SBI MF to launch sectoral-specific funds

Looking at the potential of the Indian economy, one should remain invested in
equities, SBI MF’s chief investment officer Navneet Munot said

SBI Mutual Funds, the joint venture between State Bank of India and Societe General AMC (France), plans to launch sectoral-specific funds in the near future, a company official said.“We will launch sectoral specific funds which we don’t have in our portfolio,” SBI Mutual Fund chief marketing officer R S Srinivas Jain said on the sidelines of a press meet here.“We have filed several products with the market regulator for its approval. We will launch the same, once we get approval,” Jain said.The uncertainty in the global market looks likely to continue, he said.However, looking at the potential of the Indian economy, one should remain invested in equities, SBI MF’s chief investment officer Navneet Munot said, adding that SBI MF’s gold ETF, will provide more liquidity and transparency.During the quarter ending March 2009, being the financial closing period, there may be some selling pressure from corporates, Munot said, adding, “However, overall, the growth is in line with expectations.”SBI Mutual Fund is one of the country’s premier fund-houses, managing assets over Rs27,627 crore as on 28 February 2009. The fund house serves over 5.5 million investors through a network of over 200 points of contact.

Source: http://www.livemint.com/2009/03/31123419/SBI-MF-to-launch-sectoralspec.html

SBI MF aims to collect Rs1.5-2 bn from gold ETF

SBI MF will join the five other gold ETFs traded on the NSE. India’s gold collection under exchange-traded funds rose 32.8% to 5.172 tonnes in the year to February-end State Bank of India Mutual Fund aims to collect Rs1.5-2 billion from its new gold Exchange Traded Fund (ETF), a senior official said on Monday.

“Based on the current market situation, our current expection is that in the initial stage we should probably do about Rs150-200 crores,” R.S. Srinivas Jain, chief marketing officer with SBI Mutual Fund, told reporters at the launch.“And over the period of time we should be a substantially large fund,” Jain added.

The new fund offering will close on 28 April.SBI MF will join the five other gold ETFs traded on the National Stock Exchange. India’s gold collection under exchange-traded funds rose 32.8% to 5.172 tonnes in the year to February-end, data from the funds showed.Though gold collections under ETFs are growing, they remain miniscule against India’s imports of about 700 tonnes annually.Gold ETFs — instruments that can be traded like shares and are backed by physical gold holdings — are more than a year old and the segment may get crowded with some other funds planning to enter.
http://www.livemint.com/2009/03/30153900/SBI-MF-aims-to-collect-Rs152.html

Should one invest on mid caps now?

Mr. Sandip Sabharwal view on Should one invest on mid caps now?

The current market scenario where the economic outlook is bottoming out not only in India but also globally, the interest rate scenario is much more benign and more importantly huge amounts of money is being pumped in by monetary authorities and governments globally, a stage is being set for a huge deluge of liquidity into risky assets which include emerging market assets, commodities etc over the next two to three years. Under this scenario the next two to three months will be an ideal time to pick up high quality mid caps with a two to three year outlook. There are 100's of mid caps today in the markets which can give 100% return over this time period.Mid caps today trade at a sharp discount to large caps, despite some of them having a much greater visibility on future growth. There are a large number of mid caps whose market value is not much greater than the cash they have ( although the vast majority now doubts cash holdings after the Satyam episode). Companies that used to trade at 25x price to earning ratio today trade at 2-4x price earning ratio.The ideal time to buy mid caps is when most investors are negative on them, there is low visibility for the near term, they are extremely illiquid and when they can be bought with very low impact cost ( for example in today's scenario lot of FII's are willing to sell their mid caps at discounts rather than a premium which is required during bullish market conditions). I believe all the conditions are satisfied at this point of time. This is also a time period where return from mid cap stocks over the next two years might be high as lot of these companies might not dilute their equity in the near term and as such all the benefits of a cycle improvement will come to exisiting shareholders.Typically two to three years after the start of a new up move a majority of smaller companies start diversifying and raising equity which in most cases is counterproductive to existing shareholders. As such the time to buy mid caps is not at the end of a new up move where there is huge euphoria and most companies believe that they have got strong visibility of future growth. The ideal time is when most managements also become sceptical and pessimistic on future growth and that scenario exists today.However, on the other hand mid cap investing requires much more due diligence and the ability to evaluate the managements and business models properly whereas when one is investing into large caps it is more a top down market and sectoral call. To that extent a large number of retail investors might not be able to evaluate smaller companies properly.On a broad basis i believe that mid caps will outperform large caps by nearly 100% over a three year holding period from where we are placed today. Most investors will continue to focus on large caps for a large part of time when the new bull market would have already started and that will provide opportunity for discerning investors to pick out high quality mid caps.I do not mean to say here that investors should not invest in large caps, there are a huge number of large caps that are likely to perform extraordinarily well as the economy revives and have got very strong cash flow which will help them grow faster than others in the first 12-18 months of a new bull market where raising fresh equity is not very easy. But discounting mid caps as junk is not the right strategy as ultimately it is high quality mid cap companies which will become the large caps in the next upcycle.In a nutshell i would say that that the key to making money in mid cap stocks is to buy them when they are very cheap, illiquid and when no one is looking at them. Eventually as the companies start delivering results consistently quarter on quarter more and more people start looking at these stocks and the liquidity builds up. But since these are mid caps with a limited floating market cap the returns can be substantial.

Sandip Sabharwal View on Market

Short to medium term market outlook

A large number of readers have been asking my opinion on whether the kind of up move that we have seen over the last three weeks is sustainable and what is the likely direction of the markets going forward. There have also been questions like whether this is the beginning of a new bull market or this is just a sharp correction in the bear market.
The large cap side of the markets has seen a sharp up move of nearly 25% since the beginning of March. The contributory factors have been the strong stimulus packages and liquidity measures in the USA, better economic data, and small inflows into equity funds globally and more relevantly in the short run large scale short covering by both wholesale domestic investors as well as hedge funds. However like I covered in my last article the up move has largely been restricted to the large cap side and the broader markets have not moved up so much.
I believe over the next couple of weeks the markets are likely to be in a corrective mode where they will give up between 25-50% of their gains in the current up move. However there is likely to be more action on the mid cap side of the markets which are likely to be more buoyant and we are likely to see lot of stock specific action. However clearly the current up move seems to be different from most of the up moves we have seen over the last 15 months which had been on the backdrop of deteriorating fundamentals and continuous negative bad news. I believe that economic performance globally seems to have bottomed out now and given the fact that the current up move comes in that backdrop it is likely to be much more sustainable. I believe that whether this is a bear market correction or the beginning of a new up move will be known much later. However I clearly believe that the current up move will take the markets at least to the 200 days moving average of the markets which stand at around 12000-12500 levels for the BSE Sensex.The current up move in most markets globally has been backed by a sharp drop in the value of the US Dollar and also a fall in volatility globally. The drop in the value of the USD has also led to a sharp rally in most commodities like crude, gold, aluminum and a number of Agri commodities. The US Dollar after a short term up move is likely to fall very sharply in the second half of the current year which will lead to a deluge of money into emerging markets. We are now in the base building phase of the next big up move. The only short term damper specifically for India can be the election results which are an event difficult to predict.The results season is also around the corner which should be inline or better than expectations on the whole. Also to repeat what I said in an earlier blog – No new lows for the markets.Sectorally on the large cap side sectors like steel, automobiles, capital goods and Private Sector Banks look good for the medium term although they might correct over the next few days.

Source: http://sandipsabharwal.blogspot.com/

Reliance MF buys 5.23% stake in FT from Fidelity

Reliance-Anil Dhirubhai Ambani Group (ADAG) company Reliance Mutual Fund today bought 5.23 per cent stake in Financial Technologies, the promoter of India’s largest commodity exchange, Multi-Commodity Exchange of India (MCX). The shares were bought from the Fidelity group at Rs 502.50 per share. The deal values FT at Rs 2,304 crore.
The FT share price today went up 8.69 per cent to Rs 567 on the Bombay Stock Exchange, resulting in a market capitalisation of Rs 2,602 crore.
Fidelity, which holds 10.65 per cent in FT, sold 8.20 per cent of it in a block deal for Rs 188.80 crore. Apart from Reliance Mutual Fund, several high net-worth individual investors bought the balance 2.97 per cent.
Five years back, ADAG company Reliance Capital had purchased FT’s shares. The stakes were later sold at higher price levels.
Reliance ADAG has strategic interests in the exchanges business. Besides holding stake in the Hong Kong Mercantile Exchange, in India, the group holds 10 per cent stake in the commodity exchange — National Multi-Commodity Exchange — through Reliance Money.
It is also going to start a spot commodity exchange under its subsidiary, Reliance Spot Exchange Infrastructure, soon.
Sundeep Sikka, chief executive officer, Reliance Mutual Fund, said, “The investment will be allocated across various mutual fund schemes that are currently managed by the asset management company.”
He, however, declined to comment whether Reliance Mutual Fund had any strategic intention behind the deal or was it just another investment.
For Fidelity, this is part of a broader selling plan for some of the investments of its Indian venture. After the recent exit of Fidelity’s high-profile Indian fund manager, Arun Mehra, new managers are understood to have started selling some existing investments.
FT’s deal is one of the most high-profile deals done by Fidelity. Fidelity has been with the FT group for more than four years. It also holds stake in the FT-promoted commodity exchange, MCX.

Source: http://www.business-standard.com/india/news/reliance-mf-buys-523-stake-in-ftfidelity/353169/

MFs slowly emerging from FII dominance

If FII selling is blamed for the carnage in the last one year, increased buying by domestic mutual fund houses has seen the Indian equity market bounce back recently.
Between March 12 and 23, mutual fund houses net bought equities worth Rs 1319 crore against Rs 1093 crore by foreign institutional investors. In the same period, the Sensex has risen to 9424 from 8343.
However, the MFs may be trying to shore up their balance sheet for year end consideration, and so the increased buying. This is also because they had been sitting on cash for too long.
But does this suggest that MFs are gaining prominence in driving the indices? Domestic institutional investors have already started showing their dominance. In 2007, domestic insurance houses invested Rs 55,000-Rs 66,000 crore against Rs 50,000 crore invested by FIIs in the Indian markets.
Given the expansion of mutual fund industry, domestic fund houses can play a vital role in driving the market in the next five years, experts feel. For the month of February, the AUM for mutual fund industry stood at Rs 5,00,973 crore.
“Huge MFs buying is one the reasons for the current market rally. Huge volume buying in equities by MFs and other domestic institutions will reduce dependence on FIIs. However, it will take some time,” said Bupen Shah, a Mumbai based broker.
“No doubt domestic fund houses along with insurance companies and pension fund will emerge stronger players in the market 4-5 years down the line. Whether they will replace the dominance by FIIs remains to be seen. MFs need to increase their corpus by tapping the huge retail base across the nation,” said Sandeep Dasgupta, chief executive officer, Bharti Investment Mangers.

Source: http://economictimes.indiatimes.com/MFs-slowly-emerging-from-FII-dominance/articleshow/4319687.cms

Subbarao Says RBI Will Act Appropriately on Growth

The Reserve Bank of India will adopt appropriate measures on boosting economic growth, Governor Duvvuri Subbarao said on the day the nation’s inflation rate fell to the lowest on record, giving room for more rate cuts.
“We will take whatever action is necessary,” he said at the Confederation of Indian Industry’s annual meeting in New Delhi today. The central bank is constantly monitoring the situation, Subbarao said, without elaborating.
India’s inflation slowed to 0.27 percent, the government said today, allowing space for interest-rate cuts to bolster an economy growing at the weakest pace in six years. Inflation is the slowest on record, according to data available since 1990 on the Bloomberg. Economists expected an increase of 0.12 percent.
India’s economic recovery will be “swift and sharp,” aided by savings and productivity, Subbarao said, without giving a timeline. Growth fundamentals are intact, while local banks are sound and well-capitalized, he said. A decline in crude oil prices provides space for the government to spend, he said.
The government’s borrowings have risen because of the need to pay for economic stimulus plans, he said. Next year’s borrowing program will be conducted by the central bank in a manner that causes the least disruption, he said.
The business environment in the fiscal year starting April 1 may be challenging unless a revival in business confidence takes place, Subbarao said.
Economic Growth
India’s economy may revive in the next three to six months, said Suresh Tendulkar, head of the prime minister’s economic advisory panel, Press Trust of India reported, citing comments made in Kolkata today.
Subbarao dismissed concerns that India is slipping into a period of deflation.
The finance ministry’s top economist Arvind Virmani earlier this month ruled out the possibility that India will suffer from deflation. While the wholesale-price index is the Asian nation’s benchmark measure for prices, India has four consumer-price indexes that are running at more than 7 percent.
“Talk of deflation in India is misplaced when consumer prices are still very high,” said Rajeev Malik, a regional economist at Macquarie Group Ltd. in Singapore. “Negative prints on wholesale prices and weak economic activity may prompt the central bank to ease policy rates further.”
Price Indexes
India’s inflation based on consumer prices paid by industrial workers stood at 10.4 percent in January. The consumer-price index for farm workers gained 11.62 percent in the same month, according to government data.
The Reserve Bank of India uses the wholesale price index as the benchmark because the consumer price indexes don’t capture the aggregate price picture, unlike in other countries, said Malik. India’s statistics department said last year it is working on a plan to build a comprehensive consumer price index to use as the benchmark.
“We expect the wholesale-price index readings to be negative for around two quarters,” said Sonal Varma, a Mumbai- based economist at Nomura International Ltd. “But do not confuse this with deflation. Consumer prices are still firm though we expect it to moderate with a lag to about 4 percent by the fourth quarter of this year.”
Varma expects the central bank to cut its repurchase and reverse-repurchase rates by 100 basis points to 4 percent and 2.5 percent respectively by the middle of 2009. A basis point is 0.01 percentage point.
Interest Rates
Subbarao has cut the repurchase rate by 400 basis points since October. India has more room to lower rates than other economies, with the Bank of England’s benchmark at 0.5 percent and the U.S. Fed’s target interest-rate range at 0 percent to 0.25 percent.
Deflation is a sustained decline in prices that may encourage consumers to delay spending, hurting economic growth.
Inflation in India is slowing not because of a contraction in consumer demand, Ashok Chawla, economic affairs secretary in the finance ministry, told reporters in New Delhi today.
China last month suffered its first deflation since 2002, joining Ireland, Taiwan and Thailand in posting record falling prices in their most recent figures, according to Bloomberg News data covering 78 countries.
India’s $1.2 trillion economy may grow around 6.5 percent in the year ending March 31, the nation’s Planning Commission Deputy Chairman Montek Singh Ahluwalia said this week.
Prime Minister Manmohan Singh said March 24 that growth will rebound strongly in about six months on the back of rural demand. Agriculture has expanded at an unprecedented 4.4 percent average annual pace since 2004, providing village dwellers with more money to spend.

Source: http://www.bloomberg.com/apps/news?pid=20601091&sid=aOCJytUDmSz0&refer=india#

EPF panel rejects plan to invest funds in stocks

An Employees Provident Fund Organisation committee has rejected the finance ministry's proposal to invest 15% of the EPF corpus in stocks.
At a meeting held here on Thursday, EPFO's finance and investment committee rejected the proposal for parking up to 15% of the corpus of Rs 1,82,000 crore in shares of listed companies as also equity-linked schemes of mutual funds.
Sources said the committee was opposed to the finance ministry's proposal in view of the volatility witnessed in the stock markets in the recent past.
The finance ministry had in August last year suggested a new investment pattern to EPFO under which the organisation could park up to 15% of its funds in companies listed on the Bombay Stock Exchange and the National Stock Exchange and also equity-linked schemes of Sebi-regulated mutual funds.
The trade unions were vehemently opposed to this proposal. The trade union representatives on EPFO's central board of trustees had at its meetings argued that PF money should instead be parked in public sector financial institutions which were much safer than the volatile stock markets.
The finance ministry had come out with the proposal after EPFO allowed private players HSBC, Reliance Capital and ICICI Prudential to manage the incremental funds of EPFO in July last year. EPFO had also selected the country's largest public sector bank, State Bank of India, for the purpose.
The ministry wanted EPFO to invest in stocks to increase its yield on the funds. In April last year, the banks were offering an interest rate of 9% or more. But EPFO found it difficult to announce even 8.5% returns for 2008-09.

Source: http://timesofindia.indiatimes.com/Business/EPF-panel-rejects-plan-to-invest-funds-in-stocks/articleshow/4321210.cms

UK hedge fund sells 8 Indian bank holdings

The Children’s Investment Fund, the $9.5 bn London activist hedge fund, has
liquidated its holdings in Indian state-owned banks, a newspaper said

Hong Kong: The Children’s Investment Fund, the $9.5 billion London activist hedge fund, has liquidated its holdings in Indian state-owned banks, according to the ‘Financial Times’.In the past three months, the fund has sold holdings in eight banks, from state-owned Bank of Baroda to Union Bank of India, the paper reported.

Source: http://www.livemint.com/2009/03/22224549/UK-hedge-fund-sells-8-Indian-b.html

MFs fail to find pot of gold in Indian depository receipts

Lack of arbitrage opportunities, higher trading costs and volatile currency have resulted in mutual funds reducing their exposure to depository receipts (DRs) of Indian companies. Mutual fund analysts say fund managers may have even lost out on substantial gains they could have easily pocketed had they anticipated the currency movement and invested in DRs, when the dollar was gaining against the rupee since August 2008.
Fund exposure to DRs is minuscule compared with overall assets managed by the industry, mainly due to the unwillingness on the part of fund managers to have a big exposure to stocks that trade when they are fast asleep in India due to different time zones.
“We could have made money had we spotted the trend (dollar strengthening against the rupee) earlier enough. We should have bought DRs, when the rupee was at 45-46 levels and sold them at current rates,” said the fund manager of a private fund house.
“Though we would not have made much money selling the underlying, there sure was good money to be made on the currency side. Now, we are at the fag end of the currency rally. At the most, the rupee may scale up to 54 a dollar. It’s very risky to look out for currency play now,” the fund manager said.
If one goes by numbers, in December 2007, mutual funds had over Rs 71 crore as investments in Indian DRs. A year later (in December 2008), the MF exposure in DRs has plunged to just over Rs 28 crore — though not all of it is due to redemptions, as DR values have fallen drastically over the past one year.
“From what we understand, MFs have more or less remained steady with their investments (in DRs). They have not invested any new money, but there has not been much redemptions either. In my opinion, the fall in exposure levels could be more because of depreciation in DR prices,” said Instanex Capital CEO Gautam Chand.
Minus the currency risk, DR/share swapping is said to be one of most riskless forms of arbitraging. Due to time differences, news flow into the market and local sentiment, DRs trade at discount or premium to the underlying stock.
This presents fund managers an arbitrage opportunity, wherein the fund buys the DR abroad and sells the same stock in India at a higher price — the difference being the profit. This is an expensive strategy, as fund houses will have to bear a two-way brokerage and custodian charges.
“Local MF houses generally have very limited exposure to DRs due to variety of reasons — convenience, cost and the relatively higher liquidity available in domestic markets,” said Franklin Templeton senior portfolio manager KN Sivasubramanian.
“Moreover, ADRs tend to trade at high premiums (to local market) in volatile times, such as now. This reduces the attractiveness of holding ADRs in the portfolio. Exposure to GDRs, in any case, tends to be lower as a result of lower liquidity levels on exchanges,” Mr Sivasubramanian added.

Source: http://economictimes.indiatimes.com/Analysis/MFs-fail-to-find-pot-of-gold-in-Indian-depository-receipts/articleshow/4311881.cms

SORRY BEARS - No new low for Indian markets

Over the last few months most market commentators have been focused on the fact that there is going to be a new low made in the Indian markets and that the markets have not bottomed out yet.
I remember going to the investors conference of a very large foreign brokerage with an Indian partner in the month of January 2009 and I found the mood to be extremely bearish. There were companies presenting in that conference that would be among the top ten corporates of India in whose presentations a year back more than 100 investors would have participated, however this time the number of investors attending the presentations were in the region of not more than ten. The consensus 100 upon 100 was that the markets will make a new low and there is unlikely to be a recovery soon. In my discussions with the participants in that conference i found that the mood was extremely bearish. That was the time i got convinced that there is going to be no new low at least for the Indian markets as history has shown us that consensus never turns out to be true.
The search for lower levels to invest in the markets is an ever going process. However there are both technical and fundamental factors that one has to evaluate before coming to a conclusion on any such event occurring. Like i commented in one of my earlier articles on the blog the technical factor that could have taken the markets to a new low was sheer momentum of the downside where rampant shorting and continuous redemption from offshore funds and hedge funds investing into Indian and other emerging markets could have taken the markets to a new low. However that momentum seems to have broken down now and is unlikely to restart in my view. The downward momentum has clearly been broken.

The movement in a number of emerging markets vis a vis markets in the West is very similar to what happened in the year 2002 after the markets made a panic bottom after the September 11 attacks in the USA. Most Western markets made a new low in 2002, however most emerging markets did not, and i believe the same is likely to repeat this time also. This time even the fundamental reasons are much more stronger as economies like India, China, Brazil etc are likely to take the hit from the the global economic slowdown much better that the developed world. As such we have seen a large number of developed country markets make a new low in February 2009, however most emerging markets have held on much better.
All key economic parameters like inflation, interest rates, input cost pressures for corporates are turning for the better. Demand pickup has started on the consumer side and is likely to pickup significantly post elections ( if there is no third front with a strong left, which is an unlikely scenario in my view ). Another important thing is that analysts have turned excessively pessimistic on the markets and are projecting either no growth or a very slow growth in earnings next year. However i believe that clearly economic growth is in the process of bottoming out in India and markets will bottom out much before growth bottoms out. There is excessive bearishness on economic growth which does not take into account the start of a large new refinery, gas production by Reliance Industries, increase in electricity production due to greater availability of both gas and coal, higher consumption due to lower interest rates and higher public sector employee salaries, increase in economic growth prospects due to greater government spending etc.
I have been amazed seeing the kind of views most global fund houses and analysts have been giving on various business channels over the last two months where everyone is so focused on the USA and the fact that unless USA recovers other economies will also not recover. I believe this reflects a superiority complex and is a vestige of the colonial past where these people still believe that the Western world is the centre of the universe. Most of these people forget that in the 1990's the USA and most of the other European markets had a secular bull market which lasted for more than a decade and in this period the Indian markets went nowhere. The Dow Jones index went from around 2500 in 1990 to 11750 in the year 2000 ( before the Internet bubble burst ). In the same time period the Sensex went up from around 2000 to 6000. China in this decade embarked on the process of rapid economic growth ( again with low inflation ) and the Chinese markets went up by 10x in the same time period i.e. a 1000% return. The reason was that that was the decade in which most Western economies grew rapidly with low inflation. The same decade is likely to occur in India from 2010 onwards.
I will discuss more on the long term prospects separately as i wanted to focus this time on the fact that i clearly believe that a NEW LOW in the markets is unlikely to occur due to a combination of fundamental and technical reasons. Also the one unique event for India which could have created the NEW LOW, the elections are also likely to get over by the middle of May.
The markets are likely to become stock specific from April onwards when the full year results for the current year come out and will provide an excellent opportunity to build up a long term portfolio.

Source: http://sandipsabharwal.blogspot.com/2009/03/sorry-bears-no-new-low-for-indian.html

No monthly income from the monthly income plans

For eyes eagerly waiting for the monthly incomes from their mutual fund investments, the wait does not seem to end. Baring a handful of MIPs, most have kept a low key profile, as far as dividend payouts are concerned, for the financial year 2008-09. The monthly income plans (MIP) are fairly popular amongst investors, especially pensioners and are believed to be a source of regular income through periodic dividend payouts.

According to the mutual funds portal ICRA online, out of the 34 odd MIPs with a monthly dividend payout option, only five schemes have been consistent in paying dividends uniformly every month so far in the current financial year.

These include Birla Sun Life MIP – Savings 5, DBS Chola MIP, ICICI Prudential MIP, Principal MIP and Principal MIP Plus. Nilesh Shah, Deputy Managing Director, ICICI Prudential AMC, stated that, “While the accumulated profits of earlier years have partially helped us in paying out the dividends consistently, it is our dynamic management of the scheme that is reaping the dividends even in the current market scenario.” This MIP is also the first MIP to declare the 100th consecutive dividend in the month of Feb ’09 since its launch in Nov ’00, according to the fund house.

The other schemes, however, are still struggling to keep away the market blues. While most schemes have been pretty irregular in paying dividends, there are some who have not made a single dividend payout in 2008-09. These include, DSP Blackrock Savings Manager – Aggressive & Moderate, Fortis MIP, HDFC MIP Short Term Plan, LIC MIP and Sundaram BNP Paribas MIP.

“Lack of distributable surplus has constrained us from paying dividends”, says Ramkumar K, Head – Fixed Income, Sundaram BNP Paribas AMC. “Though this scheme has 85% in debt, the losses in equities far exceed our profits from debt papers. Also after a brief rally, now even the returns from debt instruments have entered the negative terrain”, he added.

The desperation of most MIPs in paying dividends is evident from the fact their NAVs are currently trailing even below Rs 10/- per unit which is the price at which an investor purchases a unit at the new fund offer (NFO) stage. As Mr. Ramkumar stated that, “We cannot think of paying dividends unless our NAVs are restored to at least Rs 10. Regulations demand that dividend can be paid only from surpluses and not from the capital investment”.

As such the fund houses are not obligated to pay the monthly income which is paid subject to the availability of distributable surplus. A disclaimer to this effect is always stated in the offer documents and never read by the investors.

Source: http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/MF_News/No_monthly_income_from_the_monthly_income_plans_/articleshow/4304887.cms

What's hot, what's not with mutual funds?

Mutual funds, MFs, bought auto ancillary stocks Exide Industries and telecom player Idea Cellular extensively, while diluted exposure to sugar stock Balrampur Chini. Power, construction, auto ancillary stocks dominated the top 50-buy list, while selling was seen in metal, banking, auto, sugar and telecom sectors. There was a mixed trend in engineering & capital goods and media sectors. Stocks were re-aligned in the capital goods and FMCG sectors. In terms of value, HDFC, L&T, Hero Honda Motors were the top purchases by MFs, while SBI, BHEL and Maruti Suzuki topped the sell list.
A study of the top ten mutual funds' equity portfolios as on February 28, which are Reliance, HDFC, Prudential ICICI, UTI, Templeton, Birla SunLife, Tata, Kotak, SBI and DSP reveals that four out of the ten funds bought Exide Industries. HDFC MF was the top buyer of the stock with over 96 lakh shares bought. ICICI Prudential, Franklin and Kotak were other funds who bought the stock while Tata and Birla SunLife MF sold some shares.

Apart from Exide Industries in the auto ancillary space, funds have bought Apollo Tyres, Motherson Sumi Systems, Amara Raja Batteries and Amtek India.
Idea Cellular was bought by Franklin, UTI, SBI, Reliance, Kotak, HDFC and DSP ML MF with the top buyer being DSP ML MF which bought over 55 lakh shares of the stock. Among other telecom majors, Reliance Communication, Bharti Airtel, MTNL, Tata Teleservices (Maharashtra) and Tata Communication were sold.
Construction stock Noida Toll Bridge, the third top bought stock, was purchased by HDFC MF with over 83 lakh shares. In the cement and construction space, IRB Infrastructure, Nagarjuna Construction, India Cements were in the buy list while IVRCL Infrastructure was in the selling list.
Balrampur Chini was sold extensively by Reliance MF, while UTI and DSP ML MFs were the other two top sellers. Among other sugar stocks, Shree Renuka Sugars figured in MF's top sell list, while Triveni Engineering was among the top buys.
Fund houses sold metal and banking stocks. In the metal space, they sold Sterlite Industries, SAIL, Hindalco while bought Tata Steel. Reliance and ICICI Prudential MFs sold shares of Sterlite Industries in huge quantities; ICICI Prudential MF was the top seller of the stock with over 21 lakh shares sold. Reliance Industries was the top seller of SAIL with over 31 lakh shares sold. However, six out of top ten funds bought Tata Steel. In that, Reliance, Pre ICICI and Birla MF were top three buyers with over 7 lakh, 5 lakh and 6 lakh shares bought.

HDFC was the top value buy stock. Funds bought over 9.9 lakh shares worth Rs 127 crore. ICICI Prudential, UTI and Franklin funds were top three buyers in the stock. Meanwhile, nine out of top ten funds sold shares of SBI. ICICI Pru, Franklin and UTI MF were top sellers with over 26 lakh shares sold, while HDFC MF was the only buyer which bought over 10 lakh shares. Among other banking stocks, ICICI Bank, Yes Bank, South Indian Bank, Dena Bank, Bank of India and HDFC Bank too figured in the top 50 sells. Largest private sector bank ICICI Bank was sold by seven out of the top 10 funds with DSP ML MF being the top seller as it sold over 11 lakh shares of the stock.
In the power space, funds purchased Rural Electrification Corporation, GVK Power & Infrastructure, Gujarat Industries Power and Suzlon Energy while reduced exposure to Power Grid Corporation.
Funds slashed their investment in auto space, wherein they sold Maruti Suzuki, Tata Motors, Swaraj Mazda while they bought Ashok Leyland.
In the oil & gas space, GAIL India, HPCL and Reliance Petroleum were top bought stocks while Cairn India was top sell stock.
There were no stocks from the IT space in the top 50-buy & sell list barring Mphasis, which was the only bought stock.
Funds have bought Biocon, Ranbaxy Labs and Suven Life Sciences in the month of February while sold Sun Advanced Research. These stocks were in the top 50 list.

Source: http://www.moneycontrol.com/india/news/mf-analysis/whats-hot-whats-notmutual-funds/389412

MFs identify promising sectors for next recovery

Amidst the ongoing recession and the spectre of deflation, mutual fund houses are trying to identify potential sectors to invest in. Asset management companies are looking at sectors which can sustain growth momentum and emerge as key drivers in the next market recovery. These sectors include FMCG, banking, healthcare, pharmaceuticals, oil and gas, infrastructure, capital goods, cement and automobile.
“The boost to rural economy due to rise in food grain prices and higher disposable incomes in the hands of government employees (which has come through 6th Pay Commission) will trigger domestic consumption. This has made us overweight on FMCG and health care sectors for our equity schemes,” said Sankaran Naren, CIO, Equity, ICICI Prudential AMC.
The outlook on these two sectors is that both are cash flow generating with ability to fund there business requirements and also largely higher demand driven. On similar lines, the pharma is expected to gain from being a necessity driven sector. There is big opportunity for generic companies as drugs worth $70 billion are expected to go off patent between FY10 and FY12 and India offers low cost manufacturing base for generic.
Further, increase in domestic sales has also improved sentiment for the automobile industry too. Passenger cars sales rose 4.7% in February 2009 and commercial vehicles grew by 34% during the month.

“The year ahead, will be one for value investing. We will look at sector specific stocks based on three parameters: share price below book value, price to earnings ratio, and attractive dividend yields,” said Sanjay Sinha, chief executive officer, DBS Cholamandalam MF.
Sahara Mutual expects year on year growth of 6-8% in cement, 15-20% in power and related industries and 10-15% in engineering. “Order book position of the companies in these industries for the next 2.5 to 3.5 years is strong enough,” said N K Garg, CEO, Sahara Mutual Fund.
Cholamandalam’s Sinha said, “Economy is projected to grow by 6%. This implies a credit growth of 15-18%. Indian banking sector is strong and vibrant as it is not directly impacted by the global financial meltdown.”
Valuations are also at steep discount to book values in case of public sector banks and have significantly moderated for private banks. However, fund houses are currently reviewing their outlook on banking in view of the large increase in G-sec yields and NPA scenario.
In another development, Tata Mutual Fund, which plans to allocate 20 per cent weightage to growth sectors in the coming two three years, is mulling launch of an international fund to focus on promising sectors in emerging economies.
Said Ved Prakash Chaturvedi, managing director, Tata Asset Management, “We have plans to explore emerging markets like China. I expect the investment climate to improve in 2-3 years time. In between, we must tap the growing sectors to ensure substantial return.”

Source: http://economictimes.indiatimes.com/MFs-identify-potential-sectors-to-invest-in/articleshow/4309431.cms

Bank investment in MFs jumps over eight times

Banks are parking funds not just in securities qualifying for maintenance of statutory liquidity ratio (SLR), but also in mutual funds (MFs).

After the global credit crisis intensified in September 2008 following the collapse of Lehman Brothers, investment in instruments issued by mutual funds dropped to Rs 10,759 crore – nearly 73 per cent from the level in the corresponding period in the previous year (see table).
But after several measures were initiated by the government and the regulators to restore confidence in fixed maturity plans and liquid funds, bank investments in these instruments at the end of February was estimated at over Rs 90,000 crore. Of this, a bulk of the investments has flowed into liquid funds, bankers said.

The increased investments in instruments issued by mutual funds has raised eyebrows as banks are seen to be risk-averse and are, therefore, opting to park funds instead of lending. The risk-aversion has already prompted the government to convene a meeting of bankers since credit growth, on a year-on-year basis, has moderated from 29 per cent at the end of October 2008 to 18.3 per cent at the end of February 2009.
Banks had the option to deploy the surplus funds in overnight market, where they could earn around 4 per cent, or park the funds in liquid funds, which earned 6-6.5 per cent. A third option was to deploy the extra cash through the Reserve Bank of India’s reverse repo route and earn 3.5 per cent.
Besides, officials suspect that the banks are using the investment to get tax benefits and are seeking a review of the system so that it can only be restricted to individuals investing in mutual funds. But bankers said that investments in mutual funds attracted capital adequacy provisions and, therefore, banks would lower their investments in these instruments over the next 10 days.
“The process of liquidating a part of the investment in instruments issued by mutual funds has already begun and it will gather momentum in the remaining part of the week,” said the head of fixed income with a fund house. “This investment is not at the cost of genuine demand for credit. The funds are invested in mutual fund schemes after their lending needs are met,” added the head of treasury at a large public sector bank.

Source: http://www.business-standard.com/india/news/bank-investment-in-mfs-jumps-over-eight-times/352702/

MFs shift assets to short-term papers to meet redemptions

Over the last couple of months, a lot of debt mutual funds have shifted their assets into short-term money market instruments. The reason: they want to be ready to meet redemption pressures in the last quarter of this financial year.

As a result, their investments in collateralised lending and borrowing obligations (CBLOs) have risen from Rs 4,500 crore as of December to Rs 19,000 crore by February-end.
CBLOs are short-term (overnight to 90 days) securities where the borrower returns the money on a pre-decided future date or time. This is an instrument issued by the Clearing Corporation of India. Mutual funds usually invest in CBLOs that have an overnight tenure, or up to a fortnight.
The yields on these instruments are around 3.5 per cent per annum. Although other money market instruments, like certificates of deposit (CDs), earn higher returns at 7-8 per cent, they are of a longer tenure. CDs and commercial papers (CPs) form the largest portion of liquid funds’ and fixed maturity plans’ portfolios, but fears of a sudden redemption pressure are mostly mitigated by short-term instruments like CBLOs and repos, especially towards the close of a financial year.
“Usually, fund houses face redemption pressures in the January-March period. To meet them, fund managers prefer to park more money in short-term instruments which offer quick liquidity, if required,” said Amandeep Singh Chopra, head (fixed income), UTI Mutual Fund.
Liquid and liquid-plus schemes are the largest investors in CBLOs. The latter’s nomenclature has been changed from the month of February, according to recent Sebi guidelines. The industry has witnessed a rise of 25-30 per cent in incremental money flowing into CBLOs under liquid schemes.

Source: http://www.business-standard.com/india/news/mfs-shift-assets-to-short-termpapers-to-meet-redemptions/352696/

MFs make stock-specific additions in February

Not able to make your mind up on which stocks to buy and which not to? Well, when in doubt, try taking cues from the big guys.
Domestic mutual funds may have net sold equities worth Rs 1,495 crore in February, but insights into what they bought and sold can come in handy in your investment decisions, especially as these funds put together made a gross equity purchase of four times the net amount. So, wondering which stocks made it to the funds’ portfolio and which lost out? Here’s a look at what the funds did, based on end-February portfolios.

GVK Power & Infrastructure was among the most loved of all the stocks last month with more than 14 million shares of the company being accumulated by various fund houses. Idea Cellular, Exide Industries, Suzlon Energy and Chambal Fertilisers were among other stocks that found themselves in the MF buy radar.
GVK Power & Infra also topped the list of stocks that saw the highest number of funds adding it to their respective portfolios; a total of 8 fund houses added the stock. Glenmark Pharmaceuticals came in second with over four funds adding to the stock. Among other stocks that saw a good number of funds show interest were Crompton Greaves (three), Tata Chemicals (three), UltraTech Cement (three) and Allahabad Bank (two). And since these stocks are of varied sectors and market caps, it suggests that mutual fund purchases may have been driven more by the individual stock’s fundamentals and valuations than on anything else.
L&T, however, was the most sought after stock in terms of top additions (market value added) to the existing holdings of equity funds; Alstom Projects and ACC closely followed it. Among others that made it to this list were Reliance Infrastructure, Hindustan Zinc and Ranbaxy Laboratories.
But was there any new stock that got added to the funds’ portfolios? Bannari Amman Sugars, Golden Laminates, Goldstone Technologies and GTL Infrastructure marked their presence on this list.

Sugar stock Balrampur Chini found itself in a not-so-sweet spot; the stock was heavily offloaded by a handful of fund houses last month.
Much like fund purchases, the mutual funds’ selling was also oblivious of the sector and market cap preferences as even the large-cap banking major, State Bank of India, came in for selling.
Hindalco, Tube Investments, Mercator Lines and Tata Teleservices were among other stocks that were sold by the funds.
That said stocks such as Whirlpool of India, Swaraj Mazda and State Bank of Mysore suffered absolute desertion by the MF clan as funds made complete exits from them.

Source: http://www.thehindubusinessline.com/2009/03/24/stories/2009032450791000.htm

AMFI proposes to offer more choices in scheme & loads for investors

If a proposal by Association of Mutual Fund in India (AMFI) is accepted by market regulator Securities Exchange board of India (SEBI), Indian investors could see a mechanism where investors could chose between different classes of units and also the applicable expenses or load to be payable, reports Financial Express.

As per the proposal mutual funds would be segregated into different categories and investors can choose their preferred class and pay the applicable load or expense accordingly. Since each class has its own characteristics and differentiating factors of the classes would depend on the investment time horizon, amount of the investment, and investor`s personal preference. 

This comes after SEBI in January 2008 introduced a guideline directing mutual funds to not charge any entry load in case an investor approaches the fund directly and not through any broker. And later recommended another option that would involve creating separate section in the investment form which would be jointly filled by both the investor and the distributor. Here, both the investor and the distributor would decide on the quantum of commission (subject to a limit) to be paid and both the parties would sign off. The asset management company would then pay the mentioned commission.

Performance, size correlate with mutual fund flows: CRISIL

Fund flows into mutual funds in recent months, have shown a strong correlation to performance and size of fund houses. Large fund houses, with a large number of better performing funds in line with the CRISIL Composite Performance Ranking (CPR) of mutual funds are attracting higher inflows reveals a study by Crisil.
The Indian mutual fund industry`s average assets under management (AAUM) grew for the third month in succession and stood at Rs. 5.02 trillion in February 2009 as compared to Rs. 4.62 trillion in January 2009. The AAUM crossed the Rs. 5 trillion milestone in February 2009 for the first time after it dipped below this level in October 2008.
According to Krishnan Sitaraman, head, CRISIL FundServices, ``The top three fund houses, which recorded the highest increase in absolute AAUM over January and February 2009 have a large number of funds which fall in the CRISIL~CPR 1 (very good) and CRISIL~CPR 2 (good) ranking clusters and are large in size.``
These included Birla Sun Life mutual fund (11 funds of which were ranked CRISIL~CPR 1 or CRISIL~CPR 2), ICICI Prudential mutual fund (8 funds ranked CRISIL~CPR 1 or CRISIL~CPR 2) and Reliance Capital Mutual Fund (10 funds ranked CRISIL~CPR 1 or CRISIL~CPR 2).
Size appears to be a key factor determining choice, as large fund houses have recorded higher net inflows as compared to the relatively small ones, a number of which have seen lower inflows, if not net outflows.
Added Krishnan, ``With equity markets still volatile, and the economic climate uncertain, the AAUM growth currently is driven mainly by debt and liquid funds. Corporate bond yields fell in February 2009 and in such an environment, debt funds held an edge with respect to returns.``
In absolute terms, mutual funds received net inflows of Rs. 340 billion in February 2009 as against Rs. 668 billion in January 2009. Income funds received the largest share of net inflows with Rs. 199 billion followed by liquid funds worth Rs. 149 billion.
However Gilt funds witnessed net outflows of Rs. 5 billion for the first time since November 2008 as G-Sec yields rose in February 2009 adversely impacting returns from these funds. Equity funds witnessed marginal net inflows of Rs. 4 billion, a majority of which were in Equity Linked Savings Schemes (ELSS) as they constitute a tax-planning instrument.
The share of debt funds (income, gilt and liquid) in the Indian mutual funds universe has risen from 62% a year ago (February 2008) to 77% in February 2009 indicating a shift in investor preference towards debt funds due to the change in market dynamics.

Source: http://www.myiris.com/newsCentre/newsPopup.php?fileR=20090319180635196&dir=2009/03/19&secID=livenews

Hemendra Kothari sells stake, exits DSP Merrill

DSP Merrill Lynch (OOTC:MERIZ) will now be fully owned by Merrill Lynch or effectively by Bank of America (NYSE:BAC) , which had taken over Merrill Lynch for $50 billion last year. As a result, Bank of America owned 90 per cent in DSP Merrill Lynch in India.
Mr Kothari, a high-profile investment banker, is also retiring as Chairman of the company at the end of the month. Mr Kevan Watts will head the company, it is learnt.
Mr Kothari said the sale was planned around six months ago, but he had decided to wait a while. “When the time came for announcement of the merger of Merrill Lynch with Bank of America, I felt it was the right time to sell when integration is taking place across the world,” he told Business Line.
He founded the company in 1975 when it was called DSP Financial Consultants. It was named DSP Merrill Lynch Ltd in 1995 after a stake sale to the American company. Holding in MF biz
Mr Kothari will still serve as the non-executive Chairman of asset management firm DSP BlackRock Investment Managers, a joint venture between the DSP group (NASDAQ:DSPG) of firms owned by the Kothari family and New York-headquartered BlackRock Inc. (NYSE:BNY) (NYSE:BLH) (NYSE:BNJ) (NYSE:BPK) (NYSE:BBF) (NYSE:BHK) (NYSE:BFZ) (NYSE:BJZ) (NYSE:BLK)
The asset management company had acquired 40 per cent stake held by Merrill Lynch in the mutual fund DSP Merrill Lynch Fund Managers in January. The remaining 60 per cent is held by DSP Group.
After the transfer DSP Merrill Lynch was renamed DSP BlackRock Investment Managers, and their mutual fund was renamed DSP BlackRock Mutual Fund. The fund has Rs 14,000 crore in assets under management at the end of February.
The mutual fund business is expanding and the company plans to expand its employee base, said Mr Kothari. Some jobs were being cut but, in the net, one would see an addition of staff, he said.
With the day-to-day affairs of the company being managed by a professional team, he would now be free to concentrate on philanthropic activities.

Source: http://www.istockanalyst.com/article/viewiStockNews/articleid/3128885

Dividend-paying equity schemes fall by over 50% in Jan-Mar

The decline in the stock market has taken its toll on the dividend payout of equity schemes. Only 36 equity-oriented schemes have declared dividends in the January-March period, compared to 85 schemes in 2008.

According to data from Mutual Funds India, a mutual fund research agency, only a few schemes of ICICI Prudential Mutual Fund, HDFC Mutual Fund and Franklin Templeton have been consistent in paying dividends between 2006 and 2009.

The data reflected that dividends declared by these schemes rose consistently in the boom period of 2006 -2008. But these schemes have been hit in the current market crash and, as a result, their dividend-paying ability has eroded substantially.

For instance, Franklin India Blue-Chip Fund, which had declared dividend in the range of 30 per cent to 70 per cent during 2006-2008, has paid only 30 per cent in 2009. While HDFC Long Term Advantage Fund has pruned dividends from 60 per cent to 35 per cent, ICICI Dynamic Plan has reduced it from 20 per cent to 6 per cent.
There were other equity schemes that had a great track record of dividend payment during financial year 2006-07 and 2007-08. But most of these have paid significantly lower in 2008-09.
Birla Sun Life Tax Relief 96, which had given a staggering 1,510 per cent dividend in 2006-07 and another 200 per cent in 2007-08, has paid a dividend of only 50 per cent in 2008-09.
Equity schemes have suffered greatly in the meltdown since the market scaled its all-time high on January 8, 2008. In fact, the fall was so sharp that fund houses were unable to exit stocks. With almost negligible chance of profit-booking, fund houses have found it extremely difficult to make dividend payouts this year.
Equity-oriented schemes have reported value erosion of Rs 81,307 crore in the 11 months of the current financial year.
The unaudited financial results of mutual funds for the period ended September 2008 showed that fund houses had booked Rs 3,858-crore loss on sale of investments. Even the reserves and surpluses declined by Rs 28,900 crore on account of value erosion.
Even investors have not been enthusiastic about investing in mutual funds. Only Rs 3,580 crore was invested in this financial year so far, compared to Rs 45,927 crore during the same period in 2007-08.

Source: http://www.business-standard.com/india/news/dividend-paying-equity-schemes-fall-by-over-50-in-jan-mar/352346/

Shinsei Bank ties up with Rakesh Jhunjhunwala for mutual fund venture

Jhunjhunwala has picked up around 15% in the venture and Japan's Shinsei Bank has 75% stake in it.
One of the top proprietary investors in the country Rakesh Jhunjhunwala is said to have become the local partner for Shinsei Bank for asset management business in India. Although, this has been in the rumour mills for more than a year now, as per this report Jhunjhunwala has picked up around 15% in the mutual fund venture. Japanese financial services major Shinsei owns 75% while the remaining 10% is with Sanjay Sachdev, the India head of Shinsei Corporate Advisory Services.
The mutual fund arm Shinsei Asset Management had received Sebi approval to set shop in February and has started with a PSU debt fund. Shinsei had earlier in 2007 roped in N Sethuraman Iyer from SBI Mutual Fund where he was the chief investment officer.
As per Shinsei’s website, Iyer is the CIO of Shinsei Investments while Sachdev is the country manager-India & Regional Manager (SE Asia) – Fund Management. Piyush Surana (fomer COO of Alliance Capital) is the CEO of the firm.
This would be the second Indian entity besides the existing Shinsei Corporate Advisory Services which provides investment and corporate advisory services to financial institutions. Earlier in August 2007, it had signed a JV with UTI Asset Management Company to set up UTI International (Singapore) Pte Limited for investment management and distribution of financial products in the South East Asian region. It also had a venture with UTI in Japan under the Shinsei UTI India fund.

Source: http://in.reuters.com/article/indiaDeals/idINIndia-38598620090319

New pension scheme for MFs from April 1

The proposed opening up of the New Pension Scheme (NPS) to the organised and unorganised sectors from April 1 this year had kindled hopes among asset management companies (AMCs) of bolstering their business at a time when they have been coping with a poor appetite for equity offerings and playing second fiddle to insurance companies.
Such hopes are quickly getting doused. There is a growing realisation now that it may be a while before fund houses can take a bite of the pension cake. Sixteen years after it was first conceived, India is just weeks away from finally having a pension system that is meant for private individuals – whether employed or unemployed. From April 1, any individual will be able to start a New Pension System (NPS) account and start building a nest egg.
The Pension Fund Regulatory and Development Authority (PFRDA) has mandated six mutual fund houses to manage pension monies that Invest India Economic Foundation (IIEF), a think thank specialising in pensions, estimates could be close to $300 billion by 2019. Although fund houses are very upbeat about the prospects of the whole enterprise, their optimism is largely based on the premise that the ‘saving for pension’ habit finds roots among average Indians.
Although this is the first time that a cheap pension product will be available to average Indians, mutual fund (MF) houses and insurance companies have been selling such products for several years now. Products from insurance companies enjoy a fair degree of popularity, but only among the more upper middle-class Indians. They are beyond the reach of the man on the street — the fruit seller or the neighbourhood grocer.
For mutual fund houses, it has been a dismal scenario. There are two schemes currently available in this segment (offered by Templeton and UTI, launched in the ’90s), but put together these two schemes have only Rs 600 crore between them. But industry watchers are hopeful that the experience this time should be different.
“The government and the pension regulator will have to spend generously to popularise the pension-for-all scheme,” says Aditya Agarwal, managing director for fund research firm Morningstar. “However, I am hopeful that as financial literacy rises, it will find favour,” he said.
PFRDA chairman D Swarup says the regulator is committed to marketing the product through large ad campaigns. He points out that PFRDA had launched its first advertisement on NPS recently, but had to discontinue it due to the election code of conduct. He is hoping that banks authorised for collecting pension monies will also do their bit, in pursuit of valuable fee income.
Since MFs do not come in contact with the end customer in NPS (government will allot them a part of the collected corpus), they are not expected to splurge on advertising. But since the investor has the choice to select his asset manager, MFs would do well to raise awareness about the product, financial planners say. In addition to this, fund managers should take the effort to educate the investor in forums like investor meets, as PV Subramanyam, a veteran financial trainer who has been advising individuals on their pension requirements, puts it.
The other major issue with NPS, for some, is its legal standing. Officials in the six MFs — UTI Retirement Solutions, SBI, ICICI Prudential Life Insurance, Reliance Capital, IDFC AMC and Kotak Mahindra AMC — agreed that NPS has its basics in place. But at least one chief executive pointed out that with the PFRDA Bill yet to be approved by Parliament, the pension watchdog’s punitive powers have been restricted as compared to other regulators such as Sebi or Irda.
“If I buy pension from an insurance company or a fund house and I have complaints, I can seek help from Irda or Sebi. But if I have issues with NPS whom do I turn to? PFRDA does not have any legal standing,” the official said. He pointed out that the current NPS is, at best, a private contract between the government and applicant. But Mr Swarup counters this, saying that the question is “absurd,” considering that the government has vested powers with the regulator which provides it with enough teeth.
Market experts say that India may not have timed it worse for launching a new pension plan with the government unable to change any laws or spend on ads and the fall in market draining all appetite for investment products. But IIEF director and renowned pension expert, Gautam Bharadwaj, disagrees. “We are nearly at the bottom end of the market and investing at these levels should help in delivering good returns in the long term,” he says. It would not be far-fetched to expect a better performance than those from India Post or bank deposits, that should help popularise the product in the long term, he adds.
Other experts point out that the upcoming pension plan is a product with the longest tenure in the Indian markets (30-40 years) and is still the cheapest managed product available. (NPS money is to be managed at 0.09 paisa per Rs 100 that is cheaper than even liquid mutual funds. ) They feel that this along with portability (investors can change fund manager at no cost), a wide choice available in selecting where the money is invested and transparency should help in the product finding favour in due course.
For years, insurance companies have been stealing the thunder from fund houses for mobilising investments from the public. If all goes according to the script, this may just be the one channel where mutual funds may be able to beat insurance companies at their own game.

Source: http://economictimes.indiatimes.com/Personal-Finance/New-pension-scheme-for-MFs/articleshow/4279357.cms

MFs’ Nifty futures exposure up 2.5 times in 1 year

Nifty--the darling of the trader and investor community in Indian equity markets--is on the radar of the mutual fund managers. Fund houses
increased their exposure to Nifty derivatives from Rs 1,225 crore, or 0.65 per cent of the total assets under management under equity, balanced and ELSS funds, to Rs 1,827 crore, or 1.64 per cent, in February. This amounts to 2.5 times increase in the quantum of derivative exposure, an analysis of the data provided by valueresearchonline.com about fund holdings since March ’08 till February ’09 reveals. Says a fund manager under the condition anonymity, “Normally when one takes exposure to Nifty futures the possibility of under-performance is very low. In fact, there is a case wherein Nifty futures trades at a discount to the spot. And this is primary advantage one has while taking exposure to Nifty futures. Even the transaction costs involved in buying Nifty futures is marginal.” Another factor that has resulted in the increased exposure to Nifty derivatives is the uncertainty in the performances of sectors. The number of schemes that took exposure to Nifty derivatives also increased from 12 to 30 over the same period. Though the participating schemes have grown multi-fold the exposure has gone up by 50 per cent, thanks to the market meltdown. DSP Blackrock (6schemes) and ICICI Prudential (9 schemes) are the two prominent players that took exposure to Nifty derivatives as on Feb 28, 2009. DSP Blackrock increased Nifty derivative exposure from Rs 293.83 in five schemes in March ’08 to Rs 611 crore in six schemes in February 2009. On the other hand, ICICI Prudential AMC raised Nifty derivative exposure from Rs 1003 crore in five schemes in March 08 to Rs 1048.86 crore in nine schemes in February 2009. Gradually unwind and then move to individual stocks, identification, higher returns, buy Nifty, with the market, convert into individual stocks. It gives you a breathing space. “Rising exposure to Nifty derivatives is an outcome of the pressure to perform in sync with the market at a situation where there is comprehensive volatility in the market,” says a mutual fund expert with a leading wealth management set up. The performance pressure on the fund houses led to tactical changes in portfolio constitution in accordance with the market movement. As on Nov 28, 2008, the exposure to Nifty derivatives reached the maximum at Rs 2434 crore at a time when the Nifty gained more than 9 per cent from the all time low of 2524 recorded on October 27, 2008.
Says Sidharth Bhamre, fund manager, PMS and derivative analyst at Angel Broking, “Fund managers do have pressure to perform in these market conditions. In a bull market, when all goes smooth, taking risk in terms of going for momentum stock exposures works for many. But in a falling market, even with the market you don’t earn. And considering that now the Nifty available at a forward of P/E of 9, it makes more sense to take exposure to Nifty index rather than individual stocks from a valuation perspective.”

Source: http://economictimes.indiatimes.com/articleshow/4272050.cms?flstry=1

Shinsei MF plans to launch PSU Bond Fund

Shinsei Mutual Fund has filed offer document with Securities and Exchange Board of India (Sebi) to launch Shinsei PSU Bond Fund, an open ended income scheme. The face value of the new issue will be Rs 10 per unit.
Investment objective:

The investment objective of the scheme is to generate income commensurate with prudent risk while maintaining the optimal balance of yield, safety and liquidity from a portfolio constituted of debt securities and money market securities issued predominantly by public sector undertakings and nationalised banks.
Investment plans:

The Fund offers two plans viz. Savings and Investment Plan. Each plan will have retail and institutional plans with growth and dividend options. Dividend option will offer dividend payout and reinvestment facilities.
The minimum investment amount:
For Savings plan, the minimum investment amount under retail option Rs 10000 and in multiples of Re 1 thereafter and under institutional plan will be Rs 1 crore and in multiples of Re 1 thereafter.
For Investment plan, the minimum investment amount under retail option Rs 10000 and in multiples of Re 1 thereafter and under institutional plan will be Rs 50 lakh and in multiples of Re 1 thereafter.
Minimum targeted amount:

The scheme seeks to collect a minimum corpus of Rs 1 crore under each plan under scheme during NFO period of the respective plan under the scheme.
Asset allocation:
Savings Plan: The scheme will invest 80-100% in debt securities including government securities, securitised debt, and other securities issued by the public sector undertakings. It will invest up to 20% in debt securities including government securities, securitised debt, and other securities issued by other than public sector undertakings. Investment in money market securities shall be of maturity up to 1 year.
Investment Plan: The scheme will invest 75-100% in debt securities including government securities, securitised debt, and other securities issued by the public sector undertakings. It will invest up to 25% in debt securities including government securities, securitised debt, and other securities issued by other than public sector undertakings. Investment in money market securities shall be of maturity up to 1 year.
Investment in securitised debt under each plan will not exceed 20% of the net assets of that plan. The plans under the scheme will not invest in foreign securitised debt.
Load structure:
The scheme will not ask an entry load.
In Savings Plan, exit load will be 0.50% if redeemed within 3 months from the date of allotment while no exit load for institutional plan.
In Institutional Plan, exit load will be 1.00% if redeemed within 6 months from the date of allotment and 0.50% if redeemed after 6 months but within 1 year from the date of allotment. Exit load for institutional plan will be 0.25% if redeemed within 1 month from the date of allotment of units.
Benchmark Index:
The Savings Plan's performance will be benchmarked against Crisil Liquid Fund Index while Investment Plan will be benchmarked against Crisil Short Term Bond Fund Index.
Fund Manager:
Killol Pandya will be the fund manager for the scheme.

Source:http://apollosindhoori.com/Default.htm

The winning strategy

Morningstar said there are 18 funds in India short government category collectively managing about Rs2,000 crore and 40 funds in India intermediate/long government category managing approximately Rs4,200 crore

India short government

ICICI Prudential Asset Management Co. Ltd’s Gilt Treasury Plan has won Morningstar’s award for the best fund in the India short government category, beating 14 other contenders.

Morningstar said there are 18 funds in this category, which collectively manage about Rs2,000 crore. The rater defines short-government portfolios as those that have at least 90% of their bond holdings in bonds backed by the Indian government or by government-linked agencies. These portfolios have average effective maturities of up to three years. They are relatively less sensitive to interest rates, and thus have lower risk.On an average, this category had one-year returns of 10.02% and three-year annualized returns of 7.15%, relatively sedate compared with other debt fund categories. ICICI Prudential Gilt Treasury Plan had a one-year return of 20.65% and a three-year return of 11.25%.Rahul Goswami, co-head of fixed income at ICICI Prudential Mutual Fund, who manages the Rs1,000 crore (at the end of February) fund, spoke on how an active management of duration and liquidity makes this fund different from its peers. Edited excerpts:

What is your investment philosophy?

The underlying philosophy is to prudently manage downside risks. The fund seeks to limit volatility by deploying money in short-term gilts. The objective is to closely manage portfolio risks arising out of changes in the market rates by actively managing the duration of investment in the portfolio.

How did you manage the liquidity crisis in October-November?

That was a challenging phase for economies and companies globally as liquidity was tightening and credit crisis was deep. However, with RBI’s (Reserve Bank of India) prudent policies, the scenario has improved significantly. In fact, inflows into our debt funds have increased significantly since November.

How different is your fund from its peers?

Active management of duration, maturity and liquidity is the major advantage derived from this fund. For instance, when interest rates were high, the average portfolio was low. In the current scenario of downward interest rates, the maturities are relatively longer. The advantage of the fund lies in its successful portfolio management strategy.

What kind of investor should invest in your fund?

The risk-free gilt funds mainly invest in sovereign bonds that have outperformed in the current credit market. Such funds are an ideal investment option for investors who don’t have the appetite for high interest-rate volatility. With investors increasingly becoming risk-averse due to the current liquidity and credit scenario, gilt funds have become an attractive investments option for investors.

Is the best time for bonds over?

The major factors influencing interest rate direction are inflation, that is showing a sharp downward trend; lower growth in GDP (gross domestic product) and industrial production due to the global demand scenario; and an increasing trend in unemployment. Hence, risk appetite is also likely to remain low.

All these factors prompt central banks to follow counter-cyclical policies to be pro-growth and accommodative. The initiatives will thus continue towards providing high liquidity in the market and reducing interest rates. Some initiatives have already been taken, but the impact of the action is yet to be seen.

The downward trend will continue, but will be gradual due to the stress created by government borrowings and the fiscal scenario. Investing in bond funds with a three- to six-month view will help optimize returns.

long government

Canara Robeco Asset Management Co. Ltd’s Canara Robeco Gilt PGS has won Morningstar’s award for the best fund in the long-term government bond fund category, beating 28 contenders.

Morningstar said there are 40 funds in this category, which manage approximately Rs4,200 crore. It defines long/intermediate government portfolios as those that have at least 90% of holdings invested in bonds backed by the Indian government or by government-linked agencies. As these portfolios have average effective maturities greater than three years for intermediate grouping and seven years for long category, they are more sensitive to interest rates and thus riskier than portfolios that have shorter maturities.

The returns in this category match the high risks with such funds, fetching 26.38% on an average for a one-year investment. The Canara Robeco Gilt PGS offered a return of Rs135.17 on Rs100 invested in the beginning of the year.

Ritesh Jain, head of fixed income equities at Canara Robeco, who manages the Rs120 crore (at the end of February) fund, told how he capitalized on market volatility to fetch almost double the average return and how it’s suitable for investors with some risk appetite. Edited excerpts:

What is your investment philosophy?

In the current economic conditions and anticipation of shaping of markets, we believe that product life cycles are going to become smaller and volatility is going to take the centrestage in the coming year. With uncertainty on the macroeconomic front, as a starting point, we take profits off of the table and also maintain strict stoploss levels. The inherent volatility in the markets provides opportunities to make decent returns.

How did you tackle the liquidity crisis in October-November?

The mutual fund industry passed through really difficult times in October-November. Before this actually hit us, we had anticipated shortage of liquidity in the markets and envisaged short-term interest rates going up. We churned our portfolio and maintained a considerable proportion of our portfolio in liquid or overnight assets. This strategy actually turned out to be a blessing. Not only did we manage to honour our redemptions comfortably, but also managed to provide top returns in the same time period.

How different is your fund from others in its peer category?

The philosophy of our fund is that we would rather not chase AUMs (assets under management) aggressively if it comes at the cost of performance, and do what is best for the investors. Seeing the nature and performance of our debt markets, we believe that there is limited depth in our markets. In such a scenario, we thought that we would be able to do justice to our income fund and investors only up to a certain level and longevity of AUMs. So, we decided to cap the fund for further investments.

What kind of investor should invest in your fund?

Our fund is ideal for investors who have the appetite for volatility and seek to generate returns from the opportunities present in the markets. We believe that our fund should be able to deliver 300 basis points (one basis point is one-hundredth of a percentage point) over liquid returns to the investors with a time horizon of six months and above.

What is your outlook on the bond market?

With uncertainty in economic and fiscal environment around, we believe that volatility is going to be the order of the day. We might not see a considerable secular downward movement in the yields, but would probably see a range bound market with lots of volatility, within which investors would have opportunities to earn decent returns. We anticipate that the market would behave in this manner for some time to come and we could see pressure on yields towards last quarter of the calendar year 2009. The yield on the 10-year gilt could breach 7.50%.

Source:http://www.livemint.com/2009/03/13220727/The-winning-strategy.html

183 mutual fund schemes pending with SEBI

Change in guidelines, pending responses to queries from the Securities and Exchange Board of India (SEBI) and adverse market conditions have delayed the launch of total 183 mutual fund schemes, reports Business Standard. Out of the 183 schemes 68 schemes of the fixed maturity plans (FMPs) category have been shelved because of a change in guidelines in the third quarter of 2008-09. Of the remaining schemes, SEBI still has to approve around 70-75 schemes, despite their offer documents being filed since April 2008.
SEBI has said that a large number of applications were sent back with queries, but the fund houses did not come back with a response. But certain fund houses alleged that the market regulator has not approved their schemes within the stipulated period of 21 days from the date of filing the offer document and that some of these offer documents were filed up to 11 months back.
Since April 2008, about 290 offer documents were filed with SEBI, which charges a fee of Rs 100,000 for filing an offer document. However, if the fund house does not launch the fund within a six-month period of getting the approval, the application lapses. The fund house is then required to file a fresh offer document.

Source: http://www.myiris.com/newsCentre/newsPopup.php?fileR=20090316124838196&dir=2009/03/16&secID=livenews

Over 180 MF schemes delayed

Depressed markets, Sebi queries, change in guidelines halt launches.

The launch of 183 mutual fund schemes has been delayed due to adverse market conditions, pending responses to queries from the Securities and Exchange Board of India (Sebi) and a change in guidelines.
Out of these, 68 schemes were fixed maturity plans (FMPs) that had to be shelved because of a change in guidelines in the third quarter of 2008-09. Of the remaining 115, Sebi is yet to approve around 70-75 schemes, despite their offer documents being filed since April 2008, according to an industry source.
“A large number of these applications came in the July-October 2008 period. And when we sent them back with queries, the fund houses did not respond,” a Sebi official said.
During October, the Bombay Stock Exchange Sensitive Index, or Sensex, fell to a low of 7,700. Since then, there has been some recovery. But markets continue to languish. It's no wonder that fund houses have deferred launches, despite approvals being given to around 40-45 schemes.
“Fund houses were not too keen on launching new schemes in such a market. In equities, especially, there was absolutely no interest,” AP Kurian, chairman, Association of Mutual Funds in India (Amfi), said.
However, some fund houses claimed that the market regulator had not approved their schemes within the stipulated period of 21 days from the date of filing the offer document. Some of these offer documents were filed up to 11 months back.
“We have filed offer documents for eight schemes since April and have not received approval from Sebi so far, despite responding regularly to queries,” the chief investment officer of an international fund house said.
Since April 2008, about 290 offer documents were filed with Sebi, according to Delhi-based mutual fund tracker Value Research. A fund house pays a fee of Rs 1 lakh for filing an offer document. However, if the fund house does not launch the fund within a six-month period of getting the approval, the application lapses. The fund house is then required to file a fresh offer document.
“Even the more recent new fund offerings have managed to garner only minimal amounts due to low investor appetite. But debt funds are getting inflows into their fixed income and liquid schemes,” added Kurian.
Sebi not comfortable with structured products
Sebi has expressed its discomfiture with schemes that are based on equity-linked debentures (ELD) and constant proportion portfolio insurance (CPPI).
“These products were too complex for the lay investor. With the continued downturn in the equity markets, and ratings of ELD issuers too moving into negative zone, the products carry a risk of default. We would not favour the launch of such schemes at the moment,” a Sebi official said.
This sentiment was confirmed by Amfi chairman A P Kurian, “Sebi consciously does not approve a fund if it is too complicated for Indian investors.”
Currently, there are three ELD-based schemes that have collected Rs 1,516 crore. Four ELD based schemes — UTI Equity Linked FMP Series I, Tata Equity Linked FMP, Birla Equity Linked FMP Series 1M and HSBC Equity Linked FTP — have not yet received Sebi’s approval.
ELDs are floating rate debt instruments whose coupon (interest) is based on the return of the underlying equity index, like the Nifty. However, if the issuer of ELD defaults, the investor bears the risk of losing a part of the principal.
There are no CPPI-based products for retail investors. Fund managers, however, feel that the market regulator should allow them to launch complex products targeted towards high net worth individuals.

Source: http://www.business-standard.com/india/news/over-180-mf-schemes-delayed/351813/

JM Healthcare Sector Fund changes its fundamental attributes

JM Mutual Fund has approved the change in fundamental attributes of the JM Healthcare Sector Fund and its conversion from an open ended sector scheme to an open ended equity scheme vide their respective resolution dated 5 March 2009. The change in fundamental attributes include change in name, investment objective, investment strategy, benchmark index, asset allocation pattern and other related matters. The proposed changes will be effective from 16 April 2009.
Proposed Changes
Name of the scheme: JM Large Cap Fund.
Investment objective: The investment objective of the scheme will be to generate by predominantly investing in large cap companies which would be top 100 companies on the National Stock Exchange of India in terms of market capitalization.
Asset Allocation: Under normal circumstances the scheme will invest upto 65%-100% in equity and equity related instruments with high risk profile and upto 35% in the money market instruments/ debt securities with low to medium risk profile.
Investment Strategy: JM Large Cap Fund will invest in the top 100 companies on the National Stock Exchange of India based on market capitalization. Being a growth oriented scheme, the scheme seeks to invest a substantial portion of its portfolio in equity and equity related instruments. Under normal circumstances, around 65% of the corpus shall be deployed in such securities and the balance in debt/money market instruments. However, whenever the valuations of securities rise in a sharp manner, the scheme will take advantage of trading opportunities presented and in such a scenario, the fund will have a high turnover rate. The scheme will seek to use a mix of top down and a bottom up approach.
Benchmark index: S&P CNX nifty Index
Fund Manger: The scheme would be managed by Sanjay Chhabaria
The investors of JM Healthcare Sector Fund, who do not agree to the above proposal, can exercise the exit option without any exit load from 16 March 2009 to 15 April 2009 (both days inclusive but upto 3.00 p.m on the last date of the exit option).

Source: http://apollosindhoori.com/Default.htm

JM Healthcare Sector Fund changes its fundamental attributes

JM Mutual Fund has approved the change in fundamental attributes of the JM Healthcare Sector Fund and its conversion from an open ended sector scheme to an open ended equity scheme vide their respective resolution dated 5 March 2009. The change in fundamental attributes include change in name, investment objective, investment strategy, benchmark index, asset allocation pattern and other related matters. The proposed changes will be effective from 16 April 2009.
Proposed Changes
Name of the scheme: JM Large Cap Fund.
Investment objective: The investment objective of the scheme will be to generate by predominantly investing in large cap companies which would be top 100 companies on the National Stock Exchange of India in terms of market capitalization.
Asset Allocation: Under normal circumstances the scheme will invest upto 65%-100% in equity and equity related instruments with high risk profile and upto 35% in the money market instruments/ debt securities with low to medium risk profile.
Investment Strategy: JM Large Cap Fund will invest in the top 100 companies on the National Stock Exchange of India based on market capitalization. Being a growth oriented scheme, the scheme seeks to invest a substantial portion of its portfolio in equity and equity related instruments. Under normal circumstances, around 65% of the corpus shall be deployed in such securities and the balance in debt/money market instruments. However, whenever the valuations of securities rise in a sharp manner, the scheme will take advantage of trading opportunities presented and in such a scenario, the fund will have a high turnover rate. The scheme will seek to use a mix of top down and a bottom up approach.
Benchmark index: S&P CNX nifty Index
Fund Manger: The scheme would be managed by Sanjay Chhabaria
The investors of JM Healthcare Sector Fund, who do not agree to the above proposal, can exercise the exit option without any exit load from 16 March 2009 to 15 April 2009 (both days inclusive but upto 3.00 p.m on the last date of the exit option).

Source: http://apollosindhoori.com/Default.htm