Mutual Fund NEWS Group

Friday, November 4, 2011

Union KBC MF Unveils Equity Linked Savings Scheme

Union KBC Mutual Fund has unveiled a new fund named as Union KBC Tax Saver Scheme, an open ended Equity Linked Savings Scheme with lock in period of 3 Years. The New Fund Offer price is Rs 10 per unit. The new issue will open for subscription from 08 November and close on 9 December 2011.

Investment objective: To achieve long-term capital appreciation by investing substantially in a portfolio consisting of equity and equity related securities.

Options offered: The scheme offers growth and dividend option. The dividend option further offers re-investment and payout facility.

Benchmark: BSE 100 Index

Loads: Entry and Exit Load - NIL

Minimum Application Amount: Rs. 500 and in multiples of Rs. 500 thereafter.

Minimum Targeted Amount: Rs. 1 crore

Asset Allocation: The scheme would invest 80% to 100% in equity and equity related instruments with medium to high risk profile. On the flip side it would allocate upto 20% of assets in debt and money market instruments with low to medium risk profile.

Fund Manager: Mr. Ashish Ranawade

Source: http://www.adityabirlamoney.com/news/514493/10/22,24/Mutual-Funds-Reports/Union-KBC-MF-Unveils-Equity-Linked-Savings-Scheme

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'I made my money by selling too soon.'

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

Blog:http://indianmutualfund.wordpress.com/
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Thursday, November 3, 2011

SEBI asks fund houses to display agent fees on websites

Market regulator Sebi has asked fund houses to publicly display the commission they pay distributors for selling mutual funds, a move aimed at bringing in transparency in fee structure. The regulator has asked asset management companies to disclose commission paid to distributors between April 1, 2010 and March 31, 2011, on or before November 10, according to a circular issued to fund houses.

The information has to be published on the portal of the industry body Association of Mutual Funds in India and on websites of respective fund houses, Amfi sources said. Also, the circular has made special reference to 529 large distributors, who collect more than a crore of rupees as commission per annum. Industry sources said these distributors will be scrutinised more closely by the regulator as they handle large business volumes.

The move is already drawing flak from the distributor community, which is battling a fall in investor turnout and low distributor commissions. While large-sized distributors are sulking at the move, independent financial advisors are terrified at the thought of disclosing their income. "It'll be like exhibiting our salary account for the world to see," said a Mumbai-based independent financial advisor, who did not want to be named.

Industry experts said independent financial advisors, who have small operational set-ups, could be badly hit by the move. "I am not against transparency in fund industry, I am also fine disclosing commissions that I receive from fund houses. The problem lies in displaying it for the world to see," said Gaurav Mashruwala, a Mumbai-based independent financial advisor.

"It is principally not right to disclose one's earnings on public websites. Such a move is not going to help investors in any manner," he said. Fund commissions have fallen significantly after ban on entry load in August 2009. Distributors earn 0.75-1.50% as upfront commission and 0.5-0.75% as annual trail fees while selling equity funds.

"We're just recovering from the load ban...The move to display commission rates will only worsen our case," a Mumbai-based fund distributor said.

Source: http://economictimes.indiatimes.com/markets/regulation/sebi-asks-fund-houses-to-display-agent-fees-on-websites/articleshow/10588713.cms

Decoding savings rate deregulation and how it impacts liquid funds

The Reserve Bank of India (RBI) in its second quarter monetary policy review deregulated savings bank rates with immediate effect.

A savings deposit is a hybrid product which combines the features of a current account and a term deposit account. A current account is mainly maintained by business houses whereas a savings account is used mostly by individuals.

The amount maintained under a current account normally does not provide any rate of interest whereas interest is paid for asavings account. The overall interest rate scenario has changed drastically in the last two decades, but the interest rate on saving accounts has been changed only thrice since 1978.Let's take a look at the pros and cons of interest rates deregulation.

Advantages

To increase the share of savings account in total deposit: The savings rate was fixed at 3.50% from March 2003 to May 2011.

However, during the period, the RBI changed both repo and reverse repo rates many times but the same was not reflected in the interest rates that the normal household gets. There was a huge gap between savings and term depositrates and, hence, the ratio of savings deposit in total deposit fluctuated, mainly in rural areas. The deregulation would make such accounts more attractive in rural areas.

RBI policies would become more effective: As savings accounts constitute around 22% of the total bank deposits, it provides a source of low-cost fund to banks. Even when the reporate was hovering around 8.25%, the savings rate was fixed at 4% before deregulation.

After deregulation, it is expected that savings rate would move in tandem with the RBI monetary policy, thus, making the policy more effective.

Competition: Most banks would want to maximise their CASA ratio as it provides funds at low cost. Before deregulation there was hardly any competition in this segment. But after deregulation, it is expected that banks would try to lure customers by offering higher interest rates along with other innovations and flexibility to get as many accounts as possible.

Disadvantages
It might lead to asset-liability mismatches: As all banks offered similar rate of interest before deregulation, there was no incentive for customer to shift their savings from one bank to another and, hence, banks used such deposit to finance long-term loans. But, when the banks are free to set their own interest rates, it can wisely be assumed that banks with lower CASA ratio would offer attractive rate of interest to consumers, thus, leading to asset-liability mismatches.

Could impact small households: When interest rates are deregulated, it could be on the downside as well. Banks would not be in a position to compensate savers properly if there is enough liquidity in the system. This would impact small savers and pensioners who depend only on savings rate interest for their livelihood.

Unhealthy competition and systematic risk: Saving deposits offers low cost of funds and, hence, are very attractive for banks. To lure customers, each bank would try to offer higher rate of interest, thus, impacting their net interest margin. It would result in higher cost of funds for the bank which would ultimately be passed on to the borrower, leading to higher cost of borrowing. Deregulation of interest rates has its own pros and cons and it would be interesting to see what strategy banks adopt. It is expected that in a higher interest rate scenario they would be forced to provide much higher returns.

Impact on liquid funds
Liquid funds are mutual funds that primarily invest in debt securities and offer higher post-tax returns as compared to savings deposits. They normally invest in commercial papers, certificate of deposits and treasury bills of maturities less than 91 days. Their mandate is to optimise returns while preserving capital.

But with deregulation of interest rates in savings accounts, some investors might move their funds towards these as it offers higher liquidity and safety of the principal amount. The overall corpus might be impacted by reduced difference between yields of both options.

However, liquid funds yield better returns if we take tax rate into account. It also provides a dividend option where only dividend distribution taxis deducted by fund houses before distribution. With deregulation, this category of mutual fund will definitely offer more innovation. Thus, one must spread his savings across liquid funds and savings account to get the benefit of both

While savings deposits are easier to access and offer some degree ofprotection, higher yield combined with liquidity and taxation benefits make liquid funds attractive.

Source: http://www.dnaindia.com/money/report_decoding-savings-rate-deregulation-and-how-it-impacts-liquid-funds_1606196

Wednesday, November 2, 2011

Low-cost funds will become more popular, says Morning Star CEO Joe Mansueto

Indian mutual funds need to do away with charging double fees like funds in the US do, if they want to grow and give higher returns for investors, says Joe Mansueto, founder CEO of Morning Star, world's largest data provider for the fund industry.

Mansueto believes that Indian mutual fund houses will reduce expense ratios overtime. "Increased competition and pressure from intermediaries to reduce costs will prompt fund houses to lower charges even further," he said.

Expense ratio, in layman's terms, is the percentage of fees paid by an investor to the mutual fund company to manage and operate the fund. Indian mutual funds charge about 1.5-2.5% as expense ratio while managing equity-diversified funds.

Even in the case of ETFs and index funds, which mirror an index and are passively managed, Indian fund houses charge 0.50-0.90% as expense charges. In developed countries, fund houses charge just about 0.75-1.5% while managing active equity funds. According to fund distributors, ETFs are managed at fees as low as 0.10-0.30%.

Indian investors will realise the importance of investing in low-cost funds as they graduate to higher and more sophisticated investment products, Mansueto said. "Expense charges will be a criterion as important as performance. Low-cost funds will become more popular in the years to come. Low-cost funds, like Vanguard, pulled the expense ratio in the US; the same will happen in India," he added.

Investor education is the best way to popularise mutual funds in India, Mansueto said. MF investments continue to be low across both retail and institutional segments. The AUM of Indian MFs as a percentage of GDP is still in singledigits compared to 76% in the US and 41% in Brazil. Household penetration of Indian funds is around 3-4%. Among households, where funds have reached, top eight cities account for 75% of retail AUM.

"Penetration will gain traction in the years to come... Fund houses will be forced to play scale; they'll be able to do it by going to smaller cities," Mansueto said. "Indian investors will stop taking direct exposure to equities in future. The need for diversification, better research, low-asset management charges will force them to invest in markets through funds," he added.

One major trend that is evolving in the fund management industry, according to Mansueto, is that investors are opting for shorter investment horizons. And this trend is not restricted to investors alone. Even fund managers are resorting to frequent portfolios churning, he said.

"In the 80s, there were funds that never turned over stocks even once in a year. Portfolio churning is gaining in proportions now - and this is where even in developed markets like the US," Mansueto said. The need to generate higher gains is prompting fund managers to rely on momentum and churn portfolios, he said. "The dependence on technical analysis over fundamental analysts reminds of what Warren Buffet said.

It's very much comparable to an astronomer who has put aside laws of physics and is now trying to find answers in astrology," Mansueto added. Morningstar also has an advisory business which recommends funds to institutions. The group is a big fan of equities and within equities smallcap companies.

"We've analysed data dating back to a century. Over a long term, stocks outperform bonds and bonds outperform cash. With equities, small-cap outperforms large companies and value outperforms growth companies," Mansueto said, adding, "There could be a tactical tilt to portfolios. But overall, we're overweight on small-cap equities," he added.

Source: http://economictimes.indiatimes.com/markets/analysis/low-cost-funds-will-become-more-popular-says-morning-star-ceo-joe-mansueto/articleshow/10575576.cms

Various Fund Houses announces the Deduction of Transaction Charge from Subscription Amount for Purchase through Agents.

With effect from 1 November 2011

Accordance with the SEBI circular dated 22 August 2011 various fund houses like AIG Mutual fund, Principal Pnb Mutual Fund, Goldman Sachs Mutual Fund, JM Financial Mutual Fund, J.P Morgan Mutual Fund, Bharti AXA Mutual Fund and L&T Mutual Fund, UTI Mutual Fund, SBI Mutual Fund, Franklin Templeton Mutual Fund and others has announced that with effect from 1 November 2011, it shall deduct the transaction charges on purchase / subscription received from first time mutual fund investors and investor other than first time mutual fund investors through the distributor / agent. The charges are as under:

1) First Time Mutual Fund Investor (across Mutual Funds): Transaction charges of Rs. 150/- for subscription of Rs. 10,000 and above will be deducted from the subscription amount and paid to the distributor / agent of the investor and the balance shall be invested.

2) Investor other than First Time Mutual Fund Investor: Transaction charge of Rs. 100/- per subscription of Rs. 10,000 and above will be deducted from the subscription amount and paid to the distributor / agent of the investor and the balance shall be invested.

However, transaction charges in case of investments through Systematic Investment Plan (SIP) shall be deducted only if the total commitment (i.e. amount per SIP installment x No. of installments) amounts to Rs. 10,000/- or more. The transaction charges shall be deducted in 3 or 4 installments.

3) Transaction charges shall not be deducted / applicable for:

a) purchase / subscriptions for an amount less than Rs. 10,000/-
b) transaction other than purchases / subscriptions relating to new inflows such as Switch/Systematic Transfer Plan (STP) / Dividend Transfer Plan (DTP), etc;
c) transactions carried out through the stock exchange platforms.

Source: http://www.indiainfoline.com/Markets/News/Various-Fund-Houses-announces-the-Deduction-of-Transaction-Charge-from-Subscription-Amount-for-Purchase-through-Agents/3996483645

Small, mid-cap mutual funds outperform in Q2: Crisil

Small and mid-cap equity mutual funds outperformed other equity funds for the second consecutive quarter ended September 2011 as per the Crisil Research. According the agency's mutual fund rankings, the same trend was observed in the previous quarter as well.

Global issues coupled with domestic worries like high inflation and rising interest rates took a toll on the performance of indices this year. The S&P CNX Nifty and S&P CNX 500 indices delivered negative returns of 12.47% and 12.04%, respectively, in the quarter under review.

They posted the lowest quarterly returns over the last eight quarters. However, mutual funds performed better with large cap, diversified and small and mid cap equity funds outperforming both the indices.

The rankings said that small and mid cap funds fared relatively better with a negative 6.83% return as compared to negative 10.48% by large cap funds and negative 10.01% by diversified funds in the quarter ended September 2011.

A key reason for equity funds outperforming the benchmark indices has been the decrease in equity exposure."Given the current uncertain environment, the average equity holding of equity funds has gone down from 95% as on September 30, 2010 to almost 93% as on September 30, 2011.

Crisil Fund Rank 1 equity funds have been more proactive and have reduced their equity exposure from 96% to 92% during the same period," said Jiju Vidyadharan, Head – Funds & Fixed Income Research of Crisil.

Source: http://business-standard.com/india/news/small-mid-cap-mutual-funds-outperform-in-q2-crisil/150047/on

Tuesday, November 1, 2011

You can hold mutual fund units in the d-mat form

You can now hold your mutual fund units in a d-mat form, in the same way you hold your shares. The benefit of this is that it will enable you to get a single consolidated statement for your holding across shares and mutual funds.

You can buy mutual funds through the stock exchange on either the National Stock Exchange ( NSE) or Bombay Stock Exchange ( BSE). To start with, you need to register with your existing stock broker by filling up a two-page form as mandated by the regulator. Once that is done, mutual fund units can be bought through your broker the way you buy and sell shares. Once you buy them, you can hold them in your demat account in the same way you hold your shares.

You can also redeem your mutual fund units the way you sell stocks - by placing an order through the stock exchange platform. Subsequently, you can submit the delivery instruction slip to your depository participant (DP) to transfer the mutual fund units, the same way you submit it for shares.

However, buying mutual funds through the stock exchange has its flaws. Firstly, your broker could charge you a fee for buying mutual funds, and, secondly, you will have to pay an annual fee for maintaining your depository account and charges for every transaction that you do.

If you are currently holding mutual fund units in the physical form, which are represented by statement of account, you can convert this statement of account into the dematerialised form.

For converting these units, you can get a conversion request form (CRF) from your depository participant (DP) and submit it along with the statement of account to your DP. After due verification, the DP would send the CRF and statement of account to the asset management company (AMC)/registrar and transfer agent (RTA). The AMC/RTA, after due verification, will confirm the conversion request executed by the DP and the mutual fund units will be credited to your demat account.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/analysis/you-can-hold-mutual-fund-units-in-the-demat-form/articleshow/10562040.cms