For Transparent Insurnace-Let insurers go public early.

Insurance companies going public should be transparent in disclosing their assets and liabilities to prospective investors. So should all companies raising money from the public, for which regulation already exists. For the insurance industry, the sector regulator, Insurance Regulatory and Development Authority, has identified the specific kind of disclosures needed.
These relate to the companies' assets and liabilities, intrinsic value of their present business, agreements with foreign promoters, product offerings and investment performance of unit-linked insurance plans and so on. Companies that do not comply with the regulator's norms should be debarred from going public.

The government should, in addition, ease the rule that mandates an insurance company to go public only after 10 years of operations. Insurance companies need a lot of capital to grow their business. A larger life insurance business will mean more people taking life covers.

This will improve insurance penetration in this sorely underinsured country. More money will also be available to finance construction of roads, ports, airports, towns and other infrastructure. Infrastructure needs long-term funds and a large chunk of the needs can be met only by insurers and pension funds, whose liabilities have a long maturity profile.

The money raised through public offers would give insurance companies the capital they need to grow their business. A growing insurance business would generate investible funds for long-gestation infrastructure projects. There would be positive spinoffs for domestic promoters of insurance joint ventures as well — they would not have to depend on their foreign joint venture partners to bring in funds.

It would also widen choice for retail investors. The capital market regulator also has to be a facilitator and allow insurance companies to raise money from the public, even if these companies make losses. The regulator allows other lossmaking companies to go public if they follow the compulsory book-building method for price discovery.

A similar facility can be accorded to the insurance industry as well. Discerning investors can be trusted to deal with the risk associated with such issues.
  
Retail investors also need to make sense of the disclosures. It would help if institutional investors and credit rating agencies analysing the financial strength of insurance companies make the analysis public.

Market looks beyond fourth quarter for leg up

 Market looks beyond fourth quarter for leg up

Analysts and market watchers are already looking beyond corporate results for the fourth quarter even though it has a full week to go.

Any hint of earnings for the next fiscal, through management guidance or otherwise, would help them decide if the benchmark indices have the strength to pull higher. “The market has started looking at FY11 earnings, which are expected to be better than the current year,” says Dhiraj Sachdev, vice-president and fund manager at HSBC Global Asset Management. “The earnings for the current quarter have already been partially discounted in the current index levels. The markets are likely to look beyond these figures to FY11 for cues,” says Mallinath Madineni, CEO, Fa Capital Advisors. Expectations on earnings are running high, with market participants seeing growth in excess of 20% next fiscal. “We may see FY11 earnings at around Rs 1,045 (per share for the Sensex), which is around 23% growth over this year,” says Naresh Kothari, president, Edelweiss Capital. Sandip Sabharwal, CEO - portfolio management services, Prabhudas Lilladher is looking at a 25-30% growth. However, worries remain on the effect interest rate hikes would have on the bottomlines of companies. “The latest rate hike by the Reserve Bank of India (RBI) was unexpected. One might see a further 50 basis points increase soon. This increases the borrowing cost for corporates and could affect profitability,” says Madineni. RBI had on March 19 raised its repo rate, the interest charged by it when lending money to banks, by 0.25% to 5%, on March 19. It also raised the reverse repo rate, the interest banks get on money parked with the central bank, by 0.25% to 3.50%. A major factor for the interest rate hike is inflation. Wholesale price index based inflation had weighed in at 9.89% for February. But market watchers feel the trend of rising inflation is nearly over. “Inflation has almost peaked out this month and we may see it returning to 4-5% levels going ahead,” says Sabharwal. According to him, the RBI move was part of a normalisation process as interest rates have been low for some time. Foreign Institutional investors have been net buyers by more than Rs 15,500 crore in March, which has seen the Sensex gain 1129.30 points to 17558.85 as of Thursday. “Fund flows have been strong. We may see markets moving up 8-10% in next 3-4 months,” says Sabharwal.

 

Union Bank of India, Belgian KBC in MF venture

Union Bank of India has tied up with Belgium's KBC group for a mutual fund joint venture and is in the process of receiving regulatory approval, the companies said in a joint statement on Friday.

Union Bank will own 51 per cent of the JV, while KBC will own the rest, the statement said.

IPO GREY MARKET PREMIUM HEARD ON THE STREET

Company Name	Offer Price (Rs.)	Premium (Rs.)
DQ Entertainment (Inter.)	80	48 to 50
PradipOverseas	100 to 110	15 to 16
ILFS Transportation	242 to 258	32 to 34
Persistent Sys.	290 to 310	132 to 135 (Buyer)
Shree GaneshJewellery	260 to 270	10 to 12
InfrasoftTechnology	137 to 145	58 to 60
GoenkaDiamond & Jewellery	135 to 145	8 to 9 (Seller)

IPL: Of serious money and awesome valuations

Indian Premier League's commissioner Lalit Modi [ Images ] is right to be exultant after the results of the

auctions for the two additional teams for the 2011 season.
At Rs 3,235 crore (Rs 32.35 billion) for the Pune and Kochi franchises, the total haul almost equals the Rs 3,330 crore (Rs 33.30 billion) that the IPL netted from selling eight teams in its first season in 2008.
These are awesome valuations for a tournament that is just three years old and for auctions that have taken place at the tail-end of an economic slowdown.
By international standards, though, IPL valuations lag those of other popular sports -- like soccer, basketball and American football -- by leagues.
For comparison, consider that the 10 IPL teams together could be worth roughly $3.5 billion -- a tad less than the world's two most valuable sports teams on the Forbes rankings, Manchester United [ Images ] and Dallas Cowboys of the US National Football League (NFL), put together.
Note, however, that Manchester United is a 132-year-old club and it plays in tournaments that have been around for decades -- the most recent of them is 18 years old. The Dallas Cowboys is nearly 50 years old and the NFL is heading for its 90th year.
The IPL, then, may be a whippersnapper in the global scheme of things, but it has certainly proved more recession-proof than its elderly global counterparts.
The Pune franchise is worth more than half the value of the New York Knicks, which is the most valuable team in America's iconic National Basketball Association (NBA) league.
The NBA, it should be noted, is 64 years old and the US recession has taken its toll -- 2008 valuations (the latest for which figures are available) were either stagnant or had fallen marginally over the previous year.
In contrast, the Pune franchise marks a 64 per cent premium over the price that Mukesh Ambani [ Images ] paid to acquire the Mumbai Indians [ Images ] in 2008.
It is also worth noting that all the prominent sports tournaments are facing problems of huge debts and burgeoning expenses.
In the English Premier League, the world's most-watched tournament after the World Cup, the combined debt of 18 out of its 20 clubs exceeds their revenues (two clubs are bankrupt).
Complaints that player costs have been spiralling out of control are growing louder on both sides of the Atlantic -- invoking parallels with the global investment banking crisis (unchecked executive pay).
In contrast, IPL has altered the dynamics of cricket in a more fundamental way than Kerry Packer's 'pyjama cricket', and seems to be facing no such problems.
No wonder, every IPL team owner is salivating at the higher valuations that they believe are inevitable, going forward. That's something few sports team owners elsewhere can boast of right now.

Shinsei sayonara to MF venture

Japanese financial conglomerate Shinsei Bank, which promoted the Shinsei Mutual Fund with a couple of local partners has decided to exit the business by selling it to another Japanese financial firm Daiwa Securities. Investment banking sources have estimated the Shinsei-Daiwa deal size at around Rs 55 crore.

The board of Shinsei Mutual Fund will meet this week to finalise the deal. Shinsei Bank holds a 75% stake in Shinsei asset management company (AMC), with investor Rakesh Jhunjhunwala and country manager, Shinsei India, Sanjay Sachdeva's Freedom Financial Services Private Limited holding 15% and 10%, respectively. The business, which was set up in June 2009 had Rs 459-crore assets under management (AUMs) as at the end of February this year.
On the face of it, the valuation looks expensive, since it amounts to nearly 12% of overall AUMs. Recently, deals have been completed at much lower valuations (though some deals have been concluded at 10% levels in the past). For instance, L&T Finance's acquisition of DBS Chola in September 2009 was done at 1.7% of assets. Around the same time, T Rowe Price bought stake into UTI, giving it a valuation of 3.4% of assets. Interestingly, Shinsei MF has only Rs 19 crore worth of equity assets, which amounts to 4% of its overall assets. The rest comprises debt-based assets, which typically fetch far lower fees.
The Japanese major, which had a asset base of $121 billion on a consolidated basis as on March 31, 2009 and is among the most respected financial brands in Japan had decided to exit the Indian market as it is currently restructuring its domestic operations. Shinsei AMC had started operations in July 2009 with initial assets of Rs 203 crore and ever since it has not managed to improve its equity assets.

DIN - Document Identification Number

After introducing unique account numbers for taxpayers and those for tax deductors, the government will this fiscal introduce a unique Document Identification Number to be quoted on 'every' income tax-related communication.
The department will soon put in place a tech-based mechanism to generate 'DIN' which will not only be allotted to taxpayers but also the officials of the department from October this year, which will become essential while filing the annual income tax return of the financial year (2010-11).
According to a Central Board of Direct Taxes, the 'insertion of new Section 282B' in the Income Tax Act, DIN will be mandatory 'in respect of every notice, order, letter or any correspondence' with the department.
"The number will be generated by the department and will be useful essentially for error-free filing of tax returns, claiming refunds and other communication with the department by the assesses," a senior finance ministry official said.
Taxpayers and tax deductors currently are required to quote Permanent Account Number (PAN) and Tax Deduction and Collection Account Number, among others, for filing returns with the department. Assesses will not be put to any trouble as the numbers will be generated and allotted by the department itself.
Once allotted, the assessee will have to quote it thereon. Income tax officials will also be allotted the numbers as the effort is to streamline the process, the official said. According to section 282B of the Income Tax Act which deals with DIN - "in respect of every notice, order, letter or any correspondence issued by him (I-T authority) to any other income tax authority or assessee or any other person and such number shall be quoted thereon.
 "It is further provided that where the notice, order, letter or any correspondence issued by any income-tax authority does not bear a Document Identification Number, such notice, order, letter or any correspondence shall be treated as invalid and shall be deemed never to have been issued." DIN is aimed at bringing more transparency in tax administration as the whole exercise involves a number of documents and proformas.
Apart from the regular filing of taxes, a taxpayer deals with the department for various other financial services which DIN will help streamline, the official said. According to the I-T department, "it is also provided that every document, letter or any correspondence, received by an income-tax authority or on behalf of such authority, shall be accepted only after allotting and quoting of a computer generated Document Identification Number.
Further, it is provided where the document, letter or any correspondence received by any income-tax authority or on behalf of such authority does not bear Document Identification Number, such document, letter or any correspondence shall be treated as invalid and shall be deemed never to have been received."

SBI Mutual introduces online payment option

SBI Funds Management yesterday introduced a new payment option (for investment), that offering online investment in SBI Mutual Fund schemes through SBI's ATM-cum-debit-cards. The payment facility through SBI MF website, www.sbimf.com, is available for all equity and most of the debt schemes, says a release. SBI Mutual Fund currently provides an online purchase facility to the investors, through its website.

Edelweiss Super Select Equity Fund files offer document with Sebi

Edelweiss Mutual Fund has filed an offer document with Securities and Exchange Board of India (SEBI) to launch an open ended equity scheme - Edelweiss Super Select Equity Fund. The scheme's new fund offer (NFO) price will be Rs 10 per unit. The primary scheme's investment objective is to generate long term capital appreciation from a relatively concentrated portfolio of predominantly equity and equity related securities including derivatives. Moreover, the scheme may also invest in debt and money market instruments for managing liquidity or when the fund manager has a defensive view on the market. The Scheme will have a single plan with dividend and growth Option. Further, the dividend option shall have reinvestment, payout & sweep facility. The scheme would allocate 65% to 100% of assets in equity, equity related instruments & derivatives with medium to high risk profile. Moreover, it would also allocate upto 35% of assets in debt and money market instruments that includes securitized debts with low to medium risk profile.

Mirae Asset Indo China Consumption Fund files offer document with Sebi

Mirae Asset Mutual Fund has filed an offer document with Securities and Exchange Board of India (SEBI) to launch an open ended equity oriented scheme - Mirae Asset Indo China Consumption Fund. The scheme's new fund offer (NFO) price will be Rs 10 per unit.

The scheme's investment objective is to generate long term capital appreciation through an actively managed portfolio investing in equity and equity related securities of the companies that are likely to benefit either directly or indirectly from the consumption led demand and should be domiciled or having their area of primary activity in India/China. The securities of these companies could be listed anywhere in the world.

The scheme will have a regular plan with dividend and growth option. Further, the dividend option shall have reinvestment, payout & transfer facility.

The scheme would allocate 65% to 100% of assets in Indian Equities and Equity Related Securities of companies that are likely to benefit either directly or indirectly from the consumption led demand with high risk profile. Meanwhile, upto 35% of assets would be invested in Chinese Equities and Equity Related Securities of companies that are likely to benefit either directly or indirectly from consumption led demand with high risk profile.

Moreover, it would also allocate upto 35% of assets in money market instruments (including CBLO) / debt securities and or units of debt / liquid schemes of domestic mutual funds with low to medium risk profile.

Canara Robeco InDiGo Fund files offer document with Sebi

Canara Robeco Mutual Fund has filed an offer document with Securities and Exchange Board of India (SEBI) to launch an open ended debt scheme -Canara Robeco InDiGo (Income from Debt Instruments & Gold) Fund. The scheme's new fund offer (NFO) price will be Rs 10 per unit. The scheme's investment objective is to generate income from a portfolio constituted of debt and money market securities along with investments in Gold ETFs. The scheme offers growth and quarterly dividend (payout or reinvestment) option. The scheme would allocate 65% to 90% of assets in Indian debt and money market instruments with low to medium risk profile. Further, it would allocate 10% to 35% of assets in Gold ETFs with low to medium risk profile. The exposure by the scheme in securitised debt shall not exceed 25% of the net assets of the scheme at the time of investment. Moreover, the Gross Notional Exposure by the Scheme in fixed income derivative instruments for the purpose of hedging and portfolio rebalancing shall not exceed 30% of the Net Assets of the Scheme at the time of investment. The total of investments in debt securities (including securitized debt) as well as money market instruments, Gold ETFs and gross notional exposure in derivatives shall not exceed 100% of the net assets of the Scheme.

MF distributors yet to submit KYC documents to AMCs

Bank and national level mutual fund (MF) distributors are having a tough time complying with the Securities and Exchange Board of India (SEBI) mandate on know your customer (KYC) norms. This has led to a huge piling up of money with asset management companies (AMCs) that was supposed to be paid to these distributors.

Earlier in December 2009, market watchdog SEBI mandated all AMCs to obtain KYC documents from all distributors and hold the commission of distributors unless they submit the same.

“We did not pay the brokerage as per the SEBI circular. The data collation is taking some time. Some details are even as old as 12 years. And because of the huge time gap of about 12 years, the client may not be banking with the same bank any more,” said a official from a leading fund house.

Intermediaries are required to submit these documents physically to the respective AMCs. Due to the delay on the part of the distributors, AMCs are sitting on crores of commission which will be released only if the distributors comply with the SEBI circular.

“Distributors did not take it very seriously when the circular was out. National distributors are facing a lot of problems regarding this. I think it’s the right punishment for these distributors,” said an independent financial planner (IFA).

Apparently, many banks only have account numbers and names of the customers as part of the KYC norms. “It is really shocking that even multinational banks, which are regarded to be perfect in compliance norms and record keeping, are struggling to submit KYC documents to AMCs since the last three months,” said other IFA.

According to a distributor, banks never gave any KYC documents to AMCs. “They (the banks) just gave a certificate saying that they are holding KYC documents of all the customers and also issued a undertaking that they will present it (the documents) when required by law,” the IFA said.

Industry sources indicate that there can be a possibility of some AMCs favouring bank distributors by paying through the ‘reimbursement of expenses’ route, a kind of payment made in advance. “I think banks are getting the money through some or the other route,” says a source.

Indian Banks Association (IBA) officials were not immediately available for comments.

Besides the KYC documents, SEBI has also asked AMCs to obtain all supporting documents of the past transactions from the distributors.

Earlier, there were reports that the distributors are planning to approach SEBI to have a central bureau of registry for all KYC documentation to bring down the excessive paper work.

Distributors were also planning to lobby for a digital KYC until a proper system is put in place, but there doesn’t seem to be any headway made on this front so far.

Invest in China with just Rs 10,000 with Hang Seng BeEs ETF

After the mad rush for Gold ETF Asset Management companies were actively scouting go the next big idea to launch to seek cover for their dwindling Assets Under Management(AUM). Accordingly, Benchmark Mutual Fund will be launching an ETF based on the Hang Seng Index. Hang Seng BeEs as it is called would be listed on the NSE on Monday , 15th February. The Purpose of this EFT is to enable investors track Hang Seng Live and reveal hang seng index chart on real-time basis.

Benchmark AMC and its Niche:
Benchmark has carved a niche for itself in the Indian Mutual Fund Industry by successfully launching first ETF in Asia(not only India) Nifty BeEs. It is also credited with launching the Gold ETF first time in India. Shariah based ETF products were first introduced to the Indian Mutual Fund Investors by Benchmark Asset Management Company.
Trade on Hang Seng Stock Exchange:
Hang Seng BeEs would be the first ETF to introduce Indian Stock Market Investors to a closed market like China. India and China are two of the fastest growing economies in the world. Indian investors would largely benefit by the diversification offered with the launch of hang seng index based ETF. Hang Seng Stock Exchange is one of the largest exchanges in the world. Hang Seng Index Charts, Hang Seng Futures, Hang Seng Historical Data can also be now be determined and tracked on a real-time basis.
Hang Seng Timings:
Hang Seng BEnchmark Exchange traded Scheme(BeEs) will trade during the Hong Stock Exchange Timings. The Heng Seng Stock Exchange closes two and half hours prior to the NSE Closing timings. The corresponding time would be between 7.30 am to 1.30 pm Indian Standard Time. The timings are better suited to Indian Stock Market traders and investors alike, compared to US Markets and European market timings. The NAV for the Scheme would also include the currency fluctuation.
Taxation Rules for Trading in Foreign ETF:
The ETF are treated as Debt funds for tax treatment and would therefore attract tax rules which are currently applicable to the non-equity funds in India. The Hang Seng Index currently comprises of 42 Stocks and is the benchmark for the China ETF in India. Rs 10,000 is all you need for your ticket to China: The units are available for a minimum amount of just Rs 10,000. To cater to large masses and enable wider market participation the entry amount is kept at Rs 10000 only. All Major Global Corporations have invested billions of dollars in the Chinese Economy. So why Indian Investor should not join the race and participate to diversify their existing portfolios?

Charges for trading on China ETF:
There are no charges levied by the AMC in form of NIL entry load and NIL exit load for buying and selling on the NSE. A minor bid/ask spread, brokerage for trading and needs to be borne by the investor. Hitherto, only High Net worth Individuals was active in using these innovative financial products. In future retail investors should add such products to their overall portfolio diversification strategy.

New AMFI chief blames distributors for mis-selling, ignores role of AMCs

The newly-appointed chief executive of industry body Association of Mutual Funds in India (AMFI) is looking to hit the ground running. Within days of his appointment, he announced his intention to crack the whip on the blatant mis-selling of mutual fund products to retail investors. However, his ire has been misdirected towards distributors, largely ignoring the role played by asset management companies (AMCs) in pushing the distributors to sell products aggressively.

In a recent interview with Business Standard, HN Sinor, the new chief at AMFI, acknowledged that mis-selling runs rampant in the mutual fund industry and that small investors were being short-changed on a regular basis. Announcing that this situation needed to be addressed on a priority basis, he indicated that distributors engaged in mis-selling should be suspended from selling mutual fund products.

While it is heartening to see that the new chief of AMFI has taken up arms against mis-selling, it would be unfair to tie the noose around distributors’ necks. This is very simply because distributors don’t manufacture products. Neither are they responsible for shoddy performance of the majority of mutual fund schemes. If anything, it is the AMCs of mutual funds that are promoting mis-selling in a bid to generate more business. Distributors are merely being lured into the high-stakes game being played by such AMCs.

Moneylife has previously written (see here) about how large AMCs are wooing distributors to sell their products more aggressively by organising lavish junkets for those who meet their business targets. It is this aggression that may lead to mis-selling. Indeed, has anybody ever come across any mutual fund company pulling up any distributor for mis-selling? 

An independent financial advisor (IFA) who spoke to Moneylife on the condition of anonymity said, “The regulator gives a verbal indication of what the AMCs should pay to distributors but none of the AMCs follow that. AMCs are forced to lure distributors with upfront brokerage as high as 4% because of the changed rules of the game. After the new rule that payment of trail commission will go to the new distributor, competition for assets under management (AUM) shopping has become very intense. No distributor is certain of the trail commission coming to them. They want to earn future trail commissions upfront. It means there is no obligation or attraction for them to serve investors after the allotment. The new broker will also not service investors because he won’t get any trail commission which is already paid upfront.”

The irony is that if there is any segment of distributor that indulges in mis-selling it is the industry where Mr Sinor has worked for decades—the banking industry. “Banks mis-sell products involving large sums of money under false representation. They rely least on the strength of the product and requirement of investors. They are constantly abusing their trusted relationship with depositors. There is a need to regulate AMCs and bank distributors more,” he added.

Small distributors are also feeling the heat after the no-entry load ban imposed by SEBI last year. In such a scenario, they are under pressure from the large distributors who are leaving no stone unturned to grab their business from under their nose. In the race to fight for their very survival, small distributors are not thinking twice before selling fund schemes blindly to investors. It is time AMFI realised where the root cause of the problem lies. It has come under a lot of fire recently for being a toothless body with no concrete measures or actions for improving industry standards. It has largely done nothing significant to standardise any of the practices. Mutual fund prospectuses are a shame compared to the IPO prospectuses. If AMFI wants to bring about some positive changes, AMFI must look within. It has a lot in its plate to start with.

Will Birla MF’s Capital Protection Fund leave a hole in its capital?

Birla Sun Life Mutual Fund (MF) is keen to attract fixed-deposit holders through its Capital Protection (CP) Fund and aims to mop up as much as Rs700 crore. According to sources, the company’s new fund offer (NFO), Birla Capital Protection Fund, had been extended to 10th March from 5th March as it was unable to meet its ambitious target. Birla MF is targeting close to Rs600-Rs700 crore and has so far managed to generate only Rs200 crore.

“The NFO was launched on 5 February 2010 and was scheduled to go on for a month. However, in view of the fewer days on account of holidays and breaks and to ensure convenience for investors, the due date was extended to 10th March. The NFO collection figures can only be verified after the scheme is closed for subscription, and the MIS is generated,” said a spokesperson for Birla MF.

While the fund is aggressively marketing the capital protection product, the irony is that the product will leave a hole in the capital of Birla Asset Management Company (AMC). Industry sources reveal that the company can earn 1.75% per annum in this product over a period of 27 months, which is the duration of the scheme. This means an earning of 3.9%. However, the cost of running the scheme will be much higher. Here is the math.

The processing charge for the issue will be about 0.3%. This leaves the AMC with 3.6% out of the fees. As against this, Birla MF will offer 2.75% as commission to distributors. That leaves it with 0.85%. If the Fund manages to raise, say, Rs500 crore from the scheme, its earnings over the 27 months will be just Rs4.25 crore. However, the Fund has already spent over Rs7 crore in advertisements and other promotional costs. This leaves the fund house with a large loss.

“The advertisement for the NFO had been done extensively with the aim of generating awareness for the Fund. The expense ratio that the Fund intends to charge the investor would be 1.5%,” added the company official. The official, however, declined to divulge any details of the Fund’s target or how the company would recover its advertisement costs.

“The advertisement charges are sometimes deducted from the scheme after some time. The NFO has collected around Rs220 crore,” said an independent financial advisor (IFA).

This would be hard in this kind of a Fund where returns are thin. The Fund will allocate 90% of the money to bonds and 10% to equity. It intends to reduce tax liability by the triple-indexation method.

Courtesy :-http://www.suchetadalal.com/?id=bb5b242f-20e7-0c4a-4b979662bb0f&base=sections&f

Don't expect great returns

During the end of the financial year, insurance companies try to tap tax-payers with innovative schemes, including guaranteed returns products.
Life Insurance Corporation of India (LIC) recently launched Wealth Plus, which gives guaranteed returns. Last year, it had launched Jeevan Aastha, which promised to give Rs 9 and Rs 10 for every Rs 100 invested, depending on the policy tenure. The earlier policy invests in debt instruments such as government bonds. Wealth Plus, on the other hand, invests in equities and assures returns linked to the highest net asset value (NAV) of the fund over a seven-year period.

LIC is not alone in the market with such a product. Reliance Life Insurance has Reliance Life Highest NAV Guarantee Fund, which assures the highest NAV for the entire term of the policy. Many other players have similar plans. Tata AIG Life insurance sells such a scheme under the name InvestAssure Apex Pension Plans; Birla Sun Life Insurance has Platinum Premier Plan; SBI Life Insurance calls it Smart Ulip; ICICI Prudential Life Insurance sells Pinnacle; and Bajaj Allianz Life Insurance's Max Gain gives a similar guarantee.
These plans capture the highest NAV of the fund and lock it. Thus, a customer gets returns based on the highest NAV, even if stock markets undergo a correction. However, before buying, there are a few things you should look at.
Working: To give the highest NAV-based returns, insurance companies follow a trading strategy known as constant proportion portfolio insurance (CPPI). Institutions around the world use this model to ensure a fixed minimum return for investors who are risk-averse.
In CPPI, a fund allocates the corpus between safe assets (debt-based papers) and risky assets (equities), depending on stock market performance and interest rates. Depending on losses or gains from the equity investment, the insurance company constantly rebalances the equity-debt mix to lock the highest NAV.
Returns: Most of these products are available for a limited period. In the initial phase, the company decides the asset allocation between equity and debt. "The debt portion could be small if interest rates are high and equity markets have low volatility," said Sashi Krishnan, chief investment officer at Bajaj Allianz Life Insurance Company. He explained that if the market falls, the allocation to debt is increased and vice-versa. "As it is not a pure equity product, it will definitely not give pure equity-based returns," said Manish Kumar, head of investments at ICICI Prudential Life Insurance.
Costs: Most insurance companies charge a guarantee fee over and above the 3 per cent cap that the Insurance Regulatory and Development Authority (Irda) has prescribed. "This is primarily to make up for any shortfall," said Krishnan.
Insurance companies normally charge 0.2 -0.5 per cent. For example, LIC's Wealth Plus has a guarantee charge of 0.35 per cent of the fund value every year. While Bajaj Allianz levies a charge of 0.25 per cent on the fund value every year, ICICI Prudential's Pinnacle charges 0.10 per cent annually to give the guarantee. "This also includes the cost the insurance company incurs for setting up algorithms and other infrastructure related to this product," Kumar said.
Should You Buy? For small investors, products based on this structure are available with insurance companies only. High net worth individuals (HNIs) can approach wealth management companies for such arrangements.
Risk-averse investors who want to avoid insurance due to high costs can look at monthly income plans (MIPs) of mutual funds. These are essentially for investors who have low appetite for volatility. They invest 10-30 per cent in equities and the rest in debt. In the MIP category, the top 10 funds by returns have given yields of over 10 per cent in the past five years.

Low MF assets speak volumes on investor apathy

At a time when the Indian economy is being lauded for its relentless growth and Indian companies are in the process of raising thousands of crores in the primary markets, the mutual fund industry is standing out like an eyesore. The sorry state of affairs in the mutual fund industry is evident from the miniscule corpus many of the fund houses are managing.

Here are the unpleasant facts. 18 out of 37 Asset Management Companies (AMCs) have less than Rs1,000 crore as assets under management (AUM) in their equity schemes. From these, 13 funds have less than Rs500 crore of AUMs. On an average, these 18 fund houses have Rs355.99 crore in equity MF schemes. Between them, they are managing a ridiculously low corpus of Rs6,407.80 crore.

Reliance Mutual Fund, the largest fund house, has AUM of Rs35,204 crore. HDFC Mutual Fund manages a corpus of Rs22,657 crore. These amounts might seem princely when compared to the small fund houses, but compared to international fund houses, even these are paltry.

Shinsei Mutual Fund is the smallest among the 18 funds, having a corpus of Rs19.47 crore as on 10 February 2010 while Escorts Mutual Fund and Benchmark Mutual Fund have Rs28.32 crore and Rs48.88 crore respectively in their kitty.

Quantum Mutual Fund and Baroda Pioneer Mutual Fund have AUM of Rs48.96 crore and Rs66.14 crore respectively.

Some of the bigger names in the industry like Bharti AXA Mutual Fund (Rs308.37 crore), AIG Mutual Fund (Rs612 crore) and Axis Mutual Fund (Rs874.11 crore) also appear in the list of funds having less than Rs1,000 crore.

Indian companies are capitalising on the recent bull-run by raising thousands of crores through IPOs and FPOs. In 2010, 17 companies have come out with public offers, (as on 8 March 2010). Despite the rush for raising funds and the flourishing equity markets, the investing public seems disinterested in vying for a share of the pie. The action in the equity markets has failed to catch on to the mutual fund industry.

Indeed, the lull being witnessed by most equity fund houses is a study in contrast to the growth of the economy. Despite equities being touted as the best asset class for the long term, investors continue to shy away from equities. Even the government’s efforts towards encouraging participation in equity mutual funds have failed to do the trick.  

No subscription figures till close of public Issues

Regulator moves to curb demand inflation, asks exchanges not to disclose bid details while an issue is open

N. Sundaresha Subramanian and Anirudh Laskar

Mumbai: Capital market regulator Securities and Exchange Board of India (Sebi) is cracking down on the practice of reporting oversubscription in public issues. In a bid to discourage inflation of demand, Sebi has asked the exchanges to stop making the subscription number public while an issue is open, according to two officials familiar with the development.
At present, the category-wise bidding details for a public issue are updated hourly on exchange websites while it is open. For forthcoming issues, the information will be available only after the issue closes.
“Sebi is worried about multiple subscriptions and misrepresentation of demand,” said S. Vishvanathan, managing director and CEO, SBI Capital Markets Ltd. A Sebi spokesperson declined to comment.
The move comes amid steps announced on Saturday by Sebi. This includes institutional investors having to pay their entire subscription as an upfront margin. All public share sales—initial, follow-on and rights issues—that hit the market after 1 May will be subject to the new rules.
The move is aimed at curbing inflated demand in public issues and providing a level playing field to all investors, Sebi said in a statement. Qualified institutional investors (QIBs) are required to deposit only 10% of their subscription. Sebi chairman C.B. Bhave said the steps were in line with the aim to cut the listing timeline to seven days from the current 21.
Experts believe the moves will bring some rationality in the pricing of public issues.
“The days of aggressive pricing will be over,” said U.R. Bhat, managing director, Dalton Strategic Partnership Llp. “Now, only genuine investors will come in for bidding and most of the bids are likely to take place at the lower end of the price band, which is good.”
Bhat said the moves may not affect subscription levels significantly. “Issues floated in the past one year have already been witnessing lower subscriptions, both in QIB and the retail portions, compared to those during the bull run of 2007,” he added.
Smaller funds may be put at a disadvantage, said Naresh Kothari, president, Edelweiss Capital Ltd. “Earlier both small and large long-only funds used to bid for equal number of shares with 10% margin money. But now with 100% upfront margin, large fund investors will have an advantage over small ones,” he said.
Sebi also gave in-principle approval to introduce physical delivery in equity derivatives after discussions with exchanges and market participants.
Sayee Srinivasan, head of product strategy, Bombay Stock Exchange, said physical delivery is unlikely to replace the existing cash settlement system. It could be optional, or a new set of products with physical delivery may be introduced. “I don’t think it’s a good idea to tamper with an existing market which is liquid.”
The step may be easier to implement in single-stock futures as delivering individual stocks that constitute the index could be complicated. “Physical delivery does not mean leverage would come down. The moment there is a margin, the element of leverage automatically comes in whether or not delivery is physical,” he said.

Templeton MF insists on clearance certificate for trail commission

After the Securities and Exchange Board of India (SEBI)’s circular on payment of trail commissions, asset management companies (AMCs) are trying to play safe by insisting on a no-objection certificate (NOC) in case of a change of distributor. The mutual fund (MF) industry is still undecided on whether to pay the trail commission to the new distributor or the old one as the poaching game unfolds.

Moneylife has a document sent by Templeton to independent financial advisors (IFAs), which reads: “The payments of trail commission on assets that are transferred from another distributor to your ARN code shall be subject to us receiving a ‘Clearance Certificate’ from the previous distributor. In case any Assets under your ARN Code are transferred to another distributor at the request of the investor, you shall not be entitled to receive any trail commission on such assets.”

Therefore, Templeton is still insisting on receiving a clearance certificate from the old distributor in order to pay out trail commission.

The Association of Mutual Funds in India (AMFI) had instructed all asset management companies (AMCs) in its circular issued in September 2007 that investors can switch to a new distributor without obtaining an NOC from the existing distributor. However, most AMCs continued to demand an NOC from harried investors. Due to such inconsistent practises, SEBI stepped in to reiterate that all AMCs have to comply with the AMFI circular dated 5 September 2007 and not to insist on an NOC.

The whole issue stems from the growing business of assets under management (AUM) transfer. After the circulars from AMFI and SEBI on payment of trail commission, the AUM snatching game has begun to gain traction. According to industry sources, HDFC MF and UTI MF are not happy to pay trail commission to the new distributor though they have not come out with a formal announcement. Even AMFI took almost two years to implement its own decision on trail commission.

“Most of the AMCs are not insisting on an NOC especially after the SEBI circular,” said an IFA.

“The SEBI circular doesn’t say anything specific about the payment of trail commission. If an investor gives a letter that he wants to change his distributor, then the AMC should not ask for an NOC from the old broker. AMFI has said that an AMC may pay the brokerage to the new distributor subject to rules,” said other IFA.

Harshendu Bindal, president, Franklin Templeton Investments (India), said, “We have been processing all investor requests for a change in distributor without insisting on an NOC from the existing distributor, even before the SEBI circular, as part of AMFI best practices. Our understanding is that the SEBI guidelines are regarding the change of distributor code based on investor request and don’t pertain to payment of trail commission.”  

“If the request for change of broker also asks for transfer of trail commission to the new broker we will change the broker code. However, given our contractual obligations with the distributors, we would ask for a consent letter from the old distributor for transferring the trail commission on historical assets. Irrespective of the type of request, we would accept a valid instruction from the investor for changing his broker code,” Mr Bindal added.

“I am not in favour of something which could prevent an investor from shifting to a new distributor. There are some malpractices in the industry where people are poaching on trail (commission). When an investor himself wants to be serviced through a distributor it is necessary that he compensates him indirectly,” said a chartered financial analyst.

“There is still some ambiguity in this case. Some AMCs have taken a stand that they will continue to pay the trail commission to the old distributor,” he added.

Small investors are nowhere involved with a say on trail commission as it is decided by the AMC and the agent. But industry sources say that some high net-worth individuals are beginning to bargain for a percentage of the trail commission from distributors. Whether an investor would easily get a clearance letter from the old distributor is another issue.

Source:
http://www.suchetadalal.com/?id=e23df737-3b47-bf5e-4b8e659cf029&base=sections&f