Investors are not only shying away from equity-based mutual funds, they are also scaling down systematic investment plans (SIPs), say market players. There has been a significant drop in the renewal of existing SIPs.
“SIP volume is down between 20 and 30 per cent of the outstanding systematic investment plans,” said Rajiv Deep Bajaj, managing director, Bajaj Capital. “Investors are breaking their SIPs in between.”
While bad market condition is one reason, experts say investors are moving out because the new investors getting into equity are not used to see deterioration of their wealth. The mutual fund houses say that breaking the SIP in between is not the right way of investing. “Investors should stick to equity investments for at least three years,” said Jaideep Bhattacharya, chief marketing officer, UTI AMC.
The average return in a diversified equity scheme over the past three years runs into a negative of 7 per cent while the Sensex return for the same period stands at negative of 2.8 per cent.
“While most of the SIP investments are three to four years old, the investors are largely first timers and are not used to downward cycle in the market. Hence even after enough convincing they are reluctant to continue,” said a financial planer, who did not wish to be named. “We are not facing any such move from the mutual fund investors who are around five years old.”
But the Unit-linked Insurance Plans (Ulips), which got the insurance shield, are in a better position to convince investors to continue with their investments. However, the new investments into Ulips are also getting impacted.
“While the investors are continuing with their existing investments because of the insurance cover, new investments into Ulips are down,” said the planner.
Source:- Hindustan Times
Tuesday, April 7, 2009
Unitech may have to roll over dues to MFs again
New Delhi: Cash-strapped property developer Unitech Ltd may have to roll over debt owed to mutual funds for a second time. Unitech has to repay Rs500 crore to mutual funds by 19 April, and if it’s unable to tie up the money by then, the firm may have to seek a rollover of the debt, said people familiar with the situation who didn’t want to be named.
The realty firm had to repay Rs900 crore to mutual funds on 19 January. It repaid part of this and managed to roll over the balance by three months.
The company declined to comment on the possibility of it seeking a second rollover.
Unitech is working on several options for raising money. It recently received around Rs380 crore from Unitech Wireless after the latter closed a $1.2 billion (Rs6,036 crore) deal with Norwegian telecom company Telenor SA. Unitech also sold its 200-room Marriott Courtyard hotel in Gurgaon for about Rs230 crore. It is trying to fast track the sale of its 200,000 sq. ft corporate office in Saket, in south Delhi, to raise around Rs500 crore. Proceeds from the launch of its recent mid-income housing project in Gurgaon may also be considered.
Still, a person in Unitech who didn’t want to be named said the exercise may not be easy. “There are a lot of repayment commitments that Unitech has to adhere to, so we may just try and rollover the repayments owed to mutual funds,” said the person.
Unitech has debt of at least Rs8,000 crore on its books. Real estate firms are struggling with a property market downturn and declining valuations as economic growth slows and consumers avoid property purchases in the expectation that prices would slump further.
In January, Unitech filed an application with the Foreign Investment Promotion Board to raise Rs5,000 crore by diluting promoters’ equity. According to the application, the promoters were willing to dilute their equity from their then shareholding of 67.45% to 36.71%. Unitech, however, pulled back the application. As per the company’s last public filing, Unitech promoters have pledged 49.48% of their shares.
cnbctv18@livemint.com
The realty firm had to repay Rs900 crore to mutual funds on 19 January. It repaid part of this and managed to roll over the balance by three months.
The company declined to comment on the possibility of it seeking a second rollover.
Unitech is working on several options for raising money. It recently received around Rs380 crore from Unitech Wireless after the latter closed a $1.2 billion (Rs6,036 crore) deal with Norwegian telecom company Telenor SA. Unitech also sold its 200-room Marriott Courtyard hotel in Gurgaon for about Rs230 crore. It is trying to fast track the sale of its 200,000 sq. ft corporate office in Saket, in south Delhi, to raise around Rs500 crore. Proceeds from the launch of its recent mid-income housing project in Gurgaon may also be considered.
Still, a person in Unitech who didn’t want to be named said the exercise may not be easy. “There are a lot of repayment commitments that Unitech has to adhere to, so we may just try and rollover the repayments owed to mutual funds,” said the person.
Unitech has debt of at least Rs8,000 crore on its books. Real estate firms are struggling with a property market downturn and declining valuations as economic growth slows and consumers avoid property purchases in the expectation that prices would slump further.
In January, Unitech filed an application with the Foreign Investment Promotion Board to raise Rs5,000 crore by diluting promoters’ equity. According to the application, the promoters were willing to dilute their equity from their then shareholding of 67.45% to 36.71%. Unitech, however, pulled back the application. As per the company’s last public filing, Unitech promoters have pledged 49.48% of their shares.
cnbctv18@livemint.com
Sebi no to delaying different load structures for MFs
Mumbai: India’s stock market regulator, the Securities and Exchange Board of India (Sebi), has rejected a plea by the asset management industry to delay the introduction of variable load structures on mutual funds that will enable investors to negotiate the commissions they pay distributors.
Tough stance: The Securities and Exchange Board of India building. Adeel Halim / Bloomberg The regulator is keen to push a decision soon and may take the matter to its board shortly, a person close to the development told CNBC-TV18.
The mutual fund industry has been trying hard to convince Sebi to push back its proposed decision to introduce variable load structures for mutual funds. Once approved, investors will have the right to negotiate the commission they pay a distributor every time they buy a mutual fund.
Mutual fund houses are concerned that distributors may be reluctant to push their products if the rule comes into force.
”We have suggestions both in favour of this and against it. Some strong views in favour of it and strong views against it,” M.S. Sahoo, a whole-time member of Sebi, told CNBC-TV18. “We have to take a call but there is nothing called the right time...,” Sahoo said. In 1992-93, similar opposition had greeted a decision that required brokers to disclose brokerage fees they charged, Sahoo said.
But the Association of Mutual Funds of India (Amfi) is still trying hard. It has insisted on a so-called multiple class share model if the regulator implements the variable load structure right away.
The multiple-class share model is popular in the US wherein investors have different payment options depending on the amount they are willing to pay upfront. This, Amfi says, will mark a paradigm shift in the pricing of services offered.
“Variable load structure could be implemented right away provided it is a part of the shift,” Amfi chairman A.P. Kurian said. “We just want that it should not be implemented in an ad hoc manner.”
cnbctv18@livemint.com
Tough stance: The Securities and Exchange Board of India building. Adeel Halim / Bloomberg The regulator is keen to push a decision soon and may take the matter to its board shortly, a person close to the development told CNBC-TV18.
The mutual fund industry has been trying hard to convince Sebi to push back its proposed decision to introduce variable load structures for mutual funds. Once approved, investors will have the right to negotiate the commission they pay a distributor every time they buy a mutual fund.
Mutual fund houses are concerned that distributors may be reluctant to push their products if the rule comes into force.
”We have suggestions both in favour of this and against it. Some strong views in favour of it and strong views against it,” M.S. Sahoo, a whole-time member of Sebi, told CNBC-TV18. “We have to take a call but there is nothing called the right time...,” Sahoo said. In 1992-93, similar opposition had greeted a decision that required brokers to disclose brokerage fees they charged, Sahoo said.
But the Association of Mutual Funds of India (Amfi) is still trying hard. It has insisted on a so-called multiple class share model if the regulator implements the variable load structure right away.
The multiple-class share model is popular in the US wherein investors have different payment options depending on the amount they are willing to pay upfront. This, Amfi says, will mark a paradigm shift in the pricing of services offered.
“Variable load structure could be implemented right away provided it is a part of the shift,” Amfi chairman A.P. Kurian said. “We just want that it should not be implemented in an ad hoc manner.”
cnbctv18@livemint.com
Friday, April 3, 2009
SBI MF launches gold ETS
SBI (SBIN.NS : 1147.05 +69.6) Mutual Fund, a joint venture between the State Bank of India and Societe General AMC, on Monday launched an open-ended Gold Exchange Trading Scheme (SBI GETS). The minimum investment in SBI GETS is Rs 5,000 and in multiples of Re 1 thereafter.
"Once the new fund offer (NFO) closes on April 28, 2009 the units would be listed on the National Stock exchange (^NSEI : 3211.05 +150.7). Investors can then trade in it like any other stock in the secondary market," said Navneet Munot, chief investment officer of SBI Funds Management Private Ltd.
Each unit of SBI GETS will be approximately equal to the closing price of 1 gram of gold on the date of allotment. The units will have face value of Rs 100, and will be issued at a premium equalling the difference between allotment price and face value during the NFO.
Achal Kumar Gupta, managing director and CEO of SBI Funds Management Private Ltd said, "Gold is the safest bet during troubled times. Indians consume around 800 tonnes of gold annually, but 95 per cent of it is in physical form."
Advocating benefits of gold in demat form, Munot said, "In exchange traded scheme, the holding will be in demat form and investor does not have to worry about its safekeeping and purity. The unit can be sold at prevailing market price at any given day."
The fund is looking at raising around Rs 150-200 crore. "At compound annual growth rate of 20 per cent, gold is a must in every portfolio," said Munot.
"Once the new fund offer (NFO) closes on April 28, 2009 the units would be listed on the National Stock exchange (^NSEI : 3211.05 +150.7). Investors can then trade in it like any other stock in the secondary market," said Navneet Munot, chief investment officer of SBI Funds Management Private Ltd.
Each unit of SBI GETS will be approximately equal to the closing price of 1 gram of gold on the date of allotment. The units will have face value of Rs 100, and will be issued at a premium equalling the difference between allotment price and face value during the NFO.
Achal Kumar Gupta, managing director and CEO of SBI Funds Management Private Ltd said, "Gold is the safest bet during troubled times. Indians consume around 800 tonnes of gold annually, but 95 per cent of it is in physical form."
Advocating benefits of gold in demat form, Munot said, "In exchange traded scheme, the holding will be in demat form and investor does not have to worry about its safekeeping and purity. The unit can be sold at prevailing market price at any given day."
The fund is looking at raising around Rs 150-200 crore. "At compound annual growth rate of 20 per cent, gold is a must in every portfolio," said Munot.
MF industry lines up investor-friendly plans
The drop in assets under management of the mutual fund industry to sub-Rs 5 lakh crore levels has led to a flurry of activity in the mutual fund industry towards wooing investors.
This time around, there are a lot of investor friendly plans on the anvil. Soon, investors in the country will able to glance at dividends declared by asset management companies (AMC) on the website of the Association of Mutual Funds in India (Amfi).
AP Kurian, chairman of Amfi, said, "In the next 10 days, investors will be able to look at the dividends declared by their funds. We were receiving several queries that; people are sometimes not aware of what dividends they get from different schemes. So, now, with all the other details of the fund, we will be also providing dividends on the Amfi website."
He was speaking on the sidelines of the 6th Annual Conference on Capital Markets in Mumbai.
Amfi is also in process of launching a common platform for mutual funds transactions, which will facilitate transactions like buying and selling schemes.
The mutual fund industry, at the moment, is going through testing times. The withdrawal of funds by the banking sector has seen most of the big asset management companies report depleted AUM numbers. Among the top five houses, only HDFC Mutual Fund has seen an increase in the AUM in March.
Additionally, the MF industry also faces a big asset-liability mismatch. UK Sinha, chairman of UTI Mutual Fund, mentioned that the industry acquired 75-80% of its resources from short-term avenues, and then invested these in long-term loans to corporates.
"This is not a healthy trend," he said, adding that it could lead to an asset-liability or maturity mismatch. That too, when banks can withdraw money parked with mutual funds within 24 hours.
Nimesh Shah, MD of ICICI (ICICIBANK.NS : 360.7 +11.35) Prudential MF, said, "In the current scenario, profits of AMCs have vanished." Shah also pointed out that fund houses are facing problems in selling their equity schemes in "such volatile market conditions".
He also said that distributors have started selling other products along with MF.
Overall, there are approximately 60,000 distributors selling MF schemes, and number is decreasing over time.
Many markets players also sense that given the trying times, it is very difficult to convince investors to enter equity schemes.
Fund houses also expressed concern about the continuous low penetration in the urban areas at the conference.
"Last month, over 60,000 systematic investment plans (SIP) were registered with our AMC. 60% of these were from non-metros."
"We had seen tremendous redemption pressure in the month of October and November last year, as over a lakh crore were redeemed from various schemes. However, now it seems that everything is falling in place and once the markets start their positive rally, we will witness some ease in the MF industry," concluded Kurian.
This time around, there are a lot of investor friendly plans on the anvil. Soon, investors in the country will able to glance at dividends declared by asset management companies (AMC) on the website of the Association of Mutual Funds in India (Amfi).
AP Kurian, chairman of Amfi, said, "In the next 10 days, investors will be able to look at the dividends declared by their funds. We were receiving several queries that; people are sometimes not aware of what dividends they get from different schemes. So, now, with all the other details of the fund, we will be also providing dividends on the Amfi website."
He was speaking on the sidelines of the 6th Annual Conference on Capital Markets in Mumbai.
Amfi is also in process of launching a common platform for mutual funds transactions, which will facilitate transactions like buying and selling schemes.
The mutual fund industry, at the moment, is going through testing times. The withdrawal of funds by the banking sector has seen most of the big asset management companies report depleted AUM numbers. Among the top five houses, only HDFC Mutual Fund has seen an increase in the AUM in March.
Additionally, the MF industry also faces a big asset-liability mismatch. UK Sinha, chairman of UTI Mutual Fund, mentioned that the industry acquired 75-80% of its resources from short-term avenues, and then invested these in long-term loans to corporates.
"This is not a healthy trend," he said, adding that it could lead to an asset-liability or maturity mismatch. That too, when banks can withdraw money parked with mutual funds within 24 hours.
Nimesh Shah, MD of ICICI (ICICIBANK.NS : 360.7 +11.35) Prudential MF, said, "In the current scenario, profits of AMCs have vanished." Shah also pointed out that fund houses are facing problems in selling their equity schemes in "such volatile market conditions".
He also said that distributors have started selling other products along with MF.
Overall, there are approximately 60,000 distributors selling MF schemes, and number is decreasing over time.
Many markets players also sense that given the trying times, it is very difficult to convince investors to enter equity schemes.
Fund houses also expressed concern about the continuous low penetration in the urban areas at the conference.
"Last month, over 60,000 systematic investment plans (SIP) were registered with our AMC. 60% of these were from non-metros."
"We had seen tremendous redemption pressure in the month of October and November last year, as over a lakh crore were redeemed from various schemes. However, now it seems that everything is falling in place and once the markets start their positive rally, we will witness some ease in the MF industry," concluded Kurian.
Thursday, April 2, 2009
MF's AUM falls in March 2009
Mutual fund industry has reversed back to record a fall in growth in its Average Asset Under management (AUM) in March 2009 from February 2009. Association of Mutual Fund of India (AMFI) has released AUM data for March 2009. Till now the data is available for 33 fund houses. The AUM has plunged by 1.54% to Rs 4.87 lakh crore in March 2009 compared with Rs 4.94 lakh crore in February 2009 excluding Edelweiss Mutual Fund and Fidelity Mutual Fund.
Baroda Pioneer Mutual Fund has topped among others by recording AUM growth of 30.90% to 1132.01 lakh crore in March 2009. Religare Mutual Fund followed it by posting a rise of 11.05% in its AUM.
As per asset wise, Reliance Mutual fund continued to be in the first position to Rs 80962.94 crore in its AUM in March 2009 compared with the month of February 2009. However, its AUM has dropped by 0.81% in March 2009 over February 2009. HDFC MF retained second position with the average AUM of Rs 57956.45 crore a rise of 1.92% compared with the month of February 2009 and ICICI Mutual Fund with an AUM of Rs 51432.50 crore with a fall of 3.89% in March 2009 over February 2009.
The other top mutual funds, in terms of AUM included UTI MF recording a fall of 0.96% to Rs 48754.17 crore in March 2009. Birla Sun Life MF has recorded a drop of 3.01% in its AUM to Rs 47096.23 crore and SBI MF also plunged 4.50% to Rs 26382.68 crore.
HDFC Mutual Fund recorded the highest inflow in AUM of Rs 1092.06 crore, while Tata MF recorded the highest outflow of Rs 2269.87 crore in March 2009.
Baroda Pioneer Mutual Fund has topped among others by recording AUM growth of 30.90% to 1132.01 lakh crore in March 2009. Religare Mutual Fund followed it by posting a rise of 11.05% in its AUM.
As per asset wise, Reliance Mutual fund continued to be in the first position to Rs 80962.94 crore in its AUM in March 2009 compared with the month of February 2009. However, its AUM has dropped by 0.81% in March 2009 over February 2009. HDFC MF retained second position with the average AUM of Rs 57956.45 crore a rise of 1.92% compared with the month of February 2009 and ICICI Mutual Fund with an AUM of Rs 51432.50 crore with a fall of 3.89% in March 2009 over February 2009.
The other top mutual funds, in terms of AUM included UTI MF recording a fall of 0.96% to Rs 48754.17 crore in March 2009. Birla Sun Life MF has recorded a drop of 3.01% in its AUM to Rs 47096.23 crore and SBI MF also plunged 4.50% to Rs 26382.68 crore.
HDFC Mutual Fund recorded the highest inflow in AUM of Rs 1092.06 crore, while Tata MF recorded the highest outflow of Rs 2269.87 crore in March 2009.
Monday, March 30, 2009
Gilts fast losing glitter
By Dhirendra Kumar
Besides gold, gilt is the other category that has caught the fascination of investors. While gold has grabbed attention due to its nature as an asset of the last resort, gilt's reasons for coming into the limelight is its sudden resurgence in performance. In 2008, when equity was coping with negative returns, gilt funds were able to deliver a return of 25.33%. For most of 2008, gilt funds were either non-performers or their usual selves. But this changed when RBI got into action to combat the liquidity crisis with a series of rapid cuts in the repo rate between October and December 2008. With a cut of 2.5% in repo rate and a cut of 3.5% in Cash Reserve Ratio, gilts funds' returns shot through the roof. This over performance was due to 20.69% returns in the last quarter in particular with 12.43% return from just the month of December 2008.
To understand the reason behind this sudden resurgence of gilt funds, we first have to understand what gilt funds are. They are mutual funds that predominantly invest in government securities (G-Secs). Unlike conventional debt funds that invest in debt instruments across the board, gilt funds target just a given category of debt instruments i.e. G-Secs. These are securities issued by RBI on behalf of the government. Being sovereign paper, they do not expose investors to credit risk. They are also the most heavily-traded paper in the market. Banks, insurance companies and provident funds invest in them for safety and statutory reasons. This also ensures adequate liquidity and in turn volatility for G-secs in the market.
Since the market for G-Secs is largely dominated by institutional investors, gilt funds offer retail investors a convenient means to invest in G-Secs. For gilt funds the main source of their income, apart from earning fixed interest, is from the trading gains that accrue due to trading in gilts. With inflation going southward from its peak value in August, for any gilt fund manager it was a foregone conclusion that policy rates would be heading down too. Hence it was only a matter of 'when' not 'if'. Gilt fund managers bought into G-Secs of higher and higher maturity.
Because rate cuts make the older G-Secs with higher interest rates more attractive, with the rise in demand their prices go off the charts enabling the fund manager to make trading profits by selling them. That's exactly what happened: the 10-year benchmark paper's yield (as there is negative correlation between yield and prices) dropped over 320 basis points between October and December 2008. Gilt funds turned in astounding returns of up to 35% in the quarter. These fabulous gains got investors excited. Gilts looked like the obvious way to recoup losses made in equity. Gilts funds assets almost doubled from Rs 2,500 crore in November to Rs 4,800 crore at the end of February, 2009. Falling inflation numbers and increasing uncertainty in the economy forced the RBI to announce a cut in the repo rate by 50 bps on March 4, 2009. But to the dismay of many, the yields refused to budge in response. The gains expected by investors were nowhere to be seen. The reason for this was the on going borrowing programme of the government. Till March 31, 2009, the government needs another Rs 34,000 crore to meet with the current year's budget deficit. In normal course the government would have to issue new bonds to fill this gap. In anticipation of this flood of new bonds, the markets are shying away from any new purchases. The result is that the yield is going up rather than falling. Between March 4, 2009 and March 12, 2009 the yields have gone up by 10%. RBI is on a war footing to soften the yields from this level but the supply of new issue is just too great to provide any relief.
The gilt funds performance for the week ended March 6, 2009 has been lacklustre. The returns of the gilts funds over last one week have been -1.09% (March 1-6, 2009). Furthermore, the fiscal stimulus announced by the government to kick-start the economy has done nothing to help the gilt funds. The only thing it has done for the money market is that it has fuelled a growing apprehension about how the government would be able to finance all the recent expenses. The 10-year G-Sec from the low of 5.02% in January, 2008 has gained 39.86% to touch 7.03% on March 12, 2009. Hence after the spectacular performance in December, most gilt funds are languishing in red. For January and February, gilt funds turned in -6.23 and -1.74% respectively.
Looking at the month-on-month return of gilt funds, it may seem that these have become too risky an investment option. But the fact is this is how gilt funds have always been. Back in 2001 and 2002 when rates were coming down gilts funds were the prime beneficiary. Their returns were comparable with the equity funds returns, but the moment there is a long period of inactivity in the interest rate or if rates are on a upward trend then gilts funds become a very dull investment option. Many a time, interest rates will change in unpredictable ways. At other times, interest rates may be predictable, but their impact on bond prices may hold surprises. There are plenty of funds that increase or decrease maturity violently at the slightest sign-real or imagined-of rate movements. A gilt fund managers' job is to take calls on rates and yields but that doesn't mean that a call has to be taken all the time. Nor does it mean that maturity must always be jerked from one extreme to the other whenever a call is taken. In these unpredictable times, circumspect beliefs and moderation of action is the path that takes care of investors' interests the best. Thus, we have selected three funds that are not the top-performers of the past few months. Nor are they the biggest. But we believe that they fit the above profile well.
It is important to always keep in mind that notwithstanding the credit quality, medium and long-term gilt funds are the most unpredictable animals in the fixed-income zoo. Invest at least for a year and be prepared for short-term shocks.
The author is CEO, Value Research
Canara Robeco Gilt PGS
Over the last few years, Canara Robeco Gilt PGS has established itself as one of the steadier performers of this category. In the five years since 2004, it has more than kept pace with its peers, either outperforming the average gilt fund handsomely, or lagging by a small margin. All in all, Rs 1 lakh invested in this fund would be Rs 1.42 lakh today, as against Rs 1.26 lakh for the average gilt fund. In fixed income terms that's a significant difference. During 2008, which has been a signature year for gilt funds, the fund's returns were an astounding 35.17%, which gave it the 6th rank for the year. However, what impressed us more was the fund's progression through what was an exceptionally turbulent year. During the first three quarters, the fund was ahead of the category average by an average of 2.64% every quarter, adding up to a cumulative lead of 7.92%. In the last quarter, it exploited RBI's interest rate bonanza just as well as the rest, with returns of 20.63% for the three months.
However, the fact that, the fund matched the average and did not do as well as the top funds during the quarter, looks like a positive sign to us. When we observe the maturity changes that fund manager Ritesh Jain affected during that phase, we see a degree of conservatism which we like. During the October liquidity crisis, the fund manager dropped the maturity. When RBI unexpectedly softened rates in November, the fund gained less than its peers.
Investors shouldn't mind this because dropping yields during the global liquidity crisis was a safer course of action. The point is proven when we look at how things played out in 2009. All gilt funds have suffered during this period. However, the funds' lower maturity has helped in containing the downside well in January and February 2009. Canara Robeco Gilt PGS was down by 3.01% and 0.76%, while the category was down by 6.23% and 1.74% (January and February) respectively. It must be noted that the fund's 2008 performance was at the hands of two fund managers. Suman Prasad was at the helm till June 2008, when Ritesh Jain took over. Jain came from Kotak (KOTAKBANK.NS : 274 -27.7) Mutual, where he ran Kotak Floater LT, Kotak Flexi Debt, Kotak Gilt Inv Regular and Kotak Balance during his 3-year stint.
ICICI (ICICIBANK.NS : 345.45 -39.75) Prudential Gilt Investment PF
Make no mistake, this is an aggressive fund. Fund manager Rahul Goswami has been running the show since October 2005 and his reign has been marked by generally long maturities, aggressive calls and quick movements. For the most part, this has worked out well, especially in the recent past. While 2008 was a great year for practically all gilt funds, this fund was shining much brighter than all others. During the year, its returns were 45.44%, far higher than the average of 24.94%. Even the number two fund was way behind at 36.98%.
The returns were a result of a characteristically nimble action on the maturity front. When the yield came down from 9.33% (July 2008) to 8.67% (August 2008), the fund increased its maturity profile from 9 months to 12 years. As interest rates kept falling further, Goswami increased maturity further to 18.16 years by the end of December 2008. At that point, the average maturity of the other funds of the category was an average of 13.70 years. This gap is what produced the superb performance for the fund.
However, the next two months showed investors the flip side of the approach. In January and February 2009, the fund manager expected the interest rate to go down further and increased the average maturity to 20.19 years (February) while its peers reduced it to 10.82 years. However, when the yield moved up from 5.25% (December) to 6.40% (February) the fund lost money. Commendably, its losses in January and February were in line with the category average (-6.63% vs -6.23% and -2.07% vs -1.74%). During January and February, the fund held a rank of 18 out of 47 funds in the category. Still, this entire episode underscores the importance of scoring big whenever it's possible. Because the fund exploited 2008 so well, its very much top of the heap over the entire period (January 2008 to February 2009). Over a longer term too, this is an outperformer. Since its launch in November 2003, there has never been a year when its returns were less than the category average.
The bottom-line is that this is a smartly-run fund, albeit an aggressive one. If this is the profile you are looking for then ICICI PRU GILT Investment PF is a first rate choice.
Templeton India GSF Long-term
Templeton IGSF Long-Term is a gilt fund that has managed to implement a remarkably balanced approach. It has never raced ahead leaving other funds in the dust; but it has never suffered a severe reversal either. In the seven years since it was launched, its annual returns have always been ahead of the category average. Also, they've always been positive-even in 2004 when the going was tough and the category as a whole lost money (-0.40%), this fund made a reasonable gain of 2.95%.
The most interesting fact about this fund's performance history is that it has done well during both rising and falling interest rate regimes. Between February and July 2008 the yield of the 10-year benchmark paper rose from 7.56% to 9.33%, the fund generated on an average 0.20% return monthly while the category was down with a negative 0.19% return. The average maturity period of the fund was 3.40 years vis- -vis category's 4.09 years. From August the yield started declining and by the end of December it reached 5.25%. The fund gained 4.06% return in comparison to category 4.34%. The average maturity of the fund was 5 years while its category was at 8.74 years. Again in January 2009 when the yield rose to 6.21%, the fund was down by 0.35%, while its category was down 6.23%. The average maturity of the fund was 7.61 years while the category was 12.54 years. Incidentally, during this period (in June 2008), Vivek Ahuja replaced Ninad Deshpande as the fund manager. Deshpande had been at the helm for almost two years.
In its seven years, this fund has reported a maturity less than its stated three years for 13 months. This has helped it handle rising interest rate situations better than many others in the category. The conservative attitude has also meant that the fund exploited the 2008 Q4 bonanza less effectively than category leaders. However, returns for 2008 were still a solid 27.65%, well ahead of the category's 24.94%.
For investors who'd like to balance caution and aggression, Templeton IGSF Long-Term is ideally suited for trying out the occasionally troublesome category of gilt funds. It manages to deliver the better aspects of gilts while filtering out the worst.
Besides gold, gilt is the other category that has caught the fascination of investors. While gold has grabbed attention due to its nature as an asset of the last resort, gilt's reasons for coming into the limelight is its sudden resurgence in performance. In 2008, when equity was coping with negative returns, gilt funds were able to deliver a return of 25.33%. For most of 2008, gilt funds were either non-performers or their usual selves. But this changed when RBI got into action to combat the liquidity crisis with a series of rapid cuts in the repo rate between October and December 2008. With a cut of 2.5% in repo rate and a cut of 3.5% in Cash Reserve Ratio, gilts funds' returns shot through the roof. This over performance was due to 20.69% returns in the last quarter in particular with 12.43% return from just the month of December 2008.
To understand the reason behind this sudden resurgence of gilt funds, we first have to understand what gilt funds are. They are mutual funds that predominantly invest in government securities (G-Secs). Unlike conventional debt funds that invest in debt instruments across the board, gilt funds target just a given category of debt instruments i.e. G-Secs. These are securities issued by RBI on behalf of the government. Being sovereign paper, they do not expose investors to credit risk. They are also the most heavily-traded paper in the market. Banks, insurance companies and provident funds invest in them for safety and statutory reasons. This also ensures adequate liquidity and in turn volatility for G-secs in the market.
Since the market for G-Secs is largely dominated by institutional investors, gilt funds offer retail investors a convenient means to invest in G-Secs. For gilt funds the main source of their income, apart from earning fixed interest, is from the trading gains that accrue due to trading in gilts. With inflation going southward from its peak value in August, for any gilt fund manager it was a foregone conclusion that policy rates would be heading down too. Hence it was only a matter of 'when' not 'if'. Gilt fund managers bought into G-Secs of higher and higher maturity.
Because rate cuts make the older G-Secs with higher interest rates more attractive, with the rise in demand their prices go off the charts enabling the fund manager to make trading profits by selling them. That's exactly what happened: the 10-year benchmark paper's yield (as there is negative correlation between yield and prices) dropped over 320 basis points between October and December 2008. Gilt funds turned in astounding returns of up to 35% in the quarter. These fabulous gains got investors excited. Gilts looked like the obvious way to recoup losses made in equity. Gilts funds assets almost doubled from Rs 2,500 crore in November to Rs 4,800 crore at the end of February, 2009. Falling inflation numbers and increasing uncertainty in the economy forced the RBI to announce a cut in the repo rate by 50 bps on March 4, 2009. But to the dismay of many, the yields refused to budge in response. The gains expected by investors were nowhere to be seen. The reason for this was the on going borrowing programme of the government. Till March 31, 2009, the government needs another Rs 34,000 crore to meet with the current year's budget deficit. In normal course the government would have to issue new bonds to fill this gap. In anticipation of this flood of new bonds, the markets are shying away from any new purchases. The result is that the yield is going up rather than falling. Between March 4, 2009 and March 12, 2009 the yields have gone up by 10%. RBI is on a war footing to soften the yields from this level but the supply of new issue is just too great to provide any relief.
The gilt funds performance for the week ended March 6, 2009 has been lacklustre. The returns of the gilts funds over last one week have been -1.09% (March 1-6, 2009). Furthermore, the fiscal stimulus announced by the government to kick-start the economy has done nothing to help the gilt funds. The only thing it has done for the money market is that it has fuelled a growing apprehension about how the government would be able to finance all the recent expenses. The 10-year G-Sec from the low of 5.02% in January, 2008 has gained 39.86% to touch 7.03% on March 12, 2009. Hence after the spectacular performance in December, most gilt funds are languishing in red. For January and February, gilt funds turned in -6.23 and -1.74% respectively.
Looking at the month-on-month return of gilt funds, it may seem that these have become too risky an investment option. But the fact is this is how gilt funds have always been. Back in 2001 and 2002 when rates were coming down gilts funds were the prime beneficiary. Their returns were comparable with the equity funds returns, but the moment there is a long period of inactivity in the interest rate or if rates are on a upward trend then gilts funds become a very dull investment option. Many a time, interest rates will change in unpredictable ways. At other times, interest rates may be predictable, but their impact on bond prices may hold surprises. There are plenty of funds that increase or decrease maturity violently at the slightest sign-real or imagined-of rate movements. A gilt fund managers' job is to take calls on rates and yields but that doesn't mean that a call has to be taken all the time. Nor does it mean that maturity must always be jerked from one extreme to the other whenever a call is taken. In these unpredictable times, circumspect beliefs and moderation of action is the path that takes care of investors' interests the best. Thus, we have selected three funds that are not the top-performers of the past few months. Nor are they the biggest. But we believe that they fit the above profile well.
It is important to always keep in mind that notwithstanding the credit quality, medium and long-term gilt funds are the most unpredictable animals in the fixed-income zoo. Invest at least for a year and be prepared for short-term shocks.
The author is CEO, Value Research
Canara Robeco Gilt PGS
Over the last few years, Canara Robeco Gilt PGS has established itself as one of the steadier performers of this category. In the five years since 2004, it has more than kept pace with its peers, either outperforming the average gilt fund handsomely, or lagging by a small margin. All in all, Rs 1 lakh invested in this fund would be Rs 1.42 lakh today, as against Rs 1.26 lakh for the average gilt fund. In fixed income terms that's a significant difference. During 2008, which has been a signature year for gilt funds, the fund's returns were an astounding 35.17%, which gave it the 6th rank for the year. However, what impressed us more was the fund's progression through what was an exceptionally turbulent year. During the first three quarters, the fund was ahead of the category average by an average of 2.64% every quarter, adding up to a cumulative lead of 7.92%. In the last quarter, it exploited RBI's interest rate bonanza just as well as the rest, with returns of 20.63% for the three months.
However, the fact that, the fund matched the average and did not do as well as the top funds during the quarter, looks like a positive sign to us. When we observe the maturity changes that fund manager Ritesh Jain affected during that phase, we see a degree of conservatism which we like. During the October liquidity crisis, the fund manager dropped the maturity. When RBI unexpectedly softened rates in November, the fund gained less than its peers.
Investors shouldn't mind this because dropping yields during the global liquidity crisis was a safer course of action. The point is proven when we look at how things played out in 2009. All gilt funds have suffered during this period. However, the funds' lower maturity has helped in containing the downside well in January and February 2009. Canara Robeco Gilt PGS was down by 3.01% and 0.76%, while the category was down by 6.23% and 1.74% (January and February) respectively. It must be noted that the fund's 2008 performance was at the hands of two fund managers. Suman Prasad was at the helm till June 2008, when Ritesh Jain took over. Jain came from Kotak (KOTAKBANK.NS : 274 -27.7) Mutual, where he ran Kotak Floater LT, Kotak Flexi Debt, Kotak Gilt Inv Regular and Kotak Balance during his 3-year stint.
ICICI (ICICIBANK.NS : 345.45 -39.75) Prudential Gilt Investment PF
Make no mistake, this is an aggressive fund. Fund manager Rahul Goswami has been running the show since October 2005 and his reign has been marked by generally long maturities, aggressive calls and quick movements. For the most part, this has worked out well, especially in the recent past. While 2008 was a great year for practically all gilt funds, this fund was shining much brighter than all others. During the year, its returns were 45.44%, far higher than the average of 24.94%. Even the number two fund was way behind at 36.98%.
The returns were a result of a characteristically nimble action on the maturity front. When the yield came down from 9.33% (July 2008) to 8.67% (August 2008), the fund increased its maturity profile from 9 months to 12 years. As interest rates kept falling further, Goswami increased maturity further to 18.16 years by the end of December 2008. At that point, the average maturity of the other funds of the category was an average of 13.70 years. This gap is what produced the superb performance for the fund.
However, the next two months showed investors the flip side of the approach. In January and February 2009, the fund manager expected the interest rate to go down further and increased the average maturity to 20.19 years (February) while its peers reduced it to 10.82 years. However, when the yield moved up from 5.25% (December) to 6.40% (February) the fund lost money. Commendably, its losses in January and February were in line with the category average (-6.63% vs -6.23% and -2.07% vs -1.74%). During January and February, the fund held a rank of 18 out of 47 funds in the category. Still, this entire episode underscores the importance of scoring big whenever it's possible. Because the fund exploited 2008 so well, its very much top of the heap over the entire period (January 2008 to February 2009). Over a longer term too, this is an outperformer. Since its launch in November 2003, there has never been a year when its returns were less than the category average.
The bottom-line is that this is a smartly-run fund, albeit an aggressive one. If this is the profile you are looking for then ICICI PRU GILT Investment PF is a first rate choice.
Templeton India GSF Long-term
Templeton IGSF Long-Term is a gilt fund that has managed to implement a remarkably balanced approach. It has never raced ahead leaving other funds in the dust; but it has never suffered a severe reversal either. In the seven years since it was launched, its annual returns have always been ahead of the category average. Also, they've always been positive-even in 2004 when the going was tough and the category as a whole lost money (-0.40%), this fund made a reasonable gain of 2.95%.
The most interesting fact about this fund's performance history is that it has done well during both rising and falling interest rate regimes. Between February and July 2008 the yield of the 10-year benchmark paper rose from 7.56% to 9.33%, the fund generated on an average 0.20% return monthly while the category was down with a negative 0.19% return. The average maturity period of the fund was 3.40 years vis- -vis category's 4.09 years. From August the yield started declining and by the end of December it reached 5.25%. The fund gained 4.06% return in comparison to category 4.34%. The average maturity of the fund was 5 years while its category was at 8.74 years. Again in January 2009 when the yield rose to 6.21%, the fund was down by 0.35%, while its category was down 6.23%. The average maturity of the fund was 7.61 years while the category was 12.54 years. Incidentally, during this period (in June 2008), Vivek Ahuja replaced Ninad Deshpande as the fund manager. Deshpande had been at the helm for almost two years.
In its seven years, this fund has reported a maturity less than its stated three years for 13 months. This has helped it handle rising interest rate situations better than many others in the category. The conservative attitude has also meant that the fund exploited the 2008 Q4 bonanza less effectively than category leaders. However, returns for 2008 were still a solid 27.65%, well ahead of the category's 24.94%.
For investors who'd like to balance caution and aggression, Templeton IGSF Long-Term is ideally suited for trying out the occasionally troublesome category of gilt funds. It manages to deliver the better aspects of gilts while filtering out the worst.
Mutual Funds bank on rural, non-metro areas to boost AUM
By Chirag Madia
The Mutual Fund (MF) industry has got a new window to offset the redemption pressure faced by it during October 2008. Riding on the mop-up, which has been coming from the non-metro and rural, several fund houses have witnessed a steady increase in their asset under management (AUM). They have registered over 50% growth between November 2008 and February 2009.
LIC MF, ICICI (ICICIBANK.NS : 345.35 -39.85) Prudential and UTI MF's AUM constantly increased after October 2008. Between November 2008 and February 2009, LIC gained over 100% in their AUM, while ICICI added 45% and UTI's AUM rose over 30%. Market players sense that despite the recession and uncertainty in the markets, rural India is their latest target and they have been steadily increasing their exposure in the tier-II and III cities.
Nimesh Shah, MD and CEO of ICICI Prudential Asset Management said, "In the past few months, we have increased our exposure in the tier-II and tier-III cities. Though the markets are facing some pressure, there is tremendous growth in the rural areas."
In November last year, ICICI Prudential's AUM was Rs 37,055.67 crore which has increased to Rs 53,514.07 crore or 44.42%. However LIC MF remained a top performer in the last four months as its AUM gained Rs 12,584.12 crore (107.70%) for February 2009 at Rs 24,268.42 crore, compared to Rs 11,684.30 crore in November last year. IDFC MF also added over Rs 4,913.22 crore or 56.57% in the past four months. Its AUM, which in November 2008 stood at Rs 8,685.71 crore, increased to Rs 13,598.93 crore.
"After the downturn in the markets, eight major cities that used to invest in the MF have decreased their exposure while there has been constant rise from the investors in non-metros in the country," added Shah.
While UTI MF is considerably increasing their branch openings throughout the country, in the past four months they have opened over 17 branches and are planning to open more 20 branches in the next few months. UTI MF's AUM for February 2009 stood at Rs 49,224.93 crore, up Rs 10,866.79 crore or 28.33%, compared to Rs 38,358.14 crore in November 2008.
Officials from UTI MF on condition of anonymity said, "Our target is to complete 150 branches and till date we are with 130 branches. We will be opening rest 20 branches in the next two-three months."
Sunday March 29, 01:40 AM Source: Indian Express Finance
The Mutual Fund (MF) industry has got a new window to offset the redemption pressure faced by it during October 2008. Riding on the mop-up, which has been coming from the non-metro and rural, several fund houses have witnessed a steady increase in their asset under management (AUM). They have registered over 50% growth between November 2008 and February 2009.
LIC MF, ICICI (ICICIBANK.NS : 345.35 -39.85) Prudential and UTI MF's AUM constantly increased after October 2008. Between November 2008 and February 2009, LIC gained over 100% in their AUM, while ICICI added 45% and UTI's AUM rose over 30%. Market players sense that despite the recession and uncertainty in the markets, rural India is their latest target and they have been steadily increasing their exposure in the tier-II and III cities.
Nimesh Shah, MD and CEO of ICICI Prudential Asset Management said, "In the past few months, we have increased our exposure in the tier-II and tier-III cities. Though the markets are facing some pressure, there is tremendous growth in the rural areas."
In November last year, ICICI Prudential's AUM was Rs 37,055.67 crore which has increased to Rs 53,514.07 crore or 44.42%. However LIC MF remained a top performer in the last four months as its AUM gained Rs 12,584.12 crore (107.70%) for February 2009 at Rs 24,268.42 crore, compared to Rs 11,684.30 crore in November last year. IDFC MF also added over Rs 4,913.22 crore or 56.57% in the past four months. Its AUM, which in November 2008 stood at Rs 8,685.71 crore, increased to Rs 13,598.93 crore.
"After the downturn in the markets, eight major cities that used to invest in the MF have decreased their exposure while there has been constant rise from the investors in non-metros in the country," added Shah.
While UTI MF is considerably increasing their branch openings throughout the country, in the past four months they have opened over 17 branches and are planning to open more 20 branches in the next few months. UTI MF's AUM for February 2009 stood at Rs 49,224.93 crore, up Rs 10,866.79 crore or 28.33%, compared to Rs 38,358.14 crore in November 2008.
Officials from UTI MF on condition of anonymity said, "Our target is to complete 150 branches and till date we are with 130 branches. We will be opening rest 20 branches in the next two-three months."
Sunday March 29, 01:40 AM Source: Indian Express Finance
Tuesday, March 24, 2009
Equity funds shy away from pre-poll bets
Indian stock fund managers are opting to sit on cash or even raise it, ahead of a general election which poses a serious event risk to a choppy share market, already spooked by a slowing economy.
The Lok Sabha election between April 16 and May 13 comes amid a decline in the economy, expected to expand 7.1 per cent in fiscal 2008/09, the slowest pace in six years, with analysts predicting even slower growth next year.
Demand has slumped and exports have dipped sharply and a widening fiscal deficit has many investors worried.
Adding to the fund managers' concerns are doubts over the stability and composition of the new government, seen critical to fix the moderating economy, as allies of the two main coalitions bargain for more seats and as some old alliances fall apart.
In response, they are seeking safety in cash and cutting exposure to shares of medium and small-sized firms, seen as being more vulnerable to the market volatility expected before the new government takes oath by early June.
Until the elections end "it is a bit difficult for the market to really start moving up on a consistent basis," Srividhya Rajesh, vice president for equity funds at Sundaram BNP Paribas Asset Management said in an interview last week.
Her firm, an unit of BNP Paribas, holds a fifth of its stock fund assets in cash and sees no major trigger for actively buying stocks ahead of the election.
This concern is shared by many fund firms who have raised the average cash levels held by stock funds to a multi-year high of 18 per cent, at the end of February from about 14 per cent during the start of the year, according to data from fund tracker ICRA.
Allocation to relatively riskier mid- and small-cap stocks dropped to 31.43 per cent at end-February from 36.44 per cent during the start of the year.
Adding to these complexities is a burgeoning fiscal deficit, seen at 6 per cent of the gross domestic product in FY09, its highest since 2001/02, and sharply above the budget estimate of 2.5 per cent.
UNCERTAINTY
"Most of these portfolio managers are acting very conservative... they want to protect the downside," said Chintamani Dagade, a senior research analyst with the Indian arm of US fund research firm Morningstar, said.
Citing his interactions with domestic fund managers, he said "they are really uncertain" as they see a sharp downside risk ahead of the polls.
"It is certainly a big risk in this situation and they certainly don't want to bet on that," Dagade said. But he added that the jitters are limited to the short-term, and expects managers will resume taking long-term bets after the election.
"If you look at the current visible signals, they don't give you a lot of conviction," said Sanjay Sinha, chief executive of DBS Cholamandalam Asset Management.
But Sinha added that timing the market perfectly is an unwise exercise, and has consequently trimmed cash levels.
Tuesday March 24, 12:12 PM Source: Financial Express
The Lok Sabha election between April 16 and May 13 comes amid a decline in the economy, expected to expand 7.1 per cent in fiscal 2008/09, the slowest pace in six years, with analysts predicting even slower growth next year.
Demand has slumped and exports have dipped sharply and a widening fiscal deficit has many investors worried.
Adding to the fund managers' concerns are doubts over the stability and composition of the new government, seen critical to fix the moderating economy, as allies of the two main coalitions bargain for more seats and as some old alliances fall apart.
In response, they are seeking safety in cash and cutting exposure to shares of medium and small-sized firms, seen as being more vulnerable to the market volatility expected before the new government takes oath by early June.
Until the elections end "it is a bit difficult for the market to really start moving up on a consistent basis," Srividhya Rajesh, vice president for equity funds at Sundaram BNP Paribas Asset Management said in an interview last week.
Her firm, an unit of BNP Paribas, holds a fifth of its stock fund assets in cash and sees no major trigger for actively buying stocks ahead of the election.
This concern is shared by many fund firms who have raised the average cash levels held by stock funds to a multi-year high of 18 per cent, at the end of February from about 14 per cent during the start of the year, according to data from fund tracker ICRA.
Allocation to relatively riskier mid- and small-cap stocks dropped to 31.43 per cent at end-February from 36.44 per cent during the start of the year.
Adding to these complexities is a burgeoning fiscal deficit, seen at 6 per cent of the gross domestic product in FY09, its highest since 2001/02, and sharply above the budget estimate of 2.5 per cent.
UNCERTAINTY
"Most of these portfolio managers are acting very conservative... they want to protect the downside," said Chintamani Dagade, a senior research analyst with the Indian arm of US fund research firm Morningstar, said.
Citing his interactions with domestic fund managers, he said "they are really uncertain" as they see a sharp downside risk ahead of the polls.
"It is certainly a big risk in this situation and they certainly don't want to bet on that," Dagade said. But he added that the jitters are limited to the short-term, and expects managers will resume taking long-term bets after the election.
"If you look at the current visible signals, they don't give you a lot of conviction," said Sanjay Sinha, chief executive of DBS Cholamandalam Asset Management.
But Sinha added that timing the market perfectly is an unwise exercise, and has consequently trimmed cash levels.
Tuesday March 24, 12:12 PM Source: Financial Express
Free pricing of MFs could aid investors
While the investment markets go through ups and downs, many mutual fund distributors are increasingly concerned about the new commission rules that the Securities and Exchange Board of India (SEBI) may be in the process of introducing.
Since I last wrote about this a few weeks ago, I have come across a number of distributors who feel that the new rules will completely disrupt this business. Mutual fund distributors have thus far been paid a commission by the fund company, deducted from the investment an investor has made, with the commission decided between the distributor and the company.
The proposed rules envisage a system under which the distributor and the investor will negotiate a commission, which would be paid either directly by the investor to the distributor or through the fund company. Regardless of the route, if the proposals become rules, there will be free, negotiated pricing. And that is scary for distributors.
Are these fears justified? I'm not sure, but the situation does remind me of an article I read on cnn.com a couple of days back. In a town in Ohio, USA, a caf and #233;, of all businesses, has switched to an open pricing policy and is apparently thriving. Sam Lippert, the caf and #233;'s owner, has removed all prices from his menu.
When patrons finish their meal, they tell him what they thought the food was worth - and pay it. He accepts whatever they offer without complaint or comment.
Sales are up due to the novelty factor, and Lippert finds that his price realisation is also higher: some pay less than what he would have charged, but others pay more. Lippert got the idea from his Bulgarian girlfriend, who told him that in parts of Europe, some cafes allowed customers to decide on a meal's worth.
Will free pricing work in the distribution of retail financial products? I believe it will. Also, I believe that smaller distributors may be at an advantage if this happens. A recently-sacked sales guy from a top-flight 'wealth management' outfit told me in a confessional conversation that the big outfits consciously churned investor holdings because that was the only way they could make any profit. If an investment is uselessly churned four times a year, the company makes eight per cent instead of two. This would be harder to do under the kind of transparency new rules will bring in.
A differentiated market where different suppliers offer different prices depending on the depth of services will eventually be better for all concerned. From what I hear, there are plenty of lobbies at work to maintain the status quo.
Since I last wrote about this a few weeks ago, I have come across a number of distributors who feel that the new rules will completely disrupt this business. Mutual fund distributors have thus far been paid a commission by the fund company, deducted from the investment an investor has made, with the commission decided between the distributor and the company.
The proposed rules envisage a system under which the distributor and the investor will negotiate a commission, which would be paid either directly by the investor to the distributor or through the fund company. Regardless of the route, if the proposals become rules, there will be free, negotiated pricing. And that is scary for distributors.
Are these fears justified? I'm not sure, but the situation does remind me of an article I read on cnn.com a couple of days back. In a town in Ohio, USA, a caf and #233;, of all businesses, has switched to an open pricing policy and is apparently thriving. Sam Lippert, the caf and #233;'s owner, has removed all prices from his menu.
When patrons finish their meal, they tell him what they thought the food was worth - and pay it. He accepts whatever they offer without complaint or comment.
Sales are up due to the novelty factor, and Lippert finds that his price realisation is also higher: some pay less than what he would have charged, but others pay more. Lippert got the idea from his Bulgarian girlfriend, who told him that in parts of Europe, some cafes allowed customers to decide on a meal's worth.
Will free pricing work in the distribution of retail financial products? I believe it will. Also, I believe that smaller distributors may be at an advantage if this happens. A recently-sacked sales guy from a top-flight 'wealth management' outfit told me in a confessional conversation that the big outfits consciously churned investor holdings because that was the only way they could make any profit. If an investment is uselessly churned four times a year, the company makes eight per cent instead of two. This would be harder to do under the kind of transparency new rules will bring in.
A differentiated market where different suppliers offer different prices depending on the depth of services will eventually be better for all concerned. From what I hear, there are plenty of lobbies at work to maintain the status quo.
Subscribe to:
Posts (Atom)