MUTUAL FUND

Fund houses make 50-basis point upfront payment to distributors

Sebi ban on entry load triggers the decision.
In a bid to compensate the distributors following market regulator Securities and Exchange Board of India’s (Sebi’s) ban on entry load, some mutual funds have decided to make at least 50 basis points (bps) upfront payment to them. A few others are going up to even 100 bps.
Sebi had banned entry load from August 1 and made it clear that distributors would have to negotiate the commission with customers and be paid through a separate cheque.
Admitting that it would put a burden on asset management companies (AMCs), fund houses said they had no option but to resort to such a move in order to attract investments through the distribution network.
Not everyone however can go beyond 50 bps. The chief executive officer (CEO) of a foreign mutual fund house having operations in India said only those with high profitability can manage to pay more than 50 bps.
Mutual fund scheme distributors said that the upfront payment structure was already in place. “Though the amount of upfront payment depends on how deep the AMCs’ pockets are, the average is 50 bps,” said a distributor.
“Especially if the exit load period is reduced to only the first year of investment, there is not much scope and there will be pressure on pricing,” said Akhilesh Singh, business head (wealth management) of Emkay Financial Services.
“Since 90 per cent of our business comes through the distributor network, we have to compensate them from our own pocket to the extent possible,” said the chief marketing officer (CMO) of one of the leading domestic fund houses seeking anonymity.
AP Kurian, chairman of the Association of Mutual Funds in India (Amfi), said: “There is no uniform call on how the distributors will be compensated. Since business models of different fund houses vary from each other, we have left it to them to take individual calls on how to approach the issue.”
Unless distributors were incentivised in such a situation, one could end up losing ground in a competitive scenario, added the CMO.
The CEO of another fund house said, “We have informed our distributors that we will pay a reasonable brokerage of 1 per cent. Though it will be a burden, but distributors have to be taken care of since they are our business partners.”

Mutual funds continue buying

(MFs) bought shares worth a net Rs 423 crore on Tuesday, 25 August 2009, slightly higher than Rs 416.10 crore on Monday, 24 August 2009.
MFs' net inflow of Rs 423 crore on 25 August 2009 was a result of gross purchases Rs 1043.50 crore and gross sales Rs 620.50 crore. The BSE Sensex rose 59.72 points or 0.38% to 15,688.47 on that day.
MFs bought shares worth a net Rs 491.50 in August 2009 (till 25 August 2009). MFs had bought shares worth a net Rs 1825.50 crore in July 2009.

http://profit.ndtv.com/2009/08/26172859/Mutual-funds-continue-buying.html

Gayatri Projects’ pref allotment to Reliance MF

To buy out Maytas stake in UP road project.

Our Bureau
Hyderabad, Aug. 26 Gayatri Projects today announced the allotment of one million equity shares of Rs 10 each at a premium of Rs 175 a share on a preferential basis to Reliance Mutual Fund raising Rs 18.50 crore.
The Managing Director of Gayatri Projects, Mr T.V. Sandeep Reddy, said that the fund infusion will help the company meet its business plan and working capital requirements.
This also marks the induction of a strategic investor apart from infusion of premium element to the company valuation.
Addressing a press conference here today after an extraordinary general meeting, Mr Reddy said: “This move will bring down the promoters’ stake to 54 per cent. Earlier, the company had allocated equity worth Rs 100 crore to AMP Capital to meet its long-term capital requirements.”
Joint venture projects
The Hyderabad-based infrastructure firm is in talks with Maytas Infra to buy out its stake in one of the road projects they are executing in partnership with Nagarjuna Construction Company Ltd in Uttar Pradesh.
“We are at an advanced stage of finalising the stake purchase deal with Maytas Infra. The Rs 600-crore road project has about Rs 130 crore equity component and NHAI funding too. Gayatri and NCC will buy out the stake from Maytas Infra taking our stake to 49 per cent,” Mr Reddy said.
In two other projects that Gayatri is executing along with Maytas Infra, the latter has chosen to offload part of its stake to Nagpur-based Terra Infrastructure.
The Cyberabad Expressway and Hyderabad Expressway projects would be completed ahead of the scheduled time of June 2010. One of the projects is likely to be ready by March 2010.
Mr Reddy said that the company currently has an order book of about Rs 6,000 crore, with irrigation accounting for about Rs 3,200 crore.
The company is also looking at exploring the possibility of foraying into the power sector.
Last fiscal, the company closed with revenues of Rs 1,004 crore and expects to achieve a turnover of Rs 1,400 crore this year.
The Managing Director said there is no pressure on funding for any of the ongoing projects.
The company’s shares ended the day higher at Rs 277.45 on the BSE against the previous close of Rs 260.10.

http://www.thehindubusinessline.com/2009/08/27/stories/2009082751340200.htm

Birla Sun Life ropes in 4 cricketers

Birla Sun Life Insurance, part of the Rs 4,763-crore Aditya Birla Financial Services Group, has signed up four Indian cricketers for its ‘Wealth with Protection Solutions’ category campaign. The cricketers include Yuvraj Singh, Virendra Sehwag, Suresh Raina and Rohit Sharma. The campaign, with a series of three TV commercials, would be centred on the theme, ‘Jab Tak Balla Chalta Hain, Thaat Chalte Hai Warna…’ (‘You rul e till your bat rules’). The insurance company hopes to expand in the life insurance market. “We want to take the ‘Wealth with Protection Solutions’ category to mass India. Our target is one billion Indians, and with only 15 per cent tapped so far in the life insurance segment, there is a huge market before us,” said Mr Ajay Kakar, Chief Marketing Officer – Financial Services, Aditya Birla Group.

http://www.thehindubusinessline.com/2009/08/27/stories/2009082750200500.htm

NAVs close strong with advance:decline ratio of 244:9

As the markets ended a volatile session on a positive note led by buying in technology, realty, cement and power stocks, equity diversified NAVs also closed higher with advance:decline ratio of 244:9. The 30-share BSE Sensex shut shop at 15,769.85, up 0.52% or 81.38 points and the 50-share NSE Nifty was up 0.46% or 21.50 points, to settle at 4680.85.
The broader indices outperformed the benchmark indices; the BSE Midcap Index was up 1.1% and the Smallcap Index up nearly 2%.
On the sectoral front, pharma and technology funds advanced while banking funds ended mixed and FMCG funds closed mixed with positive bias. The BSE IT and Healthcare indices were up 3.35% and 0.8%, respectively while FMCG and Bank indices lost 1.01% and 0.16%.
http://www.moneycontrol.com/india/news/mfnews/
navssundarambnpparibasmediaentertainmentopportunitiesretailg/
navsclosestrongadvancedeclineratio2449/market/stocks/article/412917

INSURANCE

Birla Sun Life goes in for structural revamp

MUMBAI: The financial services arm of the Aditya Birla Group has reorganised operations at its flagship life insurance business ahead of planned fund-raising for the holding firm.Birla Sun Life Insurance, a joint venture with Canada’s Sun Life, has recast its structure into eight zonal centres, two each in the north, the south and the west, headed by a zonal operations manager. Operations were previously handled directly by branches.

“The new structure has helped us reduce costs and improve efficiency. This will lead to higher business volumes in future,” said Ajay Srinivasan, head of the Aditya Birla Group’s financial services business. The financial services group’s businesses include life insurance, fund management, distribution and wealth management, PE and retail broking.

The group recently received permission from RBI to form a holding company, which will be a vehicle to raise funds through an IPO, or by selling stakes to private equity funds. The group is in talks with private equity funds for a stake sale.
http://economictimes.indiatimes.com/Personal-Finance/Insurance/Birla-Sun-Life-goes-in-for-structural-revamp/articleshow/4938593.cms

Insurance majors expect a rise in sale of health insurance products

NEW DELHI: Insurance majors expect a rise in sale of health insurance products over the next few months due to growing fear of the spread of swine flu cases in India.

While all existing health insurance policies cover hospitalisation expenses of patients affected by swine flu, the awareness of a health insurance product will spread much faster due to the pandemic, feel insurers.
"Enquiry calls on health insurance have increased significantly over the past few weeks," said Reliance General Insurance president and CEO KA Somasekharan.

Iffco-Tokio executive director (marketing) NK Kedia echoed the same sentiment, "The importance of health insurance becomes apparent in situations like this."

But insurers are yet to see any jump in health insurance claims as treatment for virus is provided mostly in government hospitals that charge nominal fees. The private hospitals are not yet providing any treatment for the flu. However, as the government is gearing up to include private hospitals to offer swine flu treatment, insurers are expecting a surge in claims.

As of August 25, the total number of people affected from the H1N1 virus stood at 17,015 across the country, while the number of casualties was 64, as per government data.

ICICI Lombard health vertical head Sanjay Datta said: "So far, we have received very few claims. But we are ready to tackle a surge in claims on account of swine flu in the future."

Both life and non-life insurers provide health insurance schemes. There are currently over 30 health insurance products offered by as many insurance companies across India.

Sale of health insurance products in India registered around 30% growth and garnered Rs 6,625 crore in terms of new premium collection for the year ended March 2009 due to growing awareness and rising healthcare costs, as per Insurance Regulatory and Development Authority. However, the penetration of health insurance is still low at around 2% of India’s 1.1 billion population.

http://economictimes.indiatimes.com/Personal-Finance/Insurance/Insurance-majors-expect-a-rise-in-sale-of-health-insurance-products/articleshow/4937463.cms

BANK

ICICI Bank launches special offer for new home loans

Private sector lender ICICI Bank on Wednesday said it has launched new home loan schemes at lower interest rates for new borrowers.
Under the new offer, interest rates for up to Rs 20 lakh is 8.75 per cent, an ICICI Bank spokesperson told PTI, adding the schemes are effective from August 20.
For loans between Rs 20-Rs 50 lakh, the new interest rate is 9.25 per cent. Borrowing above Rs 50 lakh attracts 9.75 per cent interest rate, the spokesperson said.
Except for the special offer, ICICI Bank's interest rates were in the range of 9.25 to 11 per cent.

http://www.hindustantimes.com/News/businessbankinginsurance/ICICI-Bank-launches-special-offer-for-new-home-loans/Article1-447434.aspx

SEBI

Sebi mulls 5-fold rise in ticket size for portfolio services
Plans to raise networth requirement for floating portfolio services.
The Securities and Exchange Board of India (Sebi) is planning a five-fold increase in the ticket size for investing in portfolio management service (PMS) schemes — from Rs 5 lakh to 25 lakh.
After making it mandatory to segregate accounts of PMS investors, the market regulator is also mulling to raise the networth requirement for floating a PMS. Sources in the know said that Sebi might raise it to Rs 5 crore from the current requirement of Rs 2 crore.
Sebi is actively considering these moves following a number of complaints from small PMS investors, who were taken for a ride in terms of returns as well as default on client obligations by the players. The market regulator basically wants to bring in better quality standards and ensure that only serious players are in the business.
Experts said that Sebi would like smaller ticket sizes to go into mutual funds and bring only sophisticated and savvy investors into PMSs.
Brokerages such as Sharekhan, Reliance Money and Motilal Oswal offer portfolio schemes starting at Rs 5 lakh. Sharekhan has products based on technical analysis such as Nifty Thrifty and Beta Portfolio with a minimum investment of Rs 5 lakh and a lock-in period of six months. Reliance Money, too, has portfolio management services starting at Rs 5 lakh.
Manish Porecha, head of PMS at Sharekhan, said: “If the investment ticket size is increased, it will be a welcome move for us as we will have to focus on fewer but quality customers. Having said that, there is a lot of appetite for PMS at the beginner’s level. There are lots of such investors who do not want to go to mutual funds, but at the same time want professional fund management. It will stop such investors from testing the market.”
PMS as a product has been fraught with discrepancies as there are minimal disclosure requirements, less accountability and several grey areas in regulation. These discrepancies leave it to the mercy of brokers and PMSs to interpret it in ways that suit them.
According to sources, Sebi is also looking at getting the accounts of PMS providers audited on a periodic basis to bring in more transparency. Last year, the regulator had asked stock brokers/clearing members to carry out complete internal audits on a half-yearly basis by independent qualified chartered accountants.
“Sebi has been discussing these issues with the PMS industry and might come up with new norms very soon,” said a source, who did not wish to be named.
“These steps are aimed at investor protection, similar to what the regulator did in case of mutual funds. They want to ensure better operational efficiencies and impose compliance cost in PMSs,” said Sriram Venkatasubramanian, head, FCH Centrum Wealth Management.
According to rough estimates, close to Rs 50,000 crore is being managed under PMSs. There are more than 300 Sebi-registered portfolio managers. However, experts said that there were a large number of unregulated entities practising it under the garb of colective investment schemes in Tier-II and III towns.
A lot of PMS providers show handsome indicative returns to woo clients. However, the actual returns that they give are quite different from the projected ones. Also, there are issues of preferential treatment to bigger and important clients, frequent churning of portfolio and higher management fees. While Sebi is looking to address these concerns, experts are of the view that it will be difficult for the regulator to regulate every aspect of portfolio management services.
http://www.business-standard.com/india/news/sebi-mulls-5-fold-rise-in-ticket-size-for-portfolio-services/368181/

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

TAXATION
AP to offer VAT rebate for new industries

Our Bureau
Hyderabad, Aug. 26
The State Investment promotion Board (SIB) today decided to offer 50 per cent reimbursement of value added tax (VAT) for five years for new projects, in addition to the incentives available as per the State Industrial Investment Policy.
The Chief Minister, Dr Y.S.Rajasekhara Reddy, who chaired the SIPB meeting, said that a new industrial investment policy will be formulated and unveiled since the policy for 2005-2010 expires by March 31, 2010. According to a statement from the Chief Minister’s Office, during the meeting, the SIPB cleared proposals for 11 industrial units with an aggregate investment potential of Rs 13,319 crore capable of employing about 49,575 people.
Many of these units, which had come up for review are either going in for expansion or some of them have gone into production mode. Therefore, the SIPB decided to extend concessions, including VAT rebate.
Units that had come up for consideration include Anrak Aluminium Ltd at Makavaripaem in APIIC park at Visakhapatnam, Pennar Pre-Engineered units at Anakapalli and Chandrapur, Suryajtothi Spinning Mills in Mahbubnagar, Idupulapadu Cotton Mills in Guntur and Beekay Steel industries at Bobbili in Vizianagaram.
Other projects include AP Paper Mills, ITC Ltd, Sirpur Paper Mills, Silica Ceramics and GMR-MAE-MRO facility in Ranga Reddy district. The GMR MRO facility would see investment of Rs.250 crore.
According to the State data, the Chief Minister was informed that 245 mega industries with an overall investment potential of Rs. 2,47,214 crore capable of employing about 1,45,694 people are at various stages of implementation.
The Chief Minister expressed satisfaction that State could attract 14,911 units during 2004-2009 compared to 11,643 units during 1999-2004. As against total investment of Rs 7,250 crore during 1999-2004, the State investment shot up to Rs 27,393 crore during 2004-2009.