Will UTI AMC become 'Khosla ka Ghosla'?

According to media reports, the finance ministry is pushing the candidature of Jitesh Khosla as head of UTI AMC. However, T Rowe Price, the single largest stakeholder in the AMC, does not seem to agree

UTI Asset Management Company (AMC), one of the largest AMCs in the country, is still awaiting the appointment of a new boss, after UK Sinha left to take charge of the Securities and Exchange Board of India (SEBI) in February.

According to media reports, the finance ministry, which indirectly controls a 74% stake in UTI AMC, is in favour of its own candidate for the top post, but T Rowe Price (TRP), the single largest stakeholder in the AMC, has threatened to exit from the venture if that happens.

The Human Resources (HR) panel set up by UTI is likely to shortlist probable names of candidates for the post of chairman and managing director by the end of this month, which will be sent to the board to take a view, and the shareholders will finally appoint the chairman, according to a report from the Press Trust of India.

The fund house has also hired executive search firm Egon Zehnder to recommend a suitable candidate to the HR Committee of the board.

Paranjoy Guha Thakurta, in an article published on Rediff.com, has said, "Political circles in New Delhi and the financial world in Mumbai are abuzz with speculation about the real reason why the powers-that-be are reportedly backing the candidature of Jitesh Khosla, a 1976 Assam cadre officer of the Indian Administrative Service, to take over the reins of UTI AMC."

"Khosla's nomination assumes significance since he is the brother of Omita Paul, adviser to Union Finance Minister Pranab Mukherjee. Paul, who used to belong to the Central Information Service (later Indian Information Service), has worked as Mukherjee's confidante and adviser for decades, including his recent stints at the helm of the ministries of defence and external affairs," the article says.

Earlier, in January 2010, T Rowe Price, the US-based foreign institutional investor, completed its acquisition of a 26% stake in UTI AMC through its wholly-owned subsidiary T Rowe Price Global Investment Services for Rs650 crore and thus gained representation on the board of UTI AMC. The foreign fund acquired a 6.5% stake from each of the four original stakeholders-State Bank of India, Punjab National Bank, Bank of Baroda and LIC-amounting to 26%, in UTI Asset Management Company and UTI Trustee Company. The four original stakeholders, three nationalised banks and the insurance behemoth still hold 18.5% each, or 74% together, in UTI AMC. This gives the government an indirect control of the AMC.

"While speculation is rife as to whether the ministry wants to control UTI AMC by proxy, there is also a view that by appointing Khosla the finance ministry would be accused of nepotism. While it is not clear how strongly T Rowe Price would register its protest against attempts to appoint Khosla as the executive head of UTI AMC, the beleaguered Manmohan Singh government can ill-afford another scandal," Mr Guha Thakurta, who is also a member of the Press Council of India, wrote.

Mr Khosla is currently officer on special duty at the Indian Institute of Corporate Affairs. As joint secretary in the Union ministry of corporate affairs he had overseen the government's intervention in the Satyam scandal.

UTI Mutual Fund had assets under management (average) amounting to Rs65,387.25 crore and investor accounts of around one crore in 81 domestic schemes at the end of December 2010.

Source: http://www.moneylife.in/article/will-uti-amc-become-khosla-ka-ghosla/15693.html

Learn why FDs are hazardous for wealth creation

Can you find anyone who has become wealthy by leaving his or her money in the bank or an FD? If you want to create wealth, you must move away from this mentality of thinking that a savings account or an FD is the best home for your money.

Much has been made of the so-called comparison between mutual funds and ULIPs in the past few months. Our opinion is that the public debate on these two investment options misses the bigger point. The reality is that the bulk of the household savings for Indian families is tied up in bank accounts earning 3.5% interest and in FDs, both of which are highly inefficient investment options for wealth creation. Add to this the announcement this week that inflation has now touched double digit levels, and its an even scarier thought that most of us still prefer to leave our money in a bank, rather than in instruments that are higher yielding, be they equity mutual funds or ULIPs.

So the real debate should be whether families in their effort to create wealth are making a mistake in leaving their money in the bank vs. choosing to invest through instruments like mutual funds and ULIPs that offer a reasonable prospect of better long-term returns.

Mutual Funds vs. ULIPs - no big deal

Call it a turf war or clash of regulators, frankly in the long run it's not a big deal from the end customer's perspective. Whether its SEBI or IRDA, consumers should feel comfortable and secure that there is a regulator who is mandated to look after their interests.

Every investment instrument has pros and cons. We challenge you to find one that is perfect. So, there will always be promoters or detractors of both mutual funds and ULIPs.

Objectively speaking, however, there is a better chance of you being able to meet your long-term financial goals through equity mutual funds and/or a ULIP than the default option for most Indians, which is to leave money in the bank.

Almost every one of us will have one of the following goals that require a substantial amount of money in the future: funding our graduate education, marriage, house purchase, taking care of children's financial needs, funding their education and marriage, being adequately funded towards our own retirement.

Experience from all over the world has shown that our salaries are not enough to fund these goals. We need to invest into the capital markets, subject to our risk taking capacity, to take advantage of the compounding of capital, i.e., money that creates more money. No lesser authority than Albert Einstein remarked, "compounding is the 8th wonder of the world because it allows for the systematic accumulation of wealth".

The advantage of equity mutual funds and ULIPs is that they are instruments that offer you a better rate of compounding for your capital than cash lying in the bank, and thereby provide a better chance of creating wealth in the long run.

Savings Accounts and FDs - bad deal for wealth creation

Let's make ourselves clear. Savings accounts and FDs have a purpose and we cannot over generalize and make a blanket statement that they are bad instruments. However, when it comes to wealth creation they are not good instruments for you to invest through. We will show you why.

First of all, a savings account earns you a mere 3.5% interest rate, a level that is fixed arbitrarily. Similarly, a fixed deposit contractually fixes the rate of return at the start date of your deposit, and you cannot earn more than what you signed up for, even if interest rates in the markets were to rise. Compare this to a return that the equity market can earn you. History and experience of equity markets from around the world suggests that in the long-term equity markets are likely to "compound your capital" at approximately 12% per annum. Compared to this, a 3.5% savings account return just does not match up.

Secondly, savings accounts and FDs are highly tax inefficient. Any interest you earn through these will be taxable in your hands as income, and you will be liable to pay tax on this income. Compare this to equity mutual funds and ULIPs where at least for the time being until the new direct tax code is implemented you pay zero taxes on your gains if you hold these instruments for the long-term. And, if you invest into an equity linked savings scheme (ELSS mutual fund) you might find this an even more tax efficient investment than a regular mutual fund.

Finally, and perhaps most crucially, by leaving your money in a bank or an FD, you are losing the purchasing power of that money. Because you are earning a fixed return through these instruments, these instruments cannot offset the corrosive effect of inflation or rising prices within the economy. If one's bank account returns only 3.5% pre-tax, but the level of prices is rising at 10%, one doesn't have to be a mathematical genius to figure out that in the long run one's standard of living will suffer. You will hardly be able to create any wealth, because whatever returns you earn does not even help you keep pace with the rising prices in the economy, let alone give you a surplus that can earn you further returns.

If you are already wealthy then FDs might be a good wealth preservation instrument, but please don't use them to create wealth for yourself.

Don't sit idle, invest actively

Putting your money into a savings account of an FD is almost akin to sitting idle. India is going through an inflection, which is likely to last for a few decades, where the equity capital markets will be the best avenue for long-term investment and a good way to build an alternate and legitimate source of wealth. If you believe in India's economic growth potential, then move at least some of your money from your bank account into a higher yielding instrument to give yourself a fair chance to create long-term wealth.

Source: http://www.ibtimes.com/articles/136289/20110420/learn-why-fds-are-hazardous-for-wealth-creation.htm

Union KBC Equity Fund file offer document with SEBI.

Union KBC Mutual Fund files offer document with Securities and Exchange Board of India (Sebi) to launch Union KBC Equity Fund, an open ended equity schemes. The New Fund Offer price is Rs. 10 per unit.

Investment objective: To achieve long-term capital appreciation by investing substantially in a portfolio consisting of equity and equity related securities.

Options offered: The scheme offers growth and dividend option. The dividend option further offers re-investment, payout and sweep facility.

Benchmark: BSE100 Index

Loads: Entry Load - NIL

Exit Load - 1% if redeemed or switched out on or before completion of 1 year from the date of allotments of units.

And nil if redeemed or switched out after completion of 1 year from the date of allotments of units.

Minimum Application Amount: Rs. 5,000 and in multiples of Re. 1 thereafter.

Minimum Targeted Amount: Rs. 1 crore

Asset Allocation: The scheme will invest upto 75% - 100% in equity and equity related instruments including equity linked derivatives and invest upto 25% in debt and money market securities.

Fund Manager: Mr. Ashish Ranawade

Source:http://www.indiainfoline.com/Markets/News/Union-KBC-Equity-Fund-file-offer-document-with-SEBI/3653136872