Mutual Fund India

SEBI sees no reason to remove entry load ban in mutual funds.

noreply@blogger.com (Mutual Fund India) — Tue, 08 May 2012 05:41:00 +0000

Mutual fund companies looking for a reprieve in the form of reintroduction of entry loads or other charges may be disappointed, as the stock market regulator does not appear to be looking at the option in the near term. Considering the growth in the equity mutual fund schemes in the country, there was no need to bring back the entry load, the Securities and Exchange Board of India (Sebi) hinted.

“In 2010-11, the net inflow in equity schemes of the mutual fund sector was down by about Rs 13,000 crore, while in 2011-12, the net inflow was higher by Rs 600-700 crore. This is an encouraging development considering that the number of mutual fund folios were down in 2011-12,” the Sebi chairman, UK Sinha, said, at a press conference here on Monday.

In 2009, Sebi banned the practice of charging entry loads on mutual fund products making the product pricing more transparent. Mutual fund companies have been asking for the reintroduction of the entry load that would make the business more viable and profitable.

Evading a direct reply on the demands by Association of Mutual Funds in India (Amfi), Sinha said, “When there has been an increase in inflows even after the number of folios have gone down, it will not be fair for Sebi to jump to conclusions.” Sebi had not received any representation from Amfi on the same, he added.

The spread of the mutual fund business has not been up to the expectation of the potential of the market and Sebi has started the process of consulting agencies and shareholders to enhance the reach of mutual funds in India, he informed. Based on the responses of various stakeholders, the capital market regulator would consider setting up a committee to develop mutual funds business in India.

Sebi, which is in discussion with the insurance regulator Irda (Insurance Regulatory and Development Authority) to frame the listing norms for general insurance companies, hopes that the regulation would be out very soon.

The regulator has issued licenses to 13 qualified depository participants (QDP) to bring in qualified foreign investors (QFI) to invest directly in Indian equity markets.

“The entities need license to canvass for business outside India and minimum assets of Rs 500 crore. We have given licenses for 13 QDP. When the funds would start coming in, is not known to me,” Sinha said.

Source: http://www.mydigitalfc.com/mutual-funds/sebi-sees-no-reason-remove-entry-load-ban-mutual-funds-154

Bajaj Finserv-Allianz eyes Quantum buyout

noreply@blogger.com (Mutual Fund India) — Mon, 07 May 2012 06:16:00 +0000

Bajaj Finserv and its insurance partner Allianz are looking to buy homegrown mutual fund Quantum, highlighting the consolidation trend in the mutual fund industry. The proposed deal would mark the entry of the Pune based financial services firm and the UK-based insurer into the highly fragmented and competitive industry marked by wafer-thin margins.

People familiar with the situation said the two companies are in advanced stages of talks to acquire the six-year-old fund house, with a direct-to-investor business model.

Typically, valuations in large deals are based on a percentage of total assets under management (AUM). But this would possibly be a bilateral deal with valuation based on a premium to the networth (of around Rs 20 crore), said an investment banker involved with past transactions in the mutual fund industry.

Source: http://timesofindia.indiatimes.com/business/india-business/Bajaj-Finserv-Allianz-eyes-Quantum-buyout/articleshow/13029155.cms

After a slew of low-valued deals after the Lehman crisis, the domestic mutual fund (MF) industry is once again seeing deals at good valuations. Despite, short-term hiccups, untapped opportunity in asset management business in India is attracting foreign players who are betting on the long-term potential.

noreply@blogger.com (Mutual Fund India) — Fri, 04 May 2012 11:30:00 +0000

After a slew of low-valued deals after the Lehman crisis, the domestic mutual fund (MF) industry is once again seeing deals at good valuations.

Despite, short-term hiccups, untapped opportunity in asset management business in India is attracting foreign players who are betting on the long-term potential.

At a time when the fund industry has been crying foul over regulatory tightening, bad market conditions and investors fleeing out, recent transactions are being done in the range of six to seven per cent of assets under management (AUM).

Japan’s Nippon picked up 26 per cent stake in Reliance AMC in January, offering a valuation of 6.64 per cent of the fund house’s AUM. Last week, Britain’s largest asset manager Schroders, bought 25 per cent stake in Axis AMC, broadly in-line with recent valuations.

Independent industry experts say the debt-equity mix is one of the main criterion for valuing a fund house. Dhirendra Kumar, chief executive officer of Value Research, says, “Apart from equity assets, profitability and distribution networks of fund houses are also being considered for arriving at valuations.”

For that matter, acquisition of Fidelity’s MF business in India by L&T AMC in March is also estimated to have happened at 6-6.5 per cent of AUM. This was mainly on account of the substantial equity assets Fidelity possessed. Compared with 2008-11, a stagnating period which saw deals valued between 1.5 and four per cent of assets, current valuations have move up. Industry experts had at that time blamed the entry load ban for lower valuations of Indian fund houses.

Since expense ratio for managing equity assets is high compared with debt, valuations tend to go up for deals involving higher equity assets.

According to Lester Gray, chief executive officer, Schroders (Asia Pacific), long-term prospects for the asset management industry in India are very positive. “We are not short-term optimistic that things are going to change immediately, but we do believe over the time India will become an important asset management market in the region,” he adds. He says bad times will change and when it happens, the growth opportunity will reassert itself. “And unless you have established a strong presence, you are not going to benefit by the next upswing in growth,” he says.

Since MFs as financial investment products have very less penetration, a strong distribution channel is the biggest factor for high valuations. Dhruva Chattterji, senior analyst at Morningstar India, notes, “If a fund house has readily available distribution network, it will end up getting a good valuation.”

This holds true. For instance, in case of the Nippon-Reliance deal, the foreign entity could leverage on Reliance AMC’s established distribution channel. Similarly, Schroders will get benefits from Axis Bank’s branches across the country. Distribution channel has gained importance as MFs still continue to be a push product.

Prior to these high-profile deals, Goldman Sachs had bought out Benchmark AMC at a valuation of 4.1 per cent of assets in 2011. Similarly, a deal between Bank of India and Axa Investment is estimated to have happened at around four per cent of assets. Back in 2009, L&T Finance bought out DBS Chola at a valuation of 1.55 per cent of assets, while Nomura had picked up stake in LIC Mutual Fund at around 2.5 per cent of assets.

Source: http://business-standard.com/india/news/foreign-players-see-value-in-indian-mutual-fund-industry/473342/

Rabobank puts Robeco up for sale, value EUR 1.5-2 bln-media

noreply@blogger.com (Mutual Fund India) — Thu, 03 May 2012 09:25:00 +0000

Dutch lender Rabobank plans to sell its fund management arm Robeco for between 1.5 and 2.0 billion euros as part of a reorganisation of its businesses, a Dutch newspaper reported on Friday citing unnamed sources.

Rabobank has appointed Deutsche Bank and JP Morgan as advisers on the sale, Het Financieele Dagblad reported.

Rabobank officials were not immediately available for comment.

Source: http://www.reuters.com/article/2012/04/27/rabobank-idUSWEA964520120427

Big funds score on safety

noreply@blogger.com (Mutual Fund India) — Wed, 02 May 2012 05:08:00 +0000

HDFC Top 200 has been on most distributors’ recommended fund list. However, Renu Pothen, head of research at Fundsupermart.com, removed the fund from her list last month. Other funds removed were HDFC Equity Fund, Principal Global Opportunities Fund, DSP BlackRock India TIGER Fund and ICICI Prudential FMCG Fund.

Pothen argues, “These funds are very large. For instance, both the HDFC funds have assets under management (AUM) of around Rs 10,000 crore. And we feel that their ability to give as good returns as compared to smaller funds is limited, as such funds with bigger AUMs are giving lower returns.”

When returns of the top 10 mutual fund schemes (according to AUM) are compared with 10 schemes, having AUM between Rs 500 crore and Rs 1,000 crore, it’s seen that funds with smaller AUM don’t fare as well as the top 10 schemes do. In the past year, bigger funds have lost 33 per cent, whereas smaller ones have shed 41 per cent. Similarly, in three, five and 10 years, bigger ones gained 249, 98 and 141.5 per cent, while smaller ones gained 205.5, 57.5 and 145 per cent, respectively.

However, the results are mixed when individual funds are compared. According to data from mutual fund rating agency Value Research, HDFC Top 200 (AUM Rs 11,381 crore) has lost nearly five per cent in the past year. In comparison, Reliance Top 200 Retail (AUM Rs 829.65 crore) has lost nearly four per cent in the same period. Similarly, Fidelity Equity (AUM Rs 3,401 crore) has lost nearly five per cent in the past year, but Birla Sun Life Equity (AUM Rs 750 crore) lost nine per cent.

Lalit Nambiar, senior vice-president and fund manager, head (research), UTI AMC, says, “Smaller funds are nimble and, hence, it’s easy to invest money in these to earn good returns. With larger funds, there is capacity constraint, and you will have to buy the same stocks again and again. As a result, getting consistent returns becomes a problem.” However, Nambiar says data does not show this trend clearly.

Pothen suggests new investors take to smaller funds, while existing ones can stay put in bigger funds. Ideally, one should look at a fund’s returns and its track record. Older the fund, the safer it is.

Sanjay Sachdev, president and chief executive officer of Tata Asset Management, takes the middle path. “There is no thumb rule that larger AUMs are a demerit. But larger funds do become difficult to manage after a point, especially in times of stress,” he says. Indian markets have lesser depth compared to their foreign counterparts. Therefore, liquidity can become an issue. “Moreover, opportunities to invest Rs 8,000-10,000 crore over a period of time may just diminish. In stressful times, you cannot take out such huge amounts in two-three days if there is huge redemption and you’ll be in a soup,” Sachdev explains.

Some others feel this phenomenon is largely restricted to mid- and small-cap funds. “In the mid-cap space, there are not many stocks that can help you produce good returns year after year. Therefore, if the fund size increases, there are chances it becomes illiquid. And, it is important for these funds to maintain an optimum size,” says Dhruva Raj Chatterji, senior research analyst at Morningstar India. A larger mid-cap fund can’t invest only in select mid-cap stocks due to concentration risk in those stocks. This defeats the investment mandate and impacts the performance.

Also, in case of thematic funds, their size can be a spoilsport. Fund managers may not be able to take many autonomous bets in this case, as there is a fixed number of stocks to play with.

Source: http://www.business-standard.com/india/news/big-funds-scoresafety/473117/

Rethink loads, make them really zero

noreply@blogger.com (Mutual Fund India) — Wed, 02 May 2012 05:01:00 +0000

An unambiguous signal that there are no loads will help the fund industry move on

When U.K. Sinha took over as the capital markets regulator in February 2011, there was a pervasive expectation that the upfront commissions embedded in the price of a mutual fund would be back. His UTI Mutual Fund (UTIMF) and Association of Mutual Funds in India (Amfi) stints were taken as an indication that he would be more “reasonable” than his predecessor, C.B. Bhave, who banned loads in mutual funds, stunning the then Rs. 6.1 trillion industry. The presence of the load—an invisible payout from the investor’s money at entry or exit—has been proved to encourage sales of the heaviest load products and churning (when the seller moves money in and out of financial products to harvest the charge sitting in the product), both of which are harmful to the investor.

Though the “load versus no-load argument” has been on since 2009, there is a sudden pick-up of the pro-load buzz in the industry. Triggered by industry association Amfi CEO H.N. Sinor’s statement last week asking for a review of the ban on entry loads in mutual funds, the chatter is now online. I believe the current push to reinstate loads is part of a plan where the second scene is being played out. The first scene unfolded when fund houses, after months of negotiation with the regulator, agreed in June 2011 that a Rs. 150 charge for first-time investors and Rs. 100 for existing ones would solve the industry’s problems of not being able to grow beyond the top 10 cities. Industry insiders had admitted in private that this was just to get the window to open a crack and the push to open it fully will come a bit later. Well, that’s what’s happening now. The industry is lobbying to open that Rs. 100 window wider.

There are several reasons why the Securities and Exchange Board of India (Sebi) agreeing to this push would be regressive. One, if it were loads that sold a product, India would be a fully insured country today. For more than half a century in India, life insurance products have paid Rs. 40 on Rs. 100 as load or commission, but less than 20% of the insurable population is covered. Worse, the products sold have not been in retail consumer interest—the average Indian is under-insured and holding inflation-unfriendly investment products due to this load structure. Clearly, just throwing money will not ensure reach.

Two, one part of the industry seems to be adjusting well to the absence of loads and a step back would hurt this process of a more mature industry. The net inflow into equity funds for 2011-12 has been Rs. 834 crore in a year that markets dropped 10%. Mutual fund inflows are linked to markets and falling markets make it difficult to garner funds. This positive inflow has come a year after the industry lost Rs. 13,000 crore due to the impact of the no-load rule. This is the time to build on the strengths and not revert to an inferior system.

Three, the residual loads left in the product are still doing more harm and good. Asset management companies (AMCs) are paying out an average 75 basis points of the amount invested out of the annual charge or their capital and giving another 75 basis points from the trail that would come at the end of the year, as upfront commission to their large distributors. This skews behaviour—a little over Rs. 65,000 crore came into equity funds in 2010-11 and about Rs. 80,000 crore was redeemed. The same money is being rotated in and out of funds, earning some distributors large commissions. These are mainly banks—HSBC earned almost Rs. 120 crore as commission from mutual funds in 2010-11, at number two was HDFC Bank at just over Rs. 115 crore. Seven of the top 10 commission earners were banks with a total income from this of more than Rs. 500 crore.

What industry needs is an unambiguous message that loads in any form are banned. Not from the investor or the mutual fund. This should be done in all retail-facing financial products, not just funds. The funds should look at their neighbours and see what loss of confidence can really do to a market. The life insurance industry shrank 9% in 2011-12, with the numbers for the private sector being much worse. It sold lemons in the form of unit-linked insurance plans and as investors lose faith, the industry suffers. At its worst, the mutual fund industry lost just over 2% of assets under management (just talking about equity here as that is the true retail product) in 2010-11; the recovery began in 2011-12.

We need an incentive that will align the interests of all the players in this equation. We needn’t take the route Australia has taken and ban all payouts from investors’ money, but keep the trail commission as the method of compensation, other than fees. This is one payment that aligns the interest of all three parts of this triangle—the investor (who benefits as funds show growth), the seller (who benefits on rising income from a growing asset base because the funds recommended did really work) and the manufacturer (who gets consistent income based on performance). Why is this so difficult to understand or implement?

Source: http://www.livemint.com/2012/05/01203241/Rethink-loads-make-them-reall.html

Mutual funds give thumbs down to PSUs, cut stake

noreply@blogger.com (Mutual Fund India) — Tue, 01 May 2012 05:44:00 +0000

Major public sector companies, once treasured for rich natural assets holdings, monopolies in certain businesses and a dominant presence in others, have gone out of favour with domestic mutual funds. Over the past 12 months, mutual funds have significantly pared their holdings in bluechip state-owned undertakings amid concern that the government is increasingly intervening in their business.

According to information collated by The Indian Express, domestic mutual funds and UTI have reduced their holding in five out of the six PSUs that are part of the Sensex, the benchmark index of the Bombay Stock Exchange.

Mutual fund holding has dropped significantly in power equipment major BHEL (from 7.03 per cent in March 2011 to 1.44 in March 2012), while in four other PSUs — GAIL, ONGC, NTPC and Coal India Ltd — MFs have pared their exposure, though not so dramatically.

The only exception has been State Bank of India, the country’s largest bank, in which mutual funds and UTI improved their holdings marginally. Compared to 4.22 per cent last March, MF holding in SBI is 4.81 per cent now.

While PSUs have gone out of favour, 14 of the remaining 24 companies on the Sensex have seen the stake of mutual funds in them rise. In nine others, mutual funds cut their share.

The waning interest has not only eroded the valuation of PSUs, but also pulled down the broad market movement. In the 12 months ending March 31, 2012, the 30-share Sensex lost 10.5 per cent. But the 60-stock PSU index fell much more — 18.4 per cent.

More significantly, the 60 PSUs lost more in market capitalisation in absolute terms than the Sensex itself. While the Sensex market cap dropped 9.1 per cent or Rs 2.94 lakh crore to Rs 29.28 lakh crore during the last financial year, the market cap of the 60 PSUs plunged 18 per cent or Rs 3.5 lakh crore to Rs 16.09 lakh crore.

Experts tracking the industry said domestic funds have less confidence in PSUs because better opportunities are available. “Actions speak louder than words. Fund managers today see better opportunities elsewhere and their confidence in PSU performance is low,” said a top executive with a leading mutual fund. “Government intervention is affecting PSU performance and the market has valid concerns.”

In the recent past, The Children’s Investment Fund Management (TCI), which owns 1.01 per cent in Coal India Ltd, wrote letters to the company to stop following government instructions and act independently. It said that if CIL sells its coal at market prices, its profits will increase by $19 billion (Rs 95,000 crore). It has even initiated legal action against CIL and its directors for breach of fiduciary duty, and for acting against the interest of the general public and shareholders.

Oil companies are incurring losses because the government has not given its go-ahead to increasing fuel prices even as crude prices have risen to over $125 per barrel. In the banking sector, there has been overt pressure on public sector banks to cut lending rates. After the Reserve Bank of India slashed key policy rates by 50 basis points recently, the finance ministry wrote to bank chiefs seeking a cut in interest rates.

There are others who say that as and when the government’s finances improve, the view on PSUs will change too. “Oil subsidy is one issue which is yet to be resolved, and that is affecting some of the companies. Also, the government’s fiscal deficit has gone up, which raises concern. However, when the government’s finances improve, these companies will do well,” said S Naren, Chief Investment Officer, ICICI Prudential Mutual Fund.

The fundamentals of the public sector companies remain attractive, Naren said. “The fundamentals are fantastic and we are looking to go overweight on them,” he said.

Source: http://www.indianexpress.com/news/mutual-funds-give-thumbs-down-to-psus-cut-stake/942198/0

Volatility, uncertainty will dominate markets in near term: Vijai Mantri, Pramerica Mutual Fund

noreply@blogger.com (Mutual Fund India) — Mon, 30 Apr 2012 13:50:00 +0000

In an interview with ET Now, Vijai Mantri, MD & CEO, Pramerica Mutual Fund, speaks on the markets and the GAAR issue. Excerpts:

ET Now: Last two or three weeks have been tough and rough for money managers. Do you think uncertainty and indecision will continue to dominate the Indian markets in the near term?
Vijai Mantri: Volatility and uncertainty will continue to dominate the Indian markets in the near term. The budget is going to get passed in May. The key would be that in what format and with what addition or deletion the budget is passed. Another key issue is how the government handles GAAR. That will decide the future FII inflows because if you look at the ownership of the Indian equity market, there is a very little retail ownership. Actually retail investors are taking money out from the Indian equity market. So, whether we like or dislike we are continuing to depend on FII inflows and right now FIIs are not putting in money because of uncertainty on GAAR. One could also look at how the government is going to look at the fuel price hikes.

ET Now: What gives you the confidence that if the GAAR issue is resolved, foreign institutional investors will come back?
Vijai Mantri: There is no certainty of outcome in the business of investing, but you look at improving your odds. In spite of all the challenges India continues to grow at 7%. All global economies are facing some headwind, so does India. But a 7% growth in my opinion is not a bad growth. You look at what valuation are you buying this company. Then you look at the historical cyclicality of the Indian equity market. In our opinion, the worst as far as the corporate results are concernned is over in Q3. You look at the combination of all these factors and then you also look at the currency play. All these thing favour a little bit of allocation of foreign investors. We do speak to people and we just had a conference and the view is that people are more positive in FY13 than they were in FY11 or FY12. We believe that at the moment there is some clarity on GAAR. More money from FIIs would come and it is not that the people do not want to pay taxes, it is a question of uncertainty.

ET Now: Why are banking stocks underperforming despite the rate cut? Most of the fund managers were of the view that if the rate cut is announced, banking stocks will get derated.
Vijai Mantri: In our opinion Q3 was the worst quarter for the banking sector. The Q4 numbers or whatever results we are seeing in the private sector banks are pretty much above expectation. The effect of the rate cut will start bearing result not immediately, but over a period of time. The general sentiment about the fiscal condition of the Indian government is that there is a lot of uncertainty about the NPAs in the banking sector. That is the reason the banking sector has not reacted and the market is completely neglecting the numbers. But we are overweight on the banking sector because we believe this is a proxy to economy and with reduction in interest rates, the banking sector is going to benefit immensely and many banks are available at historical low valuations. If one has to look at making money over a couple of years, then one has to be in the banking industry. Right now it is a classical case of the bear market where all good news is being completely ignored and all bad news is priced in and the banking sector is witnessing that phenomena.

ET Now: Besides banks, do you think the market stance is going to be tilted more towards defensives given the kind of macro environment that we are currently in?
Vijai Mantri: People may do technical allocation to defensives, but defensives are not coming with cheaper valuations. Defensives are available at valuations which are much higher than they were in 2008. What kind of money you are going to make when you are buying stocks at 32-35 PE multiple? Right now there is uncertainty in the markets. People are looking at buying these kinds of stocks. But if you are a money manager, if you are not looking at protecting your NAV, you are looking at growing your NAV and you are looking at where are the odds of making or doubling or tripling your money, then beyond banking there are many sectors whose stocks are available at attractive valuations. There is a lot of uncertainty and that is the reason these stocks are available at lower valuations. We are underweight on the consumer staple, but we are more overweight on capital goods and industrial. We believe that capital goods are available at the lower end of the valuation.

ET Now: Stock performance is also a function of opinion. Defensives tend to do bad when risk is back. Similarly, rate sensitive and investment-oriented businesses or stocks tend to do well when growth is back. So globally what kind of scenario you think we could be staring at for the next six months because that scenario will tell us which are the group of stocks you need to buy and which are the group of stocks you need to sell?
Vijai Mantri: You made a very interesting point and let me link it with the previous question you asked. The banking sector has not done too well because of a lot of uncertainty on the global inflow. In our opinion Europe is going to do much better than it did last year. There is a clear realisation that there is a problem and one needs to tackle the problem. We would not see any significant bad news coming from Europe, but it will take many years to revive the European economy and the leadership is realising that.

We have been consistently bullish on the US economy and the US market for the last couple of years. We believe that the US will surprise us on the economic as well as the market front because of inherent strength of the economy. The growth will come back. It will not be a big growth, but will be muted. Also, more money will start floating into the market over a period of time.

ET Now: What about autos? Do you think the volume story is going to take the likes of Tata Motors and Maruti given the valuations that they are already sitting on even higher?
Vijai Mantri: If you look at the auto sector, you have to look at specific companies. There will be challenges in the two wheeler sector because the volume growth will not be that high. Companies which are completely domestic demand driven will face challenges and companies which have some export exposure will do well. One also needs to keep in mind that implementation of metro across 10-12 cities in this country will have some impact on the auto demand in the long term. So, we are not overweight on the auto sector and we believe that with interest rate, inflation numbers and muted salary growth, the sector will face some challenges in the next 18 to 24 months.

ET Now: At a time when you are generally bullish on the GDP growth and you expect that Indian economy will grow at 7% plus, what makes you bearish on consumption? Yes, you are bullish on banks because you like consumption, but you do not like autos because you expect consumption to slow down?
Vijai Mantri: We need to look at the penetration of the auto industry. In smaller towns and some metros, penetration has been pretty decent and we do not see the kind of historical growth we have seen in auto companies going forward. It is not that we do not like these companies, but when you look at the valuations these companies are available and the expectations built in for the growth, the equation does not tally. We do not have any bad opinion about the auto industry, but at the sheer valuation they are available and the expectation of growth, we do not believe that the auto industry is going to go through those kind of growth except a few companies which are in different segment of the market. Companies which are more towards agri, in the rural economy will continue to do well. Even if you look at the growth which is going to come by, then you need to look at the sectors which give you high delta. Then you look at the valuation of various sectors and find that capital goods industrial and banking are available at much lower valuations and the growth expectation in these sectors is pretty muted compared to the auto industry. We always look at juggling all the balls which we have to play around and in our opinion as on date the odds are much more in favour of capital goods, banking and industrial, than the auto industry.

ET Now: What about telecom? Given the recent news flow on the 2G recommendations, do you think it is time to go underweight?
Vijai Mantri: We are already underweight on telecommunication because of two-three factors. One of them being the policy uncertainty. The second reason is that there is too much competitiveness. However, the numbers are looking little okay. The per usage number shows an upside trend after the downside trend for many months and quarters, but still we would remain little underweight on the telecommunication sector.

Source: http://economictimes.indiatimes.com/opinion/interviews/volatility-uncertainty-will-dominate-markets-in-near-term-vijai-mantri-pramerica-mutual-fund/articleshow/12933927.cms?curpg=3

SEBI to meet mutual fund distributor associations on 3rd May.

noreply@blogger.com (Mutual Fund India) — Mon, 30 Apr 2012 13:46:00 +0000

Regulator will seek suggestions to overcome the constraints relating to distribution and reach of mutual funds.

Distributor associations like Chennai-based IFA Galaxy and Mumbai-based Foundation of Independent Financial Advisors (FIFA) are set to meet SEBI on 3rd May to discuss issues relating to reach and distribution of mutual funds. The meeting will be chaired by Prashant Saran, Whole-Time Member of SEBI.

The regulator will discuss the following issues in the proposed meeting:

Issues relating to distribution of mutual funds

Perceived constraints to enhance the reach of mutual funds beyond the top cities

Suggestions to overcome these constraints.

Among other issues, a subject that is bound to come up for discussion is SEBI’s recent concept paper which tries to segregate the distributor community into ‘advisors’ and ‘agents’. IFAs want to avoid this segregation, because both models are followed by the trade.

HN Sinor, CEO of AMFI, admitted in a recent interview with the Economic Times that abolishing entry load at one go was not such a good idea. “We need to dispassionately review the (entry load ban) decision once again,” he said.

The introduction of transaction charge by SEBI has not done much for the industry so far.

Source: http://www.cafemutual.com/News/InnerNews.aspx?srno=1292&MainType=New&NewsType=Industry&id=21

UK's largest fund Schroders acquires 25% stake in Axis Mutual Fund

noreply@blogger.com (Mutual Fund India) — Sat, 28 Apr 2012 05:59:00 +0000

Britain's largest asset management company Schroders has acquired a 25% stake in Axis Bank-promoted Axis Mutual Fund for an undisclosed amount. The deal will help the Indian fund house access Schroders' global distribution network and advise overseas funds invested in Indian securities.

The Economic Times had written on March 14 that Schroders Investment Management was in talks with Axis Bank to acquiring stake in its mutual fund arm. As part of the deal, Schroders will have one board member each on the AMC's board and Axis Mutual Fund trustee company.

Schroders Investment Management is a UK-based firm managing $291 billion worldwide. Schroders had applied to the Securities and Exchange Board of India (Sebi) in April 2008 to start a mutual fund business in India, but did not secure a licence till last year. Axis Mutual, which started operations in 2009, has equity assets worth Rs 640 crore. Axis Mutual Fund's total assets under management (AUM) stood at Rs 8,815 crore as on March 31.

Source: http://timesofindia.indiatimes.com/UKs-largest-fund-Schroders-acquires-25-stake-in-Axis-Mutual-Fund/articleshow/12906267.cms

IDBI Mutual Fund Launches IDBI India Top 100 Equity Fund

noreply@blogger.com (Mutual Fund India) — Sat, 28 Apr 2012 05:58:00 +0000

IDBI Mutual Fund has launched a new fund named as IDBI India Top 100 Equity Fund, an open ended growth scheme. The New Fund Offer (NFO) price for the scheme is Rs. 10 per unit. The new issue will be open for subscription from 25 April and will close on 9 May 2012. The scheme re-opens on 22 May 2012.

The investment objective for the scheme is to provide investors with opportunities for long-term growth in capital through active management of a diversified basket of equity stocks, debt and money market instruments. The investment universe of the scheme will be restricted to equity stocks and equity related instruments of companies that are constituents of the S&P CNX Nifty Index (Nifty 50) and the CNX Nifty Junior Indices comprising a total of 100 stocks. These two indices are collectively referred to as the CNX 100 Index. The equity portfolio will be well-diversified and actively managed to realize the scheme objective.

The scheme offer dividend option and growth option. Dividend option offers payout, reinvestment and dividend sweep.

The scheme will allocate 70% to 100% of assets in equities and equity related instruments of constituents of the CNX 100 Index with high risk profile. On the other side it would allocate upto 30% of assets in low to medium risk profile. Investment in Derivative instruments will be up to 50% of the net assets of the Scheme. Investment in derivatives shall be for hedging, portfolio balancing and such other purposes as maybe permitted from time to time.

Minimum application amount is Rs. 5000 and in multiples of Rs. 1 thereafter.

The fund seeks to collect a minimum subscription (minimum target) amount of Rs. 10 crore under the scheme during the NFO period.

Entry load is not applicable for the scheme. Exit load charge will be 1% for exit (repurchase/switch-out/SWP) on or before 1 year from the date of allotment for the subscriptions received during the NFO period

Benchmark Index for the scheme is CNX 100 Index and will be managed by V. Balasubramanian.

Source: http://www.indiainfoline.com/Markets/News/IDBI-Mutual-Fund-Launches-IDBI-India-Top-100-Equity-Fund/4267613196

Axis Mutual Fund will announce equity tie-up with global fund house Schroders

noreply@blogger.com (Mutual Fund India) — Fri, 27 Apr 2012 11:44:00 +0000

Axis Bank's Axis Mutual Fund will announce equity tie-up with global fund house Schroders today, sources from the market said. The board of Axis Bank will be meeting today to consider its annual results and recommend a dividend.

The Economic Times had written on March 14 that Schroders Investment Management is in talks with Axis Bank to acquiring stake in its mutual fund arm.

Schroders Investment Management is a UK-based firm managing $ 291 billion worldwide. Schroders had applied to the Securities and Exchange Board of India (SEBI) in April 2008 to start a mutual fund business in India, but did not secure a license till last year. The Times of India too had reported that Axis Bank will consider this proposal at its board meeting today.

A number of Indian banks like State Bank of India, Bank of Baroda and Bank of India have divested equity stake in their in their mutual fund arm in favour of gloabl mutual funds.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/axis-mutual-fund-will-announce-equity-tie-up-with-global-fund-house-schroders/articleshow/12896293.cms

Mutual funds lose over 7 lakh folios in six months

noreply@blogger.com (Mutual Fund India) — Fri, 27 Apr 2012 05:49:00 +0000

The past six months were particularly tough for the mutual fund industry as indicated by the number of folio closures witnessed in the period.

Mutual funds lost over 7 lakh folios (1.5%) during the six months ended March 2012 to end with 4.64 crore folios, according to industry body Association of Mutual Funds in India (Amfi). For the year ended March 2012, the industry lost 7.8 lakh folios or 1.7%, indicating that the number of folio closures rose substantially during the last six months.

The retail category was the biggest loser in terms of folios, especially in equity. This was mainly because of the volatile movement of the equity market. Between October and December, the benchmark BSE Sensex declined 5.4%, but rose 6.4% between October and March, thanks to the surge in FII inflows in the early part of 2012.

The domestic banks/financial institutions category also witnessed a decline of 77% in folios during year ending March 2012 mainly due to RBI’s recent circular restricting bank investment in mutual funds to 10% of their net-worth from January 2012, according to note by Crisil Research.

However, the good news for the industry is that 61% of retail investors have stayed invested in equity mutual funds for more than two years. Out of the R1.34 lakh crore of retail investment in equity mutual funds, R82,577 crore was not withdrawn for over 24 months, as per Amfi data.

Retail investors increased their presence in debt-oriented mutual funds (including gilt and liquid funds) with the number of retail folios rising by 6.1% and 13.8% in the past six months and one year, respectively. “This could be attributed to investors looking at alternate asset classes post the sharp downfall in the domestic equity markets in 2011. Also, rising interest rates in the country may have pushed many retail investors to debt oriented mutual fund categories, especially fixed maturity plans (FMPs),” stated Crisil.

The year ended March 2012 saw 718 FMP new fund offers (NFOs), amounting to R1.17 lakh crore. In terms of AUM, the retail category accounted for 6.15% of total debt AUM in March 2012, up from 4.8% in September 2011 and 5% in March 2011. As per data from Value Research, for the financial year 2011-12, liquid, ultra short term and short term debt funds gave returns of 9.1%, 9.36% and 9.44%, respectively.

Source: http://www.indianexpress.com/news/mutual-funds-lose-over-7-lakh-folios-in-six-months/942150/0

How NRIs’ India mutual funds are taxed in US

noreply@blogger.com (Mutual Fund India) — Fri, 27 Apr 2012 05:40:00 +0000

Mutual funds in India maybe a great investment avenue. Dividends are tax free; long term capital gains on equity funds are also tax free. And if you have been a long term investor, chances are, you built a fairly good corpus thanks to the robust Indian equity market. But if you are an Indian American, Uncle Sam is going to want a share of your pie. That's because the US tax code collects tax on the global income of its residents and citizens. What is more peculiar is that tax is levied on global income as per the rules that apply to that kind of income in the US. Foreign mutual funds in particular face this peculiarity.

First let us quickly look at the tax rules that apply for US mutual funds. In the US, a mutual fund's annual gains from sale of its holdings must be distributed to the unit holders and taxed in the hands of the investor as 'capital gains distributions' and these distributions are taxed at par with long term capital gains. Many investors choose to reinvest these distributions in the fund.

Foreign mutual funds in the US fall under the category of Passive Foreign Investment Company (PFIC). Vinay Navani, CPA and director of tax at New Jersey based firm Wilkin & Guttenplan, P.C, gives a background, "PFIC rules were introduced by the Internal Revenue Service (IRS) in order to discourage the practice by US citizens and residents of parking money in offshore tax havens and deferring the US tax liability. For instance, a US citizen might put his money in an investment company or mutual fund situated in the Cayman Islands. Cayman Islands does not require its funds to make distributions to its investors and therefore there is no tax on annual basis. At the time of sale, while capital appreciation would be tax free in the Cayman Islands, the US citizen/resident would still have to pay tax in the US since he is taxed on his global income. By doing this, he could defer his US tax liability till the time of actual sale. So while the intent of the PFIC rules was to plug such incidents, foreign mutual funds, being of similar structure, also fall under this category. Broadly speaking, according to the PFIC rules, the citizen will face some harsh tax consequences unless he chooses one of the options described below."

While we will get into the details of the options next, it is important to understand that in option 1 and 2, the PFIC rules essentially seek to tax notional gains arising from PFIC investments. These gains are taxed as ordinary income. Option 3 is when the taxpayer chooses to do nothing and pays interest and penalty.

Form 8621

This is the form you would need to fill up if you have mutual fund holdings in an Indian mutual fund company. The form gives you several options to declare the notional appreciation. Let's take a look at the options relevant for a retail mutual fund investor:

Option 1: Election to mark-to-market PFIC

This is the most common option for Indian mutual fund investments. Navani explains, "Broadly speaking, according to this option, you must declare as income the notional gains in the market value of your fund holdings during the year."

Here is what typically happens:

- In the year of purchase, the gains are the difference between market value at the end of the year and cost of purchase.

- In the subsequent years, the gains are the difference between market value at the end of the year and 'adjusted basis'. Adjusted basis is usually the market value in the beginning of the year. In case there is a loss, the loss can be set off against foreign PFIC notional gains of only the previous years. Any loss that is not set off is added back to the adjusted basis of the next year. So for instance, if in year 1 you incurred a notional gain of $100 on your PFIC, $100 would be taxed as ordinary income in year 1. Suppose your loss in year 2 was $150. In year 2, you would be allowed to deduct a loss of $100 from your total income (loss to the extent of gains taxed earlier).

- When the units are actually sold, you will be taxed long term capital gains only on the portion of gains that has not been taxed in previous years as ordinary income

Now there may be a case where you purchased units of the fund before you became a US resident or citizen. In such case, in the first year of your tax returns, the value of your PFIC income will be the appreciation in market value of the fund holdings during the tax year.

Navani illustrates, "X, a nonresident of the US, buys marketable stock in a PFIC for $50 in '95. On Jan. 1, 2005, X becomes a US resident. The fair market value of the stock on Jan. 1, 2005, is $100. The fair market value of the stock on Dec. 31, 2005, is $110. X computes the amount of mark-to- market gain or loss in 2005 using a $100 adjusted basis. Therefore, X includes $10 in gross income as mark- to-market gain and increases its adjusted basis in the stock to $110. X sells the stock in 2006 for $120. X must use its original basis of $50 plus the $10 mark-to-market basis adjustment. Therefore X recognizes $60 of gain, of which $10 would be ordinary income and $50 long-term capital gain."

Maryland based tax attorney and Principal at Kundra & Associates, Chaya Kundra also adds, "For the recent resident, it is often best to elect mark-to-market upon the filing of the first year of their return for the most favorable tax treatment."

Option 2: Election to treat as QEF - Qualified Electing Fund

"This option is commonly used in case of investments by US residents and citizens in offshore private equity funds," Navani says.

A QEF is taxed like a partnership wherein each investor is considered to have a share in the total profits of the fund. You can exercise this option only if the foreign fund agrees to share information with you about your share of profits.

Option 3: Excessive distribution method

"This is a default election. If you opt out of all other options, you will be taxed as per this option, which is also the most taxing," says Navani.

He adds, "According to this option, the distributions in the current year should be at least 125% of the average distributions of last 3 years. The logic being that you are receiving incremental income every year from the fund and therefore not trying to defer taxes. If you do not meet this condition, then the total distributions are allocated over the entire holding period and taxed in each year at the highest tax rate of that year. Not only that, you will also be charged interest on each year's tax liability."

What this means: Suppose you did not make any election on your PFICs and throughout the holding period, did not fill up Form 8621 for your PFIC holdings. You held the PFIC units for say 10 years and did not receive any distributions during these 10 years. In the year of sale, you made a gain of $100. In the year of sale, your gains will be distributed over the past 10 years, that is, $10 per year. It will be treated as though you did not pay tax on $10 per year and hence in year 10, you must pay tax for each of these years plus interest on the delay. You will have to fill up part IV of Form 8621.

A common query then: If you are an NRI and will be in the US on a project for 2-3 years and you know for certain that you will not sell your Indian mutual funds during that time period, does it make sense to go for the default option? This is a tricky one. While this strategy may work for now, a proposed amendment to PFIC rules could prove a dampener.

Kundra explains, "According to this proposed amendment, if a US citizen or resident owning PFIC stock renounces citizenship or abandons US residency, thereby becoming a nonresident alien for US tax purposes, the individual is deemed to sell the PFIC stock on the last day that he or she is a US person."

She adds, "This is a proposal and not yet a law. Having said that, from the IRS website, proposed regulations are often used as precedents by the IRS. It is important to note that this will more than likely become law and when it does, it will apply retroactively."

Form 8938 and Form 8621

From this tax year onward, the IRS has introduced a new Form 8938 for reporting offshore bank and financial accounts. "Be careful with the new Form 8938," Navani advices, "In Form 8938, in Part IV, you must check that you have filled up Form 8621. If you inadvertently declare holdings in Indian mutual funds in your Form 8938, the IRS would automatically check for Form 8621. Consult your CPA or tax advisor."

These are just the broad modalities of how PFICs are taxed. Several adjustments may occur in individual situations. Consult your CPA or tax advisor to choose the best election and arrive at appropriate values.

Source: http://economictimes.indiatimes.com/news/nri/nri-investments/how-nris-india-mutual-funds-are-taxed-in-us/articleshow/12881470.cms?curpg=2

AMFI lobbies with FM for mandate to run RGES over ELSS

noreply@blogger.com (Mutual Fund India) — Thu, 26 Apr 2012 10:55:00 +0000

Association of Mutual Funds (AMFI) in India is lobbying with the finance ministry to secure an exclusive mandate to implement the Rajiv Gandhi Equity Scheme (RGES), a tax-efficient investment plan for retail investors that was introduced in the Union Budget.

A permission to allow the domestic mutual funds to handle the proposed equity scheme will help the industry replace its existing tax-saver product - equity-linked savings scheme - which will lose its tax-saver status under the Direct Taxes Code regime. The mutual fund industry body, which represents 44 Indian asset management companies, is making the pitch for executing the RGES as it caters to small retail investors who are investing in the markets for the first time.

Source: http://www.moneycontrol.com/news/mf-news/amfi-lobbiesfm-for-mandate-to-run-rges-over-elss_697174.html

Fidelity MF sees Rs. 805 cr outflow ahead of sale completion

noreply@blogger.com (Mutual Fund India) — Thu, 26 Apr 2012 09:59:00 +0000

The acquisition valued Fidelity MF at 6.2% of its average assets under management (AUM) of Rs. 8,881 crore for the quarter ended December

Investors are pulling out from Fidelity’s Indian mutual fund (MF) schemes. In the March quarter, investors in the equity schemes of FIL Fund Management Pvt. Ltd withdrew at least Rs. 805 crore, while the Fidelity group was conducting a strategic review of its Indian MF business that ultimately led to the sale of the fund.

Fidelity MF announced the sale of its assets to L&T Finance Ltd for an undisclosed sum in the last week of March. A person with direct knowledge of the matter said the deal was clinched at around Rs. 550 crore. Fidelity and L&T Finance had declined to comment on this figure at the time.

The acquisition valued Fidelity MF at 6.2% of its average assets under management (AUM) of Rs. 8,881 crore for the quarter ended December.

According to data available with registrars and the capital market regulator, the average AUM of Fidelity MF’s five equity schemes grew by an average Rs. 73 crore to Rs. 5,698 crore in the March quarter from the December quarter .

The 50-stock Nifty index of the National Stock Exchange grew 14.52% between January and March, while the 30-share benchmark Sensex of BSE went up 12.61%. In line with this, the net asset values (NAVs) of the five schemes of Fidelity MF grew 13.16-20.32%.

Going by the returns these schemes offered to investors or their NAVs, a back-of-the-envelope calculation shows that the average assets of the five equity schemes should have grown by Rs. 877.99 crore and not Rs. 73 crore. This means, these schemes witnessed an outflow of Rs. 805 crore.

Most fund houses during the quarter saw a net inflow of money into equity schemes.

Fidelity had six equity schemes, but five have been considered for calculations as they contribute the bulk to the AUM. They are Fidelity Equity, Fidelity India Growth, Fidelity India Special Situations, Fidelity Tax Advantage and Fidelity India Value.

The figures are also available with the Association of Mutual Funds in India (Amfi), an industry lobby.

A Fidelity MF spokesperson rejected the contention that there had been an outflow to the extent calculated by Mint.

“We are not seeing much outflow and have not seen a net outflow of anywhere even close to Rs. 800 crore in the five equity schemes of Fidelity Mutual Fund during the January-March 2012 period. Therefore, it would be absolutely incorrect and wrong if any such story is carried,” the spokesperson said.

A senior Fidelity group official said, “In January, after informing Sebi (Securities and Exchange Board of India) about our business plan, we informed our investors, as per the rule, that they could redeem their investments in fixed-maturity plans, or FMPs, as they could not be rolled over. This news may have led to an exit of investors.”

The outflow from equity schemes flags the critical issue of protecting the assets of a fund house that is on the block. The price paid by L&T Finance to acquire the assets of Fidelity MF was based on the size of the equity schemes, but by the time the deal is consummated, the size of the schemes may shrink, distorting the valuation. The deal has not closed yet.

Outflows from Fidelity MF schemes are happening before the so-called free-exit period. Once Sebi approves an acquisition, investors in the selling fund house are given a month’s time to withdraw their investments.

L&T Investment Management Ltd, a subsidiary of L&T Finance, is in the process of securing Sebi approval for the acquisition. L&T MF currently manages average assets worth Rs. 3,897.6 crore.

Following the deal, L&T Finance had said that the combined entity will have a market share of 2% in terms of AUM. But if the erosion of assets continues, that may not happen.

An industry expert, who did not want to be named, pointed out that in case of a merger between two banks, the banking regulator typically imposes a moratorium and freezes operations of the bank that is being absorbed. This is to protect deposit liabilities and advances.

Fund house acquisitions are valued on the basis of the asset mix, network strength, long-term earnings prospects and profitability. There have been several acquisitions of Indian MFs at valuations ranging from 1.6% to 13% of AUM.

There are 44 fund houses with total average AUM of Rs. .64 trillion in the March quarter.

Fidelity MF had a team of seven people to manage its equity schemes.

“Fidelity MF investors had certain trust on its fund managers built over years. L&T doesn’t have much experience in mutual fund management and unless they create a trust among investors, it will be a challenge to retain the investors,” said the CEO of foreign MF who declined to be named.

Source: http://www.livemint.com/2012/04/26000423/Fidelity-MF-sees-Rs-805-cr-out.html

Retail investors switch to safer, low-risk MF options in hard times

noreply@blogger.com (Mutual Fund India) — Thu, 26 Apr 2012 08:40:00 +0000

Despite volatile markets, weak sentiments and a faltering growth story, retail investors are not fleeing the market. On the contrary, they are adopting a new strategy to counter the current situation: shifting investment from high risk, high-return equity schemes of mutual funds to low risk, low-return debt schemes of MFs.

The number of folios in equity schemes of mutual funds declined to 37 million at the end of March 2012 from 38 million at the end of March 2011, whereas the number of folios in debt schemes grew to 4.5 million at the end of March 2012 from 3.9 million at the end of March 2011.

“It shows that there are investors who do not rush to open fixed deposit just because there is volatility in the market,” said Arindam Ghosh, vice-president and head, retail sales, JP Morgan Asset Management. “They rather go for less-risky instrument available in the market.”

In last fiscal, when the Sensex went up to 19,100 (in April 2011) and fell to 15,100 (in December 2011), the number of folios (equity and debt schemes) did not see a sharp decline. Total number of folios at the end of March 2012 stood at 42 milliom against 43 million at the end of March 2011.

A mutual fund scheme that invests major portion of its corpus into equity and equity-related instruments is called an equity mutual fund. In debt-oriented schemes the money is invested in bonds and other debt instruments. Since money is invested in debt instruments such as government bonds, corporate bonds, debentures, the returns are comparatively low and carry very low risk.

“In the last one year, when the market was volatile, we did not see any significant surge in redemption from retail investors,” said Lalit Nambiar, senior vice-president and fund manager, head, research, UTI Mutual Fund.

Source: http://www.hindustantimes.com/News-Feed/BusinessBankingInsurance/Retail-investors-switch-to-safer-low-risk-MF-options-in-hard-times/Article1-846150.aspx

Soaring crude oil prices are the biggest risk: Swati Kulkarni

noreply@blogger.com (Mutual Fund India) — Wed, 25 Apr 2012 05:20:00 +0000

Interview with Fund manager, UTI Mutual Fund

Firm crude oil prices, depreciating rupee and ballooning current account deficit are expected to keep the economic growth rate at around seven per cent for another year, says Swati Kulkarni, fund manager, UTI Mutual Fund in an interview with Priya Kansara Pandya. Edited excerpts:

Where are the Indian markets headed in 2012?
We are positive on Indian markets as the valuation is now comfortable at 13x FY13 earnings, which is close to the historical average. The downside from the current levels seems to be limited. However, in the near-term, we expect range-bound movement.

What are the likely triggers for an upside and what is the probability of that event happening?
Softening of commodity prices, manageable inflation levels and a pick-up in the investment cycle can lead to an upside. It is difficult to predict the probability as a lot depends on crude prices and other global events. However, given the below-normal world economic growth, the demand side support for a structurally high level of crude seems unlikely. We expect crude prices to remain range-bound.

So, that means there will be less pressure on the rupee?
The rupee is under pressure because of the current account deficit and capital flows, which have been volatile. The probability of rupee crossing 54 levels is grim. We expect it to remain between 52-54 levels in the medium-term.

What are key risks to the Indian economy?
The first and the biggest risk, of course, is the price of crude oil. I feel the budgeted estimates for oil subsidies may be inadequate. The second biggest risk we see is weak investment cycle, which has not seen a pick-up for some time now. This could affect consumption and future employment potential, which in turn could affect economic growth. As a result, this will keep our growth at seven per cent for another year or so.

However, I would like to put a caveat here that everything does not look gloomy at this point in time. All these concerns are fine when you are trading at 21-22 times. We are trading at much lower levels.

After raising rates 13 times between March 2010 and October 2011, the Reserve Bank of India (RBI) has not guaranteed further rate cuts after the surprise 50 basis points cut in April. Will it succeed in kickstarting growth?
We should understand that the rate hikes did not happen at one go. So, we should also be patient for rate correction and let it happen over a period of time. RBI cannot take quick steps without addressing the real problems. Currently, the base effect for inflation is expected to be favourable for some time.

But strong consumption, rising crude oil prices and current account deficit can again put pressure. By the end of this calendar year, there is a likelihood of inflation surfacing again due to supply side constraints and structural issues. Further, if fiscal deficit continues to balloon then what is the guarantee that these rate cuts will not lead to further inflation? Certain asset bubbles can be created. Thus, I feel, RBI is going in the right direction. Rather than 25 bps, having a 50 bps rate cut may have a better visible transmission.

Do you expect any more rate cuts going ahead?
We don’t expect that as fiscal correction is necessary. But at least from hereon, I don’t expect interest rates to go up further. They seem to have peaked and that trend is clear.

Which sectors are expected to do well in the coming quarters?
Besides consumption, cement and pharma sectors are expected to do well. However, energy will not do well due to price controls and stressed global petrochemical margins. Also, the engineering sector could remain subdued as order inflow momentum is yet to pick up pace.

What has been your strategy in the past six months and will that continue?
In past six months, we have reduced exposure from rate insensitive sectors like information technology (IT) and shifted to auto and banks assuming that interest rate cycle is peaking out. That would continue. Others, more or less, remain the same.

We had neutral position on consumer. We preferred cement to construction and real estate stocks. However, with likely peaking of interest rates, we may review this preference.

Source: http://www.business-standard.com/india/news/soaring-crude-oil-prices-arebiggest-risk-swati-kulkarni-/472489/

We need to review entry load ban decision again: Amfi CEO HN Sinor

noreply@blogger.com (Mutual Fund India) — Wed, 25 Apr 2012 05:15:00 +0000

Capital market regulator Sebi and industry players will have to review some of its past decisions, including the ban on entry load, if they want mutual funds to have larger retail participation and deeper geographical reach, said HN Sinor, chief executive of the Association of Mutual Funds in India or Amfi. In an interview with ET, Sinor said Fidelity Mutual Fund's move to exit India and the recent exit of chief executives of four asset management companies are worrisome. Edited excerpts:

Not many are hopeful about the health of the Indian mutual fund industry. What's your view?

Unlike banks, the AMC business has a fragmented structure - it's like a three-legged stool. You have manufacturers on one side, distributors on the second and transfer agents on the third. And on top of this three-legged stool sits the investor. You've to create a 'win-win' situation for all the three legs of the stool. There has to be something for everybody in this business. If you need mutual funds to reach out to larger geographies, we will have to review the cost structure. And if there's some push there, perhaps, we may again see some good days.

By cost structure, do you mean entry load?

One mistake Sebi made was to implement the entry load ban in a cut-and-dry manner. They should have implemented it in a slow, phased manner. The decision to ban the entry load was seen very positively by many; many said it was an investor- friendly move... many also complained about it. In those days Sebi and Amfi felt, the Indian enterprise was very smart and would find a way to come around it.

But today, after two years, I realise, we've not been able to adjust our business model to the entry load ban. We need to dispassionately review the (entry load ban) decision once again. I am not taking any sides here... I am just taking a view from the top. We've to expand this industry, and for doing that if we have to bite the bullet, we should bite the bullet.

Are you suggesting a roll-back of entry load?

We should at least initiate a discussion on that. Saying an emphatic 'no' to this, to my mind, is not a solution today. Any business settles down after 6-8 months of policy changes, but it has not happened here.

Distributors are not seeing it worthwhile to sell mutual funds. Manufacturers are finding it difficult to expand or penetrate beyond 20 cities. It does not make a business case for manufacturers to go and sell the product in Timbuktu to collect just Rs 5 - 10 lakh of investments. In such cases their costs would be very high. Why will manufacturers go to far-flung towns when they can garner a much larger amount at a lower cost from Ghatkopar? It doesn't make sense for fund houses to go beyond the top-20 cities within the current expense ratio.

But Sebi officials say distributors are still making money selling funds.

If you look at the commission pay-outs of distributors, there are just about 200 distributors who draw a gross revenue of over Rs 1 crore. Of the 200, the top-20 are institutions and banks. At an individual level, there are only 185 IFAs whose gross revenue exceeds Rs 1 crore. Of the 16,000-odd active distributors, only 185 are earning a reasonable sum of money selling funds. What will others do? They will resort to tricks like deliberate churning of portfolios or mis-selling of funds. It's this environment which is pushing them to do something which is not right. Globally, there's a cost attached to this business and it is borne by investors.

Are you talking to the regulator for a roll-back?

Sebi has been very receptive to any kind of ideas. But then it's difficult for any regulator to undo something. We need to kick-off the debate once again. We've to discuss it in a dispassionate manner.

How are mutual funds sold in other countries?

Frontloading in Singapore is about 3%; their expense ratio works out to about 2.5%. Investors there pay in excess of 5% to asset managers. Asset management business in India is the cheapest in the world. Cost to investors is lower than anywhere else in the world. We need to look at this aspect with a little open mind. My counterparts in other countries, who have plans to ban frontloading, are closely watching the impact of entry load ban in India. They're not very confident after seeing the India experience. UK came out with a consultative paper in 2009, but now I hear they have postponed their plans.

Fidelity's exit too has not gone well with the fund management industry.

Confidence level is very low in the industry. After Fidelity's decision to move out and the quick exit of four CEOs, even we're a little worried. If officials desert the industry like this, we have a big problem at hand.

Source: http://economictimes.indiatimes.com/opinion/interviews/we-need-to-review-entry-load-ban-decision-again-amfi-ceo-hn-sinor/articleshow/12860300.cms?curpg=2

Reliance MF schemes emerge as top three performers for Q1-2012

noreply@blogger.com (Mutual Fund India) — Tue, 24 Apr 2012 05:44:00 +0000

Mutual funds are considered a better investment option due to relatively better safety of capital, but they have also scored over the direct stock market investments in terms of returns to investors.

As per a performance analysis of stock market benchmarks and mutual fund equity schemes, as many as 50 large equity MF schemes, with an average asset size of at least Rs 1,000 crore, have given better returns than the market barometer Sensex during the first quarter of 2012.

While the stock market benchmark index Sensex gained 12.6 per cent during the January-March 2012 quarter, the surge was higher for a total of 50 MF schemes and the top three performers belonged to Reliance Mutual Fund.

The returns were over 20 per cent for this period for as many as 11 such funds, including five Reliance MF schemes.

Even for the six-month period ending March 31, 2012, the returns were higher than Sensex for as many as 29 schemes.

Asked about the robust performance of Reliance MF schemes, Reliance Capital Asset Management CEO Sundeep Sikka told PTI: "We had made some changes in our portfolio and had aligned our portfolio according to market conditions, as a result of which our funds were able to post good returns."

While judging a MF scheme, investors should go for a fund house of fund manager who is able to manage the volatility of the markets and has a long term track record of giving good returns, Sikka noted.

The top three performers in the equity mutual fund space were from Reliance MF. Reliance Tax Saver (ELSS) fund posted returns of 26.07 per cent, followed by Reliance Banking Fund with returns of 26.06 per cent and Reliance Diversified Power sector fund with returns of 22.94 per cent.

Others in top 10 included HDFC Mid Cap Opportunities Fund (ranked fourth with returns of 22.71 per cent), ICICI Pru Discovery Fund (5th, 22.57 per cent), Reliance Vision (6th, 22.44 per cent), DSP BlackRock Small and Mid cap fund (7th, 22.18 per cent), UTI Infra fund (8th, 21.71 per cent), IDFC Sterling equity fund (9th, 21.36 per cent) and Reliance Equity Opportunities fund (10th, 21.01 per cent).

In the first quarter of this year the BSE benchmark index Sensex posted returns of 12.61 per cent, while the wide-based Nifty gave returns of 14.52 per cent. The BSE 100 index rose by 15.59 per cent during this period.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/reliance-mf-schemes-emerge-as-top-three-performers-for-q1-2012/articleshow/12837567.cms

Why there are no 'star managers' in Indian mutual fund industry

noreply@blogger.com (Mutual Fund India) — Fri, 20 Apr 2012 05:34:00 +0000

Vicky Mehta, Senior Research Analyst, Morningstar India

An oft-repeated phrase in the Indian mutual fund industry is "we don't have a star manager culture; instead we follow a team-based, process-driven investment approach".

Fund companies avoid the term 'star manager' like the plague. They never miss an opportunity to proclaim the presence of a strong team and investment process. But are the latter and 'star managers' mutually exclusive? More importantly, what is so revolting about being a 'star manager'?

Think about it, isn't a 'star manager' only like any other professional who excels at his work? For instance, an equity fund manager who has consistently delivered an impressive showing over the long haul and across a market cycle, and who displays a sustainable level of skill, should qualify as a 'star manager'.

That isn't necessarily bad, is it? To draw a cricketing analogy - is having Sachin Tendulkar in the team a disadvantage, simply because he ranks among the best batsmen in the world?

The disapproval
Perhaps the disapproval for star managers stems from certain preconceived notions. For instance, being a star manager is associated with job-hopping. But that isn't always true.

Several of the best-ranked managers in the country have been associated with the same fund company for a decade or thereabouts. Maybe star managers are perceived as being mavericks and poor team players.

Again that hypothesis is questionable. Some of the best managers have built strong and stable investment teams. Several of them have also tended to adhere to an investment style that gels well with the fund company's approach.

Acknowledging key-man risk
Clearly there's more to this star manager aversion. Let's revisit the point about star managers and a team-based, process-driven approach being mutually exclusive.

Fund companies would like us to believe that all members in their investment teams think alike and every decision is based on consensus. But that's rarely the case. Let's not forget that investing is a personalised activity with no definite rights or wrongs.

This in turn, necessitates the presence of skilled managers. Furthermore, while the significance of a robust investment process cannot be overstated, it takes a proficient manager to skillfully execute the process. For instance, a model might throw up a list of 'investment-worthy' stocks; but it is the manager who decides which ones to buy.

If strong investment processes in isolation were adequate, all funds could have been run on quant models and managers would have been redundant. Here's what this boils down to - fund companies try to underplay the key-man risk associated with funds, by declaring that they don't have star managers.

At best it's a defense mechanism to ensure that they don't lose assets when a proficient manager exits. Neither would they like to acknowledge that a manager change can result in a change in the fund's character. Indeed, the degree of keyman risk varies and needs to be estimated on a case-by-case basis.

In some situations, it might be easy for a new manager to step in and run the fund as in the past; while in others, it may not be possible to do so. Nonetheless, it is naive to dismiss manager-risk as being immaterial.

Fund companies deny the existence of 'star managers' to understate key-man risk; investors on their part, must evaluate if the fund remains as good a bet, sans its 'star'.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/why-there-are-no-star-managers-in-indian-mutual-fund-industry/articleshow/12738218.cms?curpg=2

Lock in to FDs now or find other alternatives quickly

noreply@blogger.com (Mutual Fund India) — Thu, 19 Apr 2012 10:05:00 +0000

The higher than expected 50bps repo rate cut by the RBI will make banks re-price their deposit rates downward. The reason is that borrowing costs for banks in the overnight markets will be 50bps lower at around 8%, which is the repo rate and RBI has given banks leeway to access the MSF (Marginal Standing Facility) at 9% by letting them go below 2% of their SLR (Statutory Liquidity Ratio) limit.

Banks have to hold 24% of their deposits (NDTL or Net Demand and Time Liabilities) in government bonds as SLR. The banking system deposit base is around Rs 60 lakh crores. Banks are holding around 29% of their deposits in government bonds. Hence banks can technically borrowing 5% (the excess SLR) of Rs 60 lakh crores, which works out to around Rs 300,000 crores from the RBI at the repo rate of 8%. Banks can also borrow 2% of Rs 60 lakh crores, which works out Rs 1.2 lakh crores through the MSF window at 9%. Banks will not be worried about liquidity given the Rs 4.2 lakh crores leeway offered to them by RBI at 50bps lower rate of interest post the repo rate cut.

The easing policy signal given by the RBI through the repo rate cut coupled with access to liquidity will make banks lower their deposit rates. Banks by lowering deposit rates and keeping loan rates steady will increase their NIMs (Net Interest Margins). Higher NIM's will lead to higher profits for banks, which comes at the cost of lower rates of interest for depositors.

Fixed deposit (FD) investors should quickly lock on to FD rates before they are brought down. Investors should also increase the tenure of their FD's as they can then earn higher interest rates for a longer period of time.

FD investors should also look for alternative fixed income investments to counter the expected fall in deposit rates. Alternative investments include investing directly in fixed income securities issued by banks, Corporates and the Government of India or indirectly through fixed income mutual fund schemes.

The current yields on one year, two year, five year and ten year maturity AAA rated corporate bonds are 9.6%, 9.3%, 9.35% and 9.4% respectively and the yields are likely to come down on the back of easing policy rates and easing liquidity conditions. Fall in yields will also give capital gain benefits to investors leading to higher returns from investments in fixed income securities.

Government bond yields in the one year, two year, five year and ten year maturity segments are trading at levels of 8.3%, 8.3%, 8.35% and 8.4% respectively. The high borrowing program of the government will keep yields steady despite rate cuts, but yields will start trending down going forward leading to capital gains for investors.

Investors who cannot access the corporate bond and government securities market (Indian fixed income markets are not conducive for direct retail participation) should invest in mutual fund schemes that invest in fixed income securities. Investors looking to benefit from fall in corporate bond yields should invest in short term and long term income funds while investors looking to benefit from fall in government bond yields should invest in long term gilt funds.

Expected one year returns to investors if yields fall by 50bps in corporate bonds and government bonds will be around 9.5% post expenses in short term funds and around 11.5% in income funds. Government bond funds will generate around 11.5% as maturities in government bond funds are generally higher than income funds.

Source: http://www.moneycontrol.com/news/fixed-income-bank-deposits/lockto-fds-now-or-find-other-alternatives-quickly_694312.html

First case of conversion of Gold ETF units to physical Gold in 10 gms!

noreply@blogger.com (Mutual Fund India) — Thu, 19 Apr 2012 05:24:00 +0000

Mr. Ashok Dhamnaskar, an investor from Mumbai has become India`s First Investor to convert ETF units to physical gold. On Thursday April 12, 2012, Mr. Dhamnaskar redeemed his Motilal Oswal MOSt Shares Gold ETF units to get physical gold.

With Mr. Nitin Rakesh, MD & CEO, Motilal Oswal AMC and his team were present to facilitate the redemption process. Overwhelmed Mr. Dhamnaskar said, ?I was looking for the avenue to buy gold at a cheaper price yet with the best of quality for my son`s wedding. But I found it difficult to get both at the same time. I had to pay premium for pure gold or compromise on the gold quality for cheaper price. That`s when my broker invited me to a seminar organized by Motilal Oswal Mutual Fund, where I was introduced to MOSt Gold Shares, which offered quality gold at a better rate than Banks and Jewellers?. Talking about buying MOSt Gold Shares ETF`s units, Mr. Dhamnaskar said, ?It was as easy as buying gold from any other available avenue, as I used a smarter way to buy gold!"

Mr. Nitin Rakesh, while handing over the Gold bar, said, "Our primary objective for designing MOSt Gold Shares was to offer best of both worlds - investment and consumption; and with investors like Mr. Ashok Dhamnaskar, it`s been effectively achieved".

Motilal Oswal MOSt Shares Gold ETF (MOSt Gold Shares) is an open ended exchange traded fund that invests in gold bullion. MOSt Gold Shares is India`s 1st Gold ETF of its kind which seamlessly enables Investment as well as Consumption of Gold for Retail Investors.

With the auspicious occasion of Akshaya Tritiya just around the corner, MOSt Gold Shares offers an excellent opportunity to investors who are looking to buy gold both for investment & consumption. Investors can easily avoid waiting in the queue at banks or the maddening rush at the jewelers on this day. All they need to do is buy units of MOSt Shares Gold ETFs at prices lower than offered by Banks and jewelers and redeem them for pure imported physical gold whenever they want.

MOSt Shares Gold ETF

The NAV of the MOSt Gold Shares unit will track spot price of 1 gm of gold. Valued at spot gold bullion prices, investors can get pure imported Gold at a price lower than banks & jewelers by redeeming the ETF units for physical gold bars in as low as 10 grams across 22 cities in India. It will provide investors a means of participating in the gold bullion market and take physical delivery of gold when needed. MOSt Gold Shares is supported by RiddiSiddhi Bullions Limited (RSBL), as Primary Authorized Participants & Market Makers. RSBL is one of the largest bullion dealers in India.

MOSt Gold Shares is listed on the NSE and BSE. The fund manager of the scheme is Mr. Rajnish Rastogi. The investment objective of the Scheme is to provide return by investing in Gold Bullion.

Source: http://hdfcsec.com/News/NewsDetails.aspx?NewsID=547794&NewsType=M

Short-term income funds to get attractive, FMPs to lose sheen

noreply@blogger.com (Mutual Fund India) — Wed, 18 Apr 2012 07:44:00 +0000

The Reserve Bank of India’s move to cut interest rates is likely to make short-term income funds and dynamic bond funds more attractive. It will, however, take away a bit of sheen from fixed maturity plans (FMPs) — one of the most popular debt instruments preferred by rich investors when the interest rates are high. On Tuesday, yields of the 10-year government bonds slipped by about 10-12 basis points to 8.34% post the policy announcement. The yields for money market instruments, on the other hand, fell anywhere between 20 bps and 25 bps.

“With the rate reduction, liquidity conditions in the overnight market will improve. Hence, the yields of all near-maturity money market instruments will come off,” said Sujoy Das, head – fixed income, Religare MF.

According to Mahendra Jajoo, CIO, fixed income, Pramerica Asset Managers, the short term yields for money market instruments such as commercial papers and certificates of deposit are likely to come off by 50-100 basis points over the next couple of months. The reduction in short-term rates will benefit investors in short-term income funds. “We have been consistently recommending investors to look at the 1-3 year mid-maturity space given that interest rates are likely to fall. Investors with a moderate risk appetite will therefore merit from short-term funds and retail-focused regular savings funds,” said Chaitanya Pande, head - fixed income, ICICI Prudential AMC. Added Das: “Income funds with average maturity of about one year are likely to give superior returns.”

Another category of funds that is likely to do well is dynamic bond funds, said market participants. While interest rates seem to have peaked, it is difficult to determine when the next rate cut will be. Uncertainties with respect to inflation, global economy and currency movements are likely to persist. So, there is likely to be a fair amount of volatility in the money market, as well as government and corporate bond markets. Dynamic bond funds are well-suited to ride this volatility as they have a flexible duration and can invest in a mix of instruments, said industry observers. Dynamic bond funds are also ideal for those who don’t want to take a call on interest rate movements.

The reduction in interest rates is likely to make FMPs less popular. “FMPs will become slightly less attractive because of the steep rate cut but there will still be a market for these products given the high interest rates,” said Das. One-year FMPs that were giving returns of 10%-plus in March are now likely to fetch 9.5%, said market participants. Between October and March this year nearly 500 FMPs were launched by fund houses.

Source: http://www.financialexpress.com/news/shortterm-income-funds-to-get-attractive-fmps-to-lose-sheen/938035/0

RBI cuts repo rate by 50 bps; sees little room for more

noreply@blogger.com (Mutual Fund India) — Wed, 18 Apr 2012 05:13:00 +0000

The Reserve Bank of India (RBI) cut rates on Tuesday by an unexpectedly sharp 50 basis points to boost the sagging economy, but warned there was limited scope for more cuts, with inflation likely to remain elevated and growth on track to pick up, albeit modestly.

The RBI, which was tightening monetary policy long after central banks elsewhere began easing, lowered its policy repo rate to 8.00 percent, compared with expectations for a 25 basis point cut in a Reuters poll.

"RBI is indicating that there is a limit for further rate cut expectations, and I think they are pretty much done with further rate cuts this year," said Rajeev Malik, economist at CLSA in Singapore.

The RBI also warned that India's current account deficit, which widened to 4.3 percent of GDP in the December quarter, is "unsustainable" and will be difficult to finance given projections of lower capital flows to emerging markets in 2012.

The rupee has been under pressure as foreign investors worry about persistent inflation, a yawning current account gap and fiscal indiscipline on the part of New Delhi, prompting concern about the country's balance of payments.

Investors and companies cheered the rate cut, with bond yields and swap rates falling sharply, although the rally was capped by expectations for few further cuts in the near term. The BSE Sensex ended 1.2 percent higher.

Some RBI-watchers said Tuesday's move was risky given the potential for resurgent inflation.

"The RBI was clearly itchier to cut policy rates than expected, but the 50 bp cut may have been a bit too premature and aggressive, in our view. If that turns out to be the case, it could hurt RBI's credibility while doing little to raise growth on a sustained basis," HSBC economist Leif Eskesen wrote.

RBI Governor Duvvuri Subbarao said the deeper-than-forecast cut is intended to ensure that banks cut their lending rates soon. Indian banks have been reluctant to lower lending rates amid still-tight liquidity and high deposit costs.

The country's largest lender, State Bank of India (SBI.NS) said later on Tuesday that it would cut rates on some loans that have high interest rates, while ICICI Bank (ICBK.NS) said it would reduce deposit and lending rates. Neither were more specific.

Economists have in recent weeks been scaling back their rate cut forecasts. Nomura said it expects the RBI to hold off from cutting rates at its next reviews in June and July, and forecast just one more 25 bps rate cut in 2012. Citigroup expects just one more rate cut in the current fiscal year.

India's economy grew by 6.1 percent in the December quarter, its slowest in almost three years, but the central bank had been reluctant to begin cutting rates as inflation remained elevated.

Subbarao maintained a cautious view in his policy statement.

"It must be emphasised that the deviation of growth from its trend is modest. At the same time, upside risks to inflation persist. These considerations inherently limit the space for further reduction in policy rates," Subbarao said.

CAUTIOUS VIEW

The RBI raised rates 13 times between March 2010 and October 2011 as it struggled to contain price pressures, with headline inflation at one point accelerating into the double digits as the cost of fuel and food soared.

Headline wholesale price index eased slightly to 6.89 percent for March but was still above expectations, as a drop in manufacturing inflation was offset by a surge in food inflation, data showed on Monday.

On Tuesday, the RBI left unchanged the cash reserve ratio (CRR), the share of deposits that banks must hold with the central bank, at 4.75 percent, in line with expectations, after cutting it by 125 basis points since January to ease tight market liquidity.

Subbarao said liquidity conditions are moving towards normal after several months of acute shortages of cash in the banking system, but also said the RBI would take "appropriate and proactive" steps if needed to revive liquidity.

The central bank said its baseline expectation for gross domestic product growth in the fiscal year that ends in March 2013 is 7.3 percent, compared with an expected 6.9 percent in the just-completed year.

It expects headline inflation to end the year at 6.5 percent, with little deviation foreseen during the year.

BOTTLENECKS

Sluggish capital investment has exacerbated bottlenecks in the Indian economy, bringing down its capacity for non-inflationary growth to 7.5 percent, according to Subbarao, from 8.5 percent before the global financial crisis.

He reiterated the need for the government to cap its subsidy burden, which led to a bloating of the fiscal deficit in the recent fiscal year to 5.9 percent of GDP.

The weakened government has been unwilling to pass along higher global oil prices to end-users, but pressure on the fiscal deficit is expected to force it to do so.

"It is imperative for macroeconomic stability that administered prices of petroleum products are increased to reflect their true costs of production," Subbarao said.

Corporate India, dejected over government inaction that has thwarted capacity expansion, has long clamored for rate cuts.

Siddhartha Roy, economic adviser at the Tata Group, the software-to-steel conglomerate that is India's biggest business house, said Tuesday's rate cut is welcome but more is needed.

"First we need more rate cuts to the tune of around 150 basis points in order to make the real interest rates realistic. Then, the fiscal side needs to be controlled to prevent crowding out of the private sector and available liquidity is well distributed," he said.

Source: http://in.reuters.com/article/2012/04/17/rbi-rate-cut-repo-rate-crr-subbarao-gdp-idINDEE83G02Z20120417