Mutual Fund NEWS Group

Tuesday, April 17, 2012

Do not exit Fidelity MF in a panic

Jharna Bhiwandiwala stopped her monthly investments in Fidelity schemes through systematic investment plans after L&T Mutual Fund announced acquiring the assets under management of Fidelity MF in India. "I stopped my SIPs in Fidelity's equity funds since its managemnt team was not part of the acquisition and the performance of equity schemes of L&T Mutual Fund did not provide me the desired comfort on its fund managers," she said.

There are many others who are thinking on similar lines but going by the facts, taking such a decision in haste may not be a good idea. Express Money provides you five reasons why you should not exit from your Fidelity investment.

The Deal is yet to get Sebi approval

Before you decide to exit, keep in mind that the regulator (Securities and Exchange Board of India) has yet to approve this acquisition which involves the sale of assets under managemnt by a foreign fund house to a domestic firm without its equity management team. So, while you have your concerns, the regulator may also have some queries and hence you should wait till the approval comes.

Fund managers may be there for some time

While the equity fund managers are not part of the deal, they will actively be around for almost two years. The approval will come in three to six months and then the transition period may take another six to eight months.

"L&T MF has demanded that equity fund managers of Fidelity should stay for around one year after the transition is complete or till their own fund managers are comfortable with it. Taking everything in consideration, equity fund managers of Fidelity will manage the affairs for atleast two years from now," said a source close to the development.

Existing processes may continue

Experts say that Fidelity will share its standard fund management processes with L&T in the transition phase and there is likelihood of continuity in the equity schemes for now and hence investors should not take a decision in haste. "There is nothing that should trigger redemption," said Dhirendra Kumar, MD, Value Research. "Investors should wait how things evolve at L&T and past in not necessarily a reflection of the future. There is also a possibility that some equity fund managers of Fidelity join L&T MF." Experts feel that L&T has got the money to hire good fund managers.

Be careful when your distributor asks you to switch

While investors are apprehensive, distributors may ask you to switch over to other fund house as it tends to benefit them.

A switch-over allows them to make some extra money on your investments and thus do not go by your distributor's advice in this case. Market experts say that competitors would try to take advantage of the situation and try to lure Fidelity's investors to them.

Wait for Fidelity to come out with exit option

Experts say that if you redeem your investments with Fidelity now, you may have to pay an exit load of 1 per cent and also capital gains tax (short term tax) in case the investment is not more than one year old. However, once the deal gets Sebi nod, then as per the regulations Fidelity will have to come out with one month exit option from their schemes without charging any exit load and that will be a good time to exit if one has decided to exit in any case.

Source: http://www.financialexpress.com/news/do-not-exit-fidelity-mf-in-a-panic/937080/0

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'I made my money by selling too soon.'

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

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Market will remain volatile this year too

The market might lack triggers for further rally unless the government delivers on better fiscal management and pushes reforms, says J Venkatesan, VP equity at Sundaram Mutual Fund, in an interview with Prasanna Deshpande. Excerpts:

How do you see the Indian equity market behaving during 2012-13? Are stocks attractively valued, and going ahead, do you see further rally?

The Indian capital market should continue to remain volatile in the current year also. Throughout last year, the market was worried about the European crisis, but with the infusion of about Euro 1 trillion into the system through LTROs, the huge global risk seems to have been averted in the short term. With the ensuing surge in global risk appetite, India also received good FII inflows, which moved the market by more than 10 per cent in this calendar so far. But the domestic risks still remain.

While we do expect the interest rate cycle to start reversing this year, there may not be a significant reduction. Inflation might start inching up again from June. Unless the government delivers on better fiscal management and further reform measures, the market might lack triggers for fresh rally despite being valued at around the long term average of 14 times FY13 earnings.

Which sectors and stocks you are betting on?

We cannot talk about stocks. But at this point of time, we continue to like defensive sectors like pharma, consumer stocks, including staples, discretionary items and autos. We believe the non-performing loan cycle might peak in about two quarters, hence financials could be a good medium-term play. We would like to remain underweight on commodities and real estate. We also remain underweight on the IT sector as we are apprehensive of their growth because of delay in global discretionary spending.

What do you expect from the January-March quarterly earnings season? Will corporate earnings improve in the coming quarters?

While overall growth for the year could be in the region of about 10 per cent to 13 per cent for this quarter, there would be earnings dispersion across sectors next year. While pharma, consumer goods and financials could see better earnings growth, materials could show de-growth. Further, we also feel that there could be earnings downgrades, though of lesser degree.

Do you think RBI will cut repo rate in its next credit policy announcement? How much do you expect the RBI to cut key rates this financial year?

We do expect RBI to signal a rate reversion cycle with a modest 25bps in the April policy. Having said that, we do not think overall rate cuts would exceed 75bps for the current financial year.

Do you expect inflation and fiscal deficit to decline in FY13?

It would be difficult for the government to meet the 5.10 per cent fiscal deficit target. They have slipped by 130bps for the FY12. We expect inflation to come down to around 7.30 per cent in FY13 from 8.60 per cent in FY12.

Will FIIs continue to infuse funds in domestic stocks or will they pause on macro-economic worries?

The Indian market was the second-worst performing market in dollar terms globally in calendar 2011. We have received decent flows in the current calendar so far. From hereon, their flows would depend on the relative attractiveness of our market and their risk appetite levels. But if domestic factors improve significantly, we can expect the flows to continue.

On the global front, do you expect the US to come out with QE3, and what, according to you, would be its implications for the global financial market?

We do not think QE3 is likely in our base case. But we may not completely rule out QE3 with the US presidential elections around the corner and should the US economy throw up negative surprises. Should that happen, there would again be a surge in risk appetite levels and commodity prices would move up in the short term.

Will commodities market turn volatile if more liquidity enhancing measures are adopted by the west? At what level do you expect crude prices to stabilise?

Commodities would turn volatile more on account of a slowdown in China's growth. China being one of the largest consumers of commodities, their slowdown would disturb the demand-supply dynamics and impact prices. In the short-term, crude price is more a function of political disturbance in West Asia, but in the medium term, we think it will stabilise at current levels.

Source: http://www.mydigitalfc.com/companies/market-will-remain-volatile-year-too-556

Friday, April 13, 2012

Inflows into gold ETFs at 5-yr high.

Net inflows into gold exchange-traded funds (ETFs) for the financial year 2012 were the highest in the last five financial years as muted returns in most other asset classes and an uncertain outlook for the world economy prompted risk-averse investors to flock to the yellow metal.

Net inflows into gold ETFs for FY12 amounted to R3,646 crore, a 59% increase over the R2,289 crore garnered in the previous fiscal, data from industry body Amfi shows.

The figure is 43 times more than the amount collected in FY09, the year the global financial crisis shook world markets. Assets under management (AUM) for the category in FY12 have more than doubled over that in the previous fiscal, and multiplied more than 20 times in the past five years.

"Risk aversion among investors was pretty high for much of last year, which made them turn to gold, which is perceived as a safe haven," said Nitin Rakesh, CEO, Motilal Oswal Asset Management Company. He added that the bull run in the yellow metal also made the yellow metal attractive: "Investors tend to flock to asset classes that are doing well."

Gold ETFs as a category gave returns of about 34% for the financial year 2012, according to data compiled by Value Research. Gold prices appreciated as much as 35% in the period, touching R28,040 on the last day of the year.

Currently, a dozen gold ETFs are in operation.

According to Kishore Narne, senior VP and head —currency & commodity—Anand Rathi Securities, the psychological affinity Indians have towards gold made them invest in the commodity despite the sky-high prices.

"Gold has been the best performing asset over the past 10 years. It is a hedge against inflation, which has remained stubbornly high in the past two years," said Mahendra Jajoo, CIO —fixed income— Pramerica Asset Managers.

Compared to gold, most other asset classes underperformed last year. For instance, industrial metal silver slipped 1%, while Indian equities as measured by the benchmark BSE Sensex slipped by more than 11% during the year. Debt fared better, with average category returns for FY12 clocking a little over 9%. According to market participants, Indian investors have grown more comfortable with investing in gold ETFs over the past two years.

This change in mindset, in turn, encouraged several fund houses to launch gold ETF products over this period. More specifically, inflows into this category last year were boosted by the launch of several gold fund of funds.

"At least 8-9 gold fund of funds were launched last year, which gave a significant boost to the assets under management of gold ETFs," pointed out Rakesh.

Market participants believe that inflows into gold ETFs are likely to remain robust going forward unless the equity market starts outperforming. According to a recent statement by Thomson Reuters GFMS, one of the world's leading economics consultancies in precious metals, the more-than-decade-long bull run in gold may come to end in early 2013 if prices touch new highs.

Source: http://www.financialexpress.com/news/inflows-into-gold-etfs-at-5yr-high/936115/0

Thursday, April 12, 2012

Total AUM of MF Industry Declines by 13% in March '12

Total Assets Under Management (AUM) of the mutual fund (MF) industry declined by 13% (by Rs 88021 crore) to Rs 5.87 lakh crore in March 2012, the lowest AUM since June 2009. The month-on-month decline in AUM was the worst in 12 months. Except for Gold Exchange Traded Fund (ETF) whose AUM increased marginally by 0.9%, rest of the categories witnessed fall in AUM.

The decline in assets of the industry was basically due to huge outflows of Rs 76537 crore and Rs 7654 crore from Liquid and Income Funds respectively. Net outflow from the industry stood at Rs 83765 crore in March 2012, which was worst than the net inflow of Rs 1271 crore in February 2012.

AUM of equity funds declined around 2% (by Rs 3646 crore) to Rs 1.82 lakh crore due to mark-to-market losses. The equity market represented by the benchmark Nifty and Sensex fell by 1.7% and 2% respectively in March after recording gains in the previous two months. The category witnessed marginal net inflows of Rs 71 crore in March which was primarily due to inflows into Equity Linked Savings Scheme (ELSS) category.

Income funds saw net outflows for the fifth consecutive month and it was Rs 7654 crore in March. Other Exchange Traded Funds witnessed eight consecutive months of net outflows. Its net outflows stood at Rs 31 crore in March.

Gold ETF witnessed the highest net inflows in last four months. It stood at Rs 231 crore in March.

The industry registered net outflows for the second consecutive fiscal, it stood at Rs 22023 crore for the fiscal ending March 2012, as against net outflow of Rs 49406 crore for the fiscal ending March 2011.

Funds mobilized from 157 newly launched schemes in March stood at Rs 36361 crore, out of which Rs 36254 crore came from 153 close ended income funds. The number of Fixed Maturity Plans (FMPs) launched during March was higher than other months during the fiscal as investors look to invest into this product to benefit from indexation. Axis Income Fund an open ended income fund mobilized Rs 39 crore. Canara Robeco Gold Exchange Traded Fund and Motilal Oswal MOSt Shares Gold ETF (open ended Gold ETF) mobilized Rs 42 crore. SBI Tax Advantage Fund - Series II, a close ended ELSS mobilized Rs 26 crore.

Source: http://www.adityabirlamoney.com/news/546743/10/22,24/Mutual-Funds-Reports/Total-AUM-of-MF-Industry-Declines-by-13-in-March-12

Tuesday, April 10, 2012

RBI seen cutting repo rate for first time in 3 years: poll

The Reserve Bank of India is likely to cut its repo rate for the first time in three years in an attempt to lift sagging economic growth, even as high oil and food prices remain a challenge to managing inflation, a Reuters poll showed.

Of 20 analysts polled, 17 expect the RBI to cut the repo rate by 25 basis points to 8.25 percent on April 17, while three see it unchanged at 8.50 percent.

The RBI has held its key interest rate steady since its policy review in mid-December, after raising it 13 times from March 2010 to tame high inflation, most recently in October. Its last rate cut was in April 2009.

"The driving factor for a repo cut is basically to pull down the cost of funds. The slowdown in the economy is coming from a drop in investments, and that has to be reversed," said Saugata Bhattacharya, an economist with Axis Bank.

Of 19 respondents, 13 expect no cut next week in the cash reserve ratio (CRR) requirement for banks, or the share of deposits lenders have to maintain with the RBI.

Only four respondents forecast a 50 bps cut in CRR on April 17, while two see a 25 basis point cut.

In January, the RBI cut CRR by 50 bps, and further reduced it by 75 bps in March to 4.75 percent to ease tight liquidity in the banking system ahead of advance tax payments by companies.

Economists have scaled back their expectations for rate cuts in the fiscal year that started this month but have increased their expectations for cuts in CRR since a poll in March.

The median estimate for the repo rate in March 2013 now stands at 7.75 percent, higher than the estimate of 7.50 percent in a poll last month. Similarly, the median estimate for CRR is 4 percent, compared with 4.25 percent in March.

India's economy grew at just 6.1 percent in the December quarter, the slowest in nearly three years.

High food inflation is likely to pinch Indians at least until July as fruit and vegetable output shrinks, hurt by rising temperatures and dry conditions, while edible oil and pulses prices are rallying on lower production and a more expensive world market.

The wholesale price index, the main gauge of inflation, edged up a faster-than-expected 6.95 percent from a year earlier in February. Analysts are keenly awaiting the March inflation data to be announced a day before the RBI's policy.

However, non-food manufactured inflation is likely to remain low, which will offset some of the impact of high food prices, analysts said.

Further inflationary pressure could emerge if India cuts subsidies on diesel and cooking fuels, and if state oil retailers raise the price of petrol to reflect the rise in global crude prices.

Source: http://in.reuters.com/article/2012/04/10/india-rbi-poll-repo-rate-cut-idINDEE83906M20120410

Fidelity investors: Exit and reinvest elsewhere

Investors in Fidelity schemes should look for an exit in the 30-day no-load window that will be available to them. Returns of L&T Mutual Fund have been nothing to be confident about

L&T Mutual Fund (MF) recently came into the Indian fund industry, having been setup through the acquisition of DBS Cholamandalam Mutual Fund in 2010. Chola was a running a poor management and investors entering the L&T Mutual Fund fold have not done any better. With the acquisition of Fidelity Mutual Fund, one of the better performing fund houses, L&T MF has become the 13th largest fund house up from 24, out of a total of 43 fund houses currently present. But the sad news for investors in the schemes of Fidelity MF is that the sale to L&T MF does not include the fund management team. Fidelity's fund management team would be there until L&T MF builds its team to manage the newly acquired assets.

The fund management of Fidelity MF has been much better than that of L&T MF. As seen in the performance compared to the benchmark, the returns of L&T funds have fallen short of the benchmark on a number of occasions, whereas the funds of Fidelity have outperformed their respective benchmarks on all the occasions for the one-year, two-year, three-year and five-year periods ending 31 March 2012. The investors of Fidelity wouldn't want the L&T fund management team handling their investments seeing this performance of the fund house. Investors who are worried about their investments and those who are doubtful of the fund management team of L&T should look for an exit in the 30-day window given to them where they will be charged no load for exit.

Venugopal Manghat recently joined as vice president & co head - equity investments at L&T Mutual Fund. He was earlier the head of equities at Tata Asset Management. He was the fund manager of Tata Pure Equity and Tata Equity Opportunities—two equity funds of Tata MF which have done well in the past. He took over managing L&T Growth fund from Pankaj Gupta last month. Would he be able to turn around the performance of L&T equity schemes? One would just have to wait and watch. At the same time Shobheta Manglik has joined as assistant vice president & fund manager-fixed income. She has been jointly managing the few of the debt-oriented funds and has an experience of over 10 years. Pankaj Gupta with an experience of over 10 years has been managing three of the equity funds since September 2010 and Anant Deep Katare, who has over nine years of related experience, has been managing L&T Hedged Equity fund and L&T Midcap Fund since October 2007. L&T Mutual Fund would have probably done well had Sanjay Sinha, who came in from SBI Mutual Fund, stuck around. But he joined in September 2008 and quit in August 2011.

Compare this to the current fund management of Fidelity. All the equity diversified funds of Fidelity are co-managed. Anirudh Gopalakrishnan, who has a work experience of over 10 years, is the common fund manager for all the four schemes and has been managing these funds for foreign securities investments since October 2010. He, along with Sandeep Kothari, who has an experience of 17 years, manages Fidelity Equity Fund and Fidelity India Growth Fund and along with Nitin Bajaj, who has an experience of 12 years, manages Fidelity India Special Situations Fund and Fidelity India Value fund. Fidelity does have a more experienced team but unfortunately they would not be managing the schemes once L&T Mutual Fund acquires them.

Source: http://www.moneylife.in/article/fidelity-investors-exit-and-reinvest-elsewhere/24872.html

Monday, April 9, 2012

Do look at investing abroad

In 2004, Principal Mutual Fund became the first to introduce an international fund to Indian investors through its Global Opportunities fund, but the response was cold and the asset under management of the scheme stood at only Rs 37 crore.

The theme gained momentum and in 2007 and 2008 a number of fund houses — mostly foreign —launched their international funds in India, which over the last two years have beaten domestic equities hands down amid a depreciating rupee and weighing domestic concerns. While only a handful of Indian investors have invested into these schemes to take advantage of global diversification, it may take some more time before it is fully accepted by retail investors, experts vouch for the benefits of such schemes and a mild exposure to them.

Over the last one year when the Sensex fell by over 11 per cent and the average return of large cap domestic equity schemes is down by around 9 per cent, the international funds have done the job of protecting your capital as they have lost on an average only 1.8 per cent.

Over a two year period while the average return generated by international funds stood at a CAGR of 6.2 per cent, the Sensex has remained flat and large cap domestic equity funds have generated only 1 per cent.

What are international funds?

International funds are instruments that invest in global markets and offer you a route to invest outside India. There are fund-of-fund schemes that act as feeder funds and invest into an umbrella scheme of the fund house.

There are range of funds launched by fund houses that offer you exposure into — gold, commodity, energy, real estate, agriculture and equities of economies such as — China, US, Brazil, Latin America, emerging economies among others.

While there are 30 international schemes currently operational in the country offering exposure to various economies and asset classes, the total assets under management of these schemes in India is around $600 million (Rs 3,100 crore). This is close to 2 per cent of the size of the domestic equity funds which stands at around $34 billion (Rs 170,000 crore).

Why do they make sense?

The schemes launched in 2007 and 2008 went out of favour because of the global stock market crash in 2008 leading to a severe risk and underperformance of international equities while India fared relatively better. However, over the last two years when the Indian markets have been marred by concerns over inflation, high interest rates, corruption and rising crude oil and input costs, so of the other economies have done well and thus the outperformance.

"Those economies did well and India did not do too well and the problems were more Indian centric. Thus, opportunities continue to exist across various parts of the world," said Arindam Ghosh, vice president and head of retail sales at JP Morgan Mutual Fund in India. "If you look at the stock market returns of 16 emerging markets over the last 13 years, every year the best performing country was different."

Ghosh says that investors in no other country have as much home bias as in India.

Also at a time when inflation is a big concern and a lot of it is driven by commodity price rise, there are some who argue about hedging benefits by taking position in commodities.

"Globally you can get into commodities, which is not permitted in India and commodity is a great hedge against inflation," says Navin Suri, MD and CEO, ING Investment Management.

Not just this, investors also can benefit out of a depreciating rupee by investing in these schemes which has been the case over the last 12-18 months. While they make sense, no one — including the fund houses — suggest investing more than 5-10 per cent of your investment corpus into such schemes.

"Start with diversified fund and do not go for sectoral fund or commodity play alone. Leave it on your fund manager to take exposure on such themes in your diversified fund," says Surya Bhatia, a Delhi based financial planner.

RISK FACTORS

Since international funds are dollar denominated, while rupee depreciation may benefit your international funds performance and thus enhance your returns, that is the biggest risk such schemes carry, which is why you must be aware of them.

Also international funds into different countries carry dual risk as your investment will have to be first converted into dollars and then into the local currency and vice versa at the time of redemption.

"Invest in such schemes but with a pinch of salt because the major risk that you carry is not of the funds but of the foreign currency fluctuations and it is tough to take a call. The other problem is that while you may understand the domestic equities to a certain extent, you may be completely unaware of the foreign markets and equities," says Bhatia.

Also before you step out it is important to assess the geo-political and economic risk and the long-term growth potential a particular economy and accordingly invest.

One must also understand that the returns that these funds generated over the last 12-24 months may not be there every year as rupee may not depreciate the same way and India may not remain an underperformer in the near future. So, venture out only with easonable expectation and more so for the benefits of diversification rather than following higher returns.

Also unlike the Indian equity investment that is completely tax free, these schemes attract debt taxation of up to 20 per cent. But experts say that it also gives you indexation benefits and tax concerns should not bother much.

"All schemes are taxable. But you do get the benefit of indexation and if you hold it for long term then you can gain on the benefit and the tax will be definitely lower than your marginal tax rate," says Bhatia.

Source: http://www.indianexpress.com/news/do-look-at-investing-abroad/934176/0