Escorts Mutual Fund

MUMBAI: You don’t have to tell anyone these days that mutual funds (MFs) are the most convenient form of investing, especially for small or individual investors. However, when it comes to options available within MFs—for example, systematic withdrawal or systematic transfer—most people would plead ignorance. Its the same with trigger option available with mutual funds.

However, most people would be somewhat familiar with systematic investment plan or SIP, thanks to the publicity given by most financial experts. “It is true that most of our clients are familiar with the concept of SIP, but the others are yet to catch up in a big way,’’ informs Suresh Sadagopan, chief financial planner, Ladder7 Financial Advisories. Let us start with Systematic investment plan or SIP.

For those who came in late, SIP is very similar to a regular recurring deposit in a bank account. You draw a cheque in favour of a particular MF scheme and specify you want to invest for, say, next 12 months. The money will be taken from your bank account every month and invested in the scheme of your choice.

Why is this method preferred by financial experts? One, this gives you discipline. Two, you wouldn’t be unnecessarily influenced by stock markert movement, and stop or increase your investments. Three, you would benefit from cost averaging. That is, when you buy MF units at regular intervals, the average purchasing cost could give higher returns. Systematic investment plan can be used by any investor eyeing the market in a particular period of time. However, it is not the case with systematic withdrawal or transfer plan or using triggers. These tools would work only for a particular class of investors. “Systematic withdrawal plans are useful for particularly retired people, whereas systematic transfer plans are useful for people with large amount, but don’t want to invest in the market at one go,’’ says Suresh Sadagopan.

Systematic transfer plan allows an investor to withdraw a certain sum from the scheme at periodical intervals. “It is often used somewhat like anuuity by retired people. However, the concept is yet to take off,’’ says a MF investor. Systematic transfer plans, on the other hand, is useful for investors who suddenly find themselves flush with funds.

http://economictimes.indiatimes.com/Personal-Finance/Mutual-Funds/Systematic-investments-work-well-in-MF-scheme-/articleshow/4966296.cms

MFs see 9% growth in assets; AUM breach Rs 7 lakh cr-mark

NEW DELHI: The mutual fund industry's breached Rs seven lakh crore-mark in assets in August, with the country's largest fund house Reliance MF maintaining its top position with an average assets under management (AUM) of over Rs 1.17 lakh crore.

The mutual fund industry's total AUM grew by Rs 59,965.79 crore, or 8.69 per cent, which analysts believe was mainly propelled by the inflow into the fixed income plans.

The combined average AUM of the 36 fund houses in the country hit the historic Rs seven lakh crore-mark at the end of August at Rs 7,49,911.91 crore, according to the data released by Association of Mutual Funds in India (AMFI).

The MF industry had an AUM of Rs 6,89,946.12 crore at the end of July.

"Income funds were in demand in August. Banks and corporate houses have parked their surplus cash with the fund houses, thereby leading to an increase in the AUMs," Taurus Mutual Fund Managing Director RK Gupta said.

HDFC MF registered the biggest jump of Rs 10,508.09 crore in its average AUM during the period, taking its total assets to Rs 93,874.19 crore at end of August.

The country's largest fund house Reliance MF saw an addition of Rs 8,979.40 crore during the month to its assets. At the end of August the average AUM of Reliance MF stood at Rs 1,17,313.78 crore.

ICICI Prudential, the third largest fund house, saw its assets rise by Rs 4,638.30 crore to Rs 77,966.86 crore. While, UTI MF's assets grew by Rs 6,674 crore to Rs 73,925.90 crore at the end of August.

"In absence of credit growth, banks are right now sitting on surplus cash. With the increase in bank deposits banks are parking money in MFs which helped in increasing the industry AUM," Gupta added.

Fund houses which saw an increase in their average AUM in August include Canara Robeco MF, Deutsche MF, IDFC MF, Religare MF and LIC MF.

However, the AUM of DSP BlackRock Mutual Fund dropped by Rs 120.85 crore, HSBC Mutual Fund dipped by Rs 478.76 crore and Benchmark Mutual Fund fell by Rs 6.42 crore.

Other fund houses which saw a decline in their AUMs include ING Mutual Fund, JPMorgan Mutual Fund, SBI Mutual Fund and Shinsei Mutual Fund.

However, analysts cautioned that there could be a decline in the assets of the fund houses during this month as banks would withdraw cash at the end of September quarter.

"There could be a slight decline in AUMs this month as advance tax payments by corporate houses and big ticket Oil India public offer could take out some money from the industry," he added.

The BSE benchmark index Sensex remained flat over August and had settled at 15,666.64 points at the end of trade on August 31.

The country’s five largest asset management companies have reported a sharp increase in their average assets under management (AAUM) during August.
Data released by the Association of Mutual Funds in India (Amfi) this evening showed that HDFC Mutual Fund’s AAUM rose 12.6 per cent from Rs 83,366.10 crore in July to Rs 93,874.19 crore in August.
The AAUM of Reliance Mutual Fund, the country’s largest fund house, went up by 8.28 per cent to Rs 1,17,313.78 crore at the end of August. HDFC continued to remain the second-largest fund house, followed by ICICI Prudential, which witnessed a growth of 6.32 per cent to Rs 77,966.86 crore in its AAUM.UTI’s AAUM shot up by close to 10 per cent from Rs 67,251.89 crore in July to Rs 73,925.89 crore in August. The assets of the fifth-largest fund house, Birla Sun Life, increased 9.65 per cent to Rs 62,866.56 crore. While data for all 38 fund houses were unavailable, trends show that the mutual fund industry will be able to surpass the July AAUM of Rs 6,89,946.12 crore.
The surge in assets came despite distributors and independent financial advisors threatening to shun mutual fund distribution after the market regulator, the Securities and Exchange Board of India (Sebi), banned entry load for mutual fund investments. The Sebi move came into effect from August 1.
Sebi also restrained fund houses from charging unit holders different exit loads based on the value of their investments. In simple terms, it asked fund houses not to discriminate between different classes of investors. Fund houses had lined up new fund offers to cash in on the “pre no-load” regime. However, distributors said that none of the NFOs were attracting large investor interest. “Retail investors are still concerned about the sharp run-up in equity markets. Although risk appetite is returning, it is not huge,” said the head of a bank-sponsored distribution house.
Krishnan Sitaraman, head, Crisil Fund Services said, “Since monthly AUM at the end of July was substantially high, the incremental increase in assets may not be that higher.”

Let me quote from a dialogue in a recent Dilbert comic strip that spoofs corporate life. Dogbert the CEO is holding forth on business plans.
“We’re getting into the financial services game. That way, all our products can be imaginary,” he says, and then, while talking to the pointy-haired boss, elaborates, “We’ll start ten mutual funds, each with randomly-chosen stocks.
Later, we’ll build our advertisements around whichever one does the best purely by chance. My goal is to be the premier provider of imaginary expertise.” I don’t know how many mutual fund investment managers would have given a guilty start upon reading this strip, but I’m willing to guess that at least a few would have.
Does this really happen? Do mutual fund companies actually launch a lot of funds with more-or-less randomly chosen variations and ride the roll of the dice? Some fund or the other will always do well and you’ll basically get by. As it happens, Value Research is in the middle of a large project to analyse a fundamental shift in the relative performance of Indian equity funds evident over the past three years.
I have been tracking Indian mutual funds for almost two decades now, and it has always been clear to me that Made-in-USA theories about most funds not being able to outperform the market indices were simply not true for India. For most of this period, a large proportion of equity funds had consistently beaten the Nifty and the Sensex by a wide margin. There were long periods (long as in five years and above) when above 90 per cent of funds would beat the big indices consistently. During the entire period, you would never find a single article or paper by an indexing proponent which would dare to quote Indian data.
But please note that I’m talking in the past tense. Things have changed. There are still plenty of Indian funds that beat the indices and by good margins. But their numbers are fewer and the list is not consistent. While this was expected, what is puzzling is that it seems to have happened in a narrow time-band that can be pointed to the mid-2006 correction.
After this, the consistency with which funds beat indices declined sharply and has never really picked up. Of course, most of the period after mid-2006 has not been very normal anyway, but I don’t think that’s an explanation. Whatever has happened is of considerable importance to the investor and I hope we will figure out the mystery soon.

MUMBAI: The mutual fund industry is likely to see consolidation earlier than expected, as many new entrants may not be able to withstand the financial stress arising from the need for higher Iinvestments, rising expenses and the importance of organised channels for distribution, says a report by consulting firm Mckinsey & Co.

The report says the new Sebi regulations have the potential to transform the assest management andscape both for AMCs and distributors.

Last month, the market regulator abolished the system of entry load from August 1, and decreed that distributors should collect their commissions directly from the investors.

This is expected to strain the profitability of both asset management companies as well as distributors. According to the Mckinsey report, portfolio management services and alternates will grow faster as the affluent/HNI segment grows and AMCs/distributors also push higher margin products. Within equity, the prevalence of closed-ended fund structures will increase, with AMCs trying to keep the churn ratio to the minimum. Industry experts, however, believe well-positioned players should not lose sight of the opportunities presented by the new regulation, which could catalyse multiple innovations in business models for distributors as well as AMCs.
On the charge structure and the subsequent shift in dynamics, banks and national distributors (NDs) are seen as better positioned to charge customers, given their control over a larger share of customer wallet across multiple products (e.g., deposits, broking) and also their wealth management platform.

“For some, it presents an opportunity to move from transaction-led pricing to an advisory-led pricing model. This would mean adopting a ‘relationship value’ view of customers and charging them on their overall AuM, rather than on a per MF transaction basis. In parallel, the retail customer segment may evolve towards transaction-based charges for mutual fund purchase and redemption. These may be ‘tiered’, depending on ticket size, very much in the way banks currently charge for other services such as draft issuance,” the report said.

Amongst independent financial advisors (IFAs), only the bigger IFAs, with the ability to deliver enhanced service and advice to customers, are expected to be able to charge the customers. However, the smaller IFAs may not be able to charge anything to customers on an average. Hence, the impact of the regulation on distributor economics may be the greatest on IFAs, especially smaller IFAs, who act as a transaction intermediary rather than an investment advisor. Unless compensated by higher volumes, IFA revenues could be impacted to the extent of 30% revenue loss in the worst scenario.

The asset management industry in India in FY08-09 saw assets under management (AuM) declining by approximately 17% compared with year-on-year growth of approximately 50% between FY03 and FY08.

“The capital markets decline and consequent preference for debt and liquid funds resulted in a significant shift in the product mix, with the proportion of debt and liquid funds increasing significantly in FY09. Retail debt and liquid proportion increased from 23-40% between FY08 and FY09, and institutional debt and liquid proportion increased from 86-91% in the same period. Industry profitability, measured as basis points of average AuM, dropped from approximately 22 bps to approximately 14 bps, putting significant pressure on asset management companies,” the Mckinsey report said.

NEW DELHI: The market share of the state-run Life Insurance Corp (LIC) has gone up to 64 per cent in the first four months of FY10, even as the private sector insurance firms continue to bleed, IRDA said.

LIC's first year premium collection on insurance policies during first four months of the current fiscal rose by 32 per cent to Rs 14,265 crore, according to the monthly figures revealed by insurance regulator IRDA.

This suggests that the LIC has managed to significantly improved its client base.

On the other hand, private sector life insurer major ICICI Prudential posted a degrowth of 45 per cent with its first premium collection dipping to Rs 1,200 crore against Rs 2,192 crore mopped up during the first four months of fiscal 2009.

Overall, the 22 life insurers managed to collect Rs 21,996 crore during the first four months of this fiscal against Rs 20,178 crore during April-July 2008, a growth of 9 per cent.

LIC had increased its market share to 62 per cent among life insurers in the first quarter the current fiscal, thereby growing by about 20 per cent, compared to same period last year.

The 21 private insurers managed to collect Rs 7,730 crore during the first four months of the current fiscal against http://economictimes.indiatimes.com/Personal-Finance/LICs-market-share-rises-to-64/articleshow/4965057.cms

Rs 9,380 crore in the previous year, registering a fall of more than 17 per cent.

Life Insurance Corporation of India (LIC) is set to introduce a micro-insurance policy called Jeevan Mangal on September 3 this year.
The policy meant for the people living below the poverty line (BPL) is a term assurance of premiums on maturity. The policy holder can pay the premium either as a lump-sum or on yearly, half yearly, quarterly, monthly, fortnightly and weekly basis.
“The policy is basically for the poor people and we hope that many BPL families of south Orissa will come forward to take this new policy as the premium amount is very less and there are multiple modes of premium payment ranging from weekly to yearly”, said CH Jakkappanava, senior divisional manager of LIC's Berhampur division. He, however, did not specify the targeted premium collection for the new policy. “The total premium collection in the Berhampur division was Rs 622.35 crore by the end of March this year while the number of policy holders stood at 2.61 lakh. LIC had settled as many as 4265 death claims in the division by the end of 2008-09 and Rs 24.81 crore was paid as death claims”, said Jakkappanava.

The Visakhapatnam division of Life Insurance Corporation of of India (LIC) is targeting a 25 per cent increase in premium collection to Rs 2,500 crore during the current financial year. The division comprises three coastal districts of Visakhapatnam, Srikakulam and Vizianagaram.
“During last fiscal we collected Rs 2,000 as total premium, of which new premium stood at Rs 292 crore. This year we are targeting Rs 2,500 crore, of which new premium would be Rs 380 crore, excluding group insurance policies,” D Nageswara Rao, senior divisional manager - Vizag, LIC, told mediapersons here on Tuesday.
The division sold 126,000 insurance policies and collected Rs 98 crore as new premium as on August 31, 2009. It expects to sell 460,000 policies during this fiscal as against 400,000 during the preceding year.
The division has 15,000 insurance advisers and plans to add another 2,000, apart from introducing a direct marketing wing at Vizag. It currently has 20 branches and six satellite offices across the three districts and would add two more satellite offices, he said.
“From September 2, LIC is introducing a new micro insurance policy called ‘Jeevan Mangal’. We are aiming to sell 50,000 policies under this,” he said.

42% rise in new business premium helps the industry clock decent growth.
Life Insurance Corporation of India (LIC) helped the insurance industry clock 28 per cent rise in new business premium in July.
According to data by the Insurance Regulatory and Development Authority (Irda), the new business premium went up to Rs 7,540.21 in July as against Rs 5,858.41 crore in the corresponding quarter last year.
The growth was mainly driven by the 42 per cent growth reported by insurance giant LIC.
A private sector company executive said, “LIC has benefited from the economic meltdown and the industry has turned positive due to an increase in LIC’s business.”

INSURING GROWTH New business premium income during Apr-Jul (Rs cr)
Insurers	2008.00	2009.00	% chg
SBI Life	1457.64	1398.24	-4.08
ICICI Prudential	2192.34	1200.58	-45.24
Bajaj Allianz	1197.95	840.92	-29.80
Reliance Life	838.22	735.23	-12.29
Birla Sunlife	706.08	626.56	-11.26
HDFC Standard	685.16	621.13	-9.35
Max New York	641.83	576.02	-10.25
Met Life	254.26	224.69	-11.63
Kotak Mahindra OM	345.15	215.84	-37.46
Private Total	9380.92	7730.56	-17.59
Total	20178.02	21996.56	9.01
Source: Irda

On a year-on-year basis, the industry saw 9 per cent rise in new business premium collection in the first four months of the financial year.
The premium collected so far in the financial year stood at Rs 21,996.56 crore as against Rs 20,178.02 crore in the corresponding period last year. The insurance giant managed 32 per cent growth on a year-on-year basis as against a whopping 17 per cent fall in the first-year collection of private players’.
During the last financial year, LIC’s new business premium had declined by 10 per cent while private players grew their business by 1.03 per cent.
LIC mopped up Rs 14,265.99 crore premium. Of this, group single premium accounted for Rs 5,086 crore in April-July 2009 as against Rs 2381 crore in the corresponding period last year. Similarly, individual single premium rose to Rs 4,083 crore as against Rs 3,433 crore.
The state-owned company increased its market share to 64.85 per cent. DK Mehrotra, managing director of the company, said the growth was mainly due to renewed trust of investors in LIC.
The leading private sector insurer, SBI Life, reported a fall of 4 per cent while ICICI Prudential posted 45.23 per cent decline in the new business premium income collection.

JAIPUR: After launching Global credit card earlier this February, Public sector bank Punjab National Bank is planning to launch World Travel Card for the globetrotters. PNB chief general manager –credit card venture division – Ranjan Dhawan told ET that the bank would be launching this pre-loaded travel card by November this year for the convenience of people traveling abroad. "It would be the safest and the convenient currency instrument to carry.

Instead of carrying traveller’s cheque or global currency like Dollar or Pound, the World Travel Card holders would be able to withdraw local currency convertibles from any bank ATM of respective countries they visit. The holder has to pre load the card with the amount he would like to carry," he said.

The bank is also planning to promote products like PNB Principal Mutual Fund through its branches. “We want to promote financial instruments among our customers which are conservative in nature. If it will not grow meteorically in boom time, it will not dip drastically during the ebb either. Besides metros and tier I cities we will also focus on tier II and III cities to grow our card business,” he said. Apart from that, the bank is also planning to add new products to its Global Credit Card portfolio with an aim to clock Rs 200 crore business selling 2 lakh credit card in this fiscal.

At present, the bank offers PNB Gold and PNB Global Classic to its customers of various income groups. “We are going to launch corporate cards and platinum cards in next few months. Corporate Cards will be meant for senior executives of companies who often travel for business purposes while Platinum card is being designed for high-end customers. This card will meet the requirements of customers like premium gold membership, lounge expenses etc," Mr. Dhawan said.

In a bid to ensure that high networth individuals (HNIs) stayed with them, public sector banks, including State Bank of India (SBI), Union Bank of India, Bank of Baroda (BoB) and Bank of India (BoI), have been climbing on the wealth management bandwagon in recent months.
The country’s largest bank, SBI, has decided to set a cut-off of Rs 60 lakh for any individual to be called an HNI. This would qualify nearly 200,000 clients for specialised services such as relationship managers.
Armed with specially-designed software, which is being tested, the manager will ensure that the customer does not have to visit a branch. And, in case someone does have to visit one, the plan is to have special sections with five-star ambience.
While all this is still being finalised, the bank has kicked off operations in a small way with focus on the affluent section. So, customers with over Rs 5 lakh in the bank are eligible to avail themselves of this service. The bank is currently offering this service at 502 branches through 1,100 customer relationship executives.
While SBI’s liability group, personal banking division and the new business group are working on the project called ‘Attracting HNIs’, Bank of India is contemplating on how to enter the space.
“It will happen in due course of time. We have not yet started anything formally, but it is one of the options being considered at the moment. It could be a subsidiary, a joint venture or a separate department altogether. Discussions are at different stages and we should be able to come up with something in a year’s time,” said BoI Chief Financial Officer VKR Aggarwal.
However, Union Bank and BoB have opted for tie-ups. The former recently launched its wealth management services along with Wealth Advisors, a Chennai-based company, to offer wealth management for its customers in south India. For customers in Mumbai, it has tied up with Edelweiss Securities. Under terms of this tie-up, Edelweiss will offer a whole range of wealth management products and alternative investment options, such as structured products, real estate funds and art, to Union Bank’s HNI clients. It will also provide them equity and debt investment options. The minimum ticket size for such investments is Rs 10 lakh.
BoB’s wealth management foray is so far limited to only United Arab Emirates (UAE).
However, unlike the foreign banks and some domestic players, the Indian public sector banks would not offer services such as succession planning. “In reality, art investment and a lot of other services that they talk about are all on paper. Succession planning is essentially advisory and the family has to take the final decision. So, as a bank, we are not in a position to advise our clients on such sensitive issues,” said a public sector bank executive, who spent several months trying to understand the services on offer.
The key reason for public sector players entering the wealth space was to ensure that well-off customers did not move away to private banks that offered services such as relationship manager.
In addition, they realised that branding the well-off as HNIs with a low cut-off made some clients feel special. The biggest advantage was the focused approach to cross-sell. For instance, SBI’s mutual fund or insurance arm can now sell the group’s products, which was not the case earlier.
What has further prompted the move of the public sector banks to enter wealth management is the recent Sebi ban on entry load for distributors of mutual fund schemes. The ban hit these banks hard as they were quite active in distribution of mutual funds’ schemes. Although, government banks are still distributing mutual fund schemes, the ban has eroded their fee-based income. Now these banks are getting only 0.75-100 basis point upfront commission from fund houses compared to the 2.25 per cent load earlier.
Hence, some of these banks are planning to offer advisory and charge clients for the same. Sebi mandates distributors and advisors to charge clients for advisory services.
Experts said that public sector lenders’ entry into wealth management might offer some competition to private and foreign banks that have been dominating the space. Government banks might have an edge over the private and foreign players because of their large deposit base, they added.
Barclays Wealth Chief Executive Officer (CEO) Satyanarayan Bansal said, “Private banking in India is still in early stages of growth. There is enough potential for players to come and expand in this market. It will also depend on the quality of services and products offered by various players.”

In times when spiralling food prices seem to be pinching the wallet on a daily basis, fierce competition among financial institutions and strict regulatory actions are ensuring that your investment costs have started falling. Here are four such examples:
Entry load ban for mutual funds: From August 1, the Securities and Exchange Board of India (Sebi) has banned the entry load of 2.25 per cent on equity funds and 1 per cent (maximum allowed) on debt funds.
This amount was earlier deducted from your investment and given to the distributor of mutual fund schemes by fund houses. That is, if you invested Rs 100 in an equity fund, Rs 97.75 would be invested and the rest Rs 2.25 would be given to the distributor.
From August 1, the distributor has to negotiate the commission with the investor itself and be paid through a separate cheque. Also, these distributors have to declare the commission paid by fund houses for similar schemes.
“Distributors will now have to justify their fee by recommending good schemes to customers. Why else will someone pay?” said Gaurav Mashruwala, a certified financial planner.
Also, the market regulator has asked fund houses to charge the same exit load to both retail and high networth individuals.
Ulip costs capped at 3 per cent: Though, financial planners will say that insurance should be separated from investment, most buyers of unit-linked insurance plans (Ulips) can be accused of looking at hefty returns.
As a result, sellers/ agents of Ulips have often been accused of charging astronomical sums in initial years - much more than that for mutual fund products. However, the Insurance Regulatory and Development Authority (Irda) has recently capped the difference between gross and net yield at 3 per cent for a 10-year policy and 2.25 per cent for a 15-year policy.
“But this is only valid for customers who stay in for the entire term of the policy. If you decide to surrender before the policy matures, the charges will still be marginally higher,” said G V Nageswara Rao, managing director and chief executive officer, IDBI Fortis Life Insurance.
Medical insurers cannot deny renewability: This should come as a relief to senior citizens as they are more prone to illness. Earlier, insurers would either deny renewing a mediclaim policy to a person who had made a claim or would hike the premium substantially.
Irda recently said that from June 1, insurance companies would not deny extending medical insurance and also have to explain the hike to a person. “There was a fear that the existing sickness may lead to more claims and, in turn, more losses,” said S Narayanan, managing director and chief executive officer, Iffco-Tokio General Insurance. Also, the maximum entry age of an individual for medical cover has been raised to 65 from the earlier 50-55.
Reduced loan rates: Call it competition or the lack of credit offtake, but banks have been forced to cut home and auto loan rates aggressively.
State Bank of India (SBI) has been slashing rates in a hurry. It has already cut rates thrice since January. In the recent cut, borrowers of Rs 5-50 lakh will get the loan at 8 per cent for the first year and 8.50 per cent for the next two years. These loans come without any administrative cost and free insurance for personal accident.
Following this, other lenders too have cut rates. HDFC Bank slashed rates by 50 basis points to 9 per cent for Rs 30-50 lakh.
The current United Progressive Alliance (UPA) government has also pitched in and given a subsidy of 1 per cent for loans up to Rs 10 lakh (price of house up to Rs 20 lakh).
For auto loans, Canara Bank is charging 8.50 per cent in the first year, 9.50 per cent for the next 24 months and 10 per cent for the 36-60 month period. Following the aggression shown by public sector banks, ICICI Bank cut its auto loan by 50-75 basis points and the rate ranges between 12 and 14 per cent now, depending upon the car.
http://www.business-standard.com/india/news/your-investment-cost-just-got-lower/368874/

Autonomy with more powers for the commodity futures market regulator, Forward Markets Commission (FMC), now seems certain with the Reserve Bank of India saying that futures trading cannot be held responsible for the recent spurt in essential commodity prices. This clearly means that futures trading is getting support from policy-makers — a fact that is likely to prompt the government to introduce the Bill granting more powers to FMC in the next Parliament session.

In its annual report released last week, the central bank corroborated the Abhijit Sen Committee recommendation that there was no clear evidence of futures trading having either reduced or increased volatility in spot prices. RBI also noted that “the prices of agricultural commodities in India after the introduction of futures need to be seen in relation to a range of factors that affect such prices, such as domestic production, buffer stock levels, government intervention in food markets through procurement policies and minimum support prices, exports of agricultural commodities, international food prices scenario and domestic supply and demand dynamics.”
The RBI observation on futures trading in commodities may prove to be a shot in the arm for the government to introduce the Bill in the next Parliament session. The Bill seeks to amend the Forward Contract Regulation Act, providing more powers to FMC, and allow instruments like option trading in commodities.
The amendments were notified in January 2008 by issuing an ordinance, but that was allowed to lapse in the wake of a sharp rise in inflation. Now the same Bill, except for some changes in the definition of commodities that can be traded in the futures market under FMC, is expected to be introduced.
In fact, the finance ministry had changed the definition to exclude currency futures from the list of commodities traded under FMC. And, the commodity futures regulator had agreed to the change.
This change was required to allow currency futures to continue to be regulated jointly by the Securities and Exchange Board of India (Sebi) and RBI. The Bill will, however, pave the way for options trading and index-based futures, besides giving autonomous status to FMC.
As a pat on the back of FMC, the central bank has also noted in its annual report that the former “has been monitoring the future prices of sensitive commodities”. In the report, RBI has remained silent on the regulatory restructuring favoured in the Economic Survey. The Survey has sought regulation of all financial markets (commodity futures has also been defined as part of it) by Sebi.
Asked for his comment, FMC Chairman BC Khatua said: “I hope now there would be no hurdles for the introduction of the Bill as early as possible.”
Khatua, however, said that there was no case for merging FMC with Sebi, irrespective of what happened with other financial regulators. The philosophy of commodity futures market was different from the capital market as in the former, sharp movements on either side were not acceptable, while in the latter, rising prices were always welcomed, he said. Even, underlyings in both the markets were different as commodities were perishable or changed form eventually, while securities remained securities all the time, Khatua added.
Earlier, a proposal was mooted to include the Chairman of FMC and a representative of the food ministry in a high-level coordination committee comprising representatives of RBI, Sebi and the finance ministry. All inter-regulator issues are discussed and sorted out by this high-level panel. However, the proposal to include the FMC Chairman in the panel has not yet been implemented, thereby giving rise to doubts on who should regulate commodity futures.
http://www.business-standard.com/india/news/fmc-all-set-to-get-more-teeth/368895/

Its entry into IRF, equity derivatives hinges on this regulatory need. Market regulator Securities and Exchange Board of India (Sebi) has granted the MCX Stock Exchange (MCX-SX) one more year to complete the bourse’s disinvestment process. The Financial Technologies group-promoted exchange has now time till September 15, 2010 to meet this regulatory requirement. At present, MCX-SX is active only in the currency futures segment and has half of the market share. The exchange proposes to enter interest rate futures (IRF) and equity derivatives segments but did not grant it permission in the first round when the National Stock Exchange and Bombay Stock Exchange were permitted. “The Exchange is fully geared to launch new contracts and products once the divestment is complete...,” said a statement issued by the exchange. Though MCX-SX now has time till September 15, 2010 to complete the disinvestment process, the bourse is expected to try hard and finish the job before the new deadline. This is because the permission to launch more contracts in different segments hinges on completion of divestment. The new bourse is already in talks with leading global exchanges, such as the London Stock Exchange and the New York Stock Exchange, private equity players and foreign as well as local institutions for selling stake. According to sources, some Asian stock exchanges and private equity firms have also shown interest. MCX-SX has already announced sale of 18 per cent stake in the first round and 5 per cent in the second round. While in the first round, the 18 per cent stake will be sold to banks at a premium of Rs 9, IFCI will buy the 5 per cent stake at a premium of Rs 34 in the second round.
The IFCI deal, which has been questioned by the government nominee on the non-banking finance company's board, deal is a benchmark of sorts since MCX-SX will allot more shares to the Delhi-headquartered entity in case there are no takers for shares at Rs 35 each. Some of the institutional sources, who had been approached by the promoters of MCX-SX, said that the business proposition sounded good but the valuation was steep.
The exchange is planning to sell another 50 per cent stake, for which road shows are over, and in few days, book will be opened and offers invited.
Commenting on the development, MCX-SX Managing Director & CEO Joseph Massey said: “Our endeavour is to make MCX-SX a world-class exchange, which will bring in transparency and innovation along with the best domestic and global governance practices, products and partnership. We believe in systematic development of financial markets through information, innovation, education and research... .”
http://www.business-standard.com/india/news/mcx-sx-gets-1-more-year-to-complete-divestment/368894/