Sector data
124 funds below Rs 10
35 over three years old
Theme, tax and mid-caps suffer
That many stocks have plunged below their IPO prices isn’t surprising, as we take stock of markets in 2008. But did you know that mutual funds too have suffered the same fate? After the market rout, about one in three equity funds (124 out of 342 funds) today sport a NAV that is below Rs 10.
The surprising fact is that not all of these were new funds flagged off at the height of the bull market. As many as 93 of these funds are more than a year old, and as many as 35 of them have been around for more than three year
Investors usually shy away from funds with a higher net asset value; but it turns out they have fared better in the market crash.
Funds that sported unit values of less than Rs 10 fell an average 53.9 per cent this year, while those above Rs 10 fell by a lower 49.5 percent. But the gulf between the best and worst performing funds in the “sub-10” category was wide.
Birla Sunlife International Equity, contained its decline to 32 per cent, but the worst performer – JM Emerging Leaders – suffered a near-79 per cent erosion in its unit price.
The most-affected funds were theme or sector specific funds and tax-planning funds. Infrastructure and energy were key themes that witnessed a free fall this year.
New funds flagged off in the last 12-18 months saw their unit prices trimmed by 50-65 per cent.
Tax-planning funds too were prominent losers, thanks to several of them being biased towards mid-cap stocks. Even “contra” funds did not manage to buck the trend and lost between 42-70 percent.
One key lesson for the investor from 2008 is that if you are invested in theme funds, it may be best to quit when you are ahead.
If you can’t take an active approach, best to stick with plain vanilla diversified funds. Plus, a fund with a low NAV may be as risky as one with a higher NAV.
So before you rush to buy a fund at a “low” net asset value, evaluate it as you would evaluate one with a “high” NAV.
Wednesday, December 31, 2008
Friday, December 19, 2008
Debt funds fancied as bank rates head for slide
Debt funds schemes offered by mutual funds could turn out to be the investors' favourite as deposit rates of banks are set to fall in the coming weeks. Within debt funds, bonds that carry sovereign guarantee of the government such as the Reserve Bank of India bonds and infrastructure bonds, score over other such schemes, including income funds that largely invest in bonds issued by private corporations.
"Government securities ( G-Sec) is best placed for medium to long-term considering safety and view on interest rate," said Amar Pandit, a Mumbai based financial planner. Over the past one-year the G-Secs, also referred to as gilt funds, have generated an average return of 19 per cent while the income funds have generated 10.8 per cent.
Income funds invest mostly in corporate bonds. As banks reduce deposit rates, the returns on corporate bond also follow a similar pattern. "G-sec yields have come down from 9.5 per cent to 6 per cent over the past six months and it is expected to go down further in the view of global volatility," said Nilesh Shah, deputy managing director, ICICI (ICICIBANK.NS) Prudential AMC.
Experts said investors should check the portfolio before investing. "The only concern is on the credibility front and it should be above AA rated bonds," said Surya Bhatia, delhi based financial planner. The debt funds when invested for over a year get the indexation benefit and are liable for tax at the rate of 10 per cent and there is no exit load.
"Government securities ( G-Sec) is best placed for medium to long-term considering safety and view on interest rate," said Amar Pandit, a Mumbai based financial planner. Over the past one-year the G-Secs, also referred to as gilt funds, have generated an average return of 19 per cent while the income funds have generated 10.8 per cent.
Income funds invest mostly in corporate bonds. As banks reduce deposit rates, the returns on corporate bond also follow a similar pattern. "G-sec yields have come down from 9.5 per cent to 6 per cent over the past six months and it is expected to go down further in the view of global volatility," said Nilesh Shah, deputy managing director, ICICI (ICICIBANK.NS) Prudential AMC.
Experts said investors should check the portfolio before investing. "The only concern is on the credibility front and it should be above AA rated bonds," said Surya Bhatia, delhi based financial planner. The debt funds when invested for over a year get the indexation benefit and are liable for tax at the rate of 10 per cent and there is no exit load.
Debt funds offer higher returns in November
The debt funds have been under Sebi s lens in the recent past. But, interestingly, they have offered the highest returns to the investors in November, 2008. The monthly returns of the gilt funds were the highest at 3.07% followed by the long-term bond funds and liquid funds. However, the returns from the equity funds were negative due to the meltdown in the equity market, Crisil research report on MF industry for November found. According to Crisil s monthly review on the mutual fund industry, the open-ended income funds and liquid funds were the key beneficiaries with the former seeing net inflows of almost Rs 190 billion while the close ended income schemes (fixed maturity plans) saw a net outflows of a similar number. The AUMs of liquid funds increased by Rs 175 billion, a growth of 25 per cent over the October-end. The decline in the equity AUM of around Rs 70 billion was largely on account of mark-to-market losses. The share of debt funds AUMs in the domestic mutual fund continued to rise in 2008 from 61 per cent in January, 2008 to 71 per cent in November, 2008. Of the 35 mutual fund houses analysed, only two saw a growth in average AUM in November 2008. Tata MF registered 3 per cent and UTI MF witnessed a marginal growth in its AUM in November. With regard to the regulatory initiatives, Crisil report said that RBI has taken several initiatives to enhance the liquidity into the system. Sebi has sealed an early exit route in the closed ended mutual fund schemes and made it mandatory for the close ended schemes to be listed at the bourses. Sebi also decided that for such close ended schemes, the underlying assets will not have a maturity beyond the scheme s expiry , the Crisil report said
Individuals' share in asset value of MFs down 5 pcBy
The share of individuals in the total net asset value of all mutual funds declined to 37 per cent at end-March 2008 from 42 per cent in the previous year, while that of corporates, institutions and others rose to 57 per cent from 50 per cent for the same period, according to the annual report on the trends and progress of banking in India, 2007-08. Explaining the significant change, Prasunjit Mukherjee, a Kolkata-based mutual fund analyst, said, Fixed maturity plans (FMPs) as a category came in the fund industry some time in January 2008. They have a double indexation facility and the entire corporate base invested in FMPs of relatively longer duration. Individual investors invest mostly in equity-oriented funds and some portion in debt funds. Funds mobilised by mutual funds net of redemptions during 2007-08 rose sharply by 63.6 per cent to Rs 1,53,801 crore and the net assets under management of the mutual fund industry increased by 54.8 per cent during 2007-08. This significant increase in net mobilisation of resources by mutual funds was partly due to tax arbitrage. The interest from bank deposits is taxed at the marginal rate of taxation. The equity oriented mutual fund schemes are exempt from long-term capital gains, while short-term capital gains are taxed at 15 per cent. Dividend distribution from the money market and liquid funds is subject to 25 per cent tax plus surcharge and for schemes other than money market and liquid schemes; dividend distribution tax is 12.5 per cent plus surcharge. In the wake of the tight liquidity conditions since June 2008, mutual funds have faced redemption pressures. Mutual fund schemes also witness large outflows during advance tax payments. Fund facts • Share of individuals dropped to 37% at end-March 2008 while that of corporates, institutions and others rose to 57 per cent from 50 per cent • Individual investors invest mostly in equity-oriented funds and some portion in debt funds • Funds mobilised by mutual funds net of redemptions during 2007-08 rose sharply by 63.6 per cent to Rs 1,53,801 crore • The net assets under management of the mutual fund industry increased by 54.8 per cent during 2007-08
Tuesday, December 16, 2008
Jargon Buster
Jargon Busters
Average Portfolio Maturity and Duration
Bond and gilt funds are coming back into vogue – after a long dry spell of over 4 years. There was a time in the early part of this decade, when advisors sold only debt funds and concepts like average portfolio maturity and duration were closely tracked and hotly debated. What is duration and how is it different from average portfolio maturity? Why is duration a key parameter in deciding which fund is likely to perform better in a falling interest rate environment?
Generally, when interest rates fall, bond prices rise. A bond that has many more years to go before repayment of principal generally rises more that a short term bond, when interest rates fall.
A very basic example can illustrate why. Lets say you bought a 1 year Government security at par for Rs. 100 which pays out 10% interest at the end of the term. You now expect a cash inflow of Rs. 110 at the end of the term. Now, due to a change in market conditions, interest rates fall dramatically and the Government is now issuing 1 year paper at a 6% interest rate. If you were to sell your bond in the market, the buyer would expect a yield of 6%. The buyer will be willing to pay around Rs. 103 for your bond – as that is the price at which his yield would be approximately 6% - which is what he will get in the market today.
If on the other hand you had bought a 5 year zero-coupon bond from the Government which pays 10% interest (cumulative), you were expecting to get Rs. 161 from the Government at the end of your 5 year holding period. Now, the same situation happens and interest rates collapse to 6%. A buyer for this bond will now be willing to pay you around Rs. 120 for this bond – because that’s the price at which the yield works out to 6% - the current market yield.
As we can see, for the same rate of fall in interest rates (a simplistic case, no doubt), a longer dated bond’s price rises much more than a shorter dated bond’s price. But, as we will see below, it is not the tenure of the bond that matters – it is the maturity and duration that matter in determining its price.
Average Portfolio Maturity (APM)
If you bought a 5 year bond in the market 3 years after it was originally issued, there will be only 2 years left for the bond to mature. That is the maturity of the bond – and the maturity is far more relevant for a buyer because his cash flows will accrue over the next 2 years.
If you have a portfolio of bonds, each with its own maturity period, you will then calculate an average portfolio maturity (typically weighted by the individual amounts invested in each bond) to arrive at the APM of the portfolio.
A portfolio with a higher APM should normally rise more as a reaction to a reduction in interest rates, as compared to a portfolio with a lower APM. We saw in the simplistic example above, why this happens. That’s one reason why APM of a bond fund is closely tracked in a declining interest rate environment.
Duration
A higher APM is usually a good sign in a declining interest rate environment. But, is there a way one can estimate how much a fund’s NAV could rise for every 1% fall in interest rates? If you could estimate that, you will be able to decide which bond fund is best positioned to rally on a cut in interest rates.
This is where the concept of duration comes into play. Duration is calculated as the weighted average number of years to receive each cash flow in a bond. If a bond pays out interest every six months and is redeemed in say 4 equal annual instalments from years 7 to 10, it will have a smaller duration to a bond that is redeemed in a lumpsum at the end of 10 years, even if the interest is paid out semi-annually in the second bond as well. Why is this relevant to us? Because, duration of a financial asset measures the sensitivity of the asset’s price to interest rate movements. Therefore, duration of a bond fund portfolio can give you a good approximate of how much the NAV can appreciate for every 1% reduction in interest rates.
If a bond fund’s average duration is 4 years, and you expect a 2% reduction in interest rates, you can reasonably expect the NAV to appreciate by 4 times 2 --> 8% to reflect the 2% reduction in interest rates.
When you see fund fact sheets of bond and gilt funds, you will see both terms expressed : average portfolio maturity and duration. You will observe that duration is often far less than the APM expressed. That’s because each bond has different profiles of cash flows over the life of its residual maturity : all of which are captured in the term called duration.
Now, if you find two portfolios with identical APMs but the second has a higher duration and you expect interest rates to decline, which fund will you choose?
Average Portfolio Maturity and Duration
Bond and gilt funds are coming back into vogue – after a long dry spell of over 4 years. There was a time in the early part of this decade, when advisors sold only debt funds and concepts like average portfolio maturity and duration were closely tracked and hotly debated. What is duration and how is it different from average portfolio maturity? Why is duration a key parameter in deciding which fund is likely to perform better in a falling interest rate environment?
Generally, when interest rates fall, bond prices rise. A bond that has many more years to go before repayment of principal generally rises more that a short term bond, when interest rates fall.
A very basic example can illustrate why. Lets say you bought a 1 year Government security at par for Rs. 100 which pays out 10% interest at the end of the term. You now expect a cash inflow of Rs. 110 at the end of the term. Now, due to a change in market conditions, interest rates fall dramatically and the Government is now issuing 1 year paper at a 6% interest rate. If you were to sell your bond in the market, the buyer would expect a yield of 6%. The buyer will be willing to pay around Rs. 103 for your bond – as that is the price at which his yield would be approximately 6% - which is what he will get in the market today.
If on the other hand you had bought a 5 year zero-coupon bond from the Government which pays 10% interest (cumulative), you were expecting to get Rs. 161 from the Government at the end of your 5 year holding period. Now, the same situation happens and interest rates collapse to 6%. A buyer for this bond will now be willing to pay you around Rs. 120 for this bond – because that’s the price at which the yield works out to 6% - the current market yield.
As we can see, for the same rate of fall in interest rates (a simplistic case, no doubt), a longer dated bond’s price rises much more than a shorter dated bond’s price. But, as we will see below, it is not the tenure of the bond that matters – it is the maturity and duration that matter in determining its price.
Average Portfolio Maturity (APM)
If you bought a 5 year bond in the market 3 years after it was originally issued, there will be only 2 years left for the bond to mature. That is the maturity of the bond – and the maturity is far more relevant for a buyer because his cash flows will accrue over the next 2 years.
If you have a portfolio of bonds, each with its own maturity period, you will then calculate an average portfolio maturity (typically weighted by the individual amounts invested in each bond) to arrive at the APM of the portfolio.
A portfolio with a higher APM should normally rise more as a reaction to a reduction in interest rates, as compared to a portfolio with a lower APM. We saw in the simplistic example above, why this happens. That’s one reason why APM of a bond fund is closely tracked in a declining interest rate environment.
Duration
A higher APM is usually a good sign in a declining interest rate environment. But, is there a way one can estimate how much a fund’s NAV could rise for every 1% fall in interest rates? If you could estimate that, you will be able to decide which bond fund is best positioned to rally on a cut in interest rates.
This is where the concept of duration comes into play. Duration is calculated as the weighted average number of years to receive each cash flow in a bond. If a bond pays out interest every six months and is redeemed in say 4 equal annual instalments from years 7 to 10, it will have a smaller duration to a bond that is redeemed in a lumpsum at the end of 10 years, even if the interest is paid out semi-annually in the second bond as well. Why is this relevant to us? Because, duration of a financial asset measures the sensitivity of the asset’s price to interest rate movements. Therefore, duration of a bond fund portfolio can give you a good approximate of how much the NAV can appreciate for every 1% reduction in interest rates.
If a bond fund’s average duration is 4 years, and you expect a 2% reduction in interest rates, you can reasonably expect the NAV to appreciate by 4 times 2 --> 8% to reflect the 2% reduction in interest rates.
When you see fund fact sheets of bond and gilt funds, you will see both terms expressed : average portfolio maturity and duration. You will observe that duration is often far less than the APM expressed. That’s because each bond has different profiles of cash flows over the life of its residual maturity : all of which are captured in the term called duration.
Now, if you find two portfolios with identical APMs but the second has a higher duration and you expect interest rates to decline, which fund will you choose?
Thursday, December 4, 2008
Insurnace Merger & Acquisition
New Delhi, Dec. 3 The Insurance Regulatory and Development Authority (IRDA) is pitching for consolidation in the Indian insurance industry. The IRDA Chairman, Mr J. Hari Narayan, said today that the regulatory authority was working on guidelines for mergers and acquisitions (M&As) in the insurance sector.“There is a need to evolve M&A guidelines. Given what is happening across markets, it may be an opportune time for insurance industry to consider M&As. But in India we do not have within the insurance regulatory roadmap (framework) appropriate guidelines in this regard. I think we need to evolve some of them and we are working on them”, he told a FICCI conference on insurance here. A consolidation in the industry is expected to help improve competitiveness of the players besides providing increased benefits to customers. Since the opening up of the insurance sector, the number of participants in the industry has gone up from six insurers (including Life Insurance Corporation of India, four public sector general insurers and General Insurance Corporation, as the national re-insurer) in 2000 to 42 insurers operating in the life, non-life and re-insurance segments as of today. During 2008-09, registration had been granted to three companies in the life segment. At the conference, Mr Hari Narayan noted that insurance companies would be getting into an asset-liability mismatch of “varying degrees of intensity as we go along”. He highlighted that the lack of availability of long-term securities in the market might impact certain kinds of liabilities that would arise in the future. “This is one issue that we would be taking up with the Finance Finistry at an appropriate time”, Mr Hari Narayan said. The IRDA Chairman asked the insurance companies to use the opportunity of this downturn to get their house in order (improve treasury management performance etc) and build foundation for future growth, which he said would help double penetration of insurance in the country.He also raised the issue of variation in management expenses ratio among the life insurance companies that have been in operations for at least five years. On the issue of changes in solvency regime, Mr Hari Narayan felt that it was perhaps “premature” or may even be “imprudent” at this point of time to expect wide-ranging or significant changes in the solvency regime in the Indian insurance sector. Mr Hari Narayan also said that IRDA was looking at rationalising the insurance intermediary sector.
Monday, December 1, 2008
Analysi of Pharma Fund
Pharma Funds are sectoral fund predominantly investing in the pharma or related companies. These funds aim to provide the investors maximum growth opportunity through equity investment in stocks of Pharma sector. Pharma funds that were considered a contrarian bet, have also assumed an envious place amongst the equity fund categories by losing the least. The category average of pharma funds posted the negative returns of 29.42% underperforming the BSE Healthcare index, which lost around 25.50% over one year period ended 26 November 2008. However, Pharma funds have outperformed the broad market with the BSE Sensex losing 53.10% in this period.
During the same period all other sub categories under equity category registered more than 50% erosion in their category average in one year period.The pharma sector category recorded net asset of Rs 183.15 crore as on the 31 October 2008, 35% less than the net assets of Rs 286.05 crore as on 30 April 2008. Except Auto (net assets increased by 1.06%) and index fund ( a fall of 13%) category all other equity sub categories reported a fall in net assets higher than the pharma category. Equity diversified fund assets diminished by 45%.
UTI - Pharma & Healthcare Fund is an open-ended growth scheme investing in stocks of companies engaged in the research manufacture or marketing op Pharmaceuticals - bulk drugs, OTC products, medical equipment and accessories, personal healthcare products and also companies owning/managing hospitals. The fund is now continuing the asset worth of Rs 43.29 crore. It has highest exposure in sun pharma, Cipla and Glaxo.Franklin Pharma Fund is an open ended growth fund with the primary investment objective to achieve long term capital appreciation through exclusively investing in Pharmaceutical/Life sciences. The fund is now managing about Rs 35 crore and it has highest exposure in Lupin, Cadila Healthcare and Dr Reddys Laboratories.
During the same period all other sub categories under equity category registered more than 50% erosion in their category average in one year period.The pharma sector category recorded net asset of Rs 183.15 crore as on the 31 October 2008, 35% less than the net assets of Rs 286.05 crore as on 30 April 2008. Except Auto (net assets increased by 1.06%) and index fund ( a fall of 13%) category all other equity sub categories reported a fall in net assets higher than the pharma category. Equity diversified fund assets diminished by 45%.
UTI - Pharma & Healthcare Fund is an open-ended growth scheme investing in stocks of companies engaged in the research manufacture or marketing op Pharmaceuticals - bulk drugs, OTC products, medical equipment and accessories, personal healthcare products and also companies owning/managing hospitals. The fund is now continuing the asset worth of Rs 43.29 crore. It has highest exposure in sun pharma, Cipla and Glaxo.Franklin Pharma Fund is an open ended growth fund with the primary investment objective to achieve long term capital appreciation through exclusively investing in Pharmaceutical/Life sciences. The fund is now managing about Rs 35 crore and it has highest exposure in Lupin, Cadila Healthcare and Dr Reddys Laboratories.
Thursday, November 27, 2008
All About FMps
Understanding Fixed Maturity Plans (FMPs)
(1) What are Fixed Maturity plans?
(2) FMPs do not guarantee returns but their returns are fairly predictable
(3) What are FMP maturity periods?
(4) Can I withdraw before maturity?
(5) What to look out for?
(6) What to look out for?
(7)Risk Factors
(1) What are Fixed Maturity plans?A Fixed Maturity Plan (FMP) is a fixed income scheme and generally is 100% equity free. FMPs have a fixed life and a definite maturity date i.e. they are closed ended schemes and hence the name Fixed Maturity. Post the maturity date the fund ceases to exist and your investment along with the appreciation is automatically returned back to you.
(2) FMPs do not guarantee returns but their returns are fairly predictableThough Fixed Maturity plans do not guarantee returns they are relatively more predictable in their returns. Here’s how.As investments generally do not flow in or out during the tenure of the scheme it allows the Fund manager of the FMP to lock into a pre-decided fixed instrument (could be debentures, Commercial Paper, Certificate of Deposit, Gilts i.e. securities issued by the Government of India.) and hold on to it till the expiry of the instrument. Quite naturally the maturity profile of this fixed income instrument would be similar to the maturity profile of the scheme thus lending FMPs their relative predictability. Thus unlike an open ended fixed income fund, the fund manager here generally does not trade.
(3) What are FMP maturity periods?FMPs come in various maturities. Typical maturity periods are 90 day, 180 days, yearly (though the maturity tends to be slightly more than a year to avail of double indexation benefits), 3 years etc. A 90 day FMP simply means a FMP with a maturity of 90 days.
(4) Can I withdraw before maturity?FMPs that have a maturity of more than 90 days, have to provide investors specific exit dates where investors can withdraw. But this comes at a price. These exit dates are pre-decided and known beforehand.You can withdraw only after paying an exit load i.e. a penalty for early withdrawal as the fund manager may have to break the scheme’s investment in an otherwise locked-in instrument thus entailing transaction costs and in an extreme scenario even a decline in returns of the portfolio as new instruments may or may not yield the earlier yields.
(5) What to look out for?Though FMPs have a definite maturity, the credit quality of the portfolio is crucial. Credit quality simply means if the issuer of the fixed instrument that the fund manager chooses to invest in is reputable or not. AAA is the rating that is issued to a reputed borrower. Logically a better quality portfolio should yield you less than a portfolio which compromises on portfolio for returns.
(6) FMPs are less taxingDividends declared in FMPs are completely tax-free in your hands though the fund deducts a Dividend distribution tax of 14.1625% at source.
Saturday, November 22, 2008
MF NAVs bounce back sharply on surge in mkts
Equity diversified NAVs bounced back sharply but the volumes dipped on Friday. MF NAVs ended with positive advance:decline ratio of 168:7, as it was a relief rally in the Indian markets, after fall in last seven consecutive sessions. Short covering in heavyweights and positive global markets lifted the benchmark indices higher. Huge buying was seen in power, oil & gas, capital goods, banking, telecom and technology stocks.
The Sensex shot up 464.20 points or 5.49%, to settle at 8,915.21. The 50-share NSE Nifty shut shop at 2693.45, down 5.50% or 140.30 points over previous close.
All sectoral funds advanced. BSE IT, Bankex, Auto, Healthcare and FMCG indices were up by 4.85%, 4.56%, 2.31%, 1.75% and 1.68%, respectively.
Equity diversified NAVs bounce back sharply
All sectoral funds advance
Check out the mutual fund gainers & losers
Among the equity diversified funds, the top gainers were JM Multi Strategy Fund (G) up 6.81%, Reliance Equity Advantage Fund - Retail Plan (G) up 4.96% and Reliance Quant Plus Fund - Retail Plan (G) up 4.73%. The top losers were Birla Sun Life International Equity Fund - Plan A (G) down 2.72%, Escorts Leading Sectors Fund (G) down 2.05% and Escorts Infrastructure Fund (G) down 1.29%.
Among the tax saving funds, the top gainers were LIC MF Tax Plan (G) up 4.66%, Birla Sun Life Tax Relief 96 (G) up 3.45% and DBS Chola Tax Saver Fund (G) up 3.44%. The only loser was Escorts Tax Plan (G) down 0.21%.
Among the sector funds, the top gainers were UTI Services Industries Fund (G) up 4.53%, JM Telecom Sector Fund (G) up 4.12% and UTI Banking Sector Fund (G) up 3.70%. The only loser was Sahara Banking and Financial Services Fund (G) down 0.09%.
Among the balanced funds, the top gainers were LIC MF Unit Linked Insurance Scheme up 3.69%, Sundaram BNP Paribas Balanced Fund (G) up 3.07% and ING Balanced Portfolio (G) up 2.82%. The top losers were Escorts Opportunities Fund (G) down 1.05% and Escorts Balanced Fund (G) down 0.92%
Wednesday, November 19, 2008
MFs' concerns eased in November
The crisis in the mutual fund industry seems to have eased. CNBC-TV18 has learnt that the Sebi Chairman assessed their liquidity situation last evening.
According to sources at the Securities and Exchange Board of India, or Sebi, liquidity concerns of MFs have eased. The net inflows have been across equity and debt in November so far. Sebi Chairman CB Bhave has assessed the situation with leading Mutual Funds on Monday evening.
Some MFs have transferred real estate assets to Asset Management Companies (AMCs) reducing risk to schemes. MFs are confident of selling assets in case of redemptions.
The UTI Chairman, UK Sinha has said that the crisis is over and there is no panic anymore. There are stronger inflows in November.
AP Kurian, Chairman AMFI has said that the MFs have repaid Rs 16,000 crore of Rs 22,000 crore borrowed from special window. The inflows are strong in liquid and liquid-plus schemes in November.
According to sources at the Securities and Exchange Board of India, or Sebi, liquidity concerns of MFs have eased. The net inflows have been across equity and debt in November so far. Sebi Chairman CB Bhave has assessed the situation with leading Mutual Funds on Monday evening.
Some MFs have transferred real estate assets to Asset Management Companies (AMCs) reducing risk to schemes. MFs are confident of selling assets in case of redemptions.
The UTI Chairman, UK Sinha has said that the crisis is over and there is no panic anymore. There are stronger inflows in November.
AP Kurian, Chairman AMFI has said that the MFs have repaid Rs 16,000 crore of Rs 22,000 crore borrowed from special window. The inflows are strong in liquid and liquid-plus schemes in November.
Tuesday, November 18, 2008
MutualFund Highlights
Key Findings: · On account of aggravated liquidity crunch world over and continuous redemption pressure on global hedge funds, FIIs have turned net sellers for the 6th month in a row for Rs. 153.47 bn. October month witnessed highest FIIs outflow in this year and on a cumulative basis since January 2008 FIIs outflow from Indian equity market stood at Rs. 515 bn. (~$12 bn.).· Relentless selling from FIIs and lack of parallel buying from DIIs and retail investors led to an abrupt fall in Sensex and Nifty, which have touched 52 week lows of 7697.39 and 2252.75 respectively. · In the current month till 12th November 2008, FIIs were net buyers to the tune of Rs. 1707 cr. perhaps on account of SEBI and FM's proposed measures to compel FIIs to reverse their overseas lending and borrowing positions and furnish the details on same on a weekly basis.· During October 2008, DIIs were net buyers for a mere Rs. 14.31 bn. as against FIIs selling pressure of Rs. 153.47 bn. On a M-o-M basis magnitude of selling is rising on FIIs part and to counter effect the same DIIs buying magnitude is plummeting owing to reducing cash balances. In current month so far DIIs were net sellers for Rs. 567 cr. · DIIs reported a massive erosion of 18.33% in their AUM size on a M-o-M basis to Rs. 4.31 trln. as compared to Rs. 5.28 trln. · For the month ended October 2008, certain fund houses have not declared their cash and equity exposure in full, the same which has been tabulated by us in this report. · As on 31st October 2008, MFs had Rs. 200.58 bn. In cash which constitutes only about 19.11% of the total equity corpus of Rs. 1.05 trln. In order to inject liquidity and restore confidence in the financial market, global central bankers have taken various coordinated monetary and fiscal measures by announcing series of bail out and stimulus packages and reduction in interest rates. On domestic front RBI and SEBI have taken following soothing measure:-· Cut in CRR and Repo Rate to 5.5% and 7.5% respectively, and reduction in SLR to 24%;· Relaxation by RBI in ECB norms for infrastructure sector;· Easing of creeping acquisition norms by SEBI to enable promoters to increase their stake up to 75% against 55% earlier, without SEBI's prior approval.· Increase in interest rate ceiling by RBI for NRI's rupee deposits to attract more NRI deposits and liquidity.
CLSA India
ICICI Bk & SBI fail to Roll-over Offshore Inter-Bank Loans It is increasingly clear to GREED & fear that the prevalent practice by Western governments of guaranteeing bank deposits and bank bonds is having very unfortunate consequences for those emerging market banking systems where governments are less willing to engage in such panicky policy making. Thus, GREED & fear heard in India last week that ICICI and SBI were recently not able to roll over their offshore interbank loans because their bonds have not yet been formally guaranteed by the Indian government. Similarly, it has to be wondered whether the apparent freeze in trade finance, in terms of the unwillingness to extend funding against letters of credit, is being caused or at least aggravated by a similar insidious regular arbitrage. This is, of course, why these blanket guarantees are so dangerous even as the supposedly responsible establishment media continue to defend such action on the pathetic argument that governments have no other option. What should be happening, of course, is that bad banks should be allowed to fail meaning that deposit flows would surge to the good banks, thereby awarding them for good behaviour. If this is clearly not happening, as the grotesque “Northern Rock” example shows, it does not mean that the “guarantee” policy is without risk. For the more the guarantees extend, the more depositors might wonder if the guarantees mean anything. This can be seen by assessing total bank liabilities in a country compared with the same country’s GDP. Iceland is the well known disaster story, whose bank liabilities are nearly nine times its GDP. This compares with six times in Switzerland and 1.1x in America. But there are plenty of other examples where it would not be so easy to honour the guarantee. Such a spectacle of a run on the global banking system may sound far fetched. But it is the direction in which the world is heading if governments persist in this stampede to guarantee. Such blanket guarantees do not represent tough political decision making. Rather they represent the easy way out, consistent with the complete lack of discipline associated with the current US dollar paper standard. To state the obvious, this paper standard continues to live on borrowed time. The now serious, and so far more worth watching, CNBC showed an interesting chart on Wednesday. This was the percentage decline in US financial stocks since it was announced that these stocks were getting taxpayer funding under the Troubled Asset Relief Program (see Figure 8). GREED & fear cannot imagine a more condemning indictment of TARP which clearly remains, to put it kindly, a programme in a high degree of flux For now GREED & fear’s hoped for relief counter-trend rally is clearly not happening. One explanation must be the complete lack of clarity about what TARP is meant to be. The desire for a new administration with a “fresh” approach is almost palpable. Mortgage relief is likely to be a priority. GREED & fear heard one proposal this week where qualifying applicant would receive a US$ 30,000 downpay check freebie and a 30-year mortgage from the Federal Housing Finance Agency (FHFA) fixed at 3.99%. With an average home price estimated at around US$ 180,000 that could clear 2.5m homes or one quarter of the 10m inventory of foreclosed homes.Whatever the exact details of the final policies implemented, this is likely to be the direction in which policy is heading. Finally, despite growing evidence of a thaw in the credit markets, GREED & fear has to admit that short-term Treasury bill yields remain ultra low reflecting continuing extreme risk aversion. Thus, the US three-month Treasury bill now yields only 0.15% (see Figure 9). In this sense America is already Japan.
BenchMark MF Unevils S&P CNX 500 Fund
Benchmark Mutual Fund house has launched Benchmark S&P CNX 500 Fund. It is an open ended index scheme. The new offer period (NFO) will be open for subscription from 17 November to 15 December. The face value of new issue is Rs 10 per unit.
The investment objective of the scheme is to generate capital appreciation through equity investments by investing in securities which are constituents of S&P CNX 500 Index in the same proportion as in the index.
The scheme offers two options viz. growth and dividend option. Dividend option further offers dividend payout and dividend reinvestment facility.
The minimum application amount will be Rs 10,000 and in multiples of Re. 1 thereafter. And the minimum amount for the subsequent purchase will be Rs 1000 and in multiples of Re. 1 thereafter. The scheme seeks to collect a minimum target amount of Rs 1 crore during the NFO period.
The scheme will invest 90%-100% in securities constituting S&P CNX 500, derivative on the securities constituting S&P CNX 500 with medium to high risk profile. It invests upto 10% in money market instruments, G-Secs, Bonds Debentures and cash at call with low to medium risk profile.
The scheme would invest in derivatives instrument when it is unable to buy any stocks which it is required to invest as per its investment objective or whenever it is beneficial to take exposure in derivatives instead of the equity security.
The schemes exposure in derivative instruments shall be restricted to 10% of the net assets of the scheme.
The scheme will not levy any entry load.
Exit load: For investment less than Rs 2 crore, the scheme charges 1.50% of an exit loads if redeemed within 1 year from the date of allotment. 1.00% if redeemed after 1 year but within 2 years from the date of allotment. 0.50% if redeemed after 2 years but within 3 years from the date of allotment. And it will not charge any exit if redeemed after 3 years from the date of allotment.
For investments of Rs 2 crore and more, the scheme will charge 0.50% of an exit load if redeemed upto 3 months from date of allotment and nil for the redemption made after 3 months from the date of allotment.
The benchmark index for the scheme would be S&P CNX 500 Index
Vishal Jain will be the fund manager for the scheme.
The investment objective of the scheme is to generate capital appreciation through equity investments by investing in securities which are constituents of S&P CNX 500 Index in the same proportion as in the index.
The scheme offers two options viz. growth and dividend option. Dividend option further offers dividend payout and dividend reinvestment facility.
The minimum application amount will be Rs 10,000 and in multiples of Re. 1 thereafter. And the minimum amount for the subsequent purchase will be Rs 1000 and in multiples of Re. 1 thereafter. The scheme seeks to collect a minimum target amount of Rs 1 crore during the NFO period.
The scheme will invest 90%-100% in securities constituting S&P CNX 500, derivative on the securities constituting S&P CNX 500 with medium to high risk profile. It invests upto 10% in money market instruments, G-Secs, Bonds Debentures and cash at call with low to medium risk profile.
The scheme would invest in derivatives instrument when it is unable to buy any stocks which it is required to invest as per its investment objective or whenever it is beneficial to take exposure in derivatives instead of the equity security.
The schemes exposure in derivative instruments shall be restricted to 10% of the net assets of the scheme.
The scheme will not levy any entry load.
Exit load: For investment less than Rs 2 crore, the scheme charges 1.50% of an exit loads if redeemed within 1 year from the date of allotment. 1.00% if redeemed after 1 year but within 2 years from the date of allotment. 0.50% if redeemed after 2 years but within 3 years from the date of allotment. And it will not charge any exit if redeemed after 3 years from the date of allotment.
For investments of Rs 2 crore and more, the scheme will charge 0.50% of an exit load if redeemed upto 3 months from date of allotment and nil for the redemption made after 3 months from the date of allotment.
The benchmark index for the scheme would be S&P CNX 500 Index
Vishal Jain will be the fund manager for the scheme.
KYC Norms
By Research Desk Nov 17, 2008
I have made investments in different mutual funds, not investing more than Rs. 50,000/- in any one of them. My doubt is whether I can invest more than Rs. 50,000/- in a particular fund if the amount of each investment is less than Rs. 50,000/- as per the KYC (know your customer) requirements. Many investment consultants have told me that if each investment in the same fund is less than Rs 50,000/- at a time KYC compliance is NOT required. Is it so? Suppose I set up an SIP of Rs. 5,000/- for, say, 24 months, the total investment in that particular fund will be more than 50,000/-. Can I do that without KYC compliance? -Asim Kumar
Yes, you can make the investment more than Rs 50,000 in a particular mutual fund scheme. According to market regulator SEBI guidelines, all investors who want to make an investment of Rs 50,000 or more in a mutual fund scheme will be required to complete the Know Your Customer (KYC) process. This would also apply to SIP investment, but only if each SIP installment amount is greater than or equal to Rs 50,000. It is the amount invested at a single time that is taken up for consideration rather than the total amount invested over a period.
In above quoted example, you can do that without KYC compliance since the SIP amount is less than Rs 50,000.
I have made investments in different mutual funds, not investing more than Rs. 50,000/- in any one of them. My doubt is whether I can invest more than Rs. 50,000/- in a particular fund if the amount of each investment is less than Rs. 50,000/- as per the KYC (know your customer) requirements. Many investment consultants have told me that if each investment in the same fund is less than Rs 50,000/- at a time KYC compliance is NOT required. Is it so? Suppose I set up an SIP of Rs. 5,000/- for, say, 24 months, the total investment in that particular fund will be more than 50,000/-. Can I do that without KYC compliance? -Asim Kumar
Yes, you can make the investment more than Rs 50,000 in a particular mutual fund scheme. According to market regulator SEBI guidelines, all investors who want to make an investment of Rs 50,000 or more in a mutual fund scheme will be required to complete the Know Your Customer (KYC) process. This would also apply to SIP investment, but only if each SIP installment amount is greater than or equal to Rs 50,000. It is the amount invested at a single time that is taken up for consideration rather than the total amount invested over a period.
In above quoted example, you can do that without KYC compliance since the SIP amount is less than Rs 50,000.
Edelweiss to Launch an Arbitrage Fund
By Research Desk Nov 18, 2008
To diversify its offering Edelweiss Mutual Fund has filed an offer with SEBI to launch Edelweiss Arbitrage Fund, an open-end equity scheme.
Arbitrage funds make profit through simultaneous purchase and sale of an asset in order to profit from a difference between the spot and future prices of exchange traded equities.
This fund will offer two different plans, Protector Plan and Booster Plan with different portfolios. Both the plans will invest in arbitrage opportunities. The difference between these two plans is that, the Protector Plan will have a fully protected portfolio but the Booster Plan will have equity exposure limited to 5 per cent of the total asset.
The Protector Plan will allocate minimum 65 per cent of its assets in equity and equity related instruments and up to 35 per cent in debt and money market instruments. The Booster Plan will spread its asset across equity and equity related instruments and derivatives up to 100 per cent, debt and money market instruments up to 35 per cent and debt derivatives up to 20 per cent.
Both the plans will have no entry load. The exit load under both the plans will be charged at 1 per cent for redemption within 180 days of the allotment of the units and 0.25 per cent for redemption request after 180 days but before and including 365 days of the allotment of the units. Under the trigger facility provided by the fund, an investor can generate any event or action in advance, which may be related to time or specific action, the activation request for partial redemption will attract an exit load of 0.25 per cent if the investor is holding units for less than 180 days.
The fund will be benchmarked against CRISIL Liquid Fund Index. It will be managed by Mr. Gaurav Khandelwal. He has an overall experience of five years in securities market and prior to joining Edelweiss Mutual Fund, he was working with Edelweiss Securities Limited managing Options and Arbitrage trading desk.
Arbitrage funds are ideal for risk averse investors. These funds are more tax efficient than debt funds as they are treated in line with equity funds and they are less volatile in nature but their returns are more or less in line with the debt funds. This is the reason; this fund category does not draw much attention of the investors. Currently there are fourteen funds in the Arbitrage category.
Edelweiss Mutual funds started its operation in September 2008 and currently manages three funds in its debt category but it does not have any equity fund. The fund house has three offer documents pending for approval in equity category; Edelweiss Absolute Return Equity Fund, Edelweiss Diversified Growth Equity Fund and Edelweiss Nifty Enhancer Fund.
To diversify its offering Edelweiss Mutual Fund has filed an offer with SEBI to launch Edelweiss Arbitrage Fund, an open-end equity scheme.
Arbitrage funds make profit through simultaneous purchase and sale of an asset in order to profit from a difference between the spot and future prices of exchange traded equities.
This fund will offer two different plans, Protector Plan and Booster Plan with different portfolios. Both the plans will invest in arbitrage opportunities. The difference between these two plans is that, the Protector Plan will have a fully protected portfolio but the Booster Plan will have equity exposure limited to 5 per cent of the total asset.
The Protector Plan will allocate minimum 65 per cent of its assets in equity and equity related instruments and up to 35 per cent in debt and money market instruments. The Booster Plan will spread its asset across equity and equity related instruments and derivatives up to 100 per cent, debt and money market instruments up to 35 per cent and debt derivatives up to 20 per cent.
Both the plans will have no entry load. The exit load under both the plans will be charged at 1 per cent for redemption within 180 days of the allotment of the units and 0.25 per cent for redemption request after 180 days but before and including 365 days of the allotment of the units. Under the trigger facility provided by the fund, an investor can generate any event or action in advance, which may be related to time or specific action, the activation request for partial redemption will attract an exit load of 0.25 per cent if the investor is holding units for less than 180 days.
The fund will be benchmarked against CRISIL Liquid Fund Index. It will be managed by Mr. Gaurav Khandelwal. He has an overall experience of five years in securities market and prior to joining Edelweiss Mutual Fund, he was working with Edelweiss Securities Limited managing Options and Arbitrage trading desk.
Arbitrage funds are ideal for risk averse investors. These funds are more tax efficient than debt funds as they are treated in line with equity funds and they are less volatile in nature but their returns are more or less in line with the debt funds. This is the reason; this fund category does not draw much attention of the investors. Currently there are fourteen funds in the Arbitrage category.
Edelweiss Mutual funds started its operation in September 2008 and currently manages three funds in its debt category but it does not have any equity fund. The fund house has three offer documents pending for approval in equity category; Edelweiss Absolute Return Equity Fund, Edelweiss Diversified Growth Equity Fund and Edelweiss Nifty Enhancer Fund.
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