New rule to hit cash funds gains, assets

India's money market mutual funds returns are set to dip, as a new risk control rule restricts them to lower maturity instruments, taking some sheen off the popular fund category.
India's market regulator in January introduced the rule restricting investments by liquid or money market funds to papers of maturity of up to 182 days from Feb 1 and 91 days from May 1 as compared with one year before.
While a cut in maturity will reduce interest rate risks, it will widen the return differential between liquid funds and other short-term bond funds, hurting money market funds appeal among corporate and institutional investors, their main clients.
"Liquid funds returns as a category average will gradually fall," Bekxy Kuriakose, head of fixed income at DBS Cholamandalam Asset Management, said.
"We are already seeing a shift in preference from liquid to ultra short-term funds. This may continue," Kuriakose said.
Moderation in return will start showing in about a month or two as funds adjust portfolios to relatively lower yielding, shorter maturity papers, fund managers said.
"At present, liquid funds are giving annualised return of around 5 percent. This may drop to 4 percent going forward as the rates for three month CD/CPs (certificate of deposit/commercial paper) is around 3 to 4 percent," Kuriakose added.
Money market funds, favoured by corporates to park surplus cash, managed 1.4 trillion rupees, or nearly a fourth of Indian fund industry's assets under management at the end of April, according to data from the Association of Mutual Funds in India.
However, the assets remain volatile with billions of rupees flowing in and out of such funds every month.
One such surge when cash-starved corporates pulled out more than 900 billion rupees from debt funds contributed to a liquidity crisis in Sept-Oct, forcing the central bank to offer money through a special money market operation.
This also led to an unexpected negative one day returns from liquid or liquid plus funds from Mirae Asset, Franklin Templeton, DSP BlackRock and Kotak in October, forcing the regulator to step in with the the new rule.
Now, "their safety will be much higher. We will not see the repeat of a situation like Sept-Oct. But it will come at the expense of returns," said Mahhendra Jajoo, who manages about 160 billion rupees as head of fixed income for Tata Asset Management.
Jajoo expects the returns differential between liquid funds and short-term bond funds to widen to 150 basis points in the next two months from 50 basis points now, making some institutional investors look away.
However, the category will still attract a lot of money given the safety it offers, he added.

Source: http://in.reuters.com/article/businessNews/idINIndia-39566020090512?sp=true

Debt funds spur 42% surge in India fund assets

Assets of Indian mutual funds rose 42.23% to Rs5.9 trillion in April on record inflows in fixed income funds, data from the Association of Mutual Funds in India show.

This contrasts with a record Rs987 billion of outflows in March, that had lead to an 18% fall in the assets under management of the industry.

“There was a reversal in inflows in income and liquid funds after the huge redemptions in March. This is mostly institutional inflows, which have come back into fixed-income funds,” Chintamani Dagade, a senior research analyst with Morningstar India, said.

Fixed income funds collectively mopped up Rs1,545 billion, including Rs1,030.55 billion inflow in income funds, the highest ever since mutual funds data was made available in late 1999.

The inflow also included a record Rs518.52 billion collected by money market funds as banks, flushed with liquidity, parked surplus cash in mutual funds.

Equity funds, however, saw a net outflow of Rs1.1 billion, their highest monthly outflow since December as investors took advantage of a more than 17% rise in India’s benchmark index to book profits.

Source: http://www.livemint.com/2009/05/12110353/Debt-funds-spur-42-surge-in-I.html

Fund houses offering regular profit plans to entice investors

To get back equity-wary investors, fund houses and their portfolio management services (PMS) have started schemes that will regularly book profits. In these funds, mutual funds and PMS will realise appreciation at specific target returns and transfer profits either to a safer investment avenue or give the money back to the customer.

ICICI Prudential Asset Management and Edelweiss Mutual Fund are the first two to launch such schemes, which are at the subscription stage. Edelweiss’ EDGE Fund will close on May 8 and ICICI Pru’s Target Return Fund will close on May 14. Reliance Mutual Fund too plans to launch a similar themed fund — Target Appreciation Fund.
While ICICI Prudential and Reliance Mutual Fund has started a fund completely dedicated to such a scheme, called Target Return Fund and Target Appreciation Fund respectively, Edelweiss Mutual Fund has made it a part of its equity diversified fund called EDGE Fund.
Under PMS, JM Financial is offering this scheme under its India Resurgent Portfolio while ICICI Prudential’s scheme is called Target Return Portfolio.
“This strategy is the need of the hour in the current market situation. Due to the recession, the markets are bound to see a lot of rise and fall. Growth will not be linear till the global economy comes out of the turmoil, and that at least is two-three years away,” said Vipul Shah, director and head of private wealth group, JM Financial. In fact, the company said that it would close the scheme if the portfolio generates 50 per cent of absolute returns within two years.
Though the central theme of the mutual funds are the same — book profits on appreciation — all three funds operate this in different way. ICICI Pru’s fund has four targets called triggers. These include 12 per cent, 20 per cent, 50 per cent and 100 per cent. An investor can opt for any one of them and whenever the investment appreciates meets the targets the profits are booked and transferred to a debt fund.
Edelweiss has multiple options for an investor. He can select its own target or even a date at which the money should be redeemed. He can either opt for transferring the money to a debt fund or get the cheque for the profit.
The working of Reliance Mutual Fund’s scheme is slightly different. Target appreciation Fund takes the 45-day average of takes Bombay Stock Exchange’s Sensex as a base. It keeps giving the appreciation back to the investor when the base appreciates by 20 per cent, 40 per cent, 60 per cent, 80 per cent and 100 per cent.
“These schemes will give comfort to first-time investors, who usually come when markets are at peak and then lose out money when they fall. These schemes will book profits regularly in a discipline manner,” said Sundeep Sikka, CEO, Reliance Mutual Fund. He points out that this will encourage more investors to come to mutual funds. “Currently, only 3 per cent of the population invest in mutual funds,” Sikka said.
Investment adviser too gave a thumbs up to the idea. “Profit booking in a disciplined manner is essential. Investors tend to become greedy when they see appreciation and become fearful during correction,” said Sriram Venkatasubramanian, head — wealth management, FCH Centrum Wealth Managers. But he also added that in such schemes, fund manager will face a constrain. “Even if they believe that some stock will give higher returns if held, the fund managers will have the pressure to sell due to the stated mandate,” Venkatasubramanian said.

Source: http://www.business-standard.com/india/news/fund-houses-offering-regular-profit-plans-to-entice-investors/357419/

Shinsei may exit MF venture here, post-US subprime knocks

Japanese financial services firm Shinsei Bank may exit its mutual fund venture in India, and has already initiated talks with Indian Bank to sell its stake, two people familiar with the development told ET. Indian Bank is exploring the possibility of setting up a mutual fund venture in India. When contacted, the spokesperson for Shinsei in India denied the development. “There is no such thing happening... these are just rumours,” he said.
It is believed the move has been prompted by the problems being faced by Shinsei Bank in its home country. According to foreign media reports, Shinsei Bank is in talks for a merger with Aozora Bank, also Japan-based. Both banks have been hit by their exposure to US subprime loans, and other failed overseas investment bets.
Shinsei Bank had joined hands with leading proprietory investor Rakesh Jhunjhunwala and Freedom Financial promoted by Sanjay Sachdev, the India head of Shinsei Corporate Advisory Services. Shinsei holds 75% in the asset management company, Mr Jhunjhunwala 15% and Freedom Financial, the rest. Shinsei got Sebi approval for starting its mutual fund operations early this year, after waiting for nearly three years. It is yet to launch a single fund, though it has got the Sebi nod for a liquid scheme, and is awaiting clearance for a PSU Bond Fund.
In 2007, the Japan-based bank had roped in N Sethuram, former chief investment officer of SBI MF, as CIO of its mutual fund venture. It now has a team of about 32 people. “Getting a mutual fund licence is a time- consuming process... the new buyer gets a ready platform. Apart from the licence, they also get the infrastructure,” said an official familiar with the regulatory process, on why a buyer would be interested.
Shinsei has invested more than $150 million in India through its proprietary fund. These include an investment in the State Industrial Corporation of Maharashtra (SICOM), the investment arm of the Maharashtra government, and in a hotel venture.
The bank is also learnt to be reviewing its joint venture with UTI International, a 100% subsidiary of UTI Asset Management Company, which was set up in December 2006 to explore investment opportunities in South East Asia. It has an offshore fund in partnership with UTI MF, which manages assets worth more than Rs 1,000 crore. When contacted, a UTI MF official declined to comment on its ventures with Shinsei.

Source: http://economictimes.indiatimes.com/Personal-Finance/Shinsei-may-exit-MF-venture-in-India/articleshow/4501404.cms

Union Bank to enter MF business by Dec: Official

State-run Union Bank of India, in joint venture with Belgium-based company, plans to enter the mutual funds business by December this year and hopes to receive the market regulator Sebi's approval to set up the firm by June 30, a top bank official said.
"The bank expects to receive the Sebi nod for JV by December. We would be able to enter the market with our first product by December this year," Union Bank General Manager Personal Banking & Operations S Govindan said here.
The state-owned lender has entered into an agreement with Belgium-based KBC Group for the mutual funds JV in November last year. According to the intial agreement, Union Bank will hold a majority 51 per cent stake in the company while the rest will be with KBC Group.
Union Bank plans to invest Rs 48.07 crore in the JV by December while KBC will contribute Rs 64.93-crore, Govindan said.
The bank plans to change its 200 branches as dedicated centres for the mutual fund operations. However, the bank's entire branch strength will be used as selling points, Govindan said.
"There is always a scope for innovation in the mutual fund industry. Shaping our products according to the customer needs will be the key strategy," Govindan said.

Source: http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/Union-Bank-to-enter-MF-business-by-Dec-Official/articleshow/4496213.cms

Only 7% of equity funds better Sensex return

Only seven per cent of the mutual funds, numbering a total 322, managed to beat the Sensex. Low levels of cash and higher exposure to banking and the financial sector seem to have helped a handful of equity schemes, which have managed to outperform the Sensex during the past two months.
The Sensex has given 48.65 per cent returns during the period March 9, 2009 to May 5, 2009, rising from 8160 to 12,131.
These funds include equity, equity (tax planning), equity diversified, index funds, and sector funds including technology, banking, FMCG, pharma and auto.
It is mainly the sector funds which invested in the banking and financial services theme and select index funds and exchange-traded funds (ETFs), which beat the Sensex during the period under discussion.
“Banks have done well as their asset quality is expected to rise when the economy is expected to grow,” said Mr Prashant Poddar, fund manager, ICICI Prudential MF. “Secondly, with the interest rate having declined very fast in the past two months and the G-sec yields coming down, the banks have made handsome gains which boosted the bank stocks,” said Mr Poddar.

Banking sector funds
The banking sector funds; ICICI Prudential Banking and Financial Services, Reliance Banking fund, Religare Banking, Sahara Banking and Financial Services Fund, UTI Banking Sector and Sundaram BNP Paribas Financial Services Opportunity are among the theme funds that have recorded returns of over 48.65 per cent returns. However, none of these managed to outperform the 72.79 per cent rally of the Bankex during the given period.
But the bank ETFs gave better returns than the bank theme funds. Benchmark Bank BeES and Reliance Banking ETF managed returns of 67 per cent and 66 per cent, respectively.
Amongst the diversified equity and other theme funds, JM Basic, JM Small &Midcap, Principal Emerging Bluechip, Magnum Midcap, Magnum IT, Mangum emerging business, Mirae Asset India Opportunities Fund, Taurus Infrastructure, Templeton India Equity Fund and Canara Robeco Equity Diversified are some of the funds which have managed to outperform the Sensex.
For most of the schemes it was the low cash levels, which seems to have done the trick for them.
The out-performance is due to a combination of low cash levels which was around 6-7 per cent as on March and a good stock selection process, said Mr Pankaj Tibrewal who manages the Principal Emerging Bluechip fund.
“We follow an almost 90 per cent cash deployment and so when the rally happened in the past few weeks, we were not sitting on cash,” said Mr Arindam Ghosh, Chief Executive Officer, Mirae Asset Management Company, whose Opportunities Fund also maintained low cash level.
“Also our increased bias towards large cap stocks in the past few months has helped the India Opportunities Fund,” he said.
In the case of Canara Robeco’s equity diversified fund, Mr Anand Shah, the Head of equities at the fund house says: “We were more or less fully invested in growth companies rather than keeping high cash levels or in defensive sectors.” Cash levels were around 10.86 per cent as on March 31, 2009, said Mr Anand.

Underperformance
While funds with lower cash levels and higher exposure to banking have fared well, the funds with high cash levels or which were underweight on high beta stocks appear to have seem to have lost in the rally.
“A large number of funds had become defensive towards high beta stocks such as commodity and metal, so it was difficult to re-align them in the past two months,” said Mr Anoop Bhaskar, Head of Equities at UTI Mutual Fund..
Most of the equity schemes had reduced their exposure to stocks which had performed badly during 2008, but it was these very stocks which have been the best performers since March 9, said Mr Bhaskar.

Source: http://www.thehindubusinessline.com/2009/05/08/stories/2009050851501000.htm

Sahara fund for just Rs 10/day

In a bid to take mutual fund investments to the masses, Sahara Mutual Fund is proposing to launch a scheme that will accept investments on a daily basis, and for as little as Rs 10. The fund house, part of the Sahara India group, has filed draft prospectus with the regulator for Sahara Daily Fund, an open-ended debt scheme that will invest in high- quality debt and money market instruments.
Interestingly, Sahara MF's new scheme is being planned exactly two years before Sahara India Financial Corp (SIFCL) is scheduled to stop accepting public deposits, including daily deposits, under directive from the Reserve Bank of India (RBI). In a release dated June 17, 2008, RBI had directed SIFCL not to accept any new deposit with maturity after June 30, 2011. It has also been asked to stop accepting instalments of existing deposit accounts effect the same date.
Speaking to TOI, Naresh Kumar Garg, CEO, Sahara MF, said that the fund house plans to leverage technology and Sahara's wide network of representatives to take its Daily Fund scheme even to daily wage earners and small shop owners. "There is an entire population that was not thought of by the conventional mutual fund houses. This fund has the potential to help in financial inclusion that the government is talking about for so long,'' Garg said. "Our fund is compatible with the concepts of micro savings-micro investments,'' the Sahara MF CEO added.
The fund house plans to use Sahara's representatives across India to collect on a daily basis a small amount from even daily wage earners, shopkeepers and others willing to invest in the scheme. Using technology, the investor will be given a printed acknowledgement slip on the spot and allotments of units will be done as per Sebi rules. "The plan is to put mutual fund investments on a different platform,'' Garg said.
According to the draft offer document for Sahara MF's Daily Fund, the scheme will invest in debt and debt-related assets, including money market instruments. The minimum investment is Rs 10 and further investments in multiples of Re 1.
Some see Sahara MF's moves as taking systematic investments to a new `Nano' level. At present, micro SIPs in the range of Rs 50-100 exist in the fund industry, but those mostly come through the cooperative or union route, thus bringing down the cost of monthly collection. Industry players feel that Sahara MF's scheme could provide a low-risk investment solution for the fund's target audience as it will invest mainly in debt and debt related instruments, in the long run which can give yields between 3.5% to 10%.
Relating to its directive from the central bank, in June last year, other than asking SIFCL to stop taking public deposits from June 2011, it was also asked to repay all the public deposits as and when they mature and bring down its deposit liabilities to zero on or before June 30, 2015. "SIFCL shall not treat non-payment of instalments under any running daily deposit or other recurring deposit schemes by depositors after June 30, 2011, as a default by depositor and SIFCL shall be liable to pay the agreed rate of interest on the amounts actually held by it for the entire term of the deposit as if there was no default,'' RBI had noted in the release.

Source: http://timesofindia.indiatimes.com/Business/Sahara-fund-for-just-Rs-10day/articleshow/4492978.cms