NSE, BSE may join hands for mutual fund trading

The proposed online portal will help investors buy and sell mutual fund units and get onsolidated statements

A working group of the Association of Mutual Funds in India, or Amfi, has recommended that India’s two largest bourses, along with other firms, jointly build a transaction platform for mutual funds trading in India.
The group has suggested jointly engaging three consortia that have bid to build the platform: National Stock Exchange and National Securities Depository Ltd; Bombay Stock Exchange and Central Depository Services Ltd; and registrars Karvy Computershare Ltd and Computer Age Management Services Ltd.
“We have recommended an open architecture where strengths of all three consortia will be leveraged for the benefit of the mutual fund industry,” said Jaideep Bhattacharya, who heads the Amfi committee and is chief marketing officer of UTI Asset Management Co. Ltd.
The committee, which submitted this proposal to Amfi last week, has also suggested that mutual fund trackers Morningstar India and rating agency Icra Ltd provide the data support for this platform.
Amfi expects the platform to go live by March.
The proposed online portal will help investors buy and sell mutual fund units and get consolidated statements. With the abolition of upfront commission, few distributors are keen on servicing small investors and the transaction platform will come in handy for them.
“We have received proposals on the operationalization of the platform. A decision will be taken in a week or two. The final clearance has to come from Sebi,” said A.P. Kurian, chairman, Amfi.
According to him, the platform would provide a better reach for the industry, higher efficiency in transactions and cost control over a long term. “Similar platforms exist in developed markets like Australia and Canada. It is our effort to bring such world-class service to our investors,” he told Mint.
Officials from the bidding companies refused to comment as the proposal is yet to be finalised. The chief executive officers of four leading asset management companies confirmed the broad structure of the proposal but refused to comment as they are not familiar with the details. “A presentation is likely to be made for the members in a couple of weeks, after which a decision will be made,” one of them said.
In a parallel move, Amfi is exploring the listing of open-ended mutual fund schemes on an exchange platform.
The system has to be tweaked in such a manner that the relevant mutual fund will be the counterparty for transactions and the registrar will have to create and extinguish units for every purchase and sale, respectively, say industry experts.

Source: http://www.livemint.com/2009/09/28235001/NSE-BSE-may-join-hands-for-mu.html?h=B

'Banks have not developed the system model to distribute third-party products'

Italy-based Pioneer Investments, which signed an asset management joint venture agreement with Bank of Baroda (BoB) last year in a major move to extend its presence in India’s mutual fund market, is set to increase its presence in 300 branches of BoB in the next year. Its CEO-Asia, Angus W Stening, puts emphasis on the need for banks to be the main distribution channel after the Securities and Exchange Board of India (Sebi) tweaked norms, in a conversation with Chandan Kishore Kant. Excerpts:

What impact would Sebi’s new norms on entry load have on the Indian mutual fund industry?

It will definitely be a catalyst for the change in the distribution dynamics. The independent financial advisors (IFAs) will always play a role for all sorts of products. This industry has been an IFA-driven market from the start. However, have we seen a change in the first two months? No, we have not.
Now the question is, will the financial advisors move away from mutual funds to deposits or life insurance products? Absolutely, they will. But will the investors stop buying mutual funds, as they have to give commissions to the advisors? No, that will not happen.

Which part of the distribution channel will have to be more active now?

It will be the banks. I think this is one regulatory change which will make banks more active in the distribution side of the business, particularly the public sector banks. How they do that and how they structure has to be seen. The banks now have to be a part of the process.

Why banks? Why not the financial advisors?

The banks are more trusted and regulated institutions. The national reach of the branch network of banks and their customer base is amazing in India.
The public sector banks, in particular, have the reach which a foreign bank may not be able to achieve. Why is there a lower penetration in distribution of mutual fund products? A concern which Reserve Bank of India (RBI) rightly pointed out in its annual report. It is because the banks have not developed the system model to distribute and the processes to manage the distribution of third-party products. And this change in norms will require that.

What’s your plan for expansion in India?

Our target is to have presence in 300 branches in the next 12 months. These will be access points for the investors to buy our products.
Clearly, we want to take that number up as time goes on. Bank of Baroda (BoB) is a good partner and has provided us access to public sector space. We need to create a distribution channel. Since July last year, we focussed on the training of staff in the Baroda branches. At the same time, we are very focused on costs. We don’t want to take a conservative approach but a measured approach.

Won’t you look for channels outside Baroda branches?

I don't have a retail chain outside Baroda and I don’t plan one for at least the next 12 months. Our focus is to support Baroda. We both feel we need to invest in our point of sales locations.
What you do in this business is develop a prototype model and replicate it around the nation. When we start to see some traction, then only can we start opening up and broadening our distribution base to non-Baroda for retail.

What portion of your asset under management comes from retail and institutions?

Currently, institutional participation is as high as 95 per cent. For the retail space, we need to have a product pipeline.

You are hugely dependent on institutions.

Absolutely, yes. I think initially in the first six months, else could we go across Rs 5,000 crore in equities? No.

Where do you see your retail participation in future?

India has not got a 50-year track record in equity investment. I will be happy to get 25 per cent of the assets from retail and 75 per cent from the institutions.

You don’t sound bullish on growth from smaller cities and towns, which is in contrast with what the local CEOs talk of.All I’m saying is that we are not there now. And, possibly could not be there, as we are very much at the beginning. Managers have to look at this for a long-term business and turn away from short-term opportunistic goals. The structural change from Sebi in terms of front-end load is going to have long-term implications.

Will you invest in the branding of your JV with BoB?

We don’t have to do a joint venture brand. Since we have a strong brand and Bank of Baroda is equally a strong brand, then why the need to invest in a third brand?

Source: http://www.business-standard.com/india/news/%5Cbanks-have-not-developedsystem-model-to-distribute-third-party-products%5C/371452/

L&T Fin pays Rs 45 cr for DBS Chola AMC

L&T Finance — the financial services arm of engineering major Larsen and Toubro — announced its entry into India’s mutual fund industry on Thursday, by buying DBS Cholamandalam Asset Management for Rs 45 crore.
The buyout values DBS Cholamandalam AMC — a unit of the joint venture between the Murugappa Group and Singapore’s DBS, at 1.55% of its total assets under management of Rs 2,893 crore on August 31.
Equirus Capital was advisor to L&T Finance for the deal, while Edelweiss Capital advised DBS Chola. Industry officials said the valuation is one of the lowest among the deals in the domestic mutual fund industry in the recent years.
In June, Japan’s Nomura bought a stake in LIC Mutual Fund for a valuation of about 2.5% of the fund’s assets under management. Last year, IDFC bought Standard Chartered Bank’s asset management business for a price that worked out to 5.7% of assets under management. Both these deals were considered expensive for the buyers, as a major chunk of the assets was debt at the time of acquisition.
Some in the industry believe that the deal is expensive for L&T as well, given the asset management company’s debt-laden asset mix. DBS Cholamandalam’s total assets comprises close to Rs 253 crore in equity and the rest in debt, according to data from Morningstar India, quoting AMFI figures.
The mutual fund industry has been abuzz with talks about DBS Cholamandalam AMC being on the block since 2007, though the company has officially denied it all the while. The current valuation is just a shade of what was offered to buy the AMC in 2007, said a person, who was familiar with the talks during the last stake sale attempt in 2007.
“The promoters were asking for 8% of the assets in 2007, when assets were over Rs 5,000 crore. What was offered was 6%,” said the person, on condition of anonymity. DBS Cholamandalam officials were unavailable to comment on the matter.

Source: http://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-svs/engineering/LT-Fin-pays-Rs-45-cr-for-DBS-Chola-AMC/articleshow/5058414.cms

Mutual fund agents, distributors get new Code of Conduct

Apex sectoral body AMFI has issued a fresh code of conduct for mutual fund intermediaries like agents and distributors, mandating them to disclose all commissions received from different schemes.
The revised code of conduct was issued by the Association of Mutual Funds in India (AMFI) following market regulator SEBI's circular asking the mutual fund distributors to disclose all the commissions payable to them from various schemes.
In a statement today, Sebi said all intermediaries of mutual fund companies would have to follow the code of conduct strictly.
"If any intermediary does not comply with the code of conduct, the mutual fund shall report it to AMFI and Sebi. No mutual fund shall deal with those intermediaries who do not follow code of conduct," Sebi said.
Reacting to the move, mutual fund tracking firm Value Research Online CEO Dhirendra Kumar said, "It puts onus on the Mutual Fund. Since intermediaries are not accountable to SEBI, mutual funds would have to ensure that they (intermediaries) are brought to task."
The code also requires intermediaries to adhere to guidelines issued by Sebi, highlight risk factors of each scheme, abstain from indicating or assuring returns, maintain confidentiality of all investors deals and ensure that all communications are sent on time, among others.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Mutual-fund-agents-distributors-get-new-Code-of-Conduct/articleshow/5047949.cms

Sebi may segregate retail, institutional MF schemes

In a bid to protect the interests of retail investors, the Securities and Exchange Board of India (Sebi) is planning a clear segregation of retail and institutional schemes. Sources said Sebi might ask fund houses to create separate portfolios and net asset values (NAVs) for retail and institutional schemes.Sebi is working on the move as during the liquidity crunch of October 2008, fund managers sold the most liquid stocks in their portfolio to meet redemption pressures, leaving retail investors in a spot.
At present, although mutual funds offer both retail and institutional plans, these are separate only in the name as their portfolio and NAVs are the same. The only difference is the expense ratio, which is more for retail investors. Sources said Sebi was looking at doing away with this disparity as well.
Vineet Arora, head of products & distribution at ICICI Securities, said, “It is a welcome move. There is an obvious difference in behaviour between retail and institutional investors. Institutions tend to panic more than retail investors. Since redemption pressures are more from institutions, schemes for them will have to keep more cash, which may impact returns.”
Mutual funds charge 2-2.5 per cent from retail investors in equity schemes. The fee for institutional investors is only 0.5 per cent. The expense ratio is the percentage of a mutual fund’s net assets/corpus that goes towards meeting its expenses. The ratio covers fund management fees, marketing and selling expenses, and registrar fees. Funds with lower expenses give better returns, which is one reason why institutional schemes post better returns than retail ones. A case in point is ICICI Prudential’s Focussed Equity Fund institutional plan, which has posted 19.64 per cent returns compared with the retail plan’s figure of 18.49 per cent. There are several schemes where such a disparity exists.
Deepak Sharma, CEO, Sarthi Wealth Management Consultants, said, “The segregation is necessary after the kind of outflows witnessed in October 2008. It will ensure that retail investors are not at a disdvantage during large-scale redemptions.”
Recently, Sebi Chairman CB Bhave had expressed concern over the mutual fund industry’s over-dependence on funds from corporate houses. The Reserve Bank of India has also picked holes in the business model adopted by mutual funds. “A high dependence on corporates for funds implies a lesser role for the retail investors,” it said in its Annual Report 2008-09.
According to a Celent report, institutional investors contribute 56 per cent of the industry’s assets while retail investors account for only 37 per cent. By comparison, retail contribution in China is 70 per cent.

Source: http://www.business-standard.com/india/news/sebi-may-segregate-retail-institutional-mf-schemes/371171/

Following own rule while investing in equities 'suicidal'

A couple of years ago, hopes were high that a large chunk of household savings, which account for nearly two-third of all domestic savings in India, will find its way to the stock market through mutual funds, insurance companies and banks.
Investments in shares and debentures by households grew at a rate of 149% a year during FY 2005-07 as mutual funds and unit-linked insurance policies made rapid inroads in urban India. In FY08 the stock market absorbed nearly 12% of all household savings in India, up from less than 1% in FY04.

The basic rule for investment in equities is to buy securities when the equity market is falling. But every time the market crashes,retail investors rush out of the market, creating a stampede and hurting themselves so badly that many wouldn’t want to return ever. This gives equities a bad name and restricts the upside potential for retail investors.
Take the case of the market turmoil in Jan’ 08 and the free fall since then. This induced individual investors to flee to the safety of traditional investment avenues like bank deposits, insurance polices and cash and household savings in shares and debentures declined by 78% in FY09 against the average growth of 71.5% in previous three years. But actually they had missed a golden opportunity.
The Sensex had stabilised at around 8000 in November 2008 and hovered around this level till mid-March .

The signs of recovery and improved global liquidity reversed the trend in equity market to northward since mid-March ’09. The Sensex nearly doubled in less than six months. And guess what, retail investors are back in Dalal Street. The rising retail participation is evident from the rising assets under management of the equity mutual funds, which have grown from Rs 1,01,000 crore in Feb ’09 to Rs 1,81,000 crore by the end of Aug ’09.
But now, most of stocks comprising Sensex and Nifty have nearly doubled in the last six months and their valuations look stretched. Obviously, with each rise in the market, the chances of making a loss is higher than making a gain. In contrast, during the 2008 meltdown, the chances of a bottoming out was greater than a further fall.

So, if one decides to enter the equity market now, the returns are likely to be at best modest given the fact that most stocks are near their year highs while some have touched all time highs.
Then there are concerns on account of underlying inflationary pressure and a strong likelihood of a monetary tightening by the central bank. This may drag the equity markets down. If this happens, retail investors may book a loss and equities will again get a bad name.
Investors should not forget that booms and busts cycles are an integral part of equity markets and if one plays these cycles smartly, she can generate long-term wealth and prosperity. Big corrections are actually a buying opportunity.

Source: http://economictimes.indiatimes.com/quickiearticleshow/5007798.cms

Equity funds valuation up by Rs 80,000 crore in 5 months

Encouraged by the V-shape recovery in the market value of equity portfolio, the mutual fund industry has started rewarding investors with dividends.

Data compiled by the Association of Mutual Funds in India (AMFI) suggest that equity funds portfolio valuation has risen by Rs 80,000 crore in the five months between March 31, 2009 and August 31, 2009, due to a 60 per cent recovery in the benchmark indices and over 100 per cent rise in mid-cap and small cap stocks.
Dividend payout data sourced from MutualFundsIndia.com shows 71 equity-related dividend paying schemes were back in the dividend paying list in the first half of the current financial year compared to only 4 in the financial year 2008-09. Overall, 96 equity schemes have paid dividend in the first half so far compared to 42 equity schemes in the first half of the financial year 2008-09.
Among the equity funds that paid higher dividends are Franklin India prima fund (60 per cent), Birla Sun Life basic industries fund, Reliance RSF equity fund, SBI magnum sector umbrella fund and Taurus star share fund (50 per cent each) and Principal emerging blue-chip fund, Sahara banking & financial services fund and Birla Sun Life tax relief 96 fund (40 per cent each).
Prateek Agrawal, head of equity at Bharti AXA investment managers said “It is ideal to book profits and reward investors with dividend payments, especially during the current market condition which is good. Investors usually tend to stay invested longer in equity-oriented schemes, which have this discipline.”

Further, he is expecting markets to perform reasonably well in the coming days, which could give further opportunities in terms of regular profit booking and dividend distribution.
Considering favourable market conditions so far in the current fiscal, 25 fund houses have considered dividend this time compared to only 12 same period of the previous fiscal. Among this 25 fund houses, 14 fund houses skipped dividend last year between April 2008 to September 2008.
This include Baroda Pioneer, Bharti AXA, Canara Robeco, Escorts, Fortis, ING, JP Morgan, Principal, Reliance, Religare, Sahara, Tata, Sundaram BNP Paribas and Taurus mutual fund.

Source: http://www.business-standard.com/india/news/equity-funds-valuationby-rs-80000-crore-in-5-months/370726/

'We are cautiously optimistic'

The world markets are abuzz with talks of an earlier-than-expected economic revival. Yet, it makes sense to be cautiously optimistic, Bruno Leefeels Bruno Lee, regional head, wealth management, personal financial services, Asia-Pacific, HSBC. In a conversation with ET, he articulates his views on the wealth management in India and the impact of the regulatory changes on the mutual fund pricing structure. Excerpts:

Many feel that the worst is behind us. Would you agree?
There is some positive improvement in terms of economic data in the US market and Asia. Also, the fear factor has significantly reduced. But, I think we still need to be cautious as there are things that might crop up such as the unemployment situation. Overall, I would say we are cautiously optimistic.

What has been your advice to your high networth income (HNI) clients?
We feel that one should not wait till the market touches a record high to return to investing in equity. HNIs should review and rebalance their portfolios on a regular basis to ensure that they are comfortable with their exposure to risk and the changing environment. Further, to deal with volatility in the markets, diversifying into different asset classes is crucial. In India, where fixed income has been providing attractive returns, clients should have a strategy to allocate assets among equity and fixed income. Indian investors need to understand that the fixed income environment is quite attractive and the equity market is recovering. But outside India, in the US or eurozone, interest rates are low. There is a huge pool of cash sitting on the sidelines. When people’s risk appetite increases, BRIC market will attract a lot of inflow and that will push up the market to the next level.

How do you see the recent regulations on Mutual Fund (MF) pricing structure affecting the market?
Overall, MF penetration is low in India. The regulation ensures more transparency in pricing, which we support. But the other thing to be considered is the high cost of distribution. Bulk of people’s savings are still in fixed deposits, so many are not familiar with stocks/MFs. Thus, it requires a lot of education and financial planning support. Also, unlike stocks, MF is an ongoing service and maintenance cost is high for distributors. So, we are looking at pricing it correctly without sacrificing the service quality.

As a distributor of MFs, what shape is the new charge structure likely to take?
We are thinking along the direction of giving customers a choice. Some customers may do only one transaction for a one-time fee. They could be sophisticated and require relatively limited ongoing servicing. But other customers may need more frequent updates and ongoing services, for them we could charge a certain advisory fee. The charges will also depend on their needs, which are different for customers with lower investible surplus and ones with higher investible assets. We will have to look at customer needs, behaviour and requirements to design an appropriate way within the regulatory environment.

We took some time do our research on how best this could be done and are now on the verge of launching our charge structure. We want to ensure that this is a sustainable, profitable structure, otherwise, it could kill the whole distribution.

What kind of potential do you see in the wealth management space in India?
At HSBC, we are excited about opportunities in India. Some estimate the retail segment will grow at around 10% CAGR, from 900,000 in 2007, to over 1.6 million until 2013. The country has a large young population. As education is important in India, there is a need to save for the long-term — for kids’ education and retirement. We are well positioned to provide quality wealth management services to the mass-affluent segment to help fulfil their important goals in life.

Which are the markets that seem attractive at the moment?
Our quarterly global fund managers survey indicates that the relative allocation to equity market will improve during the third quarter. At the same time, within the global equity market, Asia (excluding Japan), particularly the Greater China region, will continue to attract more inflows because of the continued growth. And recently, we have seen the market reaching a relatively high level compared to March. Sensex in India has almost doubled in about six months’ time. So that is a sign that the money is flowing back into the market.

Source: http://economictimes.indiatimes.com/articleshow/5035815.cms?flstry=1

Money flows back into MFs

If the number of draft offer documents filed with Securities and Exchange Board of India (SEBI) is any measure, mutual funds (MFs) seem particularly cheerful despite stricter new rule on entry load.
Market players say AMCs are on a high, thanks to renewed retail investor interest in equity, flow of new money and maturing of fixed deposits where wary investors had parked their funds during the recent trough.
MFs’ offer documents filed with SEBI rose 32-fold between August and September 18 from a single document filed in the seven months to July, 2009. September alone saw 22 offer documents being filed.
“This has to be because of the up move witnessed in markets and improvement in the economy. Fund houses now foresee higher retail investor interest,” said Apurva Shah, VP and Head of Research — Institutional Equity, Prabhudas Liladhar.
Though it appears that the downturn is behind, figures indicate that the market rally was initially not spurred by retail participation. There was no new money flowing into the market.
“The old money had depreciated during the downturn and investors were shying away from investing. Now, with people recovering losses made during the slowdown, they are eager to participate in the rally and invest in equity and Mutual Funds,” said Gopal Agarwal, Equity Head — Mutual Fund, Mirae Asset.
“Also, high-cost fixed deposits, in which investors had parked their funds during tough market conditions, are now going to mature and would flow to mutual fund and equity market,” said Agarwal.
Shah feels that the new SEBI norm on entry load would stem the flow of old money, as distributors would not see any incentive in channelling it into mutual funds.
Indian economy is perceived as resilient, and its cyclical nature of downturn attracts foreign institutional investments, said Agarwal, adding: “Both internal and external factors are in favour of Indian economy and markets. That is why, despite stricter norms by SEBI, MFs are buoyant.”

Source: http://www.hindustantimes.com/Money-flows-back-into-MFs/H1-Article1-456124.aspx

MFs invest Rs 40,246 cr in blue-chip companies

Money managers handling mutual funds are playing it safe and betting on the top 10 stocks in the bourses, ensuring that their funds perform in line with the overall market. In fact, these blue-chip companies are attracting 28% of mutual fund investment in the equity market.
According to a Sunday ET analysis, out of the Rs 143,860 cr being invested in stocks by mutual funds, as much as Rs 40,246 cr has been invested in just 10 scrips — Reliance Industries, Oil & Natural Gas Corporation (ONGC), Bharti Airtel, State Bank of India (SBI), ICICI Bank, Infosys Technologies , Larsen & Toubro (L&T ), Bharat Heavy Electricals (BHEL), Tata Consultancy Services (TCS) and HDFC Bank.
Significantly, the first five have an allocation of around 18% of the total equity investment of the mutual fund industry. Also, the 10 frontline stocks have high weightage in the Sensex index. Their cumulative weightage is around 59% in the Sensex in terms of market capitalisation as on September 16.
The Sunday ET analysis was done on the basis of the data provided by Value Research India, an independent investment information provider. The figures are as on August 31.

According to Kenneth Andrade, head investments at IDFC Mutual Fund, there is a correlation between the weightage of these companies in the overall market capitalization of listed entities and the investments made by the mutual fund industry.
So far as individual holdings are concerned , Reliance Industries and ONGC attracted around 4% of the total equity investment of the mutual fund industry each. Bharti Airtel, SBI, ICICI Bank and Infosys Technologies were allocated 3% of the total amount each.

Source: http://economictimes.indiatimes.com/MFs-invest-Rs-40246-cr-in-blue-chip-cos/articleshow/5034235.cms

Axis MF to unveil Short Term Fund; files offer document with SEBI

Axis Mutual Fund has filed an offer document with securities and exchange board of India (SEBI) to launch Axis Short Term Fund, an open-ended debt scheme.

The new fund offer (NFO) price for the scheme is Rs 10 per unit.

Investment objective:The scheme will endeavor to generate stable returns with a low risk strategy while maintaining liquidity through a portfolio comprising of debt and money market instruments.

Plans: The scheme offers growth and monthly dividend option. Monthly dividend option will have payout and reinvestment sub options.

Asset allocation: The scheme would invest 30-100% of asset in money market instruments and debt instruments including government securities, corporate debt, securitized debt (includes securitized debt (excluding foreign securitized debt) up to 30% of the net assets of the scheme) and other debt instruments with maturity/average maturity/residual maturity/interest rate resets less than or equal to 375 days or have put options within a period not exceeding 375 days. 0-70% in debt instruments including government securities, corporate debt, and securitized debt (includes securitized debt (excluding foreign securitized debt) up to 30% of the net assets of the scheme) and other debt instruments with maturity/average maturity/residual maturity/interest rate resets greater than 375 days. The scheme shall not invest in foreign securitized debt. Investment in derivatives will be up to 100% of the net assets of the scheme. Investment in derivatives shall be for hedging, portfolio balancing and such other purposes as maybe permitted from time to time. The scheme can invest up to 50% of net assets in foreign securities.

Minimum application amount:The minimum application amount is Rs 5,000 and in multiple of Re 1 thereafter.

Target amount:The fund seeks to collect a minimum subscription amount of Rs 10 million.
Benchmark index:The schemes performance would be benchmarked against Crisil Short Term Bond Fund Index.

Fund mangers:Sriraj Bhattacharjee and Ninad Deshpande are the fund mangers of the scheme.

Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20090919114737707&dir=2009/09/19&secID=livenews

ICICI Pru MF to launch Gold ETF; files offer document with SEBI

ICICI Prudential Mutual Fund has filed an offer document with securities and exchange board of India (SEBI) to launch ICICI Prudential Gold Exchange Traded Fund (ETF), an open-ended exchange traded fund. The new fund offer (NFO) price for the scheme is Rs 100 each plus premium equivalent to the difference between the allotment price and the face value during the NFO.

Investment objective:
ICICI Prudential Gold Exchange Traded Fund seeks to provide investment returns that, before expenses, closely track the performance of domestic prices of gold derived from the LBMA AM fixing prices. However, the performance of the scheme may differ from that of the underlying gold due to tracking error.

Asset allocation:
The scheme would invest 90-100% of asset in gold bullion and instruments with gold as underlying asset. 0-10% in debt and money market instruments (including cash& cash equivalent).

Minimum application amount:
The minimum application for issue of units shall be made for a minimum of Rs 5,000 plus in multiples of Re 1 in cash (by way of demand draft and cheque) during the NFO. After the NFO, units will be created in a minimum size of 1000 gold units through Authorised Participants and Large Investors.

Target amount:
During the NFO period of the plans under the scheme, each Plan seeks to raise a minimum subscription of Rs 1 Lakh.

Benchmark index:
ICICI Prudential Gold Exchange Traded Fund will be benchmarked against the domestic price of gold as derived from the LBMA AM fixing prices.

Fund manager:
The scheme will be managed by Chaitanya Pande.

Source:http://www.myiris.com/newsCentre/storyShow.php?fileR=20090919113111707&dir=2009/09/19&secID=livenews

Govt may halve time bar for insurance IPOs

Listing lock-in may be eased to five years, Reliance Life may be the first beneficiary.

The government is likely to allow insurance companies to list after five years of operations against the 10 years prescribed at present.

The move follows a proposal from Anil Dhirubhai Ambani Group’s Reliance Life Insurance, which is planning an initial public offer by March to raise resources and fund its expansion plan. Reliance Life will complete four years of operation and would have to wait for another six to meet the present stipulation. Reliance Capital had acquired AMP Sanmar in 2005, which started operations in 2002. So, the two companies put together have completed seven years.

Citing the guidelines, Insurance Regulatory and Development Authority (Irda) had turned down a proposal from Reliance Life to list this year and referred the case to the finance ministry. The finance ministry, in turn, had sought the law ministry’s opinion on the rules.

A ministry official said the government wanted to understand if the10-year period was the minimum stipulation or if it meant the company had to list by the time it completed 10 years of operations.

“There is one insurance company that has had discussion with the Irda on whether we will permit them to disinvest now. We said it is only the government that can reduce the tenure. Then they approached the government. The government is thinking of reducing it to five years. Therefore, they have written to us, saying we propose to make rules like this and sought our suggestions We have no particular issue,” Irda Chairman J Hari Narayan told Business Standard in an interview.

None of the private players have completed 10 years of operation, with the first licence issued to HDFC Standard Life in October 2000. If the rules are amended, of the 22 private players, at least 10 insurance companies can raise funds from the public market. Apart from Reliance and HDFC Standard Life, the list includes ICICI Prudential Life Insurance, SBI Life, Max New York Life, Kotak Mahindra Old Mutual Fund, Birla Sun Life, Bajaj Allianz Life Insurance, Metlife, ING Vysya Life Insurance Company and Tata AIG Life Insurance.

The companies would, however, be able to tap the markets only after the insurance regulator finalised its IPO guidelines, which are expected later this month. Hari Narayan said the promoters would have to reduce their stake proportionately. So, in the case of a 10 per cent dilution, the Indian partner, which has, say, a 74 per cent stake, would have to pare its holdings by 7.4 per cent, while the foreign partner’s stake would fall by 2.6 per cent.

The stipulation could, however, create complications for the foreign partner since it could lose the power to block a board resolution, which requires a minimum 26 per cent holding. The regulator is expected to address these issues in the guidelines.

Apart from the guidelines, some life insurance companies are also waiting to turn profitable to tap the markets. Barring a few players such as SBI Life, Metlife and Sahara Life, most insurance players make losses.

“Under general rules only profit making companies are allowed to go public but the Securities and Exchange Board of India has, in certain situations, allowed loss-making companies to go public but only through the book-building procedure. But it will be subject to Sebi’s guidelines,” Hari Narayan said.

Source: http://www.business-standard.com/india/news/govt-may-halve-time-bar-for-insurance-ipos/370573/

IDFC Asset Allocation Fund of Fund files offer document with SEBI

IDFC Mutual Fund has filed an offer document with securities and exchange board of India (SEBI) to launch IDFC Asset Allocation Fund of Fund, an open-ended fund of fund scheme.

The new fund offer (NFO) price for the scheme is Rs.10 per unit.

Investment objective:
The primary investment objective of the scheme is to generate capital appreciation through investment in different mutual fund schemes based on a defined asset allocation model covering both local and offshore assets.

Plans:
The scheme will offer 3 different plans -conservative asset allocation plan (Conservative AA Plan), moderate asset allocation plan (Moderate AA Plan) and aggressive asset allocation plan (Aggressive AA plan) that will offer 3 different risk profiles for investors. Conservative AA Plan will target the lowest risk profile followed by Moderate AA Plan. Aggressive AA will be the highest risk profile asset allocation.
Each plan offers both growth option and dividend option (payout and reinvestment).

Asset allocation:
The Conservative AA Plan will invest 10-15% in equity funds, 45-50% in debt funds, 45-50% in money market funds, 0% in alternate and 0-15% in money market securities.Moderate AA Plan will invest 25-30% in equity funds, 60-70% in debt funds, 0-5% in money market funds, 5-10% in alternate and 0-15% in money market securities.Aggressive AA Plan will invest 45-50% in equity funds, 35-45% in debt funds, 0-5% in money market funds, 10-15% in alternate and 0-15% in money market securities.Alternate - It will consist of allocations to offshore commodity equity funds as well as domestic Gold ETFs.

Minimum application amount: The minimum application amount for all plans (non SIP purchases) is Rs 5,000 and in multiple of Re 1 for purchases and in multiples of Re 0.01 for switches. SIP purchase - Rs 1,000 (subject to minimum of 6 installments of Rs 1,000 each).
Target amount: The fund seeks to collect a minimum subscription amount (plan level) of Rs 10 million under the scheme during the NFO period.

Load structure: The scheme will charge no entry load. But an exit load of 0.25% of the NAV shall be applicable if investors who redeem / switch out such investments within 3 months from the date of subscription applying First in First Out basis, (including investments through SIP/STP).

Benchmark index: The schemes performance would be benchmarked against Crisil MIP Blended Index.

Fund manager: The scheme will be managed by Ashwin Patni.

Source:http://www.myiris.com/newsCentre/storyShow.php?fileR=20090917135234707&dir=2009/09/17&secID=livenews

Mirae Asset launches Mirae Asset China Advantage Fund

Mirae Asset Global Investments has announced the launch of India’s first Pure China Fund, Mirae Asset China Advantage Fund (MACAF), an open-ended fund of funds scheme that will invest predominantly in Mirae Asset China Sector Leader Equity Fund, a SICAV fund domiciled in Luxembourg. The fund will be open for subscription from September 14, 2009 to October 9, 2009.

The scheme seeks to generate long-term capital appreciation by investing predominantly in units of Mirae Asset China Sector Leader Equity Fund and/or units of overseas funds and units of exchange traded schemes that focus on investing 65-100% in equities and equity related securities of companies domiciled in or having their area of primary activity in China and Hong Kong. The scheme may also invest 0-35% of its corpus in debt and money market securities and/or units of debt/liquid schemes of domestic mutual funds, in order to meet liquidity requirements from time to time.

According to Mr. Arindam Ghosh, CEO, Mirae Asset Global Investments (India) Pvt. Ltd., “China is poised to lead the world out of the global slowdown backed by its domestic consumption and stimulus push from the government. We are pleased to launch Mirae Asset China Advantage Fund for the Indian investors, thereby meeting their asset allocation needs. The international fund of funds will provide investors access to one of the world’s growing economies and will enable them to prudently diversify their portfolio”.

According to Mr. Byung Ha Kim (Fund Manager for Mirae Asset China Sector Leader Equity Fund): “The Chinese economy is leading the world on the recovery path. China should maintain its high growth rates in the coming years and even in this scenario, the overall macro risk associated with the country is relatively very low. With Mirae Asset China Advantage Fund, we aim to offer an opportunity to Indian investors to benefit from the growth potential of local Chinese companies”.

The new fund offers a regular plan with dividend (payout & reinvestment) and growth options, with the minimum application amount for the regular option being Rs.5000/- and in multiples of Re.1/- thereafter. The Scheme does not guarantee or assure any returns. The fund would be benchmarked against MSCI China Index (INR terms).

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Mirae-Asset-launches-Mirae-Asset-China-Advantage-Fund/articleshow/5021789.cms

IDFC MF lanuches FMP; files offer document with SEBI

IDFC Mutual Fund has filed an offer document with securities and exchange board of India (SEBI) to launch IDFC Fixed Maturity Plan (FMP) Quarterly Series 55 - 57, Half Yearly Series 9 - 11 and Nineteen months Series 2, a close-ended income scheme.

The new fund offer (NFO) price for the scheme is Rs10 per unit.

Investment objective:The primary investment objective of the scheme is to seek to generate income by investing in a portfolio of debt and money market instruments maturing before the maturity of the scheme. There is no assurance or guarantee that the objectives of the scheme will be realized.

Plans:
IDFC Fixed Maturity Plan - Quarterly Series 55 - 57 (Plan A)
IDFC Fixed Maturity Plan - Half Yearly Series 9 - 11 (Plan A)
IDFC Fixed Maturity Plan - Nineteen months Series 2 (Plan A & B)
The plans will have both growth and dividend option.

Structure: Close Ended Income scheme with 2 plans (Plan A & B) under IDFC Fixed Maturity Plan - Nineteen months Series 2 and one plan (Plan A) under IDFC Fixed Maturity Plan - Quarterly Series 55 - 57, IDFC Fixed Maturity Plan - HalfYearly Series 9 - 11.

The schemes have following duration:
1) IDFC Fixed Maturity Plan - Quarterly Series with duration of Three Months
2) IDFC Fixed Maturity Plan - Half yearly Series with duration of Six Months
3) IDFC Fixed Maturity Plan -Nineteen Months Series with duration of Nineteen Months.

Minimum application amount:The minimum application amount for IDFC FMP - QS - 55 -57 & IDFC FMP - HS - 9-11 Plan A is Rs 25000 and multiples of Re 1and IDFC FMP - 19 mts - 2 Plan A is Rs 5000 and multiples of Re 1 and Plan B - Rs 25 lakhs and multiples of Re 1.
Asset allocation:The scheme will invest 0-100% in debt and money market. Investment in securitized debt will be up to 50% of net assets of the plan(s). Investments in derivatives, foreign securities and stock lending will be nil.

Target amount:The fund seeks to collect a minimum subscription amount of Rs 10 million under the scheme during the NFO period.

Load structure: The scheme will charge no entry and exit load.

Benchmark index:The schemes performance would be benchmarked against Crisil Composite Bond Fund Index.

Fund manager:The scheme will be managed by Anupam Joshi.

Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20090917143352707&dir=2009/09/17&secID=livenews

Regulator wants systems audit of mutual funds

Within two days of making a series of proposals to prevent Satyam-type accounting scams, the Securities and Exchange Board of India (Sebi) today said mutual funds would need to have a systems audit conducted by an independent certified information systems auditor (CISA) or its equivalent authority.

The market regulator has advised fund houses that the audit should be conducted once in two years. For financial years 2008-2009 and 2009-2010, Sebi said the systems audit should be completed by September 30, 2010.

The domestic mutual fund industry manages assets of over 7.5 lakh crore.

“The audit should be comprehensive, encompassing systems and processes inter alia related to integration of the front-office system with the back-office system, fund accounting system for calculation of net asset values, and financial accounting and reporting systems,” said Sebi.

It added the audit would also look at “unit-holder administration and servicing systems for customer service, fund flow processes, system processes for meeting regulatory requirements, prudential investment limits and access rights to systems interface.”

Nimesh Shah, chief executive officer of ICICI Prudential Mutual Fund, said, “We welcome this step and we will follow the direction as we have been given a year’s time. It is good for the industry and since the industry is in a serious business of managing people’s wealth, it is an important requirement.”

Fund CEOs that Business Standard spoke to said since new regulatory norms had come up and more players were preparing to enter the market, the systems of fund houses should be in compliance with the new regulatory norms.

Such a move would bring robustness to the industry, they said.

Sebi also asked the fund houses to place both audit and compliance reports before the trustees. These, along with the comments of the trustees, should be communicated to Sebi.

Source: http://www.business-standard.com/india/news/regulator-wants-systems-auditmutual-funds/370293/

IFAST launches Fundsupermart.com in India

The company also launched an equity funds index—FSM All-Equity Fund Index, that would act as an indicator for investors and fund managers.

Financial Services firm, iFAST Financial India on Wednesday launched Fundsupermart.com in the domestic market, an online transactional website for retail mutual fund investors.
The platform will allow customers free account opening and transactions at zero cost amongst other facilities, iFAST Financial India’s managing director, Rajesh Krishnamoorthy told reporters here.
This would also provide consolidated reports to help the customers manage their holding with ease, he said.
The company also launched an equity funds index—FSM All-Equity Fund Index (Fefi), that would act as an indicator for investors and fund managers.
The composition and structure of Fefi is based on the performance of select open-ended equity funds and currently comprises 79 equity mutual funds, Krishnanmoorthy said.

Source: http://www.livemint.com/2009/09/16165739/IFAST-launches-Fundsupermartc.html

Mutual funds ride on public sector IPOs

SBI Funds, Sundaram BNP Paribas Asset Management look to launch PSU-dedicated funds; more in pipeline

Mutual funds are trying to take advantage of the government’s disinvestment cycle beginning with the initial public offerings in NHPC Ltd and Oil India Ltd by launching dedicated funds to invest in public sector units (PSUs).

At least two fund houses have filed their offer documents with the Securities and Exchange Board of India (Sebi), the capital market regulator, and more are in the pipeline. Even fund houses that have no immediate plans to launch dedicated PSU products say they will play the theme through investment plans.

SBI Funds Management Pvt. Ltd has filed an offer document with Sebi for a fund that will invest in public sector companies. Sundaram BNP Paribas Asset Management Co. Ltd has filed a document for Sundaram BPN Paribas Select Thematic-PSU Opportunities Fund.

Both these schemes will invest at least 65% of their portfolio in equity shares of listed PSUs. Religare Mutual fund is also planning a PSU fund, said an official from the fund house, who didn’t want to be named.

India has 36 asset management companies (AMCs), with total assets under management of Rs7.49 trillion at the end of August.

Fund managers say more schemes will be launched to play the PSU theme. The fund houses will try to garner returns by investing in stocks of state-owned companies that are either about to get listed on the exchanges or have been recently listed.

Investments during listing enhance the prospects of profit booking in the long run. After NHPC and Oil India, Bharat Sanchar Nigam Ltd is one of the next big public offerings.

“We are excited about the ongoing disinvestments process by the PSUs. We would not launch any PSU-dedicated equity fund at the moment, but we will try to take advantage by changing our asset allocation strategy through some of our existing equity diversified funds,” said Sundeep Sikka, chief executive officer of Reliance Capital Asset Management Ltd. The company manages assets worth Rs1.17 trillion.

Equity-oriented PSU funds have been launched only twice in the past, and both were floated by the oldest mutual fund house in the country, UTI Asset Management Co. Pvt. Ltd. The firm in 1993 launched UTI Master Growth Fund, which invested at least 50% of its assets in PSU stocks. The fund, with assets worth Rs243.25 crore, was merged with UTI Top 100 Fund last year.

The company launched another PSU-dedicated scheme called UTI PSU Fund in 2004, with assets of Rs18.09 crore, which was merged with UTI Index Select Fund in April 2007.

Traditionally, mutual funds have been the biggest buyers of PSU stocks during disinvestment. Many mutual fund experts believe PSU stocks can be the best bet for investors in the long run. This is because the government’s capital-raising strategy has changed over time. Until about two years ago, the government was considered conservative and hence, a majority of PSU shares used to be held by it.

As the markets evolved, the government is now more liberal towards disinvestment of its stakes in PSUs to raise capital. This change in tack would provide more clarity about the government’s moves, unlock the value of PSU companies and help fan positive sentiment among investors towards PSU shares. Fund managers are betting on this sentiment by launching new equity-related PSU funds.

“PSU stocks are generally available at a discount as compared with other companies. So, there is clearly an opportunity for mutual fund investments,” said Dhirendra Kumar, CEO, Value Research India Pvt. Ltd, a New-Delhi based mutual fund tracking firm.

“The businesses of PSUs are very focused and in the long run, we are very optimistic about such companies. Though the performance of PSU companies is very cyclical, in a span of three-five years, PSU stocks should outperform the markets,” he added.

According to a recent report by Prime Database, a New-Delhi-based primary market investment tracking firm, the scope for PSU IPOs is huge.

“The divestment process can begin with a bang and continue to create new milestones. With all these offerings, the shape and size of the Indian capital market will change for ever, and for good,” said Prithvi Haldea, chairman and managing director of Prime Database.

Still, there are concerns. There are 80 listed PSU firms on the Bombay Stock Exchange. In terms of year-to-date gains, the benchmark Sensex has outperformed PSU stocks. While the Sensex has risen 72.87% during the calendar year, the PSU index has managed a gain of 66.45%.

Some fund managers are sceptical about the launch of dedicated PSU equity funds, saying a limited universe of asset allocation among PSU firms could crimp returns.

“We will not launch any thematic PSU fund at the moment, since the opportunity in the space is limited. Even with more PSU companies getting listed, we will rather prefer to watch how the market evolves. But we may invest in PSU companies through some of our existing schemes,” said Jaideep Bhattacharya, chief marketing officer, UTI Asset Management, which manages Rs73,926 crore of assets.

Another risk, according to N. Sethuram, chief investment officer of Shinsei Asset Management (India) Pvt. Ltd, is that PSUs are not an all-weather investment. “Themes need to be useful across time bands. We need to see how far they are useful,” he said. “PSUs tend to perform in line with the government. The performance is subject to the government of the day and policy risks.”

Source: http://www.livemint.com/2009/09/16214007/Mutual-funds-ride-on-public-se.html

U.S. Economy May See Its Slowest Recovery Since 1945

The U.S. recovery may be the slowest since World War II to regain all the ground lost during the recession, even if economists’ more optimistic forecasts for expansion turn out to be right.

The slump this time was so deep, said JPMorgan Chase & Co. chief economist Bruce Kasman, that the 3.5 percent average quarterly growth rate he sees in the next year won’t be enough to bring gross domestic product back to its $13.42 trillion pre- crisis peak. That’s in contrast with the last 10 recoveries, when GDP returned to its previous levels within 12 months.
The result: A year after the Lehman Brothers Holdings Inc. bankruptcy helped drive GDP down to an annualized $12.89 trillion in the second quarter, there’s still “plenty of malaise,” Kasman said. Unemployment may remain close to the current 26-year high of 9.7 percent through 2010, upsetting voters ahead of mid-term Congressional elections and forcing officials to keep interest rates near zero and the budget deficit around this year’s record $1.6 trillion.

“This will be the most disappointing recovery,” said Kasman, whose forecast compares with the median estimate of 2.5 percent growth in a Bloomberg News survey of economists.

The U.S. might not recover the 6.9 million jobs and the $13.9 trillion in wealth lost during the recession until about the middle of the decade, said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. The unemployment rate may never get back down to the 4.4 percent low of 2007, he said.

Cyclical Revival

Stock prices may take three or four years to reach their previous highs as the cyclical revival of the economy gradually boosts corporate profits, said Allen Sinai, chief economist at consulting group Decision Economics in New York.

“It will be a bull market, but not a roaring bull market,” Sinai said. He sees the Standard & Poor’s 500 stock index rising to 1,100 by the end of 2009 from its close of 1,042.73 on Sept. 11. The index hit a record 1,565.15 on Oct, 9, 2007, and then fell to a 12-year low of 676.53 on March 9, 2009.

Companies, particularly retailers such as Macy’s Inc., may have to adjust as consumers buy less. Household spending as a share of GDP might fall to its long-run historical average of 65 percent from 70 percent in the past decade as people opt to save more, according to economists Peter Berezin and Alex Kelston, of Goldman Sachs Group Inc.

Biggest Drop

The restrained performance that is forecast for the economy reflects both the depth and the origins of the recession, which began in December 2007. The 3.9 percent decline in gross domestic product was the most since World War II.

While Nippon Yusen K.K., Japan’s largest shipping line, has been able to raise rates on container services to the U.S., it continues to lose money on the business. Mikitoshi Kai, head of investor relations for the Tokyo-based company, said in an interview that “we need to increase rates by a lot more to make a profit.”

The decline has been a “balance-sheet recession,” says Richard Koo, chief economist at Tokyo-based Nomura Research Institute. Those take time to recover from, as once highly leveraged banks and consumers gradually reduce their debt, he said.

Fed Outlook

Policy makers may have to keep interest rates low and the federal budget deficit high to push the economy forward as financial institutions and households adjust. Federal Reserve Chairman Ben S. Bernanke and his fellow central-bank colleagues might hold their target for the federal funds rate between zero and 0.25 percent through 2010, said Kasman at JPMorgan in New York, the second-largest U.S. bank. That’s the rate at which commercial banks lend each other money overnight.

“The Fed may need to maintain fairly low interest rates over a period of many years,” Berezin and Kelston, of New York- based Goldman, the fifth-biggest U.S. bank, wrote in a Sept. 9 report.
On the fiscal front, the deficit will total $1.29 trillion in the year starting Oct. 1, boosted by a $787 billion stimulus package and aid to banks, according to Maury Harris, chief economist in New York at UBS Securities, a unit of Zurich-based investment bank UBS AG.

“I suspect the deficit will continue to balloon for years,” said Kenneth Rogoff, a former chief economist at the International Monetary Fund who is now a professor at Harvard University in Cambridge, Massachusetts.

‘Wild Card’

The “wild card” is the political impact the economy’s chronic difficulties will have on mid-term Congressional elections in November 2010 and beyond, Kasman said.

Democratic lawmakers in the House of Representatives are particularly vulnerable if voters blame President Barack Obama for a sour economy, said Nathan Gonzales, political editor for the Rothenberg Political Report in Washington.

Since 1945, the party that controls the White House has lost an average of 16 House seats in a president’s first midterm election, according to the Cook Political Report. Obama’s Democratic Party currently has 256 seats in the chamber, compared with 178 for the Republicans.

In the past, deep recessions have often been followed by rapid recoveries. That’s what happened in 1982-83 as the economy surpassed its previous peak in about six months, thanks to a 7.2 percent surge in growth. Behind the turnaround: aggressive monetary easing by the Fed, which brought short-term interest rates down to 8.5 percent from 15 percent in 1982.

No ‘Gas’

“We thought that if we really stepped on the gas, the economy would take off, and it did,” said Lyle Gramley, a senior economic adviser for New York-based Soleil Securities who was a member of the Fed’s board at the time. That option isn’t available to the central bank now as the overnight interbank rate is at zero.

The Fed has also been hampered by a credit crunch that has restricted the flow of money from lenders to borrowers, Gramley said. Banks, faced with mounting credit losses, have tightened terms and standards on loans to businesses and households since the middle of 2007, according to the Fed’s tri-monthly survey of lending officers.

That’s akin to the situation in 1991-92, when tight credit in the wake of the savings-and-loan crisis restrained the recovery, according to Gramley. It took about nine months for the economy to return to pre-recession production levels as growth clocked in at an average 2 percent.

Borrowing Falls

Household borrowing fell by a record $21.6 billion in July to $2.5 trillion, the Fed reported on Sept. 9. The drop was the sixth straight monthly decline, the longest since the 1991 credit crunch.

Behind the fall: Banks are becoming stingier in handing out credit while consumers are growing more wary of taking on more debt. The savings rate rose to a 14-year high of 6 percent in May before falling to 4.2 percent in July, government data show. It was 1.3 percent at the start of 2008.

Retailers are taking notice of the increased consumer thriftiness, including Cincinnati-based Macy’s. Chairman and Chief Executive Officer Terry Lundgren told Bloomberg Television on Sept. 8 that the second-largest U.S. department-store company has reduced inventories “fairly significantly.”

Home builders may have to adjust, too. Sales of new houses jumped 9.6 percent in July, the most since February 2005, to a 433,000 annual pace. That was still less than half the 923,000 average since the start of 2000.

The increase in sales has helped boost the price of copper. Copper for delivery in three months closed Sept. 11 at $6,250 a metric ton on the London Metal Exchange. That compares with $3,231 on Jan. 2 and a high of $8,730 in April of last year.

“There were huge excesses built up during the expansion,” Sinai said. “It may take the economy a few years to get back to its previous peak.”

Source: http://www.bloomberg.com/apps/news?pid=20601109&sid=aBj5AeyQqun8

Aggressive Intent

JM Financial Mutual now functions without any CIOs for either equity or debt.
The fund managers report to the Investment Advisory Committee, which comprises of board members.

Poor performance of equity schemes in the market downturn has hit the fund's reputation. And with the banning of entry loads, this AMC, known for its high upfront commissions, has a tough task ahead.
Bhanu Katoch, CEO JM Mutual Funds, shares his views on these very issues.

JM Financial Mutual Fund was the blockbuster during of the bull run of 2006 and 2007, only to hit rock bottom after that. What will you be doing to revive performance?
When the equity markets were in the bullish phase in 2006-2007, most of our mid-cap and large-cap schemes performed extremely well. They surpassed the indices by a huge margin. In the year 2007, Sensex delivered 47 per cent and the BSE Midcap index returned 68 per cent. Our large-cap category of funds gave a 1-year return in the 45-50 per cent range while our flagship funds delivered in the 90-111 per cent range. In fact, a few of our schemes figured in the top 50 Lipper world rankings.
The year 2008 witnessed the most severe fall in the history of the Indian stock markets. Sensex fell by 52 per cent and BSE Midcap index fell by 67 per cent. Against this, our flagship funds fell by around 65 to 75 per cent.
We believe that in India, growth as a strategy will tend to do exceptionally well over a longer period of time. So a high beta/alpha strategy portfolio will always deliver. We believe that our investment style will offer substantial alpha as and when confidence starts to come back and money starts chasing growth countries and growth stocks! If you look at the recovery period between March 5, 2009 and June 4, 2009 and even the period following that, JM schemes have done much better than the indices and even the peers. JM Basic Fund delivered 154 per cent during that period and JM Emerging Fund delivered 135 per cent. Our other equity schemes gave returns in the 70-150 per cent range. During this same period, the Nifty returned 77 per cent and the Sensex, 83 per cent.

Was that the reason for your relative underperformance in 2008?
Our underperformance was due to lack of cash and also due to our high beta/alpha strategy that definitely did hurt us in an exceptionally bad year.

What stopped you from going into cash?
Had we taken one, we would have performed better but having said that, a 2008 kind of year comes only once in 50 years or so and, therefore, it can't become the basis for any change in our fund management style. We do not believe in taking aggressive cash calls and only in extreme conditions will we use cash as a strategy.

What are you saying to your investors right now?
Our equity funds will stay true to their respective mandates. But we will ensure that while we stay with a high beta/alpha strategy, we do that with more liquid names.
So funds where the mandate is growth will continue to focus on growth even at the cost of short-term volatility. Most of our schemes have a mandate to chase growth and we will stay true to that even in the future. We believe the growth approach will provide maximum rewards to investors as India continues on its path to becoming an economic superpower.
So you are basically saying that your schemes will do well when the market picks up.
We feel that after a bit of consolidation the market will move up and we may see 17,000 within the next 6 months. In the next 2 years time we expect Sensex to rise above 25,000. Our schemes are well positioned for this kind of an upturn.

You spoke about more liquid names. Have you put any process in place to ensure that you do not have undue exposure to illiquid stocks?
All the liquid names in 2007 became illiquid in 2008. And what happened took the entire market by surprise. But several measures have been put in place since then. We have strengthened our parameters on stock and sector concentration, and stop-loss limits. Our risk parameters now have multiple "flag-off" levels which are more stringent than the regulatory requirements. We also have a more pragmatic approach towards risk management with multiple checks and balances. All these act as pointers for the fund management team to proactively balance the risk-reward aspects of their respective portfolios. And the IAC now has a greater role to play.

How do you want investors to perceive JM Mutual Fund?
We manage funds in 4 broad categories: equity, long-term debt, short-term debt and arbitrage.
On the equity side, we will stick to a high beta/alpha strategy. We believe that our investment style/growth approach will offer substantial alpha to investors in a growth market like India.
We are well known for our debt fund management capabilities. Even in the liquidity crunch crisis of October 2008, we did not resort to availing credit from the RBI's special window. We were the first to start arbitrage funds and are doing well in that category. We will soon be launching our PMS. Unfortunately in India, PMS is more a structured product with passive strategies. We may also start with similar products, but over a period of time we will look to innovate in this space.

You are a very small fund house whose equity returns got hammered in the fall of 2008. The competition is huge and that too from large and well established players. Is that not challenging?
I believe that the potential for growth of mutual fund industry in India is huge. One can easily compare that to any emerging market where the industry is large. If we take average AUM as a percentage of GDP, it is pegged at around 10 per cent in India compared to 80 per cent in the U.S. Even if you look at mutual fund AUMs as a percentage of bank deposits, it is only around 20 per cent in India as compared to 140 per cent in the U.S. Big-to-small is a wrong way to look at things. Finally, it will be the fast that will beat the slow! We want to focus on delivering performance and offering superior service standards to our investors and partners.
Recently, JM Financial Asset Management Pvt. Ltd. divested an 8 per cent stake equally to two global institutional investors, Valiant Mauritius Partners FDI Limited and Blue Ridge Affiliates, namely BRLP Mauritius Holdings II and BROMLP Mauritius Holdings II, respectively. This sale of stake brought in Rs 63.86 crore. Prior to this, the AMC's paid up equity capital was Rs 54 crore. These players will add significant value from a global markets perspective.

How big is the investment team?
The equity team comprises of 10 members 4 fund managers, 2 dealers and 4 research analysts. On the debt side, we have a 5 member team comprising of 2 fund managers, a credit appraisal head, a dealer and a research analyst.

With no CIO in place for either debt or equity, who oversees the team and guides them?
Our fund management team is very strong and has substantial experience. They are accountable to the CEO and the IAC.
The team works very closely with the IAC that meets once every 15 days.

Your fund house is supposed to pay the highest upfront commission of 1.50 per cent. Will that hold you in good stead now that entry loads have been banned?
Because of the banning of the entry loads businesses will become more capital intensive. In the short term we will all need to work hard to adjust. But soon the industry will move from a high-margin-low-turnover model to a low margin-high-turnover one.
The institutional segment still contributes some 50-60 per cent of the AUM. In the coming days you will see retail contributing big time to the growth of the industry. Mutual fund penetration is still restricted to the top 8 cities and about 3 per cent of the households have invested in funds. There are 5,545 urban towns and 6,40,000 villages with a rural-urban mix to the ratio of 70:30. Incrementally, prosperity levels and literacy levels are going up and that means huge scope for growth.
IFAs will play a very critical role in the industry's growth. Once the PSU banks start selling mutual fund products, the penetration levels will only increase. There are 300 commercial banks with 72,000 branches.

Source: http://new.valueresearchonline.com/story/h2_storyview.asp?str=100796

MF industry to see consolidation, says Mirchandani

In an exclusive interview with Harsha Jethmalani of Myiris.com, Mohit Mirchandani, Head Equity, Taurus Asset Management gave his views on equity markets and investment strategies.

>Do you expect the euphoric mood of the stock markets to last much longer?

Depends on the time horizon, short term, I expect a decline that will dent the euphoric mood temporarily. Medium and long term, we will be back on track to scale higher levels.

>Given the current trends in equities, which are the sectors you are watching closely?

We like the agro space, infrastructure theme, healthcare and consumption themes, oil and gas.

>Coming more specifically to your funds - what is your investment strategy? What are the key criteria you have in mind while selecting a stock?

The underlying philosophy is to look for favorable risk reward ideas. Constructing our portfolios involves multiple steps…
Step 1: We identify themes and sectors that we believe will play out over the next 12 – 24 months.
Step 2: We then select stocks on a bottom up basis within these high conviction themes.
We may also identify stocks that do not fit any larger theme, but are very good companies with good prospects, managed by capable professionals and have clean financials.

>As far as Taurus Ethical Fund is concerned you are overweight on the consumer non durables sector. Can you elaborate?

We are optimistic on the consumption theme in India. The companies within this space are high quality companies with huge cashflows, high ROE`s. We are optimistic on the consumption story.

>What innovative products can we expect from the company in near future?

We are constantly working on product ideas. When the time is right, we`ll launch the appropriate products.

>Do you think an equity fund should be fully invested or it should take active cash calls?

I think a fund manager should not hesitate from taking cash calls. Protecting an investor`s wealth is equally important.

>In these tricky times, how should an investor plan his investment?

A financial advisor is best positioned to deliver that advise based on the individual investor profile and needs.

>Where do you see the mutual fund industry a couple of years from now?

There will be consolidation. The temporary effect of SEBI`s announcements will be overcome – its a painful transition.

Source:http://www.myiris.com/newsCentre/storyShow.php?fileR=20090915113742173&dir=2009/09/15&secID=livenews

Debt funds boost MF assets to Rs.7.57 tn in Aug

The Indian mutual fund industry’s assets under management touched a new peak of Rs.7.57 trillion at the end of August, thought the growth was moderate at 5 percent over the previous month. The month under review saw net inflows of Rs.327 billion across categories with debt funds witnessing Rs.383 billion of net inflows. All other key categories saw net outflows. Liquid funds saw the highest net outflows among mutual fund categories, to the tune of Rs.52 billion in August. This was driven by lower returns which led investors to shift to ultra short term debt funds.
On the returns front, equity funds out-performed on the back of a strong performance from midcap and small cap funds while the long term debt funds saw negative returns due to rising yields, according to CRISIL FundServices.
“Ultra short term debt funds saw strong inflows in August, with banks parking their surplus funds in these schemes. At the same time, the new rule of no entry loads seems to have initially dulled the inflows into equity funds even though fund performances were good for the month,” said Krishnan Sitaraman, Director – CRISIL FundServices.
CRISIL’s analysis of over 300 equity oriented schemes shows that over 250 schemes gave better 1-month returns than the S&P CNX Nifty in August. Midcap and small cap funds posted better returns than large cap funds and benchmark indices across all periods analysed (1 month, 3 months and 1 year).
“The realty, consumer durables and technology sectors were significant out-performers in the month which saw benchmark equity indices ending flat reflecting in the S&P CNX Nifty rising 0.6 percent,” Sitaraman added.
Mutual funds’ average AUM has now risen by over 85 percent since the liquidity crisis in the last quarter 2008 when industry average AUM had dropped to around Rs.4 trillion in November 2008.

Source: http://economictimes.indiatimes.com/articleshow/5014648.cms

Reliance MF declares 40 pc dividend in Reliance NRI Eq Fund

Anil Ambani-controlled Reliance Mutual Fund on Monday announced a 40 per cent dividend in Reliance NRI Equity Fund and 15 per cent dividend in Reliance Media & Entertainment Fund, a company statement said here.
Reliance NRI Equity Fund, is an open-ended diversified equity fund with investment objective of generating optimal returns by investing in equity or equity-related instruments primarily drawn from the companies under the BSE 200 Index.
The investment philosophy of Reliance Mutual Fund is to focus on wealth creation for all NRI investors, which corelates with the growth of Indian markets. Improved investor trust in financial institutions and consistency in performance of the fund have contributed to its growth, Reliance Mutual Fund's CEO, Sundeep Sikka, said.
The Reliance NRI Equity Fund is an exclusive offering for the NRI investor who is seeking an exposure to the Indian equity space. The fund specifically focuses on companies with high market capitalisation and stability. The NRI Equity fund has been benchmarked against the BSE 200 index and has consistently outperformed the benchmark and has amassed a corpus of Rs 130-crore in a short period of time.

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Reliance-MF-declares-40-pc-dividend-in-Reliance-NRI-Eq-Fund/articleshow/5010668.cms

SREI Infra gets Sebi nod to launch mutual fund biz

Non-banking finance company SREI Infrastructure today said it has got in-principle approval from the Securities & Exchange Board of India (Sebi) to launch its mutual fund business in the country.

The company would be incorporating two wholly-owned subsidiaries for carrying out the asset management business.
"Pursuant to an in-principle approval received by the company from the Sebi for setting up a mutual fund, the board has decided to incorporate two wholly owned subsidiary companies for carrying out the activities of asset or fund management and trusteeship services," SREI Infrastructure said in a filing to the Bombay Stock Exchange.
Besides, the board has approved the resignation of Somabrata Mandal as the Director of the Company with effect from September 12.
Earlier this month, Axis Asset Management Company (Axis AMC), a wholly owned subsidiary of Axis Bank Ltd, had received the final regulatory approval from the Sebi to launch its mutual fund business in the country.
Shares of SREI Infra were trading at Rs 75.30, up 4.37 per cent in late afternoon trade on the BSE.

Source: http://www.business-standard.com/india/news/srei-infra-gets-sebi-nod-to-launch-mutual-fund-biz/73388/on

'You should always play the contrarian'

Sanjay Sinha is the chief executive officer of DBS Cholamandalam Asset Management, a joint venture between the Murugappa Group and DBS of Singapore. Prior to taking over as CEO a year ago, Sinha was the CIO of SBI Mutual Fund. In an interview with Ram Prasad Sahu, he talks about the global recovery, the need for support from the regulators, macroeconomic environment and investment themes that would play out over the medium term.

Given the state of the world economy what kind of recovery do you expect?

Right now we are at a phase where there has been a significant recovery from the pessimistic picture that was painted six months back. The big question today is whether this will take a ‘W’ shape or will it be something that will be sustainable from the point where we are today. In isolation, it is difficult to sustain this recovery which is why there is a need for continuous support from central bankers and governments to keep the integrity of the financial sector intact. The recovery in the form of a ‘W’ shape springs from the fact that when the financial sector and economies have shown signs of recovery, the commodity prices have moved far ahead of what the fundamentals would have justified.

What kind of impact will the deficient rainfall have on the economy and corporate earnings?

About ten years back, the Kharif crop (sown in summer/monsoon season harvesting in October) used to be 66-67 per cent of the entire agricultural production. And this crop is largely dependent on monsoon. Now, proportion of Kharif is down to 53-54 per cent, almost equal to the Rabi crop (sown in winter, harvesting in spring). Though the delay in rainfall will have an impact, if we do get rainfall before the season is out, a large part of the Kharif crop would have been saved. Impact would have been much larger if we did not get any rainfall now, in which case even the Rabi crop would have been at risk. The fact that we have widely dispersed rainfall through the country now means that the negative fallout which was earlier forecast would be lower. It is estimated that about 50 bps to the GDP growth rate is at risk because of the delayed monsoon and the cascading impact the rural economy has on consumption.

Is there more steam left in the markets?

Market levels are a function of liquidity, valuations and events. The primary driver for the markets recovery in the initial phase has been liquidity. The Indian markets started moving up from the early part of May. And it was not due to election outcome as results had not been announced but the rally was in tandem with the rally in the global markets. The second phase got accelerated due to an event which was the strong mandate for the UPA government. However, this was not an uninterrupted rally, there have been event risks which have put short term breaks on the market.
For example, the budget not measuring up to expectations did retrace the market. Thereafter, government actions in terms of policy be it the intention to roll out the GST or the New Tax Code have been positive for the markets. As far as valuations are concerned they are not static in time. What may be appearing to be fairly valued or expensive at a point may not be the same after two quarters have passed between that point of view and the earnings being generated by the corporates. If we are in a range bound market, earnings would have moved up in the three to six month period and the visibility of the future quarters would make that level justifiable.

Considering the EPS estimates for FY 10 and FY11, are the markets jumping ahead of fair valuations?

Earnings expectations for FY10 would be flat to slightly positive while that for FY11 would be growth of 15-20 per cent. If you look at a 10-year average for Sensex, the P/E ratio has been 15 times. So a Rs 1,100 EPS for FY11 would be discounted by about 15 times at 16,500 levels for December. However markets also move up and down due to liquidity. If there is liquidity there could be a premium to this number in the short to medium. Unless we get into the exuberance phase with P/E at 21 times or so, the momentum would still be strong.

Which sectors which would be lead the recovery?

We can sum up investment opportunities across four themes. The first would be domestic consumption, the second would be commodities, third would be infrastructure while the fourth would be linkages to global recovery. These four would cover all the available opportunities in the market Across sectors, from a risk return perspective the scale is tilted more towards the midcaps than the large caps irrespective of sectors.
The large caps have already shown discounting of the optimism in their prices, the midcaps are just about catching up. In the process, the valuation difference that had emerged between the large caps and the midcaps were not justified given the change in environment. Under the circumstances midcaps would perform better. Within the domestic consumption, there is today room for it to be stable part of a portfolio. In 2006, 2007, FMCG and auto took a back seat but in 2009 they are back in the reckoning as far as the core portfolio is concerned.

You should always play the contrarian. Today, there is a unilateral point of view that the IT sector is vulnerable because the order flows are at risk due to protectionism or due to shrinkage of company budgets. Both these negatives are being played up more than what they should be.

What are the challenges for Indian corporates?

The high cost of borrowing is one as the lending activity in India has not come back to levels witnessed in the early part of 2008. Last year we were clocking 22 per cent growth in credit and now down to 15-16 per cent. There has been a lull in capacity expansion because of the environment. The positive side of this has been that corporates have been able to conserve capital at a time when it was desperately needed. The negative could be if they have delayed capacity expansion, they may not be able to meet demand which is likely to emerge and of which there are early signs. The passenger car sales in the current financial year are up by 24 per cent. In cement, while capacity expansion has slowed down, dispatch numbers continue to be strong.

Should one invest in gold while its prices have passed the $1,000 mark?

Gold price domestically is more a function of the currency movement. In dollar terms, the gold price has not moved significantly but in rupee terms it has moved a lot. This is a commodity which is inelastic in supply and it has traditionally been a hedge against inflation and if there is a feeling that commodity prices would shoot up then this could be a hedge.

Source: http://www.business-standard.com/india/news/%5Cyou-should-always-playcontrarian%5C/369939/

Sundaram Rural India failed to keep up benchmark index

The rural India may have anchored the country out of the global economic storm last year, but one of the few mutual fund schemes that focus on the hinterland, Sundaram BNP Paribas Rural India, is all at sea with many investors abandoning it.
Launched in April 2006, the fund’s objective was to predominantly invest in companies that gain from an expansion in the economic activity in rural India. It has however seen its asset size shrink from more than Rs 1,000 crore in Dec ’06 to less than Rs 300 crore in Aug ’09.

PERFORMANCE
Since its launch Sundaram Rural India has delivered just about 22% absolute returns till date, which is nearly half of about 43% returns posted by the Sensex and Nifty, and even 37% returns by its benchmark index, the BSE 500, during this period. This despite the fact that this fund had earlier outperformed the market indices in the first two years after its launch. It generated about 20% returns in 2006 against BSE 500’s 16%, while in 2007 it posted more than 68% returns, way ahead of the BSE 500’s 62%, Sensex’s 46% and Nifty’s 53%.
The fund, however, saw its fund value tumble by 62% in 2008 when BSE 500 fell by around 58% and the Sensex and the Nifty lost about 52% each in that one year when markets around the world crumbled like a pack of cards.
Here one can conveniently argue that the fund’s high beta of 1.08 explains to some extent its larger-than-market fall in the bear run. However, a logical counter argument to this is that a high beta also implies that the fund ought to perform better than the market in an upturn. The same, however, is not reflected in the performance of Sundaram Rural India so far this year. The fund has managed to generate just about 50% returns since January against the market returns of nearly 64%.

PORTFOLIO
Despite its rural focus, it is difficult to distinguish this fund’s portfolio with that of any other diversified equity scheme. This is because almost all large companies have a presence in rural India as all of them are looking for a pan-India presence with the village folks driving demand in everything from mobile phones to cars and bikes. Sundaram Rural India’s portfolio also comprises popular companies like Bharti Airtel, Punjab National Bank, SBI, Tata Motors, Maruti Suzuki, L&T , Mahindra & Mahindra and Hero Honda Motors, among others – stocks highly popular with any other diversified equity scheme. Thus, Sundaram Rural India is not threads apart from any other diversified equity scheme. But what differentiates it from the rest is its sectoral allocation.
This fund has always been heavy on consumer goods segment and has been increasing its exposure in this particular sector since Jan ’09. Today, more than onefourth of its portfolio is dedicated to this sector that includes consumer goods and sugar stocks. Recently it has hiked its exposure in sugar to more than 10% of the portfolio. Given the rising demand for sugar, if the sugar stocks are to see a further run-up , this fund is sure to benefit. The other prominent sectors include fertilizers and automobiles that account for about 15% each of the fund’s portfolio. The fund currently is well-diversified to accommodate around 40 stocks.

OUR VIEW
A different investment theme is not enough to attract investors unless it is backed by a lively performance. Rural India may be categorised as a different thematic fund. It however fails to compete even with its sibling funds like Select Focus, CAPEX and SMILE that have been recognized amongst some of the outstanding diversified equity schemes of the country today. Sundaram Rural India, thus, needs to put in a lot of hard work to match the performance of other schemes in Sundaram’s basket.

Source: http://economictimes.indiatimes.com/articleshow/5007660.cms