Mutual fund investing mistakes to avoid

The equity markets are on the rise. New fund offers are again the rage. And once again, you are receiving solicitations from your so-called financial advisors to invest in mutual funds so that you don’t miss the boat. At times like these it's important to keep some tips in mind.

1. Invest in Funds backed by experienced Asset Management Companies and Asset Managers: If you had the choice, you’d probably go to an experienced doctor rather than someone fresh out of medical school. Same with mutual funds. Invest through an experienced asset management company and a fund manager, both of whom have operating and investment history in India.

2. Cheapest is not the best: This is probably the most common and silly mistake that investors make when investing in mutual funds. For some reason they think that a Rs 10 net asset value (NAV) is better than a Rs 20 existing fund of the same category and type because the former is cheaper.
What matters is the amount of money you are putting in. Rs 1 lakh put into a either fund will grow the same amount assuming that both funds invested in the same underlying securities. So, whether Rs 10 grows to Rs 12, a 20% increase, or Rs 20 goes to Rs 24, it’s the same thing.

3. Don’t invest in a new fund if a previous one of the same category exists: At the time of a new fund’s launch, there is a lot of hype created through advertising aimed at enticing you to invest.
However, there might be a fund of this type already existing, which might be a better option because it has had an operating history for a while, as well as proven risk management experience in that category. You are better off avoiding the new fund at launch and investing in the older fund of the same category.

4. Understand your risk appetite: Not all medicines are suited to all patients. Some patients can handle a higher dosage depending upon their age, their allergies, their size etc.
Similarly, not all mutual funds are meant for everyone. Before you invest blindly, understand the risks involved and evaluate whether you can handle the risks associated with the fund and its underlying exposure.

5. Build a strong foundation: Just like a house needs a strong foundation, so does your mutual fund portfolio. You need to make sure you have a safe and stable exposure to index funds, large cap diversified funds before you start exposing yourself to sector and industry specific funds, which are usually of a higher risk.

6. Be realistic about returns: Trees don’t grow to the sky, and neither do stock market returns. Be realistic about what returns you can expect. Your money is unlikely to double in the next two years through mutual funds, and don’t fall for the salesmanship of your advisor.

7. Give your money the chance to compound: By chopping and changing your portfolio and getting in and out of funds frequently you are disturbing the process of compounding and not giving your money the ability to grow. Be patient, even if in the short term a fund might not be doing well.

Source: http://in.reuters.com/article/personalFinance/idINIndia-41544820090805?sp=true

Kautilaya's management principles in play

Mutual Funds adopt all means to entice investors
The mutual fund industry is adopting Kautilaya's management principles of Saam, Daam and Dand to lure and retain investors.
The fund houses are exploring all possible means to attract new investors and retain the existing ones. On one hand the new Securities and Exchange Board of India (Sebi) regulations are forcing them to use the dand principle by raising exit load on the schemes and on other hand, using the Saam principle they are launching new schemes focusing on infrastructure stocks to optimize their returns and raise their asset base. The daam principle comes in focus with huge dividend announcements, aiming at enticing investors' money towards mutual funds.
In the past one month, many fund houses have hiked exit loads in their equity and debt schemes. The fund houses adopted this measure to discourage investors from exiting the schemes and re-investing when the Sebi's decision to ban entry load come into force from 1 August 2009.
In an investor friendly move, Sebi took decision of banning entry load for all schemes. On exit load charged to the investor, a maximum of 1% of the redemption proceeds would be maintained in a separate account that could be used by the asset management company to pay commissions to distributors and take care of other marketing and selling expenses, Sebi said, adding that any balance would be credited to the scheme immediately. It shall be applicable by 1 August 2009.
Fund houses like Reliance Mutual Fund (MF) revised the exit load from zero to 2% for Reliance Regular Savings Fund, an open-ended scheme, in case of redemptions before one year. UTI MF hiked the exit load from 0.75% to 3% under UTI Mahila Unit Scheme, in case of exit before 1 year.
Bharti Axa will now charge 2% exit load for investments of less than Rs 5 crore in its Regular and Eco Plan, an equity fund if redeemed within 1 year from the date of allotment. It used to charge 1% for redemptions before six months. Birla SunLife, HDFC MF, ICICI Prudential MF, ING MF, Kotak MF, LIC MF, Tata MF and IDFC have also revised loads for specific schemes.
The other side of the coin says that the Sebi's ban on entry load is likely to reduce the number of fresh NFOs and might incite fund houses to rush into launching the already cleared NFOs before the 1 August 2009 deadline. Since last week of June 09 till date as many as 7 NFOs have come into the market and many are waiting to get clearance from Sebi and hit the floor.
However these NFOs may not be able to garner good subscription amount as investors may wait until 1 August to invest. Also the entry load ban may make NFOs more unattractive among distributors and thus the number of new NFOs may make down drastically. As many as 16 funds and lined up for clearance from the regulator considering the months of June and July 09. Meanwhile three schemes' viz. Sahara Super 20 Fund, Mirae Asset Short Term Bond Fund and Franklin Build India Fund have their NFO running currently.
To attract investors and cash on the benefits of increased government focus on infrastructure development the fund houses have launched many schemes focusing on infrastructure sector. In June and July 09 till date around 6-7 funds have filed their offer document with Sebi focusing on infrastructure and rural growth.
The fund houses are free flowing dividends to hold back investors in the scheme on the back of volatile markets. The number has increased to a record of more than 250 schemes announcing dividend in the month of June 09. With the improvement in market conditions and to revive investors' confidence the fund houses are showering dividends. The quantum of dividend ranged between 10%-60%. Tata Life Sciences & Technology Fund announced dividend of 20%. Similarly Franklin India Prima Fund offered tax-free dividend of Rs 6 per unit. Birla Sun Life Basic Industries Fund announced dividend of 50%. Recently SBI MF has also announced dividend of 50% in Magnum Sector Funds Umbrella (MSFU)-Contra Fund.
Thus by applying all means the fund houses are assaying to lure investors besides revitalizing their interest in the schemes.

Source: http://economistinsightblog.blogspot.com/

Canara-Robeco JV set to tighten grip on MF biz

Canara Robeco Mutual Fund, a joint venture between Canara Bank and Robeco of Netherlands, is all set to utilise the reach of its parent company with 500 trained bank staff in branches across the country.
Canara Bank, over the past two months, has hired 300 individuals and trained them along with 200 existing employees to be able to sell mutual funds through a certification by Association of Mutual Funds of India (AMFI).
"It will take some time to fully utilise the network of Canara Bank as we would need to train the employees and as of now 500 persons across the country are ready to sell mutual funds," said Rajnish Narula, CEO, Canara Robeco Mutual Fund.
This is only the second joint venture (JV) other than SBI mutual fund that has a joint venture where the Indian partner has the majority stake.
The JV is looking to expand more through their partners and will limit its branch expansion from an existing 23 branches to 30 branches in the next three years.
"We are looking to expand our branch network only into cities which are of strategic importance and for a deeper penetration we will rely
more on the distributors," said Narula.The joint venture that was formed in March 2007 has seen a significant growth in terms of the assets under management (AUM).
The AUM has grown from Rs 2,185 crore in March 2007 to Rs 7,624 crore in June 2009.
Canara Robeco also feels that it has gained some mileage over the past two years in terms of its acceptance.

Source: http://www.tradingmarkets.com/.site/news/Stock%20News/2466692/

ICICIdirect waives off

ICICIdirect, one of the largest financial product distributors in India, today announced that it has waived off transaction fees for its HNI Mutual Funds customers.
ICICIdirect is the first distributors to revise its commissions on mutual funds, post SEBI's directive on removal of entry load from August 1, 2009.
As per the new fee structure, there will be no commissions for ICICIdirect customers with cumulative MF investment of more than Rs 8 lakh.
Speaking on the occasion Mr Vineet Arora, Senior Vice President and Head- Product and Distribution, ICICI Securities Ltd said, "We welcome the SEBI guidelines on removal of the Mutual Fund entry load and we believe that it will immensely benefit our customers in allocating their funds appropriately. In FY2010, ICICIdirect has witnessed a 20 percent incremental growth in the addition of number of SIPs and the mutual fund gross purchase has more than doubled.
" Customers with cumulative MF investments of less than Rs 8 lakh will have to pay nominal fees of Rs 30 per SIP.
ICICIdirect offers several comprehensive value-added free services for its Mutual Funds customers. Some of the services are- research reports on most-recommended funds, ready-to-use model portfolio, and timely interactions with a dedicated Relationship Manager.

Source: http://www.prokerala.com/news/articles/a68154.html

Birla Sun Life Asset Management appoints A. Balasubramanian as CEO

The Birla Sun Life Asset Management Company Limited has appointed Mr. A. Balasubramanian as their new Chief Executive Officer. Mr. Balasubramanian is currently the Chief Investment Officer at Birla Sun Life Mutual Fund and will continue to handle this portfolio. He will report on key governance issues to the Board and on business and operating matters to Mr. Pankaj Razdan, Deputy Chief Executive – Financial services, Aditya Birla Group.
Mr. Balasubramanian has been with the Fund House since January 1995. Under his leadership as the CIO, over the years, Birla Sun Life Mutual Fund has gained recognition as a consistent performer, across asset classes. Earlier this year the mutual fund created history by becoming the only fund house to have won, in 2 consecutive years, the coveted “Mutual Fund House of the Year” award from CNBC TV 18-CRISIL. This recognition came on the heels of Birla Sun Life Mutual Fund being declared the Debt Fund House of the year at this forum. And prestigious wins at the ICRA and Lipper awards, both of which are considered benchmarks within the industry.
Commenting on his new role, Mr. Balasubramanian said, “Birla Sun Life Mutual Fund has gained strong momentum in recent years, with a strong foundation for future growth. Backed by an enviable brand and our committed team, I am confident that we will now take our success to even newer highs.”
Commenting on the appointment Mr. Ajay Srinivasan, Chief Executive – Financial Services, Aditya Birla Group, said, “Birla Sun Life Mutual Fund is a top 5 player, recognized for its customer focus and consistent performance. Balasubramanian’s appointment is an endorsement of our strong talent base and the valuable role he has played over the last 14 years, in our mutual fund’s success.”
Birla Sun Life Asset Management Company Established in 1994, Birla Sun Life Asset Management Company (BSLAMC) is a joint venture between Aditya Birla Group, a well known and trusted name globally amongst Indian conglomerates and Sun Life Financial Inc, leading international financial services organization from Canada. BSLAMC is amongst the top 5 asset management companies in India with an average asset under management of Rs 47096 crores as on March 31, 2009 and a market share of 9.5%. An impressive mix of reach through 116 branches, full range of product offerings across equity, debt, balanced & structured asset classes and strong investment performance has helped the Company enjoy trust of over 2.15 Million investors. Known for its consistent performance, BSLAMC, has received recognition from various institutes of international repute like the CRISIL, Asian investor Magazine, ICRA and Lipper. It is the only fund house in India to have won the coveted “Mutual Fund House of the Year” from CNBC TV 18 Crisil twice in a row.
About Aditya Birla Group A US $29.2 billion corporation, the Aditya Birla Group is in the league of Fortune 500 worldwide. It is anchored by an extraordinary force of 100,000 employees, belonging to 25 different nationalities. The group operates in 25 countries across six continents – truly India's first multinational corporation. Aditya Birla Group through Aditya Birla Financial Services Group (ABFSG), has a strong presence across various financial services verticals that include life insurance, fund management, distribution & wealth management, securities based lending, insurance broking, private equity and retail broking. In FY 2008-09, the consolidated revenues of ABFSG from these businesses crossed Rs. 4763 crores, registering a growth rate of 36%.
About Sun Life Financial Inc. Sun Life Financial is a leading international financial services organization providing a diverse range of protection and wealth accumulation products and services. Chartered in 1865, Sun Life Financial and its partners today have operations in key markets worldwide. As of December 31, 2008, the Sun Life Financial group of companies had total assets under management of $381 billion globally.

Source: http://www.prurgent.com/2009-07-29/pressrelease48078.htm