Escorts Mutual Fund

MUMBAI: It seems that taxsaving mutual fund schemes are on the verge of losing their unique selling point. Mutual fund advisers hardsell these schemes to prospective investors claiming that they have the potential to outperform other category of equity schemes — especially diversified schemes. Advisers are unlikely to make such claim this financial year-end , as an analysis of data shows that tax-saving schemes from leading mutual fund houses have been lagging their diversified counterparts in onethree- and five-year periods.

‘‘ It is no longer a big secret that tax-saving schemes are not being able to live up to their reputation. Earlier, they used to beat diversified schemes in the long-term and even used to outperform them regularly in the short period,” says an investment adviser, who doesn't want to be named. However, that doesn't seem the case anymore . Hemant Rustagi, CEO, Wiseinvest, a wealth management firm, says: ‘‘ A pointto-point comparison of returns of tax-saving scheme and diversified schemes doesn't give you the complete picture . In fact, tax-saving schemes are more volatile than diversified schemes.''

A look at the performance of tax-saving schemes and diversified schemes in the same fund house reveal that tax-saving schemes have been lagging even in the short period of one year. Rustagi says the small and midcap stocks in the portfolio of tax schemes could be a reason for their underperformance . Tax-saving schemes tend to bet more on these stocks because the fund manager has the time to realise their full value because of the mandatory lock-in period of three years. However , it doesn't seem to have paid off. Another reason for the underperformance of these schemes could be that they witness inflows typically towards the financial year end. ‘‘ Probably, they are not able to capitalise on the opportunities because of lack of inflows,'' says Rusgai.

A Balasubramanian, CEO, Birla Sun Life MF, says taxsaving schemes still has the potential to beat diversified schemes in the long term of five years and more. ‘‘ A pointto-point comparison could be misleading because sometimes the rally would led by large cap and followed by mid and small caps. The picture may differ depending on when you are looking at performance ,'' he says. ‘‘ As long as the composition of the portfolio is fine and the volatility is not very high, a marginal underperformance shouldn't be a great concern,'' he added.
http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Tax-saver-schemes-lag-diversified-funds-/articleshow/5692417.cms

Manish Basu
Kolkata, March 16
Mutual fund companies would need to rework their marketing strategies and speed up distribution mechanism to factor in the reduced New Fund Offer (NFO) period of 15 days, industry experts have said.
SEBI had issued a circular on Monday to reduce the duration of allocation of NFOs, barring equity-linked savings schemes (ELSS), to a maximum of 15 days.
The current structure has a provision of 30 days in case of open-ended schemes and 45 days in case of close-ended schemes.
“About 90 per cent of the NFO inflow takes place during the last three days of allocation. Therefore, the move may not have an impact on the inflows,” Mr Rajiv Deep Bajaj, Vice-Chairman and Managing Director, Bajaj Capital, told Business Line.
The mutual fund houses would need to work out more effective pre-marketing strategies and speed up distribution in order to serve tier-II and tier-III markets faster, he said.
“We would need to work faster and rework our logistics in the changed scenario,” Mr Waqar Naqvi, Chief Executive Officer, Taurus Mutual Fund, said.
The new guideline of allotment by mutual fund companies within five business days from the closure of the NFO might put some strain on the system, he said.
“Earlier the registrar and transfer agents used to take seven to 10 days for the allotment. They would now need to reconcile their operations,” he added.
ASBA route
Mutual fund companies are not too optimistic about retail participation through the new Application Supported by Blocked Amount (ASBA) route made available to retail investors in the New Fund Offerings.
The ASBA route is now in vogue for retail investors putting money in IPOs.
The mechanism would allow investors to release the investing amount, through banks, only on the last day of the NFO.
“There may not be even a percentage participation from the new route. The route makes sense only in case of IPOs as it involves oversubscription and the delay in refunds can be mitigated through investing in the ASBA route,” Mr Dhirendra Kumar, CEO of Value Research Online, said.
“It is a good move only on one count – the investor can earn interest from bank till the release of the money,” Ms Lakshmi Iyer, Head–Fixed Income & Products, Kotak Mahindra Asset Management Company, said.
http://www.thehindubusinessline.com/2010/03/17/stories/2010031753501000.htm

From streamlining the process of declaring dividends to nudging funds to play an active role in corporate governance, Sebi ensures more transparency You won’t have to wait forever to get your first account statement and units allotted once you have invested in a new fund offer (NFO) of a mutual fund (MF) scheme. The Securities and Exchange Board of India (Sebi) announced this, along with a few other key rules, in a circular issued on 15 March. Here’s what they mean for you.
New fund offers’ duration
All NFOs, except equity-linked saving schemes, will now be open for a maximum of 15 days, down from 30 days for open-ended funds and 45 days for closed-end schemes. Once the NFO closes, your fund will have to allot units and dispatch the account statements within five days, down from 30 days earlier.
While this move is good for investors, some fund managers are concerned. “A 5-day period looks tight. It will be an operational challenge to meet this deadline because to get all the forms, cheques and process from all over India will be difficult in these five days,” says Rajan Krishnan, chief executive officer, Baroda Pioneer Asset Management Co. Ltd.
Asba for MF investors

Asba, or Applications Supported by Blocked Amount, is a payment mechanism initiated by Sebi in July 2008 for those investing in initial public offers or rights issue. Under this, the money that you set aside for your application does not leave your bank account till the shares are allotted to you. As a result, your money keeps earning interest, though the funds are frozen and you can’t use them. Also, it negates the need of a refund if shares don't get allotted to you. Sebi has now extended this facility to MF investors.
Though Asba means little for MF investors because you always get 100% units allotted, it protects your money from market vagaries since Sebi also mandates NFOs to now invest your proceeds only after the NFO closes and allot units within five days after that. Both Asba and the new NFO time frame will be applicable for NFOs launched after 1 July.
Corporate governance
In December 2008, when Srinivas Vadlamani, former chief financial officer, and B. Ramalinga Raju, founder and former chairman of Satyam Computer Services Ltd, met fund managers and analysts on a conference call to explain the rationale of acquiring 100% stake in Maytas Properties Ltd and 51% share in Maytas Infrastructure Ltd for $1.6 billion, all hell broke loose. While Satyam Computer Services was into information technology, Maytas Properties was into real estate and Maytas Infrastructure into infrastructure. Moreover, both were owned by Raju’s children.
Fund managers vociferously opposed the proposed takeover. The reporter has the transcript of that call. They expressed their shock, called the transaction an example of “third grade corporate governance practices” and expressed concerns that this could possibly lead to a scenario where foreign investors would desert Indian companies. Fund managers and analysts forced Satyam to abandon the plans, which would have cost the minority shareholders of Satyam dearly. A few days later, Raju admitted to fraud. Although investors of Satyam lost eventually, it was probably one of the few instances in public light where fund managers and equity analysts protected the right of the minority shareholders and put pressure on a corrupt management to change course.
Sebi now wants MFs to be more active in corporate governance. Sebi feels it is appropriate to allow MFs to voice their opinion as they are vehicles for small investors. Sebi has now made it mandatory for funds to disclose whether they voted for or against moves (suggested by companies in which they have invested) such as mergers, demergers, corporate governance issues, appointment and removal of directors. MFs have to disclose it on their website as well as annual report. “As markets mature, institutional activism will definitely rise,” says Jayesh Shroff, fund manager, SBI Funds Management Pvt. Ltd.
Pay dividends from gains
Typically, when funds pay dividends, they are supposed to pay out of their profits or realized gains. For instance, if you invest in a fund at a net asset value (NAV) of Rs12, Rs10 will go to an account called unit capital, assuming the fund’s face value is Rs10. The balance of Rs2 (Rs12 less Rs10) goes into a separate account called unit premium reserve. If this Rs12 goes up to Rs13, the fund can declare a dividend of Re1—its gains.
However, Sebi noted that some fund houses were paying dividends from their unit premium reserve instead of the realized gains. Industry sources claim that some funds used to do this to attract large investors by giving them advance notice in private and then allowing them to book losses (NAV drops after dividend declaration), claim losses and set them off against other gains.
Less commission for FoFs
Life just got tougher for fund of funds (FoFs) that invest their entire corpus in international funds. Typically, FoFs charge a maximum of 0.75% per annum. Out of this, the MF pays agent commission and incurs costs on running the scheme and keeps what is left, which fund houses claim is a pittance. To compensate, FoFs enter into a revenue sharing agreement with international funds in which they invest. The international fund pays a small portion, typically 50-80 basis points, to the Indian FoF, which would then retain this amount as its income.
Sebi has now put a stop to this revenue sharing agreement. Fund houses aren’t too happy as they claim it would now be unprofitable to launch and manage FoFs. “If asset management companies do not make any money, these FoFs may stop. International countries and assets were a good way of diversifying our money,” claims a fund manager of a fund house that has an FoF.
Money Matters take
From streamlining the process of declaring dividends to nudging funds to play an active role in corporate governance, Sebi has done well in making MFs more transparent. Cutting down the allotment time to five days, down from 30 days, is bound to pose a challenge to MFs and it remains to be seen how they respond.
http://www.livemint.com/2010/03/16220634/Sebi8217s-new-notifications.html

NEW DELHI: The finance ministry has circulated a proposal that aims to ask state-run banks to exit noncore businesses, notably insurance, to force greater capital efficiency and ensure that periodic capital infusion into them goes into increasing the spread of banking rather than propping up money-losing ventures.

“The money provided through recapitalisation support is for core banking activities such as increased lending and branch expansion. Banks with interests in other areas may divert the funds, which is not desirable,” a senior finance ministry official told ET.

The proposal, which is in the early stages of debate and discussion within the ministry, reasons that noncore businesses such as insurance are highly capital intensive and can take up to 10 years to be profitable.
India’s life insurance industry posted a combined net loss of Rs 4,878.49 crore in 2008-09 , up 43% from a year ago. Of 22 life insurers, only four have reported profits, data from insurance regulator Irda shows.

SBI Life, the first private life insurer to report profit, slipped into the red with a net loss of Rs 26.31 crore in 2008-09 . ICICI Prudential, the largest private sector life insurer has reported losses for the eighth consecutive year, underlining the large gestation period of the business.

An insurance venture needs a minimum startup capital of Rs 100 crore and has solvency margins of 1.5% of the total sum assured. Life insurance companies put in nearly Rs 6,000 crore into their ventures in 2008-09 , while non-life companies brought in Rs 6,228 crore.

“Other businesses such as mutual funds and brokerage services also consume a lot of resources and specially smaller banks will not be able to sustain them in a long run,” the official said, requesting anonymity.

Besides, the thinking behind the proposal is that insurance and other areas already have plenty of private sector players and does not particularly benefit from the presence of these state-run entities. “Banking is the business why they were set up or nationalised. There are already so many private players in other financial services businesses,” the official said.

The ministry’s changed thinking comes at a time the universal banking or the financial supermarket model that has defined global banking groups such as Citi or the Royal Bank of Scotland for years has been severely tested.

But officials at state-run banks say pulling the plug on their non-bank ventures would be damaging.“Not only would it be a financial suicide, but it would also would dent the country’s image as there are a number of joint ventures with foreign partners ,” said an official with Allahabad Bank, who asked not to be named.

Allahabad Bank is a partner in general insurance venture Universal Sompo General Insurance along with Indian Overseas Bank and Karnataka Bank. More than half a dozen banks have insurance joint ventures, many of them with international companies.

The government has already committed to provide Rs 16,500 crore in capital support to state-run banks in 2010-11 to be complaint with capital adequacy norms. It estimates that state-run banks will need another Rs 38,000 crore in capital over the next two years.

The government stake in many banks is close to 51%. Such banks are not in a position to raise capital from other sources as government stake cannot fall below the 51% threshold. The government has to, therefore, keep pumping in capital to support these banks. The government recently introduced a legislation to lower the minimum stake it needs to hold in SBI to 51% from 55% to give the country’s largest bank greater headroom to raise capital from other sources.

Private sector insurance companies have more than three times the outstanding number of death claims on individual insurance policies compared to state-owned Life Insurance Corporation of India (LIC), Finance Minister Pranab Mukherjee told the Rajya Sabha on Tuesday.
Replying to supplementaries during Question Hour, he said the outstanding number of death claims, as on March 31, 2009, as a percentage of total number of claims intimated to the companies in 2008-09 stood at 7.75 per cent for private companies.
The same for public sector LIC was 2.21 per cent, he said. For group policies, private sector companies had 3.93 per cent outstanding claims while LIC had 0.24 per cent.
Mukherjee said private sector insurance companies started operations eight years back while LIC has been in business since 1956.
http://www.business-standard.com/india/news/private-insurance-firms-have-more-death-claims-than-lic-fm/388808/

With the financial year coming to a close, commercial banks have hastened work on sprucing the health of balance sheets.
Many banks have floated one-time settlement (OTS) schemes for small and medium enterprises and tring to sell non-performing assets (NPAs).
State Bank of India, Corporation Bank, Karnataka Bank and Karur Vysya Bank have already floated an OTS each. Many others are in the process of doing so.

TURNING BAD
Rs Crore	Gross Non Performing Assets	Net Non Performing Assets
Dec ‘08	55280.37	24550.19
Mar ‘09	59368.59	27107.51
Jun ‘09	61626.83	28065.95
Sep ‘09	65537.51	29337.79
Dec ‘09	70781.35	33166.27
Common Sample for 39 Listed bank (standalone results) Source Capitaline

Bankers said while such efforts (OTS and NPA sale) are regular activity, the financial crisis and the recent regulatory fiat for increasing the provision coverage ratio are also driving them. The global financial crisis put a strain on corporate, small enterprises and retail borrowers, leading to substantial addition to gross NPAs. Plus, the Reserve Bank of India mandated banks to attain a 70 per cent loan loss coverage ratio by September 2010.
SBI chairman O P Bhatt said the bank would offer a settlement for bad loans to provide relief to small firms hit by the financial crisis. "We have got a large number of units which are stressed...We are trying to incentivise them with a one-time settlement," Bhatt said.
Karnataka Bank chief executive Jayarama Bhat said his bank did not intent to sell NPAs, but had floated a one-time settlement scheme from which it expects to recover substantial amounts. This would also help to reduce outstanding NPAs. Its gross NPAs rose to Rs 612.3 crore (4.5 per cent) in December 2009 from Rs 451.2 crore (3.7 per cent) a year earlier.
Chennai-based Indian Overseas Bank has commenced sale of NPAs for Rs 954 crore, involving 61 accounts. Its gross NPAs rose in the 12 months ended December 2009 to Rs 3,218.3 crore as against Rs 1,718.1 crore in December 2008.
IOB executive director Y L Madan said the due diligence by prospective buyers is through and bank hopes to strike a deal soon. It would help to manage provision coverage.
Similarly, Federal Bank is in the market for sale of assets of about Rs 80 crore. Its chairman M Venugopalan said, thebank was trying to sell some NPAs, “but is not in a hurry. It wants to get better value for assets put on the block”. The outstanding gross NPAs of the Kerala-based private bank stood at Rs 790.7 crore at the end of December 2009, up from Rs 625.7 crore a year earlier.
A Mumbai-based asset reconstruction company said many banks were in the market for a sale of NPAs, but there was a gap between what value banks expect and the price ARCs are ready to offer. Banks prefer cash deals, since the payments are immediate, which add to the revenues for the year, as against securities which could take time to realise gains, based on resolution of NPAs. An SBI official said his bank would not resort to large-scale sale of bad loans. Instead, it would do continuous follow-up with borrowers to ensure better recovery than the income that could be earned by offloading bad loans to other parties.
SBI, the country’s largest lender, saw a significant rise in its gross NPAs to Rs 18,861 crore at the end of December 2009 from Rs 12,723 crore a year earlier.
http://www.business-standard.com/india/news/banks-try-to-clean-books-through-settlements-npa-sales/388805/

The Delhi Stock Exchange (DSE), which had postponed twice the launch of equity trading on its platform, is gearing up for a trial run. The Securities and Exchange Board of India (Sebi) has inspected the exchange and a regulatory nod to allow the bourse to trade is expected soon, said a top DSE official who did not want to be quoted.
According to sources in DSE, the exchange expects to begin trading in May. When contacted, DSE head H S Siddhu refused to give a specific date when they plan to begin trading. “We are awaiting an official nod from Sebi,” he said.
DSE has upgraded its central platform for electronic trading with the latest software called ‘Dome’ supplied by Financial Technologies, its business and technology partner.
DSE’s trading terminals will be known as Delhi Online Trading System (DOTS). The bourse has 2,800 listed companies, out of which 1,700 are exclusively listed on its platform. There has been no trading on DSE since 2003. It completed the de-mutualisation process in 2007 by selling 55 per cent stake to investors.

The Securities and Exchange Board of India (Sebi) is reportedly considering two changes to the takeover code which, unfortunately, will not improve the lot of the independent or small investor. The first is to make it mandatory for the boards of target companies to advise shareholders on how to weigh competing bids. This happens in well-regulated markets but is not obligatory in India. Ideally, if a board, with its knowledge of the company it runs, offers impartial advice in a fiduciary capacity on which is the best suitor for the company, then that will indeed be helpful to small shareholders who have neither the acumen nor the resources to get expert advice. On the other hand, people who run a company cannot be impartial about it, particularly when the induction of a new shareholder will be of enormous significance to them. The Indian reality is that even independent directors are hardly ever so and the ability of controlling shareholders’ nominees to put on an independent hat is very uncertain. So, this is a good theoretical idea which, in reality, is unlikely to deliver much.
While independent board advice on competing bids may not actually be forthcoming, the attempt to mandate it is unlikely to do any harm. That cannot be said of the other proposal — to raise the trigger, form the present 15 per cent to 25 per cent, at which a substantial acquirer has to make an open offer to all shareholders. It is true that Indian promoters today have a much higher stake in the companies they control, compared to the situation that prevailed when the takeover code came into play. Therefore, it will be logical for Indian rules to move towards global practices where controlling stakes are higher. But two arguments militate against the proposal. The open offer is for the good of small shareholders — to ensure that they also get the control premium that an acquirer is willing to pay to those who control a target company. Any dilution of it, delaying its onset by as much as 10 percentge points on a base of 15, will go against the interest of the small shareholder and be helpful only to promoters. Though, typically, controlling stakes today exceed 25 per cent (every promoter tries to ensure a stake in excess of that to prevent a special resolution from being bulldozed through), in some cases they don’t. Thus, if the new trigger is introduced, there will be greater space for controlling interest to change hands and control premium to be paid without the small shareholder coming into the picture at all.
It is disingenuous to argue that the proposed change seeks to bring Indian regulations in line with global practices, because in this matter, there is no one global practice, with European and US rules differing widely. On the other hand, it is necessary for Sebi to live down its past record of tilting the takeover code heavily in favour of promoters and against independent shareholders. This was justified initially on the ground that past regulations prevented Indian promoters from building up large stakes and so they needed time to build stake and security without having to worry about takeover threats. It is high time the takeover code tilted in favour of the small shareholder. That will both boost the equity cult and create an efficient market for managements.

The headline inflation rate, as measured by the wholesale price index (WPI), touched a 16-month high of 9.89 per cent in February and is certain to be in double digits on a point-on-point basis in March.
The rise in inflation rate was primarily driven by fuel prices and the low base effect. The overall inflation is set to accelerate in the current month due to the increase in excise duty, which will push up the index in March.
With the prospect of double-digit inflation and with the growth in industrial output touching 16.7 per cent, analysts expect the Reserve Bank of India (RBI) to raise policy rates like repo and reverse repo by 25-50 basis points in the fourth-quarter monetary policy review on April 20. “Given such a high rate of inflation, it is quite possible that RBI would raise the rates in the fourth quarter policy review. Moreover, as the market has already factored in a 25-50-basis-point increase in rates, there might be a higher increase,” said Sumita Kale, chief economist, Indicus Analytics.
Finance Minister Pranab Mukherjee had said after the Budget that the increase in duty rates would lead to about 0.41 per cent rise in the overall inflation rate.
According to Chief Statistician Pronab Sen, the inflation rate, at 8.56 per cent in January, had breached RBI’s projection of point-on-point inflation rate of 8.5 per cent by March. During the corresponding period in 2009, it was 3.50 per cent. For December, the final rate was revised to 8.1 per cent from an earlier provisional estimate 7.31 per cent.
“I would expect another month of inflation roughly like this because the base effect is going to be very strong... after that, inflation should begin to die down,” said Chief Economic Advisor Kaushik Basu.
With the inflation spreading to fuel and manufactured category and structural problems playing a greater role in creating inflationary pressures, analysts say inflation in 2010-11 will come down from double-digit levels, but will continue to be at a high single-digit level.
“While rising prices are partly driven by cyclical factors, they have also been further augmented by structural distortions. Assuming normal monsoons, fading base effect, and a healthy winter harvest, we expect the inflation rate to come off from double-digit levels. However, given the growing influence of structural factors, WPI would likely remain in high single digits rather than the preferred range of 5 per cent. This, in turn, could potentially keep the rate structure higher,” said Rohini Malkani, economist, Citigroup India.
The Inflation rate for primary articles stood at 15.54 per cent in February, as against 6.85 per cent during the corresponding month in 2009. However, on a month-on-month basis, the prices of primary articles registered a decline of 0.88 per cent. Fuel prices showed significant increase and registered an inflation rate of 10.19 per cent, against a decline of 3.40 per cent last year. Prices of high-speed diesel oil grew at the fastest rate, of 8.85 per cent, in the fuel category. On a monthly basis, fuel prices rose at the rate of 1.54 per cent in February.
The Inflation rate for manufactured products stood at 7.42 per cent in the month under consideration, against 4.78 per cent in the corresponding period last year. On a month-on-month basis, prices of manufactured products increased at the rate of 0.61 per cent.
Inflation for cereals and pulses on a year-on-year basis stood at 11.69 per cent and 35.58 per cent, respectively, against 12.66 per cent and 16.88 per cent in the corresponding period last year. Price of food articles on a month-on-month basis showed a marginal decline of 0.41 per cent in February. Sugar prices continue to be high, with a year-on-year inflation rate of 55.47 per cent.