MUTUAL FUND
Net inflows continue in most MF segments |
The domestic fund market saw a substantial dip of 93 per cent in net inflows in the various schemes in February, compared with the earlier month. Courtesy, flow of redeemed money of the December quarter in January and profit booking in the equity segment of the later part of February, before the Union Budget.
The net inflows dipped to Rs 6,365 crore in February against Rs 97,242 crore in the previous month, according to the Association of Mutual Funds in India. At the same time, sales of mutual fund products also dipped to Rs 7.5 lakh crore from Rs 8.8 lakh crore during the period, a dip of over 14 per cent.
Naval Bir Kumar, CEO of IDFC Mutual Fund, said: “Dip in net inflow and overall sales is primarily due to the flow of redeemed money in December in the beginning of the current quarter in January.”
As a whole, though, barring gilt funds and liquid/money market funds, all fund categories — income funds, equity funds, equity linked saving schemes (ELSS), gold exchange traded funds — witnessed net inflows in February.
Net inflows started in January in equity schemes after a gap of five months, since the Securities and Exchange Board of India put a ban on entry load in these. To the relief of the industry, the trend continued in February, too. The segment saw net inflows rising up to Rs 1,514 crore in February from Rs 980 crore in January, a rise of 54.5 per cent.
“This, in fact, is a positive trend,” said Arindam Ghosh, CEO of Mirae Asset Mutual Fund. “Presently, there are two kinds of products which are being sold, more-tax saving products and unit linked insurance products,” he said. On the overall trend, he added, the growth dipped, as there were inflows in the insurance companies because of imbalance in commissions to the distributors.
Surajit Mishra, executive vice president at Bajaj Capital, said: “There has been profit booking on the equity side before the Budget, which impacted the sales. In January, almost 60 per cent of the redeemed money from the banks in December had come back, which pushed the sales up. However, in February we did not have that kind of flow.”
He added that with the corrections the market saw in February, money poured into the equity segment.
Income funds witnessed a net inflow of Rs 4,887 crore, which in January stood at Rs 106,092 crore. In case of balanced funds, net inflow further rose to Rs 88 crore from Rs 56 crore in the previous month, whereas ELSS funds managed Rs 335 crore, a rise of Rs 67 crore.
The average of assets under management in February was marginally up by 2.6 per cent to Rs 7.8 lakh crore from Rs 7.61 lakh crore on a month-on-month basis.
http://www.business-standard.com/india/news/net-inflows-continue-in-most-mf-segments/387917/
MIPs: Conservative yet rewarding
Iwant to invest a lumpsum and I am looking for returns higher than what debt gives over a year. I am also willing to take on some risk (maximum 10 per cent capital erosion). Would monthly income plans (MIP - growth options) serve my purpose? If not, suggest alternatives?
-Mark Lobo MIPs are conservatively positioned funds which invest about 10-20 per cent of their portfolio in equities. Their equity portion helps them better the performance of pure debt funds in rising markets. Considering your willingness to earn more than debt funds and preparedness to accept some capital erosion, you can consider investing in MIPs. However, do not park your the entire amount in one go, invest via the systematic investment route. You may choose any funds from our choice set below. |
Alternatively, you could also look at arbitrage funds, since they give returns like debt funds but are more tax-efficient than both MIP or debt funds.
I want to invest Rs 25,000 in equities for 10 years, but with minimum risk. I expect an annual return of 12-13 per cent on my investment. Is it right to invest in funds focused on public sector companies because of the PSU disinvestment and other reforms expected in the coming years?
-Suhas First, avoid investing the entire amount at one go. Instead, invest it on a monthly/quarterly basis via a systematic investment plan (SIP).
This will help average out the cost of investing.
A long-term horizon will help you even out the market volatility, that is, the downside risk in equities will get reduced in the long run. As on March 3, the equity diversified category of mutual funds delivered an annualised 10-year return of around 15 per cent. However, conservatively, you could expect a return close to 10-12 per cent.
Investing in PSU funds can be interesting because various reforms expected, as you pointed. But, due to the restrictions on their investment mandate, such funds will be barred from significant investments in other companies, thereby missing possible opportunities. Also, the two actively managed funds in this category, Religare PSU Equity and Sundaram BNP Paribas PSU Opportunities, are too new to be judged by performance. If this is your only planned investment in mutual funds, we suggest you stay away from such thematic funds. Instead, choose diversified equity funds such as HDFC Top 200, DSPBR Top 100 Equity and Magnum Contra.
I want to invest Rs 4,000 in mutual funds through a monthly systematic investment plan (SIP). Suggest good funds for investing Rs 500-1,000 in each fund every month for about three to five years.
-Rajesh Kumar K We assume you are starting off as a mutual fund investor. Before choosing any fund, you must decide an appropriate asset allocation and then invest accordingly. Also, keep your portfolio compact, by investing in only two-three funds. Choose equity diversified funds such as HDFC Top 200, DSPBR Top 100 Equity, Canara Robeco Equity Diversified or BSL Frontline Equity. For debt funds, choose Fortis Flexi Debt and Canara Robeco Income.
Alternately, you may even invest in balanced funds such as HDFC Prudence or DSPBR Balanced. Such funds automatically take care of your desired asset allocation.
I am working in a private sector company and want to own a house. I want to invest in mutual funds to buy the house costing around Rs 30 lakh. I want to get good return of may be 12 per cent, so that I could book the house in six months. I have around Rs 4 lakh to invest. Where should I invest for six months, so that my money is safe and I get a better return than bank fixed deposits?
-Baliram Gupta Mutual fund investments are not meant for the short-term. For six months, you should keep your money in bank fixed deposits. Bank deposits, unlike mutual funds, would ensure your capital is safe and provide assured fixed returns. So, do not take a chance of capital erosion or incurring loss.
BIRLA SUN LIFE '95
This is an open-ended balanced scheme and did well in recent times. Its five-year annual returns are 21 per cent (as on March 3), five per cent higher than its category. However, the fund had its ups and downs.
The fund takes contrarian stands occasionally and focuses on growth stocks. Half the equity portfolio comprises mid- and small-cap stocks, but the fund manager plays safe by ensuring that the portfolio is not concentrated. It has had an average of 42 stocks in the past one year with no stock holding more than six per cent of the portfolio.
On the debt front, the fund opts for G-Secs and bonds. The debt portfolio is actively managed, but the fund manager likes to stretch the maturity and go for duration calls.
By its mandate, the fund keeps its equity allocation between 50-75 per cent. The upper limit was tested a few times, but averaged 69 per cent in the past year. The equity portfolio has never fallen below 55 per cent. It is used to earn returns, while debt is used to safeguard in testing times.
Overall, the fund's long-term performance makes it a good pick.
DSPBR BALANCED
This fund had quite a slow beginning. It didn't put in a noteworthy performance in the first three years of its launch, but has shown commendable consistency in the past three. It delivered more than the category average in bull runs and shed less than the category in bear phases. The fund plays it safe and does well.
It is an open-ended scheme, with a mandate to invest 65-75 per cent in equity and the rest in debt. The fund followed this mandate at most times. The fund manager likes to have a diversified portfolio in terms of both stocks and sectors. Last year, the equity portfolio had an average of 73 stocks, but the allocation to the top five holdings was below the category average. The manager likes to invest heavily in mid- and small-cap stocks. There have been times when large-caps accounted for less than half of the equity portfolio.
The fund manager plays it safer on the debt side. He sticks to high-quality, low-maturity papers, investing primarily in floating rate papers and government bonds. He refrains from investing in debentures and commercial papers. This approach allows the fund manager to balance the credit as well as interest rate risk.
This is a safe fund and will not give you headline-grabbing returns, but it won't take you through earth-shattering downfalls either.
HDFC PRUDENCE
In the first 10 years of its existence, 1996 to 2006, this fund beat the category average every single year. However, doubts were raised when it performed averagely in 2007 and 2008. It then silenced every sceptic by the best performance in its category in 2009.
The fund manager has been at the helm of this scheme since its inception. He likes to stick to his beliefs, the current trends don't bother him. The fund's mandate allows equity allocation to be between 40-75 per cent. The fund has stayed within its equity limit, averaging 70 per cent since mid-2006. The manager had a high equity allocation in 2008, most of it in lower caps. This was why the fund performed averagely in 2008, but also why it topped the category in 2009.
The manager keeps the portfolio well diversified with respect to both stocks and sectors. Over the past year, the average number of stocks have been around 60. Since 2006, the allocation to the top five stocks did not go beyond 20 per cent.
On the debt side, the fund manager takes small exposures in structured debt and G-Secs. However, on the whole, he prefers bonds and debentures of the financial services sector.
This fund is the biggest in its category, and also the best. It reaped benefits for its investors with the five-year returns of 24 per cent (as on March 3), against the category's 16 per cent. These numbers make the fund a very good pick.
Our Bureau
Chennai, March 8
ICICI Prudential MF with Prudential Asset Mgmt (Singapore) Ltd, Prudential Asset Mgmt (Hong Kong) Ltd and PCA Securities Invstment Trust Co Ltd sold 3.9 lakh shares of IVRCL Infrastructures & Projects Ltd on January 29, according to insider trading data available with BSE. This translates to 0.29 per cent equity of the company.
In a closed-ended fund, investments can be made only during the new fund offers (NFOs) and no new investor can apply to buy mutual fund units once the it closes .
Mumbai: India’s Rs7.6 trillion mutual fund industry, seeking ways to counter a ban on entry loads they charged customers to pay for marketing and distribution costs, is bringing back closed-ended schemes that lock in investments for a predetermined tenure.
At least two fund houses have won regulatory approval to launch three tranches of such schemes each in the next couple of months. Birla Sun Life Asset Management Co. Ltd and IDFC Asset Management Co. Ltd are marketing the schemes as investment plans aimed at protecting capital.
Franklin Templeton Asset Management (India) Pvt. Ltd, which has been offering such schemes, currently has a similar plan open.
In a closed-ended fund, investments can be made only during the new fund offers (NFOs) and no new investor can apply to buy mutual fund units once the it closes. These funds have a fixed tenure and investors can liquidate their investments only on maturity.
Although these schemes are listed, they are illiquid, making withdrawals difficult and expensive. An investor cannot easily withdraw money in an emergency. Also, the investor can’t book profits and get out of the scheme even if he or she takes a view that the markets have peaked.
In August, market regulator Securities and Exchange Board of India (Sebi) barred fund houses from charging investors an entry load—a non-refundable charge that went to pay for marketing and distribution expenses.
Fund houses, prodded by distributors desperate for higher commission, are now turning to closed-ended versions in the hybrid space of products that invest in a combination of debt and equity, say industry executives. Such schemes allow fund houses to incentivise agents better as they are sure that the money will stay locked in for a fixed term.
The first tranche of schemes from Birla Sun Life and IDFC are already open for subscription. Subsequent tranches will be raised over the next couple of months, officials at these fund houses said. According to industry estimates, these funds are targeting between Rs2,000 crore and Rs2,500 crore.
Birla’s BSL Capital Protection Oriented Fund Series 1, which was to close on 5 March, has been extended to 10 March. IDFC’s Capital Protection Oriented Fund-Series 1 is open through 24 March.
Ashwin Patni, portfolio manager (structured products) at IDFC Asset Management, said the fund house plans to come out with such closed-ended schemes at regular intervals so that investors get used to these products and learn to use them as an alternative to fixed deposit investments.
The closed-ended category went out of vogue after Sebi in early 2008 abolished 6% amortization of issue expenses, typically spread over three-five years. Amortization is a process of recovering the acquisition cost over a period of time. Following the rule, not a single closed-ended scheme raised money until now, according to data from the Association of Mutual Funds of India.
What is it?
When you submit your application form to your mutual fund (MF) or its registrar’s office, it is passed through a little machine that stamps the time and day of submission. This process is called time-stamping and is the first acknowledgement or proof of your investment.
What does it signify?
The Securities and Exchange Board of India mandates electronic stamping on all application forms. If the stamp shows a time of up to 3pm, you get to invest at the same day’s net asset value (NAV). But it is after 3pm, you will get the NAV of the next day. For liquid funds, if you invest up to 12 noon you get previous day’s NAV and same day’s NAV if after 12 noon.
Why is it important?
Say, you travel a great distance to make it before 3pm and invest in the nick of time. The next day the market rises sharply and you would expect to make gains. But your account statement shows that you made investments the next day (when equity market had already appreciated). Your time-stamp is your proof of the time and day of your actual investment.
What’s the cut-off time?
The cut-off time for equity funds and all other debt funds other than liquid funds is 3pm. For liquid funds, the cut-off time is 12 noon. Most online brokerages would advance their cut-off times by around an hour since they are intermediaries and need to send your details to fund houses within the official cut-off time.
http://www.livemint.com/2010/03/08223252/Dejargoned--MF-timestamping.html
INSURANCE
Read my Ulips, it’s a better long-term bet
Reacting to the criticism against Ulips, the insurance regulator has brought about a number of changes in the way insurance companies structure these plans. At the same time, there have been changes in the tax structure on Ulips in the Union Budget. Both these measures have worked out in favour of the investor. If you are looking at a 20-year term, ULIPS charges work out to be more favourable than mutual funds.
Change in the charge structure: How does it impact you?
In July 2009, IRDA had mandated life insurers to impose a ceiling on their ULIPS charges (except mortality/morbidity charges, which is the cost of providing insurance protection). 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 was capped at 135 basis points. Following the directive, insurers filed for revised products and phased out the older products by December 2009. “The recent regulatory cap on charges has enhanced the attractiveness of Ulips for customers through higher IRRs and incentives such as guaranteed loyalty additions for staying invested over the long term,” says Vishal Gupta, director of marketing, Aviva Life Insurance.
Change in the service tax: How does it impact you?
The finance minister has tweaked the service tax on Ulips, which could increase the net yield by up to 4%. The cost structure of Ulips include policy administration charges, premium allocation charges, mortality charges and fund management charges besides the surrender and fund-switching charges.
As per last year’s Budget, an investor was paying a service tax of 10% on all of these components. Now, this tax would be levied only on the fund management charges. This implies the other cost components would be freed from tax, which in turn would add to the internal rate of return (IRR).
This change would effectively create a level-playing field for Ulips and mutual funds, which are treated as competitors among the financial products, say insurers. In mutual funds, the service tax is charged only on the asset management company’s (AMC) fees. This change in the service benefit would be passed onto both the new as well as old customers as the revised service tax would be applicable on every premium amount paid once the finance bill is passed.
Are you investing in Ulips for the right reason?
If you have seen any of the ULIPS advertisements, it refers to child’s education or retirement planning. The clear underlying message here is the tenure of the investment. Even insurers define Ulips as a long-term insurance-cum saving instrument and hence, the minimum recommended policy term is 10 years.
Even if the policy has an option for partial withdrawals or surrender, you have to look at least 10 years to make some decent gains. “Under the new charge structure, the insurer earns the bulk of charges within five years as there is no year on year cap in charges. Even if the policy permits early exit, you will see significant erosion in capital,” says Suresh Sadagopan, a certified financial planner.
What should be your risk appetite?
Ulips have something to give to all investor categories because of high flexibility in altering asset allocation. “Every Ulip has an all debt to a healthy debt-to-equity ratio to an all equity component. So every investor can identify with a Ulips. But if an investor is looking at a 10-year horizon, I recommend pure equity-oriented ULIPS,” says Pranav Mishra, senior vice-president & head — Products, ICICI Prudential Life Insurance.
Are Ulips the best investment option?
If you are investing for less than 10-years, go for mutual funds. For longer-term investments, Ulips are a better option following the reduction in the charge structure. Agents, however, mis-sell Ulips by positioning them as a short-term premium payment instrument.
“It also becomes easier to tap a customer as you are not forcing him to get into a long-term contract. The concept of a lock-in and annual/quarterly frequency in premium payments is not very popular with customers. Hence, most agents find it easier to sell Ulips than a simple term plan,” says Gaurang Shah, managing director of Kotak Life Insurance.
http://economictimes.indiatimes.com/personal-finance/insurance/analysis/Read-my-Ulips-its-a-better-long-term-bet/articleshow/5660737.cms
Weather-Based Crop Insurance Scheme hits roadblock in HRY |
The pilot ‘Weather Based Crop Insurance Scheme’ (WBCIS), which is aimed to insure wheat farmers in Haryana against adverse weather conditions, seems to have hit a snag, as the state government failed to issue the notification regarding implementation of the scheme.
Even as the last date for insuring farmers under the scheme —March 9 — draws closer, the notification is still being awaited by the implementing agencies.
The Haryana government had earlier decided ‘in principle’ to launch the WBCIS for wheat and, to begin with, implement the scheme in two blocks of Tohana in Fatehabad district and Babain in Kurukshetra district. The task of implementation was given to Agriculture Insurance Company of India (AICL) and ICICI Lombard.
The risk period of the scheme was from March 10 to April 15 with 1.5 per cent premium to be given by farmers and the rest to be equally shared by the Centre and the state government. The amount of insurance protection under the scheme is Rs 15,000 per acre for wheat farmers. The scheme is mandatory for the farmers who have taken loan from banks or other financial institutions.
The WBCIS aims to protect wheat growing farmers in Haryana from adverse weather conditions during the months of March and April.
HDFC Bank, ICICI, Kotak hike rates for home, car loans
MUMBAI: HDFC Bank, ICICI Bank and Kotak Mahindra have raised rates on home and auto loans, reflecting the stiffening market that may lead to the Reserve Bank of India (RBI) hastening with a lift in its policy rates from record lows to fight inflation.
These private banks have raised lending rates by as much as 100 basis points, following the hardening of market rates even as the central bank holds on to low rates to avoid derailing the economic growth. A basis point is 0.01 percentage point. RBI has started slowly rolling back some liquidity-boosting measures and has indicated it may not hesitate to raise rates. It raised the cash reserve ratio by 75 basis points in the last review.
“Auto loan rates have been marginally increased by 50 bps,” said Pralay Mondal, country head (retail assets & credit cards), HDFC Bank. “The increase in the cost of funds is being passed on to customers. It has been done to protect our margins.”
Banks are raising lending rates to maintain their profitability after they increased deposit rates in the last few months to attract funds that were beginning to go to higher-yielding stocks and real estate. Investors are seeking higher returns instead of safe bank deposits since prices are running far ahead of the interest rates that banks are offering, leading to negative real returns. With the partial rollback of tax cuts in the budget, cars, televisions, petrol and travel have become expensive, which could fuel inflation further. Food prices are rising at 18%.
The first signs of interest rates hardening came from the bond markets where yields on the benchmark 10-year bond have risen 10-12 bps since the budget. Since the RBI announced the 75 basis point hike in cash reserve ratio requirement, yields have gone up by 40 bps. The yield on the 10-year government securities are close to 8%, up nearly 3 percentage points from their lows last year. Times of easy money are slowly becoming history.
“We had increased fixed deposit rates by 75 bps in the past couple of months. The increase in lending rates is to align it with the rise in deposit rates,” said Kamlesh Rao, head (retail assets), Kotak Mahindra Bank.
Axis Bank was the first to cease its teaser loan rates in February after the monetary policy. The bank was offering a fixed rate of 8.25% for two years. Others who pulled out cheap loans are the government-owned Union Bank and Canara Bank.
But bigger ones that are flush with funds such as State Bank of India and Punjab National Bank and even Bank of Maharashtra are continuing with teaser rates, which the RBI has warned against. Teaser rates loans are those where interest rates are low in early years, but progressively climb, making it tough for consumers to repay. This is similar to the US sub prime loan regime which caused the global credit crisis.
The increase in lending rates, which comes just before the end of the financial year, is an indication that lenders are bracing for an end-of-the-year tightening in markets. Liquidity is scarce in mid-March when corporates remit their advance taxes to the government.
http://economictimes.indiatimes.com/personal-finance/loan-centre/home-loans/home-loans-news/HDFC-Bank-ICICI-Kotak-hike-rates-for-home-car-loans/articleshow/5644906.cms
SEBI
Physical F&O settlement may be optional |
Stock exchanges are likely to make physical settlement in equity derivatives optional after the green signal from the market regulator on allowing this mode to be introduced.
Instead, it seems that they will allow investors to choose between physical settlement and the present system of settlement in cash.
Last week, the Securities and Exchange Board of India (Sebi) gave in-principle approval to physical settlement. Sebi was acting on a Bombay Stock Exchange proposal that had been pending since 2002, when stock futures and options (F&O) were started.
According to sources, the exchanges are working on a system that will require investors to mention their choice of settlement at the time of entering into a contract. Since the F&O segment has grown exponentially over the years, it is believed the exchanges do not wish to move away completely from cash settlement, to ensure that growth continues.
“The board decided that we would discuss with the stock exchanges and institute a proper mechanism for physical delivery in the derivatives markets,” said Sebi Chairman CB Bhave last week. “(Option or compulsory) will be decided during discussions with the stock exchanges,” he added.
“The exchange would leave it to market forces,” said a source. “So, for instance, while one set of futures and options in X company would be cash-settled, another set of contracts would be available for settlement with the underlying shares,” he said. “Obviously you cannot tweak the index F&O market.”
Another person privy to the developments said the contracts to be physically settled would be an “entirely different instrument with distinct codes and a separate set of risk containment measures”.
“The exchanges will study global best practices and then make modifications to make them relevant in the Indian context,” he added.
Under physical settlement, the contract has to be settled with underlying shares instead of cash equal to the price of these shares. In India, the debate between physical and cash settlement in the derivatives arena has been going on since these instruments were launched.
It is said introducing physical settlement is easier now due to the existence of a stock lending and borrowing mechanism. Incidentally, the failure of this market to take off has been attributed by many to absence of physical settlement in single-stock futures and options.
According to industry players, another factor that will make introduction of physical settlement easier is the facility of cross-margining, wherein margin requirements in the derivatives segment are reduced if one holds shares in the cash
Price Waterhouse (PW), an Indian arm of the global consultancy firm PricewaterhouseCoopers, whose partners got embroiled in the Satyam accounting fraud, failed to get a reprieve from the stock market regulator, the Securities and Exchanges Board of India (Sebi).
The market regulator rejected a PW appeal for early winding up of the enquiry instituted against it on the Satyam issue. PW said it might renew its appeal to Sebi.
The latter’s move strengthens the position taken by the country’s auditing standard setting body and regulator, the Institute of Chartered Accountants of India (ICAI).
It was the ICAI’s board of discipline that had decided last month that there was enough evidence for an indictment against the PW auditors concerned.
“It (Sebi decision) strengthens our view. Our (ICAI) board of discipline had informed our disciplinary committee that the auditors are prima facie guilty,” said Amarjit Chopra, president, ICAI. The next step is for ICAI’s disciplinary committee to send notices to the PW auditors charged by law enforcement agencies in the fraud case.
Chopra said this could happen only after the auditors, under judicial remand, are in a position to argue their case before the committee.
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