MUMBAI: A new investment theory is gaining favour with wealth managers and mutual funds, something that could soon replace the conventional systematic investment plans (SIP) strategy. Termed value averaging investment (VAI), the technique allows investors to determine the size of investment needed (at the time of investing) to get desired returns. Value averaging works much like rupee cost averaging, which forms the basis of systematic investment plans.

“While SIP investments are made on fixed dates, irrespective of market conditions, VA investments are made on dates when the markets look investible. The best aspect of VAI is that it enables investors to buy stocks at dips — a facility that is not really possible in SIPs,” said Nipun Mehta, head of Societe Generale Private Banking India.
In value averaging, the investor sets a target growth rate or amount for his portfolio each month, and then adjusts the next month’s contribution, according to the relative gain or shortfall made on the original asset base.

To cite an example, investor A needs to invest Rs 1,000 (calculated using statistical formulae) every month to get 15% return (on his investments) over a time-frame of 10 years. A invests Rs 1,000 in the beginning of the month (usually when the market is trading lower); at the end of first month A’s investment has declined to Rs 800 as a result of the further fall in market. To correct the course to target growth rate, A invests Rs 1,200, marking net term investments to Rs 2,000.

Conversely, had the markets gained and A’s investment surged in value by Rs 200 (taking the total value to Rs 1,200 at the end of the first month), he would only have to pay Rs 800 in the second month.
“Under VAI, investors contribute to their portfolios in such a way that the portfolio balance increases by an amount calculated by a formula-based technique, regardless of market fluctuations. As a result, when the market declines, the investor contributes more and when the market goes up, the investor contributes less,” said Anil Rego, CEO of Right Horizons — a wealth management firm.

Though VAI has no historical references, returns (asset growth) could well be very close (or a bit high) to those offered by investments through SIPs. While VAI enables flexible investing, there is a good possibility that the fund manager may not be holding cash at the time of a sudden dip in market value. Another negative aspect to VAI is the fact that as the investor’s asset base grows, shortfalls (in case of market slumps) become too large to replace (especially for retail investors). While several fund houses are planning to introduce VAI plans on existing MF schemes, the benchmark MF has attached value averaging transfer plan (VTP) in its derivative fund, equity fund and derivatives opportunities fund.

The strategy is being advocated by several wealth managers who feel that SIP investment is not good if investors do not book profits at regular intervals. “There is no point in treating SIPs as a long-term investment product. If you keep investing into SIPs for, say, 25 years, your rate of return will not even exceed 10%. The better way is to book profits when the investor’s Rs 10-per-unit investment reaches Rs 25 in 24 months,” said a Mumbai-based wealth manager.

http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Value-averaging-investment-may-replace-old-plans-one-SIP-at-a-time/articleshow/5118080.cms

Asset managers face M&A as incomes drop-survey

ZURICH: Consolidation looms for some asset managers as revenue declines continue to outweigh steep cost-cutting measures after assets slumped and clients switched to low-cost products, said a McKinsey survey released on Monday.

Although asset managers have in 2009 seen inflows for the first time since the first half of 2007, net margins are set to fall to 9 basis points in 2009 from 10.8 bps in 2008, said McKinsey's 11th Asset Management Survey.

"Although all asset managers understand the gravity of the situation, too few have reacted with sufficient vigour and fundamentally restructured their business models," McKinsey director Pierre-Ignace Bernard said in a statement.

Distributors of investment products, such as banking networks, have compounded the pressure on asset managers by calling for higher rebates for selling funds in difficult conditions.

Also, regulatory proposals in India and Britain to abolish fixed distributor commissions could lead to asset managers, rather than customers, paying, and this could raise the asset manager's capital requirements, said the report.

This year's survey is based on data from more than 300 firms with 13 trillion euros ($19,130 billion) in assets under management, representing 50 per cent of the global industry.

The survey was based on a quantitative operational survey, examining such data as assets under management, revenues and costs, and interviews to gather qualitative insights into major industry trends.

"The winners will be those firms that develop a more resilient operation while seizing the opportunities created by the upheaval," said Bernard, who heads up his company's European asset management practice.

McKinsey said opportunities in developed markets lie in increasing longevity and the tendency of older populations to accumulate more assets on which they seek a safe return.

Even so, asset managers will find their best opportunities in emerging markets, where the number of middle class savers with high savings ratios is growing rapidly and where the penetration of financial products is still very low.

The drive to cut costs will spur a wave of consolidation, which in turn will produce opportunities, with recent deals indicating synergies of 5-20 per cent of the target's revenues and a large share of the target's costs can be achieved.

"Those who are aggressive and opportunistic stand to gain significant value from the next deal wave," said McKinsey.

http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Asset-managers-face-MA-as-incomes-drop-survey/articleshow/5116287.cms

Mutual funds need to disclose more in offer documents

We had a combination of issues which made it easier for fund houses to raise new money under a new banner than to raise new money under an existing fund, said K.N. Vaidyanathan, executive director, Sebi

Mumbai: Market regulator Securities and Exchange Board of India (Sebi) has been trying to clean up the mutual funds industry over the last few months. Sebi’s recently appointed executive director K.N. Vaidyanathan says in an interview that mutual funds need to disclose more in their offer documents. “New fund offers (NFOs) must justify investment strategy and risks. The game of garnering money through NFOs is over.” Edited excerpts:
On efforts to boost transparency, disclosures:

One of the things we are pushing is...a new fund offer document. We would like the fund offer document to be a self-contained document... So if you put money in the mutual fund, you need to know what the investment objectives are, you need to explicitly state what are the risks and the mitigating factors for that are. The idea really is can the manufacturer, which is the mutual fund, talk direct to the investor and tell the investor that “I propose to do the following”. I think that would help investors take more informed decisions about it.
So, one of the things that we have embarked about more recently is to take a closer look at the process we have for evaluating new offers or new funds or new schemes that mutual funds have on this measure of transparency.
On new fund offers:
We had a combination of issues which made it easier for fund houses to raise new money under a new banner than to raise new money under an existing fund. Hopefully, that game is behind us. One of the things that they would have to talk about if I am a fund house and I am launching a new fund is how is “A” different from what I have (offered) in the past.
On the role of trustees in protecting investors’ interests.
It’s a process which has just started. It is too early to say if is paying off, but if we go back to the fundamentals of the mutual fund structure in India, it’s a trust set up. The trust or the trustees are the investor facing entities. They carry the fiduciary responsibility; in a sense they are the first level regulators.

http://www.livemint.com/2009/10/11220350/Mutual-funds-need-to-disclose.html

Huge Redemptions cause MF's total assets to drop

The mutual fund (MF) industry had witnessed a fall of 17.00% in total asset under management (AUM) to Rs 627,999 crore as on 30 September 2009 from Rs 756,638 crore as on 31 August 2009. The Average Asset Under Management (AAUM) of MFs fell 0.93% to Rs 742910.84 crore for the month of September 2009 compared with Rs 749915.52 crore in August 2009. AAUM of fund of funds (FoFs) was Rs 789.51 crore in September 2009. Assets of MF industry declined because corporate withdrew money from liquid schemes and short term funds to meet requirement of advance tax payments for quarter ended September 09. Also industry had seen net selling of equity instruments to book profits with rally in equity markets in September 2009.
Association of Mutual Funds in India (AMFI) has released monthly data of the industry for September 2009. The MF industry had launched sixteen schemes in income, equity and ELSS equity categories in month of September 2009. Nine schemes were from close ended income category; five from open-ended equity category, one fund in close-ended ELSS equity category in September 2009. These funds have mobilised Rs 2,296 crore.
Other ETFs had a highest growth of 14.56% in its total assets in September 2009. Total AUM of equity and ELSS equity funds recorded growth of 5.65% and 7.75%, respectively in September 2009. While the losers were income, liquid funds that posted negative growth of 26.25% and 23.26% on account of redemptions done to meet requirement of advance tax payment for 2nd quarter.
As major categories had faced redemption pressure in month of September 2009, the MF industry had seen net outflow of Rs 144327 crore in September 2009 from net inflow of Rs 32673 crore in August 2009.
Equity Funds
Total AUM of equity funds increased by 5.65% to Rs 169,887 crore as on 30 September 2009 from Rs 160,797 crore as on 31 August 2009, as equity benchmark indices gained above 9% in September 2009 (The BSE Sensex and the S & P CNX Nifty grew 9.32% and 9.05%, respectively, in September 2009).
The major equity benchmark indices advanced over one month period on heavy buying of equities from Foreign Institutional Investors (FIIs) that backed by slew of positive domestic economic indicators, hopes of strong industry results for 2nd quarter and rise in global stock markets in last one month. However, domestic mutual funds' net selling in equities amounted to Rs 2334.6 crore in September 2009, compared with net buying of Rs 570.30 crore in August 2009. It resulted into a net outflow of Rs 1756 crore in equity funds in September 2009. However, equity funds contributed 27% to total AUM in September 2009 more than 21% in August 2009.
Income Funds
Income funds are categorized into three types: open-ended, interval funds and close-ended funds. Total AUM of income funds plunged by 26.25% to Rs 311905 crore in September 2009 over August 2009. Net outflow towards income funds had Rs 112232 crore in September 2009 as against net inflow of Rs 38275 crore in August 2009. Share of assets of income funds in total AUM slowed down 50% in September 2009 from 56% in August 2009.
Liquid Funds
Liquid funds provide easy liquidity as these schemes invest in short term instruments. Corporate, banks and individual investors prefer these funds to park their money for short period. Generally, at the end of quarter, corporate, banks pull out money from these funds to meet advance tax payment. In 2nd quarter ended September 2009, huge amount was redeemed from liquid funds which led to fall in its AUM of 23.26% to Rs 97792 crore in September 2009 compared with August 2009. It recorded a net outflow of Rs 30093 crore in September 2009.
Gilt Funds
AUM of gilt funds grew 2.11% to Rs 4020 crore in September 2009 from Rs 3937 crore in August 2009. Gilt funds had net inflow of Rs 55 crore.
Other Funds
ELSS-Equity funds witnessed net inflow of Rs 47 crore with a rise of 7.75% in its total assets. Balanced funds grew by 6.09% in September 2009. Gold ETFs had net inflow of Rs 76 crore, its total AUM increased by 11.62% to Rs 1009 crore in September 2009 over Rs 904 crore in April 2009. The total AUM of other ETFs grew 14.56% in September 2009. Fund of Funds investing overseas recorded a rise of 0.87% in assets.

Irda to put insurance data on website

The Insurance Regulatory and Development Authority (Irda) has decided to make available samples of transaction level data on motor and health insurance on its website to facilitate research on non-life insurance.
Irda stated in a circular on Monday that it has been collecting data on motor and health from insurers and third-party administrators. Motor data was being collected in three structured tables. It has placed on the website HYPERLINK "http://www.irdaindia.org/sampledata.htm.
In order to maintain the confidentiality and to protect the business interests of the data providers, some of the fields are masked in the data set.
The regulator, however, stated that it did not guarantee the accuracy, adequacy or completeness of any information and would not be responsible for errors, omissions in the data.
“Irda is not obliged to give any clarification on the sample data,” it added.

http://www.business-standard.com/india/news/irda-to-put-insurance-datawebsite/373080/

BANK

Credit growth may be slow: Bankers

Making a strong case for delaying the withdrawal of accommodative monetary stance of the Reserve Bank of India, some of the bank heads who met Governor D Subbarao in the customary pre-credit policy meeting said credit growth might fall short of the central bank’s projection of 20 per cent.
“We said the RBI that loan growth for the current year may be around 15-16 per cent. Though we are sanctioning loans but actual disbursements are not taking place. Taking all these bottlenecks into account, we have projected our credit growth,” a banker who attended the meeting told Business Standard. The second quarter review of the annual policy of RBI is scheduled on October 27.
Credit growth had fallen to 12.6 per cent year-on-year as on September 25. With loan growth expected to fall short of the target and economic revival still in the nascent stage, bankers felt RBI should continue the accommodative stance for some more time.
“Bankers wanted accommodative monetary stance to continue because things are just picking up. This was noted by the governor,” another banker said.
The country’s industrial growth for August was 10. 4 per cent on year. It recorded a double-digit growth for the first time since October 2007.
Last month, the governor indicated that India may exit from the accommodative stance before other nations but he is not clear when to start exiting.Some of the bankers who were present at the meeting today said there was no clear indication from the governor on when the central bank planned to start tightening the accommodative stance.
A section of bankers however felt that loan growth would pick up in the remaining part of the financial year.
“The view is that there is ample liquidity in the system, unless the liquidity is absorbed and credit growth picks up, interest rates will not go up. There may be a spurt in credit demand. So the interest rates are expected to rise,” said IDBI Bank’s Chairman and Managing Director Yogesh Agarwal after coming out of the meeting.
“After Diwali, credit growth will happen and the surplus liquidity will be mopped up very fast,” Agarwal added.
Bankers also reiterated their proposal to RBI for hiking the held-to-maturity (HTM) cap to 27 per cent from 25 per cent now.
Banks have used up most part of their held-to-maturity portfolio to avoid incurring mark-to-market losses due to the huge government borrowing programme.
Among the bankers who attended the meeting were OP Bhatt, chairman of State Bank of India, Chanda Kochhar, managing director and chief executive officer of ICICI Bank, MD Mallya, chairman and managing director of Bank of Baroda and Aditya Puri, managing director of HDFC Bank.
http://www.business-standard.com/india/news/credit-growth-may-be-slow-bankers/373079/

Govt to up stakes in 3 banks
May subscribe to preferential equity.
The government is set to increase its stake in Bank of Baroda (BoB), Oriental Bank of Commerce (OBC) and Dena Bank.Sources familiar with the developments said the government is planning to subscribe to a preferential equity issue that could raise its stake in these banks by 10 per cent.
The government has recently held discussions with all the public sector banks on their capital requirements and growth plans for the next three to five years and preferred mode of capital infusion.
Sources said BoB, OBC and Dena preferred a direct capital infusion since their capital base is relatively low compared to their peers.
 

BoB has asked for a capital infusion of Rs 5,000  to Rs 6,000 crore and OBC and Dena asked for Rs 1,000 crore each.
If the government meets these requirements, its stake in BoB will increase to 64 per cent from 54 per cent, and to nearly 60 per cent for both OBC and Dena from 51.1 and 51.2 per cent, respectively.
One reason the government wants to increase its stake in these banks is to give them headroom to raise equity capital through public issues, which would have the effect of diluting the government's holding, at a later date.
Since the government's holding in public sector banks cannot fall below 51 per cent, these three banks do not have such head-room currently.
Most other banks in their presentations, however,  asked for perpetual non-cumulative preference shares, since pure equity will expand their paid-up capital and lower earnings per share.
The paid-up capital of OBC and Dena Bank is among the lowest in the industry at Rs 250 crore and Rs 287 crore.
BoB's paid-up capital is at Rs 365.5 crore, much less than its peers like Bank of India (Rs 526 crore) and Union Bank of India (Rs 505 crore).
The price at which the government will buy the shares will be decided on the basis of the norms set by the Securities and Exchange Board of India.
For Rs 5,000 crore capital infusion, BoB will have to issue 100 million equity shares of a face value of Rs 10, assuming that the government buys the share at Rs 500 each. As a result, BoB's paid-up capital will increase by Rs 100 crore, which will still be lower than BoI and Union Bank of India.
In addition, these banks have expressed confidence that they can restore their present EPS within three to six months of the capital infusion.
May subscribe to preferential equity.
The government is set to increase its stake in Bank of Baroda (BoB), Oriental Bank of Commerce (OBC) and Dena Bank.
Sources familiar with the developments said the government is planning to subscribe to a preferential equity issue that could raise its stake in these banks by 10 per cent.
The government has recently held discussions with all the public sector banks on their capital requirements and growth plans for the next three to five years and preferred mode of capital infusion.
Sources said BoB, OBC and Dena preferred a direct capital infusion since their capital base is relatively low compared to their peers.
BoB has asked for a capital infusion of Rs 5,000  to Rs 6,000 crore and OBC and Dena asked for Rs 1,000 crore each.
If the government meets these requirements, its stake in BoB will increase to 64 per cent from 54 per cent, and to nearly 60 per cent for both OBC and Dena from 51.1 and 51.2 per cent, respectively.
One reason the government wants to increase its stake in these banks is to give them headroom to raise equity capital through public issues, which would have the effect of diluting the government's holding, at a later date.
Since the government's holding in public sector banks cannot fall below 51 per cent, these three banks do not have such head-room currently.
Most other banks in their presentations, however,  asked for perpetual non-cumulative preference shares, since pure equity will expand their paid-up capital and lower earnings per share.
The paid-up capital of OBC and Dena Bank is among the lowest in the industry at Rs 250 crore and Rs 287 crore.
BoB's paid-up capital is at Rs 365.5 crore, much less than its peers like Bank of India (Rs 526 crore) and Union Bank of India (Rs 505 crore).
The price at which the government will buy the shares will be decided on the basis of the norms set by the Securities and Exchange Board of India.
For Rs 5,000 crore capital infusion, BoB will have to issue 100 million equity shares of a face value of Rs 10, assuming that the government buys the share at Rs 500 each. As a result, BoB's paid-up capital will increase by Rs 100 crore, which will still be lower than BoI and Union Bank of India.
In addition, these banks have expressed confidence that they can restore their present EPS within three to six months of the capital infusion.
BoB, for example, has projected 25 per cent growth in its business for the next three years and want to maintain a capital adequacy ratio of 14 per cent with 9 per cent tier-I capital. It expects to restore its present EPS by March, assuming that the capital from its promoter comes by December.
As a lesson from the global financial crisis, the government and the Indian banks realised the need for enhancing equity capital and most banks now prefer to have a capital adequacy ratio of 12 per cent, though the minimum regulatory requirement is only 9 per cent.
According to sources, the government has indicated that it may complete the capital infusion process by the end of December or early January, assuming funds from the World Bank for bank capitalisation comes in this month itself.
The World Bank recently granted a $2 billion loan for bank capitalisation in India and there are talks that it may  grant another $1 billion for the same purpose.
http://www.business-standard.com/india/news/govt-tostakes-in-3-banks/373108/

SEBI

Punjab & Sind Bank IPO likely before Sept 2010: CMD

Punjab & Sind Bank, one of the two unlisted public sector banks in the country, is aiming to dilute government holding by 20-25 per cent through an initial public offer (IPO) in the first half of the next financial year.
“We will start preparation for a public issue during the current financial year. As soon as we are ready with the March 2010 numbers, we will file the draft prospectus with Sebi (Securities and Exchange Board of India),” said Chairman and Managing Director GS Vedi.
“We will time the issue in such a fashion that we are there before September 2010. Our intention is to be through with the IPO between April and September next year,” he said.
Vedi said the stake dilution could be in the range of 20-25 per cent. With the IPO, the bank would get Tier-I capital, that is, long-term capital to support growth, he said.
http://www.business-standard.com/india/news/punjabsind-bank-ipo-likely-before-sept-2010-cmd/373161/

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