ESCORTS MUTUAL FUND

No MF entry load bothers small advisors

MUMBAI: The introduction of no entry load on mutual funds seems to be haunting small-time financial advisors in a big way. Many complain that several clients have stopped systematic investment plans (SIPs) to avoid paying entry load on their Investments It is not known whether these clients have restarted the SIP with mutual funds directly, claim financial advisors. The market regulator Securities and Exchange Board of India (Sebi) has scrapped entry load on investments in mutual funds from August. However, existing SIPs continue to attract entry load and investors have to stop them if they want to avoid paying entry load.

''High networth individuals always had the option of paying no entry load and most of them have already started dealing directly with mutual funds. Now, even small investors are doing it to avoid entry load,'' says D Sundararajan, investment consultant, Trendy Investments, a wealth management firm.

''We haven't seen many clients stopping their SIPs to avoid entry load. However, there is some confusion as we are not sure about the commission rates of mutual funds, as there seems to be no consensus on the issue. Anyway, we are not affected much as we charge a fee for advice,'' says Gaurav Mashruwala, a certified financial. However, he adds that many clients have called up inquiring what kind of fee or commission structure they would have to bear from now on. Several small-time finacial advisors - the kind you find in your neighbourhood - claim that if the confusion prevails, it will be tough for them to survive. However, many advisors say that they may be forced to switch to a more advisory mode of service if they want to stay afloat. '' Investment advisors can't be mere product-pushers . Most people have been selling products that used to fetch them the highest commission. They can't continue doing so anymore,'' says Sundararajan. However, this won't be an easy task for many because it may involve obtaining new skills which many old-timers would find difficult.

''The Sebi seems to have done everything at one go. They haven't really thought about the existing small time advisors or reskilling them,'' says a financial advisor, who doesn't want to be named.

Another problem many advisors face is stopping the existing SIPs of their clients and opening a new one to avoid the entry load, as it involves a lot of paperwork and man hours. ''There is a lot of paperwork involved and we are doing it almost free of charge, thinking that we may be able to generate some revenue somehow in the future,'' says a small-time advisor in the western suburb. However, some advisors claimed that they have already initiated the process of switching to the new SIP without closing the existing one. But this couldn't be confirmed independently.

Feeling Heat

Several small-time financial advisors claim that if the confusion over commission prevails , it will be tough for them to survive.

However, many advisors say that they may be forced to switch to a more advisory mode of service if they want to survive Market regulator Sebi seems to have done everything at one go. They haven't really thought about the existing small time advisors or reskilling them, creating lot of pain for them, says a financial advisor

http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/No-MF-entry-load-bothers-small-advisors/articleshow/5083195.cms

MF assets dip as corporates pull out funds

Contrary to expectations that the revival in the equity market would have boosted the assets managed by mutual fund houses, nearly 58% of the 36 fund houses that have disclosed their average assets under management (AAUM) figures for September 2009, have seen a drop in assets compared with the previous month.

According to the data released by the Association of the Mutual Fund Industry (Amfi), the total industry AAUM for September 2009 stands at Rs 7,42,919 crore against Rs 7,49,915 crore as on August 2009, registering a decline of about 1% since the previous month. This is the second instance of a month-on-month decline in mutual fund assets in 2009 so far, the earlier one being in March.

According to the industry experts, the marginal decline is mainly on account of outflow of corporate funds from the debt and liquid schemes for making advance tax payments for the half year ended September. However,banks have continued to park in their idle funds with the mutual funds, though the proportion of the same appears to have dropped vis-à-vis the recent past.

According to the data released by the Reserve Bank of India, banks had an outstanding balance of Rs 1,56,573 crore with the mutual funds till September 11, 2009. This shows a rise of about 4% in the mutual fund investments by banks, compared with the investments worth Rs 1,51,136 crore by the end of August 2009.

But it is a grim situation where equity assets are concerned.equity schemes have failed to register any significant growth despite rise in the equity markets and improving valuations of the existing schemes. With Sebi banning entry load with effect from August this year, distributors are not interested in selling mutual fund products due to inadequate commissions, said fund house officials.

In terms of fund house-wise growth, among India's larger and well-renowned fund houses, Reliance Mutual's AAUM rose marginally about 0.8% to Rs 1,18,251 crore and ICICI Prudential has reported an increase of about 3%. MFs managed by HDFC and UTI have, however, seen their AAUM shrink by about 4% and 0.5%, respectively, since August 2009.

Interestingly, it is the relatively smaller fund houses that have shown a healthy rise in their asset figures for the month. Fund houses like Taurus, Shinsei and JP Morgan have reported around 25% increase in their AAUM positions for the month ended September 2009, while Benchmark and Bharti AXA’s assets rose by 13% and 20%, respectively, this month.

http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/MF-assets-dip-as-corporates-pull-out-funds/articleshow/5082916.cms

Debt options before this results season

It is normal for invetsors to play the waiting game before a big event. This time Diwali is coinciding with the results season and this makes  October even more special. While aggressive investors always look at taking long positions during this annual event, there is a touch of caution ahead of the season this time.

The caution in the air is largely on account of the smart gains the markets have made in the last quarter. Expectedly, there is a case for profit booking, and if you are one of those investors who is looking at entering the markets after the correction, debt must be the choice for the intermittent period.

Here are some options while you play the waiting game:

Cash management fund

The fall in interest rates has brought down the yield from these funds by at least one percentage point. Now you can expect annualised returns of around 6 per cent from these funds in the coming days. To make a good use of the tax efficiency of these plans, opt for the dividend reinvestment option. The product should be used to park funds in for a short term need and hence don't look at it for more than a year's tenure.

Short term plan

The yield from these funds has been slightly better than that of cash management funds by at least 0.5 percentage points. However, different muual funds have different exit restrictions and hence, you need to be careful while choosing the plan. Because of the tax efficiency, they are far more efficient than fixed deposits.

STP in debt fund

Mutual fund investors can invest in a systematic transfer plan (STP) during an uncertain period. In this investment strategy, a lump sum or the existing equity fund corpus can be shifted into a debt, and transferred into equity on a daily or weekly basis. This will ensure equity investments on a sustainable basis and will also help you take advantage of the market volatility if any. Another advantage with this option is that you can continue the process of investing as long as you wish. If you come across a steep market correction after the results or Diwali, you can even transfer a larger chunk into equity.

Fixed deposits

One of the oldest options for debt investors, it can be considered even now if you are not in the tax bracket. Since the interest is taxed, it is not a very tax -efficient option but the disadvantage is negated by the easy access to the product. While going for a fixed deposit, stick to those who don't have a premature withdrawal penalty clause as you are considering the investment for a short term at the current juncture.

The strategy of shifting to debt is only part of the exercise as you need to revert to equity at the appropriate time. Failure to do might alter the portfolio complexion and can even rob you of the potential to earn higher returns over a period of time. If you don't have the discipline to do so, continue with your existing equity investment process as the markets look good in the medium term.

http://economictimes.indiatimes.com/features/financial-times/Debt-options-before-this-results-season/articleshow/5085925.cms

Are unprofitable AMCs safe?

Is investing in the funds of unprofitable asset management companies (AMCs) safe?
Your investments in mutual funds are not going to be directly affected by the profitability, or lack of it, of the AMC. In the worst case scenario, when the company has to wind up its business, it will liquidate its assets and distribute these among the unit holders at the applicable NAV.
At present, a few AMCs are profitable. This is a business where income accrues from the assets managed by the company. It takes time for a company to acquire sufficient asset size to break even. However, if a company stays unprofitable for a long time, it might cause upheaval in the management, and is a factor worth looking at while investing.
Why is it that the growth in net asset value (NAV) of income funds is not the same as that of prevailing interest rates? And, what’s the reason for the huge differences in returns of the top and the bottom performers?
-Haridas T
The returns for debt funds not only accrue from the interest income, but also from the price movements of fixed income instruments. While liquid funds derive most of their returns from interest income, short-term and medium-term debt funds primarily generate returns from trading of fixed income instruments, based on their assessment of the interest rate scenario. This also causes the return differential between different income funds.
I have invested in the post office monthly income scheme (MIS) for a monthly income. Can monthly income plans (MIP) in mutual funds give me higher guaranteed returns than the MIS, along with capital appreciation?
-Nitin Kanungo
Do not invest in MIPs if a guaranteed income is your priority. MIPs will invest about 10–20 per cent of their portfolios in equities, and are like conservatively positioned funds. Despite a portfolio primarily in fixed income instruments, there may be intermittent declines in the value of their investments.
Their equity portion helps them better the performance of pure debt funds in rising equity markets. In a time frame of more than three years, they can give you better returns than other debt investments and help beat inflation in a relatively stable manner.
The proposed New Direct Tax Code 2009 says ‘any income received in respect of the units of a mutual fund’ is ‘income not included in the Total Income’. Does this mean that if this tax code becomes applicable, all gains from a mutual fund will be tax-free?
-Anand H Bhagwat
Gains from mutual funds are divided into two parts: dividends and capital gains. Income in mutual funds refers only to the dividends distributed and does not include the capital gains.
Currently, all dividends from mutual funds are tax-free in the hands of the investor. However, dividends from funds other than equity funds are subject to dividend distribution tax (DDT). This will continue to be so. The capital gains will, however, be added to a person’s income and taxed accordingly.
Is it possible to switch from a growth option to the dividend option of the same ELSS while my investments are still locked-in?
-Easwer Chinnadurai
It is not possible. A switch between the growth option and the dividend option amounts to redemption from one option and fresh investment in the other. The only switch allowed during the lock-in period in an ELSS is between dividend payout and dividend reinvestment.
Value Research

http://www.business-standard.com/india/news/are-unprofitable-amcs-safe/372095/

INSURANCE

Panel for investors may moot fixed fee band for insurance advisors

NEW DELHI: Some time from now, a regulator will decide the fee that consumers ought to pay for the services of agents who sell financial products  like insurance policies. The inter-regulatory panel on investor protection headed by PFRDA chairman D Swarup is likely to advise the government to draw up a fee band for various financial products based on which consumers can pay for agent services.

That fee would replace the huge upfront commission that these agents now get from the investments made by their clients, often without their knowledge. The idea is to ensure that when the industry moves away from a hefty commission-based sales to a fee-based system, agents do not charge fee arbitrarily.

The proposed fee band for specific products may either be in absolute amounts—say between Rs 500 to Rs 5,000 or as a percentage of the investment made. It would depend on the product and the quantum of investment, said a person privy to the development.

The proposed Financial Well Being Board of India, a self-regulator for financial planners, will set the fee structure. Now financial firms, particularly, insurance companies take away up to 40% of a customer’s first year’s premium often without their knowledge to pay for the agents canvassing them—a practice which the government wants to stop.

Instead, it wants a more transparent way of customer paying a fee directly to the agents. That would be akin to buying a demand draft for which the consumer pays a separate fee rather than forfeiting a part of the draft amount without his knowledge.

The panel would finalise its recommendations by mid-October, its chairman D Swarup told ET. When the panel suggested last month that the upfront commissions embedded in the premium paid by the customer be cut to 15% immediately, to 7% next year and to nil by April 2011, insurance distributors protested sharply as it affected their current business model.

Bajaj Capital Ltd’s Vice Chairman and MD Rajiv Deep Bajaj told ET that hard work is needed to sell insurance, for which commercial incentives are needed. Consumers should be given the flexibility of deciding the mode of payment, he said. For rural penetration of insurance policies , incentives are essential. “Whenever we bring about a change, we must think of the commercial dynamics of that industry and implement it without causing permanent disruption,” he added.

The panel is expected to take this into account while finalising its report. “We have kept in mind the interests of investment advisors. We are only changing their revenue model; we are not scrapping their revenue stream,” Mr Swarup explained to ET.

The chairman also said that the panel would recommend ample time for agents to adjust to the new system. The committee’s initial suggestion was to give 18 months, but it will weigh the need for raising this at its final meeting later this month. “There are 118.8 crore consumers and 27 lakh investment advisors. The committee on investor protection has to see the larger interest,” said Mr Swarup.

http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/Panel-for-investors-may-moot-fixed-fee-band-for-insurance-advisors/articleshow/5087875.cms

Irda rejects FINWEB proposal

HYDERABAD: The insurance regulator Irda has shot-down a proposal to register all financial advisors with the Financial Well-Being Board of India  FINWEB

an agency to write rules on the common minimum standards for over 3 million sellers of insurance, pension and mutual fund products.

The proposal, aimed at protecting interests of 188 million investors in the country, features in a consultation paper of a panel set up by the High Level Committee on Financial Matters (HLCCFM), an apex forum for financial sector regulators.

Currently, the Irda has powers to license insrance agents and brokers. The proposal is being interpreted as a back-door entry for FINWEB to take over this function. Going by the consultation paper on ‘minimum common standards for financial intermediaries and financial education,’ FINWEB will also have a self regulatory arm to bring all financial advisors under one common standard.

But the Irda has opposed any new arrangement to create a new architecture for financial sector advisors. “The mandate of the insurance regulator is to find the fine balance between the duty to regulate, promote and ensure the orderly growth of the insurance business , re-insurance business and protect the interests of policy-holders. The insurance regulations have achieved this balance,” Irda chairman J Hari Narayan told ET.

An earlier panel set up by the HLCCFM and chaired by the former Irda chief CS Rao also favoured continuing the existing arrangements for financial intermediaries. The Irda holds that the recommendations are valid even now. “This is still a consultation paper. A meeting is scheduled later this month and we will consider Irda’s views before firming up our recommendations,” said D Swarup, chairman PFRDA who heads the panel set up by the HLCCFM.

The Irda’s dissent is also seen as a fall out of a vehement attack on ULIPs by mutual funds that compete with insurers. The consultation paper has recommended removing loads on all financial products by April 2011 to curb mis-selling. Loads are charges which investors have to bear while buying or selling financial products.

While pension products in the New Pension Scheme have no load, mutual funds have become load free from August this year. The paper has suggested slashing the up-front commission embedded in the premium no more than 15% (of the premium). This should fall to 7% in 2010 and nil by the 2011.

“The consultation paper presumes that every product has got a loading upto 40% during the premium paying period of 10-15 years and even extending upto 50 years, which is a fallacy. Similarly, the data high lapsation rate in the insurance sector is mis-leading as the consultation paper picked up data on just one private life insurer with a market share of less than 1%, “said Hari Narayan. A policy lapses when policy-holders stop paying the premium ahead of the maturity period.

The Irda has also countered the allegation that the growth in ULIPs was fuelled by mis-selling, saying it was not borne out by any analytical research. The recent cap on ULIP charges is meant to ensure greater transparency, he said.

The total premium collected by life insurers stood at Rs 2,21,434 crore in FY09 against Rs 2,01,070 crore in FY08. However, insurance penetration stood at a modest 4.6% in 2009. “There is need, as the paper argues, for a higher risk cover to be provided in a cost effective manner. But the consultation paper does not give any approach to achieve this financial objective,” the Irda has said.

http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/Irda-rejects-FINWEB-proposal/articleshow/5087859.cms

BANK

Banks want exclusive deals

Though the Insurance Regulatory and Development Authority (Irda) is considering open architecture, the insurance industry is divided over the issue.
The move, which would allow a bank to sell products of multiple insurance companies, is being opposed by most of the banks that have floated insurance ventures. State Bank of India, ICICI Bank, HDFC, Bank of India, Union Bank and ING are some of the banks, that have floated insurance underwriting ventures.
Of the 22 life insurance companies, eight are promoted by banks while of the 21 general insurance companies, three are bank-promoted.
Less than half a dozen banks sold insurance policies of their insurance subsidiaries. Many banks which did not have insurance subsidiaries sold policies of an insurance company that offered them a higher commission. Insurers anticipated that this could lead to an increase in premium paid to banks. Depending on the nature of the product insurers paid 2-22 per cent of the premium to banks as commission. For companies such as SBI Life, SBI accounted for as much as 30 per cent of the sales. ICICI Prudential Life had a lower share but wanted to push the level to around 25 per cent.
The regulator had formed a committee to look into the bancassurance model after a host of life and non-life insurance companies sought relaxation in the current rules for agency tie-ups that allowed an entity to be an agent for one life and one non-life insurance company. In an interview, J Hari Narayan, Irda’s chairman had said the committee had not decided on whether to allow agents to sell products of more than one company. Insurance companies promoted by banks are opposing multiple tie-ups. They have sent their opinion to the Life Insurance Council, the representative body of life insurance companies.
The managing director of a large private sector life insurance company, which is promoted by a large private sector bank, said, “A lot of control needs to be brought before going in terms of process structure before allowing open architecture.”
Opposing the idea of open architecture, K Sahay, CEO of Star Union Dai-ichi said: “This will develop unhealthy practices. Banks should be allowed to sell products of one insurance company if the regulator wants customers to be well informed, as it will lead to confusion. Every insurance company has minimum 25-30 products and banks don’t have a dedicated workforce.” Star Union Daiichi is promoted by Bank of India, Union Bank of India and Japan’s Dai-ichi Mutual Life.
“The market is not mature enough for open architecture. Any system should ensure that customers’ interests are protected. It will widen the scope but many things need to be put in place. There are different distribution models other than banks, which is doing well for companies,” said IDBI Fortis MD and CEO G V Nageswara Rao. In an interview last week, SBI Life Insurance MD and CEO M N Rao had told Business Standard that a bank should hawk the products of one insurer.
An insurance company, which is not a bank subsidiary take advantage of their promoter’s distribution channel. While Bharti AXA Life Insurance is using telcassurance, Future Generali is acquiring business through mallassurance. Lured by the distribution channel, customer base and reach of the banks, insurance companies not promoted by banks says open architecture will help them bring down their expenses.
“Eventually, that should be the way to go. Each insurer has to invest heavily on infrastructure. It would do good to support open architecture and to tie-up with banks. This will give more choice to banks and customers, as they have both reach and distribution. We are, however, investing in other channels and this move would only supplement that,” said Aegon Religare Life Insurance MD and CEO Rajiv Jamkhedkar.

http://www.business-standard.com/india/news/banks-want-exclusive-deals/372200/

State Bank of India revises deposit rates by 25 bps

With effect from 05 October 2009
State Bank of India (SBI) has announced that the Bank has revised downwards the Deposit Rates by 25 bps across all maturities effective from 05 October 2009.
The bank made this announcement during the trading hours today, 01 October 2009.

http://profit.ndtv.com/2009/10/01163420/State-Bank-of-India-revises-de.html

SEBI

Norms on IPO pricing, end use in the works