Mutual Fund NEWS Group: July 2011

Saturday, July 30, 2011

Regulating investors is not Sebi's job

In the tumultuous years of the early 1990s, a time when exchange liberalisation was followed by one of India's biggest financial scams, there was a bit of passing the parcel game going on. While foreign money was welcome, it had to go through a gate. TheSecurities and Exchange Board of India (Sebi) was given the parcel of registering foreign institutionalinvestors (FIIs) in the Budget of 1992-93 not out of any philosophy but merely as a regulator who was somehow concerned with investors and capital markets.

This handing over of the mandate, if analysed, does not go with Sebi's mandate of regulating the market, developing the market or of protecting the interest of investors. While few people give it second thought, it is not the mandate ofSebi to regulate investors but it's rather to protect them. Further the mandate of protecting investors is not restricted to Indian investors but all investors. This is sensible because protecting all investors will further the cause of developing a well-regulated capital market which gives importance to corporate governance and accountability to shareholders.

The muddled regulations of FIIs andventure capital (VC), though born in 1992, arise from amendments made in 1995 to Sebi Act and this muddle is clear from the unclear language of the Act. Section 11 talks of registering and regulating "Foreign institutional investorsa¦and such other intermediaries" as may be specified. FIIs are investors and not intermediaries like brokers, merchant bankers, etc.

Doing violence to the language also does violence to the philosophy of why Sebi was set up. Similarly the same section also speaks of registering and regulating "venture capital funds and collective investment schemes, including mutual funds". Of course, mutual funds are neither collective investment schemes nor venture capital funds. In the same light, venture capital funds are pools of investors rather than intermediaries and don't need to be regulated.

So are there arguments in favour of Sebi registering and regulating FIIs? There are, though they don't hold water. The first argument is that Sebi needs to regulate large foreign investors because they have the ability to disrupt Indian capital markets with their huge cash inflows and outflows.

This can be dismissed in both theory and practice. It is not Sebi's mandate to regulate the inflows and outflows in the market. In addition, once anFII is registered, it has in fact no controls on how much money it can invest and how much it can take back the next day, which could be done by theReserve Bank of India (RBI) under exchange control regulations.

The second argument is that FIIs could be a vehicle for money laundering. Again, both the theory and practice refute this argument. Foreign money comes into India through banking channels and theRBI imposes strict money laundering restraints on the banking system. Having a second regulator does not add useful service to this remit.

rguments can also be made that Sebi provides important disclosure standards for participatory notes and other second-level investments by FIIs on others' behalf. Whatever disclosure standards that Sebi imposes can well be imposed by the central bank in a single window system of exchange control rather than create a pointless registration process with a second regulator.

Similarly, regulating venture capital is also not ideal. But the issues relating to VCs are more nuanced. Venture capital funds are pools of money contributed by sophisticated investors which are managed by a professional manager and invested mainly in highly risky unlisted equity and hybrid securities.

Sebi has two sets of regulations - one for foreign VCs and another for domestic VCs. In both, there are extensive sets of investment restrictions which prohibit, for instance investing substantial amounts in listed equity. In return, Sebi and the income tax authorities grant it certain beneficial treatment and tax exemptions. The unstated rule is that registering as a VC is optional and if one is willing to register and take on the investment restrictions, then one is entitled to certain benefits.

In addition, Sebi's investor protection mandate also comes into play as investors in the domestic VC are majorly Indian investors who need the regulator's protection. Sebi imposes a minimum investment of Rs 5 lakh per investor in a domestic VC to ensure that only sophisticated investors enter this high-risk investment arena.

While having optional registration is a welcome move, it would be useful if Sebi could make that a formal position stating the same. In addition, in order to prevent unsophisticated investors from entering this gladiator's arena where few investee companies do well or even survive, a threshold limit of Rs 5 lakh is too low and should be increased many fold to prevent unsophisticated investors from burning their fingers. Such a regime would serve the needs of investor protection remit of a securities regulator rather than serving as a shadow foreign exchange controller.

Source: http://economictimes.indiatimes.com/opinion/guest-writer/regulating-investors-is-not-sebis-job/articleshow/9402863.cms?curpg=2

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NBFCs, MFs can launch infra debt funds.

Taking a cue from government's interest in raising funds for infrastructure financing, the Securities and Exchange Board of India (Sebi) has allowed both existing mutual funds and non-banking finance companies (NBFCs) to launch infrastructure debt funds (IDFs).

Schemes would invest 90 per cent of its assets in debt securities of infrastructure companies or special purpose vehicles (SPVs) across all infrastructure sectors. Funds could launch close-end schemes that have a maturity of more than five years or it could also introduce interval schemes with a lock-in period of five years. Even companies that have been in the infrastructure financing sector in the last five years can set up a fund.

Under the guidelines, these companies can have a minimum of five investors where no single investor shall hold more than 50 per cent of assets. Strategic investors could invest up to to Rs 25 crore in the fund.

The minimum investment into the fund would be Rs 1 crore with the minimum lot size being Rs 10 lakh for the unit. "Given that, the quantum of funds that can be invested is high, it will attract institutional buyers and high networth individuals (HNIs)," says Amar Ranu, senior manager, third-party products research, Motilal Oswal Wealth Management.

However, one can expect some liquidity since the fully paid units of the funds shall be listed on stock exchanges. Mutual funds launching these funds may issue partly paid units to its investors.

According to the government's 12th Five Year Plan, it has planned $1-trillion investments in infrastructure projects. It was $500 billion during the 11th Plan (2007-12) and the government has been keen to raise funds through debt instruments like bonds and other routes such as units in the capital markets.Finance Minister Pranab Mukherjee had announced tax breaks for IDFs in his budget speech for this fiscal (2011-12), to attract foreign investments in the various infrastructure projects.

In the earlier guidelines for released by Reserve Bank of India in June 2011, NBFCs who set up these IDFs have been permitted to sell bonds to refinance public private projects, once the construction is complete. This would also help PPPs to attract long term funds at lower costs because of lower risk. However, in terms of attracting investments, IDFs would have to compete with the existing triple AAA rated papers which provide a liquid market.

Source: http://www.business-standard.com/india/news/nbfcs-mfs-can-launch-infra-debt-funds/444195/

Sebi rules: Mutual Fund investors to pay Rs 100-150 fee to invest

First timemutual fund investors will now have to pay an additional 150 as transaction charges according to new rules approved by securities market regulatorSebi which are aimed at widening the reach of mutual funds.

Existing investors inmutual funds will have to pay an additional 100 as transaction charge. According to a member of an advisory committee of Sebi on mutual funds, the extra 50, which will be charged for new investors, will help meet Know Your Customer, or KYC, and other incidental expenses.

"The whole idea of this step is to make good the transportation and incidental expenses incurred by the distributor while collecting the application forms from the investor," the person said.

Sebi chairman UK Sinha said that distributors will be allowed to charge 100 as transaction charges for each subscriber to help mutual funds penetrate into the retail segment in smaller towns.

The regulator has made it clear that these charges will only be applicable on fund investments exceeding 10,000. No charges will be levied on transactions other than new fund purchases. Sebi has exempted direct fund transactions from this levy. Transaction charges - of 150 for new investors and 100 for existing investors - will be charged to the fund in three to four instalments. Transaction charges are in addition to the existing eligible commissions permissible to the distributors, Sinha said.

"It'll definitely help distributors servicing retail investors. Transaction charges will cover running costs of smaller distributors," said Rajiv Bajaj, managing director, Bajaj Capital, a national distributor, adding, "it would be nice if the regulator also built-in distributor commission to the application."

Senior Sebi officials said the decision to introduce transaction charges has been taken against the backdrop of a shrinking mutual fund investor base. As a first step towards regulating distribution services, AMCs have been told to conduct due diligence while availing the services of large-sized distributors.

Fund houses will also have to disclose the aggregate amount of commissions paid to distributors besides greater disclosures in terms of performance benchmarks and break-up of assets -- equity and debt-- to provide a more realistic picture.

Source: http://economictimes.indiatimes.com/markets/regulation/sebi-rules-mf-investors-to-pay-rs-100-150-fee-to-invest/articleshow/9403175.cms

Thursday, July 28, 2011

Foreign retail investors must have PAN for investing in Mutual funds.

Individual foreign investors seeking entry into Indianstock markets will now have to acquirePermanent Account Number, or PAN, the passport to allfinancial transactions. The mandatory PAN was announced recently by the finance ministry while outlining the framework for foreign retail investment in mutual funds, a promise made in the February budget.

"The Central Board of Direct Taxes, the apex direct taxes body, will soon issue an instruction in this regard," a finance ministry official said. However, to ensure that the requirement does not make investing cumbersome, PAN will be issued on the basis of know your customer (KYC) scrutiny of the investor.

KYC conditions prescribed by the market regulator, Sebi, are quite stringent making them PAN plus, said the official.

However, experts say tax authorities should clarify that acquiring a PAN will not trigger an obligation to file income tax return here. "Primary concern these investors have is that PAN could trigger an obligation to file return," said Amitabh Singh, partner, Ernst & Young. PAN is a 10-digit alpha-numeric tax payer identification number that is allotted to an individual and is increasingly required to be quoted with financial transactions.

The government has allowed individual foreign investors to invest in domestic MFs, thus creating a new class of investors called Qualified Foreign Investors.

Sebi is expected to notify the norms governing these investors soon. These investors would be able to put money into domestic MFs through Unit Confirmation Receipts (DPs) or Depository Participant route. QFIs could be individuals and bodies, including pension funds, and cumulatively they can invest up to $10 billion (about .`45,000 crore). Dividend income earned by these investors would be tax-free. At present, only FIIs, sub-accounts registered with SEBI and NRIs are allowed to invest in MF schemes in the country

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/foreign-retail-investors-must-have-pan-for-investing-in-mutual-funds/articleshow/9390894.cms

We Expect Yields to Move Up Gradually On Expectation of Further Rate Increase & Supply Fears

The policy is largely focused on inflation, both emerging and advanced economies due to higher commodity prices and domestic demand pressures.

On the global front, concerns over sovereign debt in the Euro region, medium term debt sustainability issues in US, supply chain disruptions in Japan and higher commodity prices led to some easing of the economic growth rates. The European Central Bank raised rates for the second time in order to fight back inflationary pressures. Emerging economies including China persisted with tightening monetary policy.

Domestic growth rates saw some moderation in the industrial production data. However, inflation numbers remained elevated, with non-food manufacturing inflation at 7.2% as compared to a long term average of 4%. Credit growth remained at 19.5%, higher than the RBI's revised projection at 18%.

The RBI thinks that the economic growth moderation will be limited by buoyancy in the consumption sector, due to increase in real wages. Inflation estimate has been increased to 7% from 6% due to:

Recent increase in fuel prices

Significant increase in minimum support price for agricultural commodities

Higher non-food manufacturing inflation

Uncertainty of increase in administrative prices of coal and fuel

Inflation and growth outlook still remains contingent on oil price, food price inflation emanating from the monsoon, foreign fund flows to fund current account deficit and fiscal deficit. Large fiscal deficit is a key source of demand pressure. The subsidy burden amounting to 1% of GDP is also a factor contributing towards inflation.

Going Forward

The RBI has continued with anti-inflationary policy. As the growth numbers are still sustaining and inflation is still high, the RBI has chosen to aggressively tackle inflation. The monetary policy stance in future will be determined by evolving inflation trajectory, which in turn will be determined by trends in domestic growth and global commodity prices. A change in stance will be motivated by signs of a sustainable downturn in inflation.

The corporate yield curve may flatten due to more rate pressures. We expect yields to move up gradually on expectation of further rate increase and supply fears.

Bond funds and Monthly Income Plans have been lately focusing on building duration selectively. We continue to seek duration at elevated levels post the policy. Short-end funds have maintained higher cash levels ahead of the policy. Thus, they should benefit from higher yields. We continue to believe that we are closer to peak of interest rates in the current cycle.

Source: http://www.adityabirlamoney.com/news/493523/10/22,24/Mutual-Funds-Reports/We-Expect-Yields-to-Move-Up-Gradually-On-Expectation-of-Further-Rate-Increase-Supply-Fears

Wednesday, July 27, 2011

Arbitrage funds take debt route for safe returns.

Arbitrage schemes of domestic mutual funds, hit by sizeable outflows in the past 18 months due to falling returns, have devised a way to work around their investment mandate to boost performance. Fund managers are investing more in money-market instruments to lift returns but are ensuring that the scheme is still eligible to be taxed like equity schemes, a key factor that drew investors to this product in the past.

These schemes, which benefit from the price anomalies between futures and underlying shares, are required to invest at least 65% of their corpus in stocks to gain the tax advantage that equity schemes enjoy over fixed-income products. But, with arbitrage opportunities on the wane in a lacklustre market, investing 65% of the corpus has compressed returns. The situation has resulted in fund managers coming out with an idea to lift returns while ensuring tax status of an equity scheme.

Taxation rules state that a scheme will be taxed similar to an equity product if 65% of its corpus is in stocks on the last day of a month and the first day of the ensuing month.

For instance, an arbitrage scheme needs to invest at least 65% of its fund on July 31 and August 1 to gain the tax advantage of equity products. Equity investments beyond a year are exempt from paying capital gains tax. Capital gains tax on redemption before one year is 15%.

For debt mutual funds, the long-term gain is taxed at 10% without indexation and 20% with indexation.

Some fund managers are investing more than 35% of their corpus in money market instruments for most of the other days of a month and trimming it below this level on the two days.

"Since money market instruments are fetching higher returns, a large portion of the fund corpus is being diverted to these securities for most of the month before the month-end. This arrangement is not illegal," said a chief executive officer with a foreign mutual fund, requesting anonymity.

"This arrangement has helped some arbitrage schemes to slightly lift annual one-year rolling returns of late," a top official with another mid-sized mutual fund.

Money market instruments, which are short-term, are returning over 8.5% annually, while the arbitrage fund category has returned almost 6% in 2010 and roughly 4.5% in 2009.

Source: http://articles.economictimes.indiatimes.com/2011-07-26/news/29816623_1_arbitrage-fund-category-arbitrage-schemes-tax-advantage

Immediate Impact of the Policy Has Been an 11 Bps Rise in Yields in the 10 Year G-Sec From 8.29% To 8.40%

Commenting on Reserve Bank of India's First Quarter Review of Monetary Policy, Mr. Ramesh Rachuri, Senior Fund Manager - Fixed Income, Bharti AXA Investment Managers said - The Reserve Bank of India raised the Repo Rate by 50bps to 8.00%, and the Reverse Repo Rate by 50bps to 7.00%. It kept the CRR rate unchanged. It also revised upward the baseline inflation projection for March 2012 to 7.00%. Further, RBI has also stated - "the monetary policy stance will depend on the evolving inflation trajectory, which in turn, will be determined by trends in domestic growth and global commodity prices. A change in stance will be motivated by signs of a sustainable downturn in inflation."

Stubbornly high and persistent inflation, strong demand pressures, absence of policy initiatives on the supply side and infrastructure, high fiscal deficit due to subsidies and lower tax collections (lowered customs duties on petroleum products due to price rejig) are some of the factors cited for this monetary policy action.

The immediate impact of the policy has been an 11 bps rise in yields in the 10 year G-Sec from 8.29% to 8.40%; rise in 4-5 month CD rates by 20 - 25 bps; and rise in 2 month CD rates by 15-20 bps. In keeping with the anti-inflationary stance, the RBI is expected to keep liquidity in deficit mode below 1% of NDTL (Net Demand and Time Liabilities) of banks, or roughly around Rs.1 Lakh Crores. The current weekly average is a deficit of Rs.63,000 crores.

Monetary authorities also try to target a 'neutral' policy rate at which there is no slack in the economy in terms of potential output. RBI has also implied that after the present hike, the monetary situation is close to normal or neutral and further action would depend on evolving circumstances. Reflecting this, the current implied forward rates of the market shows that the market does not expect another rate hike till the end of the calendar year. So, unless inflation goes out of hand, or there is a 'shock' to the system, RBI would prefer to wait and watch in the mid-quarter review on the 16th of September. What would then be a market mover in the bond and money markets would be liquidity. As we step into the busy season of credit lending with the next policy, corporate borrowing would start and we would see a slight tightening of liquidity, especially at the end of September, coinciding with advance tax payments, in money market securities.

However, what will be in focus would be external developments in Europe and the U.S. How events unfold in the peripheral economies in Europe with a partial debt default and rolling over of borrowing by Greece will be closely watched. The increase in the debt limit in the U.S., which is currently being acrimoniously debated, will also shape liquidity, and interest rates, as also lowering of aggregate demand and impact on employment. The moot point is that all the external indicators suggest possible lowering of aggregate demand, and hence impact on commodity prices like crude oil, food (soft) commodities, etc., which the RBI is watching like a hawk.

In light of the above, and given the possibility of a pause in rate hikes till atleast September (and possibly till the end of the current calendar year), being coupled with a falling off of CD issuances from banks due to contraction between credit and deposits, we would judiciously extend duration, wherever feasible, especially in our Bharti AXA Short Term Income Fund, and Bharti AXA Regular Return Fund.

Source: http://www.adityabirlamoney.com/news/493398/10/22,24/Mutual-Funds-Reports/Immediate-Impact-of-the-Policy-Has-Been-an-11-Bps-Rise-in-Yields-in-the-10-Year-G-Sec-From-8-29-To-8-40-

Tuesday, July 26, 2011

RBI surprises with 50 bps rate hike

Welcoming the Reserve Bank's decision to hike key rates by a hefty 50 basis points, Finance Minister Pranab Mukherjee today said it will help bring down inflation to a comfortable level of 6-7% by year-end.

"The Reserve Bank of India has sought to give a strong signal to further moderate inflation and check inflationary expectations," Mukherjee said.

Inflation has remained stubbornly close to double-digit levels during the first quarter of the current fiscal. Mukherjee said the RBI rate hike was necessary to bring down inflation to an acceptable level at the earliest.

Overall wholesale price-based inflation stood at 9.44% in June. To tame the inflation monster, the RBI today hiked key policy rates by 50 basis points. "With this policy adjustment, we will be able to get back to a more comfortable inflation situation that takes us to the year-end inflation level of 6 to 7%," Mukherjee added.

The RBI has hiked its policy rates 11 times since March, 2010, to curb inflation. However, the problem persists. Mukherjee said although food inflation has moderated in recent months, pressure in manufactured items has hardened.

While coming out with its first quarterly policy review for the 2011-12 financial year, the RBI admitted that there has been a moderation in growth, but maintained its previous estimate of 8% GDP growth for the current fiscal.

Mukherjee said, "The overall GDP growth for 2011-12 so far is in line with the momentum attained in 2010-11." There have been concerns that the country's economic growth could see some moderation on the back of a deceleration in factory output growth in April-May.

Industrial output growth in April-May this year averaged 5.7%, compared to 10.8% in the same period last year.

Source: http://www.moneycontrol.com/news/economy/rbi-rate-hike-to-ease-inflationary-pressure-says-fm_569175.html

Franklin Templeton MF declares dividend for FT India Dynamic PE Ratio Fund of Funds

Franklin Templeton Mutual Fund has approved the declaration of dividend on the face value of Rs 10 per unit of FT India Dynamic PE Ratio Fund of Funds. The record date for dividend has been fixed as July 29, 2011.

The quantum of dividend will be Rs 0.440 per unit for individuals and HUF and Rs 0.377 per unit for others. The scheme record NAV of Rs 33.8048 per unit as on July 22, 2011.

The investment objective of the scheme is to provide long-term capital appreciation with relatively lower volatility thorough a dynamically balanced portfolio of equity and income funds.

Source: http://money.livemint.com/News/MF/MUTUAL-FUNDS/NEWS/144970.aspx

Sebi retracts on unique mutual fund folios

The domestic mutual fund industry will not have to provide unique folios of investors, as suggested by the Securities and Exchange Board of India (Sebi), following the capital markets regulator's decision to retract from its earlier view.

Fund managers said the number of investors' folios are already dwindling and such an exercise would have resulted in at least 30-40 per cent reduction in retail folios. According to latest statistics, the folios in the equity segment continued to slide in the June quarter. The industry lost more than half a million folios during the period, compared to the March quarter, while overall folios declined by 231,850.

H N Sinor, chief executive officer of industry body Association of Mutual Funds in India (Amfi), said: "Sebi has realised the difficulty in getting the number of unique folios and has asked the industry to continue with the old formula."

Since the beginning of the current financial year, fund houses had been providing their unique investors count. "Earlier, if an investor had invested, say, in two schemes in a fund house, it was counted as two folios. However, as asked we counted it as one folio and provided the details to the regulator," explained a top industry official. However, another top official said that it did not mean that an investor had investment only in one fund house. "An investor who has investments in more than one fund house, Sebi wanted that to be counted as only one folio (unique customer). And that was not an easy task and we conveyed our feedback to Amfi."

Fund managers, Business Standard spoke to, said data sharing among fund houses was not common and counting unique customers was not possible and that resulted in the regulator's opinion meeting its natural death.

"Even if fund houses provide their unique customers, it will still have multiple duplication and the system is not yet ready to get it out. Rather, the registrar and transfer agents like Karvy and CAMS are better placed to show the unique customers instead of fund houses," said the chief marketing officer of a medium-sized fund house.

Things were confusing and the industry could not ascertain the unique customers in mutual funds. The confusion over this was evident from the fact that Sebi did not publish May's folios after making statistics available till April. Industry officials said the penetration may not be even what it seems like from the retail folio number, which is close to 40 million. Roughly, they say, the number of investors may not be higher than 25 million. This could be a setback for the regulator which has been pressing hard for deeper penetration of mutual funds in the top 10 cities in India.

Source: http://www.business-standard.com/india/news/sebi-retractsunique-mutual-fund-folios/443847/

Monday, July 25, 2011

Value buys present across market spectrum: PVK Mohan, Principal PNB Asset Management

PVK Mohan, equities head, Principal PNB Asset Management, which manages about Rs 5,500 crore, has increased exposure to agro-based firms, pharmaceuticals, consumer-centric stocks and auto ancillaries as these sectors are better insulated from high interest rates and its impact on demand and profit margin.

Infrastructure and select real estate stocks are Mohan's contrarian bets, while he prefers to stay away from cement and banking shares. "There are value-buys across market spectrum. Themes like agriculture and related rural economy-linked industries can be a part of long-term play. There are buying opportunities in mid-cap pharma, consumer-related and auto ancillary space," he told ET.

Mohan manages Principal Growth Fund, Dividend Yield Fund, Tax Savings Fund, Balanced Fund and Conservative Growth Fund. He prefers well-managed and low-debt companies with stable operating margins at all market cycles. Also, he likes firms with low capital needs, operating in non-competitive spheres, with easy cash flows and which are at lower valuations due to negative Sectoral or market overhang. "Infrastructure, capital goods and auto ancillaries are rate-sensitive sectors, but there are contrarian opportunities present in these counters," he said.

"We've increased exposure to consumer, pharma and healthcare, but then we're cautious adding stocks at these levels. You don't get too much on the table with respect to valuation," he added. "We've some exposure to real estate companies...These are companies with manageable debt levels and have their project outside stressed markets like Mumbai and Delhi. We've not invested in commercial real estate," said Mohan. He has increased investments in companies such as ITC, TCS, L&T, Lupine, Torrent Pharma, Areva T&D and Chambal Fertilisers. He has reduced exposure to ICICI Bank, RIL, REC,OBC and HDFC. "At about 16 time's forward price-to-earnings, Indian markets are commanding a wee bit higher valuation," he said.

"We're slightly higher than our median long-term average. If the market corrects 5-7%, it will be a good entry point for long-term investors," he said.

He expects companies to register 12-13% growth in the first quarter vis-a-vis 15-18% estimated by the broker community. Investors can start taking long-term bets on equities, he said.

Source: http://economictimes.indiatimes.com/markets/analysis/value-buys-present-across-market-spectrum-pvk-mohan-principal-pnb-asset-management/articleshow/9353440.cms

When Fund manager changes, Monitor the fund carefully

One of the things that worry the slightly evolved mutual fund investors is change in fund managers. By the time you figure out that some of the equity funds you have chosen are actually making good money, and that this was because of the actions of someone called a fund manager, you could be hit with the news that the fund manager is changing.

This is a bit of a problem. You see, unlike some funds in the more mature markets, the fund manager is not really a brand in India. People generally invest in a particular fund because it has done well. Or, if they are beginners, they are likely to invest because the fund company is a big brand like ICICI or HDFC or Reliance. At some point, those investors interested in learning how mutual funds work come to know that investment decisions for each fund are taken by a fund manager.

And then they hear a fund manager has changed. This happens a lot. Over the last 24 months alone, there have been 187 fund manager changes for equity funds. The total equity assets managed by the Indian fund industry is Rs2 lakh crore. Over the last 24 months, there has been a change in fund managers handling about Rs98,000 crore - almost half of the total industry.

Is this a problem? Is this something that investors should worry about? Unfortunately, the only reasonable answer is that it depends. It's actually quite hard to figure out quantitatively how much of an impact a change in a fund manager has had on a fund. All equity funds are managed within a context of their investment mandate, their institutional parentage and, obviously, the market conditions. Pin-pointing the exact impact of these factors and that of a fund manager is impossible.

There have been a few cases when a fund manager's exit has led to a slump in funds' performance. However, there have been some cases when a new fund manager has proven to be better than the old one. At the end of the day, there is little in it except to say that when a fund manager changes, investors have to be extra vigilant in monitoring their fund for any changes in performance.

That still leaves investors with the question of why is there such a flux. Why are there so many changes in the management of funds? One reason is that there is generally a lot of flux in all sort of skill based jobs in India. Like any other white-collar job in a growing industry (and especially in financial services), changing jobs is a major way of moving up in one's profession. It's unfortunate that the managements of fund companies are unable to create conditions in which this is not the case, but that's the way it happens.

The other issue is of good fund managers themselves moving up the ladder into marketing and general management jobs to move up in their professions. I've seen this happen time and time again in the fund industry. Once a fund manager gets a good track record, he seems to spend more and more time talking to investors (at least the bigger ones) than on proper fund management.

This is basically a selling job. Or, he's expected to start managing and mentoring junior fund managers, regardless of whether the junior is actually any good at it.

Eventually, he gets out of fund management altogether and becomes CXO, for some value of X. This is great for his career and the way most corporate careers work. However, perhaps fund management jobs should follow a different model, like that of surgeons may be. You don't hear of a good surgeon moving forward in his career by abandoning surgery and becoming a hospital administrator, do you?

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/when-fund-manager-changes-monitor-the-fund-carefully/articleshow/9351703.cms?curpg=2

Tata Mutual Fund parts ways with Credit Suisse as offshore fund management partner

Tata Mutual Fund has parted ways withCredit Suisse as its offshore fund management partner in May, an official spokesperson from the Indian asset manager told ET.

"The change is being effected on the basis of the fund manager's macro-economic and infrastructure outlook," the Tata MF official said. "We're in the process of reallocating funds... this change in fund manager has no bearing on our relationship with Credit Suisse or any other services provider," he said.

However, according to industry sources, the investment team of Tata MF was not happy with the contribution of Credit Suisse towards the overall performance of the funds.

Credit Suisse was managingTata MF's Growing Economies Infrastructure Fund and Indo Global Infrastructure Fund.

Credit Suisse officials declined to comment on the development.

This is not the first time that Tata MF has changed its offshore fund management partner. In 2009, it removed US-based asset manager Invesco Global citing poor fund performance. At that time, Invesco had invested a lion's share of the investible corpus in Chinese stocks that were undergoing a bearish trend.

The absence of an offshore fund manager has forced Tata MF to liquidate its foreign assets and hold large piles of cash in the two international funds.

As on June end, Tata Growing Economies Infrastructure Fund Plan A held 66% of its asset under management in cash. Plan B of the same fund, which has mandate to invest 35% of corpus in international securities, maintained about 35% cash levels. Tata Indo Global Infrastructure Fund, which has the mandate to invest 35% in overseas equities, held 27% cash on June end. Both the funds acted as feeder funds into Credit Suisse Emerging Markets Infrastructure Fund, which has generated 7.8% over the past one year.

Despite high cash-levels, Tata Growing Economies Infrastructure Fund (Plan A) has returned over 4% vis-a-vis infrastructure funds category returns of 16.4%. TataIndo Global Infrastructure Fund has generated minus 4.4% return against category returns of minus 8.4%. In terms of value, investors in Indo Global Fund are logging significant losses as net asset value (NAV) of the fund has been locked in a range of Rs 7 and Rs 8 for more than a year. Investors had invested in this fund at a notional NAV of Rs 10.

"From what we see, the domestic portion is weighing heavy on the performance of both funds. The Credit Suisse fund has generated decent returns over a year's time. The underperformance of domestic portion could be because of the bleak outlook on infrastructure sector," a fund researcher said.

According to fund distributors, several investors have redeemed their investments from both these funds. The assets under management of Indo Global Infrastructure Fund have fallen from Rs 2,359.40 crore as on December 2007 to Rs 858 crore last month. The asset base of Tata Growing Economies Infrastructure Fund has dipped from a high of 41 crore in October 2009 to Rs 28 crore in June 2011. Plan B of the same fund, at one point, had assets worth Rs 173 crore. The plan now has assets worth just about Rs 109 crore.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/tata-mutual-fund-parts-ways-with-credit-suisse-as-offshore-fund-management-partner/articleshow/9353252.cms

India to allow foreign investment in mutual funds from August 1.

India will allow qualified foreign investors to invest up to $10 billion in domestic mutual funds from August 1, a senior finance ministry official said on Friday.

The government expects good inflows from qualified financial institutions into mutual funds in this fiscal year to March 2012, Thomas Mathew, joint secretary, capital markets at the finance ministry, told reporters on Friday.

The move to allow qualified foreign investors was first proposed by Finance Minister Pranab Mukherjee in the budget for the fiscal year that started on April 1.

At present, only foreign institutional investors and sub-accounts registered with the market regulator Securities and Exchange Board of India, and non-resident Indians are allowed to invest in Indian mutual fund schemes.

Source: http://articles.economictimes.indiatimes.com/2011-07-22/news/29803534_1_mutual-funds-foreign-investment-capital-markets

Saturday, July 23, 2011

Reliance Equity Advantage Fund to be Renamed as Reliance Top 200 Fund

Reliance Mutual Fund has decided to rename Reliance Equity Advantage Fund as Reliance Top 200 Fund with effect from 26 August 2011. Accordingly, the investment objective, benchmark index and asset allocation pattern of the scheme will be altered.

Investment Objective: The primary investment objective of the scheme is to seek to generate long term capital appreciation by investing in equity and equity related instruments of companies whose market capitalization is within the range of highest and lowest market capitalization of BSE 200 Index. The secondary objective is to generate consistent returns by investing in debt and money market securities.

Benchmark Index: BSE 200

Asset Allocation Pattern: The scheme will have a revised asset allocation pattern to invest 65% to 100% of assets in equity and equity related instruments with medium to high risk profile. On the other side it would allocate upto 30% of assets in debt instruments and money market instruments (including investments in securitized debt) with low to medium risk profile.

Unit holders of the scheme are being provided with an option to exit the scheme at the prevailing NAV without any exit load. The option to exit without payment of exit load will be valid from 27 July 2011 upto 25 August 2011.

Source: http://www.adityabirlamoney.com/news/492531/10/22,24/Mutual-Funds-Reports/Reliance-Equity-Advantage-Fund-to-be-Renamed-as-Reliance-Top-200-Fund

Friday, July 22, 2011

Mid-sized MFs outpace majors in first quarter

Institutions and firms allocating larger quantum of funds in debt segment.

Mid-sized domestic fund houses outpaced the industry's top majors in building assets in the June quarter. This is due to the shift in allocation of funds by institutions in smaller players and fixed maturity plans (FMPs), that led to a burgeoning corpus in their debt category.

SBI MF, IDFC MF, Tata MF, Deutsche MF and Kotak Mahindra MF, which manage between Rs 10,000 and Rs 50,000 crore, witnessed their assets under management rise by as much as 35 per cent. At a time when the assets' growth rate for the top five players is below 10 per cent, players in the second rung are riding on a higher growth trajectory.

Even in the previous financial year (2010-11), when the industry's overall assets fell by a little over six per cent, and the three top players got a worse hit, mid-sized ones managed a comparatively better performance.

During the June quarter, the average assets of Reliance MF fell compared with the March one. UTI MF registered less than three per cent growth. ICICI MF, HDFC MF and Sun Life Birla MF managed to grow their assets by five to nine per cent.

"There is a major boost from the re-allocation of funds by institutions in short-term and ultra short-term schemes. Institutional money is pouring into the mid-sized fund houses in a larger quantum. However, on the equity side, the scenario is still bleak," explains an industry CEO who did not want to be named for this story.

Consider this: Inflows in the debt category was the highest for ICICI MF, which saw a rise of 13.6 per cent in its debt assets, while others remained below 10 per cent and in the case of Reliance MF, the rise in debt assets was a marginal 0.37 per cent.

On the other hand, debt assets rose 39 per cent for Deutsche MF and IDFC MF, while SBI MF saw a 27 per cent rise and Tata MF registered a growth of 15 per cent in these assets.

According to an industry expert, "Institutions seem to be putting their funds across the board and not confining themselves to selective fund houses.

Institutions, including corporates, are not allocating larger sums in fund houses where they are already invested."

Dhruva Chatterji, senior research analyst at fund tracker Morningstar India, says, "Launch of FMPs by the mid-sized fund houses also helped the players garner assets during the quarter."

Source: http://www.business-standard.com/india/news/mid-sized-mfs-outpace-majors-in-first-quarter/443481/

HNIs take fancy to debt funds & FMPs, lose taste for structured products.

Exotic structured products, which adorned the portfolios of rich investors till about a year ago, are slowly being replaced by high-yielding debt funds and fixed maturity plans (FMPs). Higher fixed income yields, range-bound equities market and aversion to complex investment products are prompting HNIs to avoid structured products and invest in simple debt funds, wealth managers and product manufacturers said.

Apart from simple 'yield-plus-Nifty participation' type of products, none of the complex structures are being sold by wealth managers in significant numbers. These are structures designed to provide capital protection; nearly 75-80% of the corpus is held till maturity in bonds while the remaining portion is actively invested in a Nifty stock basket. The final payout is based on the return of the underlying equity.

"Investors, who are willing to take risk, are only investing in capital protected schemes, which is your regular yield-cum-Nifty participation product. Otherwise, money is chasing fixed income products now," said Shariq Hooda, head of third party products at Religare Securities.

FMPs and high-yielding non-convertible debentures are seeing more inflows than complex structured products, Mr Hooda said. It is range-bound equities market that is making investors allocate more to debt funds. With short-term rates hovering at 9-9.75%, investors are looking to lock-in money at higher rates in FMPs and long-bond funds (8-10 years' tenure) - both of which are yielding near - 10% returns. FMPs - both short-tenured and longer duration portfolios - are a big draw among affluent investors. Average asset under management in FMPs have surged 38% from 87,033 crore in December 2010 to 1,20,662 crore in June 2011, according to Value Research data. Structured products, which compete with FMPs in terms of returns and a certain level of safety, are not finding enough takers, product manufacturers said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/hnis-take-fancy-to-debt-funds-fmps-lose-taste-for-structured-products/articleshow/9305638.cms

Mutual Funds panel for removing expense ratio cap.

The committee on mutual funds appointed by SEBI to look into the issues faced by the industry is likely to submit its recommendations to the Board of SEBI when it meets on July 28.

One of the issues that the committee has addressed pertains to the expense ratio of asset management companies, sources said. The committee, it is gathered, is recommending that the sub-head caps within the expense ratio be done away with. This will provide some room to mutual funds to give better commissions to their agents.

Expense ratio is how much an investor pays a fund in percentage terms every year for management of his money. This could involve management fees, commissions to agents, fees to registrars and marketing and promotion expenses.

Currently the expense ratio has been capped at 2.5 per cent for equity funds; and there are various sub-categories of expenses which also have their own caps. It is known that the committee is planning to do away with these caps and leave the break up of expense distribution to the discretion of the mutual funds.

It may be recalled that SEBI had, during the Chairmanship of Mr C B Bhave banned entry loads on mutual funds. A large part of this entry load used to be paid as distributors' commission. After the ban the mutual industry went through a black patch when many distributors stopped selling mutual funds.

When Mr U K Sinha took over as Chairman at SEBI, he appointed a seven-member committee, chaired by whole time member Mr Prashant Saran to look into the problems of the mutual fund industry.

Mr Sinha after taking over at SEBI has been often quoted as saying that while mutual fund distributors should be incentivised, the entry load ban will not be lifted.

In fact one of the first circulars issued by SEBI after he took over related to mutual funds. SEBI in March said that load balances of mutual funds shall be segregated into two accounts – one to reflect the balance as on July 31, 2009 and the other to reflect accretions since August 2009. The first load balance can be used for marketing and selling expenses including distributor/agents' commissions, subject to not more than one third of the balance being used in any financial year. The second account could be used without any restrictions.

Yet another recommendation of the mutual fund committee is for a one time flat fee of Rs 100 to Rs 125 to be paid by newcomer to a mutual fund.

Source: http://www.thehindubusinessline.com/todays-paper/tp-markets/article2282777.ece

Tuesday, July 19, 2011

Expect markets to remain range-bound: Sundaram Mutual

In an interview with ET Now, Satish Ramanathan , Director and Head-Equities, Sundaram Mutual, talks about the market. Excerpts:

What do you make of the current market conditions?

The main thing about this market is that what you are seeing is a little b it of fatigue. There is no participation from the retail side. Even mutual funds and DIIs do not have too much money to participate. FIIs are picking up shares, traditional FIIs who are increasing their country allocation or increasing equity allocation and hence buying a little bit into India. The good thing is that we have received a fair bit of money in the recent few weeks, which is a cause for cheer, but whether it is sustainable or not one does not know. So consequently the market is in a close trading range, stocks go up 5-7%, then fall 10% or so, and then they move up again and so it's more of a trading range market as it goes currently.

So do you see markets staying in this range of 17000-19000 for an extended period of time?

Yeah. This range will continue because what's happening is a kind of a reset that we are going through. We are seeing the corporate margins coming down even as volumes keep going up. We hope that the impasse breaks by then, so that the top line grows and then the bottom line starts growing as well, failing which you could see an actual breakdown in the market. If that were not to happen, then one can hope for the market to recover after 6-9 months. But as of now there is a consensus call to shift to defensives because the lack of growth in many of the infrastructure, metal, commodities and to some extent financials is pushing the market overly to defensives.

What do you make of the current global macro and by and large do you think markets have discounted the Greece news?

These are issues, which are hanging in the air and as a result, there is no clarity. But we have problems of our own. I do not think we need to blame the rest of the world for the market movement itself. The lack of clarity on several policy fronts for Indian industry is one which is plaguing it the most. The lack of confidence is telling in terms of investment growth, we have the intake of orders for infrastructure and capital goods companies have been amongst the lowest in several quarters now. So we have our own set of issues and add to that the global set of issues which is something which is clouding it up a little bit more.

What's your sense on how the IT pack is likely to pan out and what would your preference order be when it comes to Infosys versus TCS ?

The net takeaway from the two IT companies is that at end of the day, margins are down and profit growth is lower than the top line growth. So that would be the case for most of corporate India . We need to wait and watch as to how the results come through. It's early days, but that's kind of the feeling that most of the consensus estimates bring out. Corporate India's profit growth is going to be around 10-12% as per estimates and that would be still amongst the lowest growth rates that we have seen over the past several quarters. So that's something which we need to wait and see.

Which stories do you like when it comes to the defensive and consumer spaces?

We have taken a view that we will take a diverse set of stocks rather than just bet the house on a single stock. And if you look at it from that perspective, some of the consumer stocks still offer some value. We have for instance Jyothy Laboratories , which is in the FMCG space. We also have a couple of other defensive names as well, which we think will continue to do well. We have Raymonds, Arvind Mills , all of which we believe are plays on the domestic consumption theme at a much more attractive price point.

What are your thoughts on commodities and commodity stocks going forward?

The issue on commodities right now is that, will Asia continue to grow because end of the day, commodity versus dollar was one trade, which people were playing, but there was a high degree of correlation at that point in time. But of late the correlation seems to be giving up a little bit. The more important thing is what happens in China because if China continues to grow, then you have a long commodity trade. If China does actually cool off, which most people are fearing, then the commodity trade will not work irrespective of what happens to the dollar.

Source: http://economictimes.indiatimes.com/opinion/interviews/expect-markets-to-remain-range-bound-sundaram-mutual/articleshow/9269143.cms?curpg=2

Monday, July 18, 2011

Benefit from flexibility of multi-cap funds

When you put your money in an equity mutual fund, do you also tell the fund manager which stocks to buy? No, and yes. While investors don't give any instructions, a fund with a fixed investment mandate picks only those type of stocks.

For instance, a large-cap fund will invest only in index-based heavyweights and other blue chips. You won't find a small-cap company in its portfolio. This is why large-cap funds tend to move slowly and surely compared with other categories. Similarly, a small-cap fund will focus on smaller companies, forever hoping to zero in on the next Infosys that will turn it into a multibagger.

Multi-cap diversified equity funds have given higher returns

On the other hand, multi-cap funds invest across the entire spectrum of stocks, starting from large-caps all the way down to small-caps. They have a flexible mandate, which helps them pick winners from across market capitalisations.

"Wealth creation happens when the fund management process has flexibility. Multi-cap funds have an in-built mandate to capture the upside across the market spectrum," says Om Ahuja, head of private wealth management and strategy at Emkay Global Financial Services.

The performance of multi-cap diversified equity funds bears this out. In the past three and five years, this category has given higher returns than those from other categories of diversified funds.

Multi-cap funds are the best long term investment option for creating wealth

As companies belonging to different market segments demonstrate different levels of volatility and returns, it is best for investors to hold stocks of varying market capitalisations.

"Multi-cap funds provide the investors with the offer to build a diversified portfolio by giving them access to all kinds of equities," says KN Sivasubramanian, chief investment officer, Franklin Templeton Investments.

For instance, in the past one year, mid- and small-cap funds have done exceedingly well, but in the long-term, multi-cap funds have consistently outperformed the other categories. "Multi-cap funds are the best investment option for creating wealth in the long term," points out Ahuja.

Work in all market conditions

The flexible mandate of multi-cap funds gives them access to greener pastures in all market conditions. At the beginning of a bullish phase, it is usually the large-cap bellwether stocks that do well. Midway through the bull run, these large-cap stocks reach high valuations and the focus of the investing community shifts to mid-cap and then finally small-cap stocks.

"Retail investors cannot gauge which part of the market will perform well-large-caps, mid-cap or small caps. By investing in multi-cap funds, they can gain in all market conditions," says Saurabh Jain, associate vice-president, retail equities research, SMC Global Securities.

In financial crisis, a multi-cap fund will be able to bear redemption pressures The 'go anywhere' strategy works well during downturns as well. "While a given set of conditions may not benefit one part of the multi-cap fund portfolio, it could benefit the other, thereby creating a counter-balance effect that generates long-term results," says Maneesh Kumar, managing director, Burgeon Wealth Advisors. When the bears are on the prowl, small-cap and mid-cap stocks fall harder than large-caps. Multi-cap funds are able to cushion themselves better than funds which are focused only on these vulnerable segments.

A deft fund manager can realign the fund's portfolio rapidly and thus benefit from the changing market mood. "Besides, in a black swan kind of a scenario, such as the financial crisis that we experienced in 2008, a multi-cap fund will be able to bear redemption pressures better compared with a mid- and small-cap fund as it is likely to be more liquid," adds Kumar.

Consistent outperformers

We looked at the performance of the top 15 multi-cap funds during a bull phase and a bearish phase. Except for three instances out of the 30 observations, the multi-cap funds outperformed their benchmarks. Most of the funds outperformed their benchmarks in both the bear and bull phases.

"Multi-cap funds have delivered in all kinds of environments and market sentiments. It is true especially for the top performing ones in the category," says Vinod Sharma, head of private broking and wealth management at HDFC Securities. Apart from the freedom to invest in stocks of any market capitalisation, multi cap funds are also not shackled by any particular investing style.

Benefit from both value and growth investing

These funds can benefit from both value and growth investing, depending on their objectives. "This is because the fund manager can pick from a much larger population of stocks," says Sharma. For instance, Franklin India Flexi Cap Fund is a multi-cap fund and follows a bottom-up approach to stock selection.

The fund's investment objective is to provide investors with a blend of growth and value investment options. The focus is more on individual companies and their potential to create wealth over the long term.

Betting on the fund manager's ability

The fund manager's ability to select stocks is crucial to the success of a mutual fund. However, this becomes even more critical in case of a multi-cap fund. "Investing in a multi-cap fund is akin to investing on the fund manager's capabilities," says Jain.

This is because the risk levels of a multi-cap fund can rapidly change, which requires deft handling by the manager.

The multi-cap fund manager must also manage sectoral allocations

Not only does he have to monitor a larger universe of stocks, but the possibility of making the wrong choice widens due to the freedom granted to him.

If he fails to read the market conditions correctly or is not able to change the allocation of the fund's portfolio, the returns are likely to fall behind. The multi-cap fund manager must also manage his sectoral allocations well. Sectors tend to move in cycles and he should be able to change his allocations depending on the economic cycle. This is why multi-cap funds carry a higher risk than index funds or large-cap funds. Look up the fund manager's track record carefully before you invest in one.

Higher churn, higher costs

Since multi-cap funds have a larger universe of stocks to buy from, their churn also tends to be higher than that of other fund categories. The average portfolio turnover of the multi-cap funds is 79%, while that of large-cap and mid- and small-cap funds are 73% and 64%, respectively. Portfolio turnover is a measure of how frequently assets were bought and sold in a fund by the manager during the course of a year.

The higher the turnover rate, the higher will be the transaction or trading costs for the fund. Although these costs are not included in the fund's expense ratio, they are paid for by the investors' money, not the fund manager's salary. Thus, funds with higher portfolio turnover eat away into the returns. Over the long term, this can affect the returns from the fund significantly.

The churn does not seem to be so abnormal

However, experts don't see this as a significant drawback as long as the fund is able to generate the returns that justify the higher costs. "The churn does not seem to be so abnormal," says Sharma.

Besides, churning depends on the style of investing as well. Both the DSPBR Equity and the Templeton India Equity Income funds are multi-cap schemes. While the former has a portfolio turnover of 216%, the latter's measurement is only 3.49% as it functions on value investing.

"Churning depends on the style of investment. Also, a higher portfolio-turnover need not always lead to higher costs. If the individual bets work, the gains can easily more than cover the trading costs," says Sivasubramanian.

Not taking enough risks

Another drawback of multi-cap funds is that fund managers are somewhat reluctant to allocate a higher percentage of corpus to small- and mid-cap companies. Hence, they are not able to effectively capitalise on the USP of the category. "At the time of redemption pressure, it is difficult to exit mid- and small-cap stocks. Due to liquidity concerns, a multi-cap fund manager may exhibit a large-cap bias to be on the safe side," says Kumar. The non-availability of information could be another reason why the exposure to small-cap and mid-cap stocks is restricted.

However, die-hard fans of multi-cap funds defend the category. "Although one can contend that they could have been more aggressive, the superior returns generated by multi-cap funds belie these allegations. Besides, a rise in the ratio of small-caps in the overall allocation can augment the fund's inherent risk," says Sharma. Experts believe that it is too early to draw any inference about multi-cap funds. "Pure multi-cap funds are rather new in the Indian market. Hence, any evaluation would be unfair as the funds have essentially been around for one market cycle," says Sivasubramanian.

Should you invest?

Multi-cap funds are not of much utility for investors who understand asset allocation and base their investment decisions on it.

"It becomes difficult for investors who follow asset allocation principles to ascertain as to how these funds will fit in their portfolios as these virtually buy anything irrespective of capitalisation or sector," says Kumar. Asset allocation is the most important factor determining a portfolio's performance.

Multi-cap funds make an excellent investment option

Studies show that 94% of the portfolio's returns variance is determined by how funds are spread across asset classes. Only a small portion is determined by market timing and security selection.

Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services, says that if you have a large portfolio, the asset allocation call is best taken between the investor and the financial adviser. In such cases, multi-cap funds lose their relevance. "However, if you have a small portfolio, then multi-cap funds make an excellent investment option," he adds.

Source: http://economictimes.indiatimes.com/quickiearticleshow/9258055.cms

Sundaram MF Launches Capital Protection Oriented Fund with Tenure of 3 Year

Sundaram Mutual Fund has launched a new fund named as Sundaram Capital Protection Oriented Fund 3 Years (Series 4), a close ended capital protection oriented scheme. The tenure of the scheme is 3 years from the date of allotment of units with capital protection at maturity. The scheme's portfolio structure has been rated as AAA (so) by CRISIL which indicates highest degree of certainty regarding payment of face value of the investment to unit holders. During the New Fund Offer (NFO) the scheme will offer units at Rs 10 per unit. The new issue which is open for subscription from 15 July will close on 29 July 2011.

The objective of this scheme would be to seek income and minimise risk of capital loss by investing in a portfolio of fixed income securities. The scheme may invest a part of the assets in equity to seek capital appreciation.

The scheme offers dividend payout and growth option.

The scheme will allocate 80% to 100% of assets in fixed income securities including money market instruments with low to medium risk profile. It would further allocate upto 20% of assets in equity and equity related instruments with high risk profile. Exposure to derivatives will be limited to 50% of the net asset.

The 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 1 crore under the scheme during the NFO period.

Entry and exit load charge will be nil for the scheme. In order to provide the liquidity to the investors, the units of the schemes are proposed to be listed on the NSE within 5 business days from the date of allotment.

Benchmark Index for the scheme is CRISIL MIP Blended Index.

Dwijendra Srivastava is the Fund Manager for Debt portion and Srividhya Rajesh is the Fund Manager for Equity portion of the scheme.

Source: http://www.adityabirlamoney.com/news/491020/10/22,24/Mutual-Funds-Reports/Sundaram-MF-Launches-Capital-Protection-Oriented-Fund-with-Tenure-of-3-Year

Birla Sun Life MF Announces Change In Fund Management Responsibilities

Birla Sun Life Mutual Fund has announced that Birla Sun Life Floating Rate Fund - Long Term Plan, Birla Sun Life Floating Rate Fund - Short Term Plan, Birla Sun Life Cash Manager, Birla Sun Life Cash Plus Fund will be managed by Mr. Kaustubh Gupta and Ms. Sunaina da Cunha. Birla Sun Life Savings Fund will be managed by Mr. Maneesh Dangi and Mr. Kaustubh Gupta. Birla Sun Life Short Term Opportunities Fund will be managed by Mr. Lokesh Mallya and Ms. Sunaina da Cunha. The changes will be effective immediately.

Source: http://www.adityabirlamoney.com/news/490926/10/22,24/Mutual-Funds-Reports/Birla-Sun-Life-MF-Announces-Change-In-Fund-Management-Responsibilities-

Franklin Templeton MF Declares Diviend in Franklin India High Growth Companies Fund

Franklin Templeton Mutual Fund has approved the declaration of dividend on the face value of Rs 10 per unit of Franklin India High Growth Companies Fund. The record date for dividend has been fixed as 22 July 2011.

The quantum of dividend will be Rs 0.50 per unit. The scheme record NAV of Rs 12.2928 per unit as on 15 July 2011.

Franklin India High Growth Companies Fund is an open ended diversified equity fund that seeks to achieve capital appreciation through investments in indian companies / sectors with high growth rates or potential.

Source: http://www.adityabirlamoney.com/news/491005/10/22,24/Mutual-Funds-Reports/Franklin-Templeton-MF-Declares-Diviend-in-Franklin-India-High-Growth-Companies-Fund

Tata MF Announces Appointment of Fund Manager for its Schemes

Tata Mutual Fund has appointed Mr. Marzban Irani as the Fund Manager for Tata Liquid Fund, Tata Floater Fund, Tata Income Fund, Tata Short Term Bond Fund and debt portfolios of Tata Young Citizens Fund and Tata MIP Plus Fund with effect from 18 July 2011.

Mr. Marzban Irani has been designated as Senior Fund Manager - Fixed Income from June 2011 and he has eleven years of experience. He is aged 36 years and holds B.Com, PGDBM as his educational qualification.

Source: http://www.adityabirlamoney.com/news/491004/10/22,24/Mutual-Funds-Reports/Tata-MF-Announces-Appointment-of-Fund-Manager-for-its-Schemes

Saturday, July 16, 2011

Muthoot Finance to offer loans against gold ETF units

Muthoot Finance Ltd, which claims to be the largest gold finance NBFC in India, on Friday said it will now offer loans against Gold ETF (Exchange Traded Funds) units as security.

Launching the service, Muthoot Finance Ltd Managing Director George Alexander Muthoot told reporters here that the loans against gold ETF units was a scheme through which Muthoot Finance plans to venture into a totally new segment of gold financing, which would not only add value, but also enable the company to service the financial requirements of newer customer segments.

The new scheme would come into force by this month end and would enable the customers to avail finance at the rate of 15 per cent interest against their Gold ETF units to the extent of 85 per cent of the Net Asset Value of ETFs.

Muthoot has tied up with Benchmark, for offering the service, which would be available at 30 branches of Muthoot all over the country in the first phase and would be later extended to all 3,000 of its branches.

He said the company expects to extend up to Rs 1,000 crore worth of loans this fiscal.

Gold ETFs have seen a progressive rise in popularity throughout the country over the past two to three years, attaining a whopping size of over Rs 5,000 crore as of June this year, resulting out of active investments from over 320,000 investors, according to National Stock Exchange Assistant Vice-President and Southern Region Head Sunita Anand.

Benchmark Asset Management Company Pvt Ltd National Head-Sales Anil Desai said the golf ETF loan scheme by Muthoot Finance Ltd would act as a source for investors in gold ETFs to raise funds against their investment units during times of need, instead of selling those units.

Commonly referred as 'paper gold', gold ETFs are mutual fund units issued by asset management companies against 99.5 per cent purity physical gold deposited with a SEBI-registered custodian.

Gold ETFs are listed and traded on stock exchanges and can be bought and sold like stocks on a real time basis.

These funds are passively managed and mirror domestic gold prices. By enabling investors to invest in gold without holding it in physical form, gold ETFs offer a rather unique investment opportunity to investors.

Source: http://www.thehindu.com/business/companies/article2229969.ece

Friday, July 15, 2011

Affluent investors flock to structured mutual fund debt schemes promising higher returns.

Structured mutual fund debt schemes that promise to fetch higher returns than plain-vanilla fixed income products are finding many takers among affluent investors and companies nowadays.

These schemes simultaneously invest in banks' one-year certificate of deposits (CD) and high-yield corporate bonds with 15- to 18-month maturity to gain the edge over basic debt products. Fund managers of these schemes, as part of this strategy, lock in a significant portion - about 70%- of the investment portfolio in one-year CDs and the remaining in corporate bonds, including non-convertible debentures.

In this strategy, the CD investments help the fund manager lock-in a higher yield similar to a fixed maturity plan, while the corporate bonds drive the additional returns. At current rates, the investment in one-year CDs could yield as high as 10%. The year when the CD matures, the portion invested in corporate bonds, with 15-18-month maturity, would still carry a residual maturity of 3-5 months.

This is where the fund managers look to cash in. Yields on corporate bonds tend to fall (and prices rise) as the securities near maturity; bond prices and yields move in opposite direction. As bond prices rise, fund managers redeem them, enabling them to gain from the upsides.

"Investors should ideally have oneyear investment horizon for these schemes. This strategy over one year generally cannot go negative even in the worst case scenario," said Sunil Jhaveri, chairman of MSJ Capital , a firm specialising in fund research and advisory.

"Investors have been tired of taking interest rate and duration calls on debt schemes. Products like FMPs or bank fixed deposits are good, but investors lose out on liquidity and prospects of capital gains."

Templeton India Short Term Plan, Pramerica Treasury Advantage Fund and BNP Paribas Bond Fund have adopted this strategy. Investors hope to pocket 10.5-11.25% returns on such structured portfolios.

"Structured short-term open-ended debt funds are for investors who want to gain from higher short-term rates marked at different (type of) debt papers and tenures," says Mahendra Jajoo , CIO, fixed income, Pramerica Mutual Fund .

"Such type of funds are open-ended in nature. They allow investors the flexibility to restructure investments in the wake of direct tax code roll-out next year," Jajoo said.

The government is likely to take away indexation tax benefits from investors under the new DTC rules. Under the current tax regime, if investors buy a 370-day FMP in March, 2011, s/he is eligible to claim benefits of inflation for two years before calculating the capital gains tax liability.

The fund is structured on the premise that short-term rates will decline in a year's time. In the event of an inverted yield curve (that is when long-term debt instruments have a lower yield than shortterm debt instruments of the same credit quality), returns on these funds could fall marginally.

Fund managers claim that they have a back-up plan if the existing strategy for this scheme goes wrong. "We'll be able to realign even if our call on interest rates go a bit out of place. In case the rates go up in the interim, we'll replace the existing constant portfolio with higher-yielding securities. This, in a way, will enhance portfolios returns after one year," Jajoo said.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/affluent-investors-flock-to-structured-mutual-fund-debt-schemes-promising-higher-returns/articleshow/9217114.cms