Mutual Fund NEWS Group: October 2011

Monday, October 31, 2011

Know your fund fact-sheet

Retail investors may not have the wherewithal or time to study and grasp the 40-50-page-long fund offer document / fund information document of a mutual fund. For passive investors the next best alternative is the fund fact-sheet. A fact-sheet is a monthly report prepared and published by a mutual fund for each of its fund offers.

A fact-sheet is a single-page document that explains all pertinent information on the fund and is easily accessible on mutual funds Web sites. Retail investors are advised to read and understand the fact-sheet before making any investment decision. Anyone with a basic knowledge of the securities market can easily understand a facts-sheet. This article dissects the important terms used in such documents.

Assets Under Management

AUM is the market value of assets a mutual fund manages on behalf of its investors. There are funds such as Baroda Pioneer Balance Fund, with an average AUM of Rs 2.6 crore (August 2011), on one side of the spectrum and others such as ICICI Prudential Dynamic Plan, with an average AUM of 3,814.40 core (July 2011), on the other side.

The bigger the fund size, the more the fund can diversify its portfolio. At the same time, large funds may be difficult to manage.

Changes in AUM can be a good indicator of the fund's performance, and can be gleaned by comparing the current month's fact-sheet with previous month's. If the increase in AUM is higher than the NAV returns over the same period, it means that the fund has received inflows, apart from performing well.

Portfolio

Mutual funds are expected to have a diverse portfolio. The portfolio provides information on where funds are invested, what proportion of funds is invested in various sectors and in specific companies. This will help understand the fund's risk profile and strategy.

Portfolio Turnover

Portfolio turnover is the rate of trading activity in a fund's portfolio of investments. It reflects how actively the fund is managed. Portfolio turnover ranges from 0.10 times to three times of the AUM. The more the turnover, the higher a fund's trading costs (brokerage, transaction tax, capital gains tax). Trading costs reduce net asset value (NAV) returns delivered by the fund. High performing funds have an average portfolio turnover of 0.5- to 1.

Expense Ratio

The expense ratio is the proportion of assets used to pay marketing costs, distribution costs and management fees. The expense ratio varies between 1.75 per cent and 2.5 per cent for equity funds and between 1.5 per cent and 2.25 per cent for debt funds. The higher the fund's AUM, the lower the expense ratio. Over a long term of five or more years, a one per cent difference in expense ratio may eat up to 10 per cent of your returns. An important point to be considered here is that expenses are deducted whether a fund delivers good returns or not.

Load

A load is a commission charged at the time of purchase (entry load / front end load) or sale (exit load / back-end load) of mutual fund units. In India, SEBI abolished entry load from August 1, 2009. The majority of Indian mutual funds charge exit loads ranging from 0.05-1 per cent. If investment is held for more than one year many funds exempt exit load.

Return

Returns are reported — compounded and annualised. Generally, returns are reported monthly, half year, last one year, last three years, last five years, and since inception.

If a fund reports 18.6 per cent since inception (1996) it means Rs 100 invested in 1996 is now worth Rs 1197.6. Past performance, though, may or may not be sustained in future.

Standard Deviation

Standard deviation (SD) is a measure of volatility and quantifies the fluctuations of NAV movements. A high SD denotes high risk. Suppose a fund has a SD of 7.9 per cent and returns of 15.6 per cent it means the return may fluctuate between 7.6 per cent and 23.6 per cent. Another fund with 24.10 per cent SD and 15.63 per cent may see its return fluctuate between -8.5 per cent and 39.7 per cent.

Funds with low SD are preferred. Few funds report yearly annualised SD where as others report annualised based on last 36-month data points. Caution, therefore, needs to be exercised while interpreting SDs.

Risk-Free Rate

The risk-free rate represents the interest that an investor would expect from an absolutely risk-free asset. Such a rate is used in risk-adjusted performance measures like Sharpe and Treynor ratios. For calculating Sharpe ratio different mutual funds use different risk free rates.

Sharpe Ratio

Sharpe ratio is one of the most popular risk-adjusted portfolio performance measures. It takes into consideration the return on portfolio, the risk free rate (opportunity cost), and SD. Sharpe ratio is calculated using the formula (Return on Portfolio – Risk Free Rate) /SD. The numerator in the formula denotes the premium that investors gain for taking the risk.

The Sharpe ratio for Axis Equity Fund, for instance was -0.36 as of July, considering a 364-day T-bill as risk-free rate. For the same period, assuming a 91-day T-bill as the risk-free rate would throw a sharpe ratio of -0.48.

In general, the higher the Sharpe ratio the better the fund returns. The point to be noted here is, to calculate Sharpe ratio funds use different time periods. Axis Equity fund use annualised data where as BNP Paribas uses the last three-year data. Hence comparison is nto easy unless one takes similar data points to calculate onself.

Benchmark

Mutual funds use benchmark index to compare the fund performance. Depending on fund portfolio and investment objective, mutual funds choose an appropriate benchmark index. BNP Paribas Equity use S&P CNX Nifty, ICICI Prudential discovery fund use CNX MIDCAP Index, Axis Tax Saver fund use BSE 200, and Franklin India Prima Plus use S&P CNX 500. Benchmark index is also used to calculate the Beta of the fund.

Treynor's Ratio

Treynor's ratio is another popular risk-adjusted performance measure. Treynor's ratio is calculated using the formula: Return on Portfolio – Risk Free Rate / Beta. The calculation and uses are similar to Sharpe ratio except that Treynor ratio uses market risk (beta) where as Sharpe's ratio uses individual portfolio risk (SD).

BETA

Beta measures the co-movement between fund and its benchmark. A beta value of 1 represents that the fund will move in tandem with benchmark index. A beta of less than 1 means fund is less volatile than the benchmark. A beta of greater than 1 indicates that the fund is more volatile than the benchmark. Axis equity fund has beta of 0.89 (July, 2011).

ICICI Prudential Services Industries fund has a beta of 1.07 (Sep, 2011). Higher beta value reduces risk-adjusted returns. For example, if we consider Franklin India Flexi Cap Fund three-year annualised return of 17.2 per cent, risk free rate of 7.9 per cent and beta of 0.86 as of July, the risk adjusted portfolio return (Treynor's ratio) is 10.8 per cent. If we assume beta value as 1.07 then the risk adjusted portfolio return will be 8.70 per cent.

R-Squared

R-Squared represents the fund movements that can be explained by movements in benchmark index. R-Squared value ranges between 0 and 100. A high R-Squared (above 85) indicates the fund's performance patterns are similar to benchmark index.

Source: http://www.thehindubusinessline.com/features/investment-world/mutual-funds/article2580346.ece

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'I made my money by selling too soon.'

Website: http://indianmutualfund.co.cc/

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Look beyond past returns to choose the best fund

The last 4-5 years have been very interesting for the Indian equity markets. They tested the patience of investors and merit of fund managers. The extremes of highs and lows made investors sit up and closely watch the stocks picked by their funds and fund managers. Some schemes beat the benchmark indices in the rising market of 2006-07. They also managed to limit the losses in the 2008 crash. But many failed.

"Last four years have seen all cycles of the markets - massive uptick, downtick, panic, mania, bull run, bear phase etc. Stocks defensive in 2008 are aggressive now. The performance of funds vary depending on stock selection," says Sankar Naren, chief investment officer, ICICI Prudential AMC.

Though long-term annualised return is normally used to gauge a fund's performance, a look at the 'up capture' and 'down capture' ratios would help zero in on the best one.

Up/downside capture ratio shows you whether a given fund has outperformed—gained more or lost less—compared with a benchmark during periods of market strength and weakness, and if so, by how much. Broadly there are four different combinations of up/downside capture ratios.

High upside – High downside

These are the funds which outperform the benchmark index during a rising market. During a correction or bear phase, same funds carry the risk of falling more than the index. For example, the SBI Magnum Midcap Growth scheme gave excellent annual returns of 47 per cent and 71 per cent, respectively during 2006 and 2007, when the equity markets were breaking all previous record highs. In 2009 when markets recovered after 2008 crash, it gave a whopping annual return of 104 per cent.

However, during the 2008 crash, the same fund eroded in value by 72 per cent. From January this year to September, it fell 16.73 per cent. The five year annualised return of the fund is a mere 2 per cent. This is explained by its up capture and down capture ratios. According to Morningstar, a global mutual fund research company, the 5 year up capture ratio of the fund is 104.21 while the down capture ratio is 119.7. This means that while the fund manager ensured out-performance during a bull run, it could not limit the downside while the markets were correcting. Data indicates that the fund value fell 19.79 per cent more than the benchmark. This is true across categories – be it large cap, mid cap or small cap funds. Several funds like Taurus Starshare, L&T Opportunities, JM Basic, LIC Nomura MF Equity, and Sundaram India Leadership funds show similar traits.

Low upside – High downside

It indicates that while the fund failed to match the return of the index in a rising market, it fared equally bad by giving higher negative returns than the index in a falling market. For example, Principal Growth Fund, a large cap oriented scheme. Its 5 year up capture ratio is 81.55 while the down capture is 99.

This is more risky than the previous category since the scheme fails to outperform the index in a rising market, it falls equally or more than the index in a falling market. This shows in its annual returns of 2007 and 2008. In the bull run of 2007, it yielded 53.28 per cent while in the next year, the scheme fell 63.69 per cent. January to September this year, the fund value plunged 23.25 per cent while its 5 year annualised return is negative 0.67 per cent. Some of the other schemes that fall in this category are BNP Paribas Midcap, ICICI Pru Midcap, SBI Magnum Multicap, and L&T Contra.

High upside – Low downside

This is the smartest set. These are schemes which on one hand beat the benchmark index in a rising market, and on the other, protect the downside in a falling market. Most top funds that have performed consistently and have a good 5 year annualised return fall in this category.

For example, IDFC Premier Equity Plan A, a small and midcap oriented fund. It has a 5 year up capture ratio of 104.5 and the down capture ratio of 74.46. The fund returned 110 per cent in 2007 while it fell 53 per cent in 2008. The 5 year annualised return of the fund stands at a staggering 23 per cent. January to September this year, it has dropped 8 per cent.

It gave better returns than the benchmark during the rising market and protected the downside when the markets crashed. Some other funds in this category are HDFC Top 200, HDFC Equity, Canara Robeco Equity and UTI Dividend Yield.

"The hallmark of a good fund manager is not how s/he performs when the markets are going up but how s/he performs when the chips are down. The fund should not fall more than the benchmark index. Else what is the point of investing in a mutual fund," says Sanjay Sachdev, president and CEO, Tata AMC.

Low upside – Low downside

This category may not beat the benchmark when the markets are rising but would not fall much in a falling market. They can be a good choice for risk averse investors who would like to invest in a fund that would protect the downside in a falling market.

UTI MNC fund is an example. The 5 year up capture ratio of thefund stands at 67.67 per cent while the down capture is 52 per cent. This means that while the fund did not match up the benchmark index returns, it captured the losses of falling market up to only 52 per cent. In 2007, the fund gave a return of 32.45 per cent while it fell 42.78 per cent in 2008. The 5 year annualised return remains at 13 per cent. January to September return this year stands at 1.34 per cent which is not bad considering most of the equity funds gave negative returns.

The other funds in this category are Birla Sun Life MNC, UTI Equity, and ICICI Pru Dynamic.

It may be a smart strategy to have a look at the up and down capture ratios of the funds before finally taking a call on the choice of fund. Websites such as www.morningstar.co.in, have such details about each equity fund. "Investors must stay away from such funds that fall too much in a falling market. Funds with high up capture and low down capture ratios are ideal for investors," suggests Dhruva Chatterji, senior research analyst with Morningstar, India.

You must not look at only the recent past performance as that may be misleading. Do check how the fund performed both in the rising market as well as the falling market.

Source: http://www.indianexpress.com/news/look-beyond-past-returns-to-choose-the-best-fund/867895/0

Rally to be capped at 5-10% from current level: Religare MF

The week gone by saw Indian equities surging past resistance levels to end on a high note. However, chief investment officer at Religare Mutual Fund, Vetri Subramaniam expects this rally to be capped at 5-10% higher from current levels. Global factors off late have been conducive for a rally, but domestic macro continues to be a significant concern, he explains in an interview to CNBC-TV18.

Subramanium goes on to say that he expects the market to remain volatile within a trading range. Therefore, avoid sectoral calls and focus on stock picking, he said, adding that companies with a high return on equity (RoE) will trade at a premium.

He further adds that poor domestic environment could lead to a cut in earnings estimates for FY13.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee.

Q: Do you think what we are witnessing right now is a technical rally or have fundamentals changed around to justify higher prices?

A: It's always hard to separate the factors because a little bit of everything goes in for the market at this point of time. A little bit of optimism coming in from the way global markets and risk assets have performed and some good economic data or I would say not very bad economic data out of the US, so global factors have been conducive for a rally.

The earnings picture locally has been reasonable too, nothing very dramatic. There have been a few surprises on the negative side, but equally we have seen few companies do quite well. So the earnings season has played out reasonably okay so far. So all of that put together, the market had a big of headroom in terms of valuations to put in a bit of rally and that's what we have seen.

Q: Does the combination amount to an extension of the rally or would you say this is about it?

A: I think purely from a valuation standpoint at one point we had gone down to almost about 18-20% below our historical trading multiples so there still may be about 7-8% below historical trading multiple averages of about 17 times odd. So there may be a bit more room to the upside. But where I would start to worry is the fact that as far as the domestic economy is concerned things are looking quite poor at this point of time and the risk is that we actually see further slackening of GDP growth in FY13.

Q: You were saying that growth might slow down in FY13, so where do you think that market gets capped given the outlook on domestic macro?

A: I would say another 5-10% from here. I think the adverse domestic macro will come back to haunt us and I would split with the camp which seems to attribute all the problems that the Indian market has had this year with global events. I think our biggest challenge is our domestic issues; the global issues are only clouding the domestic picture. The investment cycle has pretty much stalled at this point of time and I worry that unless we see a significant pick up in investments, it is pretty much a given that growth will come in below 7% in FY13.

So I think it really is the domestic factors which are front and center as far as we are concerned. The global issues obviously create a lot of volatility, but it is the domestic factors that I would worry about.

Q: In the immediate term do you feel that this rally has the power to surprise on the upside because of how cramped the market has been through all of this year. Can we go much further than people expect?

A: You cannot rule it out because at the margin there has been a lot of money sloshing around, not just in India but all over the world, which is risk on-risk off. We are seeing money gushing through all sort of financial markets and asset classes and in that environment it's interesting that markets like India are now the low beta market around the world. It's the newest market and markets of Europe which are the high beta markets and that's visible in the way those markets have behaved during the course of this year.

So we are in some senses strangely a low beta play in the global environment right now, but we will catch a little bit of the tailwind if it continues to remain supportive in Europe and US. But eventually, our fate will be determined more by local factors. We keep talking about the global slowdown but at the same time we focus a lot more on the domestic growth story and it is that domestic growth story which is starting to creek at this point.

Q: So what is your best case prognosis for the next few quarters? Do you think the market will grind in a bit of a range with occasional bouts of volatility or do you see a more constructive uptrend starting next year?

A: It all depends on when the uptrend will come but I think in this kind of an environment the scope for a further de-rating of the markets is certainly there. There will be pressure on equity prices coming from the fact that earnings estimate for 2013 definitely need to be cut. I am seeing consensus numbers in the region of 20% earnings growth for FY13 and I don't think those are going to come through when you got GDP growth slowing down to below 7%. I think there is a lot of earnings cuts which will come through.

Secondly, as far as PE multiples are concerned, the risk to derating is going to come both through the fact that our growth is slowing and secondly from the fact that you have got 10 year bond yield now pushing close to 9%. So both these things put together clearly make for the case that equities will continue to de-rate. So you will see 10-12% earnings growth but some of that will get offset by the fact that PE multiples will de-rate.

Q: In that case, do you think the downside is protected around those 4,700 Nifty kind of levels where we seem to be bouncing off every time in terms of valuations as we get forward in time or do you think those levels could be at risk as well next year?

A: I think if you look at the risk that could cause us to go down even below that in retrospect might then create a good buying opportunity. But if you have the ten year bond yield going north of 9%, which would be largely a function of fiscal profligacy in Delhi and not so much of a function of RBI rate action, then there is a risk of this market eventually breaking down below what has been fairly critical shelf of support that we have seen through this year.

I think that would be driven both by the slowdown in GDP growth that I am talking about as well as by spike up in the ten year bond yield. If those two factors come about then there is risk that the market will trade lower and will trade through that support.

Q: Going into next year is there a case for the tact to be turned around in terms of what the approach should be for defensives and high beta?

A: It has been a very interesting environment from our perspective. There have been some sectors which have been less affected by the macro headwinds and some which have been more adversely affected. But when we drill it down, what we are finding is that there is a lot more value addition that is coming to the portfolio by way of alpha creation from stock selection rather than just focusing purely on the sector selection. Really the call that we have to take as portfolio managers at this point of time and the way at least we are approaching it is to be driven a lot more by the credentials of the companies rather than just getting blindly attached to certain sectors or avoiding certain sectors.

In sectors that tailwinds are favorable or at least the scene has been in some cases perhaps defensive, valuations already captured or factor in a lot of the attractiveness of those companies. Where as in other areas where the macro headwinds are adverse, there are companies where there could be continued to be short term issues but the valuations are favorable if you are willing to stay the course with them over a period of time and wait for the environment to turn more conducive.

I would really say this is an environment where you need to focus a lot more on the stock picking bit. Yes, sector selection is important but the stock picking is going to be far more important, both in terms of limiting your downsides and preparing yourself for some kind of cyclical upside which might play out sometime in 2012. So if you want to position yourself in both of these, I think stock selection is going to be far more important that the sector selection.

Source: http://www.moneycontrol.com/news/mf-interview/rally-to-be-capped-at-5-10current-level-religare-mf_607673.html

NRIs returning to India: Avail the benefits given under tax laws

It is praise worthy weakness of a man to love the places where he played in his childhood, where he was educated, where he dwelt and call back to the mind his childhood pleasure. The recent fears of recession in the west compounded by the growth story in India, as well as the lure of returning to one's own motherland may change the minds of many Indians who have settled abroad to return to India permanently.

This may mean that they could be looking at resettling in India by selling their property abroad which they would have acquired whilst being there. This decision may not be just an emotional one but would have to factor other perspectives like taxation, exchange control regulations etc, which may significantly impact the decision of shifting back to India and its timing.

Subin, a person of Indian origin, was employed in the US for the past several years. He wants to return to India permanently. He owns several assets in the US such as a residential property, a car, and investment in shares in US based companies. He has also invested in mutual funds there. He is pondering on whether to sell his property in US before he returns to India permanently, but wants to get his car to India and if permitted, retain his investments in the US.

While discussing his idea of coming back to India permanently with a friend, he found out that there were certain advantages that he could derive in case he qualifies as a Non-Resident (NR) in India under the Indian tax laws. He also found out that the simplest way to qualify as a NR in India is to spend less than 60 days in India in any particular tax year, which runs from April 01 to March 31 of the subsequent calendar year. Accordingly, Subin has planned his return in such a way that he qualifies as a NR in India in the year in which he returns to India.

His decision to return to India would have both direct and indirect tax implications, such as income tax, wealth tax and customs duty. He would also need to take note of implications from an exchange control regulations perspective.

The implications under each of the above mentioned laws need to be understood distinctly. As per the Indian income-tax laws, NRs are taxable in India only on income which accrues in India or is received in India. In the case of an NR, once an income is earned and received outside India and it is brought to India at a later date, it would not be taxable in India.

This would mean that Subin could sell his residential property in US, while he is an NR or a Not Ordinarily Resident (NOR) in India, and he would not be taxable in India on the gain that he makes from the sale. Similarly, he would not be taxable in India on the income earned and received by him in the US from his investments till he qualifies as a NR or NOR in India. Once Subin loses the status of a NR or NOR and qualifies as an Ordinary Resident in India, he would be taxable in India on his global income.

This would typically happen in the third or fourth year from the time Subin shifts to India (depending on how extensively he has stayed in India prior to shifting to India permanently). However, in case Subin is paying taxes on any income in the US which is taxable in India as well, he may be able to avail relief under the Double Taxation Avoidance Agreement which India has entered into with the US, for avoiding double taxation of the same income in both the countries.

The provisions for determining residency under the wealth tax laws are the same as that of the Income Tax laws. In the case of NRs and NORs, the current wealth tax provisions provide that any assets located outside India would be excluded from the ambit of wealth tax in India. Hence, Subin will not be required to pay wealth tax in India on the assets that are located outside India, as long as he qualifies as a NR or NOR in India.

If he intends to reside in India permanently, he would not be required to pay wealth tax on money and the other assets brought by him into India from the US, within one year immediately preceding the date of his return or later. This exemption is limited to seven successive years which immediately follow the year in which Subin returns to India.

Also, as per Baggage Rules, 1998, since, Subin had used his car in the US for personal purposes for more than a year and he is transferring residence to India now, he could bring his car with him but would be required to pay customs duty on the same. However, considering the quantum of custom duty liability likely to arise due to the import, it may be a better idea to buy a new car in India subsequent to shift of his residence. In addition to the car, he would be able to get certain specified used personal effects upto a specified threshold without payment of customs duty.

With regards to exchange control implications, Subin would be able to open a Resident Foreign Currency Bank (RFC) account. He could then transfer, through appropriate banking channels, the amount that he has in his US Bank account into such RFC account without any limit.

He can continue to hold his other investments in the US, since he had acquired these when he was a resident outside India. The dividend from the US companies and mutual funds and interest income from his US bank account which he receives from his investment that he continues to hold in the US can also be credited to the RFC account.

Also, he needs to watch out for the upcoming Direct Tax Code (DTC) which has certain significant proposed changes relating to wealth tax.

For Subin or any other NRI, the decision to return to India may not be just an emotional one, but also needs to be made taking into account the current regulatory environment and proposed changes being made to them. With a proper understanding, efficient planning and utilisation of the benefits provided under the tax laws in India, home-coming would not only feel good on the heart but also relatively easier on the pocket.

Source: http://articles.economictimes.indiatimes.com/2011-10-25/news/30320235_1_income-tax-tax-and-customs-duty-nr/3

(OTHERS) Savings rate wall has fallen-Yes Bank offers more, giants who feasted wait

The last frontier of interest rate regulation crumbled today when banks were granted the freedom to fix the savings bank rate.

The savings bank rate —currently capped at 4 per cent — has been the only rate in the retail banking industry that the RBI has set since October 1997 when bank deposit rates were fully deregulated.

The rate revolution was announced even as the RBI raised its benchmark interest rate — the repo — by 25 basis points to 8.5 per cent.

Reserve Bank governor Duvvuri Subbarao also signalled the 13th rate increase since March 2010, which was widely anticipated, could be the last in the current rate cycle even as he trimmed the growth forecast for the Indian economy to 7.6 per cent from 8 per cent earlier.

But the big buzz of the day was the speculation over the possible reconfiguration of the banking landscape that the saving bank rate deregulation could bring about.

While deregulating the interest rate, the RBI stipulated that each bank would have to offer a uniform rate of interest on savings bank deposits up to Rs 1 lakh. They could offer a higher rate if the average cash balances in these accounts stay above Rs 1 lakh.

"If there's any rate war, it will be to attract depositors who park more than Rs 1 lakh in their savings bank account," said Amitabha Guha, non-executive chairman of South Indian Bank. "High net worth individuals on an average keep Rs 5 lakh to Rs 10 lakh in their savings bank accounts. All banks will now vie for this pool of depositors."

Privately-owned Yes Bank grabbed the opportunity to ignite a rate war by offering 6 per cent interest in an effort to wean away accounts from established players like the SBI and HDFC Bank that have built up vast troves of cheap cash that reside in savings bank accounts.

"This path-breaking regulation will enhance and protect savings returns from the brunt of persistent inflation," said Rana Kapoor, founder and managing director of Yes Bank. "The alignment of savings rate to the market rates will accelerate greater financial inclusion of the unbanked and under-banked population."

Savings bank accounts have been one of the cheapest source of cash for the big boys of banking. The big players have over 25 per cent of their total deposits in the form of cash balances in savings accounts. Yes Bank – the latest rate warrior – has only about 2 per cent of its deposits in the form of cash balances in savings bank accounts.

Until the savings bank rate was revised to 4 per cent in May, banks forked out just 3.5 per cent on savings bank accounts — a rate that remained unchanged for eight years since March 2003.

The decision to deregulate the savings bank rate — an idea that was floated early this year in a discussion paper floated by the banking regulator – creates a situation where the humble savings bank account can give liquid mutual funds a run for their money at a time when the stock market returns have tumbled by over 15 per cent from year-ago levels.

Yes Bank's sudden move appeared to fly in the face of several banking mavens who have been suggesting for some time that the deregulation of the savings bank rate won't have a great impact on the industry.

They didn't seem to have changed their views after Yes Bank's rapier thrust.

"We are not in a hurry to raise the savings bank rate from the current level of 4 per cent," said SBI chairman, Pratip Chaudhuri. "We will see how it (deregulation) plays out. Unless there are other competing pressures, the savings bank rate at SBI will continue at 4 per cent."

Chanda Kochhar, managing director and CEO of ICICI Bank, said: "Some banks will rejig their rates. But we would prefer to watch its implications on customer behaviour before taking our next step."

However, Aditya Puri, managing director of HDFC Bank, seems to have subtly revised his stand after the announcement. Recently, he had said the savings bank rate could even dip from the current level of 4 per cent after deregulation.

On Tuesday, Puri came up with a cryptic comment: "If there is a one per cent increase in the savings bank rate, banks' margins could take a maximum hit of 0.25 percentage point."

But not everyone seemed to agree with the top bankers in the country. "I expect the savings rate to rise to 6 per cent going forward," said R.K. Bansal, executive director of IDBI Bank.

B.A. Prabhakar, executive director of Bank of India, said the rate would go up to 4.75 to 5.52 per cent and stabilise around those levels after a while.

Much will depend on whether the rate war sparks a churn in savings bank deposits.

At the end of March, total savings deposits in the banking system stood at Rs 13,77,288 crore, or 26.5 per cent of total deposits. The household sector, which parks 13 per cent of its financial assets in savings bank accounts, is the largest contributor to the cheap source of funds for banks in the country.

Given the current rate (4 per cent calculated on a daily balance basis) prescribed by RBI, banks pay roughly Rs 48,000 crore a year as interest on savings bank deposits. In contrast, a one-year bank fixed deposit earns about 7 per cent interest.

Other bankers saw a flip side to the overture from the would-be rate warriors. They expected banks to offset some of the losses by asking customers to pay higher charges for banking facilities such as cheque books and money transfers. ATM withdrawals above a certain number of transactions could also invite charges.

"Service charges will go up as the cost of fund increases," said Romesh Sobti, managing director and CEO of IndusInd Bank.

Source: http://telegraphindia.com/1111026/jsp/frontpage/story_14669880.jsp

Mutual Funds give Systematic Investment Plans the flexible edge to retain clients.

Systematic investment plans (SIPs), the cash cow for mutual fund companies, are witnessing a slew of features being added that provide flexibility to investors to time the market that prevents them from stopping subscriptions during bearish phases.

Edelweiss Mutual, ICICI Prudential MF, HDFC MF, Reliance Mutual and DSP Blackrock are others that have come out with flexible investment options in SIPs where they could choose various index levels at which their funds could be invested.

SIPs are mutual fund investment schemes where an investor contributes a regular sum of money every month like a recurring deposit of a bank. Since some investors stop adding to the corpus during times of downturn, asset management companies are evolving structures to keep investor interest alive.

Apart from trigger-based SIPs, DSP Blackrock, Axis Mutual Fund and ICICI Prudential have introduced 'SIP-by-debit card' facility which allow investors to pay online. DSP Blackrock MF has a 'Target value savings account', which allows investors to shift an equity fund investment into a relatively safer debt fund upon reaching a targeted value (or targeted portfolio return) in equity fund. ICICI Pru Mutual's Target Return Funds also work on a similar 'invest-redeem-invest' principle.

"Such options are encouraging people to invest more in equity funds,'' said Srikanth Meenakshi, director of Wealth India Financial Services. "Innovative features make fund investments more convenient, flexible and efficient."

Edelweiss Mutual Fund plans to launch its 'prepaid SIP' which will allow investors to time the market. Investors using this option will be initially required to invest from 25,000 to 2.5 lakh into Edelweiss MF's Absolute Return Fund, a balanced fund with a minimum equity exposure of 65%. The investor then chooses index triggers, say 1/2/3% correction in Nifty at which his funds could be invested.

Every time the index hits a pre-decided trigger level, 10% of the money invested in absolute return fund is released into select pure equity mutual funds.

Source: http://articles.economictimes.indiatimes.com/2011-10-22/news/30309872_1_systematic-investment-plans-equity-fund-edelweiss-mutual-fund

Friday, October 21, 2011

MFs curb pace of equity folio loss

Equity investors' base shrinks only by 600,000 in Apr-Sept, compared to 1.7 million last year.

Retail investors accessing equities through mutual funds (MFs) have chosen to stay invested at a time when markets are showing no signs of upward movement.This has brought some relief to fund managers, who had lost 1.7 million investors last year.

Indian benchmark indices have seen an erosion of 15 per cent of value during the April-September period.

MF players have successfully applied firm brakes on the pace of losing their equity investor base. In the first half of the current financial year, the number of equity folios (including equity-linked-savings-schemes) have shrunk by less than 600,000. Fund managers see this as a commendable achievement, when seen against 1.7 million folio closures in the same period last year.

Rising investments through the systematic investment plan (SIP) route, which a Sebi official puts at Rs 1,300 crore every month, or a rise of 40 per cent; weak market scenario; and considerable increase in net inflows in equities; have all helped the industry bring the folio closures down.

Last year, during April-September, the industry had lost equity folios at an average of 300,000 a month.

Ajit Menon, executive vice-president, DSP BlackRock, says: "Normally, when the markets rise, the industry sees investors getting out. And, on the other hand, when markets are weak, investors tend to stay on. I believe, this is a major factor why folios have not shrunk this year."

Going by the trend seen in the first half of the previous financial year, this holds true. When the domestic benchmark indices inched towards their peak till October before slipping last year, MF players found themselves helpless in applying brakes on the trend of investors moving out. In the next half, when equity markets slipped, pace of folio losses came under control.

According to Dhruva Chatterji, senior analyst at fund tracker MorningStar India, "In such a market, investors cannot book profits on their investments and are staying on. Moreover, of late there is meaningful inflows coming into the fund houses' equity schemes."

So far this year, equity-related schemes have seen net inflows of Rs 2,510 crore, against net outflows of Rs 15,361 crore in the period last year. It was only in April this year that the industry witnessed an mass exodus of over 300,000 equity folios only to see situation improve in the coming months.

According to the Securities and Exchange Board of India, the overall folios as on September 30 stood at 47.1 million, a fall of around 62,000. The major addition of folios came in the income schemes at close to 400,000 followed by 130,000 in gold and other Exchange-Traded Funds (ETFs). Rise in folios in income funds and ETFs helped the industry to some extent to compensate the losses it suffered in equity asset class.

During the period, the industry's assets under management grew marginally to Rs 7.12 lakh crore from Rs 7 lakh crore.

Source: http://business-standard.com/india/news/mfs-curb-paceequity-folio-loss-/453231/

Thursday, October 20, 2011

Foreign MFs continue to gain grounds in Indian market

Foreign fund houses seem to be gaining ground in the Indian mutual fund industry, which is dominated by local players. At a time when growth in the industry's asset under management is mostly stagnant, players abroad have put up a better show, managing a steady growth in gathering assets.

So far this year, foreign asset managers have registered a relatively high growth, owing to a low asset base, improvement in performance ratings and recognition of brands among investors. Not only have they seen a better growth rate than the overall industry, but the managers have also outpaced domestic fund houses by registering a more-than-three-times faster rate in building assets during the first half (April-September) of the current financial year. This has helped foreign houses increase their market share by 30 basis points to 10.86 per cent in the domestic fund market.

Puneet Chaddha, chief executive officer of HSBC AMC, says, "This tilt in growth towards global funds gives a clear sense that investors' acceptance and comfort with global players is on the rise."

Consider this: in the first half of the current financial year, assets of foreign fund managers grew by 4.56 per cent to Rs 77,412 crore from Rs 74,037 crore. The same period saw the industry adding 1.74 per cent more assets to Rs 7,12,742 crore, while domestic players — they control a lion's share in the market —could grow their assets by a meagre 1.4 per cent.

Interestingly, the previous financial year saw the contribution of local fund managers in the overall fall of industry's assets at a whopping 97 per cent or Rs 45,724 crore. The industry had lost Rs 46,987 crore of assets in the year. So far this fiscal, global players contributed around 28 per cent in adding fresh assets. The rest came from local fund houses.

In terms of ratings too, global players' schemes have made their presence felt among the top performers. According to data available from Value Research Online, some of the schemes of Franklin Templeton, Fidelity, Mirae Assets, ING, AIG, Principal, BNP Paribas, JP Morgan have made it to the top slot in different asset categories.

According to experts, a possible reason, apart from low asset base of foreign players, for less growth rate in domestic fund houses' growth could be the new guidelines from the Reserve Bank of India that banks should put only 10 per cent of their net worth as investment with Mutual Funds.

Generally, they say, domestic players tend to focus more on liquid schemes (where banks put in money). "This may have contributed in reduction of assets of local fund houses," adds Chaddha.

Domestic majors like Reliance Mutual Fund lost around 11 per cent of its assets in the first half, while UTI saw an erosion of 6.86 per cent. Whereas, assets of Birla Sun Life AMC grew less than one per cent, ICICI Pru and HDFC MF reported a growth of 2.39 per cent and 6.4 per cent respectively.

Among the foreign players, assets of JP Morgan AMC grew by 39 per cent, while that of Baroda Pioneer scaled up by 31 per cent followed by Goldman Sachs (28 per cent), BNP Parbas (12 per cent) and HSBC (11 per cent).

Source: http://business-standard.com/india/news/foreign-mfs-continue-to-gain-grounds-in-indian-market/453108/

Wednesday, October 19, 2011

Tokio Marine may partner Edelweiss in mutual fund

Edelweiss Financial Services and Japan's Tokio Marine are looking at the possibility of partnering in the asset management space. Edelweiss and Tokio Marine have an insurance joint venture company, Edelweiss Tokio Life Insurance, which began operations recently.

"Apart from insurance, we would like to be present in asset management space. Since Edelweiss is a significant player, we may be looking at partnering for an asset management company also. Edelweiss on the other hand, wants to enter the Japanese market in which we are a significant player," said Jun Hemmi, executive director, Edelweiss Tokio Life Insurance.

Tokio Marine has presence in countries such as Japan, Singapore, Malaysia, Thailand and China. In India, Tokio Marine is present through its general insurance company Iffco-Tokio General Insurance.

Hemmi added that as per the contract, Edelweiss Financial Services couldn't quit the insurance business before completing 10 years of operations. According to the Insurance Regulatory and Development Authority (Irda), the minimum lock-in period for an Indian promoter is five years. The company is also in talks with banks for a bancassurance partnership.

Edelweiss Tokio is setting up its branch network with initial focus on western and northern India. The company is looking at slow growth in the first two years of operations because it plans to build an agency base with focus on strengthening the company. The company plans to launch 22 branches in the present financial year. It has already opened 13 branches so far.

Edelweiss Tokio Life Insurance got its licence in May 2011. Since the start of its commercial operations in July this year, the company has sold 1,000 insurance policies, mostly traditional policies, Hemmi said. The company wants to build an agency force of 50,000 people. On not having bancassurance as a distribution channel, Hemmi said that the company does not see this as a disadvantage, but noted that it was open to tie-ups.

Source: http://www.mydigitalfc.com/personal-finance/tokio-marine-may-partner-edelweiss-mutual-fund-043

Well diversified, superior returns

UTI Equity Fund, launched in April 1992, is a diversified equity fund with average assets under management (AUM) of Rs 1,953 crore as of quarter ended September 2011. The fund has a mandate to invest at least 80 per cent of in equity and equity-related instruments and up to 20 per cent in debt and money market instruments.

The fund is ranked CRISIL Fund Rank 1 (top 10 percentile of the peer set) in the Diversified Equity Funds category as per the Crisil Mutual Fund Ranking for the quarter ended June 2011. The fund has been ranked in the top 30 percentile of the peer group for 10 out of the past 13 quarters (exceptions were March, June, September 2010). The consistency in fund performance indicates a blend of superior performance and efficient portfolio management. It is managed by Anoop Bhaskar, who is the Head of Equity at UTI Asset Management Company (AMC).

PERFORMANCE
The fund has delivered superior returns and outperformed its benchmark (BSE 100) and category average over longer time frames of 3 and 5 years. Over the last 1 year, too, the fund has given considerably lower negative returns (-11 per cent) as compared to its benchmark (-19 per cent) and category average (-17 per cent) indicating that the fund managed to limit its downside better vis-à-vis its category. Likewise, it has done better (-16.6 per cent) during the six months period ending September 30, 2011 as compared to the category average (-20.3 per cent) and BSE 100 index (-28 per cent). Over a 5 years period, the fund posted a compounded annualised growth rate (CAGR) of over 10 per cent vis-à-vis 6 per cent and 8 per cent, respectively of the BSE 100 and the category.

An investment of Rs 1,000 over a 10-year period since August 2001 would have appreciated to Rs 7,669 (CAGR of 22.19 per cent) as on September 30, 2011. The same amount invested in the benchmark and S&P CNX Nifty would have returned Rs 5,531 (CAGR of 18.32 per cent) and Rs 4,649 (CAGR of 16.32 per cent), respectively. In a monthly systematic investment plan (SIP) of Rs 1,000 for 10 years, the total invested amount of Rs 1,20,000 would have grown to Rs 3,33,297 as on 30th September, 2011 yielding an annualised return of close to 20 per cent. A similar monthly SIP in the BSE 100 would have grown to Rs 2,76,601 yielding over 16 per cent annualised returns.

LARGE CAP BIAS
The fund has diversified its holdings across market capitalisations but has shown bias towards large cap stocks. The fund's exposure in CRISIL defined large cap stocks (top 100 stocks based on 6-month daily average market capitalisation on the National Stock Exchange) has never been less than 60 per cent over the past 2 years. As of August 2011, 69 per cent of the fund had exposure to large cap stocks followed by 30 per cent to midcap stocks and a less than 1 per cent exposure to small cap stocks.

INVESTMENT STYLE
Active cash calls during various market phases, is an important characteristic of UTI Equity fund's investment style. This strategy benefited the fund when markets were going through a bear phase. Between June 2008 and May 2009, the fund's average equity exposure stood at 79 per cent as compared to its category average of 86 per cent. The fund manager increased average exposure to cash and cash equivalents to approximately 13 per cent during this period. When the markets started recovering post May 2009, the fund manager increased average equity exposure to 92 per cent and reduced exposure to cash & cash equivalents to 6 per cent for the same time period.

PORTFOLIO DIVERSIFICATION
The fund held an average of 73 stocks over a period of 3 years indicating a well diversified portfolio. The top 5 stocks of the fund has accounted for only 17 per cent of the portfolio over the last three years.

As on August 2011, the top 5 stocks overweight vis-à-vis its benchmark are TCS, Sun Pharmaceutical, Nestle India, Axis Bank and Cairn India and underweight stocks are Reliance Industries, Infosys, Larsen & Toubro, Mahindra & Mahindra and Tata Steel. At the industry level, banking has been the most favoured sector over the last three years, with an average 16 per cent exposure followed by consumer non durables and software constituting 13 per cent and 8 per cent, respectively.

For the last three years, the fund has increased exposure to software and pharmaceuticals which have outperformed the benchmark (BSE 100) for the same period.

Source: http://business-standard.com/india/news/well-diversified-superior-returns/452989/

Are HDFC Top 200, HDFC Equity the same?

There appears to be striking similarity between the top two largest equity funds in the Rs. 6.42 trillion Indian mutual funds (MF) industry. HDFC Top 200 Fund (HT200; corpus size of Rs. 10,692.11 crore) and HDFC Equity Fund (HEF; corpus size Rs. 9,432.92 crore) are part of the same fund house, HDFC Asset Management Co. (AMC) Ltd (the largest fund house as per figures released by the Association of Mutual Funds of India, or Amfi, the MF industry body) and both these schemes are managed by Prashant Jain, chief investment officer, HDFC AMC.

If you had invested Rs. 10,000 every month in both these schemes 10 years back, you would have got Rs. 47.35 lakh in HT200 (26.15% returns) and Rs. 47.09 lakh (26.05% returns) in HEF. Both these schemes are a part of Mint50; a basket of schemes that we recommend our investors to pick and choose from. Should you, then, invest in both of them?

Different paths…

Though the returns from both these schemes seem to have converged in the long run, that's not entirely intentional as HEF and HT200 have different objectives. HT200 is a diversified equity fund that benchmarks itself against BSE 200 index. As per its mandate, the common holding between its own holdings and that of its benchmark index (BSE 200) should be at least 60%. For instance, if Infosys Ltd constitutes 5% of BSE 200 and 7% of the fund, the common holding is 5%. It's a mandate that doesn't hug the benchmark index, but restricts the risks a typical equity fund can take on.

HEF, on the other hand, is an aggressively managed large-cap-oriented equity fund. It invests 60-65% of its corpus in large-cap scrips and the rest in mid- and small- cap companies. "We don't shy from straying away from the benchmark index in HDFC Equity because we don't hug the benchmark index. Some of our mid-cap holdings have done very well for us in HDFC Equity fund over the years," says fund manager Prashant Jain.

HEF was launched in December 1994 by the erstwhile Twentieth Century Asset Management Co. Ltd when it started its operations in the Indian MF industry; the scheme went by the name of Centurion Equity Fund in those days. Prashant Jain, along with his former colleagues Chandresh Nigam (who now heads Axis Asset Management Co Ltd's equity funds) and E.A. Sundaram, used to manage this fund in the initial years, up till February 1999 when Zurich India Asset Management Co. Ltd acquired it. Then, Nigam alone managed this scheme till June 2003 when HDFC AMC acquired it. Nigam, unlike Jain, did not join HDFC AMC and so the scheme fell in Jain's lap, who has been managing it ever since.

In the meantime, another fund house ITC Threadneedle Asset Management Co. Ltd had launched ITC Threadneedle Top 200 in October 1996. Bobby Surendranath managed it back then, till 2001. In the interim, Zurich AMC acquired ITC Threadneedle and rechristened the scheme as Zurich India Top 200 Fund in December 1999. After Surendranath quit Zurich AMC (he later worked in Standard Chartered AMC when the latter entered the Indian MF industry and was eventually rechristened as IDFC AMC) in the middle of 2001, Jain started to manage this fund too.

…reach the same goal

More than 10 years since the schemes were launched, a look at their past returns seems to suggest that both the schemes have given similar returns over longer time periods (see graph). Additionally, we looked at the schemes' rolling returns; a string of one-year and three-year returns over the past six years; returns calculated at the end of every quarter between June 2004 and the present to look for any patterns. On an average, the difference between the two schemes was barely two percentage points on a three-year basis. That both these funds are the two largest equity schemes in the Indian MF industry further bridges the gap between the two.

But returns between two or more funds can be similar for a number of reasons. We looked at the funds' portfolios to check out for any similarities there. We checked out both the schemes' portfolios—specifically their top 20 holdings--from December 2007 till date. Of the top 20 stocks both these schemes have held, 14 stocks have been common on an average (see graph). As on 10 June, 16 of the top 20 stocks were common across both schemes' portfolios. Their percentage holdings are also high. For instance, as per their August 2011 portfolios, the 14 common stocks account for 50.31% of HEF's portfolio and 47.94% of HT200's portfolio. "When two or more schemes are managed by the same fund manager for such a long time, portfolios are bound to look the same. For instance, sectors like banking and pharmaceuticals—two of the most commonly prominent sectors in diversified equity funds in the past two years—will generally have almost the same exposure," says Sachin Jain, research analyst, ICICI Securities Ltd. He claims that the top 20%, 30% or 40% of exposure in two such schemes would have little difference.

Method in madness

But not all believe that both the funds are similar. The head of research of the private banking division of a private sector bank that has consistently recommended both these schemes—much like Mint 50—suggests that investors should also look at their volatility. "HEF is usually more volatile than HT200 as the former can also invest in mid-caps," he says on condition of anonymity because he is not permitted to speak to the media. In rising markets, such as in 2006 and 2007, HEF was more volatile than HT200; a statistic (as per data provided by Value Express) best represented by a ratio called the Sortino ratio. The head of research who spoke to us says that his private banking unit, despite both these schemes making it to their recommendation list, suggests HEF to aggressive investors and HT200 to conservative investors.

Jain of HDFC AMC agrees: "As a result of the difference in risk profiles, the year-on-year difference in performance can be visible. Typically, if the index does well, HT200 will outperform. Whenever the index doesn't do well, HEF will outperform." Jain is quick to add that in the past 10 years, a well-performing index has led to HT200's performance, while a mid-cap exposure has boded well for HEF.

Jain of ICICI Securities adds that a high corpus size of both these schemes also bridges the gap. "Since the corpuses of these schemes hover around the Rs. 10,000 crore mark, it's difficult to make two very different portfolios. For instance, the top scrips would be among the most liquid stocks. Since the scheme is managed by the same human being, these names would be more or less similar."

But Jain of HDFC AMC disagrees. "Size doesn't matter," he says. "Even today, HEF is far away from the benchmark index; scrips such as Reliance Industries Ltd, ITC, State Bank of India and so on, have difference weightages in the benchmark index and in HEF." And here's where the difference, he claims, comes about when top schemes across fund houses are compared. "The top 40-60% of the portfolio will be common across many top schemes across fund houses. But the bottom 20-30% of the portfolio is where the difference arises."

What should you do?

Financial planners and analysts are divided on whether you choose one of the two or both. "The objectives of both these schemes are different. Today, HEF is heavily skewed towards large-cap scrips. But going ahead if mid-cap stocks become cheaper, we may see HEF getting into mid-caps. Hence, the risk-return parameters can get very different," says Rupesh Nagra, head (investments and products), Alchemy Capital Management Ltd. He feels that investors can invest in both these funds.

Jiju Vidyadharan, head (funds and fixed income research), Crisil Research, too feels that both these schemes can be a part of your portfolio, but for a slightly different reason. "While, these schemes have different objectives, both have delivered largely similar returns because over the last 2 years, HEF has consistently increased its allocation towards large-caps. However, both these schemes have done well in their respective categories and have been delivering consistent returns. Investors can thus choose to invest in both of them as you don't want to diversify (among fund houses) just for the sake of it."

On the other hand, Jain of ICICI Securities—much like the private banker above—says that they usually recommend one scheme. "Aggressive investors may go for HEF, while conservative investors may go for HT200," he says.

While there's no right or wrong in it—and a bad scheme is bad till we have proof on hands that things are getting sour, which is not the case with HDFC AMC—we find very little to choose between the two. But if two gigantic schemes with similarities in mandates are managed by the same fund manager for years, expect some duplication. In which case, we feel it's best if you choose one and diversify across fund houses to get more variety.

Source: http://www.livemint.com/2011/10/18233840/Are-HDFC-Top-200-HDFC-Equity.html?h=B

Indian markets expected to trade in a broad range: Sandesh Kirkire, Kotak Mutual Fund

As far as India is concerned, apart from domestic factors, the negatives stemming from worries in global markets have also been factored in.

Key Indian indices were expected to trade in a broad range over the next few weeks, Sandesh Kirkire, CEO, Kotak Mutual Fund said in a recent report on a view on markets in October.

"We may be witnessing a contraction in the global risk appetite leading to a board decline in major asset classes," he said.

This could be attributed to a slowdown in consumer spending in the US and high rates of unemployment. Also, in Europe, the sovereign debt crisis ailing the PIIGS nations, and the onset of the severe austerity cuts needed to resolve that issue have been a major cause of concern for the global economy.

As far as India is concerned, apart from domestic factors, the negatives stemming from worries in global markets have also been factored in, the report said.

Interest rate concerns were expected to alleviate in the coming months on the back of a good monsoon which would lead to an enhanced crop output and thereby lower agri-commodity prices. Also, the besetting slowdown in the US, Europe, and China may help alleviate the international crude oil prices in the coming months, the report stated.

"For now, the trading sentiment in the equities market remain sensitive to global market volatility, and would continue to follow the unfolding events in Europe closely," said Kirkire.

Source: http://www.indiainfoline.com/Markets/News/Indian-markets-expected-to-trade-in-a-broad-range-Sandesh-Kirkire-Kotak-Mutual-Fund/5269321904

Tuesday, October 18, 2011

It’s a suitable time to cherry pick stocks for medium term

Current valuations have just reached a 10-year average price-to-earnings ratio of the market and corporate India has now tightened its belt. Ashutosh Bishnoi, acting chief executive officer, L&T Mutual Fund, tells FE's Saikat Neogi that it is the right time for investors to do stock-picking for the medium term. He suggests that investors look at companies with strong business models and visibility of sustained earnings. Edited excerpts:

Do you think Indian investors are sitting on cash and waiting for more positive cues before investing in equities?

In times of uncertainty, retail investors tend to 'fly to safety'. In the Indian context, they have typically moved to high-yielding deposits and gold. Technically, I suppose, you could call them 'cash'. Historically, the retail investor's asset allocation towards equities has been dropping. In the last one year also, their participation has been muted. Now, after market correction and reasonable valuations, we expect participation to increase.

Since one-year forward valuations have come back closer to the average levels of valuations, how are you looking at stock selection and what sectoral advice are you giving to your investors?

The valuations across sectors have factored in most of the negatives in terms of high interest rates, growth expectation and global volatility. The current valuations have just reached the 10-year average PE of the market. At the same time, corporate India has, since the 2008 global financial crisis, learnt to tighten its belt and tried to become more efficient. We believe that this is the time to start considering a stock-picking type of portfolio for the medium term. Companies with strong business models and visibility of sustained earnings through times of economic uncertainty are likely to be available inexpensively in volatile markets. We are likely to find these companies in the domestic consumption and infrastructure sectors.

How are foreign institutional investors (FIIs) looking at India and do you expect them to go overweight in debt in the near and medium term?

India offers a great structural long-term investment opportunity. We expect FIIs to increase their allocation to India once normalcy returns in the euro area. In the new year, we can expect some of the smart money coming in into emerging markets, including India, and that's possibly when you will see some upside. Once FIIs start flowing in and you start expecting better returns, I think that will be a self-fulfilling foretelling and one can expect a better upward move than what most of us are anticipating right now. On the debt side, the FII limits are already full; that could be taken as an indication of their growing appetite for Indian debt.

How do you see the mid- and small-cap segments currently and will they be able to match the returns of some years back?

Currently, this segment offers great value and, over a long-term period, we expect it to deliver superior returns. However, one has to cherry-pick the portfolio here. Mid- and small-cap segments seldom offer across-the-board opportunities.

Do you think L&T MIP—Wealth Builder Fund would offer risk-adjusted returns and serve as an alternative under fixed-income products?

With long-term product performance and highest standards of governance, L&T Mutual Fund is well poised to be an important player in this growing industry.

The fund is an income scheme with a debt exposure of 70-100% and equity exposure can be up to 30%. Fixed income allocation of the scheme could be invested in corporate deposits, commercial paper, government securities, money market and other debt instruments, which aim to generate returns while moderating credit and interest rate risk. The scheme could be suited for those investors who are keen on taking advantage of the interest rate movement and the possible opportunity in the current equity markets.

The L&T MIP—Wealth Builder Fund is an aggressive MIP fund, wherein the fund can take exposure in equity up to 30%.

Through this fund, investors can benefit from both asset classes (debt and equity). We believe both these asset classes offer great opportunity at this time as interest rates have risen and equities are reasonably valued.

Source: http://www.financialexpress.com/news/It-s-a-suitable-time-to-cherry-pick-stocks-for-medium-term/861203/0