Reliance Vision Fund (G) underperforms the BSE 100 Index over most of the time periods

Background:

Reliance Capital Limited is the sponsor of Reliance Capital Assets Management Ltd set up in June 1995. Reliance Capital Ltd. is a member of the Reliance Group and has been promoted by Reliance Industries Limited (RIL), one of India's largest private sector enterprises. The fund house manages assets worth Rs 88387.99 crore at end of April 2009.
Reliance Vision Fund (G) an open-ended equity growth scheme launched in September 1995. The primary investment objective of the scheme is to achieve long-term growth of capital by investment in equity & equity related securities through a research based investment approach. The minimum investment amount is Rs.5000 and in multiples of Re.1 thereafter. The unit NAV of the scheme was Rs 158.00 per unit as on 14 May 2009.

Portfolio:

The total net assets of the scheme increased by Rs 295.12 crore to Rs 2694.14 crore in April 2009.
Reliance Vision Fund (G) took fresh exposure to only one stock in April 2009. It has purchased 16.63 lakh units (1.22%) of Canara Bank in April 2009.
The scheme exited completely from Tata Motors by selling 29.13 lakh units (2.19%), United Spirits by selling 7.31 lakh units (1.98%), Infrastructure Development Finance Company by selling 50.01 lakh units (1.13%) and Hindalco Industries by selling 47.14 lakh units (1.02%) in April 2009.
Sector-wise, the scheme took no fresh exposure to any sector in April 2009.
Sector-wise, the scheme exited completely from Automobiles - LCVs / HCVs at 2.19%, Breweries & Distilleries at 1.98%, Finance & Investments at 1.13% and Aluminium and Aluminium Products at 1.02% in April 2009.
The scheme had highest exposure to State Bank of India with 14.76 lakh units (7.00% of portfolio size) followed by Reliance Industries with 8.01 lakh units (5.36%) and Infosys Technologies with 9.00 lakh units (5.04%) among others in April 2009.
It reduced its exposure to Divis Laboratories to 14.49 lakh units (by 1.11%), Reliance Industries by selling 2.00 lakh units to 8.01 lakh units (by 1.00%), Hindustan Unilever to 37.10 lakh units (by 0.73%) and Housing Development Finance Corporation to 5.49 lakh units (by 0.59%) among others in April 2009.
Sector-wise, the scheme had highest exposure to Computers - Software – Large at 9.26% (from 8.18% in March 2009), followed by Banks - Public Sector at 8.22% (4.78%), Refineries at 5.36% (6.36%) and Pharmaceuticals - Indian - Bulk Drugs at 4.59% (5.70%) among others in April 2009.
Sector wise, the scheme had reduced exposure to Pharmaceuticals - Indian - Bulk Drugs to 4.59% (by 1.11%), Refineries to 5.36% (by 1.00%), Personal Care – Multinational to 3.23% (by 0.73%) and Finance – Housing to 3.53% (by 0.59%) among others in April 2009.

Performance:

The performance of scheme is benchmarked against BSE 100 Index. The scheme has underperformed the benchmark index over most of the time periods except 1 year period.
The scheme has posted returns of 6.29% underperforming the BSE 100 Index that gained 8.80% over 1 month period ended 14 May 2009. Over 3 months period, the scheme advanced by 18.14% underperforming the BSE 100 Index that gained 24.17%. It fell 27.67% less that the benchmark index that declined by 32.14% over 1 year period.
(Figures in %)

Reliance Vision Fund - (G)Base NAV * 158.00Beta (Slope) 0.88Standard Deviation 10.58*Unit NAV as on 14 May 2009

Investment holdings: Reliance Vision Fund (G) holds 69.83% of net asset in equities with market value of Rs 1881.32 crore and 30.17% in net current assets & others having market value of Rs 812.82 crore in April 2009.
Thus the scheme followed a high risk investment style in April 2009. The scheme OD describes its asset allocation as:

Instruments Allocation & Risk profile

Equity and Equity related Instruments Atleast 60% (High)

Debt Instruments Up to 30% (Low to medium)

Money Market Instruments Up to 10% (Low)

Current investment pattern of Reliance Vision Fund (G):

Investment holdings in April 2009

Asset Type Mkt Value* (%) Hold

Equity 1881.32 69.83

Net CA & Others 812.82 30.17

Total 2694.14 100.00

*Values in Rs crore

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

RIL's weight in Nifty turns funds fidgety

India Index Services and Products (IISL), the NSE subsidiary which manages benchmark indices such as the Nifty, is running a survey of fund managers on the difficulties they face on account of the high weightage of Reliance Industries (RIL) in the index.
Fund management industry sources told DNA IISL recently sought their views on the matter.
"We have given them our views. However, I cannot disclose what we have told them," said the head - equities of a leading asset management company.
IISL officials declined comment.
RIL, the largest company by market capitalisation, also has the highest weightage in the Sensex and the Nifty, at 17.7% and 13.3%, respectively.
The stock has been the biggest contributor to the recent rally, accounting for 861 points of the 3859 point Sensex upmove.
Fund managers, both local and foreign, are taking a big hit in their portfolios for being significantly underweight on the counter.
Most institutional investors are underweight the stock by 500 bps, which in most cases is forced.
As per the Securities and Exchange Board of India rules, local fund managers cannot bet more than 10% of their portfolio on a single stock.
Foreign fundmen, on the other hand, are bound by mandates from their investors to stick to similar limits.
Thus, an average fund manager has lost nearly 2% returns on the underweight on just this one stock, say analysts.
The issue has evoked a detailed report from Credit Suisse analysts Nilesh Jasani and Arya Sen. Calling the recent outperformance of RIL a "headache for fund managers," Jasani and Sen say, "Long only investors rarely minded well-deserved, good performance by any stock --- except possibly when it comes to Reliance Industries. In an otherwise diversified Indian market, RIL's size has begun to create problems for fund managers."
The worst part is that RIL's weightage is only bound to increase.
NSE is making the Nifty a free-float index, which will add to its weight.
The completion of RPL merger is expected to add up to 2% weightage.
Jasani and Sen feel the bluechip may eventually end up with a weight of 20%-plus on the indices if it uses up its surplus cash for acquisitions. If it does, India will have a situation like Korea where Samsung Industries accounts for a fifth of the market.
Anoop Bhaskar of UTI AMC, says, "You allow them this high weightage and we will end up with a situation like Korea, where people have to live up with a 20%-plus weightage for Samsung. The larger implication is that since most of fund manager performance is benchmarked with the Nifty and they cannot give more than 9.9% weightage to any stock, we run the risk of underperformance. We have to either get the rules changed to allow fund managers to invest more than 10%, or follow MSCI and apply the 10/40 rule."
The 10/40 methodology was introduced by MSCI indices in 2002. Accordingly, the maximum weight of securities of a single issuer cannot exceed 10% of the market value of the index, and the sum of the weights of all issuers representing more than 5% of the market value of an index cannot collectively exceed 40%.
Vetri subramaniam, head-equities, Religare Mutual fund, says, "The practical implication (of huge RIL weightage) is that none of us can take a sell call, even if we have a negative view on the stock, because we are already underweight."
A free market call on Reliance Industries is therefore not possible and that gives a premium valuation to the stock.
"With people thus becoming unwilling to sell, Reliance tends to enjoy higher valuation in relation to other comparable stocks." Subramaniam adds.
Thus, Reliance's extra weight has a cascading effect and feeds on itself.
In the recent rally, the stock outperformed the Sensex by a huge margin. While the Sensex rose 47% between March 9 and May 13, the bluechip rose 68%. This, in turn, has taken its weightage up substantially --- on the Nifty from 11% to 13.3% and on the Sensex from 15.5% to 17.7%.
Most fund managers recognise this as an issue that needs to be addressed.
Sanjay Sinha, CEO, DBS Cholamandam AMC says, "If you have a disproportionately high weightage to a particular stock, it becomes difficult for the fund managers to bring out matching performance. Given the restrictions, that would be an issue."
But Vetri Subramaniam draws attention to the flipside. "In such a situation, it depends on which way the index moves. If index is going up, then we tend to be at disadvantage. But when it's falling, we tend to outperform because of the underweight."

'Mutual funds do not have an unblemished record'

While stock market indices are rising, UTI Asset Management Company (AMC) Chairman and Managing Director U K Sinha says that risk appetite at the retail level is low. In an interview, he tells Sidhartha about India’s oldest mutual fund’s capital-raising plans and suggests a roadmap for reforms in the sector. Excerpts:

From being the largest mutual fund, you are now at the fourth slot. What are you doing to claw back up?

In March 2003, when the company was set up, we had a market share of 17 per cent, which dropped to 10.5 per cent towards the end of 2005. In the equities space too, we had a market share of 48 per cent in March 2003, which fell to around 10 per cent around the end of 2005. But now that decline has been arrested. We have around 9.9 per cent share of the market and around 13 per cent in the equities segment. In that sense, the share is increasing but yes, there has been a decline.
Meanwhile, what has also happened is that some of the AMCs have opted for aggressive growth. In the process, they have focused on liquid funds, while our focus has remained on equity and balanced funds. We have focused on revenue-earning and long-term assets. We have opted for a strategy that makes the company more financially sound and more profitable compared to others who are only growing in size.
Besides, everyone in the top 10 is part of a business group, while UTI is the only pure-play AMC. My competitors are part of large conglomerates where they have the advantage of group money (coming to them) through banks, insurance companies, non-banking finance companies or securities firms, either foreign or public sector or private. No promoter helps UTI AMC in gathering funds. The shareholders of UTI distribute UTI products on merit and not because of ownership.

In 2007, you stopped subscribing to papers issued by real estate companies. Has that changed?

Since November 2007, we stopped investing in real estate papers though a lot of other AMCs continued to do so till August last year. But we have not restarted investing in real estate papers.

What about NBFCs?

We are investing selectively and are limiting our exposure to NBFCs which have strong financials. In any case, demand from NBFCs was for the business of IPO (initial public offer) financing, which is not there presently because there are no public issues. We are going after quality paper.

Are there any issues with investments in certain banks?

We cannot invest in certificates of deposit (CDs) that are issued by State Bank of India, Bank of Baroda and Punjab National Bank because they are our sponsors. These CDs account for nearly 40 per cent of the market and we have taken up the issue with Sebi (Securities and Exchange Board of India).

Is there a revival in investment sentiments, given that the stock markets seem to be doing better?

Investor sentiment has not improved and fresh money is not coming in a big way. There is still a preference for fixed deposits and there are no signs of improvement in the risk appetite.
So what are you doing?The strategy is to reach out to people through specific campaigns and investor education. We are also trying to sell balanced schemes, be it retirement plans, children-related schemes and Ulips. We have tied up with Basix and the Tower group which has some 100,000 members. Balanced funds, with reasonable safety and reasonable equity exposure, are the focus at the moment.

What about your plans for a private placement and an IPO, since you seem to have revived them?

Towards the end of April, we again received a formal go-ahead from the government for private placement plans. Basically, the validity of the earlier proposal has been extended. We are in the process of seeking shareholder approval for that. Once we get that, the process will be completed. We are in talks with some international players for private placement. We hope to complete the process in the next two-and-a-half months or so. We will take up the public offer later.
But why do you need capital?We do not need any capital. Unlike the earlier plan, there is no capital which is coming to us, but it will all go to shareholders. Their stake will go down proportionately to 18.5 per cent.

What about acquisition plans, since valuations are good and capital-raising was seen as a move to acquire other fund houses?

UTI has got a past record of taking over an AMC and merging it successfully. We did it in the case of IL&FS Mutual Fund. Investor interest has been protected.
What are the reform areas that the regulator should focus on, especially in the post-October period when there was a turmoil of sorts in the mutual fund industry?Unlike banking or insurance, the mutual fund industry does not have an unblemished record. Also, it does not have a track record for secular growth. So, the regulatory capital should be enhanced. Otherwise there are non-serious players along with systemic risks. With Rs 10 crore capital, if you manage Rs 50,000 crore or Rs 1,00,000 crore and something goes wrong, there will be systemic implications and the entire market will be affected. October was a good example of that and we should learn from it instead of looking at it as a one-off development in history.
Two, more disclosure of the portfolio – in terms of types of account holders, whether they are corporates or retail – should be mandated. People only know one number, which is assets under management.
But there is a need for disclosure of how much of group money is flowing in. Disclosure should be the first step and then the regulator should analyse the risk.
There is also a need to bring in transparency. Whatever is disclosed to the regulator should also be disclosed to the investors, media and analysts so that they can blow the whistle in case something is wrong.

Source: http://www.business-standard.com/india/news/%5Cmutual-funds-do-not-have-an-unblemished-record%5C/357897/

Sebi takes a hard look at MF biz model

The Securities and Exchange Board of India (Sebi) is looking into the business model of the mutual fund industry. “The mutual fund industry hasn’t penetrated much into the retail space. Therefore the regulator is looking at its business model,” a source in the finance ministry told The Indian Express. Sebi is also analysing some specific aspects such as the spread of business of the asset management companies and their consistency in income.

The mutual fund industry was opened up for private sector in 1993. After 16 years of operation, only 4 per cent of the household savings have found their way into investments in mutual funds. The industry is concentrated largely with big-ticket institutional investors and doesn’t offer much incentive to the retail players. Currently, almost 70 per cent assets under management belong to the institutional investors. “Mutual funds have become treasury tool for the institutional investors. A lot of retail investors lost money because of institutional dumping. Huge redemptions by institutional investors have reduced the net asset value of various funds, and in turn caused losses to retail investors,” said Sanjoy Banerjee, executive director at icraonlie.com.

While retail investors are charged both for entry and exit, the high net worth individual (HNI) investors are allowed load-free entry and exits. Although Sebi has allowed load-free entry to retail investors in case of direct applications, this hasn’t encouraged retail investors much. “The retail and institutional mix is unfair for retail investors. Tax arbitrage offered by mutual funds has attracted a lot of HNIs and institutional investors. Once this tax advantage is scrapped, mutual funds will be forced to go retail,” said Dhirendra Kumar, CEO, Valueresearch.

Besides, the seasonality of business is also a concern. “Mutual funds are not considered as an all-weather investment by many. When equity markets are up, people usually flock towards mutual fund schemes and when they are down, people withdraw money,” said Kumar.

Source: http://www.indianexpress.com/news/sebi-takes-a-hard-look-at-mf-biz-model/458289/0

'Promoter put' skews risk pricing at mutual funds

YV Reddy, the former RBI Governor had, in an interview to DNA last week, said that central banks providing clear guidance on policy had led to underpricing of risk.
This thought, while interesting, should not come as a surprise.
It can also be argued that market behaviour was rational. The relative underpricing of risk stemmed from the faith that markets had in central banks delivering the goods.A rational, and possibly similar mispricing of risk behaviour can be seen in the Indian mutual fund industry, especially the fixed-income category of funds which contribute bulk of the industry's size.
For the past several months many mutual funds have been grappling with potential (and possibly actual) credit defaults.The most prominent of these have been due to funds' exposure to the real estate industry.
We've also had instances from other industries, for example, pharma major Wockhardt and crumbling retailer Subhiksha.
These instances have been widely reported and debated in the media. So investors being well aware of the potential credit losses, could be expected to avoid funds which have such exposures.
On the contrary, the opposite seems to have happened.
Most fund houses that faced such issues have been promoted by leading business groups of the country.
These promoters have stepped in and protected the funds (and hence investors in those funds) from any credit losses.
While such business decisions may seem in the interest of investors, it leads to moral hazard and pernicious behaviour of investors who tend to completely eschew prudent risk assessment, while taking investment decisions.
These investors take comfort from the implicit -- let's call it the 'Promoter Put' -- signal given out by fund houses.
HDFC Mutual Fund, which possibly moved out the biggest chunk of such assets from the fund to the asset management company, has seen a healthy rise in inflows since.The 'Promoter Put' at work can also be seen at other large funds that resorted to such measures to protect investors from credit losses.
Fund managers who took the right risks but do not have the umbrella of the 'Promoter Put' seem to have suffered the worst. Normally, such a fund should witness a healthy rise in funds under management at the expense of those whose judgements were less than exemplary.
However, no such thing has happened. In fact, larger the fund house and greater the reputation of the group to protect, the greater seemed to be the implicit 'Promoter Put'.Much as the 'Greenspan Put'* turned out to be pernicious, investors should realise that taking investment decisions based on the implicit 'Promoter Put' could lead to harmful consequences.
Investment decisions are best taken on the basis of proper risk evaluation and assessment of the portfolio and the fund manager.
Even the fund management industry would be better placed if they realise that proper risk assessment is the way forward and should therefore prime investors on return expectations accordingly.
Mutual Funds are risk products and investor understanding of these products needs to account for it. Investors seem to want the best of the good times but none of the bad.It's is an unhealthy situation that needs to be reversed at the earliest.
* Former US Federal Reserve chairman Alan Greenspan bolstered falling stockmarkets by consistently reducing interest rates. The market's feeling that the Fed will always bail out created an artificially high appetite for risk and aglobal liquidity machine,which together spawned the bubble that has now burst. The term 'Greenspan Put' was coined in 1998 when the Fed cut rates after the hedge fund Long Term Capital Management collapsed.

Source: http://www.dnaindia.com/report.asp?newsid=1255843

Pioneer sees mutual fund assets doubling in year

Baroda Pioneer Asset Management hopes to double assets under management to 60 billion rupees ($1.2 billion) in 12 months as it strengthens distribution and attracts more debt fund clients, a top executive said.
The firm, in which Pioneer Global Investments, the fund arm of Italian bank UniCredit, has a 51 percent stake with remainder held by state-run Bank of Baroda, also plans to double presence to 12 cities and relaunch its funds.
The money manager will also use about 3,000 branches of its joint venture partner to reach out to clients in largely untapped Tier II and Tier III cities, chief executive Rajan Krishnan said.
Smaller Indian cities are considered key to the future growth of India's 5.9 trillion rupees funds industry that gets about three quarters of its assets from top-8 cities now.
"There is so much of a market outside the top-10 cities," Krishnan told Reuters in an interview on Wednesday.
"We manage over 3,000 crores. We definitely want to double our assets from here onwards in the next 12 months," Krishnan, whose firm relaunched India operations in 2008 after a more than 5-year gap, said.
Pioneer operated in India as Kothari Pioneer Mutual Fund and later Pioneer ITI Mutual Fund till mid-2002 before being bought over by Franklin Templeton Asset Management.
The venture, Pioneer's only onshore fund management operation in Asia, received regulatory nod last year and has seen rapid growth in assets since then -- average assets have jumped more than 26 times in 12 months from a low base of 700 million rupees.
The growth was almost entirely led by fixed income funds, a trend Krishnan sees continuing as inflows into equity assets remained subdued given a sharp drop in share prices.
"The AUM will be driven by fixed income," the Mumbai-based executive who joined the firm last year from the Indian mutual fund unit of U.S. firm Principal Financial Group, said.
"We will look to reposition our gilt and income funds, which are almost negligible in terms of size," he added.
The firm, which beefed up its fixed income desk by hiring former HSBC debt fund manager, Alok Sahoo, as its head in January, offers three fixed income funds.
Krishnan said two more debt funds were awaiting regulatory approval and could be launched in the next 12 months. The firm also plans to offer a large-cap stock fund if sentiments for equity investing improved.
Globally-invested funds, given the global fund management capability of Pioneer, were also on the cards but a launch is not an immediate priority, he said.
"We will probably wait for the markets to really start appreciating the need for global diversification."

Source: http://in.reuters.com/article/businessNews/idINIndia-39590120090513?sp=true

Mutual fund industry registers highest net inflow in 4 year

After a battering performance in March, the mutual fund industry has registered a net inflow of Rs 1,54,192 crore during April — the highest net inflow in the last four years. Although equity markets staged a rally last month and generated 15 per cent returns, mutual funds registered maximum inflows in the debt category at Rs 1,03,055 crore. The last time the industry registered such inflows was in August 2004, when there was a net inflow of Rs 1,55,686 crore.

During April, funds moved out of exchange traded funds (both equity and gold), gilt, balanced and equity funds to income funds. “During 2008-09, especially after September, a lot of money was withdrawn from debt funds. Now that the liquidity situation is normalised, money has again starting pouring in in this category. With so much volatility in equities, debt funds have become the flavour of the season for mutual funds,” said A P Kurian, chairman, Association of Mutual Funds in India (AMFI).

Source: http://www.indianexpress.com/news/Mutual-fund-industry-registers-highest-net-inflow-in-4-years/457651/