MUTUAL FUND
Birla Sun Life MIP outperforms bank FDs and post Office MIS
MUMBAI: Inspite of the economic downturn and pessimism in the market, Birla Sun Life MIP II Savings 5 Plan has yielded investors better post-tax returns than bank FDs and post-office deposit schemes.
Birla Sun Life Mutual Funds open-ended monthly income plan (MIP) II-Savings 5 plan has performed well with the fund generating a CAGR return of 12.5 per cent over a 3-year period against the benchmark Crisil MIP Blended Index returns of 8.4 per cent as on July 31.
An investor who has invested Rs 1-lakh in the scheme since its inception in May 2004, would have received Rs 540 as average monthly income in the form of dividends as against Rs 440 from a bank FD and post-office monthly income scheme till July 31, 2009, Birla Sun Life's CEO, A Balasubramanian told reporters here.
During the same period while the Rs 1-lakh invested initially would not have appreciated in conventional saving options, it would have grown to Rs 1.12-lakh in this fund. More importantly, the income from the conventional investment options are taxable but income from BSL MIP II Savings 5 is not taxable.
Post-tax monthly income for FD and PO MIS is calculated on a rate of interest of 8 per cent per annum and 7.25 per cent per annum, respectively.
http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/Birla-Sun-Life-MIP-outperforms-bank-FDs-and-post-Office-MIS/articleshow/4933336.cms
Bharti AXA introduces changes in ‘Liq-uity’
MUMBAI: Bharti AXA Investment Managers, a joint venture between Bharti Ventures Ltd, AXA Investment Managers and AXA Asia Pacific Holdings announced a change in their new initiative – ‘Liq-uity’, a product offering wherein the daily dividend in Bharti AXA Liquid Fund (BALF) or Bharti AXA Treasury Advantage Fund (BATrAF) is transferred to Bharti AXA Equity Fund (BAEF) on a daily basis.
The minimum investment amount has now been reduced to Rs 1 Lakh from Rs 10 Lakh for regular plan. This move aims to make ‘Liq-uity’ more inclusive, thereby attracting more retail investors.
Gains earned under BALF / BATrAF are transferred to BAEF, while the initial capital remains invested in BALF / BATrAF. There is no entry load for transfers into the BAEF from BALF / BATrAF. However, an exit load of 1% is levied if units are redeemed within one year from the date of allotment. There is no entry or exit load for investments in BALF / BATrAF.Bharti AXA introduces changes in ‘Liq-uity’
MUMBAI – Bharti AXA Investment Managers, a joint venture between Bharti Ventures Ltd, AXA Investment Managers and AXA Asia Pacific Holdings announced a change in their new initiative – ‘Liq-uity’, a product offering wherein the daily dividend in Bharti AXA Liquid Fund (BALF) or Bharti AXA Treasury Advantage Fund (BATrAF) is transferred to Bharti AXA Equity Fund (BAEF) on a daily basis.
The minimum investment amount has now been reduced to Rs 1 Lakh from Rs 10 Lakh for regular plan. This move aims to make ‘Liq-uity’ more inclusive, thereby attracting more retail investors.
Gains earned under BALF / BATrAF are transferred to BAEF, while the initial capital remains invested in BALF / BATrAF. There is no entry load for transfers into the BAEF from BALF / BATrAF. However, an exit load of 1% is levied if units are redeemed within one year from the date of allotment. There is no entry or exit load for investments in BALF / BATrAF.
http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/Bharti-AXA-introduces-changes-in-Liq-uity/articleshow/4932682.cms
Mutual funds step up buying
(MFs) bought shares worth a net Rs 416.10 crore on Monday, 24 August 2009, higher than Rs 127.90 crore on Friday, 21 August 2009.
MFs' net inflow of Rs 416.10 crore on 24 August 2009 was a result of gross purchases Rs 995.80 crore and gross sales Rs 579.70 crore. The BSE Sensex surged 387.92 points or 2.55% to 15,628.75 on that day.
MFs bought shares worth a net Rs 68.50 in August 2009 (till 24 August 2009). MFs had bought shares worth a net Rs 1825.50 crore in July 2009.
http://profit.ndtv.com/2009/08/25172801/Mutual-funds-step-up-buying.html
Mutual funds largely eschew derivatives play
Mumbai: Since its inception in 2000, the derivatives market has emerged as a major market segment.
This type of trading allows market players to hedge their exposures or take bets depending upon their view on market situations. With Sebi allowing mutual funds to participate in derivatives, fund managers do take positions through futures and options in order to hedge their positions. It also allows investment managers to take arbitrage advantage of mis-pricing arising out of two different markets i.e. cash market and derivatives market, thus, locking the profit in case the price differs in both the markets.
While the advantages of trading in the derivative segment are many, mutual funds have not gone overboard in investing in this segment. The total exposure of mutual funds in derivatives market at the end July 2009 was close to Rs 1,360 crore. When compared to the volumes clocked in the derivative markets, mutual funds participation is marginal.
Investing in the derivative segment is fraught with its own set of risks, as a result of while, Sebi permitted mutual funds to dapple in the derivatives market. It has done this with some wise restrictions in place. The maximum net position by mutual funds in derivatives has been capped to the extent of 50% of the portfolio.
Trend
The primary reason why fund managers invest in futures and options segment is with the aim to hedge risks. Derivatives are used as an instrument to minimise the risk exposures and limit the degree of fluctuations in prices, which is rampant during a bear market. On the other hand, in a bull phase, the managers are less averse to risk and hence do not hedge as extensively. Hence, theoretically, the exposure in derivatives would ideally be higher in the bear phase while it can drop down during a bull phase.
For the worst of the bear phase -- marked between January 2008 and March 2009 -- the exposure to derivatives witnessed a large increase. In case of ICICI Prudential Mutual Fund, the exposure into the derivatives segment climbed from 1.77% as a proportion of equity assets under management in January 2008 to 5.86% in March 2009. On the other hand, even in the current improved market conditions, DSP Black Rock Mutual Fund allocated 12.52% of its equity assets to derivatives during July 2009.
On an average, the highest allocation in the derivative segment across asset management companies was in the month of November 2008, with four fund houses allocating anywhere between 11.50% and 14% of their equity assets to derivatives.
The theoretical assumption of higher exposure to derivatives in bad times and a significant drop in derivative positions in better times is vindicated by the holdings of mutual funds between March 2009 and July 2009. Since markets began looking more upbeat after the Lok Sabha elections, the assets allocated to derivatives have also drastically reduced, as have the number of schemes hedging through derivatives.
Moreover, before January 2008, there were hardly any positions in the derivatives segment, with barely 10 diversified equity schemes dappling in derivatives. On the other hand, there have also been some AMCs such as HDFC Mutual Fund, Reliance Mutual Fund, SBI Mutual Fund, UTI Mutual Fund and few others which have not ventured into this segment over the past two years.
Performance
In order to assess whether the strategy of investing in derivatives works or not, we segregated the schemes which invested in derivatives and those which did not. Between January 2008 and March 2009, out of 187 diversified equity schemes, as many as 75 invested in futures and options. Moreover, the returns delivered by these 75 funds are not very different from the remaining diversified equity funds. The range of returns is also comparable. The funds which invested in derivatives on an average lost 59.89% while the other diversified equity funds lost 55.75% on an average. A look at the near-term performance since March 2009 also shows that the returns of these schemes have not been dented drastically over the recent uptake in equity markets. One of the strategies of investing in derivatives is that of gaining from the mis-pricing between the cash and the derivatives market.
Using this strategy, AMCs have floated arbitrage schemes. Unlike the run-of-the-mill equity funds, this class skirts the 'high risk' tag that is synonymous with equity investment. But then again, the returns are also much lower and are more similar to what a debt-oriented mutual fund would produce. The returns for equity arbitrage schemes over the past year have been in the range of 5-10%.
While the use of derivatives by mutual funds as a hedging mechanism is a popular one, in the Indian context, their participation has been unimpressive. It is unlikely the diversified equity class of funds will exploit this option if the uptake in equity markets persists. However, with the success of the arbitrage category of funds, the share of mutual funds investing in this market segment is likely to change in the long run.
http://www.dnaindia.com/money/report_mutual-funds-largely-eschew-derivatives-play_1284900
INSURANCE
Irda cautions insurers against politically exposed persons
The Insurance Regulatory and Development Authority (Irda) has asked insurance companies to be more cautious while concluding contracts with “high risk customers”, particularly the “proposals of Politically Exposed Persons (PEPs)”.
“Insurers should devise procedure to ensure that proposals for contracts with high risk customers are concluded after approval of senior management officials. It is, however, emphasised that proposals of Politically Exposed Persons (PEPs) in particular, require approval of senior management, not below head (underwriting)/chief risk officer level,” the regulator stated in a circular issued on Tuesday.
Elaborating the anti-money laundering (AML) guidelines to be followed by the insurers, Irda stated that while carrying out the know-your-customer (KYC) norms, special care has to be exercised to ensure that the contracts were not anonymous or under fictitious names.
According to Irda stipulations, which come into effect immediately, any change in the customers’ recorded profile that comes to the notice of the insurer and which is inconsistent with normal and expected activity of the customers, should attract the attention of the insurer for further KYC processes and action to be considered necessary.Irda also advised that special attention be paid to all complex, unusually large transactions and all unusual patterns, which have no apparent or visible lawful purpose. The background of such transactions including all documents should, as far as possible, be examined by the principal compliance officer for recording his findings. These records should be preserved for 10 years.
The principal compliance officer for AML guidelines should be at a senior level and preferably not below the designation of the head of audit/compliance or chief risk officer. He should be able to act independently and report to senior management. Also, he and the staff assisting him should have timely access to customer identification data, records and other KYC information.
Irda has asked the insurance companies to prohibit directors, officers and employees from disclosing that a suspicious transactions report or related information of policyholder was being reported to the Financial Intelligence Unit - India (FIU-IND).
Irda wants the insurance companies to submit to it, the revised AML policy incorporating the latest stipulations by October 31, 2009.
http://www.business-standard.com/india/news/irda-cautions-insurers-against-politically-exposed-persons/368101/
LIC arm to finalise realty venture fund partner this month
Mortgage loans lender LIC Housing Finance (LICHF) was likely to finalise a partner for its real estate venture capital fund by the end of this month, a top company official said.
LICHF is launching a Rs 500 -crore real estate venture capital fund and has been scouting for a domestic partner. The fund is slated to be launched by end-September.
“The board committee on the venture capital fund is likely to decide the final partner by the end of this month,” LICHF’s Director and Chief Executive Officer R R Nair said.
LICHF, which is a 100 per cent subsidiary of LIC, has already short-listed five entities for its venture capital fund.
“We have already short-listed five domestic partners,” Nair said. LICHF has set up a stand-alone company for the fund, he said.
LICHF’s parent company and country’s largest life insurer, Life Insurance Corporation of India (LIC), would also be one of the partners, he said.
“LIC group will be the majority stakeholder in this venture capital fund. The partner should have at least a 20 per cent holding in it, but that would be decided by the board,” Nair said.
http://www.business-standard.com/india/news/lic-arm-to-finalise-realty-venture-fund-partner-this-month/367965/
One-fourth Indians without pension coverage: Survey
About one-fourth of the Indian population is without pension coverage and only 13 per cent of the country's paid employees are under formal pension arrangement, a survey has found.
"According to the survey, at present, formal pension arrangements cover only 13 per cent of the country's paid employees in India, with a total of 284 million people without pension coverage," Canara HSBC Oriental Bank of Commerce Life Insurance said in a release.
As per the findings of 'The Future of Retirement It's time to prepare' survey conducted by the insurer, 58 per cent of the respondents in India do not know what their retirement income will look like.
"One of the factors contributing to the unpreparedness is the lack of understanding about their long-term finances over short-term," the release added.
The findings revealed that 1-in-8 people in India have either reduced or stopped saving into a pension. A further 18 per cent say they would like to seek financial advice to help them make sense of the choices facing them.
Canara HSBC Oriental Bank of Commerce Life Insurance Company Chief Executive Officer Harpal Karlcut said, "India has a high saving ratio compared to other countries."
However, the survey reveals that the motives of saving are more skewed towards saving for children accounting for 35 per cent of savings than saving for retirement, which accounted for only 12 per cent."
According to Organisation for Economic Co-operation and Development (OECD), Private Pensions Outlook 2008, pension fund assets in India are very small and make up to only 5 per cent of India’s GDP, the release added.
Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited was launched in June 2008 and is jointly owned by the public sector banks Canara Bank (holding 51 per cent) and Oriental Bank of Commerce (23 per cent).
HSBC Insurance (Asia Pacific) Holdings Limited (26 per cent) is the Asian insurance arm of the banking and financial services groups, HSBC.
http://profit.ndtv.com/2009/08/24193732/Onefourth-Indians-without-pen.html
BANK
IDBI Bank may shelve variable pay plan
While the bank’s board had discussed the proposal in May and the new scheme was to come into effect from June, the bank didn’t go ahead with the plan on concerns expressed by the finance ministry. The finance ministry was peeved over the fact that the board of the erstwhile development financial institution gave an in-principle approval to the plan ignoring its advisory. The board had authorised the management to work out the details based on inputs from the government.
Under pressure from the government which has sought an explanation from the bank on ignoring its advisory, the bank has not implemented the variable pay scheme for its executives. In case of non-officer grade staff, the issue was to be thrashed out following the labour commissioner’s intervention.
When contacted, Prashant Sadar Joshi, the HR head of IDBI Bank, refused to comment on the issue. But sources said that the board was expected to discuss the proposal and unlike the meeting in May, GC Chaturvedi, additional secretary in the finance ministry and the government nominee, would attend the meeting where the issue was expected to come up for discussion.
Public sector banks, which are negotiating a wage hike with their employees unions, have decided against implementing a variable pay scheme. But IDBI Bank, which is not part of the talks, decided to move to a cost-to-company structure and also intended to change the service rules for its employees.
In a letter, however, the government had said that the wage settlement should have no parity with any agreement between the Reserve Bank of India and its employees and should be based on the practices in public sector banks.
On the issue of harmonisation of service rules, the government had said in the letter written on May 22 the issue needed further scrutiny and the board should not take a decision. But a day later, the bank’s board approved the proposal, prompting the finance ministry to raise questions as the government is the majority owner.
http://www.business-standard.com/india/news/idbi-bank-may-shelve-variable-pay-plan/368100/
Banking industry gears up to meet drought challenges
By Sitanshu Swain
As the Indian banking industry eagerly waits for recovery after almost a year of economic slow down, a severe drought scenario and its impacts on fiscal deficit, inflation, rates and defaults in agriculture loans have put spanners in the revival of banking business plans.
According to reports, rainfall in the country between June 1 and August 12 has been 29% below normal and 209 of 593 districts have already been declared drought affected.
Deficient rainfall has led to a reduction in Kharif crop sowing, fueling fears of high food prices and rising defaults in the agricultural loans in the coming months, say bankers. Economist and experts have already slashed country's growth outlook for the current fiscal to 5.8% from its earlier projection of 6.5% owing to the deficient monsoon.
According to a Moody's report, a delayed and insufficient monsoon is taking its toll on India's economy. Farmers are struggling and putting pressure on the government to extend financial assistance. A fall in investor confidence has triggered capital outflows from the stock market and despite relatively high interest rates in India the rupee has slipped against the dollar.
Approximately 25% of the country is affected by drought and agricultural output is set to plummet this year. Lower income for rural workers will in turn be a huge drag on private consumption, an important driver of India's economic expansion.
Policymakers are under pressure to assist struggling farm households. However, recent measures such as diesel subsidies for farmers will widen this year's fiscal deficit. Meanwhile, the threat of inflation looms large with food prices likely to soar in the next few months. Drought has certainly made it tough for the government to revive the economy.
"Kharif crop sowing is picking up but is likely to be lower than last year. (We) see agricultural output falling by 3% in 2009-10 against previous forecast of growth," said an HDFC Bank research report. Reports of expected reduction in kharif output of up to 10% have prompted us to revise our agricultural growth forecast, said the bank.
Planning Commission deputy chairman Montek Singh Ahluwalia said that poor monsoon would affect farm production and trim economic growth. "The existence of drought by itself can lead to some shaving down of the growth projections," he said. The impact, however, will not be much on gross domestic product (GDP) as agriculture production constitutes less than 20% of the economy. On the impact of decline in farm output on economic growth he said, "If farm production declines, one fifth of that percentage would be knocked off from the projected GDP growth rate. There would be some effect but not very large." Though only some parts of the country would be affected by drought, farm output will fall and there will be some distress, he added.
RBI deputy governor KC Chakarbarty says erratic monsoon would impact the prices of essential commodities. "The expectation is that the erratic monsoon may put pressure on inflation," he said. When asked whether farm loans would be rescheduled because of the uncertain monsoon this year, he said it was an issue for the next year.
Higher food prices are likely to result in year-end inflation at 6% as compared with 4% earlier. Also, there might be a 125bps cumulative policy tightening in 2010 compared with 75bps earlier said a Citi bank report. The 10-year bond yields are likely to shoot up to 7.5%, it added.
Taking special measures on behalf of the banking industry Bank of Maharashtra chairman and managing director Allen CA Pareira said the bank is working on rescheduling agricultural loans for the affected farmers by converting the short-term loans to long-term ones. Normally the bank provides crop loans with the repayment period of a year only. However, we are trying to reschedule those loans so that farmers can repay them over a period of 3-5 years, he added.
In absence of any fresh guidelines from the RBI, the bank is going by the old guidelines of the apex bank, issued in 1995, which talked of treating farm loans as standard assets in case of a calamity like drought, he said.
Moreover, the bank is advising farmers to leverage their Kisan credit cards that work on cash credit system and which allow the farmers to use the limit throughout the year.
"I believe that interest rates may increase by 25-50 basis points after September. Our focus at the moment is to help farmers without tweaking the rates. We have projected a target to bring our gross NPAs in the farm credit to 2.5% level by December this year,'' he said.
The bank is organising credit camps in various areas to educate farmers on how to harvest rainwater and utilise it to the maximum. As of now, the bank's agricultural loan portfolio comprises of Rs 4,000 crore. Against the target of Rs 6,000 crore for the farm loans for the current fiscal, the bank has already disbursed loans worth Rs 800 crore.
Bank of India executive director M Narendra said keeping the current scenario in view, the bank is working on alternative ways by shifting its focus to allied activities. "We are running 11 rural development training institutes throughout the country. Youths are being imparted training for allied activities other than farming at these centres. Also, these centres help increase their linkage to urban employment. Apart from it, there are 5,000 farming clubs in our fold which act as a link between small and marginal farmers and banks,'' he said.
The bank has projected a target of disbursement of farm loans worth Rs 20,300 crore by the end of the current fiscal as against Rs 16,500 crore during the year 2008-09. "I hope that the interest rate will remain stable for some more time now as there is enough liquidity into the system. This is more because of the promise made by the RBI and the government that huge government borrowing programmes will be a hassle-free phenomenon. Until the inflation figure crosses the mark of 5%, it was not likely to impact the interest rates significantly,'' he said.
The bank has NPA in the agricultural loan at a level of 2.5% which is valued at Rs 280 crore as of now which was not too high. Moreover, RBI is also thinking of extending the repayment period of agricultural loans, he said.
Union Bank of India (UNIONBANK.NS : 213.15 0 ) general manager and head priority sector lending LNV Rao said the bank's NPA level in the agriculture segment is hovering at 2.8 and 3% as of now.
http://in.biz.yahoo.com/090823/50/bau2m8.html
SEBI
NSE to launch interest rate futures on August 31
The National Stock Exchange (NSE) is all set to kickstart interest rate futures from August 31. The exchange had been conducting mock trading for the same for the past two weeks.
“We are ready with the necessary software and technology and have also received the go-ahead from the Securities and Exchange Board of India (Sebi). Interest rate futures would be launched on August 31,” said an NSE spokesperson.
With this launch, interest rate futures contracts would be available for trade in the currency derivatives segment (CDS) of NSE. Market timings for trading in the same would be from 9 a.m. to 5 p.m.
The Bombay Stock Exchange (BSE) and the Financial Technologies group-promoted MCX Stock Exchange (MCX SX) have also applied to Sebi for approval to launch interest rate futures.
When contacted, the two exchanges could not say with certainty when they would be able to launch interest rate futures. An MCX SX spokesperson, however, said that they would announce the date of launch as soon as the regulator cleared their proposal.
Currently, only currency futures are traded on MCX-SX. Besides approval for interest rate futures, the exchange has also been waiting for regulatory nod for equity trading.
In case of currency futures also, NSE was the first exchange to launch it in August last year.
While NSE will get the first-mover advantage in the interest rate futures segment, its decision to levy no transaction charge on trades up to the end of this calendar year would also stand the exchange in good stead. However, every trading member participating in the segment at any time during the above-mentioned period would be required to make a lump sum contribution of Rs 500 to the Investor Protection Fund.
Unlike in the currency derivatives segment, foreign institutional investors (FIIs) and non-resident Indians (NRIs) would be allowed to trade in interest rate futures. Apart from FIIs and NRIs, banks, corporate houses, retailers and high networth individuals too would be allowed to trade in the segment.
A joint technical committee of the Reserve Bank of India and Sebi had in June recommended allowing interest rate derivatives based on 10-year government bond yields.
http://www.business-standard.com/india/news/nse-to-launch-interest-rate-futuresaugust-31/368088/
OTHERS
Investors urge for justice continues
We have to revisit again and again the investors’ conundrum — namely compensation for investors whose wealth has eroded because of the deliberate fraud and manipulations by the promoters.
The question of where they will go for this compensation remains unanswered. The Midas Touch Investor Association has just received the official order of the Supreme Court dismissing their appeal against the order of the National Consumers Dispute Redressal Commission on the Satyam compensation case. The SC order was terse and said, “Dismissed as withdrawn with liberty to take other appropriate steps.”
What if there are no appropriate steps? In this case there are none.
The Sebi Act has nothing about compensation to investors even though in the last 17 years investors have lost crores or rupees due to frauds of various kinds by various promoters and stock brokers. The one organisation namely the National Consumers Dispute Redressal Commission that could have done something merely threw up its hands without even giving due diligence to the issue.
Travesty of justice
The Supreme Court it was hoped would have directed the NCDRC to review its position but it too dismissed the case. As Mr Virendra Jain of MTIA said it is a travesty of justice that here is a person who has confessed publicly before the cameras that he had committed a fraud of nearly Rs 8,000 crore over the years and admitted that the profits and revenues were fudged, so what more is required for the authorities to decide that investors should be compensated? It speaks rather poorly of our justice system that when illegality and fraud stares you in the face it still says nothing can be done.
Disgorgement order
To Sebi’s credit, it must be said that in the IPO fraud case it had selectively passed an order asking the parties that had grabbed allotments to ‘disgorge’ their ill-gotten wealth. However the SAT had in one case overturned the order. So the disgorgement didn’t happen.
Class action
As we said in earlier columns, both the ministry of company affairs (MoCA) and Sebi should at the earliest insert some provisions, like class action suits, whereby investors do get compensation in case of frauds and manipulations which cause them loss.
In the case of Satyam the day that the promoter Ramalinga Raju confessed to the fraud the share plummeted from around Rs 160/170 to Rs 12 and closed at Rs 24. One can imagine the money/wealth the investors lost. Some had bought shares when the shares were around Rs 700 and Rs 800 so their losses are even larger.
Justice delayed is justice denied and the longer the MoCA and Sebi take to find a solution to this problem, the longer will the investors be under the pain of injustice. One fails to understand how institutions that are meant to guard primarily the interest of the investors take ages to make the rules in their favour.
Earlier, we had the case of the entry load being charged by the mutual funds. Over a year ago the mutual fund expert V.T. Gokhale had taken up this issue with Sebi. He had written several letter and reminders and we too in these columns pointed out the non-level playing fields between the high net individuals and big players and the small ordinary investors.
The former group paid a lower entry fee or nothing at all while the small and ordinary investors were charged a stiff fee. It was only recently that Sebi’s pro-investor chief C.B. Bhave, scrapped the entry load and said that everyone had to be treated equally as far as the exit fees were concerned. This means that for a year and before that the small investors were getting a raw deal.
http://www.deccanchronicle.com/business/investors-urge-justice-continues-492 |
