MUMBAI: Is it prudent to keep your money in a tax-saving mutual fund scheme beyond the mandatory lock-in period of three years? A large number of  investment experts think otherwise. They believe that transferring the money from a tax-saving scheme to a diversified scheme after the lock-in period would help you as an investor to maximise your returns as most tax-saving schemes are trailing diversified schemes on returns posted in the three- and fiveyear periods.

Tax-saving schemes or equity-linked saving schemes (ELSS) qualify for deduction of up to Rs 1 lakh under section 80C of the I-T Act.

‘‘ Though we recommend ELSS because of the prospects of getting better returns among available options under section 80C, we don't encourage staying invested in it beyond the mandatory period,'' says Hemant Rustagi, CEO, Wiseinvest , a Mumbai-based wealth management firm. Financial advisors maintain that ELSS can deliver double-digit taxfree returns after the lock-in period, whereas most other tax saving options -- mostly government-backed investments like PPF, NSC, etc -- offer only 8% returns. However , they add that ELSS is still not a wise option for longterm investment as these schemes fall behind diversified schemes. ‘‘ If you look at average returns, you will find that diversified funds score over tax-saving schemes in the long term,'' adds Rustagi.

A look at category average figures don't support the theory . According to Valueresearch , while ELSS has returned around 6.7% and 20.9% in the last three and five years, the corresponding figures for diversified schemes were 7.3% and 23% — not a major difference to worry about.

Experts say the number of funds that gave double-digit returns in the ELSS category is much less than the diversified sector. Valueresearch data shows that only 8 tax-saving schemes managed to post double-digit returns (10-18 %)in the last three years, whereas 58 diversified schemes managed to give between 10 and 24% in the same period. The difference is even more striking in the five-year performance : 90 diversified schemes gave double-digit returns (10-32 %) versus only 55 ELSS products that managed the same feat (10-24 %).

 

 

 

RBI has stepped in to rein in spiraling headline inflation and in this direction it has raised the Cash Reserve Ratio (CRR) by 75bps. This will happen in two stages. CRR is the amount of funds that banks have to keep with RBI.

This step by RBI did not come as a surprise to the market as it was already expecting a hike in CRR. Chaitanya Pandey, Fund Manager, ICICI Prudential AMC said, “the rate hike was very much expected by the debt market, participants had already discounted for it in their investment decision.”

But, the important question is what today’s announcement means for debt/income fund investors.Impact on the Markets

While today’s policy announcement was more or less expected, fund managers are now awaiting cues from the forthcoming union budget. “On debt market side the CRR increase is not going to have much of an impact. Any major reaction can be seen once any fiscal steps are taken. Next month’s budget will give a clear direction for the debt market as Government will announce its borrowing programme for next financial year” said Chaitanya Pandey. Market participants believe that if government borrowing equals or exceeds the FY 09-10 borrowing amount of Rs 4.51 trillion, we may see a major reaction in the market.

Investment in Debt oriented Mutual Funds

It is clear that today’s hike in CRR will not impact bond market much, so debt funds too will not be affected much. Presented below is the investment strategy an investor can follow while investing in different kinds of debt/income based funds:

Liquid Funds: As per Chaitanya an investor with less than 6 months investment horizon may look at investing in liquid funds which may generate steady returns going forward and the returns could also possibly improve.

For Top Liquid Plus schemes:

Income and Gilt Funds: On long term funds, he said that an investor needs to stay put for more than 1 year. But when asked whether it is the right time to enter in he said “long term yields are more dependent on the government borrowing programme to be announced in the budget, so only post budget it will be appropriate to take a call whether to enter in or not”.

With spiraling inflation, possibilities of rate hike in next credit policy and possibilities of fiscal measures by Government and uncertainties over borrowing programme of Government for next financial year may keep the long term rates volatile in short term.

For Top Gilt Funds:

Short Term Debt Funds: On short term funds – funds that invest with an average maturity of one to two years - he said that “in March we may see a gradual increase in short term interest rates, so better to stay away from these funds.” Any increase in interest rates causes a fall in the market prices of debt paper and consequently the NAV of a fund.

Fixed Maturity Plans: With so much uncertainty, an investor may feel safe if he invests in fixed maturity plans and holds it till maturity. FMPs may act as the best bet to tide over short term uncertainties. Typically, FMPs hold their investments till the end of the scheme tenure, thereby cutting interest rate risk in the intervening period.

 

 

 

I invested in HDFC Core and Satellite Fund (Growth). This was via SIPs from May 2007 to May 2008. I discontinued because I felt the fund was not doing well. Should I sell my investment or let it stay? Should I switch to some other HDFC fund? I already hold HDFC Equity and HDFC Top 200.
HDFC Core and Satellite invests heavily in mid-cap stocks. The fund did not do too well in 2007 but faced the downturn of 2008 well. Overall, it has been an average performer.
Do not jump in and out of schemes based purely on short-time performance. Stay invested in this fund and keep tracking its performance. If you are still disappointed, then sell your units but do not pick up another fund from HDFC. Diversify your holdings. Go for a mid-cap fund from another house.
How good or bad is Reliance Diversified Power Sector Fund vis-à-vis Reliance Regular Savings Equity Fund? My investment horizon is three years.
-Udit Pant
The two funds are not comparable, as they differ in their investment mandates. Reliance Regular Savings Equity is a diversified equity fund. Reliance Diversified Power Sector is a thematic fund: it invests in stocks companies associated with power sector. Ideally, you should avoid theme-based funds. They will perform depending on how the market is responding to that particular theme. On a standalone basis, Reliance Regular Savings Equity has shown the potential to perform during both good and bad times.
I am about to invest in mutual funds. Could you make fund suggestions? These are my requirements:
1) ELSS - Monthly SIP of Rs 2,000
2) Non-ELSS - Monthly SIP of Rs 1,000
-Mathusoothanan S
For ELSS investments, choose Sundaram BNP Paribas Taxsaver or Franklin India Taxshield. These funds allow investors a tax deduction on investments up to Rs 1 lakh under Section 80C of the Income Tax Act. But, do remember these funds have a three-year lock-in.
For investments other than ELSS, you may choose a balanced fund such as DSPBR Balanced or HDFC Prudence.
I invested Rs 35,000 in the NFO of ICICI Prudential Indo Asia Equity Fund in September 2007. Two years ago, I invested in Magnum Global. Should I hold or exit?
-Zain Uddin Ahmed
Ideally, you should avoid investing in NFOs. Select funds which have a good performance history. ICICI Prudential Indo Asia Equity Retail invests 65 per cent of its assets in Indian stocks, with the rest in Asian stocks. What is crucial is your reason for investing in this fund. Did you want a global exposure to your portfolio? In that case, you could give it some more time. It’s a decision only you can take.
Magnum Global’s objective is to invest in companies where part of their earnings comes from foreign currency. Of late, the fund’s performance has deteriorated. Watch it for a while before you exit.
Please note that investing in equity requires patience. You must not get disheartened over short periods of time. But, keep tracking performance closely to decide whether or not it is worth moving out of.
-Ajay Kumar

 

 

I am 68, retired and live with my wife. My two daughters are married. I get Rs 3,000 and Rs 2,000 as pension and annuity respectively. Most of my needs are met by my investments in:
Investments                                       Amounts (Rs lakh)
Stocks                                                47.0
Mutual Funds                                   23.3
Fixed Deposits (@ 10%)               11.0
National Savings Scheme              1.2
Post Office SCSS                            15.0
Total                                                   97.5
I have medical policies - Rs 2 lakh cover for my wife and Rs 2.9 lakh for myself. Our monthly medical bill comes close to Rs 7,000. Total monthly expense is Rs 40,000. I have emergency fund in a savings bank account.
Goals: I want to sell my residence and shift to a new one. I will need additional Rs 15-18 lakh to be sourced from sale of a part of my stock holding (when the Sensex touches 21,000-level). I may buy another property in Orissa, where I plan to live for some part of a year. I intend to liquidate my remaining stock holdings for the same. I own mutual fund units under dividend-payout option.
A significant part of your investments is in equities, unconventional at your age. However, do not liquidate all equity investments. It will fight inflationary risks on your expenses. Regular income is a priority, so lets address that concern.
SECURING REGULAR INCOME
Invest Rs 30 lakh in Post Office Senior Citizens Savings Scheme (SCSS). Rules permit both you and your wife to invest in two separate accounts, with individual limits of Rs 15 lakh each. Regular interest from this (@ 9 per cent yearly) will provide a recurring income of Rs 22,500 monthly. Add to this your pension and annuity payments and you get a monthly sum of Rs 27,500.
From here, you have two alternatives:
Option I: After withdrawing money for the new house, move your mutual fund and stock money to balanced funds. Start a monthly systematic withdrawal plan (SWP) from these investments to meet the shortfall and increase it if need be.
Pros: In the long-term, returns from equities are relatively less volatile (see illustration). This will help you leave a meaningful legacy for your daughters.
Cons: A drastic dip in the markets will mean a drop in value of investments.
Option II: To fill the income gap of Rs 12,500, buy annuities from a life insurer. The remaining amount, when put in balanced funds, will provide extra pay.
Pros: Annuities ensure life-long flow of income, without uncertainties or breaks. High entry age, here, means higher annuity per lakh, per year.
Cons: You will not get the purchase price in your life. The table below shows annuity options under an annuity plan of a public sector insurer.
FUNDING NEW HOME
You are well off with a total investment of Rs 97.50 lakh, no outstanding liability. You may not delay your new house. Reason: investment of Rs 40 lakh at 10 per cent per year will give Rs 21,150 monthly, for 22 years, increasing at 6.5 per cent to counter increasing cost of living. You will gain from the rising market as you will not exit equities.
REBUILDING MF PORTFOLIO
Current Mutual Fund Holdings:
GUIDING PRINCIPLES
The rules below will rebuild your portfolio, ensure discipline with returns.
* simplicity
* tax efficiency
* fighting inflation
* stable returns
Balanced fund, which invests 65 per cent in equities and remaining in debt, will ensure high stability than a pure equity funds. Long-term capital gains tax will be not be applicable if you withdraw after one year of investing.
As you will not use this money in one go, the risk of equities will be moderated. Following illustration based on a fund performance explains how.
ILLUSTRATION
Year: 2000
Fund: Tata Balanced
Investment: Rs 50 lakh
Monthly Withdrawal: Rs 12,500
Inflation: 6.50 per cent
DSPBR Balanced, Tata Balanced, HDFC Prudence, Reliance Regular Savings Balanced and FT India Balanced are few funds with a proven track record. You may invest in two to four funds.
STOCK INVESTMENTS
Managing a four to five fund portfolio is easier than a stock portfolio. Move your stock investments to mutual funds, to get the required diversification.
ENSURING TAX EFFICIENCY
Balanced fund withdrawals will be tax-free, but, interest from SCSS, pension, etc will be taxed. If taxable income exceeds Rs 2.4 lakh, avail Section 80C benefits by moving money from equity funds to tax-saving fund.

 

 

 

MUMBAI: Aditya Birla Nuvo is planning to infuse in excess of Rs 800 crore in its life insurance arm, Birla Sun Life Insurance (BSLI), by the end of  next financial year, a top company executive said today.

"We will be adding over Rs 800 crore in our life insurance venture over a period of next 15 months," Aditya Birla Nuvo Chief Financial Officer Sushil Agarwal told reporters here.

Of the Rs 800 crore, the company is planning to pump in Rs 400 crore into BSLI in the current quarter depending on growth, he said.

"It (investment of Rs 400 crore) has been targeted that way, but all will depend on what kind of growth we will achieve in this quarter in our life insurance business," Agarwal said, adding the company may invest Rs 375 crore in the next financial year depending on its requirements.

This fiscal so far, the company has infused Rs 200 crore into BSLI and its current capital base is Rs 2,100 crore, he said.

The private insurer is a joint venture between the Aditya Birla Group and Canada-based financial services company Sun Life Financial Inc.

Asked about Aditya Birla Nuvo's plan to spin-off its financial services business comprising life insurance, asset management and private equity into a wholly-owned subsidiary, Agarwal said the company was awaiting approvals from various regulators for this.

"We are quite keen to cut off those businesses under one umbrella. We are in discussion with various regulators and as soon as approvals are received we will do it," he said.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BANK

Banks sleeping on bond street, issuances dive 35% in Q3
On the back of a lower-than-expected credit offtake, bond issuance by banks in the third quarter dipped sharply.
According to data compiled by credit rating agency Icra, bond issuances dropped by almost 35 per cent in the third quarter after several quarters of brisk fund-raising.
Total bonds issuances by banks in the quarter stood at Rs 5,555 crore (lower Tier-II, upper Tier-II and perpetual bonds) against Rs 9,800 crore in the same quarter of the previous financial year, and Rs 8,600 crore in the second quarter of the current financial year, according to Icra. In the first quarter of the current financial year, bond issuances were to the tune of Rs 9,500 crore.
“Lower credit offtake coupled with comfortable capitalisation levels and wide differential between the short-term and long-term interest rates could also be a factor in lower bond issuances during the third quarter,” said Icra analyst Karthik Srinivasan.
Moreover, while banks such as State Bank of India, IDBI and Axis Bank came out with large bond issues in the third quarter of last year, they remained largely inactive in the same period of the current financial year.
Also, Axis Bank had raised bonds earlier in the year and went on to raise capital by way of a Global Depository Receipt (GDR) and qualified institutional placement (QIP) in the third quarter. HDFC Bank also raised funds through QIP in August. SBI too raised bonds earlier in the year.
“Credit offtake in the third quarter was almost at the same level as at the end of the second quarter. However, there could be some bond issues at the fag end of the fourth quarter, as credit offtake is likely to improve,” said VK Dhingra, executive director, UCO Bank.
Some of the large issuers of bonds and debentures during the third quarter of the current financial year were ICICI bank (Rs 1,250 crore), National Housing Bank (Rs 650 crore), Export and Import Bank of India (Rs 750 crore), Punjab National Bank (Rs 700 crore) IDBI Bank (Rs 630 crore), Bank of Baroda (Rs 300 crore), Oriental Bank of Commerce (Rs 300 crore), Bank of India (Rs 325 crore) and Allahabad Bank (Rs 650 crore)
“We could raise funds at a very competitive rate in the third quarter. After August, the coupon rate had shoot up to 8.80 per cent. However, we got the best rate, as we raised funds at 8.58 per cent in the third quarter,” said an executive of Allahabad Bank.
Public sector banks were also expecting a capital boost from the government in the fourth quarter, which could be one of the reasons for the slowdown in bond issuance, said a banker.

 

 

SAT jurisdiction defined by 'person aggrieved'

Who is a “person aggrieved” is a very important question for Indian securities laws. Every legislation in the field uses the term when providing for a vested statutory right to appeal. For example, under Section 15T of the Securities and Exchange Board of India Act (SEBI Act), any person aggrieved by any order passed by SEBI is empowered to appeal to the Securities Appellate Tribunal (SAT).
In terms of Section 15Z of the SEBI Act, from decis-ions of the SAT, any person aggrieved by a decision of the SAT is entitled to file an appeal on a question of law before the Supreme Court. Similar provisions have been built into the Securities Contracts (Regulation) Act and the Depositories Act. Therefore, who is a “person aggrieved” is an important question.
Last month, the SAT had occasion to consider the question when an association of stock brokers challenged a mass order passed by SEBI suspending registration of stock brokers. SEBI took an objection to the appeal on the ground that the appellant was not a person aggrieved. Upholding the position, the SAT has adopted the test laid down by the Supreme Court in the determination of “locus standi” in determining whether an appellant is a person aggrieved.
Holding that the brokers association did not suffer any legal wrong, and none of its rights have been affected, the SAT noted that its members were free to file appeals if they were aggrieved but the association could not be a person aggrieved.
The term “person aggrieved” is of wide significance. It is only a person aggrieved who can move the SAT. Unless a person is aggrieved, the SAT would have no jurisdiction to hear an appeal filed by him. Such a person would have other civil remedies in law but he would not be able to invoke the special regulatory jurisdiction set out in the statutes forming part of Indian securities laws.
Equally, who is a person aggrieved for challenging a decision of the SAT in the Supreme Court is also an important question. All proceedings before the SAT are in the nature of regulatory litigation and not the routine civil litigation. Therefore, when a person who is not privy to proceedings conducted before the SAT wishes to challenge an order passed by the SAT, the Supreme Court would have to consider whether such a person should be allowed to move an appeal. He would have to satisfy the Supreme Court that he is a person aggrieved.
In the past, the SAT has also not allowed parties claiming to be interested in an issue in controversy to intervene and invoke this jurisdiction, ruling that disputes in the SAT are disputes between SEBI and the affected parties. Every party interested in the decision of SEBI would not have a vested right to participate in these proceedings. Such parties may have an independent civil remedy against the person SEBI has acted against, but they would not have the power to intervene in the SAT proceedings and play a role there. 
The regulatory jurisdiction entailed in Indian securities laws is a special mechanism and is not meant to be a panacea of all controversies in Indian securities. It is only a person aggrieved by an order passed by SEBI that can invoke this jurisdiction. Not everyone is capable of invoking this jurisdiction lightly, according to the SAT’s recent reiteration. SEBI would brea-the a bit easy now. The scope for people trying to fight civil disputes through the regulatory jurisdiction administ-ered under the SEBI Act just got narrowed.

http://www.business-standard.com/india/news/sat-jurisdiction-defined-by-/person-aggrieved//384238/ Lodha gets Sebi's nod for Rs 2,790-cr IPO

 

 

 

 

Mumbai-based realty firm Lodha Developers today said it has received market regulator Sebi's approval for its Rs 2,790-crore initial public offer (IPO), which is expected to hit the capital market in the next 4-5 weeks.
"We have received the final approval from Sebi," Lodha Developers Managing Director Abhisheck Lodha told PTI.
The company had filed the draft red herring prospectus (DRHP) in late September last year.
Asked when the company plans to hit the market, Lodha said details would be finalised within the next 30 days in consultation with merchant bankers.
Market sources, however, said that Lodha Developers plans to launch its IPO in the next 4-5 weeks. The company plans to raise up to Rs 2,790 crore from the IPO by diluting up to 15 per cent from its post-issue paid up capital.
Out of the total proceeds from the issue, the company has earmarked over Rs 1,800 crore to meet construction cost of its ongoing and planned projects and Rs 300 crore to repay debt, which stands at about Rs 1,000 crore.
Lodha has a land bank of 260 million sq ft. At present, the company is developing about 30 million sq ft, comprising 38 projects, with an investment of Rs 6,000 crore.
Out of the total 38 projects that the company is currently developing, 35 are located in Mumbai Metropolitan Region and one project each in Lonavala, Pune and Hyderabad.
About 80 per cent of the company's total business is housing and the rest office space.
Lodha Developers posted a net profit of Rs 95.6 crore over a turnover of about Rs 950 crore in the previous fiscal.