MUTUAL FUND

Equity MFs prove a better bet than gold ETFs

The rising prices of gold have been grabbing headlines over the past one-and-a-half-year. The metal had gained added lustre in the wake of the global equity meltdown that began in January 2008. But with the global economy now on the recovery path, and investors regaining their appetite for risky assets, gold appears to be losing some of its sheen.

Returns from equity mutual fund schemes, too, have surpassed those from gold exchange traded funds (ETFs) by a fairly good margin over the past one year and by an emphatic margin in the calendar year 2009.

At 20.3%, the average returns of the gold ETF category of funds have faded compared with the 22-42% average returns by various categories of equity mutual fund schemes over the past one-year period. Among equity schemes, it is the banking sector funds, which currently top the charts with average returns of about 42%. The Sensex and the Nifty have returned about 26% and 23%, respectively, during this period.The performance of the equity mutual funds can be attributed to the sharp recovery seen in the equity market in the current calendar year. The Nifty has logged a gain of 68% since January this year and the Sensex has climbed more than 73% during the same period. Gold, on the other hand, has risen by about 18% during this period.

According to mutual fund portal Value Research Online, nearly 45% of about 250-odd diversified equity schemes have booked returns in the range of 26-56% in the past one year.

These performances are also reflected in the growth in assets under management (AUM) of these schemes. While equity mutual funds have seen their assets grow by about 62% from Rs 99,081 crore in December 2008 to Rs 1,60,797 crore as of August 2009, the rise in the assets management by gold ETFs has been just about 23% from Rs 734 crore to Rs 904 crore in the respective period this year. In a stark contrast, the growth in the AUM for the corresponding period past year had been about 25% in the case of equity schemes and 49% for the gold ETFs.

Equity funds valuation up by Rs 80,000 crore in 5 months

Encouraged by the V-shape recovery in the market value of equity portfolio, the mutual fund industry has started rewarding investors with dividends.
Data compiled by the Association of Mutual Funds in India (AMFI) suggest that equity funds portfolio valuation has risen by Rs 80,000 crore in the five months between March 31, 2009 and August 31, 2009, due to a 60 per cent recovery in the benchmark indices and over 100 per cent rise in mid-cap and small cap stocks.
Dividend payout data sourced from MutualFundsIndia.com shows 71 equity-related dividend paying schemes were back in the dividend paying list in the first half of the current financial year compared to only 4 in the financial year 2008-09. Overall, 96 equity schemes have paid dividend in the first half so far compared to 42 equity schemes in the first half of the financial year 2008-09.
Among the equity funds that paid higher dividends are Franklin India prima fund (60 per cent), Birla Sun Life basic industries fund, Reliance RSF equity fund, SBI magnum sector umbrella fund and Taurus star share fund (50 per cent each) and Principal emerging blue-chip fund, Sahara banking & financial services fund and Birla Sun Life tax relief 96 fund (40 per cent each).
Prateek Agrawal, head of equity at Bharti AXA investment managers said “It is ideal to book profits and reward investors with dividend payments, especially during the current market condition which is good. Investors usually tend to stay invested longer in equity-oriented schemes, which have this discipline.”
 

Further, he is expecting markets to perform reasonably well in the coming days, which could give further opportunities in terms of regular profit booking and dividend distribution.
Considering favourable market conditions so far in the current fiscal, 25 fund houses have considered dividend this time compared to only 12 same period of the previous fiscal. Among this 25 fund houses, 14 fund houses skipped dividend last year between April 2008 to September 2008.
This include Baroda Pioneer, Bharti AXA, Canara Robeco, Escorts, Fortis, ING, JP Morgan, Principal, Reliance, Religare, Sahara, Tata, Sundaram BNP Paribas and Taurus mutual fund.

http://www.business-standard.com/india/news/equity-funds-valuationby-rs-80000-crore-in-5-months/370726/

Decoding debt funds

I have determined how much money I would like to allocate to debt instruments - a mix of short-, medium- and long-term products. But I'm often puzzled as to when to move into floating rate funds or Gilt funds or income funds or so many other types of funds that make up the debt fund universe. Please advice.

Ravish

Different categories of debt funds are to be used to fulfil different purposes. Your debt portfolio need not be actively managed. The most important factor while choosing debt funds is their portfolio maturities. The higher the maturity, the more volatile to interest rate changes, which are inversely related to the prices of fixed income instruments.
Liquid, Short-term Floating Rate and Liquid Plus funds are best used to park short-term monies. They invest in money market instruments, and cash and cash equivalents. They can also be used as emergency funds, but are not as liquid as money in the bank accounts.
Short-term debt funds and medium-term debt funds can provide better returns in a longer time frame, say two to five years, as compared to liquid funds. They invest in higher maturity papers such as corporate debt and government securities. Medium-term debt funds are more volatile as compared to short-term debt funds, which in turn are more volatile as compared to liquid/liquid plus funds.
Gilt funds, which primarily invest in government securities, are the most volatile, due to their high maturities. These may go as high as 20 years or even more. They can generate high returns when interest rates are falling, but suffer most when interest rates rise.
Apart from these, there are flexi debt funds which actively move between different maturities, but they are also more risky.
If you are investing for the long-term, then you can use the short-term, medium-term or flexi debt funds, or even bank fixed deposits. Some good funds are Kotak Flexi Debt, Canara Robeco Income, Reliance Short-term and UTI Short-term Income Fund.
I had invested a lumpsum in JM Basic, JM Emerging Leaders and JM Agri and Infra, all of which are giving me losses of 30 to 70 per cent. Should I redeem my investments from these funds and invest in others?

- A C Roy
While JM Basic and JM Agri & Infra are thematic funds, JM Emerging Leaders is an aggressive mid-cap fund. They were among the top performers in the bull run of 2006 and 2007, but fell heavily in the 2008 market decline. In the recent rally, they have again been among the top performers.
Thematic and aggressive funds should, anyhow, not form a big part of your portfolio. They should be usually restricted to 10-20 per cent. Stay invested in these funds only if you can take this kind of risk and volatility, otherwise move to other proven funds. Some good picks among the aggressive funds are Kotak Opportunities, DWS Investment Opportunities, Reliance Growth, Reliance Regular Savings Equity and Sundaram BNP Paribas Select Midcap.
I had invested in LICMF FMP Series 43 (13 months) - Dividend Reinvestment option. On maturity, Dividend Distribution Tax (DDT) was deducted from my maturity proceeds. Is it valid?

- Bharat Desai
The dividends under FMPs are subject to DDT at 14.16 per cent (for individuals/HUFs), and hence this deduction in your case was valid. The dividends distributed on maturity of the scheme are, after deduction of the applicable tax, reinvested in the scheme, and then the proceeds are distributed to unit holders.
Different categories of debt funds are to be used to fulfil different purposes. Your debt portfolio need not be actively managed. The most important factor while choosing debt funds is their portfolio maturities. The higher the maturity, the more volatile to interest rate changes, which are inversely related to the prices of fixed income instruments.
Liquid, Short-term Floating Rate and Liquid Plus funds are best used to park short-term monies. They invest in money market instruments, and cash and cash equivalents. They can also be used as emergency funds, but are not as liquid as money in the bank accounts.
Short-term debt funds and medium-term debt funds can provide better returns in a longer time frame, say two to five years, as compared to liquid funds. They invest in higher maturity papers such as corporate debt and government securities. Medium-term debt funds are more volatile as compared to short-term debt funds, which in turn are more volatile as compared to liquid/liquid plus funds.
Gilt funds, which primarily invest in government securities, are the most volatile, due to their high maturities. These may go as high as 20 years or even more. They can generate high returns when interest rates are falling, but suffer most when interest rates rise.
Apart from these, there are flexi debt funds which actively move between different maturities, but they are also more risky.
If you are investing for the long-term, then you can use the short-term, medium-term or flexi debt funds, or even bank fixed deposits. Some good funds are Kotak Flexi Debt, Canara Robeco Income, Reliance Short-term and UTI Short-term Income Fund.
I had invested a lumpsum in JM Basic, JM Emerging Leaders and JM Agri and Infra, all of which are giving me losses of 30 to 70 per cent. Should I redeem my investments from these funds and invest in others?

- A C Roy
While JM Basic and JM Agri & Infra are thematic funds, JM Emerging Leaders is an aggressive mid-cap fund. They were among the top performers in the bull run of 2006 and 2007, but fell heavily in the 2008 market decline. In the recent rally, they have again been among the top performers.
Thematic and aggressive funds should, anyhow, not form a big part of your portfolio. They should be usually restricted to 10-20 per cent. Stay invested in these funds only if you can take this kind of risk and volatility, otherwise move to other proven funds. Some good picks among the aggressive funds are Kotak Opportunities, DWS Investment Opportunities, Reliance Growth, Reliance Regular Savings Equity and Sundaram BNP Paribas Select Midcap.
I had invested in LICMF FMP Series 43 (13 months) - Dividend Reinvestment option. On maturity, Dividend Distribution Tax (DDT) was deducted from my maturity proceeds. Is it valid?

- Bharat Desai
The dividends under FMPs are subject to DDT at 14.16 per cent (for individuals/HUFs), and hence this deduction in your case was valid. The dividends distributed on maturity of the scheme are, after deduction of the applicable tax, reinvested in the scheme, and then the proceeds are distributed to unit holders.

http://www.business-standard.com/india/news/decoding-debt-funds/370627/

INSURANCE

Reliance Life Insurance eyes rural market foray

MUMBAI: After growing its life insurance business at above average rate for the last three years, the ADA Group is now entering the rural market. Reliance Life Insurance is targeting about Rs 500 crore of new premium from rural areas over the next three years, compared to just about Rs 10 crore now.

The group is also on track to infuse additional equity capital into its life business, taking the total equity base of Reliance Life to over Rs 3,000 crore from Rs 2,700 crore now, said Sam Ghosh, CEO, Reliance Capital , which is the parent company for ADAG’s life insurance business.

For Reliance Life, the road to the rural micro-insurance market is through group insurance products, now bundled with loans distributed through micro finance institutions (MFIs). “Reliance Life will be tapping the rural market with group savings insurance policies. There is significant opportunity for the market to move to the next level, that is from a plain group term product to savings linked product,’’ Ghosh said.

According to a UNDP estimate of 2007, the micro-insurance space in India was a $2-billion opportunity, which is much bigger now. However, given that the average premium size in the rural market is very small, cost of distribution of insurance products and also servicing the same is much higher.

For example, for an insurance cover of Rs 5,000, the all-inclusive premium could work out to about Rs 65. So economies of scale and strong distribution reach could bring down costs.

“Reliance Life plans to leverage technology to drive down transaction costs. We are in the process of setting up partnerships with organisations like MFIs, self-help groups, NGOs, banks and institutions working towards financial inclusion to grow the rural reach,’’ the top ADAG official said.

The long-term plan from this segment is to have a premium of Rs 1,000 crore in five years. To this end, in the initial phase Reliance Life is launching rural initiatives across 10 states. Group officials said what has given them the confidence are the huge success of FMCG and telecom industries in the rural market and the huge government-led rural push.

http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/Reliance-Life-Insurance-eyes-rural-market-foray/articleshow/5035808.cms

BANK

RBI governor meets bankers, discusses industry issues

Mumbai: Amid inflation turning positive after over three months and slackening credit growth, RBI Governor D Subbarao met bankers here and discussed various industry issues.
The Governor asked for feedback from bankers on various aspects such as loan growth in different segments, Allahabad Bank Chairman and Managing Director K R Kamath, who attended
the meeting, told reporters.
"This (meeting) was basically to get a feedback from the bankers on industry matters," Kamath said.
After remaining in negative zone for 13 weeks, wholesale prices inflation rose to 0.12 per cent for the week ended September 5, fuelled by rising food prices, making it difficult for RBI to chose between promoting industry growth or stemming surging prices.
Inflation based on retail prices of items consumed by agriculture and rural labourers released today also showed that it is more or less remained constant at elevated levels of over 12 per cent in August.
The RBI governor had earlier made it clear that he would continue with soft interest rates policy unless sure of sustained economic recovery.
Other bankers who attended the meeting were SBI Chairman, O P Bhatt, ICICI Bank Managing Director and CEO Chanda Kochhar and Bank of India CMD Alok Misra.
RBI is scheduled to come out with its quarterly review of credit policy on October 27.

http://www.financialexpress.com/news/rbi-governor-meets-bankers-discusses-industry-issues/518793/

US bank failures reach 94 in 2009: FDIC

Washington: Two more US banks have closed down -- including the sixth largest bank bankruptcy this year -- to bring the total number of bank failures this year to 94, according to the government banking insurer. The Indiana-based Irwin Union Bank was shuttered with a total of USD 2.7 billion in assets and total deposits of some USD 2.1 billion, the Federal Deposit Insurance Corporation (FDIC) said in a statement yesterday.
In the same group, the Kentucky-based Irwin Union Bank failed with assets of USD 493 million and total deposits of some USD 441 million.
The institutions were banking subsidiaries of the Columbus, Indiana-based Irwin Financial Corporation.
With 27 branch locations between them, the two banks are set to reopen under regular business hours today as branches of First Financial Bank, with deposits continuing to be insured by the FDIC.
After suffering no bank failures at all in 2005 and 2006, the US banking system saw three banks going under in 2007, followed by 25 in 2008.
With the bankruptcies yesterday, the institutions brought the number of bank failures this year to 94 -- highlighting the extreme stress that the global financial crisis has placed on US banking institutions.
The FDIC said it estimated the transactions would cost the government's Deposit Insurance Fund USD 850 million.

http://www.financialexpress.com/news/us-bank-failures-reach-94-in-2009-fdic/519129/

SEBI

Bharti-MTN deal ready to be signed

Two deadlines and several controversies later, the $23 billion cash-and-share swap deal between Bharti Airtel and South Africa’s MTN is ready to be signed, sources close to the negotiations confirmed today. 
The deal is all set, agreed and legally ready to be signed,” the source said. The deal was first announced in May with a second deadline due to lapse on September 30.
The deal, which will be the largest in the global telecom space, will be subject to South African government approval (especially on whether it meets Black affirmative action policies), after which it will be signed and will require sanction from 75 per cent of shareholders present and voting in both companies.   
The two companies are also delinking the issue of a merger, which has complex legal implications in both countries, and are creating a collaborative management structure instead, involving mutual board representation.
Once the swap deal goes through, Bharti-MTN will have over 200 million subscribers, making it the third largest mobile company in the world behind Vodafone and China Mobile.   
Questions were raised earlier this month about the deal after the South African government (which indirectly holds over 21 per cent in MTN) said it was unwilling to sacrifice the telecom company’s “South African character” and raised the issue of dual listing as a compromise ahead of a merger.
Senior officials from the South African government are visiting India this week to meet officers in the finance ministry, Reserve Bank of India and the Securities & Exchanges Board of India (Sebi) to discuss this issue.
A dual listed company (DLC) involves two listed companies that have different sets of shareholders but share ownership of a single business operation. Allowing DLCs would entail substantial changes in India’s foreign exchange and stock market laws, as well as full capital account convertibility and require full cabinet approval.  
The question of a DLC arose after the South African government wrote to the Indian government in August, saying it does not, as a policy, allow companies incorporated in South Africa to be reincorporated offshore or delisted from the Johannesburg Securities Exchange (JSE) with a possible subsequent listing offshore as the same company or as part of a new entity. This would have been the case if MTN and Bharti had merged.  
The South African government also stated that it was willing to accept the DLC structure as "the best policy option” to the initial proposal for primary listing of the merged entity (Bharti-MTN), as well as that of MTN Group in South Africa.  
On 10 September, Finance Minister Pranab Mukherjee wrote to his South African counterpart Pravin J Gordhan saying the Indian government was examining the DLC issue. The issue had, in fact, come up last year when Bharti and then Reliance Communications had approached MTN for merger talks that fell through.
Mukkerjee also agreed that a deal like MTN-Bharti would be a good example of enhancement of cooperation in trade and investment between the two countries.
Asked whether Bharti Airtel has been invited to attend the talks between the South African government officials and the Indian government, a company spokesperson said, “We have not been invited to any scheduled discussion.”
On Bharti’s alternative plan is if the Indian government does not allow for dual listing, which is permitted in South Africa, the spokesperson said: “We don’t want to comment on a hypothetical situation -- we will cross the bridge when we come to it.”“Our intent remains as has been detailed in our initial statement,” the spokesperson added.
Under the original plan Sunil Mittal-promoted Bharti Airtel, India’s largest telecom company with over 107 million subscribers, is to acquire a 49 per cent economic interest in MTN. In return MTN will acquire a 25 per cent economic interest in Bharti Airtel for $2.9 billion and MTN shareholders will acquire another 11 per cent.
MTN will issue new shares to Bharti. The Indian company will also acquire around 36 per cent of MTN’s current paid-up capital from its shareholders at $10.2 per share, entailing a cash outgo of $6.8 billion. The fresh share issue will eventually take Bharti’s shareholding in MTN to 49 per cent.
In return, Bharti will issue 0.5 GDRs for every MTN share it acquires. The Indian promoters will eventually see a dilution of their 45.30 per cent stake in Bharti. A merger would take place as “soon as it is practicable”. The control over both the companies will not change hands -- though Bharti will become the single largest shareholder in MTN.
Sources close to the deal said there are no regulatory hurdles in the cash-and-share -swap deal and the agreement was for collaboration between the two companies. While Bharti will have representation on the MTN board and vice versa, sources said the main advantage would be in leveraging the economies of scale for instance in buying equipment together and developing a joint strategy to expand its global footprint and creating an integrated management structure.
The 15 -year-old MTN is South Africa’s largest telecom company with over 103 million subscribers in 21 countries. The shareholding of the company is widely held with the Mikati family of Lebanon controlling over 10.18 per cent, employee-controlled NewShelf 664 with 14.87 per cent and the government-controlled Public Investment Corporation holding around 21 per cent.
http://www.business-standard.com/india/news/bharti-mtn-deal-ready-to-be-signed/370747/