No cloning of existing schemes please,SEBI tells MFs

MUMBAIL It is a case of old wine in a new bottle many a time when it comes to new fund offerings (NFOs) by mutual fund houses. But fund houses may no longer have the freedom to launch NFOs that have similar features as some of their existing schemes.

ET has learnt that capital market regulator Sebi is considering a proposal to curb this practice, widely prevalent among asset management companies. The regulator wants AMCs to elaborate their fund deployment method and the risk associated with it. Sebi has already set the ball rolling and has been closely scrutinising new fund offers so that they measure up to the proposed transparency code.

Several chief executives of fund houses told ET that Sebi, in a meeting held last week, has communicated to them that disclosure standards of offer documents need to be improved. It also wants the offer document to be simple and shorn of technical terms or jargons. Says Fortis Investment Management India MD Nikhil Johri: “Sebi’s move is aimed at improving the quality of investor communication from AMCs, whereby every opportunity is used to highlight the investment strategy and risks to enable the investors take better informed decisions.”

Currently, there are around 3,000 mutual fund schemes in the market and there are more to come, with fund houses Axis Bank and Union Bank-KBC set to make their debut. Sebi has also called for greater accountability and responsibility from the trustees of asset management companies, as they are custodians of investors’ funds.

“This means that fund houses will have to give the details of the proposed scheme well in advance for us to study it as well as justify the reason behind it. Also, trustee members need to individually evaluate the scheme before the board certifies it,” said a trustee chairman of a leading fund house.

“This may result in some of the inactive trustees immediately opting out of their fiduciary responsibility,” he added. Typically, the AMC board meets in the morning and the trustee board meets in the evening of the same day, thus hurrying up the whole process.

In the past, trustees used to just give their approvals for new schemes. However, the scenario changed two years ago with Sebi making it mandatory for trustees to give a declaration that the new scheme is different.
The regulator has conveyed that AMCs should talk directly to investors rather than completely rely on distributors so that there is no mis-selling of products,” said another mutual fund official present at the meeting.

But some feel this could fray relations between fund houses and the distributors. “Presently, distributors own/service the client (read: investor). If intermediaries are bypassed, it could cause conflict between fund houses and distributors,” said another industry official.

With Sebi asking fund houses for a detailed and elaborate offer document, asset management companies could save a few bucks in terms of advertising expenses in the bargain. As Johri says: “Maybe now, there would not be a need to have a separate product marketing brochure; the offer document itself will be quite elaborate!”

http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/No-cloning-of-existing-schemes-pleaseSEBI-tells-MFs-/articleshow/5125904.cms

MF industry may see uptrend by Oct-end: Crisil FundServices

NEW DELHI: The country's mutual fund industry is likely to see an uptrend by the end of this month as corporate houses are expected to pour in more money.

Firstly, corporates withdrew (MF investments) to meet their advance tax payments and secondly banks pruned their investments to meet their quarter end balance sheet requirements on capital adequacy.

"These investments are expected to return into mutual funds in October as we have seen earlier in the year in months following a quarter," Crisil FundServices Director Krishnan Sitaraman said.

The assets under management (AUM) of the country's 36 fund houses fell by about one per cent top Rs 7.44 lakh crore. At the end of August AUM stood at Rs 7.51 lakh crore.

With Indian equity benchmark indices ending up nine per cent buoyed by strong liquidity, Crisil's mutual fund indices ended September gave positive returns.

The equity category, represented by Crisil Fund-eX, gave gains of 7.85 per cent, followed by Crisil Fund-bX, the index for balanced funds, which reported returns of 6.52 per cent.

Among the debt indices, Crisil MF-Gilt (the gilt funds index) reported the highest returns (0.93 per cent), followed by Crisil Fund-dX, the long-term bond funds index (0.67 per cent). Crisil STBEX, the index for short-term bond funds, gave returns of 0.54 per cent, while Crisil-LX, the index for liquid funds, saw returns of 0.32 per cent, said a release.

http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/MF-industry-may-see-uptrend-by-Oct-end-Crisil-FundServices/articleshow/5124919.cms

Debt funds look up in September

The ample liquidity, which stood around Rs1.5 trillion, during the month also helped bond prices

A benign interest rates environment and the Reserve Bank of India buying back government bonds improved investor sentiments in September, thereby pushing bond prices higher. During the month, the yield on the 10-year 6.9% government bond maturing in 2019 declined to 7.19% compared with 7.41% in the previous month. The slow pace of government borrowing also benefited bond prices. The government has scheduled borrowing of Rs1.23 trillion during the October-March period.
The central bank bought Rs6,000 crore worth of government bonds, thereby putting more money into the banking system. The ample liquidity, which stood around Rs1.5 trillion, during the month also helped bond prices. The overnight call rate declined to 3.20-3.25%, driven by surplus liquidity in the banking system.
In contrast, the rising inflation, as measured by the Wholesale Price Index (WPI), caused some concern. The annual WPI inflation increased to 0.37% for the week ended 24 September, from -0.95% for the week ended 26 August, driven by a surge in food and crude oil prices. Rising inflation continued to be a concern during the last few weeks as a weak monsoon had raised fears of a drought. The below-normal monsoon is likely to result in lower crop output, which could push food prices higher still.

its financial services business comprising asset management, insurance, stockbroking and distribution to a wholly-owned subsidiary in order to unlock shareholders value.

The restructuring will be implemented in three phases. In the first stage, various subsidiaries of Aditya Birla Nuvo in the financial sector and the company’s equity stakes in its insurance and mutual fund joint ventures will be transferred to Aditya Birla Financial Services (ABFS), said a person close to the development. ET was not able to ascertain how ABFS, a 100% subsidiary, would pay the parent company, though it is possible that it could issue shares to Aditya Birla Nuvo.

In the second stage, ABFS will be renamed as Aditya Birla Capital. Finally, there will be divestment of a minority stake to financial investors. The eventual intention is to list the company on the stock exchanges, the person added. The consolidation of the subsidiaries may start by December. The group spokesperson declined to comment.

The group’s plan to restructure the financial services business follows the recent reorganisation off its cement business. Two weeks ago, the group announced that the cement business of Grasim will be hived off into a wholly-owned arm called Samruddhi, which will eventually be merged with UltraTech Cement, a 55% subsidiary, to create the country’s largest cement maker. The cement restructuring process is expected to be over by 6-8 months, the group had earlier said.

The creation of a holding company for the financial services business, for which the group has already received RBI approval, will help the Aditya Birla Nuvo shareholders to better realise the value of this growing business which is now lost in the company’s disparate interests ranging from textiles to agri products to insulators, said an analyst.

It is learnt that a few big-ticket investment banks have expressed interest in advising Aditya Birla Nuvo on the restructuring. The company, however, has not yet given a mandate, said a merchant banker. Aditya Birla Nuvo earns nearly 30% of its revenue from the financial services business, followed by telecom with 21%. The contributions from a host of other sectors, including insulators, rayon, textiles, fertilisers, garments and BPO & IT range from the low single digits to 13%. It recorded consolidated sales of Rs 13,600 crore last year.

http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/AB-Nuvo-to-spin-off-fin-arm-to-unlock-value/articleshow/5125539.cms

Call for FII sub-ceiling in private life cos rejected

NEW DELHI: The finance ministry has turned down a demand from the insurance regulator IRDA to distinguish between portfolio and direct equity

investments through a sub-ceiling for investments by foreing institutional investors (FII) and has instead recommended a composite cap for foreign investments in private life insurance companies

http://www.business-standard.com/india/news/now-pay-risk-premium-at-will/373275/

ULP: A savings policy with risk advantage

The model of universal life policy (ULP), which is ideally targeted towards the poor (micro-finance), is being replicated by some insurance companies for the urban middle class.
Globally, ULPs are supposed to give flexibility of payment to policyholders that can help them create a corpus, which, in turn, takes care of their life insurance premium in later years if customers are unable to pay. Also, expenses are the lowest.
However, Max New York Insurance and Bharti AXA Life Insurance Company have tweaked this basic model by keeping the premium fixed. Also, the entry limit of Max New York’s policy is quite high at Rs 15,000.
Premiums have been kept fixed because the Insurance Regulatory and Development Authority (Irda) has not allowed insurers to keep a flexible option. “The regulator has some contentions on the actuarial side. It feels that before the insurance companies are allowed to take variable amounts, there should be certain checks and process that needs to be put in place,” said a source from the industry. Irda was unavailable for comments.
In case of Secured Dreams, the Max New York Life product, the prospective policyholder does not have to go through any medical tests. The maximum sum insured under the policy is only Rs 20 lakh.
Also, one can select a premium amount ranging from Rs 15,000 to Rs 2 lakh. Policyholders can also choose a tenure between 11 years and 20 years. And though the premiums are on a higher side, there are several advantages in terms of costs, accumulation of corpus and death benefits.
After deduction of expenses, the remaining money is transferred to an account where it earns an interest. The rate of interest is decided by the company at the beginning of every quarter. But the company will pay a minimum 3.5 per cent annual interest. The interest is credited to the account on a monthly basis.
Out of the total premium received, 80 per cent is invested in government bonds and the remaining in quality corporate papers. The best part: There are no fund management charges as this is a non-unit linked product. Max New York Life does levy a policy allocation charge (PAC) on the first premium. The company divides the premium in slabs; up to Rs 50,000, PAC is 30 per cent. Any amount beyond this goes directly to the account of the policyholder.
“This product is designed to fulfil a future goal of the policyholder. We provide 10 per cent of the premium as loyalty bonus from fifth year onwards,” said Manik Nangia, head, product management, Max New York.
If the policyholder passes away before the term ends, the company pays the premium for the remaining tenure. At maturity, the total amount, which includes the death benefit plus the accumulated corpus, is given to the nominee. “The cost of this is built into the policy expenses. This is why the mortality charges are just few rupees higher than what we charge in the term plan,” said Nangia.Being a non-unit linked product, this policy also enjoys tax benefit under section 10 10(D), apart from the 80C that is applicable to all life insurance premium. This means, the proceeds on maturity are tax-free.
Experts felt that without the flexibility of payment, policies under universal life are a better version of endowment policy. “These policies will have transparency of charges and added features that are available with unit-linked insurance plans,” said Suresh Sadagopan, a certified financial planner.

http://www.business-standard.com/india/news/ulpsavings-policyrisk-advantage/373287/

Future Generali to launch more insurance products

Future Generali India Life Insurance Company, a joint venture between Future Group of India and Generali Group of Italy, would be launching seven more insurance products in the current financial year.
According to Future Generali’s chief investment officer Nirakar Pradhan, three new insurance products will be launched in the current quarter, while four more will be launched in the fourth quarter.
The insurance company launched ‘Future Freedom Plus’, a new Ulip (unit-linked insurance plans) product, here on Wednesday. It has so far introduced 18 insurance products in the country.
Company’s chief (operations), Balram Sharma, told mediapersons that plans were also afoot to increase the number of insurance advisers from the existing 36,000 to 50,000 by March 2010.
He said the company had targeted to achieve a revenue of Rs 750 crore in the current year as against Rs 155 crore last year.
In the first half of the current year, the company premium collection stood at Rs 153 crore.

http://www.business-standard.com/india/news/future-generali-to-launch-more-insurance-products/373298/

BANK

IndusInd Bank net jumps 130% to Rs 78 crore

Aided by strong growth across its core and non-core businesses, IndusInd Bank registered a 130 per cent rise in net profit to Rs 77.82 crore in the quarter ended September 2009 as against Rs 33.6 crore in the year-ago quarter.
Net interest income (NII) was Rs 208.55 crore as compared to Rs 105.24 crore in the corresponding quarter of the previous year, registering a growth of 98 per cent.
Non-interest income grew 49 per cent in the quarter on a year-on-year basis to Rs 89 crore. Most of this growth was contributed by income from distribution of mutual fund and insurance products, forex sales and investment banking.Trading gains, which at Rs 86 crore were a major growth driver in the first quarter, fell to Rs 9 crore in the September quarter due to the hardening of yields on government bonds, according to Romesh Sobti, managing director and chief executive officer of IndusInd Bank.
The bank continued to improve its margins in the quarter with net interest margin (NIM) rising to 2.8 per cent compared to 2.6 per cent in the June quarter and 1.68 per cent in the quarter ended September 30, 2008.
The lender further improved its asset quality with net non-performing assets (NPAs) as a proportion of net advances falling from 1.01 per cent at the end of the June quarter to 0.98 per cent in the September quarter.
According to Sobti, vehicle finance, which accounts for a large chunk of the lender's retail portfolio, has started picking up after a long stagnant phase. Disbursals have now picked up to Rs 480 crore a month, from a low of Rs 230-240 crore in December last year.
The lender's performance on the liabilities side was also satisfactory with the proportion of the low-cost Current account, Savings account (CASA) deposits increasing to 21.22 per cent of its total deposits from 17.94 per cent in the year-ago period.
The stock market responded positively to the IndusInd Bank results with the scrip rising 5.35 per cent on the Bombay Sotck Exchange to end the day at Rs 124.
http://www.business-standard.com/india/news/indusind-bank-net-jumps-130-to-rs-78-crore/373290/

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

Sebi to probe RCom on audit controversy

ICAI also seeks details, ADAG scrip plunges 1-7%.
ADAG-controlled Reliance Communications (RCom) stock fell nearly 7 per cent today in a market that rose following reports that the Securities and Exchange Board of India (Sebi) has asked for details of the special audit ordered by the Department of Telecommunications ahead of launching an independent investigation on the issue.
The audit report had found that RCom, which offers CDMA mobile services and recently launched GSM services, had under-reported revenues that, in turn, impacted licence and spectrum fees it pays the government.
The special auditors Parakh & Company noted that the company under-reported wireless revenues of Rs 2,799.19 crore to the Telecom Regulatory Authority of India (Trai) for the financial years 2006-7 and 2007-8, costing the government Rs 315.9 crore in fees that are charged as a percentage of revenue.
The audit report also said during 2007-08, RCom's actual wireless revenue was Rs 12,298 crore, but it inflated the figure by 23 per cent to Rs 15,213 crore in the shareholder’s report, leaving a gap of Rs 2,915 crore.
Top Sebi sources told Business Standard that the regulator has already asked for the audit report.
“Once we get the report we will verify how the company has failed to comply with various disclosure norms and issue a show-cause notice to the firm. Also, both Bombay Stock Exchange and the National Stock Exchange, which have separate listing agreements with the firm, will look into the matter to see if the company violates clause 40 of the agreement,” said the source.
Meanwhile, ADAG chief Anil Ambani, who was in Delhi today, met Finance Secretary Ashok Chawla. An RCom spokesperson said corporate rivals were sensationalising the report. “The difference between revenue according to the Trai figures and as per our financial accounts has been reported by RCom from quarter to quarter, and has not been 'discovered' by the special auditors,” the spokesperson added.
“An appropriate response will be provided as and when DoT provides a copy of the report to RCOM and seeks its explanation in that regard.” he added.
The Institute of Chartered Accountants of India (ICAI) has also asked RCom to provide financial details.
Make all reports public: Mittal
Sunil Mittal, chairman of Bharti Airtel Ltd, India's largest telecom company by number of subscribers, said that the Deaprtment of Telecommunications' special audit report on telecom companies should be made public.
Responding to a question on NDTV on the leak of the report, Mittal said: “I don't know what the government policies are but in my opinion everything in the public domain is better that not being in the public domain. So sure, open all the findings of all the reports. In any case, all of you will publish, write and talk about it in any way.”
Mittal also welcomed DoT's decision to go in for special audits of all telecom companies. “The government already has audited most of the leading companies and the audit reports are awaited. I think it is good thing from time to time because large government revenues are involved here,” he said.
"We have not asked for any inquiry on the RCom audit issue. I have just asked our disciplinary committee members to verify the information that is coming out in the media. Since it involves our members, we want to be aware of the situation. Beyond that there no ICAI inquiry,” ICAI President Uttam Prakash Agarwal told Business Standard.
Apart from RCom, other ADAG stocks such as Reliance Power, Reliance Natural Recourses, Reliance Capital and Reliance Infrastructure too declined between 1.5 and 3 per cent though the Sensex managed to gain 1.20 per cent.
"Anil Ambani's long-drawn legal battle over gas sharing contract with elder brother Mukesh Ambani, from the country's largest oil fields in Krishna Godavari basin, has already had a negative impact on investor sentiment," said a top south-Mumbai based stock broker.
The special auditor was appointed by DoT a few months ago to examine allegations of licence fee evasion by the Cellular Operators Association of India (COAI), the association of GSM players.
The audit was later extended to all other incumbent telecom players, including Bharti Airtel, Vodafone, Idea Cellular, and Tata Teleservices. Those reports are awaited.

http://www.business-standard.com/india/news/sebi-to-probe-rcomaudit-controversy/373321/

SEBI orders Pinnacle Shares to close down

Our Bureau
Mumbai, Oct. 14 SEBI has directed Pinnacle Shares Registry Pvt Ltd to wind up its business, following fraudulent transfer of shares of genuine shareholders of Parsoli Corporation to the promoters of Parsoli and their front entities.
Earlier, SEBI had banned the company from doing any fresh business.
The markets regulator also found Pinnacle Shares Registry guilty of having delayed the dematerialisation request and also for rejecting many such requests on improper, false and misleading reasons.
In an order issued on Wednesday, SEBI said the certificate of registration granted to Pinnacle Shares Registry shall stand cancelled with effect from February 28, 2010. During the intervening period, SEBI has asked the company not to take on new clients in their business under their certificate of registration. It has also been asked to inform its client companies to make arrangements for appointment of another registrar and share transfer agent

http://www.thehindubusinessline.com/2009/10/15/stories/2009101550871000.htm

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