors have redeemed their investments from the underperforming equity funds and also were booking profits & diversifying their investments into other assets classes. For the second quarter of this fiscal there have been outflows from the equity funds to a tune of over Rs 13000 crore.

Similarly, equity folios (representing the number of investor accounts) of mutual funds saw a sharp decline of over 6.53 lakh in September. Investors seem to be redeeming equity fund units on the back of rising equity markets to book profits and uncertainty over its direction, going forward. Total equity folios stood at 3.94 crore in September as compared to 4.00 crore in August. Meanwhile, total folios (including debt and others) also saw a dip of 5.85 lakh and were at 4.71 crore in September with high reduction in equity folios. However, the income/debt schemes folio increased by 1.03 lakh in September over August or by 2%. In the previous 11 months (between November 09 to September 10), the number of folios declined by 7.30 lakh, which in context to June rise of 70503.

Fund house wise, of the top five fund houses in the country, only HDFC Asset Management Company (AMC) has seen an increase of 40,999 in folio numbers in September to around 41.99 lakh folios. The other four fund houses saw a drop — Birla Sun Life Mutual Fund by 33,598 to 24.06 lakh; ICICI Prudential Mutual Fund by 37,224 to 28.75 lakh; UTI Mutual Fund by 64,464 to 99.71 lakh, and Reliance Mutual Fund by 79,442 to 72.51 lakh. SBI Mutual Fund registered the highest fall in folios by 80055, followed by Reliance Mutual Fund and UTI Mutual Fund.

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

Monday, October 11, 2010

MFs must tighten controls to prevent front-running

Back in June this year, market regulator Securities and Exchange Board of India (Sebi) revealed that an investigation had revealed that an equities dealer at HDFC Mutual Fund had been misusing his position to illegally make money in the stock markets.

This dealer would leak advance information of the mutual funds’ stock trades to his accomplices. They would then buy and sell before HDFC Mutual Fund itself did, thereby making money for themselves while causing incidental loss to the mutual fund, or rather, to the mutual fund’s investors.

At that time, Sebi fined HDFC Mutual Fund and banned Nilesh Kapadia (the rogue dealer) from participating in the securities market. It also asked HDFC to overhaul its internal controls and procedures to ensure that this sort of thing didn’t happen again.

I had heard that the incident had triggered panicked reaction in a large number of businesses that trade in equities on behalf of investors. Mutual funds, portfolio management services and insurance companies scrambled to figure out how vulnerable they were to something like this.

From what I know, many of them came to the conclusion that they could not guarantee that a determined and clever operator would not do the same thing. However, as far as investors were concerned, the matter seemed to blow over. Certainly, HDFC Mutual Fund itself seems to have gotten away without any detectable damage to its image among investors.

However, a couple of days ago, a more alarming piece of news has come out. Sebi has stated that it is now engaged in investigating 10 more mutual funds companies for possible cases of front-running. At this stage, they are just investigating and Sebi may or may not discover any actual wrong-doing. Also, it is notable that Sebi did not come out with this information willingly. Instead, it revealed it only in response to an Right To Information (RTI) request by a newspaper.

However, no matter how the investigations go, it is clear that front-running can only be curbed by organisations if they are internally committed to doing so. One important component of this commitment is that such actions should get exemplary punishment. Not just that, the responsibility for laxity in internal controls should actually be considered the real cause for losses suffered by investors. And these things should be done and not just seen as being done.
Those who manage other people’s money have a finite amount of trust and trust once spent is hard to earn back.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/MFs-must-tighten-controls-to-prevent-front-running/articleshow/6726754.cms

Amfi to become self-regulatory

No longer content with being just an industry association and trade body for the Rs7.13 trillion mutual fund industry, the Association of Mutual Funds in India (Amfi) is taking baby-steps towards becoming a self-regulatory organization.

In an interview, newly elected Amfi chairman U.K. Sinha refused to specify a time frame for the planned transformation, but said the objective is on his agenda. “The capital market regulator, Securities and Exchange Board of India (Sebi), has been asking Amfi to do this for quite some time. We’ll consult Sebi on the matter and soon start the groundwork to move in this direction,” he said.

Sebi now regulates mutual funds, but Sinha says the industry, with 41 asset management companies and at least 100,000 distributors, is too large and intricate for the market regulator to oversee every detail.

Amfi must move beyond being just an industry body. We have to engage other players who are on the periphery. Presently Amfi doesn’t have any representation from distributors or registrar and transfer agents. Ultimately Amfi must become a self-regulatory organization (SRO). We have also started talking to Sebi (Securities and Exchange Board of India) more actively. We would also like to work towards developing a mutual fund (MF) policy.

Tell us more about this policy.

For a variety of reasons, we observe that MFs are being perceived as a short-term vehicle and it is an aggregator for liquid assets of firms. That is just one part of our overall existence; to say that that is our only objective is a wrong impression. I protest.

The policy statement will define the industry’s role, list out measures to reach out to small towns, small investors, the MF industry’s obligations and thereafter its responsibilities. We have seen policies in the banking, civil aviation, insurance and even the pension sector.

Do such policies work? Many still can’t borrow from banks, non-remunerative flight sectors go empty. However, mobile phones (an area without policy) get penetration. Aren’t we going back 25 years?

I don’t think we can call these examples as failures. Maybe they have not been able to meet their expectations. For instance, if 40% of a bank’s advances has to go to the priority sector, banks have to set aside that money. Whether it reaches the final destination can be a question we can ask.

MF pension products are excluded from the tax deduction instruments under the new Direct Taxes Code. What also hurts the MFs is the differential treatment. There will be no harm to get clarity on this from the government and the regulator.

But, despite tight regulations and strong performance, why is it so difficult to get your message across to the investor?

Low financial literacy is a problem. Competitive products can offer incentives; the MF industry can’t. Since 2003, when the markets were going up, there has never been a year when retail equity inflows in the industry has been negative. But since last one year, the retail equity inflows has been negative. In fact, we are losing around Rs3,000 crore per month on average. The number of folios is dwindling. This is also why the New Pension Scheme has not taken off despite being a good product because there is no incentive for distributors. So we have to recognize that if there are other products where it’s possible for people selling them to be incentivized in a better way, a product which doesn’t pay incentives—no matter how good it is—will be at a disadvantage.

Are we talking of a move back to a system of paying incentives?

It is too early to comment on how the policy would shape up on this issue, but I am flagging this is as one of the issues. Fortunately, we have evidence of the past 15 years. If the government or the regulator is convinced that MF is a good product for retail investors, then a suitable incentive plan can be devised.

Would an incentive-based structure address the problems of mis-selling if adviser regulations are in place?

Yes it would. The absence of distributor regulation is a big lacuna.

Would Amfi—as an SRO—be interested in taking the leading and devising distributor regulations, at least for distributors selling MFs?

We have not discussed this with Sebi or with the distribution industry; I’d be speaking out of turn, if I say we will do this. Though I think Amfi should move in that direction.

Source: http://www.livemint.com/2010/10/11000607/Amfi-to-become-selfregulatory.html?h=A1

Making MF transfers easy — Nominee for your funds

Registering a nomination facilitates easy transfer of funds to the nominee on the demise of the investor.

What is a Nomination?

An investor can nominate a person(s) called nominee(s) to whom his/her Mutual Fund Units will be transferred on his / her demise.

Mutual Fund units get transferred to the nominee registered in the folio on the demise of the Investor.

What are the benefits of registering a nomination?

Registering a nomination facilitates easy transfer of funds to the nominee(s) on the demise of the investor. In the absence of the nominee, a claimant would have to produce a host of documents like a Will, Legal Heir-ship Certificate, No-objection Certificate from other legal heirs etc. to get the units transferred. The process is simple if a nominee is registered in the folio.

How can an investor make a nomination?

Nomination can be registered at the time of purchasing the units. While filling in the application form, there is a provision to fill in the nomination details.

Alternatively, an investor may register a nomination later through a form which may be submitted with relevant particulars of the nominee.

The forms are available on the mutual fund websites.

Investors may also request the registrar and transfer agent to send a form.

Can an investor make multiple nominations?

Yes! An investor may make up to three nominations and even specify the percentage of the amounts that will go to each nominee.

If the percentage is not specified, equal shares will go to the nominees.

Can a minor be a nominee?

Yes! A minor can be a nominee. However the guardian will have to be specified in the nomination form.

Can a nomination be changed?

A nomination can be changed and even cancelled. The relevant form should be filled and submitted to the Registrar or Mutual Fund Office.

If an investor has different schemes in a folio, will all units of all schemes be transferred to the nominee?

A nomination is at folio level and all units in the folio will be transferred to the nominee(s).

If an investor makes a further investment in the same folio, the nomination is applicable to the new units also.

Who can nominate and who is eligible to be a nominee?

Nominations can be made only by individuals applying for / holding units on their own behalf, singly or jointly.

Non-individuals, including societies, trusts, body corporates, partnership firms, the karta of an HUF, and the holder of a power of attorney (POA) cannot nominate.

Nomination can be in favour of individuals, including minors, the Central Government, State Government, a local authority, any person designated by virtue of his office or a religious or charitable trust.

A non-resident Indian can be a nominee, subject to the exchange control regulations in force from time to time.

Source: http://www.thehindubusinessline.com/iw/2010/10/10/stories/2010101051320800.htm

Saturday, October 9, 2010

Long-term growth potential justifies high valuations

With over two decades of experience in the asset management, Sanjay Sinha, chief executive officer, L&T Mutual Fund, says when it comes to intangible products like mutual funds, people prefer to buy it offline through someone who can guide and provide service. In an interview with FE's Saikat Neogi, he says that in the medium to long term, more people will move to online purchases of mutual funds. Excerpts:

What explains the relatively high valuations of Indian equities? Does it signal an impending correction?

India’s long-term sustainable growth is likely to further increase the growth differential across markets. Global liquidity and the shift towards emerging markets have led to strong FII investments, leading to greater valuations of Indian equities. However, valuations are reasonable given the long-term growth expectations.

What would you advise retail investors now? Which sectors are you overweight or underweight?

The market looks attractive from a medium- to long-term perspective. While the recent run-has been is sharp and market might consolidate before moving ahead, we believe, equities are expected to perform well over the longer term. With India becoming one of the strongest growth countries, we expect companies to continue to do well. There may be sectoral variations, but therein lie the opportunities. We expect FII fund flows to continue. Hence, we advise retail investors not to get swayed by volatility if the objective is to gain in the medium to long term. Infrastructure, automobiles and cement sectors look attractive considering growth and valuation. With the recent rally in financial stocks, we believe they may consolidate in near term. We are underweight on telecom.

Globally, mutual funds are retail investors' avenue to invest in equities. Why has this trend failed to catch up in India?

In India, the mutual fund industry is still in its infancy. If you see its evolution, we are witnessing the fifth phase of growth. Investors like mutual funds to be sold to them rather than buy on their own initiative. The lack of equity culture and awareness are also deterrents. Investors still feel that mutual fund means stock market. Having said that, we should not understate the growth of mutual funds' retail assets. The industry is servicing almost 4.5 crore folios and attracting 45 lakh systematic investment contributions every month.

With rising household savings, do you see greater expansion in non-metros?

Mutual fund is a true savings product and has all the characteristics of an ideal investment product. It provides liquidity, tax-efficient returns, flexibility and ease of transaction. This makes mutual funds one of the best vehicles for an individual investor to route savings. Currently, investors are savers, parking money in bank deposits. As awareness grows, people will start searching for the right avenues which can give tax-efficient returns and returns above inflation. Non-metros are yet to see the reach of mutual fund companies in true sense. I am very bullish about mutual funds expanding in in non-metros.

After the ban on entry load, how will fund houses reduce the cost of MFs and attract investors?

After the ban on entry load, there is going to be a paradigm shift in product and sales and distribution strategy by fund houses. I feel three fundamental changes are going to happen. First, more and more transactions will become paperless. Fund house will promote online/web as a channel to attract retail investors. This will reduce the cost significantly and bring scale to overall distribution. Second, optimisation of resources is going to be a key differentiator. The resources may be of any kind. It can be in terms of time, manpower, de-duplication of administrative jobs etc. This can be made possible by the use of technology. Thirdly, fund houses will have to take collective efforts to graduate distributors to the next level by new ways of training/engagement/promotion and so and so forth.

How will the online model of selling mutual funds pan out?

People are beginning to fancy buying products offline. This is true for tangible products like white goods, food items, clothes etc. When it comes to intangible products like MFs, people currently prefer to buy them offline and that too through someone who can guide and provide service.

However, the change in demographic profile is bringing an online culture. Youngsters — potential savers of tomorrow — are quite fond of Twitter, Facebook and other such media. This clearly indicates the evolving atmosphere in the buying pattern of an individual. I feel in medium to long term, more and more people will gravitate towards buying mutual funds online.

Source: http://www.indianexpress.com/news/-Long-term-growth-potential-justifies-high-valuations-/694557

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