Mutual Fund NEWS Group: July 2012

Thursday, July 26, 2012

IDBI Mutual Fund launches gold fund

Asset management company (AMC) IDBI Mutual Fund today launched a gold fund targeted mainly at retail investors and people without demat accounts.

The scheme opens for subscription from July 25 and closes on August 8. The investment objective is to generate returns that correspond closely to the returns generated by IDBI Gold Exchange Traded Fund (IDBI Gold ETF) that was launched last October.

Under the scheme, investors would not hold gold physically and the asset management company (AMC) would keep the equivalent amount of imported gold in its vault with Bank of Nova Scotia.

"Gold is a great investment asset. We see investment in gold as a component of prudent diversification to hedge against uncertainties, inflation and for long-term benefits," IDBI AMC Managing Director and Chief Executive Debasish Mallick told reporters here.

On the amount AMC expects to garner from the new scheme, Mallick said, "We are expecting at least Rs 100 crore during the NFO period."

The fund house further said investment in gold provides better inflation-adjusted returns.

"In the last 10 years, gold has beaten the headline inflation 8 out of 10 times. It has outperformed and given positive inflation adjusted returns," he said.

The product will be available across most of IDBI Bank's branches, Federal Bank, Indian Overseas Bank and Corporation Bank, he added.

Source: http://www.indianexpress.com/news/idbi-mutual-fund-launches-gold-fund/978825/

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'I made my money by selling too soon.'

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

Blog:http://indianmutualfund.wordpress.com/
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Tuesday, July 24, 2012

Allow AMCs to retain a decent return: Sridhar Chandrasekharan

Q&A with Chief Executive Officer, HSBC Global Asset Management

Mutual fund is a much-talked about financial product currently in India. Despite several measures the industry continues to find it difficult to grow. Sridhar Chandrasekharan, CEO of HSBC Global Asset Management says Indian market is significant in terms of its potential in domestic as well as cross-border business. HSBC AMC has a local presence in several of the markets it invests and India is one of them. In conversation with Chandan Kishore Kant, he shares his views on the challenges Indian fund market faces and what needs to be done to curb it. Edited excerpts:

Is Indian fund management business a challenge?
There has been quite a lot of discussion about the distribution model in India where you have got no front-end loads for retail clients for distributors and on the other hand you have got the same distributors charging the AMCs for the front-end load. And clearly, at arms length, it is fair that AMCs are able to recover the costs of infrastructure they provide which enables them to have research and analytical capabilities. In retail distribution, this is a concern since due to this dynamic, AMCs are in the short-term not able to recover anything to offset these costs. Then I will be concerned if it led to perverse dynamics whereby somehow the level of infrastructure was diminished.

The industry framework should allow the asset manager to retain a decent return, in order to offset the costs of the infrastructure AMCs create. I am confident that the industry will evolve and so there is no way that we will diminish the quality of infrastructure that we have. But it will be useful to recognise that these things do not come out of thin air. It does incur a cost and it will be useful and healthy to see that there is something to support that.

How different is India's asset management industry compared with the world's?
It is at a nascent stage. Stability of the regulatory framework is going to be very important. If we look the developments taking place in the Indian industry, taking the ratio of proportion of investments that are managed within the asset management industry in the developed markets is above 25 per cent whereas in India and in the emerging markets, in general, the equivalent ratio stands below 10 per cent. It means that India is still in that upward journey where people are realising that asset management industry can add value to them. I see the mutual fund industry continue to grow in India and along the way it will look different in terms of conduct of business, revenue and distribution dynamics.

Last year Indian government allowed foreign retail investors to invest in Indian mutual funds. But it has not been successful. What went wrong?
There are discussions relating to tax related developments both domestically and for cross-border investments. I would be concerned more about the uncertainty it creates. Whatever it is that is intended to be the rules, as long as it is transparent and clear then investors can reasonably make a decision. You have a situation now that investors are prepared to hold money at negative interest rates when there are strong attractions over here. And we have to ask ourselves the question

why does that persist?
If we talk about reliability in terms of the rule, it is a significant focus. So the attractiveness of India, in many ways, as a destination is beyond doubt. If that is the observation, all of us need to ask the question 'what is it which is inhibiting investors'? And, based on the feedback that I had in terms of conversation with some of the clients, the uncertainty factor is a result not so much on the underlying risk but the frequently changing rules.

Post crisis, it is difficult to sell MF products in India. What measures should be taken?
The penetration level is low and it is, from our experience of the emerging markets, bound to increase. One of the challenges is in terms of building the trust. There should be more measures to enable investors to access professional managers. Fundamentally, the way I look at this business is by understanding the value that industry adds to investors. By the mutualization of assets you have the scale to deliver. Because of the scale asset managers can more efficiently access the markets. MFs have infrastructure advantage and because of the scale one has a greater investment in the infrastructure around research and analytics. That is the core value addition which industry can provide to the investors and this is true anywhere in the world. Now within that what we need to be conscious of the fiduciary responsibility because at the end of the day people are trusting you to manage their money on their behalf. What that means is to articulate clearly what the investment process is by focusing on what it is we are seeking to do with client's money. And the more successful we are in articulating that, the more successful we will be in terms of building the client's confidence.

Do you feel that somehow Indian fund industry has been unable to generate that trust among investors and that, probably, has played a vital factor in decline of inflows and assets?
Absolutely. There are a variety of factors which go into this perception and hence this industry is not seeing inflows. Transparency is becoming a very key consideration. And it is fair to see when I look back at several of the regulations in India. But trust is something which is earned, you cannot regulate. One can, obviously, put in safeguards but it is a firm which earns the trust of its investors.

The quality or the value which an asset manager adds to an investor is very often described by the industry in terms of "look at my comparative performance" or "look at my quartile performance" etc. If you are discharging a position of trust then I would argue that your primary focus needs to be in terms of managing risk on behalf of your clients and it's a bit strange and unusual for me that the quality of that risk management is then measured in terms of return. There is nothing to be defensive about the performance, what I would say unequivocally is that performance is a consequence of managing risk well and frankly I would rather manage risk on behalf of our clients than necessarily focus uni-dimensionally on beating a peer group because at the end of the day I would be concerned if some of that meant that we were taking undue risk in client portfolio.

What role does your India presence play in overall asset management business?
We have a local presence in several of the markets we invest. And this does make a significance difference. If we take a market like India, our focus is both being relevant to the domestic market and also being able to play a meaningful role in the connection between foreign investors and Indian domestic markets. So the inter-connectivity is something that as an institution we are very strong on and this will continue to grow. In that context, the Indian market is very significant both in terms of the potential it has in the domestic business and also in terms of the cross-border business.

Source: http://business-standard.com/india/news/allow-amcs-to-retaindecent-return-sridhar-chandrasekharan/179747/on

Monday, July 23, 2012

A mutual fund can't beat its benchmark in the short term: Sandesh Kirkire, Kotak Mahindra MF

With an AUM of nearly Rs 26,000 crore, Kotak Mahindra Mutual Fund is the 10th largest fund house in India. Its CEO Sandesh Kirkire tells Babar Zaidi why funds must outperform their benchmarks, why some funds need to be merged and why the NPS has not taken off.

Sebi has expressed concern over the underperformance of some equity schemes and plans to question the fund houses. Has the regulator overstepped its mandate?

I'm not sure what kind of questioning the regulator has in mind, but highlighting this issue is certainly important. The performance of a fund is linked to its benchmark index. As a fund house, it is our responsibility to generate alpha compared with the underlying benchmark over a reasonable period. If you look at the assets under management, not the number of schemes, almost two-thirds of the assets managed by the domestic mutual funds have outperformed their benchmarks. This is a good achievement when one compares it with the developed markets, where a large number of schemes underperform their benchmarks.

A lot of people continue to remain invested in funds even if they underperform for extended periods. How long should one wait before exiting a fund?

One should not expect a fund to outperform its index in the short term. Give a fund manager at least 1-2 years to generate that extra return. That's the minimum time he would require to make a fund perform better than its benchmark. If he is not able to beat the benchmark even after 4-8 quarters, it's time to start asking whether one should continue with the fund or switch to a better performing scheme.

Last year, you had merged the Kotak Lifestyle Fund, which was performing poorly, with the Kotak Select Focus Fund. Should the underperforming funds be merged with schemes that are doing well?

We merged the two because we found that some of the thematic schemes were unable to generate alpha compared with the underlying diversified broader market index. When these thematic schemes were launched, they did very well, but later their performance became volatile, which made investors nervous. So we gave investors the option to exit the fund and merged it with a diversified scheme. Today, most of our funds are diversified.

Kotak Mutual Fund is one of the six fund houses managing the New Pension Scheme (NPS) funds, but it has not managed to attract many investors. How can it become the investment vehicle of choice for retirement planning?

NPS as a product is the finest in the world in terms of cost. Unfortunately, unless financial literacy rises in India, the product will not do well. The NPS needs to have a pull to attract investors the way that the PPF does—investment and interest earned are tax-free.

What was the need to create this complicated structure? Couldn't the fund houses have come up with a similar product?

The big challenge in the pension space is that investors don't know when to change their asset allocation. Mutual funds could have created such products, but asset allocation would have been the investors' decision. Given the low level of financial literacy in the country, the NPS lays down a precise formula, taking into account the age of the investor.

The default option of the scheme continually changes the asset allocation as the investor grows older. By the time you are 60, your total exposure to volatile markets comes down. Besides, in a mutual fund, the distribution cost is the largest component of the total cost structure. A mutual fund will find it difficult to operate a scheme on the cost structure of the NPS.

Talking of costs, there is talk of the entry load on mutual funds making a comeback. How can this impact the industry, the distributors and the investors?

The discussions are under way, so I will not be able to comment on this. The focus is on increasing retail participation in the capital markets and this is best done through mutual funds. So it is not only about the commercials of the industry, but also about the tax incentives that are available. A combination of the two, as well as an improvement in the capital markets, will bring back the retail investor.

Five years ago, in 2007, people were overly enthusiastic to invest in the equity markets. The total net investment in the markets by domestic funds and insurance companies exceeded the FII inflow during 2007-8. Today, even though the markets are 50% cheaper in terms of valuations, the investors are questioning the growth prospects and valuations.

Critics say that corporate investors are the focus of fund houses because they invest far bigger amounts than retail investors. How valid is this charge?

This is a myth. Less than 5% of the mutual fund workforce is involved in institutional selling, which means that 95% of the sales force is focusing on retail investors. Corporate money will continue to come because of the ease of investment in the money markets through mutual funds. Secondly, the revenue potential of the products that corporates invest in is one-tenth of that earned from the products sold to retail investors.

Unlike institutional investors, retail investors typically come with a long-term investment horizon, whether it is in income funds or equity funds. Since these schemes are able to deliver higher returns, the fund house can charge a higher fee from the investor.

Source: http://economictimes.indiatimes.com/opinion/interviews/a-mutual-fund-cant-beat-its-benchmark-in-the-short-term-sandesh-kirkire-kotak-mahindra-mf/articleshow/15078334.cms?curpg=2

Saturday, July 21, 2012

Don't expect markets to retest December lows: Sunil Singhania, Reliance Mutual Fund

In an interview with ET Now, Sunil Singhania, Head Equities, Reliance Mutual Fund, says the composition of the market movement is definitely going to change, but the downside to the market looks limited. Excerpts:

ET Now: Can the market retest December lows?

Sunil Singhania: We definitely do not expect that. At the same time, the whole composition of the market movement is changing. The earlier bellwether stocks are no longer the same. Therefore, the composition of the market movement is definitely going to change, but we definitely believe the downside is going to be limited.

ET Now: Your exposure to pharma has worked for you like a charm. You have 18% exposure to pharma, and out of your top 5 holdings, 3 are pharma names that are at an all-time high. That is an aggressive bet which has worked for you. Are you still bullish on it?

Sunil Singhania: I will give you a perspective of what we did. The consumption story in India has been played out significantly. We felt it was a good story and a good theme, but it was slightly pricy in terms of stock valuations. We felt that pharma had the benefit of the consumption theme domestically, because domestic pharma has been growing at upwards of 15-18% for the last 2-3 years. Also, there was an export story in terms of a massive opening up of the generic markets in the US, Europe and in other countries. The Indian companies were now mature enough to take benefit of that. Further, the currency also helped.

So it has been a combination of being underweight on some sectors, which are similar but which looked a little pricy, and being overweight on pharma, which had similar characteristics, ROE, neat and clean balance sheets and also the added opportunity of the export front. And we are lucky to some extent. We hope the performance continues and at this point of time, we continue to be positive on the pharma sector.

ET Now: So you are in no hurry to reduce your exposure to pharma stocks?

Sunil Singhania: Reduction and addition is a day to day...

ET Now: 1% here, 1% there, that is fair enough, but what about...?

Sunil Singhania: At this point of time, we continue to be positive. Obviously there are some segments of the pharma sector which might face some headwinds because of the government policy of generalisation even on the domestic market. But by and large, the companies are growing significantly well, and the ROEs and the managements are good and even quite comfortable.

ET Now: But your bias is clearly more towards the Indian pharma companies?

Sunil Singhania: Again, it is a mix. In some funds, we have exposure to multinational pharma companies, but at this point in time, the company is obviously in the portfolio, and there are others we have big positive bias on.

ET Now: If I look at the portfolio of Reliance Growth Fund, the only consumption space you are bullish on is liquor. What makes you bullish on liquor stocks?

Sunil Singhania: I do not want to mention particular companies, but if you analyse the cigarette market and the liquor market, both are vices. Cigarettes are actually very injurious to health. Liquor, to some extent, is a social vice, but it is not as harmful to human health, but you see the market cap of the cigarette industry in India and the market cap of the liquor industry in India -- obviously one industry has done well because of one company which is supposed to be a very clean company and rightly so. In the liquor industry, however, the dominant player has been plagued by other non-fundamental problems.

So our call is that the liquor industry has got huge potential in India. It has probably the best consumption theme as far as India is concerned. It is becoming more and more socially acceptable in India. We have a young population who is more prone to accepting social drinking, who drinks socially and responsibly, and the valuations are in favour. So we use this opportunity of non-fundamental problems to build positions there.

ET Now: Your current declared portfolio shows you are bullish on banks, but within the banking space, you pretty much like all the banking businesses. You have exposure to SBI, ICICI Bank and Federal Bank in the PSU, private and small private banks space, respectively. So you are pretty much bullish on the entire banking spectrum?

Sunil Singhania: No. Obviously we understand NPLs and restructured assets are a big problem. Our call has been to move towards larger banks, away from the smaller banks for some time. So the biggest banks in our portfolio are the largest banks and among the smaller banks, we have stuck to banks where we feel that the perceived asset quality is better than the street.

So across funds we have more or less moved towards larger banks vis-a-vis the smaller banks. And at an opportune time, once the environment on the economy clears, we will take a call on whether we need to rejig the portfolio as far as the banking space is concerned.

ET Now: In our previous conversation, you made a case for buying PSU banks. Are you now making a case not to buy PSU banks?

Sunil Singhania: No, we are taking a PSU banking versus private banking stand. Obviously private banks are slightly less prone to NPL problems for the simple reason because they do not have the kind of social obligation as some of the PSU banks have.

But the call is that in this kind of an environment, smaller banks might get hit more if one or two big accounts turn NPLs or turn into restructured assets. So the call is more towards larger banks.

We are not taking a PSU versus private stand because while private banks are good, they are also priced accordingly. PSU banks have some issues, but their valuations have also come down accordingly. But the call from our side is to be in larger banks, which might be able to withstand near-term NPL or restructuring issues slightly more strongly than the smaller banks.

ET Now: Why are you so negative on autos?

Sunil Singhania: I do not think we are negative on autos.

ET Now: You have got 1 or 2 exposure there, no exposure...

Sunil Singhania: No. In fact, in some of our funds, we have a huge exposure to auto. In India, auto is a great story structurally. But auto is also slightly negatively correlated with interest rates. With the interest rate scenario improving now, there is near-term headwinds in terms of auto sales, because of the way the economy is progressing and also because of the perception that monsoon might not be as good.

So the purchase is being shifted, but we will continue to track it closely. In fact, we feel that in future the support auto sector companies, i.e. engineering and auto ancillary companies, would be very interesting to look at.

So we are not negative, but in the near term, there might be months when you have some disappointing sales.

ET Now: Looking at Infosys and TCS, do you think IT or largecap IT stocks could go through a process of de-rating?

Sunil Singhania: TCS is almost at an all-time high barring the past few days, but it clearly reflects that even within this sector, all companies are not going to move together. So there is a huge diversion of performance within the IT segment. So one company is down significantly like 20% year to date, but some of the other companies are up 15-17-20% year to date.

Some of the smaller IT companies have been doing very well, and many of these IT companies are trading at 5 to 7 year highs. The sector is superb. As a country with a huge working population, we have an advantage. The cost pressures are slowly coming under control. All it will take is some revival in the global economy before investors start to look at this sector again.

So we will closely watch this sector, and we do believe that stock specifics even within the sector will be more important.

Source: http://articles.economictimes.indiatimes.com/2012-07-20/news/32748646_1_pharma-sector-pharma-stocks-domestic-pharma/2

Rajiv equity scheme: Funds may flow only to PSUs, large-caps

The tax-saver Rajiv Gandhi Equity Scheme intends to allow investments in Maharatna, Navaratna and Miniratna shares, besides in top 100 shares on the BSE and the NSE. These are part of the draft guidelines approved by the Department of Economic Affairs.

However, the draft guidelines do not mention investments through mutual funds. This is despite the demand from the mutual fund industry, supported by the Securities and Exchange Board of India.

According to an official source, "This draft is now going to SEBI and then the Department of Revenue will notify. Since the scheme involves tax matters, a final notification has to come from the Department of Revenue." The scheme was announced in this year's Budget and is expected to be notified soon.

Approved amendments

According to the amendments approved by Parliament in the Finance Bill, the scheme will allow deduction of 50 per cent of the amount invested in equity shares to the extent that the deduction does not exceed Rs 25,000.

This means one can invest a maximum of Rs 50,000 to get the benefits. The condition is that the benefits will accrue only to first-time investors and will be given once.

On why not investment through mutual funds, the source said since the approved amendments in the Finance Bill talked about investments in listed equity shares, no diversion was possible without further amendments. The amendments have inserted a new Section 80CCG in the Income Tax Act.

The approved amendments also talk about a three-year lock-in period for investments under the scheme.

However, the draft guidelines propose churning of investments after the first year, but any point of time during the three-year period.

But, the minimum investment should be maintained at Rs 50,000.

Security & Liquidity

The source also added that investment in listed top scrips, besides Maharatna, Navaratna and Miniratna, will give not just give security but also liquidity at the time of churning.

At present, there are five Maharatna (Coal India, IOC, ONGC, SAIL and NTPC), 16 Navratnas (BHEL, HPCL, NMDC, Power Finance and Shipping Corporation, besides others) and 68 Miniratnas (MOIL, Engineer India, MRPL and MMTC, besides others).

The then Finance Minister, Mr Pranab Mukheerjee, while announcing the Budget for 2012-13, had said, "To encourage flow of savings in financial instruments and improve the depth of domestic capital market, it is proposed to introduce a new scheme called Rajiv Gandhi Equity Savings Scheme.

"The scheme would allow for income tax deduction of 50 per cent to new retail investors, who invest up to Rs 50,000 directly in equities and whose annual income is below Rs 10 lakh".

Source: http://www.thehindubusinessline.com/markets/article3658488.ece

Wednesday, July 18, 2012

You may have to shell out 0.55% more to buy MF units

Mutual funds may become a tad more expensive for investors. A committee appointed by the Securities and Exchange Board of India (Sebi) has recommended raising the total expense ratio - charged by mutual funds to manage and operate schemes - and excluding service tax from this fee.

The 14-member mutual fund advisory committee (MFAC), which met on Tuesday, has also suggested to the Sebi board to allow greater flexibility for mutual funds to use the expense ratio, which includes management fees, administrative fees, and other operating costs, said four people familiar with the matter.

The proposal to raise the expense ratio, if approved by Sebi, could result in unitholders shelling out almost 55 basis points (0.55%) more than what they are paying now. The MFAC, in the four-hour meeting, recommended raising the expense ratio to 2.5% from 2.25%. The exclusion of the service tax of 10.3% from the expense ratio will result in investors incurring costs to the tune of another 30 basis points.

"The 0.25% increase in expense ratio will not be charged on existing equity assets - but only on incremental equity investments," said a person, who attended the meeting.

MFAC, headed by former SBI chairman Janki Ballabh, debated on various issues including entry load roll-back, implementation of single cheque system and raising the net worth of AMCs. MFAC members have decided to not push for a roll- back of entry load.

Mutual funds will be able to manage expenses better if Sebi allows them flexibility to use the expense ratio. At present, mutual funds are allowed to charge up to 2.25% (in funds with assets in excess of Rs 100 crore) as expense ratio. Out of the 2.25% charged as expense ratio, fund houses are allowed to accept only 1% as asset management charges; the remaining 1.25% has to be mandatorily used to meet recurring expenses, which include payment of annual trail fees, auditor & registrar charges and dealing charges to empanelled brokers.

MFAC has asked Sebi to retain the slab system of calculating the expense ratio. Under the slab system, mutual funds with a lower asset base are allowed to charge a higher slab-rate while funds with a higher base are mandated to charge a lower expense ratio. So, a fund with asset base lower than Rs 100 crore will be able to charge 2.5% as expense ratio while funds with assets in excess of Rs 700 crore will only be allowed to charge 1.75% as expense ratio. Smaller mutual funds had protested against their larger peers' demand to remove the slab system. MFAC has voted against the proposal to increase the net worth criteria for setting up MF business. The committee has decided to retain minimum capital requirement for starting an asset management company at Rs 10 crore. The proposal to increase capital base of AMCs from Rs 10 crore to Rs 50 crore was first introduced by Sebi committee on 'Review of Eligibility Norm' in 2010 to ward off non-serious players.

The decision to maintain status quo on net-worth requirement will come as a breather to smaller fund houses. Higher capital base would have meant more capital infusion by trustee companies or promoter groups intending to start fund management business.

The committee also expressed concerns over the concentrated exposure of debt funds to NBFC papers. ET, in its February 7 edition, had reported that fund industry has more than Rs 50,000 crore worth of investments in short- and medium-term NBFC issuances.

Source: http://economictimes.indiatimes.com/markets/regulation/you-may-have-to-shell-out-0-55-more-to-buy-mf-units/articleshow/15025211.cms?curpg=2

Tuesday, July 17, 2012

Not the right time to invest in mid-cap stocks: Sanjay Dongre

Despite volatility and macro-economic headwinds, Sanjay Dongre, senior vice-president and fund manager, UTI Mutual Fund, tells Puneet Wadhwa he has increased exposure to interest rate-sensitive sectors and expects the cement and infrastructure spaces to do well in the medium-term. Edited excerpts:

With the results season kicking off and the coming review of the monetary policy, do you think global cues could play second fiddle to domestic factors for a while?
I think both domestic as well as global factors are equally important from the Indian stock market's point of view. Domestic factors, such as monetary policy review by the Reserve Bank of India (RBI) and measures to reduce fiscal deficit, will determine extent and timing of growth recovery in the Indian economy.

On the other hand, recessionary conditions in advanced countries may impact the exports growth prospects. Any large scale financial instability in the US/Euro region may lead to financial crisis in the global economy and may impact the risk appetite (risk 'on' or risk 'off') for capital flows into the country in the short to medium term. It could have large bearing on the growth trajectory of the Indian economy in the medium term.

What are your expectations from the June quarter results season? Do you think inflation, the rupee and crude oil movement can severely dent corporate earnings over the next few quarters?
Earnings for the April-June quarter will not be significantly different from the recent quarters. While the revenue growth is likely to be in double digits, the margin pressure will continue to impact the overall earnings. I expect the earnings growth of the Sensex companies to be in low single digit.

We will continue to see consumption-driven sectors, such as FMCG (fast-moving consumer goods) and pharmaceuticals, do well in the recently concluded quarter, but infrastructure, power, capital goods and oil and gas would continue to struggle. For these sectors to do well, interest rates have to soften more to kick-start the investment cycle in the economy.

Rupee depreciation may benefit the export-oriented sectors like software and pharmaceuticals, while it may impact sectors like capital goods due to net import status. Telecom and infrastructure sectors will also get impacted due to the rupee's depreciation.

The markets world over have swung between bouts of hope, optimism and pessimism in the first half of the current calendar year. What has been your investment strategy in such an environment? What returns have you been able to generate in the schemes you manage?
In the last six-nine months, it was very evident that interest rates in India have peaked. Crude oil prices have declined 20 per cent from the top and most of the commodities have witnessed a drop of at least 10 per cent in the last six months.

Against the background, we have been following the strategy of reducing the exposure to defensives and have increased exposure to the interest rate-sensitive sectors. This strategy has worked very well in the last six months. Our diversified funds performed very well and have beaten the benchmark indices in the last one year.

Do you think it is a good time to bet on the mid-cap space? Can you suggest a few themes / sectors from this space that could do well, going ahead?
Mid-caps are most vulnerable in high inflation, high interest rates and a slower growth environment. Hence, it may not be a good time to bet on the mid-cap space. Investors can look at this space once RBI cuts interest rates by 100-150 basis points cumulatively.

A lot of news has been flowing in regarding the off-beat sectors like sugar and telecom. Do you think the tide is turning for these sectors? How should investors approach them?
In the sugar sector, production has exceeded demand in the last three years, resulting in accretion to the inventory levels. Hence, sugar prices are unlikely to run away in the short term. With elevated levels of sugar cane prices, the profitability of sugar companies may continue to remain under pressure.

The telecom sector has been undergoing serious challenges and regulatory uncertainty may continue to impact the valuations of the telecom sector. Steep spectrum prices may lead to cost escalation, both on the capex and opex front, thereby impacting the profitability of the sector significantly. However, another 10 per cent fall could make the stocks attractive as most of the negatives would be priced in.

What about the infrastructure sector given the outlook for interest rates?
With expectations of decline in interest rates, going forward, this space looks attractive from a medium-term perspective.

What about the cement, textiles and fertiliser sectors? Are they a good contrarian bet in this environment?
The demand-supply gap may narrow down significantly in the next 18-24 months in the cement sector. Setting up a greenfield capacity is becoming difficult on account of land acquisition, limestone mines and environmental issues. Thus, the cement sector is an attractive opportunity from a medium-term perspective.

Though the rupee depreciation may benefit the textile sector, the slowdown in key markets like the US and European Union may continue to put pressure on the revenue and profit growth of the textile sector.

As regards the fertiliser space, players expect key reforms, especially in the area of urea pricing, which once undertaken, would be beneficial to urea manufacturers.

Source: http://www.business-standard.com/india/news/notright-time-to-invest-in-mid-cap-stocks-sanjay-dongre/480602/

Arbitrage funds fetch better returns than equity, debt schemes

Arbitrage schemes of mutual funds have fetched better returns than equity and debt schemes in the past one year, thanks to smaller asset sizes and algorithmic trading. These funds have given post-tax returns of 9% over the year, compared with 8.4% for debt funds. Value of equity funds fell 4.1%, as per a Crisil study.

Arbitrage funds take advantage of the price difference between cash and futures markets to generate returns. "Arbitrage market does not have many players these days; this factor opens up a lot of scalping opportunities. Also, machine trading is helping funds to scalp higher and sharper returns," said the chief investment officer of a bank-promoted fund house on condition of anonymity.

"All said, arbitrage fund as a category has shrunk in size. Net investment in this category is minuscule. It is not very difficult to outperform, managing small sums of money," the above-quoted CIO said.

The ability of these funds to generate higher returns depends on the volatility in equity markets - the higher the better. Over the past one year, equity markets have been volatile, thereby creating opportunities for such funds with lower assets under management to generate superior returns.

"Arbitrage funds have a low risk-return trade-off and generate moderate returns. Arbitrage opportunities to be exploited depend upon the extent of volatility in the equity market -- the higher the volatility, the higher the returns. During the volatile 2006-2008 period, arbitrage funds gave healthy post-tax returns of 8-9%," said Jiju Vidyadharan, director - funds and fixed income research, Crisil.

As arbitrage funds predominantly invest in equities, they are treated on a par with other equity funds for tax treatment. Risk-averse investors, who shy away from equities owing to high volatility, can look at arbitrage funds as a relatively safer option within equities, the Crisil study said

According to Crisil Research, arbitrage funds can act as an alternative to short-term debt funds as they have generated higher returns in the short-term. During the past three and six months, arbitrage funds gave post-tax returns of 2.38% and 4.28%, respectively, vis-a-vis 1.84% and 3.5% for debt short-term funds and 1.99% and 3.74% for ultra short-term funds.

"The dividend option of arbitrage funds is further lucrative as dividends are tax-free for equity funds, while short-maturity debt funds are subject to dividend distribution tax," Vidyadharan said.

There are 15 funds in India that use arbitrage strategies to generate returns.

Source: http://economictimes.indiatimes.com/markets/stocks/market-news/arbitrage-funds-fetch-better-returns-than-equity-debt-schemes/articleshow/15012409.cms

Poor markets biggest concern for MF industry

The newly appointed MD of Sundaram Mutual Fund Harsha Viji, feels that the market situation and not the regulatory issues is a bigger concern for the MF industry. "While one can hardly do anything about markets, tax sops and industry reforms are needed," he said in an interview to Sandeep Singh of The Indian Express. Excerpts:

Lot of deliberations are going on around revival strategies for MF industry. What do you think is needed?

There are two things — regulatory issues and investors' perception and value. The latter is far more significant. As of now, not only retail investors but business at large and FIIs are also down, not necessarily on India but on everything. We always talk of MF investments as long-term play but in the last five years BSE 500 has returned 2.7 per cent. I may have the conviction that now there is value in the market and it's time to buy but it is very hard to make that case to an investor who has seen his money either go down or hardly grow over the last five years. That in my view is the single largest cause of industry woes and its not the regulatory issues.

In that case, would you say that issues of entry load, expense ratio etc, are secondary issues?

To give a fillip to the industry, tax sops are very important and government should do that. There are talks of expanding the RGESS, giving tax deductions under other sections and rejuvenating ELSS which I think makes sense.

There is nothing that you can do about markets and so tax sops and such reforms are the only things you can do.

Issues like fungibility of expense ratio and single cheque to the distributor is critical. On the entry load while Sebi is clearly against it and Amfi is also not pushing it, I am a little ambivalent about it but we will certainly not push for it. If it comes, we will use it but it will be like going back to a style of functioning that may not be in investor's interest.

What is your view on pension funds, are you willing to take it up?

Look at it as competing against provident fund whose returns are guaranteed by the government. How can any non-guaranteed product compete. The investor has to take the risk and that is one more obstacle. No one is offering pension as it won't work now. We will look at pension schemes if we believe it will deliver value to the investors and if we can make money on it and right now we don't have a compelling case on either.

For sometime now your AUM is hovering around R 14,000 crore mark, are you planning for any inorganic expansion?

We don't want to be stuck into the cycle of R 14,000 crore AUM and want to get closer to R 50,000 crore. We will never buy AUM and given the current price levels it does not make economic sense to expand by way of acquiring AMC. Also, there is no loyalty to brands and AUM.

Investors have lost money in equity investing. Do you see rebound in the near term?

Given the political situation and the global situation we don't see any significant rebound in the next six months. High interest rate is not the issue, but there is huge amount of uncertainty on the economy, regulatory and on the government front.

Source: http://www.indianexpress.com/news/poor-markets-biggest-concern-for-mf-industry/974788/0

Is your fund batting for you?

A company decides to treble pay for its top personnel after its profits fall. A pharma major wants to sink millions into real-estate development.

As a small shareholder, you may not be able to do much to stall such ill-considered company moves. But can your mutual fund do something about it? It can; the question is whether it will.

In a bid to raise governance standards, the Securities Exchange Board of India (SEBI) has been pushing funds to take a more activist role in the companies they invest in.

A March 2010 circular also asked funds to make public their voting policy and the manner in which they cast votes at shareholder meetings.

But sifting through these disclosures on fund Web sites is a disappointment. In most cases, fund houses either seem to vote with the management or abstain from voting.

The voting disclosures of ICICI Prudential Mutual Fund, the third largest fund house, for instance, reveal that it abstained from voting on most proposals put forth by companies in its portfolio in the past financial year. The top dogs — HDFC Mutual Fund and Reliance Mutual Fund — participated in most meetings, but rarely voted against the management.

From the voting disclosures we examined, one fund that seemed fairly keen on exercising its voting rights was Franklin Templeton. There have been quite a few occasions over the past financial year when the fund has voted against company proposals for mergers, restructure, higher remuneration, etc.

Least resistance

The voting policies put up by funds supply some explanations on why many of them take the path of least resistance, when it comes to voting on company proposals.

Conflict of interests is one. Many fund sponsors in India are part of conglomerates which also have interests in banking, insurance and manufacturing. Now, voting at shareholder meetings of companies that are part of the promoter group or have a borrower relationship with the parent creates a conflict of interest.

But the question that an investor must ask is, if a fund perceives so many instances of conflict of interest with the companies it invests in, must the sponsor run a mutual fund business at all?

Fund houses also have exclusions on the company proposals they will vote on.

ICICI Prudential Mutual Fund, for instance, says that it may not vote on company proposals where its investments are below a certain minimum threshold. Quantum Mutual Fund says that it will not vote on proposals from companies that are part of its index fund, as these are passive positions.

There are other houses which state that they would vote with the management when the matter is 'routine'. Given that the SEBI has already laid out a list of broad proposals that fund houses must exercise their voting rights on, this is a case of unnecessary hair-splitting.

Why bother?

Apart from these reasons, though, two other factors seem to work against mutual funds exercising their voting rights.

One, as a big holder of a company's stock, a fund may be concerned about shooting itself in the foot by taking a public stance against the company's proposal. What if the share value plunges due to the adverse publicity, taking down the fund's net asset value?

Well, the counter to that is that if the proposed move by the company will destroy shareholder value, the stock market would surely rejoice at the move being nipped in the bud.

Two, as stocks can always be sold, why should a fund house bother with all this voting business? If against a particular move, it can simply sell its holdings.

Very true. But as key institutional players in the Indian stock market, mutual funds surely owe it to the investors and markets at large to flag the practices at India Inc that are patently detrimental to shareholders.

This may not result in Indian promoters turning over a new leaf. But the fund industry can look on this as its version of corporate social responsibility.

Source: http://www.thehindubusinessline.com/features/investment-world/mutual-funds/article3639875.ece

Thursday, July 12, 2012

Mutual funds favourite investment option for Indians: Nielsen

Indians are more dependent on others while taking decisions for investments through the internet compared with their global peers, says a survey by information and measurement firm Nielsen.

Only 41 per cent of online Indian consumers make their own decisions for investments with mutual funds, metals, stocks and bonds emerging as their preferred options, according to the Nielsen Global Survey of Investment Attitudes.

When it came to investment options for the Indians, 64 per cent of the respondents favoured mutual funds among the top four asset classes, Nielsen said.

The survey, however, said compared to ordinary customers, net savvy Indians are more independent while taking investment decisions.

"As opposed to the average customer, online consumers in India appear to be far less dependent on others in decision exhibiting a marked independence in being self-sufficient and not entirely trusting of people around them," Nielsen India director Subhash Chandra said.

The report said 16 per cent of Indian respondents indicated that they would take the advice of friends, relatives and colleagues while making financial decisions.

In the list of investment options, mutual funds were followed by precious metals (63 per cent), stocks (56 per cent) and bonds (40 per cent) as the most favoured investment options.

"The increasing popularity of mutual funds as an important investment tool is fuelled by the aware online consumer, who sees great benefit in systematic investment plans on offer now," Chandra said.

Besides, Indian netizens continue to be enamoured by precious metals for traditional purposes as well as investments because of the perception that these are profitable over the years, he added.

The global study, which surveyed over 28,000 internet respondents in 56 countries, showed that a total of 42 per cent online Indian consumers made investments.

Source: http://investmoneyinindia.com/4134/mutual-funds-favourite-investment-option-for-indians-nielsen

Wednesday, July 11, 2012

Gold ETFs hit hard at Rs 30k investors book profits

After equity schemes, it seems gold exchange-traded-funds (ETFs) are now on investors' radar for redemption.

In June, Gold ETFs witnessed an all-time-high monthly net outflow at Rs 227 crore. Thanks to the depreciating rupee, this catapulted gold prices to above Rs 30,000, despite the fact that prices of yellow metal prices have softened globally.

"I believe investors booked profits as the currency depreciation led to higher gold prices," says Deepak Chatterjee, chief executive officer of SBI Mutual Fund.

Dollar-denominated gold imports to India escalate prices locally as rupee saw sharp weakness touching levels of as low as 57 against dollar.

Prior to the month of June, one of the highest outflows from gold ETFs at 41 crore in May had made industry analysts skeptical about the performance of gold as an asset class. And now with close to six times of the previous net outflows, fund managers say opportunistic selling has hit gold ETFs.

There are several gold fund of funds (FoFs) which have cut their exposure to gold by as high as 15 per cent over the last one month.

Akshay Gupta, chief executive officer, Peerless Mutual Fund, says, "It was to happen. No one had seen gold prices above Rs 30,000, so investors, large opportunistic investors in particular, booked profits.

Amid skepticism that global gold prices may dip down to $ 1200 an ounce from the current level of around $ 1600 an ounce has further made Indian investors vary of investing in gold funds.

According to Gupta, in general there is a feeling that rupee may not depreciate further and will stabilize now. So, it made sense for investors to move out, he adds. Moreover, redemption pressure had started exerting its force when gold prices were hovering around Rs 28,000 per 10 grams. Industry executives say that had the rupee not depreciated, gold prices would have taken a U-turn to lower levels.

"But suddenly, currency depreciated by more than 10 per cent and investors held on at Rs 28,000 and made an opportunistic move when gold prices reached Rs 30,000," notes Gupta.

According to Sunil Singhania, head of equity at Reliance Mutual Fund, "Gold should be used as a hedge. I would suggest investors not to put more than 5-10 per cent of their investment in gold."

With a significant chunk of outflows from gold funds, the overall net outflows from this asset category in the first quarter (April-June) of FY12 has reached Rs 218 crore against a net inflow of Rs 942 crore during the previous corresponding period.

Amid gold funds saw net outflow during the month, equity funds too were hit as Rs 288 crore flowed out of the schemes.

Though income, balanced and other exchange-traded-funds managed to garner some fresh assets; heavy outflow from liquid and money market schemes at Rs 26,128 crore brought the overall flows in the negative territory. Outflows seen in liquid and money market category was owing to the quarter ending phenomena during which banks and corporate tend to redeem to meet their advance tax payments and other financial requirements.

Source: http://business-standard.com/india/news/gold-etfs-hit-hard-at-rs-30k-investors-book-profits/177941/on

Franklin India High Growth Co Fund - Change in Fund Manager

Franklin Templeton Mutual Fund has announced change in fund manager under Franklin India High Growth Companies Fund with effect from July 9, 2012. The scheme which was earlier managed by K.N.Sivasubramanian and Anand Radhakrishnan will now be managed by K.N.Sivasubramanian and Roshi Jain.

The scheme belongs to Diversified Equity category and has been ranked 3 by Crisil. The investment objective of the scheme is to generate capital through investments in Indian companies/sectors with high growth rates or potential.

Source: http://www.moneycontrol.com/news/mf-news/franklin-india-high-growth-co-fund-changefund-manager_728263.html

Monday, July 9, 2012

“There is value for the patient investors”

Over the last four years, the investment engine in India has slowed down owing to some domestic and global factors, but there is money to be made in long term, believes Ved Prakash Chaturvedi, CEO – Capital Markets and Investment Management, L&T Finance. "For an exciting market like India, it is difficult to say equity has lost its charm," he said in an interview with Ritu Kant Ojha.

Excerpts:

The investors are losing patience with equity. Do you agree equity has gradually lost its charm over last three years?

The Indian equities market is being influenced by several factors — concerns about Eurozone, domestic inflation, interest rate and the rupee situation and a close watch of foreign investors on growth of our economy and earnings growth of various companies. In the near term it is expected that gloomy sentiment in business and investment and some headwinds from overseas markets and news flow may reflect in the market movement. However, the general belief now is that the worst period of our equity market is behind us and if some positive things fall in place, market sentiment may improve significantly. Thus, it is difficult to say that equity investing has lost its charm. Systematic, disciplined and patient investing in equity funds would create wealth in the long term.

Investors have not made any serious money over the last few years. Why should they continue investing in mutual funds?

Mutual funds offer a range of risk-return investment options in equity/ hybrid/ fixed-income securities. Investment in hybrid and fixed income funds have done well over the last five years. Owing to a combination of local and global factors equity funds have not performed. Medium term equity fund performance depends on performance of the economy and that of individual companies. But the engines of consumption, global business opportunities and financial intermediation are continuing to drive growth in their respective sectors. My sense is that the Indian economy will continue to grow at a rate significantly above that of other comparable economies. This will create medium term value for patient systematic investors.

There are 44 fund houses and 4,400 schemes. Do you agree that there is scope of merger of schemes, both in debt and equity mutual funds?

As any industry evolves, new entrants come in and launch a range of products to service their target investors. Some succeed in meeting investors expectations, others don't and this has been the trend in the mutual fund industry as well. Over a period of time, the products in any industry get rationalised and the unsuccessful products fade away. In our view this is already happening in our industry. The good news is the meritocratic nature of competition and product selection by distributors and investors. This leads to natural selection and effective consolidation of products.

Do you agree there are not enough options available as far as investing in equity is concerned? Why isn't there have been product innovation in India?

I feel that significant innovation has happened in India in the stock markets and mutual funds with evolving world class backbone for facilitating trades in our markets and similarly almost all instruments in the cash and forward markets are available here. Equity mutual funds offer a range of options namely, large-cap/ mid-cap/ hybrid/ thematic/ price-earning based etc. For the maturity stage of our market appropriate innovation has taken place. However, certain new products in the area of REITs, ETFs and hedge funds etc. will become popular in India in the future.

Source: http://www.indianexpress.com/news/there-is-value-for-the-patient-investors/971856/0

Consider these factors while picking a fund

Several people are convinced about using equity mutual funds as a preferred tool to invest, but they hit a roadblock when it comes to selecting the right fund. Some are promising, but new; others are established, but floundering. The advisers who clamour for trail commissions should be asked to demonstrate proven capability to select good funds for investors. We are not there yet primarily due to limited regulation on what advisers should do and how they earn their income. Investors end up buying funds based on past performance, which may not be repeated, as the fund houses themselves point out.

The focus for the investor should be on selection from the peer group, which these lists enable. A fund's performance may fall along with the markets in which it invests. Even the best equity fund may not post a positive return when the equity market return is negative. The decision at this point is an asset allocation decision-whether to remain in equity or not. It should not be confused with the fund selection decision, which is about choosing the right fund among peers that may be impacted by the market too.

First, there are funds for which you don't need to take a view; in case of others , your view matters. For example, if you buy a diversified equity fund investing in both large- and mid-caps , you leave it to the fund manager to take a view on the segment that will work well, and allocate accordingly. If you buy a fund that focuses on the mid-cap segment, you are going for a diversified portfolio, but are implementing a view on how midcaps will perform. Make sure you understand where you need to have a view and where the fund manager can do it for you.

Second, ensure you invest in the best. The simplest way to choose a good fund is to use its performance ranking. If your fund is 8/40, it is a top quartile fund (25% of 40 is 10, so funds up to the rank of 10 are top funds in this category). It is important to stick to funds that are above average, preferably top quartile funds. Check this ranking across time periods. This data is publicly available with fund research agencies such as Value Research . Funds that do not even beat the market index are not worth buying, but those that compete efficiently and stay ahead of the pack most of the time, are the favourites.

Third, do not look for consistency, that is, a fund that is always at the top of the league. In the 25-year history of competition in the mutual fund industry, there is no single fund that has stayed in the top quartile at all times. This is because different strategies work in different kinds of market cycles. Value funds, for example, will slip if the market is driven by growth. Slipping is not an issue, look for corrective action. Check how soon the fund bounced back after slipping . Your fund should stay in the top 50% mostly, not in the bottom 50% for over a year. In your yearly review, knock out the fund if it slipped for four quarters in its ranking.

Let's consider three qualitative factors to look for once you have chosen your fund based on peer ranking. First, the fund should clearly say where it will invest and how. Most fund objectives are hazy and fund managers tend to give themselves too much leeway on how they will generate returns. Without being too restrictive, if the fund says that it will invest in a diversified portfolio of equity shares, across sizes, it is good enough. To the investor, what matters is the manager's ability to select stocks carefully, manage sector exposure, and deliver a return that beats the benchmark index.

Second, the fund should demonstrate the ability to stay honest to its objective. Some funds are termed value-oriented , but most stocks they hold would not qualify . Some funds will tell stories about their ability to pick failing companies and turnaround stocks. These stories do not happen every day, and these funds degenerate to a diversified equity fund with a fancy name. Do not pick funds with vague objectives and strategies; they show erratic performance and corrective action is mixed.

Third, the fund house should have an investment philosophy that permeates most of its products. It is not possible for a fund manager to adopt diametrically opposite approaches to two products managed by the same fund house. If it has both value and growth products, see if the fund managers are different.

Some funds label such differences clearly and are transparent about how they function. In most cases, in order to push a new product, a fund house may come up with a fancy investment style, but not pursue it. Try and understand how the fund house does its job and choose the funds aligned to a stated philosophy . Ensure you buy into a specified, comparable, competitive product that is managed transparently. Review annually and replace laggards. Leaders fight to persist, but laggards always find the climb back tough.

Source: http://timesofindia.indiatimes.com/business/personal-finance/Consider-these-factors-while-picking-a-fund/articleshow/14759114.cms

Will a global fund add value to your portfolio?

Mutual funds offer investors the opportunity to participate in the growth of some of the country's largest and most profitable companies . There is no dearth of choice here since hundreds of domestic equity funds promise exactly this. At times, even the best of the lot gets weighed down. The Indian economy has been facing some problems and the recent performance of domestic equity funds mirrors this. However, not all funds are suffering. Many international funds seem to be doing well in an otherwise despondent market (see Impressive returns). For instance , Motilal Oswal MOSt Shares Nasdaq-100 ETF has delivered returns of 45% in the past one year.

There are a few global funds being offered in the country, with Motilal Oswal joining the fray just over a year ago, while Franklin Templeton Investments launched a fund a few months ago. Does this imply that the investors who are disappointed with the local market should add a global fund in their portfolio? Let's find out.

It's all about diversification

Being a growing economy with a powerful domestic consumption engine , we are spoilt in terms of expected returns from our investments. There is hardly any other country that provides such opportunities for investors. This is why firm believers in the domestic growth story may not want to invest abroad.

However, this strategy is not so much about the returns that your domestic investments are earning, nor is it about seeking higher returns elsewhere. The sole purpose of venturing abroad is to bring an element of diversification to your existing portfolio. The Indian markets may even go through extended periods of flat returns. So, it's a good idea to have some investments that bear little correlation to the domestic market. Besides diversification, another benefit that these funds offer investors is access to unique investment opportunities that are not available in India . While the Indian economy derives strength from several quarters, there are some areas where it falls short, such as technology, agriculture , commodities and defence. Investors can tap these opportunities available in a foreign market.

Watch out for

Global funds, much like their counterparts that are focused on domestic space, carry the usual risks related to the market, business, etc. However, there are additional dangers , the first being the risk of the unknown. There is a variety of factors , such as geopolitical and socioeconomic , that is unique to each country or region that can influence their performance. It is important that investors get a hang of such regional issues before investing abroad.

International funds also carry a currency risk. Though your investment is in rupee terms, you have exposure to foreign currency assets (the rupee is first converted into dollar and then into the local currency for investing abroad). This may or may not work in your favour. The sharp depreciation in the rupee against the dollar (more than 20%) has contributed to the rise in the NAVs of several funds in rupee terms. When you invest for only a short span of time, this can have a big impact on your returns. However , currency movements will have little impact when the investment is made for a longer period of time.

The options

If you are convinced about the benefits of having international exposure , follow the mutual fund route. International funds come in many flavours and each has its own set of advantages. For instance, some offer a region- or country-specific exposure and others offer a thematic exposure . Apart from the investment focus, global funds vary in terms of their structure. There are those that invest abroad directly and those that do so indirectly through underlying funds. The former category consists of funds that do not rely on an offshore fund manager and make investment decisions on their own, that is, a local fund manager handles the portfolio. Some such funds available currently are the Birla Sun Life International Equity Plan A, Tata Growing Economies Infrastructure Plan A and ICICI Prudential US Bluechip Equity. While these are actively managed, the Motilal Oswal Nasdaq-100 and Goldman Sachs Hang Seng BeES are the only exchange traded funds (ETFs) among international funds, investing passively in the same stocks comprising the USbased Nasdaq index and Hong Kongbased Hang Seng, respectively.

The other category of funds-those that invest abroad indirectly-operate either as feeder funds (those that pool in money from here and transfer it to the parent fund managed offshore) or pure fund of funds (those that invest the money in a basket of offshore funds). Dhirendra Kumar, CEO, Value Research, prefers the feeder fund route. "According to this route, your scheme is in the hands of a fund manager more in tune with that market."

All such international funds are treated as non-equity funds under taxation rules and attract debt taxation , unlike equity investments that are tax-free if sold after one year of investment. However, this means you can claim indexation benefits in the year of sale (20% with indexation and 10% without indexation).

Domestic funds are the first choice

International funds can play an important part in your portfolio as they widen the scope of diversification. However, the investment should be made not because it is the right time to do so or because the Indian equities are underperforming, but because it will lend a balance to your domestic investments in the long run. Venture out purely for the benefit of diversification rather than for higher returns. You need to stay invested in such a fund across market cycles , and not seek short-term opportunities based on any prevailing global or domestic economic scenarios .

Domestic funds continue to be the best vehicle to generate wealth over the long term no matter what the current situation might lead you to believe . The right mix of a few such diversified equity funds should form the core of your portfolio, while a suitable international fund can, at best, supplement your core holdings.

Source: http://timesofindia.indiatimes.com/business/personal-finance/Will-a-global-fund-add-value-to-your-portfolio/articleshow/14759106.cms

Friday, July 6, 2012

Mutual funds outperform Sensex in first half of 2012

Mutual Funds seem to have made the most of the spurt in the stock markets in the first half of the calendar 2012. While the BSE Sensex rose by 12.8 per cent in the first six months, almost 80 per cent of the large mutual fund schemes outperformed the index.

A look at the performance of 50 mutual fund schemes with assets under management in excess of Rs 1,000 crore shows that 39 schemes have outperformed Sensex and eight schemes have generated returns in excess of 20 per cent in the six month period when the Sensex has grown by 12.8 per cent. 31 schemes have generated return in excess of 15 per cent.

While 11 schemes have underperformed the Sensex during the period none of them have generated a return of less than 10 per cent during the period.

Among the top 20 performers in the list, eight schemes are of Reliance Mutual Fund and three each are from HDFC MF and ICICI Prudential MF. Reliance Banking Fund has generated the highest return of 28.4 per cent in the list.

According to data from Value Research, mutual fund schemes in the banking and FMCG sectors have generated the highest average return of 24.8 per cent and 24.1 per cent respectively followed by the equity scheme in the medium and small cap segment with the average return of 18.6 per cent.

Source: www.indianexpress.com/news/mutual-funds-outperform-sensex-in-first-half-of-2012/970900/

Thursday, July 5, 2012

Immediate measures to be taken by the ministry for boosting the MF industry

Boosting financial advisors and providing greater flexibility to manage the total expense ratio (TER) for AMCs are on priority list of the ministry.

The Secretary, Department of Economic Affairs met mutual fund industry officials and financial advisors association along with senior officials of finance ministry and SEBI to discuss the strategies to re-boost the mutual fund industry.

The ministry is concerned with the decline in gross asset mobilisation in the mutual fund industry in 2009-2010 and steps needed to boost the advisory fraternity. "The objective of the Government and SEBI is to align the interest of all the share holders and streamline the operational procedures to achieve the highest growth in mutual fund industry," said a press release issued by the ministry.

The ministry has classified the agenda discussed in the meeting into two categories – immediate and medium term plan. The immediate plan of the body is as follows:

Attend to issue relating to compensation payable to distributors

To provide greater flexibility to asset management companies to manage the total expense ratio (TER)

Medium term plan includes looking at greater role of pension and insurance sector. Tax related issues were also discussed in the meeting and the mutual fund industry has been asked to do an in-depth study of tax issues and submit a proposal to the Government.

Source: http://www.cafemutual.com/News/InnerNews.aspx?srno=1753&MainType=New&NewsType=Industry&id=21

Reliance Retirement Fund files offer document with Seb

An open ended notified tax savings cum pension scheme

Reliance Mutual Fund has filed offer document with Sebi to launch Reliance Retirement Fund, an open end notified tax savings cum pension scheme. The scheme will get tax benefit (upto Rs. 1 Lakh) as a Notified Pension Fund U/S 80C of Income Tax Act 1961. The New Fund Offer price is Rs. 10 per unit.

Investment objective: The investment objective of the scheme is to provide capital appreciation and consistent income to the investors which will be in line with their retirement goals by investing in a mix of securities comprising of equity, equity related instruments and fixed income securities.

Options: The scheme will have 2 plans: (Both the plans will have separate portfolio)

1. Wealth Creation Plan

2. Income Generation Plan

The above plans will have Growth Plan & Dividend Plans respectively as specified below:

• Growth Plan: Growth Option & Bonus Option

• Dividend Plan: Dividend Payout Option & Dividend Reinvestment Option

Lock - in Period: 5 years in the scheme from the date of allotment of units. (Note: 5 years lock in period is in respect to the scheme and not in respect to Wealth Creation Plan or Income Generation Plan. Auto transfer from Wealth Creation Plan to Income Generation Plan is applicable during 5 year lock - in period).

Asset Allocation: Wealth Creation Plan shall invest 65% to 100% of assets in equities and equity related securities with medium to high risk profile. On the other side it would allocate upto 35% of assets in debt and money market securities with low to medium risk profile.

Income Generation Plan shall invest 5% to 30% of assets in equities and equity related securities with medium to high risk profile. On the other side it would allocate upto 70% to 95% of assets in debt and money market securities with low to medium risk profile.

Benchmark: Wealth Creation Plan : BSE 100

Income Generation Plan : Crisil MIP Blended Index

Loads:

Entry load: Not applicable

Exit load:

1% if redeemed/switched out (other than Auto Transfer) before attainment of 60 years of age.

Nil in case of Auto Transfer from Wealth Creation Plan to Income Generation Plan.

Nil in case of Auto SWP/Redemption/Switch out (other than Auto Transfer) on or after attainment of 60 years of age or after completion of 5 year lock in period, whichever is later.

Minimum Application Amount:

For Lumpsum: Rs.5, 000 & in multiples of Re.500 thereafter

For SIP:i. Monthly Frequency: Rs. 500 & in multiples of Re. 500 thereafter

ii. Quarterly Frequency: Rs. 1,500 & in multiples of Re. 500 thereafter

iii. Annual Frequency: Rs. 5,000 & in multiples of Re. 500 thereafter

Minimum Target Amount: Rs. Twenty crore

Fund Manager: The scheme will be managed by Sanjay Parekh, Anju Chajjer and Jahnvee Shah (fund Manager - Overseas Investments).

Source: http://www.indiainfoline.com/Markets/News/Reliance-Retirement-Fund-files-offer-document-with-Sebi/4389968737