Mutual Fund NEWS Group

Tuesday, July 13, 2010

IDFC India Consumption Fund files offer document with Sebi

IDFC Mutual Fund has filed an offer document with Securities and Exchange Board of India (SEBI) to launch IDFC India Consumption Fund, an open ended equity fund. The new fund offer (NFO) price for the scheme will be Rs 10 per unit.

The investment objective of the scheme is to generate capital appreciation by investments in a diversified portfolio of equity and equity related securities, which are likely to benefit by increasing consumption demand in India.

The scheme shall offer growth and dividend option. Reinvestment facility is also available under the dividend option

The scheme would allocate 65% to 100% of assets in equity & equity related securities. Atleast 95% of investments in equity and equity related securities shall be in companies engaged in consumption related sectors. It would further allocate upto 35% of assets in debt & money market instruments.

Entry load will be nil for the scheme. Exit load charge will be 1% if redeemed within 365 days from the date of allotment/investment.

Minimum application amount will be Rs 5000.

The minimum subscription (target) amount of Rs 1 crore is expected to be raised during the NFO period.

The scheme's performance will be benchmarked against BSE 200.

The fund manager of the scheme will be Mr. Kenneth Andrade.

Source: http://www.bloombergutv.com/stock-market/mutual-fund/commentary/407648/idfc-india-consumption-fund-files-offer-document-with-sebi.html

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'I made my money by selling too soon.'

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Tata Mid Cap Fund declares dividend

Tata Mutual Fund has announced a dividend of 15% (Re 1.5/- on the face value of Rs10/- per unit) under the dividend option of Tata Mid Cap Fund. The record date for dividends has been fixed as July 16, 2010.

All unit holders registered under the dividend option of the scheme as on July 16, 2010 will be eligible for this dividend. The NAV of the Scheme as on July 9, 2010 under the dividend option was Rs. 16.793.

Tata Mid Cap Fund is an open-ended equity fund. The investment objective is to provide income distribution and / or medium to long term capital gains by investing predominantly in equity / equity related instruments of mid cap companies.

Source: http://www.moneycontrol.com/news/mf-news/tata-mid-cap-fund-declares-dividend_469432.html

Monday, July 12, 2010

Fund Flows into India hit highest levels in 11 weeks

Investors cheer arrival of monsoon, says EPFR Global.

Global flows into India hit their highest levels in 11 weeks, as investors responded to the arrival of monsoon in the country, according to EPFR Global. Overall, going into the second week of July, global equity markets were staging a modest recovery, as investors shrugged off fears of a double-dip recession and went bargain-hunting.

"In case of Asia ex-Japan equity funds, investors responded to the arrival of India's monsoon and also to the signing of an Economic Cooperation Framework Agreement by Taiwan and China, which could open doors for a $100-billion increase in cross-straits trade," said the latest release from EPFR Global. Flows into India hit their highest in 11 weeks, while Taiwan equity funds enjoyed their second-best week year-to-date, more than offsetting the modest outflows from China equity funds, it added.

Japan equity funds also posted outflows, the seventh time in the past nine weeks, as a dip in domestic capital spending, questions about the effect of the yen's appreciation on exports and uncertainty about the new administration's economic policy made investors cautious.

EPFR global-tracked bond funds absorbed $3.64 billion and money market funds another $33.5 billion (a 78-week high), while equity funds posted combined net redemptions of $11.25 billion.

Meanwhile, two of the four major EPFR global-tracked emerging markets fund groups managed to post inflows during the week ended July 7, with GEM equity funds taking in $517 million and Asia ex-Japan equity funds $124 million, while EMEA (Emerging Europe, Middle-east and Africa) and Latin America Funds recorded modest outflows.

Redemptions from Latin America equity funds, which have recorded 13 consecutive weeks of outflows, were driven by concerns that the region's second-largest economy, Mexico, might stumble due to a faltering US recovery.

Meanwhile, EMEA equity funds saw their modest three-week inflow streak getting snapped, as investors pulled more money out of funds with Russian and Emerging Europe mandates than they committed to ones with an African, Middle Eastern or Turkish focus. Africa regional funds absorbed fresh money for the 44th straight week.

However, worse-than-expected US labour and housing market data and fear of what stress tests of major European banks will reveal continued to weigh on the sentiment towards major developed markets.

Europe equity funds were the only major EPFR global-tracked developed markets equity funds to post inflows during the week, snapping a four-week outflow streak, as investors continued to shift from regional funds to ones investing in individual markets. The UK, Germany and France equity funds accounted for the lion's share of the $387 million flowed into this fund group.

Global equity funds kicked off July by recording outflows for the ninth time in 10 weeks. Pacific equity funds, the other major diversified developed markets fund group, suffered net redemptions for the third straight week.

The lure of gold and precious metals, as a hedge against uncertainty, helped commodity sector funds top the list of EPFR global-tracked sector funds once again, with investors committing $419 million to this fund group in early July, helping the year-to-date inflows to cross the $11-billion mark.

The defensively-perceived consumer goods sector funds were the second-biggest absorbers of fresh money, pulling in $226 million.

Most other sector fund groups, however, posted outflows. Real estate sector funds surrendered over $500 million, as commercial and residential sales in the US struggled to overcome the drag caused by high unemployment and unwinding of key stimulus measures. Technology sector funds saw year-to-date flows sink into the negative territory on concerns over demand in the second half of CY10, while regulatory uncertainties kept financial sector funds under pressure.

Source: http://www.business-standard.com/india/news/fund-flows-into-india-hit-highest-levels-in-11-weeks/401021/

Sebi wants MFs to charge single levy

Fund houses may soon have to stop charging variable fees, a move that could benefit retail investors

The Securities and Exchange Board of India, or Sebi, is set to ban asset management companies (AMCs) from launching multiple investment plans catering separately to different classes of investors under a single scheme, in a move that could alter the country's investment landscape.

A Sebi official, who did not want to be named as he's not authorized to talk to the media, toldMint that the regulator will not allow any AMC to launch such multiple plans under one fund going forward, to ensure that fund houses give up the practice of levying different expense structures for different categories of investors.

Liquid funds and liquid-plus funds (later renamed ultra short-term funds) typically have separate plans under single schemes. The charges are different under different plans, though the portfolio under the scheme remains the same.

The move may administer another shock to the Rs6.75 trillion mutual fund industry, already reeling from the ban on entry loads imposed in August. Nearly Rs3.5 trillion, or 50% of the industry's assets, are managed under liquid and liquid-plus schemes.

"Sebi wants AMCs to stop launching different plans with non-uniform expense structures under a single scheme," the official said. "Single-plan schemes with single expense structures are required to ensure that there is no discrimination between small and big investors."

Recently, the regulator sent letters to the AMCs, saying, "It is observed that some mutual fund schemes have different expense structures for different investor classes, e.g. retail/institutional/super-institutional plans, while there are other schemes that charge a single expense structure for the scheme. This practice has led to concerns of subsidization of one investor class by another and charging of different fees for managing the same portfolio of securities."

The letter adds, "In light of these concerns, we are in process of reviewing different expenses charged within the same scheme with same portfolio."

Experts said Sebi's move will hurt the profitability of fund houses, significantly impact the commissions of distributors, and may also disincentivize large institutional clients who have parked money across hundreds of liquid and liquid-plus schemes.

Liquid and liquid-plus schemes are those where the corpus is allocated in short-term papers and money market instruments such as certificates of deposit, commercial paper, pass-through certificates, and collateralized borrowing and lending obligations. Maturities range from overnight to 90 days, and give 3.75-5% returns. Institutional investors park money in such schemes to benefit from tax arbitrage.

Officials at three AMCs said that Sebi restrained them from launching separate plans under ultra short-term funds when they approached the regulator in recent months for filing offer documents.

"Sebi refused to approve multiple plans under a single scheme when we approached them with offer documents for a liquid fund and an ultra-short term fund. So, we've launched the liquid scheme with a single plan," said the official at one of the three AMCs. Officials at the other two AMCs said, "Sebi wants single plans with single expense structure under a given scheme."

All existing schemes with multiple plans will also be required to conform to the new norms, and do away with varying expense ratios.

According to the CEO of a foreign AMC, if fund houses are forced to launch single plans under single schemes, all class of investors will be required to pay the same expense ratio under a given scheme. "To have a single expense ratio structure, retail investors will be required to pay much lower than what they are paying now and large institutional investors will be required to pay higher than what they are paying now," he said on condition of anonymity.

If institutional investors are required to pay higher expenses, it may lead to huge outflows of institutional money parked in liquid and liquid-plus schemes. On the flip side, it may attract more retail investors as they will be paying lower expense fees.

With average maturities narrowing after 1 August when new valuation norms for debt funds come into force, a lower expense ratio will bode well for retail investors. Following Sebi's move, AMCs may hike the minimum investment for such schemes to avoid paying high distribution commission for small ticket-size plans. Also, exit loads may be imposed for ultra short-term funds to attract long-term money from the investors.

"Sebi wants us to bring more retail investors into such liquid and liquid-plus schemes. Lower expense ratio will ensure this," said the chief marketing officer at a domestic fund house. Most of the officials did not want to be identified as the matter involves the regulator and is sensitive.

Typically, AMCs launch liquid and liquid-plus schemes with three different plans—retail, institutional and super-institutional. While retail plans cater to the small investor who can invest as low as Rs5,000, institutional plans cater to large investors that can invest Rs50 lakh to Rs5 crore. Super-institutional plans cater to those who can invest over Rs5 crore.

These three plans have three different expense ratios, the charge that AMCs levy on investors, on an annual basis, for managing their money as well as other costs such as brokerage, fees paid to the fund's registrar and transfer agent (RTA), bank charges, custody charges, trustee fee, distributor charges, etc.

Sebi's concern is over the practice of charging retail investors more than large investors. While retail plans typically charge an expense ratio of 60-70 basis points (one basis point is one-hundredth of a percentage point) annually, the institutional plan levies a charge of only 40-50 bps. Investors in super-institutional plans pay only 25-30 bps.

Most of the liquid and liquid-plus or ultra short-term schemes have a large difference in the cost structures of retail and super-institutional plans. For instance, in the HSBC Ultra Short Term Bond Fund, the institutional-plus plan charges an expense ratio of 0.4%, as against 1.05% under scheme's institutional plan, and 1.3% under the retail plan.

Under all such schemes, only about 10 bps account for expenses against RTAs, bank charges, custody and trustee fees combined. The rest is shared between the AMC and its distributors, with most of the money going to the distributors.

The regulator may issue new norms banning multiple plans under a single scheme shortly after gathering feedback from the industry.

Source: http://www.livemint.com/2010/07/11224332/Sebi-wants-MFs-to-charge-singl.html

Saturday, July 10, 2010

MFs mull exit load on liquid plus schemes

With new valuation norms coming into effect from August 1, domestic fund houses are contemplating an exit load on early redemptions from liquid plus schemes.

The industry move is likely to shrink the corpus of liquid plus plans, which currently make up close to one-third of the industry's asset under management (AUM).

The Securities and Exchange Board of India (Sebi), in a circular, had said that to ensure that the value of the money market and debt securities in the portfolio of mutual fund schemes reflected the current market scenario, such instruments should be valued at the weighted average price at which they were traded on the particular valuation day.

The circular, released in February, was to be implemented on July 1, but was later postponed to August 1.

"The industry has started sending communications to clients, mainly corporate houses, regarding the exit load," said the managing director of a foreign mid-sized mutual fund house.

Although there is no unanimity so far on the level of the load, fund houses say it will depend on individual players. The industry would charge between 0.25 per cent to 0.5 per cent, said chief executive officers (CEOs) of fund houses Business Standard spoke to.

"We have no other choice," said a CEO. "This is nothing but a desperate measure the industry is taking to prevent outfows.

Implementing the load will help us in this unpredictable return scenario." "Fund houses which have more than one liquid plus schemes are trying to re-position them," said fund market insiders. However, fund houses fear that assets under liquid plus schemes will fall with this move. Corporate houses whose cash flow is predictable are likely to continue with these schemes while others are likely to shift to liquid or other short-term debt schemes, they say. Liquid plus schemes offer tax arbitrage. However, in liquid schemes, there were no tax incentives, said a chief investment officer of a mid-sized domestic fund house. Liquid plus schemes normally invest in securities of over 91 days whereas liquid funds invest in securities with tenures of less than 91 days.

Source: http://www.business-standard.com/india/news/mfs-mull-exit-loadliquid-plus-schemes/400815/

SBI Mutual Fund appoints Dharmendra Grover as Fund Manager

SBI Funds Management Pvt Ltd, the investment managers for SBI Mutual Fund, has appointed Dharmendra Grover as Fund Manager of SBI FMPL.

The funds that will be managed by him at SBI MF are Magnum MultiCap Fund, SBI Tax Advantage Fund-Series I, Magnum Investment NRI-FAP and Magnum Balanced Fund, a press release issued here said.

Grover brings with him a rich experience in the Indian equities market across equity research, fund management, corporate strategy and investor relations, the release said.

Source: http://economictimes.indiatimes.com/news/news-by-company/corporate-announcement/SBI-Mutual-Fund-appoints-Dharmendra-Grover-as-Fund-Manager/articleshow/6148626.cms

Friday, July 9, 2010

FDs can be hazardous for your wealth creation plan

Do you know of anyone who has become wealthy by leaving his or her money in the bank or a fixed deposit (FD)? If you want to create wealth and fulfill your financial goals over a long period of time, you must shun that pure conservative way of investment. A lot of people in India think that a savings account or an fixed deposit is the best home for money. According to a report, only 11 per cent of the household savings are channelised in our equity markets. Majority of the savings are still lying idle in our banks' savings accounts or probably earning a measly interest in a fixed deposit. Despite being among the best saving class in the world, we have not the smarted investors yet.

Much has been made of the so-called comparison between mutual funds and unit-linked insurance products (Ulips) in the recent past few months. Our opinion is that the public debate on these two investment options misses the bigger point.

The reality is that the bulk of the household savings for Indian families is tied up in bank accounts earning 3.5 per cent interest and in FDs — both of which are highly inefficient investment options for wealth creation.

Add to this the rising inflation that has touched double digit, and therefore, it becomes even more scarier that most of us still prefer to leave our money in a bank, rather than in instruments that give higher returns — be it equity mutual funds or ulips or probably direct investment in equity markets.

So the real debate should be whether families in their effort to create wealth are making a mistake in leaving their money in the bank while they should be penciling in on other investment instruments like mutual funds and ulips that offer a reasonable prospect of better long-term returns.

Mutual Funds v/s ULIPs - no big deal

Call it a turf war or clash of regulators, frankly in the long run it's not a big deal from the end customer's perspective. Whether its SEBI or IRDA, consumers should feel comfortable and secure that there is a regulator who is mandated to look after their interests.

Every investment instrument has pros and cons. We challenge you to find one that is perfect. So, there will always be promoters or detractors of both mutual funds and Ulips.

Objectively speaking, however, there is a better chance of you being able to meet your long-term financial goals through equity mutual funds and/or a Ulip than the default option for most Indians, which is to leave money in the bank.

Almost every one of us will have one of the following goals that will require a substantial amount of money in the future: funding our graduate education, marriage, house purchase, taking care of children's financial needs, funding their education and marriage, being adequately funded towards our own retirement.

Experience from all over the world has shown that our salaries are not enough to fund these goals. We need to invest into the capital markets, subject to our risk taking capacity, to take advantage of the compounding of capital, i.e., money that creates more money. No lesser authority than Albert Einstein remarked, "compounding is the eighth wonder of the world because it allows for the systematic accumulation of wealth".

The advantage of equity mutual funds and Ulips is that they are instruments that offer you a better rate of compounding for your capital than cash lying in the bank, and thereby provide a better chance of creating wealth in the long run.

Savings accounts and FD - bad dosage for financial health

Let's make ourselves clear. Savings accounts and FDs have a purpose and we cannot over generalise and make a blanket statement that they are bad instruments. However, when it comes to wealth creation they are not good instruments for you to invest through. We will show you why.

First of all, a savings account earns you a mere 3.5 per cent interest rate, a level that is fixed arbitrarily. Similarly, a fixed deposit contractually fixes the rate of return at the start date of your deposit, and you cannot earn more than what you signed up for, even if interest rates in the markets were to rise.

Compare this to a return that the equity market can earn you. History and experience of equity markets from around the world suggests that in the long-term equity markets are likely to "compound your capital" at approximately 12 per cent per annum. Compared to this, a 3.5 per cent savings account return just does not match up.

Secondly, savings accounts and FDs are highly tax inefficient. Any interest you earn through these will be taxable in your hands as income, and you will be liable to pay tax on this income.

Compare this to equity mutual funds and Ulips where at least for the time being until the new direct tax code is implemented you pay zero taxes on your gains if you hold these instruments for the long-term. And, if you invest into an equity linked savings scheme of mutual funds, you might find this an even more tax efficient investment than a regular mutual fund.

Finally, and perhaps most crucially, by leaving your money in a bank or an FD, you are losing the purchasing power of that money. Because you are earning a fixed return through these instruments, these instruments cannot offset the corrosive effect of inflation or rising prices within the economy.

If one's bank account returns only 3.5 per cent pre-tax, but the level of prices is rising at 10 per cent, one doesn't have to be a mathematical genius to figure out that in the long run one's standard of living will suffer. You will hardly be able to create any wealth, because whatever returns you earn does not even help you keep pace with the rising prices in the economy, let alone give you a surplus that can earn you further returns.

If you are already wealthy then FDs might be a good wealth preservation instrument, but please don't use them to create wealth for yourself.

Don't sit idle, invest actively

Putting your money into a savings account of an fixed deposit is almost akin to sitting idle. India is going through an inflection, which is likely to last for a few decades, where the equity capital markets will be the best avenue for long-term investment and a good way to build an alternate and legitimate source of wealth. If you believe in India's economic growth potential, then move at least some of your money from your bank account into a higher yielding instrument to give yourself a fair chance to create long-term wealth.

Source: http://www.expressindia.com/latest-news/FDs-can-be-hazardous-for-your-wealth-creation-plan/642271/