Mutual Fund NEWS Group: September 2011

Friday, September 30, 2011

DSP BlackRock MF launches DSP BlackRock World Agriculture Fund

DSP BlackRock Mutual Fund has launched DSP BlackRock World Agriculture Fund, an open-ended fund of funds-overseas scheme.

The investment objective of the scheme is to seek capital appreciation by investing predominantly in units of BlackRock Global Funds World Agriculture Fund (BGF - WAF). The Scheme may, at the discretion of the investment manager, also invest in the units of other similar overseas mutual fund schemes, which may constitute a significant part of its corpus.

The exit load, when the holding period from date of allotment is less than 12 months, is 1%. When the holding period is 12 months and longer, the exit load is nil.

The new issue closes on 14 October 2011.

The minimum investment amount is Rs5,000 and in multiples of Re1 thereafter.

The benchmark for comparing the performance of the scheme is the DAX Global Agribusiness Index. Mehul Jani (dedicated fund manager for overseas investments) is the fund manager.

Source: http://www.moneylife.in/article/dsp-blackrock-mf-launches-dsp-blackrock-world-agriculture-fund/20207.html

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Taurus Mutual Fund launches Taurus Opti Plans.

There are two facilities under Taurus Opti Plans (TOP) viz. Taurus Opti SIP and Taurus Opti STP.

Taurus Mutual Fund has introduced Taurus Opti Plans (TOP), which will be available to investors in all the open ended schemes of Taurus Mutual Fund where facility of Systematic Investment Plan (SIP) and Systematic Transfer Plan (STP) has been provided.

There are two facilities under Taurus Opti Plans (TOP) viz. Taurus OptiSIP and Taurus OptiSTP. By opting for TOP, investors can optimise the returns on their investment as they get to define the upper and lower limits of investment to be made at desired frequency to achieve their financial goal. By doing so (defining limits), the customer will invest a higher amount within the defined limit and buy more units when the markets are low and vice versa.

Commenting on the introduction of new facilities Waqar Naqvi, CEO of Taurus Mutual Fund said, "We have introduced Taurus Opti Plans to provide more convenience and flexibility to investors. We believe that this flexibility of investment amount in the facility will attract more investors and investments in this choppy and volatile market, where timing the market could go against the investor."

The Taurus Opti Plans facility has been introduced with effect from 28th September 2011.

Source: http://www.indiainfoline.com/Markets/News/Taurus-Mutual-Fund-launches-Taurus-Opti-Plans/5255004447

Thursday, September 29, 2011

Global crisis will not hit India in a big way: Prashant Jain, HDFC Mutual Fund

This is not the first time that the world is facing a financial crisis. Crises have come and gone and so will the sovereign one. With valuations near a trough, it may be time for investors with a two-to-three year horizon to buy stocks, says HDFC Mutual Fund's chief investment officer Prashant Jain, who manages more than Rs 90,000 crore, in an interview with ET. Edited excerpts:

What is the difference between the 2008 crisis and now?

In 2008, no one was expecting the markets to fall or the crisis to happen. It just happened overnight. So there was an element of shock. This time, we've known for several years that Iceland, Ireland, Spain, Portugal, Italy etc are under stress. So, this time the shock value is missing.

What could be done to avert a crisis?

I have limited understanding of Europe, but in my experience typically a solution is found for problems that are anticipated for some time. As far as India is concerned, the impact on the economy should be very limited. This is because we do not have any material investments in these geographies. Even the exports to the troubled countries are very small.

What happens when French and German banks are hit by these sovereign losses?

The impact of it should be very local. Indian companies and citizens do not have any worthwhile investments in these countries, or banks. The impact on exports should also be minimal as our exports to the troubled economies are not significant.

What should investors do when there's so much happening in the financial world?

Panic does not last in perpetuity. It lasts for short periods of time. One way or the other, the Greece issue should be largely over in the next few weeks or months, and markets will price it in. There'll be minimal impact on the Indian economy.

Investors should adopt a staggered approach while investing in the current markets. This is so because while there is good value from a medium-to-long term perspective, there is uncertainty in the short term and unlike the economy, the equity markets can get impacted due to sentiment in the short run.

What to do with Indian equities during these times?

The long-term range of P/E multiple of Indian market has been between 10 and 22 times. Even during crisis, the P/E s did not go below 10-11 times. This is so because at 10-11 P/Es, earnings yields become higher than G-sec yields. At present, P/E is 13 times one year-forward earnings... Over a one year period, there's very limited downside from current levels in my opinion.

Though it is a difficult time and sentiment is negative, P/E multiples are quite reasonable. I expect one year down the line interest rates to be lower. And lower interest rates are supportive of higher P/E multiples. I am reasonably optimistic, over onetwo years, markets should trend higher.

But the turbulence in currency markets due to these factors is hurting the Indian rupee. What could be the impact of depreciating rupee?

Indian exports should do well in the years to come. China has been our major competitor in manufactured exports and rupee has depreciated 15-20% against the yuan and it should continue to appreciate as a result of balance of payments surplus. India's competitiveness is improving in manufactured exports.

Our quality and technology are also improving. Sectors like textiles, where China has been the main competitor, are doing better now. What has happened in IT in past 10 years should happen to the manufacturing sector over the next 10 years.

But the capital flows?

Capital flows can get disrupted, but it'll not have a large impact on our economy as our savings rate is pretty high and we're able to fund almost 90% of our needs internally. It is possible for one year, till the time capital flows remain disrupted, GDP may grow slower by 1-1.5 percentage points, but it'll continue to grow.

RBI is well-placed and has a lot of room to maneouvre - interest rates are at high levels. The moment you start lowering rates, it'll be an effective counter balance.

India's macro fundamentals also seem to be weakening, especially fiscal deficit.

The key problem is fiscal deficit - we'd have done much better otherwise. When the global crisis took place last time, if we had had smaller stimulus, I don't think it would have hurt us badly.

Yes, we'd have grown at 6%... but the fiscal position would have been much better. The impact of borrowings lasts for several years . Lower growth for some time is better than higher fiscal deficits.

What about inflation?

A global slowdown is actually supportive of a lower fiscal deficit by way of lower oil prices and commodity prices. Subsidies have been the main reason for fiscal stress. If we had increased diesel price two years ago, we'd have significantly lower fiscal deficit and lower inflation today.

Economy would also have slowed down a bit because people would have slightly lesser amount of money as a result of higher expenditure on fuel. Higher interest rates are leading to a slowdown in interest-sensitive sectors and global commodity prices are also moderating, so inflation should be lower next year.

But the RBI governor seems to be seeing little chance of commodity prices easing due to easy monetary policy in the West.

If the demand for commodities comes off, prices should soften. Low interest rates globally are driving money into commodities. Commodities prices are much harder to forecast. Slowdown in China should also adversely impact commodity prices... Another positive factor is that there is an increase in supply of iron ore, coal, oil and natural gas in 2012 and beyond.

Source: http://economictimes.indiatimes.com/opinion/interviews/global-crisis-will-not-hit-india-in-a-big-way-prashant-jain-hdfc-mutual-fund/articleshow/10164594.cms

Wednesday, September 28, 2011

Be cautious in this fairly-volatile market: Satish Ramanathan, Sundaram Mutual Fund

In an interview with ET Now, Satish Ramanathan, Director & Head-Equities, Sundaram Mutual Fund, talks about the current global volatility and shares his outlook for different sectors. Excerpts:

How were you approaching this market and do you think in the near term Indian markets have bottomed out?

I don't think so. There are still a lot of global fears moving through and we also have to recognise that the trading volumes in these markets have come down significantly.

There could be pressures due to redemptions coming in for the FIIs and any of these pressures could push the markets down further than we think.

So I do not think we are still clearly out of the woods, but having said that valuations are definitely much more attractive than before, I think that it would be a wait and watch rather than a plunge in deep.

You have a fair degree of exposure to defensives, you own stocks like IGL, HUL, couple of pharma names, so what is your strategy there and at these levels are you reducing your exposure to defensives and increasing your exposure to other sectors?

We have to be cautious in this market which is fairly volatile. It would be a good idea to keep booking profits as we move on, and as and when stocks reach fair value, one should not be scared of giving them up because we are not in the middle of a bull market.

Consequently, booking profits as and when stocks reach their target prices is a good idea, whether be defensive or infrastructure or any other sector for that matter.

What are you making of the kind of volatility that the commodity universe is witnessing, given the kind of choppiness that you have seen across the metals basket in particular? What would be your view on some of these names the likes Sesa Goa, Sterlite and the rest?

Some of them are attractively valued, if you take a medium-term perspective. But there could be still short-term pain in these stocks. So the way we are approaching these stocks is that we keep a small exposure and we trade in and trade out as and when we make a little bit of money.

But we should be very fairly cautious that just as much as inflation is a worry for us, deflation is also emerging to be a bigger worry for the rest of the world. So we need to understand that commodity prices can surprise us on the downside very quickly, as we are seeing in the case of copper which has fallen very sharply over the past two to three months.

You have a very large degree of exposure to Reliance and Cairn which means you are bullish on energy or local energy companies. At these levels are you looking at increasing your exposure to Reliance and Cairn?

Reliance and Cairn have reached fairly attractive levels. Having said that if the global oil prices were to fall for some reason, there could be a bit of stress on these stocks, but there are fairly attractive cash flows coming in for both these companies. Consequently we have kept these companies as a defensive exposure rather than an exposure on growth for commodities.

Just want to have your view in terms of the movement that we have seen across the real estate universe, be it a DLF, Unitech, HDIL and couple of these local names as well. Is there a whole lot to read into it or do you think these are just technical bounces?

These are technical bounces because we still have not come to structural problems that many of these companies will go through. The fact that they have to restructure their balance sheets, the fact that they have to sell off their access assets. All of these take time and we haven't come anywhere close to that. Hence I would be wary of these moves.

In the midcap space, what has been your portfolio strategy and where have you allocated disproportionate amount of money? Just for the benefit of our viewers Satish had identified IGL a year ago and that stock has doubled from those levels. So which is your next midcap bet now?

Amongst the midcap space we think that we have to be fairly diversified. It is not about a single sector or a stock. We are in the process of going through and reeling down and understanding companies such as Cummins and other global infrastructure companies who have a decent cash flow and who have the capacity to buy back stock as well as bring in contemporary technology. So we like Bosch, we like Cummins, we like FAG Bearings in that space.

Accenture came out with its numbers yesterday or rather last night and the management commentary clearly indicates that IT spends have not been impacted by the kind of slowdown in the west and they are pretty much stable. So that should augur well for the Indian IT space accompanies with the rupee decline too?

In case of Accenture and Cognizant, they have been coming out with good results. In the case of Indian IT space, it is becoming very company specific, companies that win deals versus companies that do not win deals and there is a little bit of pricing pressure as well.

So Indian companies will need to invest significantly in marketing and other spend which could contract their margins and we need to bear in mind that the leading Indian companies have a much higher margin levels than the international companies.

So the issue in IT is not about growth, it is more about margins and margin pressure that would come through. The growth will cool off probably six months from now which is what the market is worried rather than the shorter-term growth.

Why are stocks like L&T, BHEL they are getting completely smashed out of shape and at these levels are you tempted to revisit large capital good/machinery space?

It is tempting without doubt. These valuations are something which we have not seen in a long time. The primary problem about infrastructure companies is not something about the global issues, but rather local issues.

If there is confidence that local execution rates are going up and order books are going up, then these stocks are definitely worth holding in one's portfolio considering the quality and pedigree of these stocks.

Source: http://economictimes.indiatimes.com/opinion/interviews/be-cautious-in-this-fairly-volatile-market-satish-ramanathan-sundaram-mutual-fund/articleshow/10155627.cms?curpg=3

Tuesday, September 27, 2011

BNP Paribas MF expands its equities fund management team

BNP Paribas Mutual Fund continues to expand its equities fund management team with the addition of two senior members to enhance its research capabilities.

Mr. Apurva Shah has joined the team as Head - Investment Research and will head a team of analysts across asset classes. Mr. Shah was the Head of Research - Institutional Equities at Prabhudas Lilladher leading an 18-member research team and has over a decade of experience in the Indian equity markets first as an analyst covering various sectors and then as a strategist covering market overall. Through his career, he has covered sectors as varied as Technology, Media and Financials. Mr. Shah is a CFA charter, a post graduate degree in management from Mumbai University and an engineer from Poona University.

Mr. Abhijeet Dey, with over 10 years of experience, has also joined the team as a Senior Research Analyst. In his previous assignment, Mr. Dey was a Senior Research Analyst at Kotak Mahindra AMC. Mr. Dey has a master's degree in management and is an Engineer from Mumbai University.

Announcing these appointments, Mr. Nikhil Johri, Managing Director, BNP Paribas Asset Management said, "We are delighted to welcome Apurva and Abhijeet to our team and are sure that their expertise and experience will add a lot of value to the performance track record of our funds."

"We have been investing in building our team and capabilities in India as part of our endeavour to achieve our long term business ambitions in the country. We continue to strive towards delivering better performance for the benefit of our investors", he added.

Source: http://www.business-standard.com/india/news/bnp-paribas-mf-expands-its-equities-fund-management-team/450619/

Check out funds that have fared well in different time spans

One of the simplest ways of selecting mutual funds is by looking at their historical performances and picking the top performers. While it is easy to come across fund listings that represent best performers, these are based on a single time scale. So, a listing may show top performing funds on the basis of 3-year or 5-year returns. A fund can be a top performer on one time scale, but may be an underperformer in another.

Take the DSPBR India T.I.G.E.R Fund, which has outperformed its benchmark on a 5-year scale, but has fared worse than its benchmark on the 3-year scale. In three years, the fund returned 6.34% on an average, compared with its benchmark BSE-100, which delivered 7.89%. On the other hand, the fund delivered 8% annualised returns over a 5-year period, in comparison to its benchmark that delivered 7.73% returns. This implies that a person who had invested in 2006 would be better off than a person who had invested in 2008.

Now, consider the Taurus Infrastructure Fund, which has lost 25% in the past year in comparison to its benchmark BSE-200, which lost 15.08%, thereby underperforming its benchmark on the one-year scale significantly. However, the same fund is an outperformer on a 3-year scale, delivering 9.9% annualised return in comparison to its benchmark, which gave 8.32%.

Therefore, the listings for top performing funds that are based on single time scales may not represent true outperformers. Instead, an analysis based on multiple time scales may prove useful for the investors who strongly rely on historical performance. We tried to zero in on funds that have given better results than their benchmarks and category averages consistently across different time scales.

Outperformance would imply either gaining more than the benchmarks and category averages or losing less than the benchmarks and category averages. We have considered six time scales, ranging from three months to five years. The performances of these funds were compared with their benchmarks and category averages across these time scales. Though the time frames of three months and six months are too short for evaluating equity mutual funds, such scales are considered to check the funds' short-term consistency.

We analysed as many as 349 equity mutual funds schemes with growth options. All equity schemes are included in the analysis, and include diversified, tax plans, sector funds, dividend yield funds, contra funds, mid-cap and small-cap funds. We considered only mid- to large-sized funds and ignored the smaller ones. The equity funds whose latest available corpus was more than Rs 100 crore were included. We found 14 funds that were consistent in their performance.

These 14 mid- to large-sized funds have outperformed their benchmarks and category averages in 3 months, 6 months, 1 year, 2 years, 3 years and 5 years. One would have fared well irrespective of the time scale in which the investment was made and, hence, these funds are true outperformers. In this list, UTI AMC tops with its five funds. Franklin AMC shares the second spot with three funds, while BNP Paribas, Canara Robeco, IDFC, SBI, Tata and Sundaram AMCs have one fund each.

Tata Dividend Yield Fund's AUM grew by almost 56% in the past year from Rs 150.74 crore in July 2010 to Rs 235.02 crore in July 2011. On the other hand, IDFC Premier Equity Fund's AUM shot up by almost 44% in the same period from Rs 1,674 crore in July 2010 to Rs 2,411 crore in July 2011.

Most of the shortlisted funds also scored on the portfolio turnover ratio, which reflects how frequently assets within the fund are bought and sold by the fund manager. Generally, the lower the ratio, the better it is because lower ratio signifies lesser transaction costs. A majority of the shortlisted funds have reduced their portfolio turnover ratios in the past year. The UTI Opportunities managed to slash it by more than 51%, followed by UTI Equity and Tata Dividend Yield Fund, which reduced their ratios by 46% and 45%, respectively.

Source: http://articles.economictimes.indiatimes.com/2011-09-26/news/30204446_1_mutual-funds-benchmark-scale/2

Axis Gold Fund floats on

Axis Mutual Fund has launched a new fund named as Axis Gold Fund, an open ended fund of funds scheme. The New Fund Offer price is Rs. 10 per unit. The new issue is open for subscription from 30 September and close subscription on 14 October 2011.

Investment objective: To generate returns that closely corresponds to returns generated by Axis Gold ETF.

Plans/Options offered: Growth and Dividend option. Dividend option further offers Payout Facility and Reinvestment Facility. Benchmark: Domestic price of gold.

Loads: Entry load is not applicable and the scheme charge an exit load of 1% if units are redeemed /switched out within 1 year from the date of allotment.

Minimum Application Amount: Rs. 5,000 and in multiples of Re. 1/- thereafter

Minimum Target Amount: Rs. 20 lakh

Asset Allocation: The scheme shall invest 95-100% in the units of gold ETFs (primary axis gold ETF) with medium risk profile and invest upto 5% in the money market instruments with low to medium risk profile.

Fund Managers: Mr. Anurag Mittal.

Source: http://www.indiainfoline.com/Markets/News/Axis-Gold-Fund-floats-on/3948507332

Motilal Oswal to sell stake in AMC, I-banking arms.

Motilal Oswal Financial Services was looking to sell a little less than 26 per cent stake in its asset management and investment banking businesses, said Chairman and Managing Director Motilal Oswal.

"We are in talks with global players to offload a minority stake in these two businesses. Nothing has been finalised," he said, declining to give any names.

Motilal Oswal Asset Management Company (AMC) launched its first fund in June 2010. It had average assets under management (AUM) worth Rs 345 crore for the quarter ended June 30 this year, shows data from the Association of Mutual Funds in India. It runs three exchange-traded funds (ETFs) – MOSt Shares M100, MOSt Shares M50 and MOSt Shares Nasdaq 100.

The fund house has applied to launch an ETF based on gold and plans to launch another based on government bonds. "We will remain an ETF specialist," said Oswal. TFs are one of the fastest growing categories. As of March 31, the AUM of ETFs rose from Rs 6,916 crore from Rs 1,403 crore as of March 31, 2009.

Like most brokerage stocks, those of Motilal Oswal have declined 52 per cent in this year till now, as a fall in the cash market volume due to subdued retail participation and a rise in the low-yielding options segment has dented profitability. In comparison, the Bombay Stock Exchange benchmark, the Sensex, lost 21.7 per cent during the same period.

Oswal said his firm was planning to add people in the wealth management, asset management and investment banking businesses.

PE BUSINESS

Motilal Oswal Private Equity Advisors has launched its second PE fund, to raise $200 million (Rs 980 crore), Oswal said. "Road shows are on at present. We expect the first closure to happen by next month and hope to raise $100 million by then."

The fund aims to raise about 30-40 per cent of the targeted amount from domestic investors and the rest from abroad, mostly from Gulf countries, Oswal said. "This fund will invest in companies across sectors with a proven profitability record. The average ticket size for the investment would be $15-25 million."

Motilal Oswal PE has already invested about $130 mn from its first fund, Oswal said.

Source: http://www.business-standard.com/india/news/motilal-oswal-to-sell-stake-in-amc-i-banking-arms/450537/

All about a Registrar & transfer agent( R&T agents)of mutual fund.

Mutual fund investors do a number of transactions, like buying, selling or switching units. They could request for a change in bank details or address. Each such request is a transaction by itself. Mutual fund houses have to maintain records of each such transaction.

Mutual fund houses may not want to invest in these processes nor would they have the skilled expertise to handle these huge transactions on a professional basis. Hence, they would want to outsource this work to an agency, which can handle these requests from investors. The registrar and transfer agents (R&T agents) help them perform this job.

An R&T agent maintains these records on behalf of the fund house, through offices across the country. Computer Age Management Services (Cams), Karvy and Deutsche Investor Services are such agents. An R&T agent has a wide network of branches across the country, helping investors get forms of fund houses, complete their transactions and even obtain their account statements. It acts as single-window system for investors.

An R&T agent also helps investors with information and details on new fund offers, dividend distributions or even maturity dates in case of FMPs (fixed maturity plans). While such details is also available from fund houses, an R&T agent is a one-stop shop for all the information. Investors can get information about various investments in different schemes of different fund houses at a single place.

From a mutual fund's perspective , R&T agents provider greater reach and help save costs. Since R&T agents have offices across the country, they also double up as branches for the mutual funds they serve and help them in their sales process. Typically, investors look to invest in different schemes of different fund houses. As per the rules of Securities and Exchange Board of India, there is a cut-off time by when the investment has to be made to be eligible for that day's NAV.

So, if an investor has to make multiple investments, he will have to approach multiple fund houses. Instead, he can use an R&T agent's services to conduct all his transactions and make the investments. The mutual fund house pays money for the services offered by the R&T agent. The charges would depend on the volume of transactions done for the mutual fund. The mutual fund, in turn, charges such expenses to the expense ratio of the fund. As an investor, while doing transactions at the R&T agents office, you do not have to pay any charges.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/rtf1ansiansicpg1252deff0deflang1033fonttblf0fnilfcharset0-arial-unicode-mscolortbl-red0green0blue0viewkind4uc1pardcf1f0fs20-all-about-a-registrar-transfer-agent-rt-agentsof-mutual-fundpar/articleshow/10134846.cms

Energy sector may take few more years to deliver

Equity markets go through extremely good and weak periods. It's based on what point in time you set the valuation. We are in an extremely challenging local environment and that has impacted the performance of key companies. SATISH RAMANATHAN, HEAD, EQUITIES, SUNDARAM MUTUAL FUND

Managing equity in uncertain times is a challenge for any fund manager. In an interview with Business Line Mr Satish Ramanathan, Head of Equities, Sundaram Mutual Fund, spoke about the underperforming sectors and about the performance of Sundaram funds that have exposure to these sectors.

Excerpts from the interview:

Infrastructure based funds have given very poor returns. Is it advisable for investors to move out of such funds? Or should AMCs dilute the theme and make it more broad-based?

The performance of infrastructure funds has been disappointing over the past one year. The key learning is that infrastructure is not just about constructing projects. It is also not about taking up several projects and over-stretching yourself. It's about viable business with some cash-flow and investments.

The key takeaway for us is to invest in more mature companies like NTPC or GAIL or ONGC. It may be better to invest in slightly mature companies which have gone through the initial learning cycle. Going ahead, many of the funds and fund houses will not replicate the strategy they did in their previous tenure. They may back the large and stable companies than investing in smaller companies for growth purpose. So all this means that the rate of appreciation will come down and equally the volatility of the portfolio.

If you ask me whether infrastructure as theme is viable or not, the answer is it is very viable, provided you are selective. The second phase we are talking about is selectivity.

You should hold the right companies rather than looking at the sector. So, the first leg was about sectors but the second phase is about companies.

Investors buy theme funds for high growth. If you start buying only large-cap stocks, then the purpose may be defeated?

I did not imply that we will be looking only at large-cap companies. It's about selecting the right companies for the portfolio.

So if you have a company that is conservative and have profitable projects, we would prefer those instead of companies that take on number of unviable projects. It is about selecting the right companies and the right set of business models rather than having high-growth companies only for growth prospects.

So, from an investor's perspective since they have taken the conscious risk of investing in a theme fund or sector fund, unless their risk perception has changed, they should continue in the fund.

Schemes that invest in large cap stocks are now struggling to reward investors. Is it due to high valuations?

Equity markets go through extremely good and weak periods. It's based on what point in time you set the valuation.

Needless to say, we are in extremely challenging local environment and that had impacted the performance of key companies. Second point is that our political stability is also questioned and investor's sentiment is also low.

Retail participation has been very low for several years now and domestic inflows into equity are also low. The inflows are coming only through FIIs and they can be volatile. You also have a situation where the interest rate offered is at 10-10.5 per cent and it will dissuade any risk-taking.

Why should any investor walk in and invest in equity with all these risks when you can get assured return for 3-4 years. That is the key deterrent as we stand today. When the interest rate eases and comes down I am sure the risk appetite will come back into the market albeit slowly and money would move into equity market.

For how many quarters do you anticipate the Indian markets will be under pressure due to macro-economic concerns, domestic and global?

I expect weakness in the Indian markets to continue for next 6-12 months. But most of the weakness is internally created. On reversing some of the issues we can move forward quicker than anticipated.

The key thing we need to bear in the mind is that reduction in subsidies of petrol, fuel and fertilisers will help release of lot money for government's core development activities.

We can be cynical about this, but nevertheless what we need to bear in the mind is that government borrowing for petrol subsidy is going to come down when the fuel prices are passed on to public.

If we are little lucky and the crude oil price falls below $90, losses of oil marketing companies and State Electricity Boards are likely to come down significantly.

With concerns in the banking space which segment — public or private banks — do you expect will perform better?

For the PSU banks incentive to maintain asset quality and growth is not so high given that these banks' Chairmen keep changing often, and their commitment is only for 3-5 years. So the bank's growth and profitability can swing extremely. It is one of the key concerns I have in the PSU space. So it's more individual-centric than system driven.

The same holds good for private banks also, but there exists continuity of the same management and the targets are fairly aligned with the shareholders' expectations. For the long term I would bet on private banks.

Sundaram Energy Fund was launched almost four years ago, but is still below its face value. What should investors do with the fund? Are you planning any mandate change?

We are not planning to change the mandate of the fund. What has happened is very unfortunate. One, many of the projects are getting delayed due to environmental issues. Reliance Industries, which is a major holding in the portfolio, is getting impacted due to its KG D6 issue.

So, what has really happened in the energy space is that the stock prices have fallen 40-50 per cent. Considering that, our performance is satisfactory. It could have been far worse.

We have taken course correction along the way. But are we happy about our performance? Clearly not. I think some of these will reverse over time. Clearly it will take a minimum of one and a half years in terms of projects and delivery, given the significant project delays. Everything has slipped in the past two years. That was one reason why promoters, companies and fund under-delivered.

Source: http://www.thehindubusinessline.com/features/investment-world/mutual-funds/article2482455.ece

Saturday, September 24, 2011

BRICS nations offer support to ailing economies via IMF

The Finance Ministers of Brics countries (Brazil, Russia, India, China and South Africa) on Thursday said they are open to the idea of providing support through the International Monetary Fund (IMF) or other financial institutions to address global economic challenges.

"The Brics are open to consider, if necessary, providing support through the IMF or other international financial institutions in order to address the present challenges to global financial stability, depending on individual country circumstances," said a joint communique issued by the Brics finance ministers after their meeting here.

"We underscored the continuing need to maintain international policy coordination and coordination through the G-20," said the communique issued on the sidelines of the annual meeting of the International Monetary Fund and the World Bank.

"We also expressed our concern over the slow pace of quota and governance reforms, including in the area of surveillance in the IMF, and for the need for multilateral development banks to mobilise more resources for low income and developing countries," Indian Finance Minister Pranab Mukherjee told a crowded press conference addressed by the Brics finance ministers at IMF headquarters here.

Responding to questions, Mukherjee said the issue was raised and the consensus was that there should be serious efforts made by Europeans and others of the international community.

Brics will be part of that consensus building and Brics will contribute its own might and its own contribution to resolve the crisis along with G-20 and other members of the international community, the finance minister said.

"We discussed in terms of preparation, in terms of mutual work on those threats which we are facing. We are trying to escape the use of words like aid assistance, so on and so forth. We will work on the issue together with the European Union and between ourselves," the Russian Deputy Finance Minister, Segey Storchak, said.

"We must also move ahead with the comprehensive review of the quota formula by January, 2013, and the completion of the next review of quotas by January, 2014. This is needed to increase the legitimacy and effectiveness of the fund," the communique said.

"We reiterate our support for measures to protect the voice and representation of the IMF's poorest members. We call on the IMF to make its surveillance framework more integrated and evenhanded," it said. While Brics countries recovered quickly from the 2008-09 global financial crisis, some of them are now grappling with inflationary pressures and the growth prospects of all the countries have been dampened by global market instability, the communique said.

Source: http://economictimes.indiatimes.com/news/international-business/brics-nations-offer-support-to-ailing-economies-via-imf/articleshow/10098758.cms

Friday, September 23, 2011

Fund houses in a tizzy over transaction fee

Difficult to ascertain whether a person is a first-time investor or has invested in a mutual fund earlier

Almost a month after the capital market regulator, the Securities and Exchange Board of India (Sebi), allowed mutual fund (MF) distributors to charge a transaction fee from investors, the Indian MF industry faces a dilemma: How to ascertain whether a person is a first-time investor or has been with some MF scheme in the past.

As per a circular issued by Sebi on 22 August, MF distributors will now be able to charge Rs. 100 from existing investors (those that have already invested in some MF scheme earlier) and Rs. 150 from first-time MF investors. Both the charges kick in if the investment is Rs. 10,000 or above per subscription.

Joining the dots

In a meeting between all the registrar and transfer agents (RTAs) held over the phone early Thursday morning, they contemplated on three key issues.

According to data provided by Value Research , an MF tracking firm, there are eight RTAs apart from three fund houses that manage their RTA activities in-house through their sister companies.

Primarily, to make the distributor charge a reality, RTAs will need to share their data among one another. Industry sources indicate that they will mostly engage an outside firm with whom the RTAs would share their data. This firm will then run a check against all the RTAs to ascertain whether the investor has bought an MF scheme before or not. "The firm needs to run a check through the investor's permanent account number (PAN) across data available with all RTAs," said an MF's chief executive officer, who refused to comment saying the issue is still being debated.

However, the confusion arises over investments made before July 2007 when PAN wasn't compulsory for all. PAN was made compulsory for all MF investments of Rs. 50,000 and above, effective December 2004, and subsequently for all investments, effective July 2007. "So we still have a few investors who had invested in MFs prior to 2007 without submitting their PAN details," adds a senior official of one of the leading RTAs, on condition of anonymity. He cannot be quoted as he is not the official spokesperson of the firm.

During the Thursday meeting among RTAs, they tentatively decided to refer to other investor details such as email addresses, postal addresses and bank mandates with those provided by investors who would invest henceforth to determine whether the said investor is already present in the database.

"This could also be tricky as bank mandates were also not compulsory once upon a time. Further, the investor would have changed his or her address, so there the problem arises as to how to map the details provided afresh vis-a-vis what's already there in the system," said the RTA official we spoke to.

Already the quantum of the distributor charge is a matter of heartburn among many distributors, who claim that the charge is too low. In a recent survey conducted across 755 distributors by Cafe Mutual, a Mumbai-based independent website that disseminate news and information on the Indian MF industry, 73.68% of distributors felt that these transaction charges will not impact the independent financial advisors' decision to push MFs more aggressively than before.

What the MF industry appears to have decided is to maintain the no-transaction charge as status quo. Distributors will be allowed to "opt out" of accepting transaction charge, an option given by Sebi. Those distributors who wish to subscribe to the transaction charge will need to write to the Association of Mutual Funds in India (Amfi), the MF industry body, separately and Amfi will then pass on this list to all fund houses.

A uniform charge

Coming back to the quandary, another alternative that some fund houses are contemplating is to do away with the Rs. 150 charge for fresh investors and charge just Rs. 100 across investors. "This will eliminate the confusion of having to find out whether the investor has invested for the first time or has invested before," says another chief executive of a government-owned fund house we spoke to. He too did not want to be quoted as he claims the matter is controversial.

However, not many feel this is a viable option. Says V. Ramesh, deputy chief executive officer, Amfi: "I don't think eliminating the Rs. 150 charge is an option. If Sebi has come up with Rs. 100 and Rs. 150 charge structure, it will need to be followed."

The RTA official also said that since Sebi has made this mandatory, the onus is on the RTAs and the industry to find out a solution.

Source: http://www.livemint.com/2011/09/22222024/Fund-houses-in-a-tizzy-over-tr.html?h=B

Thursday, September 22, 2011

Is the rupee depreciation affecting your fund NAV?

This week the Indian rupee touched a two-year low against the US dollar. So far this year, the rupee has declined 7.5% against the US dollar; since July, it has declined 7.5%. Traders expect rupee to decline further. Unless you have an export import business or you are a non-resident Indian or a foreign investor in the Indian financial markets, this news may not catch your attention.

But there is a part of your investments, unrelated to the above which may be affected by the sharp decline in rupee. If you invest in mutual funds (MFs) having exposure to international equities, chances are that a portion of their net asset values (NAVs) are being affected by the currency movement.

The currency effect

While taking advantage of currency movement is unlikely to be the main reason for investing in an equity fund that has exposure to international stocks, the fact is any substantial currency movement will affect the fund's NAV.

This happens because you buy fund units in Indian rupees, but the international stocks that form part of the fund are bought in the local currency of the country. When you invest, your rupee is first converted to dollars and subsequently to the requisite currency of the country where the stock or fund units are bought. The opposite happens if you redeem.

If this was a straightforward rupee to dollar or vice-versa conversion, then a weakening rupee will have a positive impact on the NAV. However, life becomes difficult if the transaction involves a third currency; the rupee must depreciate against the US dollar more than the third currency has depreciated for it to add a positive edge to the overall returns. If on the other hand the third currency has appreciated and the rupee has declined against the dollar then the advantage because of this currency movement on the overall fund returns will be even greater.

So you need to consider the equation with the third currency to assess the overall impact on returns along with the sudden sharp decline in rupee per dollar on funds' NAVs. Says Jaya Prakash K., head (products), Franklin Templeton Investments India, "Regional/global equity funds investing directly in overseas securities will be affected by the movement of individual currencies, trading and stock prices, rather than rupee's behaviour against the US dollar alone."

Other factors

There are other factors involved, the most important being the underlying asset class.

Typically, you would invest in a fund that has exposure to international equities for diversification. Says Laxmi Iyer, head (fixed income and products), Kotak Mahindra Asset Management Co. Ltd, "Investors choose these funds as an option for geographical diversification. Management of these funds is more to take advantage of that aspect and currency is more incidental."

Many equity funds which have exposure to overseas markets, invest in commodity stocks, emerging market equities and stocks related to gold. The underlying stocks have their own dynamics which dictate return. For example, while gold mining stocks have done well, emerging market equities, particularly Asian equities, have done poorly and this is reflected in the overall returns. Gold funds on the other hand have performed well so the currency effect may not be that much.

In most cases, the effect on returns on account of currency movement is secondary, with the asset class performance being the primary factor. Moreover, there are too many variables to consider and it's unlikely to be a linear correlation with fund returns.

Source: http://www.livemint.com/2011/09/21231044/Is-the-rupee-depreciation-affe.html?h=B

India corporate bond yields seen range-bound; new deals trickle in

Indian corporate bond yields were little changed in absence of fresh trigger as the market rates align to the federal bond yields after last week's policy rate hike.

India raised interest rates for the 12th time in 18 months and signalled more was to come, confounding expectations that it was coming to the end of its tightening cycle and putting it at odds with global peers focused on reviving weak demand.

"Some deals have started happening but the quantum is not very large as mutual funds and insurance companies are not actively investing because of paucity of funds," a dealer with a mutual fund said.

Activity in the primary market is expected to pick up gradually as the week unfolds, as Indian issuers ascertain the full impact of the monetary policy, and also finalise their fresh fund raising plans at start of a new quarter.

The National Bank for Agriculture and Rural Development ( NABARD) plans to raise at least 4.5 billion rupees through 1-year bond at 9.65 percent, a source with direct knowledge of the deal told Reuters on Wednesday.

India's Housing Development Finance Corp is planning to raise 2.5 billion rupees via placement of 10-year bonds at 9.60 percent with Calyon, a source with knowledge of the deal told Reuters on Wednesday.

The benchmark five-year yields and the 10-year corporate bond were lower 1 basis points at 9.46 percent and 9.47 percent, respectively.

The spread between the five-year corporate bond and government bond was 93.57 basis points from 94.24 basis points on Monday.

The spread between the 10-year corporate bond and government bond was at 94.00 basis points from 94.14 basis points at its previous close.

Total volume in corporate bonds was 14.42 billion rupees compared with 16.40 billion rupees on Tuesday.

Source: http://economictimes.indiatimes.com/markets/bonds/india-corporate-bond-yields-seen-range-bound-new-deals-trickle-in/articleshow/10066950.cms

Wednesday, September 21, 2011

Mid-cap funds come with tough choices

If you want to buy mid-cap funds, keep these points in mind

Investors are exposed to a lot of discussion about small- and mid-cap mutual fund (MF) schemes. They are advised to invest in mid-cap schemes as they think small- and mid-sized companies tend to be under-researched. Mid-cap schemes present an opportunity to invest in companies that are yet to be identified by the market and such companies offer higher growth potential. If the mid-cap schemes do their job properly, you would benefit from higher returns. Valuation of such small- and mid-sized companies also tends to be lower which compounds the future returns. Mid-cap companies have the potential to join the league of large-cap companies and, as the market 'discovers' that, they fetch higher valuation. Such companies are supposed to be nimble, flexible and can adapt faster to changes.

Mid-cap stocks and small-cap stocks rise the fastest when the economy is in a growth mode. They are the blue-chips of tomorrow. That has made mid-cap stocks the darlings of the Indian bull market. However, they are volatile. They fall as quickly as they rise and, therefore, wrong timing can decimate your returns. Wrong timing can happen because you have chosen to buy mid-cap schemes before a crash or the funds have chosen to buy mid-cap stocks as they are about to face a difficult period. Morgan Stanley launched its first Indian MF scheme in 1994 which carried a lot of small- and mid-cap stocks. The scheme suffered severe value erosion of 35% over the next seven years.

Mid-cap schemes are also supposed to be a good option for investors who want to add some diversity to their portfolio. We disagree. There are several reasons why Moneylife prefers equity diversified schemes to small- and mid-cap schemes.

No Long-term Record: Firstly, mid- and small-cap schemes have no long-term track record. Mid-cap schemes have a past of less than 10 years. The first such scheme was Sundaram Select Mid-cap, launched in mid-2002. Apart from Sundaram, one more scheme was launched in 2002—Birla Sun Life Mid-cap Fund—which gave returns of 31% since inception. And, of the five funds that came in 2004, the best performer was UTI Mid-cap that has given a return of 18% since launch. It outperformed its benchmark, BSE Small Cap, for the same period by 24%.

Timing: If you were not one of the early buyers of mid-cap schemes, you have missed the mid-cap rally. The bulk of them came in the 2005-08 period, following a once-in-a-lifetime rally. Of the total 33 schemes that exist now, 23 came in this period (see chart Herd Instinct). The average return from these 23 funds is 10%; only 13 schemes gave above-average returns. Of these, the best performers were Principal Emerging Bluechip, launched in November 2008 (timed wonderfully with a market bottom), which has given a return of 46% since inception and Religare Mid N Small Cap, launched in March 2008 (timed badly), which has still given a superb return of 13% since inception.

Unclear Strategy: Many mid-cap schemes don't buy just mid-cap stocks and stray from their objective. There are many examples of mid-cap schemes that have ended up investing in large-cap stocks. For example, Axis Mid-cap Fund has invested in Infosys and Petronet LNG; Birla Sun Life Mid-cap Fund has invested in stocks like GlaxoSmithKline Consumer, Cadila Healthcare and Cummins India; and BNP Paribas Mid-cap Fund has NTPC, Lupin and UltraTech Cement in its portfolio. Clearly, MFs are quick to stray from the investment objective when it suits them.

No Better: Have the best mid-cap schemes done significantly better than equity diversified schemes? We compared the performance of the mid-cap schemes with equity diversified schemes since 2002 when the first mid-cap scheme was launched. The top five equity diversified schemes have given the same returns as Sundaram and Birla Sun Life Mid-cap schemes, that is, between 30% and 36%. The top five equity diversified schemes giving a return in this range include Reliance Growth, HDFC Equity, Reliance Vision, DSP BlackRock Opportunities and HDFC Growth. The average return of these schemes from 2002-2011 is 32%. So why go for mid-cap schemes?

When you are getting the same returns with a diversified portfolio, why should you take the risk of investing in a mid-cap scheme which brings added risk? In other words, an equity diversified scheme allows an investor to diversify into several stocks and sectors for a nominal investment. This diversification allows investors to reduce the risk of one particular stock or sector, as well as has more potential for higher reward by offering a broader exposure to various stocks and sectors.

The key rationale for diversification is: "…so that a failure in or an economic slump affecting one of them will not be disastrous." In other words, don't put all your eggs in one basket. Secondly, equity diversified schemes are the oldest ones; so they have a reasonable track record to compare the performance before investing.

If you are hell-bent on buying a small- or mid-cap scheme, go for the ones which have a reasonable past record and have seen some major market swings at least. Both Sundaram and Birla Sun Life Mid-cap schemes have proven themselves well over different market cycles. Also remember, although not comparable with 1994, the economy faces a lot of headwinds now. So, any investment, even in these excellent schemes, must be through a systematic plan and not a lump-sum investment.

Source: http://www.moneylife.in/article/mid-cap-funds-come-with-tough-choices/19834.html

Dump old Ulips if charges, returns are not similar to mutual fund's

Ulips issued after September 1, 2010, are far more consumer-friendly than the older ones in terms of the overall charge structure and the limits up to which charges can be front-loaded. While the debate on whether it is a good idea to combine your insurance and investment needs continues, not much has been written on whether consumers who bought Ulips prior to September 1, 2010, should continue with the policies or stop paying premium on them or even surrender them.

Conventional wisdom is that if you have had the Ulip for three or more years, then you have already incurred the high upfront charges that were prevalent with the older Ulips. Therefore, it makes sense to continue with the plan since the charges in future will be reasonable.

Of course, the base assumption is that the returns on the funds will be equivalent to a comparable mutual fund, but the overall charge structure going forward will be lower than that of a mutual fund. Hence, as an investment option, it will make a lot of sense. This conventional wisdom, however, can be challenged on the following grounds:

Firstly, in case of Ulips issued prior to September 1, 2010, (when Insurance Regulatory and Development Authority, or Irda, first brought in the restrictions on the overall charges), there are quite a few Ulips whose continue are stiff even 4-5 years after the policy being issued. Now, that is not true in all the cases, but you should check your policy documents for details about the charges. A dead giveaway is if the fund management charges are in excess of 2% (for equity fund options) and the plan continues to have policy allocation charges and policy administration charges. This makes it relatively unattractive as an investment option, more so since the mutual fund industry has been required to drop fund management charges to around 1.75% to 2 % due to Securities and Exchange Board of India, or Sebi, regulations. Thus, the assumption that in future the charges on old Ulips will be lower than a comparable mutual fund may not necessarily hold true in the case of old Ulips.

Secondly, even the base assumption that the Ulip fund will earn a return comparable to an equivalent mutual fund may not be true in all the cases. So, you should check the returns for a three-year or a five-year period for the Ulip fund and compare it with how the benchmark index has returned over the same period as well as some of the top performing mutual funds in that category. Now, while a number of websites are available to check the returns of a specific mutual fund scheme (sites such valueresearchonline, moneycontrol and mutualfundsindia, etc) only a few websites, such as moneycontrol.com, provide details about the returns of Ulip schemes. Now, point-to-point 3- or 5-year return is not exactly the best way to check the relative performance of any fund scheme (whether Ulip or mutual fund), but if such return for any Ulip plan is starkly lower than its benchmark or the top-performing comparable mutual fund scheme, then clearly it cannot be a great long-term investment option.

Lastly for type II Ulips (where death benefit is the fund value plus the sum insured, and therefore mortality charges are payable for the entire duration of the policy) and type I Ulips (where death benefit is the higher of the sum insured or fund value) that have a large component of insurance (meaning that despite the build-up of funds over the last few years, there would still be mortality charges being deducted on account of the sum insured), the mortality charges would be quite high since these would have been fixed quite a few years ago and completely ignore the substantial drop in mortality charges in the past few years. In fact, quite a few Ulips ignore this drop in mortality charges for new plans also since mortality charges are not covered by the Irda guidelines.

In short, it may not pay to follow conventional wisdom as far as your old Ulips are concerned. Check the current charges to be sure that they are in line with a comparable mutual fund. Check their returns over the last three or five years in relation to the benchmark as well as a comparable mutual fund and also check on the mortality charges should it still be a relevant factor for your policy. If the policy is unfavorable on any parameter, it might be a good idea for you to surrender the policy after it acquires a surrender value at a reasonable surrender cost. Of course, make sure you have adequate term insurance before you surrender any insurance plan. If this sounds like too much work for you to do, just consult a financial planning professional firm to review all your existing insurance policies for you. The fee you pay for such advice will more than pay for itself in terms of the enhanced investment returns and appropriate insurance coverage.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/compare/dump-old-ulips-if-charges-returns-are-not-similar-to-mutual-funds/articleshow/10060510.cms?curpg=2

Global mutual funds put up a mixed show

Global mutual funds offered to Indian investors are touted as a tool to spread the risk of investment and to benefit from any upturn the global markets may witness when the Indian equity markets may be down. The great attraction of global funds is that they offer an opportunity to own, albeit indirectly through the MFs, great shares such as GE, Microsoft, JP Morgan, Wal-Mart etc., to name just a few.

With many of the global funds in India being commodity-related, particularly investing in gold and gold mining companies, the dream of owning international blue chips is not served by all. Except a few global funds now in India, others suffer from a very low corpus despite the fact that they have been in existence for a while now. Another factor to be borne in mind is that some of the most formidable players in the MF space – HDFC MF and Reliance MF – have stayed away from this product.

Of the 28 global funds, only three (as per Value Research data) have offered returns over one year period that are in double digits. While 10 others have shown sub-10 per cent returns over one year, 11 have offered negative returns during this period. Data relating to four other schemes were not available for the minimum one-year period since they have not completed one year since launch.

According to the data available with Value Research, the best returns offered by international funds over a three year (as on Sept 15) period was by AIG World Gold that gave a return of 33.83 per cent followed by DSPBR World Gold Regular that gave a yield of 28.85 per cent. The rest of the eight international funds that figured among the top 10 funds gave returns ranging from -0.48 per cent (HSBC Emerging Markets) to 9.47 per cent (by Franklin Asian Equity), by no means an impressive show.

But none of the Indian mutual funds figuring among the top 10 funds for a three-year period ending on Sept 16 (as per MutualFundsIndia.com, an ICRA affiliate, data) gave a return that was less than 20 per cent. The topper was the IDFC Small & Midcap Equity Fund (Growth) that has given a return of 28.11 per cent and DSPBR Micro Cap Fund-Regular (G) that was at the bottom (10th place) has given a return of 21.23 per cent.

Indian gold etfs

Even the Indian Gold ETFs (open ended) have given stellar returns over a one year and three year period to beat their international counterparts. But the best return by a global gold-related fund over a one year period was by AIG World Gold with a yield of 19.12 per cent (as on Sept 15) and the next best was DSPBR World Gold Regular that offered a yield of 16.33 per cent (as on Sept 16, as per Value Research). In fact it was the global gold funds and not global equity funds that are among the toppers among global funds during this period! This is reflected in the performance of diversified Indian equity funds over one year as well with most of them in the red, confirming the volatility the markets have been witnessing for a year now.

Apart from the performance of the funds, other issues that investors should remember are the high expense ratio and the currency exchange rate risk. According to Value Research, of the 28 global funds open to Indian investors, 7 funds have an expense ratio of the maximum of 2.5 per cent and two others miss it by a fraction.

Expense ratio is what investors pay a fund in percentage terms every year for management of their investment including management fees, agent commission, fees to registrars and marketing expenses. This has a significant bearing when the fund size is large and the net return is impacted by the fee levied.

Source: http://www.thehindubusinessline.com/markets/stock-markets/article2468169.ece

Tata MF Launches Tata SIP Fund Series 3

Tata Mutual Fund has launched a new fund named as Tata SIP Fund Series 3, a 36 month close ended hybrid scheme. It is based on the well-known and widely understood Systematic Investment Plan concept with a convenient difference in the method of investing. The New Fund Offer (NFO) price for the scheme is Rs. 10 per unit. The new issue will be open for subscription from 20 September and will close on 30 September 2011.

Regular SIP plans normally offer investors the facility of postdated cheques or auto debit at time of investment. The Tata SIP Fund on the contrary, invites a lump sum subscription amount during the NFO which will initially be invested in debt and money market instruments. These funds will then be systematically transferred to equities over the close-ended period of 36 months.

Generally Systematic Investment Plans involve writing a number of cheques / payment instructions, storage of multiple account statements, accounting / recording of multiple transactions, computation of tax liability in respect of each installment etc. All these may cause administrative inconvenience to the investors. In Tata SIP Fund, an investor will be making a onetime investment in the fund. This will help investors to reduce the administrative inconvenience.

At the end of the 36 months, investors in the fund have the option of switching to Tata Pure Equity Fund.

Tata SIP Fund is suitable for those who do not wish to invest in equities in one go and for those who wish to cushion themselves against market volatility.

The Primary Investment Objective of the Scheme is to achieve a long term growth. The scheme seeks to achieve investment objective by investing systematically in the Equity /Equity related instruments.

Asset Allocation Pattern: In the first year, the scheme would allocate upto 35% of assets in equity and equity related instruments with high risk profile. On the other side it would allocate 65% to 100% of assets in debt, money market and securitized debt instruments with low to medium risk profile.

In the second year, the scheme would allocate 30% to 70% of assets in equity and equity related instruments with high risk profile. On the other side it would allocate 30% to 70% of assets in debt, money market and securitized debt instruments with low to medium risk profile.

In the third year, the scheme would allocate 65% to 100% of assets in equity and equity related instruments with high risk profile. On the other side it would allocate upto 35% of assets in debt, money market and securitized debt instruments with low to medium risk profile.

The scheme offers growth and dividend option.

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

The fund seeks to collect a minimum subscription (minimum target) amount of Rs. 1 crore under the scheme during the NFO period.

Entry and exit load charge for the scheme will be nil.

The benchmark for the schemes would be taken as the combined value of Crisil Liquid Fund Index and BSE Sensex based on the proportionate weightage of equity and debt in scheme's portfolio

Bhupinder Sethi and Mr. Murthy Nagarajan will be the Fund Managers for the scheme.

Source: http://www.indiainfoline.com/Markets/News/Tata-MF-Launches-Tata-SIP-Fund-Series-3/3941609133

Tuesday, September 20, 2011

Equity funds are better placed to outperform markets

By and large, equity mutual funds outperform the stock markets. Surprisingly, this is a controversial statement. That's because some people firmly believe, based on imported studies , that mutual funds don't actually do so. However, in India, this has always been true.

On the face of it, there can be two possible reasons for this. Either the Indian fund managers are very good, or the Indian markets are very easy to beat. The truth, as always, is probably a mix of the two. First, the numbers. Value Research has just done a study of the historical outperformance of the Indian equity funds, compared to the stock markets. By 'stock markets', I mean the large-cap indices like the Nifty and the Sensex.

Of course, each fund has its own index and, technically, the fund manager's job is to beat that particular index . However, from a consumer perspective, it's beating the big indices that matter. We ignored funds that were either limited to particular sectors or themes, and we also ignored funds that were focused on mid-cap or small-cap companies. Only funds that were dominantly large-cap were included in the study.

Here are some of the interesting findings. One of the things we looked at was the five-year returns of such funds for all the five-year periods ending every year since 2002. In each of the five-year period, 71% of the funds, on an average, outperformed the Sensex. Interestingly, for 2002-2007 , the average was 81% and for 2008-2011 , it was 55%. It was in only one of the five-year periods, 2004-2009 , that only a minority of the funds (46%) could beat the Sensex.

However, when we dug in to see the story behind this decline , we found something very interesting. We looked at the annual numbers instead of the five-year ones. There are nine years of huge outperformance and one of severe under performance . In calendar year 2008, a mere 7% of the funds outperformed the Sensex. In the other nine years, the average was 89% and the minimum was 76%. That the story is so clear and the conclusions in data so sharply delineated are themselves the real conclusions.

The thing about funds' outperformance of the markets in India is that you don't have to dig very deep to find a rich lode. The issue is not the trend but what it means for investors. In a rapidly evolving economy (and stock market) like India's , there is a lot more churn of businesses than there is in the developed markets. Simultaneously, despite the sound and fury of a hyperactive market, there just don't appear to be enough investors who will quickly latch on to trends and smother them with a large volume of buying and selling.

There's so much happening all the time in terms of businesses changing, evolving, growing and simply participating in the enormous pockets of growth, that there's plenty of room to identify and exploit opportunities . Basically, there's a lot of money lying on the table. Well, may be not actually lying on the table but at least visible to a reasonably smart investment manager . And that's something that's been in reasonably good supply. However, there's another side to this story which some people believe in, that maybe the Indian indices are easy to beat.

At the end of the day, neither the Sensex nor the Nifty are designed as investment portfolios. Both the indices are based on a number of parameters . The Sensex apparently bends towards being representative while the Nifty has a more numerically driven criteria that is focused on liquidity , measured by low impact cost of trading. While the day may yet come when things change so much that index funds and ETFs become the logical choice, it probably won't be any time soon.

Source: http://economictimes.indiatimes.com/markets/analysis/equity-funds-are-better-placed-to-outperform-markets/articleshow/10036061.cms