MUTUAL FUND

NSE's new MF service system from Nov 30

MUMBAI: The National Stock Exchange on Tuesday said it is proposing to introduce a new mutual fund service system (MFSS), which will enable its members to use the existing infrastructure for transaction in MF schemes.

The NSE proposes to introduce new MFSS for facilitating transaction in MF schemes through the stock exchange infrastructure, the NSE said in a circular, adding the new MFSS will commence from November 30.

Market regulator SEBI, in a recent circular, gave its approval for facilitating transactions in MF schemes through the stock exchange infrastructure.

"The infrastructure that already exists for the secondary market transactions through the stock exchanges with its reach to over 1,500 towns and cities, through over two lakh stock exchange terminals can be used for facilitating transactions in mutual fund schemes," SEBI had said.

The stock exchange mechanism would also extend the present convenience available to secondary market investors to mutual fund investors, the market regulator had said.

The existing MF scheme, introduced in December 2000, will be substituted with the new MFSS, the exchange added.

MUMBAI: The Trustees of SBI Mutual Fund have declared a dividend of 50 per cent for the Magnum Balanced Fund under the Dividend Option plan.The record date has been fixed on Friday, November 27, a press release issued here said.

"We are happy to announce 50 per cent dividend under Magnum Balanced Fund -- which is a reflection of superior performance in most challenging times. The funds' investments are guided primarily by the long-term fundamentals and maintaining adequate liquidity," SBI Mutual Fund's Managing Director and CEO, Achal Kumar Gupta, said.

"The fund offers investors the possibility to invest in a diversified portfolio of equities of high-growth companies and balance the risk through investing in a relatively safe portfolio of debt," he added.

According to SBI Mutual Fund's CIO, Navneet Munot, "Magnum Balanced Fund's core philosophy of investing in a mix of debt and equity has stood the test of time and rewarded investors across business and market cycles. Both equity and debt portion are actively managed and our stock picks on the equity side have done well."

Say move to deepen market but existing distributors may get annoyed.
The recent move by the Securities and Exchange Board of India (Sebi) to facilitate mutual fund transactions through the existing stock exchange infrastructure has found many takers, with broking companies keen to venture into this new area within a fortnight.
Brokers said trading in MF units would help them enhance volumes. In return, investors would save costs, they said. However, they added that this would be different from equity transactions and require a dedicated team.
Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services, said, “We are set to offer this value-added service as it will provide transparency, reduce costs from investors’ perspective and increase volumes.”
A majority of existing asset management companies (AMCs) do not have a wide network and are limited to a few cities. On the other hand, broking companies have spread to semi-urban regions and are now focusing on retail investors.
Dinesh Thakkar, chairman and managing director of Angel Broking, said, “There is no reason why should we not get into mutual fund trading. AMCs do not have the reach that broking firms can provide.”
Oswal said: “Our existing infrastructure, with a distribution network having access to 560 cities across the country, will be adequate to offer this service. What will we require is mutual fund advisors.”
Trading of MF units on any day would be at the net asset value (NAV) fixed for that particular day, said brokers. Though most brokers are enthusiastic, some say how things turn out is yet to be seen.
Mohan Natarajan, executive vice-president at Edelweiss Capital, said, “Tracking equity and mutual fund markets are two different things. In mutual funds, it is the fund manager’s call which matters. Moreover, the fund market is not as volatile as equity markets. In case it remains an investors’ game, volume may not be there.”
Fund houses agree that using the exchanges’ infrastructure will expand the distribution network significantly. “However, it could annoy existing distributors and small town advisors,” said the chief investment officer of a leading domestic fund house.
Existing MF distributors and financial advisors are taking this as another challenge to their already shrinking business after the ban on entry load in equity schemes came into effect in August.
According to them, it is doubtful if the issue of low penetration of MF products can be addressed by using the existing infrastructure of stock exchanges.
“Though the market regulator wants to increase mutual funds’ reach to the masses, how will such a move increase retail participation? Existing clients of broking firms are likely to go for this service. Moreover, how many brokers would like to take care of small mutual fund investors who invest far less money than equity investors?” said a leading MF distributor who did not wish to be named. According to the equity head of a foreign MF, “Using the exchange’s network will enhance the fund market, resulting in easy transactions. However, the platform has to be more complicated to take care of the various intricacies involved in trading, such as track record of funds, etc. Else, it will be difficult to make investors understand what to buy.

Sharvari Patwa
Mumbai, Nov. 24 In a bid to woo investors, mutual funds have embarked on a dividend declaration spree. Over a dozen fund houses, large and small, including Reliance, UTI, ICICI Prudential, SBI, Tata Mutual Fund, DSP BlackRock, Religare, Bharti Axa, Taurus, are doling out dividends in the range of 10-50 per cent.
At a time when new incremental inflows are not coming in, dividend declaration works as a mechanism to attract more investors and fresh inflows, said Mr Krishnan Sitaram, Head of Fund Services, CRISIL.
In the run up to the tax planning season, tax-free funds are seen declaring dividends to lure investors. It is easier for distributors also to sell the product on the back of such an incentive (such as a dividend declaration).
Fresh inflows into equity funds have fallen by more than 50 per cent as on October-end, compared with the July-end numbers. According to industry body AMFI’s figures, investments into equity funds were at Rs 4,261 crore in October as against Rs 8,737 crore in July. The benchmark index Sensex has gone up by over 13 per cent since July.
Declaring dividends works as a goodwill gesture and also works as a tool to attract more money from new investors, said Mr Rakesh Goyal, Senior Vice-President, Bonanza Portfolio.
Typically, when the equity market goes up there is value appreciation in the equity schemes. Hence, fund houses give dividends to reward investors, said Mr Srinivas Jain, Chief Marketing Officer, SBI Mutual Fund.
Mr K. Venkitesh, Head of Distribution of Geojit Financial Services, agrees, “Dividend declaration is more of a selling tactic as it gives immediate returns, although the NAV of the mutual fund scheme falls after dividend is declared.”
Unlike the way corporate houses pay dividends, mutual funds simply sell off part of the funds assets to pay dividends. So on the record date of the dividend, the NAV of the fund drops and also the worth of the investor’s investments decreases to that extent, explained an analyst.
According to Mr Krishnan, dividend is not re-invested in the corpus of the scheme, and to that extent it is not a positive for the long-term investor who would have rather waited to gain on that re-invested amount also.

Mumbai: Driven by better-than-expected corporate earnings in the quarter ended 30 September and recent government announcements on disinvestments, mutual fund managers are showing their optimism by betting on high-growth sectors despite a doubling of stock prices in the past seven months.
The 30-stock Sensex, the bellwether index of the Bombay Stock Exchange, has risen around 10% from its recent low of 15,404 points on 3 November to close at 17,131 on Tuesday. It has gained 77.57% since 1 January.
A Mint analysis of the portfolio data of diversified equity schemes shows that fund managers have significantly higher allocations for automobile, construction and metal sector stocks.
The analysis looked at the month-end portfolio data of diversified equity schemes between 31 March and 31 October. The data was provided by mutual fund tracker Value Research.
The aggressive allocation strategy is a reflection of rising confidence in the economy and businesses, fund managers said.
“Overall economy numbers and other indicators like auto and property numbers are much stronger than expected,” said Suresh Soni, chief executive officer of Deutsche Asset Management (India) Pvt. Ltd, which manages Rs13,795 crore in assets. “However, internationally, central banks are not withdrawing the accommodating monetary policy and have said they will continue the easy monetary policy for a specified period. This has put us in a sweet spot, which is propelling optimism.”
Chennai-based N. Prasad, who runs an independent research firm and is former chief information officer of Sundaram BNP Paribas Asset Management Co. Ltd, said: “Most fund managers are increasing allocation to economy-sensitive stocks in their portfolio. (There’s) nothing wrong with this strategy as most confidence indices are turning positive.”
According to Prasad, the fiscal deficit is no longer a big worry. “The government disinvestment programme is expected to bring it back to FRBM targets.”
The FRBM (Fiscal Responsibility and Budget Management) Act aims to bring down the government’s fiscal deficit to 3% of India’s gross domestic product.
Another important factor that has contributed to the increasing weightages is the movement in stock prices.
Ritesh Sheth, fund manager, SBI Funds Management Pvt. Ltd, which manages Rs38,322 crore in assets, said: “It is not clear whether this increased allocation can be fully attributed to the purchases by fund managers. A lot of it would be due to the price action. For example, a sector like telecom is facing an uncertain period. People are keeping away because there are a lot of ifs and buts. One is not sure on what basis the profitability of these companies need to be calculated in the short term. So, everyone is waiting for the dust to settle.” Allocation to the telecom sector has halved.
Fund managers have also been burnt by a high cash strategy that affected fund returns between March and June. Funds had cash levels of 15-20% and missed the rally triggered by return of the United Progressive Alliance to power at New Delhi in May.
A study of equity funds by Crisil FundServices, a research unit of ratings firm Crisil Ltd, also shows that funds with lower cash holdings have outperformed others in the long run.
While funds with higher cash holdings cut their losses in a falling market, they tend to miss out on a subsequent rally. Further, equity funds with minimal cash holdings fared only marginally lower in a downturn, but benefited considerably more from a rally.
The most notable performance in the downturn came from fully-invested funds that made timely and prudent investment calls in sectors such as pharmaceuticals and consumer goods, the Crisil report said.
“Investing in defensive sectors to negotiate a down market proves to be a more effective strategy as such funds can bounce back faster during a market correction,” said Krishnan Sitaraman, director, Crisil FundServices.
“Investors invest in equity funds primarily because they are perceived as value creators and it helps them diversify from their debt investments. By taking cash calls, funds defeat this very basic objective of investors,” Sitaraman added.
However, Prasad cautioned that valuations could be a dampener for fund managers’ optimism. “Market looks rich largely because earnings are below the long-term trend level of 21%,” he said.
The Sensex, India’s most tracked index, has climbed at least 110% since the lows of March, a rate of growth surpassed only during its rise in the early 1990s during a stock market scam engineered by trader Harshad Mehta.
The index is trading at 20.96 times the estimated earnings for the fiscal year to March. The average range of valuation for the index has traditionally been 14-17 times of earnings.
Soni of Deutsche Asset Management said valuations have to be seen from the perspective that they had been depressed unrealistically when market hit historic lows. “In the near term, it’s a concern. But in the medium term, it’s not.”

HDFC Standard Life eyeing 10-15% growth

CHENNAI: HDFC Standard Life, which is gearing up for an IPO, has seen over 40% of its business come through various Bancassurance schemes. With over
Rs 17,700 crore assets under management, HDFC Standard Life is keen on forging tie-ups with players in sectors like logistics to expand its distribution network, according to a top official.

Anticipating a 10-15% growth in its business during the current year, HDFC Standard Life garnered Rs 2,552 crore through new business, its principal officer and ED Paresh Parasnis told reporters here on Monday.
According to him, though the market does reflect an improving maturity among financial investors, they were not ready for long-term policies. This is a worldwide phenomenon, he said, after launching HDFC YoungStar Super and HDFC Pension Super plans under the ‘Super’ series.

Research indicates that individuals are concerned more about initiating long-term commitments. "Rather than returns, they are looking for security and liquidity," he said, dwelling on the features of the plans, that seek to address customer needs at various stages of life.

The company plans to introduce a few more policies — an endowment and two limited underwriting products under the children and savings category, in the next few weeks. It is expecting 25% of its new business to come from the launch of the Super series.
HDFC Standard Life has also taken several cost-cutting measures, including efforts to rationalise infrastructure and efficient management of procurement. "We have been able to get 20-40% cost reduction across different categories of procurement that we consume," Mr Parasnis said, noting that about 20 branches have been taken off from its existing network of 575 branches. It has two lakh financial consultants in its fold.

About 45% of its business is generated through the individual agency format while 42% from bancassurance route. The rest of its business is from referrals and other channel partners. On policies that lapsed, he said in terms of value persistency levels had declined from 85% in March 2008 to 65% in March 2009. However, these levels were expected to go up by over 70% during the current year. Its average premium on the retail end, works out to Rs 27,000, he said in response to a query.
http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/HDFC-Standard-Life-eyeing-10-15-growth/articleshow/5261556.cms

LIC restructuring Ulip costs to protect agent commissions

KOLKATA: To keep agents’ commissions for unit-linked policies (Ulip) intact, Life Insurance Corporation of India (LIC) is looking to increase the minimum premium payable and minimum lock-in order to adhere to the expenses cap norms brought in by Insurance Regulatory Development Authority (Irda).

It is also planning to reduce fund management and other charges to adhere to the cap so that agents' commissions remain the same.

“From January 2010, the cap on expenses for Ulips will be applicable and we have asked our actuaries to restructure some of our products. They have been asked to cut expenses like manager's charges but not tinker with agents commissions or development officer's incentives,” said Mr TS Vijayan, chairman LIC. He was addressing LIC agents at the 38th Chairman's Club Convention in Kolkata on Saturday.

Policies with tenures of 10 years or less, the difference between gross and net yields to a policyholder should not exceed 300 basis points -- one-hundredth of a percentage point.

Simply put, charges on Ulips should not exceed 3 percentage points of gross yields, of which fund management charges should not exceed 1.5 percentage pints. For policies of more than 10 years, the charges should not exceed 2.25 percentage points of gross yields, of which fund management charges are capped at 1.25 percentage points.

Explaining, he said: "We may have to raise minimum premium from Rs 25,000 to Rs 40,000 and increase the lock in period from five years to 10 years so that commissions can be kept intact. The actuaries are presently working on it."

There was a proposal by a recent committee on agents commission structure that opined payment of commissions by policyholders through a different cheque. The policy holder will have the option to bargain and pay any commission he likes after the agent has serviced him in the form of selling the life cover. LIC is not too keen on implementing this policy for its own 14 lakh-odd agents.

Commenting on this proposal Mr Vijayan said: "The idea is to negotiate with policy holders for the commission. Let this proposal be implemented in some other segment and only if successful we may see about its implementation in the life insurance segment. We cannot let the income of our 14 lakh agents fall."

Mr Vijayan felt policy holders in India do not have the mindset to pay after being convinced of the ability of an agent to sell a policy hence his commission needs to remain embedded in the premium for the policy.
http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/LIC-restructuring-Ulip-costs-to-protect-agent-commissions/articleshow/5260721.cms

Birla Sun Life Insurance: Batting for insurance

Birla Sun Life Insurance, which belongs to the Aditya Birla Group, has roped in four cricketers — Yuvraj Singh, Virender Sehwag, Suresh Raina and Rohit Sharma — to endorse its wealth and protection solution plans.The ads are set within the realistic framework of a candid interview where the cricketers are seen answering questions about the high and low points in their careers. The communication uses the insight: “Jab tak balla chalta hai, thaat chalte hai, Jab balla nahi chalega toh... (Till the bat rules, you rule. And when that stops, then…)” According to JWT, the agency behind the campaign, the ads were shot with the real responses of the cricketers.
“Once we had that idea in place, we decided to use cricketers not as celebrities but as real people in their true down-to-earth form,” says Birla Sun Life Insurance Chief Marketing Officer Ajay Kakar. According to him, cricket clearly underscores the fact that though you could meet with success today, there is no guarantee that you won’t fail tomorrow. And the campaign drives home the need to take cover against failure or lack of form.
The insurance sector with its low penetration of 15 per cent has about 22 players operating in this space. Any new campaign, therefore, needs a clear differentiator if it has to leave an impact. Considering that, the objective of Birla Sun Life’s advertisement was to trigger provocation without being harsh. “At the same time, we needed to be honest and credible,” adds Kakar.
The choice of the celebrities, according to Kakar, was equally important. Thus, the company picked two seasoned veterans like Yuvraj Singh and Virender Sehwag who have both tasted success and faced failure. At the same time, the company wanted two players who are still basking in success. Hence, Suresh Raina and Rohit Sharma were picked. Says JWT Executive Creative Director Tista Sen: “The use of cricketers goes beyond just brand endorsement. That life is uncertain and we should be prepared for any eventuality is highlighted even further when we hear it from the very cricketers we admire and emulate.”
A full 360-degree campaign has taken off and the ads will air for a year. One more ad is expected to release shortly featuring all the four cricketers.
http://www.business-standard.com/india/news/birla-sun-life-insurance-batting-for-insurance/377363/

BANK

PNB, Union and Axis buy stake in Experian Credit

Experian is the second credit bureau in the country to confirm conditions after Credit Information Bureau of India.
Seven financial institutions, including Punjab National Bank (PNB), Union Bank of India and Axis Bank have picked up stake in the newly-formed credit bureau, Experian Credit Information Company of India.
Experian is the second credit bureau to confirm conditions after Credit Information Bureau (India) (CIBIL), which is the only functional credit bureau at present.
Experian said it would now apply to the Reserve Bank of India (RBI) for a final license and commence operations within six months of receiving it.
While Axis bank and Union Bank of India have both picked up 10 per cent each, Punjab National Bank, Magna Fincorp and Sundaram Finance have picked up 7 per cent each. The other investors are Indian Bank and Federal Bank, who have 5 per cent each, while the remaining 49 per cent is held by the parent, Experian Credit Information Services. The total paid-up capital of the company is Rs 60 crore.
Former Bank of India Chairman and Managing Director TS Narayanasami has been appointed chairman of the Experian Credit Information Company.
In April this year, RBI had given in-principle approvals to four credit bureaus, including Cibil, Equifax Credit Information Services, Experian Credit Information Company of India and Highmark Credit Information Services.
Punjab National Bank and Union Bank of India also hold 5 per cent each in CIBIL, while Sundaram Finance has a 2.5 per cent stake.
The credit information companies had up to July 15, 2009 to confirm conditions but were unable to adhere to the deadline due to the lack of clarity on the ownership status of certain potential investors such as ICICI Bank and HDFC Bank.
According to the foreign direct investment (FDI) norms issued by commerce and industry ministries in February 2009, ICICI Bank and HDFC Bank are categorised as foreign-owned.FDI in credit bureaus is capped at 49 per cent.

In a measure to control the circulation of counterfeit notes, the Reserve Bank of India (RBI) has directed banks to issue bank notes in denominations of Rs 100 and above either over their counters or through automated teller machines (ATMs), only after these banknotes are duly checked for authenticity and fitness by sorting machines.
Therefore, all banks should install note sorting machines at all branches having an average daily cash receipt of Rs 1 crore and above by March 2010 and average daily cash receipts between Rs 50 lakh and Rs 1 crore by March 2011.
The high-level group on systems and procedures for currency distribution, in its report submitted in August 2009 had observed the growing volume of banknotes in circulation. It had also stressed upon the need to ensure that only clean and genuine banknotes were put into circulation by banks.

Bharati Shipyard said its open offer to acquire 20 per cent stake in Great Offshore was being revised, and it was now under Section 10 of the Takeover Code as advised by the Securities and Exchange Board of India (Sebi).
The capital markets regulator had last week given clearance to the open offers made by rival companies Bharati Shipyard and ABG Shipyard for the additional stake in Great Offshore. But Sebi had cleared Bharati Shipyard’s offer under Section 10 of the Takeover Code as that was the first offer made. Open offer made under Section 10 intends to buy strategic stake. Bharati had revised its initial offer and made it under Section 12 which intends to acquire management control. It did so after ABG Shipyard came into the fray making the offer under Section 12. Now Bharati has gone back to its initial offer.
The merchant bankers of both the companies are working on to decide the common dates for the competitive bids. Announcement for that is expected in a few days.
Bharati Shipyard had acquired a 14.89 per cent stake in Great Offshore in May at a price of Rs 315 per share from its vice-chairman and managing director, Vijay Sheth, following an invocation of shares which he had pledged. This left Sheth with less than 1 per cent stake in the company and he lost control. Following this, on June 4, Bharati made an open offer to acquire an additional 20 per cent stake in the company at Rs 344 a share.
On June 23, ABG Shipyard, a rival of Bharati, made a counter-offer to acquire 33.8 per cent in Great Offshore at Rs 375 a share. On the same day, Bharati acquired an additional 14.5 per cent in a bulk deal at Rs 403 a share and later increased its open offer price to Rs 405 a share.
ABG Shipyard further increased its stake by purchasing an additional 6 per cent stake in three tranches from the open market and increased its open offer price to Rs 450 a share and finally to Rs 520 a share.
Great Offshore is four times bigger than Bharati Shipyard and twice as large as ABG Shipyard. The acquisition of Great Offshore will help both the companies to graduate to being a marine player. While shipbuilders only make and repair ships and vessels, the marine industry also engages in offshore engineering and other marine support services. Being a marine player will give both Bharati and ABG assured orders for shipbuilding, repairs and dry-docking.

United Stock Exchange (USE) has applied to the regulator Securities Exchange Board of India (Sebi) for final permission to launch operations, a source close to the development said.
Initially, the exchange plans to start trading in currency futures. “We have applied to Sebi and now expect to get approval in early December. We will mostly launch operations in mid-January,” the source said.
The exchange, promoted by Jaypee Capital Services Ltd, Bombay Stock Exchange Ltd, and a consortium of state-owned, private and foreign banks, is looking at avoiding launch of operations during the second half of December as traditionally trade volumes tend to be low. The source refuted rumours that Managing Director and Chief Executive Officer T S Narayanasami is not part of the exchange anymore.

Wants earlier rule on mills having to share extra profit with cane growers restored.
After making the Centre backtrack on the state governments’ liabilities over the state advised price (SAP) of sugarcane, the Opposition today pressed the government to make further changes in the order notified on October 22, to ensure farmers continued to benefit if sugar mills registered “additional profits”. The October 22 order had done away with clause 5(A) of the Sugarcane (Control) Order, which requires the mills to share half their extra realisation at the end of the sugar year with the farmers.
“Since the fair and remunerative price (FRP, which the Centre had introduced as its newly termed minimum support rate) gives adequate consideration for margins on account of profit and risk to the farmers, Clause 5A of the SCO, which provided for sharing of additional profits by sugar mills, has been deleted,” the ministry of consumer affairs, food and public distribution said in a statement dated November 6. The new FRP of Rs 129.84 a quitanl was brought in to replace the earlier statutory minimum price, which was Rs 107.76 a quintal.
In the breakfast meeting today, convened by parliamentary affairs minister Pawan Kumar Bansal, the BJP leadership and Ajit Singh of the Rashtriya Lok Dal (RLD) said the amended SCO would take away the opportunity of the farmers to earn money. “The opposition parties have told us that they will support us only to offset the burden of Rs 14,000 crore (of past dues payable to farmers which the Supreme Court decided had to be paid by government and not the sugar mills) and want us not to meddle with other areas of the Order. We have to take a political call on this issue,” a senior UPA minister present in the meeting told Business Standard.
The government has decided to call another all-party meeting headed by Food Minister Sharad Pawar on Tuesday afternoon. The government may also ask Attorney General Goolam Vahanvati to attend and brief the parties about the various legal implications of the new ordinance and the bill to replace that ordinance.
The morning meeting was attended by the Leaders of the Opposition in both Houses, Lal Krishna Advani and Arun Jaitley. According to insiders, the leaders told the government they would support the government to offset the Rs 14,000 crore burden but the Centre should not use this as a pretext to make any other changes.
Widespread agitation and political opposition against the new ordinance had already forced the Centre to “remove the misgivings” in the amended SCO and make it clear that the difference between FRP and state advised price (SAP) will have to be paid by the mills and not by the state governments.

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