Sebi for phased reduction of securities transaction tax

Members of the Securities and Exchange Board of India (Sebi) have suggested a phased reduction of the securities transaction tax (STT), as part of a package of measures to develop the capital markets that was discussed with Finance Minister Pranab Mukherjee last week.

Removing STT is considered necessary to improve retail participation in the capital markets by reducing transaction costs, sources close to the development said.
“This is a good time to reduce the STT since the market holds good prospects for investment by retail investors," a source privy to the proposal said.

Stock market brokers have been seeking the removal of STT ever since it was introduced in the 2004-05 Union Budget. It is a tax imposed on the sale and purchase of securities, which can be shares, derivatives or units of mutual funds traded on a recognised stock exchange. At present, the STT rate is 0.125 per cent of the total volume of the transaction.
Officials said a reduction or phase-out of the tax might not affect the government’s revenue collections significantly because it already levies short-term and long-term capital gains tax on almost all transactions.
They also said the regulator had proposed that the losses incurred in currency derivatives be treated as business losses and not speculative losses, as is the case of equity derivatives.
If the move goes through, any investor could either write off such losses against business profit, which may or may not accrue from market dealings, or amortise it over time during the normal course of business. Alternatively, the investor can take advantage of tax rebates. At present, currency derivative losses are treated as speculative loss and can be used to set off only speculative gains.
Sebi has also suggested that the investments by retail and institutional investors in real estate mutual funds should be given tax benefits for the development of the sector and the fund. A real estate mutual fund (REMF) scheme is a mutual fund investing directly or indirectly in property.
Similarly, for the development of the mutual funds as an investment category, it was suggested that provident funds and pension funds be given tax benefits to invest in mutual fund units.
The move has been suggested because pension funds and provident funds have large corpuses and tax benefits would encourage funds to flow into mutual funds.

Source: http://www.business-standard.com/india/news/sebi-for-phased-reductionsecurities-transaction-tax/360372/

Mistakes to avoid in the next stock market rally

Recent stock market activity, especially the reaction post-elections, might suggest that the worst is behind us. So many of us made investing mistakes and suffered over the last 18 months.
Everyone makes mistakes….but really smart people learn from their own mistakes and those that other people make. If this is indeed the start of a new upcycle, then now is the best time to review what went wrong the last time so that we do not repeat the same mistakes again.
Read more and get smarter….

1. Don’t be unrealistically optimistic:

Markets can come down as well – don’t believe the cheerleaders who only give you the positive picture of markets going up.
Be very suspicious of the so-called experts on TV who are “confident” that a stock or the market will go up. If they are such geniuses, why did they not warn you 18 months ago that the market would go down by about 60%?
Be cautious about any predictions you hear from so-called “Gurus” on the direction of the market, don’t blindly trust what they say. Most “Gurus” have a poor track record.

2. Understand your risk

You cannot get high rewards without taking on high risk: Not all investments are suitable for you, because they might be too risky for your risk profile. There are no get rich quick schemes – the stock market is not a casino, it takes patience, skill and experience to achieve superior returns. If someone promises to double your money in 3 years, be very suspicious.
If you lost money in the last few quarters and were emotional about it, recognize that some of it was your own fault for investing in instruments that were too risky for you to handle. Avoid these in the future, even if the market is racing to the top.

3. There is no substitute for quality:

Invest in good quality stocks or mutual funds. Don’t speculate. In a bear market, the speculative names are the ones that fall the fastest. Build your portfolio on a strong foundation. The newest NFOs might not be the safest things for you to invest in, because they are untried and untested.
Its best to be safe and to invest in high quality names. Don’t take a punt on some random tip on a company that has no track record or history of quality performance.

4. Don’t invest blindly

Invest towards meeting your financial goals: Don’t just believe what your friends or neighbours are telling you about their investments, these investments might not be suitable for you. Invest because you have a certain goal in mind such as planning for your retirement, or buying a house, saving for your daughter’s wedding or son’s overseas education. This will help you match the right investment product with the right goal.
Everyone wants a return on their investments, but that is not the reason to invest. You invest because you want to do something with the money – marry your daughter, buy a house, plan your retirement. Ensure your investments are allowing you to meet these goals.

5. You cannot successfully time the market:

If you believe that you can sell at the top and buy at the bottom, we hate to break this to you but you are not a genius. Its never been done successfully by even the world’s leading investors, so don’t try this strategy at home!
No “Guru” predicted that the market would go up in May 2009 by close to 30%, and not many people were able to time this rise successfully, just like not many people were able to exit the market successfully when the markets first started correcting. Invest regularly but don’t try to pick bottoms and tops.

Source: http://in.reuters.com/article/personalFinance/idINIndia-40003320090608?mlt_click=IFR+Asia_21_Story+1_sec1-priCon-m0-NONE_News&sp=true

Bank funds only equity schemes to beat indices

While equity diversified funds have given an average return of 76 per cent in the three-month period since March 9 — the day when the present market rally started — banking sector funds were the only ones that managed to outperform the broader market indices during theperiod.While banking sector funds have, on an average, managed to give a healthy 92.78 per cent return since March 9, the Sensex and Nifty posted 84.24 per cent and 78.01 per cent gains, respectively, during the same period.Among the banking sector funds, Sundaram BNP Paribus Financial Services Fund has managed to give the highest return at 103.35 per cent. The lowest return in this category came from JM Financial Services Sector Fund, which clocked 73.03 per cent. Among equity funds, all other categories — including equity diversified, tax planning, technology, pharma and FMCG funds —under-performed the Sensex.Equity diversified funds gave a return of 76.75 per cent while tax planning, technology, pharmaceuticals and FMCG funds posted 73.57 per cent, 65.37 per cent, 51.58 per cent and 28.45 per cent gains, respectively, in the past 3 months.Among the sector-specific funds, however, technology and FMCG schemes have outperformed the respective sectoral indices on BSE. For instance, while the average return on the technology funds in the three months since March 9 stood at 65.37 per cent, BSE IT rose just 54.50 per cent during the period.Similarly, FMCG funds outperformed the BSE FMCG Index. While, FMCG funds gave a return of 28.45 per cent, the BSE FMCG Index rose only 19.98 per cent.In sharp contrast, the best performing banking funds failed to match the gain posted by the BSE Bankex, which saw a whopping 114 per cent rise since March 9.“The weightage of some banking stocks in the banking index is far more than some of their peers. Since none of the banking dedicated funds could afford to hold stocks of more than one or two banks, historically banking funds have under-performed the BSE Bankex,” says Dhirendra Kumar, chief executive officer of mutual fund research firm Value Research.RK Gupta, MD of Taurus Mutual Fund, echoed Dhirendra Kumar’s views. “Many small and mid-cap banking stocks are not part of BSE Bankex and most banking sector-dedicated funds also invest in these stocks. This caused such huge difference in return given by the Bankex and the banking sector funds,” he pointed out.

Source: http://www.mydigitalfc.com/mutual-funds/bank-funds-only-equity-schemes-beat-indices-164

New overseas investors 'find' Incredible India

New international investors are making their own discovery of India.
The post-Lehman Brothers world is seeing a new pecking order where India is emerging as a most favoured investment destination.
While the avalanche of money that has flown into the country and the index performance stand testimony to this, there are subtler changes taking place.
The composition of flows itself is changing with Chinese and Middle Eastern institutional funds taking more active participation.
Market sources said a large middle-eastern sovereign fund pumped in over a billion dollars in the days before election results.
Among the Middle East countries, UAE has the highest number of registered foreign institutional investors (FIIs) at 15.
Six FIIs are registered in Oman, three from Kuwait and 2 each from Qatar and Saudi Arabia. There are six China-based FIIs.
At present, out of 1,659 FIIs registered by Sebi, US still accounts for a maximum of 566 institutions. The UK-registered funds come second at 266, while Luxembourg accounts for 106.
Experts also notice a significant change in the way these entities approach investments to India. The word "risk" is giving way to "returns". Therefore, risk premium is now "returns premium".
Bhanu Khatoch, deputy CEO, JM Financial Mutual Fund, says the change is very obvious. "The people I meet are more open to India. The change can be seen in the language they use. You don't see them talking about risk premium anymore. They call it returns premium. They have realised there is nothing much in terms of returns from the Americas and Europe and it is markets like India where there is visibility of earnings and scope for returns."
Apart from returns, these funds are also looking to derisk their portfolio from increasing threat they face from a potential dollar threat. There is a view gaining ground that a significant portion of money received in the last few months is long term allocation and is not going to go out in a hurry.
Harish Vasudevan of SVS Securities likens it to the great Indian obsession --- jewellery. "If you gift your mother a gold coin and you ask her back after a few days to sell it at a profit, she wouldn't mind. But, if you buy her a gold necklace, no matter how much so ever the price escalates, she's not going to part with it. The flows we are seeing now are such long term flows from new investors from Chinese and Middle East, who are beginning to build their India portfolio. These funds will not exit in a hurry," Vasudevan said.
Even among the traditional investors, India preference is increasing. When the choice is between India and China, India is increasingly being preferred.
Sai Krishna Tampi, head portfolio management, Credit Suisse Securities, said momentum in in India's favour. "Global investor risk appetite has moved from panic to close to euphoric levels. Several global investors who were overweight China and underweight India, have begun to favour India," he said.
Fund managers who've missed the sharp rally realise that they have to allocate more to India which has higher beta and higher growth, if they want to beat their respective benchmarks, he said.

Source: http://www.dnaindia.com/report.asp?newsid=1262978

Amfi to upgrade certification test

Plans separate module for offshore funds

The Association of Mutual Funds in India (Amfi), the representative body of asset management companies (AMCs), is in the process of upgrading the mutual fund certification programme in a bid to bring in more competency among fund distributors and advisors.
While a new work book is being designed for the certification test, Amfi is also working on a separate module for offshore funds.
“We are now going to revise the work book and the question bank will be based on it. The work book will be released by December 2009. Upgrading the test modules will help distributors and advisors gain more expertise about the products,” said A P Kurian, chairman, Amfi.
“The scope of the certification programme could be extended to cover all components of financial planning. Implementing a minimum standard of giving advice is an essential next step towards the industry’s development. The programme should also include knowledge about global products,” said Navin Suri, CEO, ING Investment Management.
The Amfi test is a multiple option-testing programme, with 50 being the passing mark out of a total of 100.
The certification programme comes in two modules — Amfi Mutual Fund - (Basic/employees) Module Certification and Amfi Mutual Fund (Advisors/distributors) Module. There are no restrictions of age or qualification for anyone to take the test, but the Securities and Exchange Board of India (Sebi) has made it mandatory for every entity engaged in marketing and selling of mutual fund products to pass the certification test (advisors module).
Amfi and those AMCs that distribute offshore funds, feel that there should be separate module for the distributors who wish to sell global funds. “The asset allocation patterns of offshore equity funds are different from conventional schemes that are guided by domestic market dynamics. So, there should be separate test and training for the distributors who sell such schemes,” said the CEO of a global AMC.
“We will work out a separate module for the distributors who also want to sell products that invest across other global markets, but we have not finalised anything in this regard so far,” said Kurian.
There are about 90,000 Amfi-certified distributors in India at present. Though an upgradation of the test could help bring in more expertise among distributors, some fund houses feel that any significant change in the test modules could complicate the test, which would not be desirable, considering the low penetration level of the industry as compared to the insurance sector. As per industry estimates, there are about 3 million life insurance agents in India at present.

Source: http://www.business-standard.com/india/news/amfi-to-upgrade-certification-test/360259/

How to review MF investments before redeeming the units?

TAKE STOCK OF EXIT LOADS & TAX IMPLICATIONS
IF YOUR mutual fund investment is yielding a lower return than what you anticipated, you may be tempted to redeem your units and invest the money elsewhere. The rate of return of other funds may look enticing, but be careful: there are both pros and cons to the redemption of your MF units. Let’s examine the circumstances in which liquidation of your fund units would be most optimal and when it may have negative consequences.

MUTUAL FUNDS ARE NOT STOCKS

The first thing you need to understand is mutual funds are not synonymous with stocks. So, a decline in the stock market does not necessarily mean that it is time to sell the fund. Stocks are single entities with rates of return associated with what the market will bear. Stocks are driven by the “buy low, sell high” rationale, which explains why, in a falling market, many investors panic and quickly dump all of their stock-oriented assets. Mutual funds are not singular entities. They are portfolios of financial instruments, such as stocks and bonds, chosen by a fund manager in accordance with the fund’s mandate. An advantage of this portfolio of assets is diversification. There are many types of mutual funds and their degrees of diversification vary. Sector funds for instance, will have the least diversification, while balanced funds will have the most. Within all mutual funds, the decline of one or a few of the stocks can be offset by other assets within the portfolio that are either holding steady or increasing in value.

WHEN YOUR FUND CHANGES

Do keep in mind that even if your fund is geared to yielding long-term rates of returns, that does not mean you have to hold onto the fund through thick and thin. The purpose of a mutual fund is to increase your investment over time, not to demonstrate your loyalty to a particular sector or group of assets or a specific fund manager. Kenny Rogers once said, “The key to successful mutual fund investing is “knowing when to hold ‘em and knowing when to fold ‘em”. The following four situations are not necessarily indications that you should fold, but they are situations that should raise a red flag. Change in Fund Manager: When you put your money into a fund, you are putting a certain amount of trust into the fund house & fund manager’s expertise, which you hope will lead to an outstanding return on an investment that suits your investment goals. A category of investors track fund managers more than they track the fund house and its schemes. These investors invest in a mutual fund relying mainly on the star fund manager’s investment prowess and skills. One should always invest in process-driven fund houses. This is a more reliable way of investing than betting on star fund managers. Ifthe prospectus states that the fund’s goal will remain the same, it may be a good idea to watch the fund’s returns over the next year. Change in Fund Strategy: If you researched your fund before investing in it, you are most likely invested in a fund that accurately reflects your financial goals. If your fund manager changes the investment mandate that do not reflect the mutual fund’s original goals, you may want to re-evaluate the fund you are holding. For example, if your small-cap fund starts investing in a few medium or large-cap stocks, the risk and direction of the fund may change. Note that funds are typically required to notify shareholders of any changes to the original prospectus.

Change in Fund Performance:

If the mutual fund returns have been poor over a period of less than a year, liquidating your holdings in the fund may not be the best idea since the mutual fund may simply be experiencing some short-term fluctuations. However, if you have noticed significantly poor performance over the last two or more years, it may be time to cut your losses and move on. You can also compare the fund’s performance to a suitable benchmark or to similar funds.Equity funds should ideally be evaluated over the long-term (at least three years). Taking a decision in haste without understanding the investment proposition of the mutual fund could prove counterproductive and expensive (if there is an exit load).When Your Personal Investment Portfolio Changes:Besides changes in the mutual fund itself, other changes in your personal portfolio may require you to redeem your mutual fund units and transfer your money into a more suitable portfolio. Here are two reasons which might prompt you to liquidate your mutual fund units:The need to rebalance your portfolio: If you have a set asset allocation model to which you would like to adhere, you may need to rebalance your holdings at the end of the year to get your portfolio back to its original state. In these cases, you may need to sell or even purchase more of a fund within your portfolio.

Need a tax break:

If your fund has suffered significant capital losses and you need a tax break to offset realised capital gains of your other investments, you may want to redeem your fund units to apply the capital loss to your capital gains.

Selling a mutual fund isn’t something you do impulsively, without a great deal of thought and consideration. Make sure you are clear on your reasons for letting it go. However, if you have carefully considered all the pros and cons of your fund’s performance and you still think you should sell it, do it and don’t look back. Before you press the sell button, take stock of the tax implications and exit loads, if any. And given that market movement are random and not in the hands of the investors, don’t try to time your exit.

AIG Mutual Fund Announces Change In Key Personnel

AIG Mutual Fund has announced change in the key personal of AIG India Equity Fund, an open ended equity scheme and AIG Infrastructure and Economic Reform Fund, an open ended equity scheme, with effect from 14 June 2009. Tushar Pradhan, Chief Investment Officer-Equities who is currently managing the above mentioned schemes is leaving the services of AIG MF, with effect from the end of day of 13 June 2009.
The schemes managed by Tushar will be managed by Huzaifa Husain, with effect from 14 June 2009. And Husain is re-designated as Head-Equities.

Source: http://www.stockadv.com/2009/06/06/aig-mutual-fund-announces-change-in-key-personnel/