Monday, December 12, 2011

Principal Large Cap: A star performer when the going is good

Its past performance so far reveals that Principal Large Cap has outperformed the markets brilliantly during rallies, but it has stagnated during downturns.

The current financial year has been a particularly disappointing one for the scheme as its investment calls of being overweight on metals and underweight on software have backfired. Despite the current volatile conditions, Principal Large Cap has abstained from taking heavy cash calls and stands by its conviction of not going overly defensive.

A similar strategy adopted in the meltdown period of 2008 did help in the scheme in the following year. This strategy, however, is like a double edged sword. It can hurt deeply in the near term if the markets are to deteriorate further but can also enrich investors if markets are to head north hereon.

Source: http://economictimes.indiatimes.com/features/investors-guide/principal-large-cap-a-star-performer-when-the-going-is-good/articleshow/11058970.cms

The inside story of mutual fund distributors

Sebi has floated a discussion paper which endorses minimum qualification or work experience for MF distributors; a Cafemutual survey of financial advisers shows mixed results
You’ve heard of him. You’ve read about him. He’s the guy you go to when you want to invest. Your mutual fund (MF) house needs him as well. The capital markets regulator, Securities and Exchange Board of India (Sebi), has been watching him too and now it wants to regulate him. He is your MF distributor. And this time around, he doesn’t seem to like all this attention; there’s a bit of a storm in his tea cup.

Having his MF commission income being disclosed publicly as per a Sebi diktat—and much against his wishes—followed by the distributor due diligence that could end up being a very tedious affair, comes a Sebi concept paper on the proposed investment adviser guidelines. The paper says that to be an investment adviser, a distributor must either have a minimum qualification, say a masters in business administration (MBA) or a chartered accountancy (CA) or “an equivalent degree” or he should have 10 years of work experience. Though the qualification that Sebi has suggested are merely draft guidelines for which public opinion has been invited, will agents meet this criteria?

Lack of qualification
According to a recent survey conducted by Cafemutual, an independent forum of MF professionals, most of the distributors would not make the cut based on qualification. Cafemutual conducted a survey of 1,505 independent financial advisers (IFA) across 30 cities in August-September. The survey showed that 65% of the distributors surveyed were just graduates, while only 7% of them were MBAs and 2% were CAs. Strangely, 6% of the distributors surveyed did not go beyond high school.

Work experience counts
But there is some comfort if their work experience gets counted. Around 33% of the IFAs surveyed have a work experience of more than 10 years in selling MFs, financial products and/or advising their clients. Another 33% of the IFAs surveyed have been in this business for a period of 6-10 years. “You cannot discount work experience. Of course, qualification is important because it reflects that you know more than just a graduate, but work experience is very important as it demonstrates that you have been through various market cycles. This shows endurance and knowledge of how we recommend portfolios that survive market volatility”, says Hemant Rustagi, chief executive officer at Wiseinvest Advisors Pvt. Ltd, a Mumbai-based financial planning firm.

Though 34% of the IFAs surveyed had work experience of up to five years, most IFAs feel it’s their work experience that really comes in handy to help their clients navigate market volatility, and not a high education qualification. Says Pranav Muzumdar, chief executive officer, Mangsidhesh Investments Pvt. Ltd, a Mumbai-based financial planning firm: “As the survey shows that most agents have been around for five years, it shows that the IFA segment has matured over the years. That said, how well IFAs can read the market is more important than just educational qualification.”

Reduced commissions
Muzumdar adds that if Sebi wants MFs to penetrate in rural areas, the minimum qualification and work experience rules for distributors should be relaxed. “I don’t think that an MBA or someone who has a 10-year work experience will be willing to settle down in rural India and sell MFs, especially when commissions are also on a decline,” he says.

He adds that reduced commissions across product categories add to the burden on distributors, pointing out to the reduced commission in selling post office schemes. Last month, the government eliminated the 1% commission on Public Provident Fund and 0.5% commission on the Senior Citizens Savings Scheme that was paid to agents. Commissions on other schemes have been reduced to 0.5%, down from 1% earlier. “Agents have to wait for hours at post offices because of the post office’s shoddy services and facilities, to ensure that their client’s money gets invested. A drop in commissions certainly doesn’t help,” he adds.

Should agents charge a fee from clients?
A drop in commissions also compels agents to charge customers. But are agents confident of charging their customers or willing? “Not really,” says Amar Pandit, a Mumbai-based financial planner and chief executive officer of My Financial Advisor, a financial planning firm. Pandit says that most distributors are not confident to charge their clients because they fear competition might offer freebies to their clients and poach them. “A majority of distributors don’t charge their clients. But customers must understand that they must pay because at the end of the day, there are no free lunches. If they want services, they should pay,” he says.

Asked whether they would charge their clients a fee, 25% of the respondents said that most or some of their clients were willing to pay a fee. “Hopefully, this number should go up. Economic compulsions have forced them to go to their clients and charge fees. Since entry loads were abolished, their earnings have gone down and that has forced them to look for alternative avenues. One logical alternative is to go to clients and ask them to cough up fees,” says Prem Khatri, founder and CEO of Cafemutual. Khatri adds that industry, its trade body or the markets regulator are better equipped to spread this message rather than the distributors telling their clients because “it may reduce their credibility”.

One of the reasons behind Sebi’s imposition of a transaction charge (Rs. 150 for a first-time MF investors and Rs. 100 for existing MF investors) was that it felt that distributors must be compensated in some way to help the MF industry grow and penetrate beyond large cities. “It (transaction fee) is some way to compensate the distributors, who may have lost interest in the distribution of MF products. The idea is that distributors have to be incentivized,” Sebi chairman U.K. Sinha had said in July. Of the money that the investor invests in the MF, the fund house deducts the transaction charge and pays it to the distributor. The balance gets invested in the markets.

However, agents were given an option to either “opt in” or “opt out” of charging the transaction fee. In other words, distributors can either choose to receive or not to receive the transaction charge. Of the 44,000 distributors that have so far complied with the know-your-distributor (KYD) norms, a mandatory procedure that agents were asked to follow failing which will make them ineligible to receive MF commissions, only 7,000 agents (or 16%) have opted in, as per data provided by the Association of Mutual Funds of India (Amfi), the MF industry’s trade body. Rest of them have opted to not charge transaction fee.

Willing to sell MFs
Khatri says: “A lot of IFAs have quit distributing MFs as only about 44,000 IFAs out of some 83,000 IFAs have met their KYD norms. However, one remarkable thing that our survey has thrown up is that MFs are considered to be the best investment product on account of their advantages such as low cost, transparency, professionalism and their ability to deliver returns. Even IFAs who have not yet done their KYD requirements have told us.”

Apart from surveying distributors from across the country, Cafemutual also conducted two group discussions each in Mumbai, New Delhi and Patna inviting distributors to talk on the industry, its issues and its future. One group discussion in each of these three cities comprised only of distributors who have not yet done their KYDs; presumably those who have stopped selling MFs. Khatri says that these distributors were almost unanimous in praising the MF product.

The survey adds that most IFAs perceive that their clients mostly demand equity funds more than debt funds. Ranked in their order of preference as to what distributors think their clients prefer, equity funds and equity-linked saving schemes top the list, followed by fixed-maturity plans and debt funds. Sector funds are at the bottom of the list.

As the much-awaited distributor regulations start to take shape, it remains to be seen how the distinction between an “adviser” or an “execution only” distributor happens and how well, or otherwise, the transition of a distributor happens from the latter to the former.

Source: http://www.livemint.com/2011/12/11215016/The-inside-story-of-mutual-fun.html?h=B

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  • Principal Emerging Bluechip fund (Stock picker Fund) 11%
  • Reliance Growth Fund (Stock Picker Fund) 11%
  • IDFC Premier Equity Fund (Stock picker Fund) (STP) 11%
  • HDFC Equity Fund (Mid cap Fund) 11%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 10%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
  • Sundram BNP Paribas Select Midcap Fund (Midcap Fund) 8%
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  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Moderate Portfolio

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  • Principal Large Cap Fund (Largecap Equity Fund) 10%
  • Reliance Vision Fund (Large Cap Fund) 10%
  • IDFC Imperial Equity Fund (Large Cap Fund) 10%
  • Reliance Regular Saving Fund (Stock Picker Fund) 10%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 9%
  • HDFC Prudence Fund (Balance Fund) 9%
  • ICICI Prudential Dynamic Plan (Dynamic Fund) 9%
  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Conservative Portfolio

  • ICICI Prudential Index Fund (Index Fund) 16%
  • HDFC Prudence Fund (Balance Fund) 16%
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  • Principal Monthly Income Plan (MIP Fund) 16%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
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  • JM Arbitrage Advantage Fund (Arbitrage Fund) 16%
  • IDFC Savings Advantage Fund (Liquid Fund) 14%

Best SIP Fund For 10 Years

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