ESCORTS MUTUAL FUND

Launch 14 schemes compared with 19 during the recent slump.
Considering over 100 per cent price appreciation in the secondary market since March 9 this year, mutual fund (MF) houses have failed to cash in on the boom as they launched only 14 equity schemes to mobilise Rs 3,841 crore. Surprisingly, in a down market, fund houses had launched 19 equity schemes between April and August 2008 and mobilised Rs 2,489 crore.
The Securities and Exchange board of India’s (Sebi) order banning entry load and another order asking fund houses to differentiate new schemes from the existing ones acted as a barrier. After the Sebi order, distributors were reluctant to sell new fund schemes, while fund houses avoided relaunching of schemes, said Surajit Misra, national head (mutual fund), Bajaj Capital.
The participation of retail investors in new schemes was much lower this time as compared to the boom period of 2007 when they invested huge sums in both initial public offers (IPOs) and new fund offers (NFOs), Misra added. Retail investors seem to have changed their investment strategy by shifting focus from equity funds to IPOs or investing directly through the secondary market.
With a buoyant secondary market, 11 IPOs have hit the capital market this year so far and they have received tremendous response from retail investors. These investors applied for shares worth of Rs 11,327 crore and ,in turn, were allotted shares worth Rs 3,925 crore. The IPOs from NHPC (Rs 6,570 crore), Adani Power (Rs 2,518 crore) and Oil India (Rs 1,275 crore) were well received by retail investors, while the remaining eight received application worth of Rs 983 crore.
Sundeep Sikka, chief executive officer, Reliance Mutual Fund, said retail investors have become more selective now. Now, they check the track record and brand name of a fund house and look at the kind of product before investing. New and innovative products would definitely attract retail investors. Timing of the fund launch is also very important, Reliance Infrastructure fund was new and innovative theme and it were launched at the right time because of that it attracted large number of investors and able to moped up Rs 2,300 crore.
In the past, fund houses were getting good response for NFOs. In March 2005, when the Sensex was around the 7,000 level, 8 new schemes raised Rs 7,016 crore. In March 2006, Rs 10,228 crore was raised by 12 schemes when the Sensex moved above the 10,000 level. In January 2008, when markets hit an all-time high, 6 new schemes raised Rs 9,000 crore.

http://www.business-standard.com/india/news/fund-houses-fail-to-cash-inmarket-boom/372548/

Dept of Posts inks pact with fund managers

Our Bureau
New Delhi, Oct. 7 The Department of Posts has signed an agreement with UTI Asset Management Co Ltd and SBI Fund Management Ltd for operationalisation of investment of accretion to Post Office Life Insurance Fund (POLIF) and Rural Post Office Life Insurance Fund (RPOLIF).
The agreement was signed by Mr S.K. Sinha, Chief General Manager, PLI, on behalf of the Government and Mr U.K. Sinha, Chairman and Managing Director of UTI Asset Management Co Ltd, and Mr Achal Kumar Gupta, Managing Director and CEO of SBI Fund Management Pvt Ltd.
The net accretion of the POLIF/ROPLIF will now be invested as per the IRDA Investment guidelines. For this purpose, an investment board – chaired by member (PLI), Dr Uday Balakrishnan – has been set up at New Delhi. The fund managers will be operationalising the investment as per the direction of the investment board. For carrying out the day-to-day work of investment, an investment division has also been set up at Mumbai headed by the Chief Investment Officer.

http://www.thehindubusinessline.com/2009/10/08/stories/2009100851740600.htm

INSURANCE

ULIP service to come cheap

MUMBAI: If you were shopping for toothpaste and had to choose between a 250gm tube and another identical tube, but with 20% extra content for the same price. Which would you choose?

Insurance buyers for the next two months will have a similar choice to make. On offer are older plans, some of which do not yet meet the cap on charges imposed by the Insurance and Regulatory Development Authority’s (IRDA). At the same time, insurers are likely to introduce new or revised plans, compliant with new norms. It is a no brainer that returns under the plan with lower charges will be superior. The challenge is identifying the non-compliant plans.

Starting this month, unit-linked insurance plan (ULIP) holders are likely to be bombarded with communication from insurers on reduction in ULIP charges. This is because of IRDA’s strictures on capping ULIP charges on new launches, coming into force from October 1. In July this year, the insurance regulator had issued a directive to life insurers on putting a ceiling on their ULIP charges, except mortality/morbidity charges. As per the notification, the difference between the gross return and net return (gross return minus the charges) for policies with tenure of up to 10 years should not exceed 300 basis points, while this gap is to be restricted to 225 basis points for those over 10 years. The fund management charge for policies across maturities is capped at 135 basis points.

Therefore, if an individual is planning to buy a ULIP before December 31, he/she needs to scrutinise the product’s benefit illustration along these lines to ascertain if it is a new product launched under the new regime or an existing product that is yet to be restructured, in accordance with the guidelines. At present, though, life insurance companies are still in the process of filing new products with the regulator.

The combined effect of these limits is to ensure higher returns for ULIP holders, besides offering more transparency. “The yields will increase slightly (maximum of 1% per annum), and so will the minimum premiums, in some cases. Charging structures may also change to reduce the burden on small premiums,” informs Kotak Life Insurance appointed actuary Andrew Cartwright. Adds Future Generali India Life Insurance chief actuary Gorakhnath Agarwal: “Reduction in yield due to charges other than mortality/morbidity is to be discussed with the client as per the new IRDA circular. The prospective buyer will be able to identify it very clearly now.”

With these regulatory changes coming into play and the market on a rebound, the question on most prospective ULIP buyers’ mind is: Is this the right time to take the plunge? While financial planners recommend buying a life cover solely with the objective of getting protection in mind, if you have zeroed in on ULIP as the suitable wealth creation instrument, you can consider buying ULIPs once insurers launch new policies. “It would make sense to delay making the purchase till life insurers come up with products compliant with IRDA guidelines,” says Optima Insurance Brokers CEO Rahul Aggarwal.

http://economictimes.indiatimes.com/personal-finance/insurance/analysis/ULIP-service-to-come-cheap/articleshow/5099837.cms

BANK

RRBs to get farm debt waiver funds from govt by mid-2010

After having seen the impact of the Rs 60,000-crore farm debt waiver in the general elections, the government has planned to further spur the supply of money in rural areas by reimbursing the loan relief amount on a priority basis to regional rural banks (RRBs) and co-operative banks.
To ensure that these banks have adequate funds to lend to farmers, the finance ministry plans to reimburse them the entire amount by 2010 — exactly one year before commercial banks.
“Our priority is to first reimburse the RRBs and co-operative banks under the agriculture debt waiver and debt relief scheme announced in the Budget last year for 360,000 small and marginal farmers of the country. They have already received over 70 per cent of the total waived-off amount,” an official in the finance ministry, who did not want to be identified, told Business Standard. The government is planning to reimburse the entire amount to RRBs and co-operative banks by mid-2010. In 2008-09, it had released Rs 25,000 crore, of which Rs 17,500 crore was for RRBs and co-operative banks. The rest went to scheduled commercial banks. In the current financial year, out of the Rs 15,000 crore released, Rs 10,500 crore was for these banks and only Rs 4,500 went to scheduled commercial banks. The official said RRBs and co-operative banks were a priority because they are not as flush with funds as the commercial banks. The government will release Rs 12,000 crore in 2010-11 in the third installment under the scheme, of which about Rs 10,000 crore will go to RRBs and co-operative banks. The last and final installment of Rs 8,314 crore will be used to reimburse commercial banks. The government is also giving an interest of Rs 3,872 crore on the balance installments of the reimbursable claims of lending institutions.
The government has also recapitalised these banks so that farmers who have benefited from the scheme do not face any problems while approaching banks for fresh loans. The debt waiver scheme covered all agricultural loans disbursed by banks from April 1997 to March 2007, which became overdue in December 2007 and remained unpaid until February 2008.
For marginal farmers who own up to 1 hectare as well as for small farmers (1-2 hectare), there was a complete waiver of all such dues while, for other farmers, there was a one-time settlement scheme.
http://www.business-standard.com/india/news/rrbs-to-get-farm-debt-waiver-fundsgovt-by-mid-2010/372566/

TAXATION

Direct tax kitty rises 3.69% till September

Net direct tax collections grew by 3.69 per cent during the first six months of the current financial year on a year on year basis to stand at Rs 152,625 crore. They stood at Rs 147,197 crore during the April-September 2008 period. The growth in direct taxes is primarily guided by a 5.5 per cent rise in corporate tax collections, reflecting an increase in corporate income.
The direct tax collection so far accounts for 38.2 per cent of the revised target of Rs 400,000 crore set by the government for this financial year and 41 per cent of the original Budgetary target of Rs 370,000 crore. Finance Minister Pranab Mukherjee had in August revised the target upwards. Officials are confident that the new target will be met, considering that the fourth quarter sees a surge in tax collection.
 

Corporate tax collection grew by 5.55 per cent to Rs 1,00,572 crore, while personal income tax grew at 0.38 per cent to Rs 51,897 crore in the April-September 2009 period. During the second quarter (July-September) of this financial year, corporate tax collection grew by 6.39 per cent to Rs 64,863 crore, against the same period in 2008. It had grown by only 3.31 per cent in the first quarter. However, personal tax collection declined marginally by 2.77 per cent to Rs 28,117 crore during the second quarter, against the corresponding period in 2008.
The Central Board of Direct Taxes (CBDT) said in a press release that lower growth in net collections was mainly on account of higher tax refund outgo of 51.1 per cent at Rs 28,281 crore, against Rs 18,717 crore in the previous financial year.
Net direct tax collections during the first three months of the present year, at Rs.59,465 crore, rose 3.65 per cent from Rs 57,373 crore in the same period last year. Growth in corporate taxes was 3.31 per cent at Rs 35,709 crore, while personal income taxt, including FBT and STT, grew 4.38 per cent at Rs 23,780 crore.
Net collections in September grew by 3.1 per cent to stand at Rs 64,737 crore, as against Rs 62,788 crore in the corresponding period last year.
After receipt of the instalments up to the second quarter ended September 2009, advance tax collections stand at a net growth of 2.15 per cent, up from a fall of 6.17 per cent in the first quarter ended June 2009, against the corresponding periods in 2008. In the second quarter, the net growth in advance tax was 6.21 per cent. Corporate advance tax registered a significant growth of 12.24 per cent during the second quarter, up from a decline of 3.44 per cent in the first quarter.

http://www.business-standard.com/india/news/direct-tax-kitty-rises-369-till-september/372472/

SEBI

All eyes on SEBI norms for REITs

Ravi Ranjan Prasad
Mumbai, Oct. 6 Private equity investors in real estate projects are eagerly awaiting SEBI’s Real Estate Investment Trust (REIT) Regulations so that they get an exit option once their investments mature.
In the absence of REIT regulations, PE investors are unable to unlock the investments made in realty projects in the last four to five years. First the property market suffered price erosion last year and prices have been volatile.
An estimated $3 billion to $4 billion investments mostly at the project level, majority of which came through the FDI route, are awaiting exit options like REIT or real estate mutual funds (REMF).
“Private-equity funds that purchased real estate stocks at the top of the market, are already restructuring their investments and thus would like to avail themselves of easier exit options through REMFs and REITs whenever they find a suitable opportunity,” an analyst said.
REIT and REMF would be the formal way to exit, a person familiar with realty sector said.
REIT and REMFs’ investment generally are with a long-term view which will establish a vibrant real estate market and with retail investors’ participation exit options would not be limited to banks, institutions and HNIs, he said.
Though SEBI had issued draft REIT regulations almost two years ago in December 2007, it has not yet made up its mind on the final regulations.
Even in the case of real estate mutual fund (REMF) scheme, which was notified in May 2008, the regulator has held back permission to a couple of entities – HDIL Constructions and Kumar Housing Corporation.
Valuation of realty by accredited valuers is yet to be sorted out, since SEBI has not issued a list of real estate valuers.
REITs have become a preferred vehicle for investment in properties around the world. Global market for REIT is estimated at over $450 billion with Asia alone accounting for a $70-billion market share.
Concerns on account of how land banks as well as constructed properties – residential, commercial, etc. are valued, cannot be legitimate reasons to delay launch of REIT and REMF products, as benchmarks worldwide are available to Indian regulators, a realtor said.
“There is currently 45 million square feet of real estate stock in major Indian cities which is lucrative enough for REMFs or REITs,” Mr Pritam Chivukula, Principal-Real Estate, Brahma Capital Advisory Services Pvt Ltd, said.
But there are divergent views about REIT and REMFs in Indian market.
“With conditions in the real estate market not conducive, REIT and REMF are a distant possibility right now,” Mr Ramesh Jogani, CEO & Managing Director, Indiareit Fund Advisors Pvt. Ltd, said.
In fact, Indiabulls Real Estate has gone ahead and raised money by listing its REIT in Singapore through Indiabulls Properties Investment Trust in June Last year. DLF and Unitech too have plans to list REIT overseas but so far they have not taken off.
ING Mutual Fund has a REIT-based global real estate fund where Indian retail investors can invest, but it is just a feeder fund for the Luxembourg-based fund which operates like a REIT.
Meanwhile, financial institutions such as IL&FS and India REIT Fund Advisors Ltd have come up with portfolio management service based products which are similar to REIT. HDFC and Kotak Group too have PMS-based realty funds for HNI and institutional investors.
It is learnt that ICICI Venture is also planning a similar fund for big ticket investors.
But the fund size for the PMS based real estate funds are limited, ranging from Rs 500 to Rs 1,000 crore because of limited participation possible at the high entry level set for such investors, which is upward of Rs 20 lakh.
Even PMS based realty funds are looking at REIT/REMF as one possible exit option. “The Fund (Milestone II) can look into exiting its investments to REMF/REITs. In addition fund can also offer exit of its investments to HNIs, Banks, Institutions, NRIs, Foreign Bodies,” Milestone II offer documents says.
Since March 2009, the real estate space is buzzing with various fund raising moves by the corporates. First there was qualified institutional placements (QIP) by Unitech, DLF and some others listed firms.
Last week Emaar MGF, Sahara Prime City, Lodha Developers, Ambience Ltd and DB Realty filed applications with SEBI for initial public offering seeking to raise close to Rs 12,500 crore from the primary market.
Simultaneously with talk of economic recovery, several private equity investors are bringing fresh money to real estate projects. According to an estimate, around $7 billion have flown into real estate sector so far this year through QIP and PE investments.
Some of the realty developers have mobilized funds through the Mauritius route, companies sponsor India specific fund by getting investments from pension funds, endowment funds and other foreign investors. These funds go into special purpose vehicle of developers and real estate companies.
If the direct tax code were to come into effect from April 2011, the returns for QIPS, private equity funds or Mauritius based funds would be affected on account of uniform capital gains at 30 per cent without any concessions as currently available, an expert familiar with tax matters said.

http://www.thehindubusinessline.com/2009/10/07/stories/2009100750811000.htm