FIIs upbeat in FY-10; invest Rs 1,000 cr in April so far

Foreign institutional Investors, who had turned away from the Indian equity market last year, seem to be returning back as since the beginning of the new financial year 2009-10 they have already put in over Rs 1,000 crore into the domestic stocks.
FIIs seem to have embarked on fresh buying mode and made net investments of Rs 1,056.1 crore since April 1, the latest data available with the market regulator Securities and Exchange Board of India (SEBI) website shows.
Significantly, in last fiscal, FIIs had pulled out close to Rs 50,000 crore at the domestic stock market, almost equaling the inflow in the previous financial year.
According to SEBI data, FIIs' net outflows have been Rs 47,706.2 crore till March 30 in the financial year 2008-09 as against huge inflows of Rs 53,000 crore in FY'08.
Further, the Bombay Stock Exchange's benchmark index Sensex has witnessed a rally in the past two weeks although the trading sessions have been just five due to holidays in between.

Since the beginning of the new financial year, Sensex has gained over 900 points or over 9 per cent. On Thursday, the last trading day of the week, Sensex closed at 10,803.86 points.
Besides, FIIs have also made net investments in the debt segment to the tune of Rs 620 crore in the first five days of the FY10.
Interestingly, it seems that domestic mutual fund houses are still concerned about the movement of the equity market as they have been net investors of just Rs 38.3 crore in this fiscal, the latest data available with SEBI shows.
However, fund houses have put in significantly more amount in the debt segment in the first few days of the fiscal year.They have made investments of nearly Rs 9,000 crore in the debt segment in April so far, the latest data shows.
Since the beginning of 2009, domestic institutional investors (which include mutual fund houses, insurance firms and others) have made a net investment of Rs 10,558.98 crore in shares, the latest provisional data with the BSE shows.
In the financial year 2008-09, the country's mutual fund industry witnessed a nearly Rs 37,000 crore decline in its assets, with top fund house Reliance MF accounting for a little less than one-third of the losses.

Source: http://economictimes.indiatimes.com/News/Economy/Indicators/FIIs-upbeat-in-FY10-invest-Rs-1k-cr-in-April-so-far/articleshow/4391988.cms

Defensive funds outperform auto, banking and tech

Investors who invested in defensive sector funds would have a mental solace. In the last one year, these funds, which include FMCG and pharma, have performed better than other sector including auto, banking and technology.
In the last one year, FMCG and pharma funds have fallen by 23% and 23.26% respectively. Auto, banking and technology have fallen to the extent of 25%, 35%, and 42% respectively. This performance makes sense when one looks at the fall in S&P Nifty, which shed 29% in the last one year.
The strategy that worked:
a) Pharma funds
Funds which were over-weight on healthcare sector benefited largely and it helped these funds to mitigate maximum damage, while those which were not overweight suffered bigger losses. There are in all five solely dedicated pharma funds. Of these, Reliance Pharma, UTI Pharma and Healthcare, and Franklin Pharma were the better performers. These funds unanimously adhered to the strategy of going overweight on healthcare to an extent of 90% and above while those which didn’t observe this strategy suffered greater damages. These funds are Magnum Pharma and JM Healthcare.
In the last one year, Reliance Pharma, UTI Pharma and Healthcare, and Franklin Pharma fell to the extent of 14.94%, 15.29% and 15.33% respectively, while Magnum Pharma and JM Healthcare fell to the extent of 38.24% and 32.49% respectively.
b) FMCG funds
Franklin Templeton, ICICI Prudential and SBI Mutual have almost a decade long history. SBI Magnum FMCG Fund has recorded minimum loss of 13.26% in this category over last one year. Franklin FMCG Fund followed with a loss of 16.85% for the same period of time, whereas ICICI Prudential FMCG fund lost 32.61%--the maximum in this category.
SBI Magnum Fund ran a concentrated portfolio of both the Indian and Multinational counters. The fund manager has invested 27.35% of the scheme corpus in Nestle as its top holding. “Focused investments in the category leaders with growth orientation at reasonable price have saved the fund in the bad times,” said a fund analyst with a domestic brokerage. The fund has put 70% of the money in top 5 stocks. Point to note here is the fund is the smallest in this category with only Rs 5.42 crore.
Its nearest competitor on the returns front, Franklin FMCG Fund, has chosen to be a well diversified equity fund in the FMCG sector with a portfolio of 18 stocks. The well diversified investment style has helped the fund in the difficult times. Nestle is the top holding with 15% allocation followed by HUL. However the investors in ICICI Prudential were not as fortunate.
The fund manages a concentrated portfolio with a focus on Indian companies than the multinationals. This is the only scheme in this segment that has employed derivatives. A short position of Hindustan Unilever is initiated in February. The fund has ITC as its top investments with 40% weight. Marico is the second biggest holding in the portfolio. Barring Gillette the fund has no long positions in any of the multinationals. Though the fund has delivered the worst performance in the category, it still enjoys the title of largest fund with Rs 42 crore under management as on February 2009.

Source: http://economictimes.indiatimes.com/Defensive-funds-outperform-auto-banking-and-tech/articleshow/4394472.cms

Everything you need to know about FDs

Fixed deposit (FD) is an investment option that allows you to invest a sum of money for a fixed time period and at a fixed rate of interest. During the course of the FD, even if the prevailing interest rates go up or down, you will be entitled to the rate of interest that was committed to you.

FDs pay a higher rate of interest than your savings bank account. The current rates, as of early April, for a one-year FD are approximately 8-8.5%. Your savings bank account offers you only 3.5% interest.

Other conditions being equal, you are better off putting your money in an FD account rather than a savings account. The interest can be paid to you quarterly, half-yearly or annually. If you are a senior citizen, the interest rate on your FD may go up by 0.5%.

Two types:

1. Bank and NBFC FDs: Offered by banks or non-banking finance companies; the Reserve Bank of India (RBI) regulates these institutions.

2. Corporate FDs: These are offered by companies that are looking to raise money from the open market. Corporate FDs typically pay a higher rate of interest, but also carry a relatively higher risk than bank FDs.

Advantages

• FDs offer a safe return: FDs are usually secure and are very low-risk investments. Bank FDs are guaranteed up to Rs1 lakh by the Deposit Insurance and Credit Guarantee Corporation.

• You can raise a loan against your FD: You can borrow up to 85% of your deposit amount (in some cases, only after a few months of your FD’s existence). This is valid only for bank FDs.

• Low maintenance: Unlike other investments such as stocks, mutual funds or even real estate, you don’t need to monitor your FDs on a daily or monthly basis, or undertake any kind of maintenance work.

• Choice of time period: You can make a deposit for any period of time, from 15 days to 10 years.

Disadvantages

• Relatively low returns: Because FDs are very low-risk instruments, they offer low returns compared with alternative investment options such as stocks and mutual funds.

• Lock-ups: Your money will be locked up in an FD for the duration of the deposit. As a result, unlike a savings bank deposit, you will lose the flexibility of accessing your funds whenever needed. You can break your FD if needed, but you would have to pay a penalty, which could include both a reduced interest rate as well as charges that are typically around 1%of the investment amount.

• Unfavourable tax treatment: Unlike other investment options, interest income earned from FDs will be added to your income and taxed.Taxes and FDs

• Tax-saving investments: Under section 80C, you can get a tax deduction of up to Rs1 lakh a year if you invest in a five-year FD.

• FDs and tax deduction at source (TDS): If the aggregate interest income that you are likely to earn from all your bank FDs held in a single branch is at least Rs10,000 in a financial year (Rs5,000 in the case of corporate FDs) then TDS will be deducted at 10%.

• If you do not fall in a taxable slab, then furnish Form 15G or 15H to your bank to prevent TDS on the interest income that is paid to you.

7 things to watch out for

1. Always appoint a nominee on your FD for quick withdrawals, and to avoid hassles if you are not around.

2. FDs from companies might pay more but come at a much higher risk than bank FDs. These FDs are not deposit-guaranteed.

3. In times of rising inflation, avoid FDs because your money will lose its purchasing power.

4. When making a deposit, check the penalty clause for early withdrawal.

5. If you need to withdraw funds for an emergency, instead of breaking the FD, you might want to consider taking an overdraft of up to 85% on your FD rather than pay the withdrawal penalty.

6. You might want to split your investment and make multiple deposits in small sizes and spread them across different maturities as opposed to making a single large deposit. This way, even if you do have to make a premature withdrawal, you will not pay a penalty on the entire amount but just on the limited amount you withdraw.

7. For FDs longer than a year, if your interest is paid at maturity, the taxes on interest income from your FDs are due on interest earned, even if the interest hasn’t been received by you.

Source: http://www.livemint.com/2009/04/12222430/Everything-you-need-to-know-ab.html?h=B

Debate on over load structures on MFs

The NSDL (National Securities Depository Ltd) case will be on top of Sebi's agenda when it meets on Monday, but another issue that may come up at the board meet is the proposed introduction of variable load structures on mutual funds.
Market regulator Securities and Exchange Board of India (Sebi) is keen to introduce a variable load structure for mutual funds that will allow investors to negotiate the commission they pay to distributors.
But, given the resistance from distributors and fears that distributors may end up pushing insurance products that offer higher commissions, the industry is urging the regulator to try a different approach.
"Every business for a distributor should be profitable, so today he is finding challenges in one product. We as AMCs should ensure our profitability to them," said Nimesh Shah, MD & CEO of ICICI Prudential Mutual Fund.
Industry body AMFI (Association of Mutual Funds of India) suggests giving investors two options.
Under plan A, a variable load could be charged depending upon the service or advice rendered by the distributor while under Plan B no upfront load is charged to investors but the distributor would be compensated by the fund house in the form of higher trial fee, which in turn will charge the customer an expense fee.
" Within the load there should be some variability, so the investor and distributor together decide what should be the load depending on the quality and extent of service and advice rendered. The second option is when there is no upfront load at all but to compensate the distributor must be given a trail commission," said AP Kurien, chairman, AMFI.
A trailing commission is not only likely to confuse investors, but they may also be made to fork out a bigger expense fee, which doesn’t serve Sebi’s objectives of cost control and transparency.
Meanwhile, according to our sources in Sebi, the probability of plan B getting cleared is remote.

Source: http://profit.ndtv.com/2009/04/10113357/Debate-on-over-load-structures.html

India's first sharia fund collects 50 mln rupees

India's Taurus Asset Management has collected about 50 million rupees in the country's first actively managed sharia-compliant equity mutual fund it launched in February, chief executive Waqar Naqvi said on Wednesday.
"Around 5 crores... not bad given the fact that even very large fund houses collected some 2 crores or 3 crores," Naqvi said, referring to the mop-up.
Taurus held average assets of about 2 billion rupees in March, making it one of the smallest players in India's 35-member mutual fund industry.
"While the enthusiasm was there, the market condition was really tough," he said, referring to a volatile Indian stock market that has led to a pause in inflows into the industry.
New equity funds, not including Taurus, collected about 60 million rupees in the first two months of 2009, according to data from the Association of Mutual Funds in India.
Taurus' fund joins the fast-growing Islamic investments industry estimated to be managing about $65 billion globally with nearly half of the money invested through mutual funds.
Islamic investing forbids Muslims from receiving interest payments and investing in companies involved in the production or sale of pork, alcohol, tobacco, pornography, gambling and non-Islamically structured finance or life insurance.
Source: http://in.reuters.com/article/businessNews/idINIndia-38952020090408

Cash rich mutual funds risk missing stocks surge

Indian fund investors have missed large part of the surge in domestic shares in the last one month and may be in for more disappointments as their fund managers sit tight on a multi-year high cash levels.
Sensex fell to its lowest level in 2009 on March 9, but has surged almost 30 percent since then, helped by a revival in global risk appetite and some flow of funds into emerging markets, including India.
However, nearly 300 diversified funds have seen their net values rise by an average 20.2 percent, held back by unusually high cash levels, with only nine of them rising more than the main stock index, data from global fund tracker Lipper showed.
"These cash calls would certainly impact fund returns once the market bounces back, which we saw in March," Chintamani Dagade, a senior research analyst with Morningstar India, said.
He said most of the large-cap diversified stock funds held double digit cash levels throughout 2008 in a bid to soften blow from falling shares, which went on to end the year down more than 50 percent, their sharpest fall on record in any year.
However, the strategy did not work for most funds. Net asset values of stock funds recorded their worst annual fall of 54.7 percent during the year, giving up the entire gain made in the previous two calendar years, with nearly half of the actively managed funds also underperforming the benchmark index.
Most funds continue with the strategy and some have raised the cash levels further ahead of general elections in April-May, anticipating a volatile share market, resulting in a major underperformance in the last one month.

Source: http://economictimes.indiatimes.com/Cash-rich-mutual-funds-risk-missing-stocks-surge/articleshow/4374019.cms

Index funds versus individual stock picking

“Where should I invest my hard-earned money?”

This question invariably puts investors into a serious dilemma as to which investment option should they consider. They get deeply consumed in the process of assessing, determining and considering options which would render optimal returns to them, involving minimal risk and offering safety to their capital.
Investment in equities (individual stock picking) and various types of mutual funds are two very obvious investment vehicles that would come to investors` mind. Equity funds, debt funds, balanced funds, index funds and so on are the several types of mutual funds, which can be considered. Which type of fund is better amongst them? The answer to this question would depend upon the investment goal, risk appetite and time horizon of the investor.
Let us compare individual stock picking and index funds in detail:
Individual stock picking is nothing but merely equity investing. It is the most popular investment vehicle amongst investors. It is considered a high risk- high returns investment vehicle.
But the Bear Market Run carrying on since last year has been responsible for the erosion of capital of several investors. On a broader side, the returns depend on the financial health of the company (of which you have purchased the shares), the performance of that particular sector and the overall market performance in general.
On a narrower side (investors' side), the returns depend on investors' investment objectives, risk taking capacity and tenure of the investment. If the particular sector or company's shares are not performing well, the investors incur losses. Risk of losing money is high in case of equities due to volatile nature of markets.
Index Funds are a category of mutual funds which invest into a whole index [Sensex (30), Nifty (50)] rather than a specific stock. This strategy is also called ‘indexing’. The goal of most index funds is to follow the index performance. Index funds buy all the stocks of a particular index. This is a passively managed scheme.
The fund managers of these schemes do not get involved actively in shares selection and the process of investing. However, the volatility of markets (indices) is uncertain. The performance of the indices cannot be foreseen by any one. In India, the indices (Sensex, Nifty) are small as compared to US index of S&P 500.
Benefits of index funds
Economical: Indexing is a passive investing strategy; it does not involve any active management by the fund managers as in the case of the actively traded funds. The main objective of index funds is to reflect the performance of indices. The cost of analysts` salaries, research cost, and brokerage is saved in case of the index funds.
Better Performance: The performance of passive funds is likely to be better than actively or professionally managed funds. In the long run, any particular stock cannot beat the whole index performance.
For the week ended Mar. 20, 2009, Index funds were the biggest gainers among all classes of mutual funds with 3.16% gain as the 30 share index, Sensex rose 210.07 points, or 2.40%, to 8,966.68 in the week ended Mar. 20, 2009. On the other hand, the broad based NSE Nifty rose 87.8 points, or 3.23%, to 2,807.05 in the same period.
NAVs of the index funds category gained 3.16% in the week Mar. 20, 2009.
Among the index funds, Nifty Junior BeES gained 4.33%, Benchmark S&P CNX 500 Fund added 3.49%, J M Nifty Plus Fund rose 3.33%, LICMF Index Fund - Nifty Plan climbed 3.27%, Birla Sun Life Index Fund gained 3.24%. (Myiris).
Diversified Portfolio: Index funds invest in all stocks from different companies and different sectors of a particular index, leading to a wide range of stocks, which helps in the diffusion of risk.
Returns: Returns in index funds are largely dependent on the performance of whole indices; the Sensex and Nifty being benchmarks of the index funds` performance in India.
Saves time and money: The hard core research of specific stock or sector is not required in case of index funds as these funds track the performance of whole indices and not a stock and sector in particular. This saves time and money also as nothing comes free and research is not an exception.
Disadvantages of index funds
Market risk: When the market undergoes a fall, you also lose in case of index funds as these funds are entirely based upon the ups and downs of the market
Less Flexibility: Index funds lack in flexibility, as investors don’t get the opportunity to invest into stocks in that particular index. This is so because there is no scope of selecting stocks of personal choice, based on quality and research.
Conclusion:
To conclude, index funds can possibly offer higher returns in the longer period of time, subject to performance of indices or markets. Index funds thus seem to be a better option between the two, as their advantages considerably outweigh the disadvantages. Diversification, lower cost and maintenance give them an edge over individual stock picking.
Source: http://in.reuters.com/article/personalFinance/idINIndia-38898620090406?sp=true