Escorts Mutual Fund

MUMBAI: The new fee structure for mutual fund distributors has fund houses focussing again on businesses that were earlier considered unviable or worthless. Barely a few months ago, fund houses considered their portfolio management services (PMS) business a ‘white elephant’, as competition in the segment prevented them from attaining the scale they desired.

But now, with SEBI scrapping entry load on mutual fund schemes and the resultant lull in equity scheme sales, asset management companies (AMCs) have begun redrawing their business plans around PMS, which cater to wealthy investors. This is mainly because AMCs have the freedom to fix fees and commission that suit the growth of their PMS businesses.
Reliance Mutual, ICICI Prudential Asset Management, Tata Mutual Fund, Birla Sunlife MF and HDFC MF are believed to be attempting to boost their PMS business. The revival in broader markets is aiding fund houses to make a pitch to potential investors, according to PMS providers.

"With markets improving steadily, investors have become more confident about their investments. The whole idea of wealth management is gaining ground among investors," said Amish Munshi, head-PMS, Tata Mutual Fund. The renewed interest in PMS products nowadays is in stark contrast to the period in 2008, when service providers struggled to convince new clients to put in money and existing clients to stay invested due to the market crash.

Early in 2009, DSP BlackRock Investment Managers wound up its domestic PMS business, while Franklin Templeton is reported to have closed down select products. Industry officials said many other mutual funds considered PMS as ‘secondary business’ till the SEBI’s move in August to scrap the entry load of 2.25%.

The move deprived distributors of the commission from mutual funds, resulting in them selling more of insurance products and fixed deposits. Starting August, equity scheme sales have nearly halved in three months’ time. As per AMFI data, sales of equity schemes have come down to Rs 3,363 crore in September, logging a 15% fall from August.

"From a pure marketing point of view, promoting PMS products make more sense to relationship managers, as it gives them higher performance credits than selling mutual funds. PMS has become the core focus of many fund houses. Customised investment products are now being aggressively sold to investors," said Akhilesh Singh, business head, wealth management, Emkay Global Financial Services.

The mode of remunerating fund managers has changed from performance-linked management fee to fixed annual fees in the case of most fund houses. Fund management charges are levied in the range of 2.25 and 3% (of corpus), irrespective of loss or gain in portfolio at the end of term.

A few smaller fund houses are also following the old performance-linked management fee where investors share percentage of profits (generated on the portfolio) with the fund manager, apart from a small flat fee (1-1.5%). Distributors’ remunerations are in the range of 0.75 and 1.50% of fund management charges levied from investors.

While conventional wealth management companies and broking firms have raised their minimum investment limits to about Rs 50 lakh to Rs 1 crore, PMS schemes run by mutual funds firms have much lower entry levels — with many starting at Rs 10 lakh.

According to wealth managers, it takes an investment of at least Rs 20 lakh to have a decent portfolio. At current market levels, such portfolios will have an array of mid-cap stocks, derivative instruments and a few large-cap stocks.

"Getting investors into these schemes is still a very hard task for most fund houses. People who have lost money investing into PMS schemes in 2008 are not willing to put money anymore. PMS schemes based on structured notes, however, are witnessing some interest from savvy investors," said the CEO of large fund house.

Our Bureau
Chennai, Oct. 28 Due to a provision of Rs 43 crore representing “likely loss” on the sale of Chola DBS Asset Management business, Cholamandalam DBS Finance reported a net loss of Rs 28 crore for the second quarter ending September 2009 compared with net loss of Rs 10.5 crore for the same period the previous year.
Without the ‘exceptional item’, the company would have made a profit of Rs 5.3 crore for the quarter, compared with Rs 3.7 crore in the corresponding quarter of last year.
Aggregate disbursements increased to Rs 873 crore Q2 2009-10 as against Rs 605 crore in Q2 of 2008-09. Disbursements of 2008-09 included disbursements of Rs 160 crore in ‘personal loan’ segment. The company has since discontinued giving personal loans and as such has no exposure in 2009-10.
The company had infused tier II capital of Rs 100 crore into the business and capital adequacy ratio was at 15.8 per cent as on September 30, 2009.
The company has entered into a binding agreement with Larsen & Toubro Finance for the sale of the mutual fund business, subject to necessary approvals.

Life Insurance Corporation ( LIC) and the Andhra Pradesh government signed an MoU on Wednesday for providing pensions to the members of women self-help groups (SHG) in the state under the ‘Dr YSR Abhaya Hastam’ scheme.
The scheme, to be implemented from November 1, envisages payment of minimum pension of Rs 500 a month to women members of each group after attaining the age of 60 years. Each women SHG member has to contribute Rs 365 a year towards the scheme, while the state government will give a matching grant.
Chief minister, K Rosaiah, said 5 million women would be covered under the scheme in the first phase.
LIC managing director, Thomas Mathew, stated in a release that eligible women SHG members would be provided with a life cover of Rs 30,000 in case of natural death and Rs 75,000 in case of death due to accident. Free scholarships would also be given under the Janashree Bima Yojana and Siksha Sahyog Yojana.

Seek inclusion of write-offs; RBI says no to deadline extension.
Banks have approached the Reserve Bank of India (RBI) to allow loan write-offs to be treated as part of the 70 per cent loan loss coverage mandated by the regulator.
Yesterday, RBI had asked banks to provide money over the next four quarters to provide a higher coverage for sticky assets. The move, which Crisil said would result in an additional provisioning of Rs 13,000 crore for Indian banks, was expected to affect profitability. At present, banks have a loan loss coverage of 51 per cent.
According to a public sector bank chief who attended the post-policy meeting with RBI Governor D Subbarao, a section of bankers conveyed their difficultly in adhering to the new provision coverage regime in a year’s time. Bankers have also expressed concern that their profitability would be hit if they have to increase the provision for coverage to the RBI’s stipulated level within one year.
The issue also came up for discussion during a meeting convened by Finance Minister Pranab Mukherjee on Wednesday.
Banks such as State Bank of India, which is expected to provide around Rs 4,000 crore, were at the forefront of the demand. However, RBI was reported to have turned down the banks’ requests, as the it thinks profitability of the banks are increasing about 35-40 per cent every year, so it is time for create a buffer.
“We have requested for allowing the provisions that are extinguished on account of prudential write off to be reckoned as PCR (provision coverage ratio),” a bank chief said.
“The RBI has assured us they will re-look at the issue,” another bank government bank chairman said.
Some of the bankers said in the meeting that increasing specific provisions for sub-standard assets should be considered as an alternative rather than increasing the provision coverage ratio.
“When already there are norms and they are working well for the banking system, then why should they make the norms further stringent?” asks another bank chief.
Among banks which have lower provision coverage ratio are Canara Bank (27.8 per cent), Dena Bank (37.8 per cent), State Bank of India (45.1 per cent), Indian Overseas Bank (48.6 per cent) and ICICI Bank (51.9 per cent).
According to a study by Kotak Securities, SBI would have to provide Rs 3,800 crore over the next four quarters to meet the stipulated 70 per cent coverage ratio, while ICICI Bank would need to provide Rs 1,758 crore, taking into account the figures of these banks’ first-quarter earnings.
Similarly, Canara Bank needs Rs 989 crore of additional provisioning, while Indian Overseas Bank would require to set aside an additional Rs 500 crore more to comply with the new norms.

MUMBAI: Market regulator SEBI has directed all stock exchanges and other securities intermediaries to keep a strict watch on UN-listed terror funding entities, including the name underworld don Dawood Ibrahim.

The Securities and Exchange Board of India has asked the securities intermediaries to inform the Union home ministry within 24 hours if they find any client, whose particulars match with those of the entries listed by the United Nations.

"In the event, particulars of any of customers match the particulars of designated individuals or entities, stock exchanges, depositories and intermediaries shall immediately, not later than 24 hours ... inform full particulars ... (to) Ministry of Home Affairs," SEBI said in a statement.

The regulator said in case any customer details match the particulars of designated individuals or entities in the list "beyond doubt", the securities intermediaries "would prevent designated persons from conducting financial transactions", under intimation to the Home Ministry.
According to laid down rules, on receipt of particulars, the home ministry would initiate a verification to be conducted by the state police and the central agencies. The verification would be completed within 5 days.

http://economictimes.indiatimes.com/markets/stocks/market-news/Watch-out-for-UN-listed-terror-funding-entities-SEBI-to-markets/articleshow/5160131.cms

SEBI permits extension of trading by 2-1/2 hours a day

MUMBAI: Indian stock market will soon witness longer hours and higher volumes. In a move that will give investors more flexibility but make life in the dealing room and back-office far more demanding, capital market regulator SEBI has permitted stock exchanges to begin the day as early as 9 AM and keep the market open for trading till 5 PM. ( Watch )

Currently, trading in stocks and equity derivatives take place between 9:55 AM and 3:30 PM. While the exchanges are yet to fix the timings, the decision to align the timings of the stock markets with other financial markets like currency, bonds and call money may boost volumes in stocks and equity derivatives. More interestingly, if the local market opens at 9 AM, it may drive a slice of the trading volume from Singapore, where the Nifty futures are traded, to India. Since operators shorting a stock often use the shallower Singapore market to drag down the scrip in India, an early opening will lower the scope of such manipulations.

A senior NSE official told ET that the exchange is likely to extend the trading hours 'soon'. "The exchange is conducting a review to ensure that systems are compliant with SEBI requirements. We do not anticipate any issues in starting soon," the official said. A BSE spokesperson said the exchange welcomes the SEBI directive on extension of trading hours, though he declined to comment on when it plans to implement it. ET had first reported about SEBI's intention to allow extended trading hours in its edition dated December 12, 2008.

Brokers said institutional investors will benefit from the advancing of trading time in the morning, while day traders will have more time to react to European markets.

Also, retail investors are likely to get more time to track their portfolio and even book trades after finishing their regular work. However, analysts tracking corporate developments may have to wait longer, as most companies make market sensitive after trading hours.

"Given the fact that volumes have been increasing on SGX (Singapore Exchange) where the Nifty is traded, this was anticipated and is a positive move," said Rashesh Shah, CMD, Edelweiss Capital.

The origin of the proposal to extend trading hours has its roots in an increased interest among FIIs and overseas arbitrageurs in Singapore Nifty futures. Nifty futures on the Singapore Exchange are available to global investors at least a couple of hours before trading starts in Indian markets. This has resulted in overseas investors gaining an upper hand over local investors, who do not have access to Singapore Exchange, to react to global events and volumes shifting from NSE's equity derivatives segment to Singapore.

"This step will help Indian investors manage the risk better, as Singapore starts trading in Nifty ahead of NSE," said CJ George, managing director of Geojit BNP Paribas Financial Services.

http://economictimes.indiatimes.com/markets/stocks/market-news/SEBI-permits-extension-of-trading-by-2-1/2-hours-a-day/articleshow/5155023.cms

SEBI ban ineffective on debarred players

MUMBAI: How effective are SEBI orders banning individuals and entities from trading in the stock markets as a penalty for manipulative practices? If Dalal Street veterans are to be believed, such curbs matter little as the debarred players can easily work their way around.

As surveillance officials in regulatory bodies (including stock exchanges) admit, enforcing the ban is far more difficult than handing out the punishment. "Float a private limited company, appoint some relative or close acquaintance as a director, and invest through this firm without drawing attention to yourself," said a market old-timer while talking on the modus operandi of players who have fallen foul of the regulator.

The more sophisticated players transfer their money out of the country, through hawala or some other convenient route, and deposit it with a friendly foreign bank. The bank then routes this money to a tax haven-registered sub-account of a foreign institutional investor (FII), with instructions to invest that money in specific stocks in India.

Back home, there are any number of brokers willing to execute trades on behalf of debarred players, as long as the margin commitments are met and brokerage commissions paid. In June this year, SEBI stumbled upon evidence showing that scam-tainted broker Ketan Parekh — banned by the regulator from the stock market for 14 years in 2003 — has been trading in shares using certain entities as fronts.

Another such market player, banned from trading in shares of Atlanta in 2007, is said to have established himself as a specialist in rigging mid-cap stocks, often in collusion with the management. Brokers say he was the kingpin of the bull cartel that ramped up the stock price of realty firm Akruti from Rs 800 to Rs 2,200 during February-March this year.

Over the years, technological advancements have made it possible for regulators to quickly zero in on suspicious transactions/movements in stocks. At the same time, market operators too have been honing their skills to keep the regulator at bay. This includes using a chain of obscure investment firms, and retail investors who are willing to "lend" their accounts for transactions on behalf of the operators.

The toughest part for the regulator is to prove that the transactions have been done on behalf of the debarred individuals. The brokers can always claim that they had done their due-diligence as far as the Know-Your-Client (KYC) requirements are concerned.

It is rare that the broker may be unaware of who the end-client is, but the onus is on SEBI to prove that. Operators who trade on a big scale have tie-ups with a dozen odd brokerages. At each of these brokerages, there is a set of clients, which act as fronts for this operator. This way, there is little concentration of volumes at any single brokerage house, or in the account of any one client.

The Securities and Exchange Board of India (Sebi) today barred Mahesh Kumar P Gandhi from buying, selling or dealing in the securities market directly or indirectly for a period of five years.
The ban comes after abnormal price movements in share prices of Nissan Copper after listing. In 2007, Sebi had issued a notice alleging that a set of connected buyers arranged a qualified institutional (QIB) subscription with assurance of an exit opportunity.
In its order, Sebi has also asked that the gains made by Gandhi on the first day of listing (Rs 1,33,99,835.25) be impounded from the amounts withheld by BSE and NSE. The exchanges have been asked to remit the amounts along with the accrued interest to Sebi within 15 days of the order. Sebi will transfer the amount to the consolidated fund of India.

SAT upholds Sebi order banning Sharma from the securities market for a year.
The Securities Appellate Tribunal (SAT) has dismissed First Global Stock Broking’s Vice Chairman and Joint Managing Director Shankar Sharma’s appeal against the Securities and Exchange Board of India’s (Sebi’s) order barring him from trading in the securities market for a year.
Sebi had passed the order in February this year after finding Sharma guilty of synchronising trades in certain scrips on a large scale, resulting in creation of artificial volumes in those scrips.
The appellant had been avoiding a decision on the merits of his transactions without filing a reply to any of the showcause notices issued to him, said SAT.
Sharma, Sebi’s investigations revealed, executed a large number of transactions in ten securities, including Global Tele Systems, Zee Telefilms, Wipro, Satyam Computers, MTNL, SBI and Infosys Technologies, in early 2001.
First Global, a registered stock broker as well as a portfolio manager with Sebi, has Vruddhi Confinvest India as its sub-broker. Sharma and his wife Devina Mehra are promoter-directors of both the companies. In September 2002, investigations found both the companies guilty and ordered cancellation of their certificates of registration.
In its order, SAT said, “He (Sharma) was the buyer as well as the seller. The buy and sell orders were put into the system at almost the same time.” Terming such trades fictitious, SAT questioned, “How can a person buy from himself and sell to himself? Such trades are only meant to create artificial volumes and they disturb the market equilibrium.”
The tribunal said Sharma executed fictitious trades by taking opposite positions. “The trades were also manipulative in as much as the buy and sell orders were placed at almost the same time. No fault can be found with the impugned order.”