Did you know? | Overseas Investments by resident Individuals

When constructing a portfolio, most investors think of diversification across assets to spread the risk. Another way to do this is to diversify across geography and the Reserve Bank of India's (RBI) Liberalised Remittance Scheme allows Indian investors to invest abroad.

How much can you invest?

If you are an Indian resident, you can remit or make purchases overseas up to $200,000 (Rs. 89.20 lakh) every financial year. You are not required to repatriate any earnings generated out of investments even if it takes your total investment limit above $200,000. In other words, only the principal you invest is subject to this limit.

The limit is in addition to any amount that you may have carried overseas while travelling, or for studies and medical treatment, but it includes any amount sent overseas as a gift or donation.

There is no limit on the frequency of transactions.

Where can you invest

You can buy and hold immovable property, shares or fixed-income instruments outside India without RBI's prior approval. You can also invest in mutual fund units and exchange-traded funds.

Where you can't

What is not permitted is buying and selling of foreign currency convertible bonds issued by Indian companies and foreign exchange trading. The regulation does not allow margin trades; you can buy securities only if there is enough money in your trading account. So you can't trade in futures and options or short sell a security.

Other limitations

Under this scheme, you can't invest in Bhutan, Nepal, Mauritius or Pakistan. You also can't make remittances directly or indirectly to countries identified, from time to time, by the Financial Action Task Force as "non co-operative countries and territories".

Investing process

Individuals can open and maintain foreign currency accounts with banks outside India for carrying out transactions; you can even link them to your overseas trading account. Your broker can help open the trading account. You start with completing your know-your-client formalities and fill up an account opening form for an overseas trading account. Your broker will then contact the overseas broker partner along with your documentation. The foreign partner will then send account details where the money needs to be sent.

Money is usually sent through a wire transfer, which takes about three-four days. So ensure you have sufficient money in your account if you are investing in markets abroad.

Source: http://www.livemint.com/2011/07/13211449/Did-you-know--Overseas-Inves.html?h=B

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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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The right equity mutual fund

The process of selecting mutual funds has been skewed towards evaluating the historical performance of the scheme, assuming that past performance will be replicated in future results. This is a common approach among investors when it comes to making investments.

This approach does not hold good in the current environment given the multitude of inter-linked global and domestic factors influencing stock performance. The first step for any investor is to decide on the objective of the investment in terms of returns expected and the time at hand. Once this is determined, one needs to gauge the risk taking appetite since investments in stock markets and therefore equity funds may go through ups and downs in the short term. Having worked out one's own investment goals, choosing a scheme becomes a relatively easy task. Here are some parameters that can help you decide on your mutual fund investment in a more scientific manner:

Investment Objective

Like your own investment objective, every fund has an investment mandate or boundaries within which the fund manager can create his portfolio. One needs to ensure that the two objectives are aligned. Suppose one is not comfortable with having a volatile portfolio from the returns objective. It will then be prudent to avoid a small-cap fund that tends to be volatile in the short to medium term.

Portfolio composition

There is also a need to consider one's current portfolio to ensure that it is well-diversified to shield from any downfall if the underlying sector/ category (that the fund is invested in) were to undergo a correction suddenly. As such, if your portfolio is skewed towards thematic or sector funds such as IT, pharmaceuticals etc. one should consider adding diversified funds.

Risk-adjusted returns

Historical data gives an indication of the fund manager's ability to deliver additional risk-adjusted returns compared to the benchmark. This indicates risk taken to generate extra return. When you align this parameter with your risk taking ability, it gives you a clear idea whether or not to pursue such investments.

Track record

When it comes to new funds on offer, one cannot analyse the past performance of the scheme. In such instances, you should look at the performance of other funds managed by the asset manager to get a sense of his/her credentials. Even in case of an existing fund, it pays to follow this approach to avoid performance aberrations wherein only a single scheme is doing well in the recent past, thereby reducing the probability of consistent performance.

Fund Corpus

Most investors focus on large corpus funds and think that the large size is an advantage. This is not always the case, and large funds may sometimes be a disadvantage. Consider this example: a large sized mid-cap fund would find it difficult to sell a stock of a small company since there may not be enough liquidity in the market. Similarly, such a fund placing an order for a mid-size stock with limited liquidity will find it difficult as compared to a relatively smaller size fund.

Fund Ratings

Among the recent developments in mutual fund evaluation is the availability of comprehensive fund performance ratings wherein reputed agencies (domestic and international) conduct a comprehensive performance analysis of funds on critical parameters like risk adjusted returns, portfolio composition, asset concentration, liquidity etc. The agency then assigns a specific rating (e.g. 5 star for high performing funds to 1 for poor performing funds). One can look at ratings conducted by agencies like CRISIL, Value Research, Morningstar, Lipper, ICRA.

Source: http://www.indianexpress.com/news/the-right-equity-mutual-fund/815593/0

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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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Real estate PE funds not for retail investors

If you had invested in one of builder projects in Greater Noida that are in a jeopardy after the Supreme Court judgement establishing the farmers' rights on the disputed land, your entire money may be at risk. Real estate funds are vehicles that give you exposure to the sector without the risk of one property going bad.

In the absence of real estate investment trusts (Reits) or real estate mutual funds (REMF), what we have in this space is privately sold products, known as real estate private equity (PE) funds, that are not listed on any exchange.

But in the absence of a physical property, will you be comfortable investing in these? While the price of your property may increase the next year itself, investments in a private equity fund may not give any returns in the first two years. And that's why these are not meant for everybody. These are meant for high networth individuals (HNIs) who want to enter the real estate market but are not willing to go through the regular buying-selling process.

We tell you what these funds are and given the absence of data and regulation in the sector, whether it makes sense to invest in them.

What are these

To start with, let's differentiate these funds with Reits and REMFs. Reits, a popular form of investment in developed markets, are listed on stock exchanges and are governed by transparent norms. REMFs, on the other hand, own commercial properties and make gains by renting our or selling their holdings; they work like mutual funds and share profits with investors. Both are not available in India at present.

Real estate PE funds are different. These funds invest in real estate projects by tying up with the developer, wherein the developer sells a portion of the project to the fund. Some funds tie up with companies also.

Most funds operating in India have a lock-in period of three to seven years. At the end of this period, the fund exits the holding by selling it in the secondary market. If the investment is in a commercial property, the fund may rent it out within the lock-in period and exit later.

Most funds invest in residential projects and those commercial projects that are nearing completion. While residential projects move faster in the market, there is a rental yield attached to commercial projects. Says Sanjeev Dasgupta, president (real estate), ICICI Venture Funds Management Co. Ltd, "Because of the improved demand for housing and low capital requirement, these funds are now focusing on residential and income-generating commercial projects." A few funds invest in projects that are still in the initial stages of construction, based on saleability and track record.

Options in the market: There are enough options available. According to data from VCCEdge, the financial research platform of VCCircle, the Indian market has 44 domestic real estate PE funds in total having a collective size of $11,226.8 million (Rs. 49,813 crore). Since June 2010, these funds have invested around $717.95 million across the country.

Recently, ICICI Venture Funds Management Co. Ltd, a subsidiary of the ICICI Group, announced that it will raise up to Rs. 1,000 crore to launch its second real estate focused fund in the country.

Whom they are meant for

As mentioned earlier, these are primarily meant for HNIs. Though the ticket size has come down a bit, it's still not for the retail investor. You should have at least Rs. 10 lakh to enter this product.

"Buoyed by high returns for earlier exits in the past, fund houses have started offering smaller minimum capital limit for retail investors and not just HNIs," says Ujwala Rao, head (West India capital markets), Jones Lang LaSalle India (JLL India), a property consultant firm. For example, the minimum investment in a new fund managed by Milestone Capital Advisors Pvt. Ltd is Rs. 10 lakh. The fund house has invested in projects in Mumbai, Chennai and Noida, among others.

The returns

It is difficult to put a clear number on the returns since real estate PE funds are non-transparent. There is no data to fall back on and returns are not guaranteed.

Says Sanjeev Dasgupta, president (real estate), ICICI Venture Funds Management Co. Ltd, "Regular returns from an early stage and lower downside risk has enabled yield-based funds (real estate PE funds) to generate interest among HNIs. Most funds promise a return between 23% and 25%."

At the time of investing, the manager will give you an estimated return figure, but that may not be exactly what you get at the end of the lock-in.

The costs

In the absence of clear regulation, there is no fixed fee that all funds charge. Usually, there is a one-time entry fee of 2% of the investment amount. "In some funds there is an entry fee or the set-up fee. For some others there are no such charges. However, there is an annual maintenance fee of 2%. In rare cases this is slightly higher than 2%," says Rao. For example, the entry fee for the fund from Milestone Capital is around 2.5% of the total investment. But some funds give certain discounts depending on the investment size. In some large-ticket deals of at least Rs. 1 crore, the fund house may waive off the set-up fee or reduce the annual charges.

Then there is a performance fee that you have to pay by sharing your profit with the manager; this is usually a predetermined number. This is linked to the fund's hurdle rate, which is usually 10-12%. Only if your money gives a return higher than the hurdle rate, the manager would share the profit.

The performance

In the recent past, some domestic funds have given annualized returns of 20-25%, according to JLL India. According to data available with them, Kotak Realty Fund and Indiareit Fund have exited some of the projects. Exit would mean the fund made gains; these gains get transferred to the investor. Currently, Indiareit has four funds in the country and Kotak has three.

HDFC Property Ventures, the real estate fund of India's largest mortgage finance company, has also started exiting a part of its investment portfolio, says JLL India. South-based real estate firm Nitesh Estates has bought back the fund's stake in a retail project in Bangalore. "Compared with international (real estate PE) funds that are operating in India, domestic funds have done well because they were not bound by the rule meant for foreign direct investment (FDI). So they had the advantage of investing in projects of different scales with different completion time," says Rao. Those bound with FDI policy cannot invest in projects that have area less than 50,000 sq. ft and also need an Indian partner.

The risks

Though domestic real estate PE funds in India are registered with the Securities and Exchange Board of India, there is no clear regulation on the disclosures. So the manager may promise you return but can't make a commitment. "Because of the absence of any definition on the operation of the real estate fund and its structure in India most do not commit or guarantee any fixed returns. Some may give you a lump sum at the end of your lock-in-period; some others may give you annualized return," says Om Chaudhary, chief executive officer, FIRE Capital Fund Pvt. Ltd, an India-focused real estate fund.

Then there aren't any regular returns as such. Until the fund sells its holdings, there is no gain to be passed on. "You will generally not get any return in the first year of the investment because it takes two-three years to complete a real estate project," says Chaudhary.

While you can sell your property next year, selling your share of investment in a fund may not be that easy. "You can only sell your papers in the secondary market to another person," says a sales head of a well-known real estate fund on condition of anonymity. The firm closed its first fund in 2009.

Source: http://www.livemint.com/2011/07/11211300/Real-estate-PE-funds-not-for-r.html?h=B

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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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What to do when interest rates rise

High inflation is not news anymore. Petrol prices in Mumbai increased 23% to Rs. 68 a litre in the past year, one dozen eggs now cost Rs. 42, up from Rs. 34 a few months ago, the list can go on. An inflation of around 9% and policy rate (repo) at 7.5% means we are living in times of negative real interest rate—money is buying less and it's time to maximize what it earns.

But it's easier said than done. Equity markets are volatile and have fallen 7.77% year-to-date; gold prices declined 1.13% last month. But there's still another opportunity. Rising inflation also means rising interest rates, making fixed-return instruments attractive. Your choice should depend on your investment horizon and the risk-return balance. Here's what you can look for over various horizons.

Up to six months

Over such a short time period, the focus needs to be on liquidity. But that doesn't mean you stick to your bank account giving 4%. High policy rates have impacted short-term rates the most. Liquid funds, which typically have average maturity up to three months, were offering close to 5% about six months ago; their returns are up at 8.5-9% per annum currently. The average maturity of a fund tells us the maturity profile of the securities that are part of the fund. For example, a fund with an average maturity of three months will mostly have securities that mature within the same time. Ensure your investment horizon matches with that of the fund.

Ultra short-term funds also serve liquidity requirements; you have the option to move money in and out without compromising on the returns. These are currently giving pre-tax returns of 8.5-9.5% per annum compared with 5.25% in December 2010. Some funds may have a load for exiting within 7-15 days, so check before investing. Ultra short-term funds have a significant tax advantage over liquid funds.

In both cases, go for the dividend reinvestment option that makes returns tax-free in your hands. However, there's a dividend distribution tax (DDT) that gets deducted at source by the asset management company. In liquid funds, DDT for individuals is 25% and in ultra short-term funds 12.5%. This is subject to a 5% surcharge and 3% cess, bringing the effective tax rate to 27.037% for liquid funds and 13.519% for ultra short-term funds.

Six to 12 months

Here, you would typically want a combination of liquidity and returns.

Some short-term income funds come with slightly higher average maturity periods of three-six months or more, and give higher returns. Their current annualized returns are around 9-11% (however, this can change in a matter of weeks); in December 2010, the rate was around 5%. Here, returns track current yields on short-term securities, which depend on policy rates and the economic environment. These funds, typically, charge an exit load before three-six months. They are ideal if you can leave money invested for six-12 months. To tide over credit risk concerns, choose a fund that is mostly invested in AAA equivalent securities even if it's giving lower returns than funds invested in low-rated securities. Portfolios published every month have information about the credit quality of holdings.

Says Mahendra Jajoo, chief investment officer (fixed income), Pramerica Asset Managers Pvt. Ltd, "High short-term rates are being reflected in returns of fixed maturity plans (FMPs) and short-term income funds. I continue to be optimistic on short-term rates, which I believe peaked in March. They will remain firm for the next few months as the Reserve Bank of India may hike policy rates by another 50-75 basis points this year."

One to two years

Fixed deposits (FD) and FMPs are suitable for investors looking at this term. FDs are offering 8.5-9.5% over one-two years and some private sector banks are offering as high as 10% per annum. This has increased from around 7-7.5% last year. Company deposits offer a slightly higher return of 10-11%. A one-year FMP, too, is giving between 10-11% annualized returns, though FMPs will neither indicate nor assure any returns.

Says Suresh Sadagopan, a Mumbai-based financial planner, "One-year FMPs are very attractive with post-tax returns of 8.5% or so. There is a possibility of slightly higher returns if policy rates continue to be tightened, but waiting for that is not efficient as you lose out on interest in the meantime and the upside from here is not so significant." For FMPs, the effective tax rate is 13.519%. FDs on the other hand are taxed at your marginal rate.

While bank FDs carry minimal risk, check the credit rating in case of company deposits and the portfolio of FMPs. Also remember that both FMPs and FDs are not liquid. Exit before the lock-in gets over will come at a cost.

Two to five years

If you can remain invested for the next few years, but don't want to take any risk, bonds and non-convertible debentures would work for you.

Bond issues are available in the primary market if the company comes up with a public issue. A recent primary market public issue by Shriram Transport Finance Pvt. Ltd offered a maximum return of 11.6% to retail investors. Earlier this year, State Bank of India had a retail bond issue giving 9.75% per annum.

Bonds are liquid since they can be traded in the secondary market. Bond prices have an inverse relation with interest rates and rise when rates are on their way down. But typically trading volumes are low, which means there is high liquidity risk in case you want to exit before maturity. If you are a long-term investor, hold till maturity. Says Jajoo, "Negative real interest rates are currently fuelling inflation. There is high uncertainty about long-term rates and hence high risk. Investing in bond funds for capital gains from falling interest rates is an aggressive stance today." The other option is three-five-year FDs, which are currently giving returns of 8.5-9.5% per annum, with private sector banks scoring better than government-owned sector banks. Company deposits, too, are available for three years, the returns are in the range of 8.5-11.5% per annum. Some finance companies offer 7-7.5% per annum.

When buying bonds or company deposits, look at the credit rating—a higher return is usually accompanied by higher credit risk or risk of default. Interest payout for both bonds and FDs are taxable at the marginal rate of tax.

Thanks to high policy rates, fixed-income investments across maturity periods are giving higher returns compared with last year. So make the most of it.

Source: http://www.livemint.com/2011/07/10214149/What-to-do-when-interest-rates.html

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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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Goldman Sachs radar tracks JM Financial MF

JM Financial Mutual Fund, promoted by Nimesh Kampani, is on the radar of the asset management arm of Goldman Sachs group, which managed $840 billion at the end of December 2010.

Goldman Sachs Asset Management is likely to be looking to buy an actively managed onshore mutual fund business in India, nearly four mo­nths after it bought Benchmark AMC, a provider of exchange traded funds. It is said that Goldman Sachs may have conducted due diligence on JM Financial MF, but it is not known if both parties have agreed on valuation.

"We have no comment to make to your query," Goldman Sachs spokeswoman Anisha Patel said, replying to a query whether the US fund house was conducting due diligence on JM Financial MF.

Prashant Khemka, MD & CEO of Goldman Sachs Asset Management (India), did not respond to an email seeking confirmation. Nimesh Kampani, chairman, JM Financial group, did not respond to a text message. However, a JM Financial spokesperson denied any selloff plan. "There is absolutely no truth in this. JM Financial remains committed to all its businesses," the spokesperson said.

Himanshu Srivastava, research analyst at Morningstar, said somebody with deep pockets like Goldman Sachs might prefer acquisition of an existing mutual fund company as it would take time and resources to build the business.

Also, the acquisition of Ben­chmark has given the US fund only an entry in ET­Fs. Benchmark had Rs 4,115 crore in AUM at the end of June. Besides, JM Financial MF has not been doing well lately and may prefer to exit at a good valuation. Its AUM has been slipping from Rs 8,853.15 crore in December 2009 to Rs 6,083 crore in March 2011 to Rs 5,849.76 crore in June. Its average AUM under equity schemes is just over Rs 800 crore and rest is under debt schemes.

It is not known how mu­ch Goldman Sachs wou­ld be willing to pay for JM Financial MF. It paid around 4.33-5 per cent of AUM, or ar­ound Rs 130 crore, when it bought Benchmark, accordi­ng to officials. Giv­en that JM Financial MF is mostly into debt schemes, the value may be much lo­wer than what it paid for Benchmark. L&T Finance paid only 1.56 per cent of AUM when it bought Cholamandalam DBS Finance MF.

In the past 2-3 years several firms have entered the Indian MF space, most of them via acquisitio­ns. The list includes Religa­re, which acquired Lotus MF; Daiwa, which bought Shinsei MF; L&T Finance, which pu­rchased Cholama­ndalam DBS Finance; T Ro­we Price, which picked 26 per cent stake in UTI MF and Japan's Nomura, which bought 35 per cent in LIC MF.

Goldman Sachs Asset Management received the Sebi's nod to set up its own mutual fund business in 2008. It has a team of eight people, headed by Kh­emka, in Mumbai. The team pro­vides research for offsh­ore funds, including on Indian equities and Bric equities.

At the time of Benchm­ark acquisition, Oliver Bo­l­itho, head of Goldman Sachs Asset Management Asia, had said that India was a strategic priority for the firm. He had said Goldman Sachs wo­uld bring onshore funds to India "building on the strong expertise that Prashant Khe­mka's team has established".

Srivastava of Morningstar pointed out that most overseas players when they entered Indian mutual fund business did it through either a joint venture with a local company or through an acquisition.

He said Indian mutual funds hold much promise. For the quarter ended June, the industry's average AUM rose by six per cent to Rs 7,43,000 crore from Rs 7,00,000 crore in the previous quarter.

JM Financial's Kampani was embroiled in a controversy over defaults in payments by Nagarjuna Finance, an NBFC, where he was an independent director. He fled to Dubai after his plea was rejected by the Supreme Court in April 2009. Kampani maintained that he quit from the board of Nagarjuna Finance in 1999, well before the Hyderabad-based company defaulted.

Kampani returned to Mumbai after the Andhra Pradesh high court stayed all further proceedings against him along with the lookout notice issued by Interpol in October 2009.

Source: http://www.mydigitalfc.com/mutual-funds/goldman-sachs-radar-tracks-jm-financial-mf-502

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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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Growth or dividend option? Let cash flow needs, tax outgo help you decide

While investing in mutual fund schemes, investors can choose from the dividend or growth option. When it comes to fixed income funds, both the options have certain advantages. But there are some factors to be considered before you make your choice.

CASH FLOW NEEDS

The primary criterion for choosing an option is cash flow requirements .

If there is no interim cash flow requirement, the growth option is better; in this option, the returns are reflected in the movement of the NAV. There are also no hassles in investing the interim cash flows. If there is requirement for interim cash flows from the investment , then the dividend option is better. The frequency of the dividends would be as per the requirements of the investor and the availability of the dividend frequency options (monthly, quarterly, etc) in the fund.

The asset management company (AMC) endeavours to maintain the stated dividend frequency, subject to availability of distributable surplus.

TAX TREATMENT

The other relevant parameter is the tax efficiency of the returns being taken home through the dividend and growth options. Dividends are tax-free in the hands of the investor, but there is a dividend distribution tax (DDT) that is deducted by the AMC on behalf of the investor and passed on to the government.

The rate of the DDT in case of liquid funds is 25% (plus surcharge/cess). For non-liquid fixed income funds, there are two rates of DDT: for individual /HUF investors, it is 12.5% (plus surcharge/cess) and for corporate investors, the rate is 20% (plus surcharge/cess). From June 1, the DDT rate for corporate investors has gone up to 30% for all categories of fixed income funds. In the growth option, the gains are taxable in the hands of the investor, ie, there is no distribution tax. As per the current tax laws, the growth option taxation depends on the holding period: returns from mutual fund units held for a period of less than a year are called short-term capital gains (STCG), and from holdings of more than a year are long-term capital gains (LTCG).

STCG is taxable at the slab rates for individuals; most investors nowadays are in the highest tax bracket of 30% (plus cess). In case of LTCG, the investor has the choice of paying the incometax either at 10% (plus cess) without taking the benefit of cost inflation index or at 20% (plus cess) after taking the benefit of cost indexation. As we see from the tax structure , as per the current tax laws, the choice of dividend/growth option should be based on the intended holding period.

For a horizon of less than a year, the dividend option is better as the individual DDT rate of 12.5% (plus surcharge/cess) is lower than the STCG rate of 30% (plus cess). The only exception to this would be an individual who is in the 10% tax slab, for whom the STCG tax rate would be lower, but that would be a rare case. For a horizon of more than a year, the growth option is preferable , as the 10% (without indexation ) rate is lower than the current DDT rates. The investor should opt for the 20% rate only if the net tax incidence (with indexation benefit) is lower than the 10% rate.

EFFECTS OF DTC

So far so good, in that the choice between dividend and growth options is based on cash flow requirements and tax efficiency.

The grey area comes with the proposed Direct Tax Code (DTC), scheduled to be implemented from April 1, 2012. It is a grey area because at this point of time, it is aproposalwhichisyettobemade into law and may undergo changes by the time it is implemented. As per the proposals, the returns from the dividend option will be clubbed with the income of the investor (ie, there would be no distribution tax) and would be taxable at the slab rates.

In the growth option, there would be no distinction between short-term and long-term holdings as such, but the benefit of indexation would be applicable for a holding period of one year from the end of the financial year in which the asset is acquired . The taxation on the growth option would be as per the slab rates, which means 30% for most investors. Since both dividend and growth options would be taxable at the hands of the investor, there would not be much of a difference in terms of taxation except where the intended holding period would be enough to be eligible for indexation benefit. In that case, the growth option would be more tax efficient.

Joydeep Sen

(CFP, Sr Vice-President – Advisory Desk BNP Paribas Wealth Management)

Source: http://articles.economictimes.indiatimes.com/2011-07-06/news/29743785_1_dividend-distribution-tax-dividend-option-growth-option/2

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'I made my money by selling too soon.'

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

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Mutual funds may face Sebi fury over casual voting

Mutual funds may soon face some tough questions from market regulator Sebi regarding the exercise of their vote on key business proposals of the companies in whose shares they have put in investors' money.

The market watchdog is irked by the casual approach adopted by most of the funds when it comes to voting on proposals put forth by the company management for shareholder approval, as also the disclosure of these votes, a senior official told PTI.

The current dispensation at Sebi, with Chairman U K Sinha coming from a mutual fund background, is looking at measures like distributor incentives and making MFs a preferred stock market route for retail investors.

At the same time, the regulator wants funds to adopt the role of conscience-keeper for listed firms by actively raising their voice on the listed companies' corporate governance practices, the official added.

Mutual funds collect money from investors and put the capital in shares of various listed companies and thus become their major institutional shareholders.

This gives them significant voting power in key decisions of listed firms, but they have so far mostly acted as yes-men or indifferent when proposals are put to vote by the companies.

This passive stance of fund houses, including by leaders like ICICI Prudential and Reliance MF, has come to fore after Sebi pushed them to make public their votes as shareholders.

Unsatisfied by the disclosures, Sebi is considering changes in its rules and might ask the funds to be more specific, including about reasons behind their votes.

Some funds are now considering outsourcing their voting job to specialist entities.

However, Sebi might wait for its proposed policy on outsourcing by market entities to come into place before taking any decision on any such proposal from the fund houses.

On their part, some MFs assert that they take utmost care in deciding on votes and they invest only in those companies where they have faith in the management's decisions.

While large fund houses like Reliance MF and ICICI Pru did not reply to queries on their voting, Quatum MF said it decides carefully on each vote.

"At Quantum, we understand the responsibility of Proxy Voting. It is only after careful consideration of each proposal that we decide to vote for it or against it, or abstain from casting our vote," Quantum AMC Director I V Subramaniam said in an emailed statement.

"This year it could be a case where most resolutions deserved a 'Yes' than a 'No'. Additionally, in the case of Quantum, we invest in good businesses with good managements. This itself allows us to avoid companies that have too many contentious issues to be voted on," he added.

Source: http://articles.economictimes.indiatimes.com/2011-07-03/news/29733182_1_proxy-voting-mutual-funds-reliance-mf

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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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