Mukherjee said the government was ready to manage a drought and a contingency plan was also in place.
More than a quarter of India's districts are facing the threat of drought and the sowing of crops nationally is 20 percent lower than in the previous year, Finance Minister Pranab Mukherjee said on Tuesday.
While many of these districts are not major crop producers, the minister's statement underscored growing government concern that a weak monsoon could reduce output of crops like rice and dampen economic growth already hit by a global recession.
After the driest June in 83 years, the annual rains have been more than a quarter below below normal this season.
The minister said he expected the economy to expand more than 6 percent in 2009/10, in line with the central bank's outlook, although some private economists have warned that the risk is to the downside given the poor monsoon performance.
"Monsoon situation is still erratic," Mukherjee told reporters. "One hundred and sixty one districts have been declared drought prone. So far as sowing is concerned, 20 percent would be down," he said. India has 604 districts. He did not specify the drought-prone districts.
The rain deficit since June 1 worsened to 28 percent at the weekend, raising fears that the season may turn out to be as bad as 2004 when summer crop output fell 12 percent after a drought. GDP fell to 7.5 percent that fiscal year from 8.5 percent in the previous year.
The rains are vital for sugarcane, oilseeds and other crops, although the impact has been more severe for certain crops -- particularly rice -- than for many others. A feared shortfall in the sugar harvest has lifted global prices to near record highs.
Mukherjee said the government was ready to manage a drought and a contingency plan was also in place.
"Of course, always there is a contingency plan," the minister said. "There is no point of pressing the panic button because you will go and start chanting drought, drought, drought and it will have an adverse impact," he said.
Among measures the government could take to mitigate the situation are to raise imports and curtail exports. It has already stepped up efforts to buy more sugar and has banned wheat exports and restricted rice shipments.
"Fortunately, Punjab and Haryana have extensively used the ground water. Bihar and certain other states, there are shortfalls," Mukherjee said.
Mukherjee was also confident that targets for direct tax receipts for the 2009/10 fiscal year would be surpassed.
GROWTH THREATENED
Asia's third largest economy expanded 6.7 percent in the last fiscal year, sharply lower than the 9 percent or more it grew in the previous three years, as the global economic crisis took a toll.
"It's still a budding recovery so the deficient monsoon has overshadowed the recovery process," said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai.
"Growth of around 6 percent is feasible despite the fact that monsoon has so far been deficient, but it being above 6.5 percent or in the range of 6.5 to 7 percent looks impossible," she said.
Last month, farm minister Sharad Pawar told the parliament that four states -- Manipur, Jharkahand, Assam and Uttar Pradesh -- declared drought in certain pockets. On Monday, the eastern state of Bihar also declared drought in 26 of 38 districts.
Other than Uttar Pradesh, which accounts of almost half of the country's sugarcane production, other drought-hit states do not make a significant contribution
www.reuters.in
Tuesday, August 11, 2009
M&M Enters Private Equity ; Forms Mahindra Partners
Anand Mahindra said that Mahindra Partners will look after new business opportunities for the group.
Diversified business group Mahindra & Mahindra (M&M) is the latest business house to form an in-house private equity fund. The company will make proprietary investments from Mahindra Partners.
Anand Mahindra, Vice-Chairman and Managing Director of M&M told ET Now, a domestic business news channel that the new division will be the group’s growth driver in the future. The PE vertical is a ‘fairly significant change’ in the architecture of the group, Mahindra added.
He further stated that unlike conventional private equity, Mahindra Partners will be allowed more elbow room to scale up its start-ups and not pressured to get in and out of a business within a certain period of time.
From now on, Mahindra Partners will look after new business opportunities for the group and will determine whether there is enough potential to enter in or not.
R-ADAG, Aditya Birla group, Nicholas Piramal and Tatas have already tested the private equity waters.
M&M is part of a $ 6.7 billion conglomerate Mahindra Group. It has presence in sectors including automobiles, trade, automotive components, information technology, holidays, financial services, retail and logistics, engineering, steel and infrastructure development.
In the first quarter ended on June 30, 2009, Mahindra & Mahindra Ltd saw a growth of 26.3% in its gross revenue from its corresponding figure in the previous year. The revenue of the company stood at Rs4751.3 crore as against Rs3760.7 crore during the corresponding period last year.
The net profit before tax for the quarter was Rs 538.1 crore as against Rs213.4 crore in Q1 last year – a growth of 152.1%.
Source:-www.vccircle.com
Diversified business group Mahindra & Mahindra (M&M) is the latest business house to form an in-house private equity fund. The company will make proprietary investments from Mahindra Partners.
Anand Mahindra, Vice-Chairman and Managing Director of M&M told ET Now, a domestic business news channel that the new division will be the group’s growth driver in the future. The PE vertical is a ‘fairly significant change’ in the architecture of the group, Mahindra added.
He further stated that unlike conventional private equity, Mahindra Partners will be allowed more elbow room to scale up its start-ups and not pressured to get in and out of a business within a certain period of time.
From now on, Mahindra Partners will look after new business opportunities for the group and will determine whether there is enough potential to enter in or not.
R-ADAG, Aditya Birla group, Nicholas Piramal and Tatas have already tested the private equity waters.
M&M is part of a $ 6.7 billion conglomerate Mahindra Group. It has presence in sectors including automobiles, trade, automotive components, information technology, holidays, financial services, retail and logistics, engineering, steel and infrastructure development.
In the first quarter ended on June 30, 2009, Mahindra & Mahindra Ltd saw a growth of 26.3% in its gross revenue from its corresponding figure in the previous year. The revenue of the company stood at Rs4751.3 crore as against Rs3760.7 crore during the corresponding period last year.
The net profit before tax for the quarter was Rs 538.1 crore as against Rs213.4 crore in Q1 last year – a growth of 152.1%.
Source:-www.vccircle.com
Saturday, August 8, 2009
Market Sentiments Should Not Affect Investor Strategy
2009 has already been a year of two halves - the first quarter marked by pessimism and the subsequent by optimism.
From an investor perspective, neither of these are desirable states to base an investment decision.
It is important to have your long-term goals, ability to take risk and requirements of liquidity at the top of the pecking order at all times. This should lead to a serious thought on the appropriate asset allocation.
If this is the framework guiding your investment and is coupled with profit booking when valuation levels get outlandish, the odds are to move in your favour to meet long-term and short-term financial goals.
We have looked at the patterns of monthly inflows and outflows from different categories of mutual fund products across the industry over a ten-year period. There is high degree of correlation between the inflows and the market trend as well as outflows and the market trend.
The magnitude of the former is significantly higher than the latter in a bullish phase while that is not the case in bearish phases.
This indicates two aspects:
• A sizeable cross-section of investors appear to get interested in equity only in the later stages of a bull market.
• A section of investors appear to take profits as equities move towards peak levels, probably to avoid negative effects of deep declines.
Outflows assume a larger dimension only when a downturn gets more protracted. We hope to publish a detailed analysis in the next month or two as information is now available from the Association of Mutual Funds of India for a ten-year period.
What has been indicated is only from a first-cut analysis of the numbers.
Even this points to optimism and pessimism playing a major role in the manner most investors execute plans to deploy their savings. This is not, in our view, appropriate for investors from a long-term perspective.
(T P Raman is Managing Director, Sundaram BNP Paribas Asset Management. The opinions expressed are his own)
Sources:-Ww.REuters.in
From an investor perspective, neither of these are desirable states to base an investment decision.
It is important to have your long-term goals, ability to take risk and requirements of liquidity at the top of the pecking order at all times. This should lead to a serious thought on the appropriate asset allocation.
If this is the framework guiding your investment and is coupled with profit booking when valuation levels get outlandish, the odds are to move in your favour to meet long-term and short-term financial goals.
We have looked at the patterns of monthly inflows and outflows from different categories of mutual fund products across the industry over a ten-year period. There is high degree of correlation between the inflows and the market trend as well as outflows and the market trend.
The magnitude of the former is significantly higher than the latter in a bullish phase while that is not the case in bearish phases.
This indicates two aspects:
• A sizeable cross-section of investors appear to get interested in equity only in the later stages of a bull market.
• A section of investors appear to take profits as equities move towards peak levels, probably to avoid negative effects of deep declines.
Outflows assume a larger dimension only when a downturn gets more protracted. We hope to publish a detailed analysis in the next month or two as information is now available from the Association of Mutual Funds of India for a ten-year period.
What has been indicated is only from a first-cut analysis of the numbers.
Even this points to optimism and pessimism playing a major role in the manner most investors execute plans to deploy their savings. This is not, in our view, appropriate for investors from a long-term perspective.
(T P Raman is Managing Director, Sundaram BNP Paribas Asset Management. The opinions expressed are his own)
Sources:-Ww.REuters.in
Friday, August 7, 2009
Interview with Fund Managers-ING Investment Management India
INR to strengthen vis- a- vis the USD, says K Ramanathan, VP & Head-Fixed Income, ING Investment Management India. Excerpt:
What is your expectation on Indian Rupee movement over US$ over the next one month, one quarter, and the current fiscal. What factors do you feel will be responsible for such movement.
Going forward, we expect the INR to strengthen vis- a- vis the USD. The reasoning is simple; Increasing risk appetite will lead to increase in capital inflows into emerging markets including India. In addition, the global economic climate is only expected to improve. This would translate into a substantial increase in offshore business and lead to better export performance. This scenario offers corporates more incentive to sell USD INR spot/forward at current exchange rate levels.
Though the USD/INR exchange rates in the near term would fluctuate, a strong change in leadership at the centre is expected to be positive for long term capital inflows including FDI. The Balance of Payments (BOP) position is also estimated to become on account of recent oil discoveries and improved FII inflows.
On the contrary, we also need to factor in a couple of scenarios. Any northward crude oil price movement would mean more demand for the USD from oil companies and a stronger USD. And any slippage in global economic recovery would also enable a rally in favour of the USD.
What is your expectation on Indian Rupee movement over US$ over the next one month, one quarter, and the current fiscal. What factors do you feel will be responsible for such movement.
Going forward, we expect the INR to strengthen vis- a- vis the USD. The reasoning is simple; Increasing risk appetite will lead to increase in capital inflows into emerging markets including India. In addition, the global economic climate is only expected to improve. This would translate into a substantial increase in offshore business and lead to better export performance. This scenario offers corporates more incentive to sell USD INR spot/forward at current exchange rate levels.
Though the USD/INR exchange rates in the near term would fluctuate, a strong change in leadership at the centre is expected to be positive for long term capital inflows including FDI. The Balance of Payments (BOP) position is also estimated to become on account of recent oil discoveries and improved FII inflows.
On the contrary, we also need to factor in a couple of scenarios. Any northward crude oil price movement would mean more demand for the USD from oil companies and a stronger USD. And any slippage in global economic recovery would also enable a rally in favour of the USD.
Mutual Fund Investing - What To Avoid
The equity markets are on the rise. New fund offers are again the rage. And once again, you are receiving solicitations from your so-called financial advisors to invest in mutual funds so that you don’t miss the boat. At times like these it's important to keep some tips in mind.
1. Invest in Funds backed by experienced Asset Management Companies and Asset Managers: If you had the choice, you’d probably go to an experienced doctor rather than someone fresh out of medical school. Same with mutual funds. Invest through an experienced asset management company and a fund manager, both of whom have operating and investment history in India.
2. Cheapest is not the best: This is probably the most common and silly mistake that investors make when investing in mutual funds. For some reason they think that a Rs 10 net asset value (NAV) is better than a Rs 20 existing fund of the same category and type because the former is cheaper.
What matters is the amount of money you are putting in. Rs 1 lakh put into a either fund will grow the same amount assuming that both funds invested in the same underlying securities. So, whether Rs 10 grows to Rs 12, a 20% increase, or Rs 20 goes to Rs 24, it’s the same thing.
3. Don’t invest in a new fund if a previous one of the same category exists: At the time of a new fund’s launch, there is a lot of hype created through advertising aimed at enticing you to invest.
However, there might be a fund of this type already existing, which might be a better option because it has had an operating history for a while, as well as proven risk management experience in that category. You are better off avoiding the new fund at launch and investing in the older fund of the same category.
4. Understand your risk appetite: Not all medicines are suited to all patients. Some patients can handle a higher dosage depending upon their age, their allergies, their size etc.
Similarly, not all mutual funds are meant for everyone. Before you invest blindly, understand the risks involved and evaluate whether you can handle the risks associated with the fund and its underlying exposure.
5. Build a strong foundation: Just like a house needs a strong foundation, so does your mutual fund portfolio. You need to make sure you have a safe and stable exposure to index funds, large cap diversified funds before you start exposing yourself to sector and industry specific funds, which are usually of a higher risk.
6. Be realistic about returns: Trees don’t grow to the sky, and neither do stock market returns. Be realistic about what returns you can expect. Your money is unlikely to double in the next two years through mutual funds, and don’t fall for the salesmanship of your advisor.
7. Give your money the chance to compound: By chopping and changing your portfolio and getting in and out of funds frequently you are disturbing the process of compounding and not giving your money the ability to grow. Be patient, even if in the short term a fund might not be doing well.
1. Invest in Funds backed by experienced Asset Management Companies and Asset Managers: If you had the choice, you’d probably go to an experienced doctor rather than someone fresh out of medical school. Same with mutual funds. Invest through an experienced asset management company and a fund manager, both of whom have operating and investment history in India.
2. Cheapest is not the best: This is probably the most common and silly mistake that investors make when investing in mutual funds. For some reason they think that a Rs 10 net asset value (NAV) is better than a Rs 20 existing fund of the same category and type because the former is cheaper.
What matters is the amount of money you are putting in. Rs 1 lakh put into a either fund will grow the same amount assuming that both funds invested in the same underlying securities. So, whether Rs 10 grows to Rs 12, a 20% increase, or Rs 20 goes to Rs 24, it’s the same thing.
3. Don’t invest in a new fund if a previous one of the same category exists: At the time of a new fund’s launch, there is a lot of hype created through advertising aimed at enticing you to invest.
However, there might be a fund of this type already existing, which might be a better option because it has had an operating history for a while, as well as proven risk management experience in that category. You are better off avoiding the new fund at launch and investing in the older fund of the same category.
4. Understand your risk appetite: Not all medicines are suited to all patients. Some patients can handle a higher dosage depending upon their age, their allergies, their size etc.
Similarly, not all mutual funds are meant for everyone. Before you invest blindly, understand the risks involved and evaluate whether you can handle the risks associated with the fund and its underlying exposure.
5. Build a strong foundation: Just like a house needs a strong foundation, so does your mutual fund portfolio. You need to make sure you have a safe and stable exposure to index funds, large cap diversified funds before you start exposing yourself to sector and industry specific funds, which are usually of a higher risk.
6. Be realistic about returns: Trees don’t grow to the sky, and neither do stock market returns. Be realistic about what returns you can expect. Your money is unlikely to double in the next two years through mutual funds, and don’t fall for the salesmanship of your advisor.
7. Give your money the chance to compound: By chopping and changing your portfolio and getting in and out of funds frequently you are disturbing the process of compounding and not giving your money the ability to grow. Be patient, even if in the short term a fund might not be doing well.
Tuesday, July 28, 2009
Mutual Fund Distribuots May Waive Off Brokerage For Samll Investors.
Firms want to avoid handling the low-value cheques they would have to collect if they charge small investors
Some mutual fund distribution companies, which predominantly cater to low-value retail investors, have decided not to charge for their services from customers beginning August. Even larger distributors, which handle a broader variety of clients including high net-worth investors and companies, have decided to keep a no-commission model open for smaller investors.
A July rule from capital markets regulator Securities and Exchange Board of India, or Sebi, does away with entry loads of up to 2.25% for investors and caps at 1% the portion of exit loads used for marketing expenses.
However, the new regulation, effective 1 August, has created a logistical logjam for distributors.
Earlier, the invested amount would go directly to the asset management company, which would deduct the commission and pass it on to the agent. Under the new regulation, if a person invests Rs1,000, distributors will need to collect a cheque of Rs25 as commission separately.
Rather than increase overhead costs by investing in technology, staff and other back-end services, and hoping for the customer to pay for it, some companies have decided to entirely do away with commissions for small, retail investors.
J. Rajagopalan, managing director, Bluechip Corporate Investment Centre Ltd, 90% of whose clientele is retail investors, says, “For a multi-location distribution house like us with 240 locations, managing back-office operations becomes a huge issue. We do not have the infrastructure to manage the flood of low-value cheques that will hit us if we implement the twin-cheque system. Internally, we have decided we will not charge investors from 1 August.”
Also, charging investors under the new environment is not going to be an easy task, said K. Venkitesh, national head (distribution), Geojit BNP Paribas Financial Services Ltd.
“Imagine buying a shirt for Rs600 and giving two cheques, one for the manufacturer for Rs450 and one for the shopkeeper for the remaining amount. This is the same thing. It is not going to be easy to convince the consumer what he is paying for,” he said.
New Delhi-based Bajaj Capital Ltd had also decided to forego a commission for low-value customers. “We don’t like charging the customer. If a person really wants only the transaction services and does not want any advisory or support services, we will not charge,” said joint managing director Sanjiv Bajaj.
However, he added that if a customer wanted services such as consolidated statements, portfolio advice, etc., he would have to pay for it.
Rajagopalan of Bluechip said the trail commission, which agents get from fund houses at the end of the year based on the assets they helped bring in, would help them cover costs of providing services to retail investors.
New distribution companies, however, have already started offering the no-commission model, saying that the new model will, in the long term, work to everyone’s benefit.
Chennai-based Wealth India Financial Services, has launched a free website where investors can buy and sell funds without paying any upfront charges.
“We decided to start a company that would be positioned to take advantage of this development,” said Srikanth Meenakshi, director, Wealth India Financial Services. “We launched FundsIndia.com, where retail investors could come (and) register, become investors and buy or sell mutual funds with no loads, no transaction fees for any amount.”
FundIndia has empanelled with 16 mutual funds and is in talks with more. It plans to have a country-wide online-only network without any regional sales points, a low-cost, scalable model that can be sustained with just the trail commission.
S. Raghunathan, head of Computer Age Management Services Pvt. Ltd, an industry veteran who has been associated with the mutual fund industry for at least three decades, said the new regulation would work out to be a “win-win” situation. “As we reduce distribution costs, more and more people will start gaining confidence and volumes will grow. As volumes grow, everybody can make enough money through the trail commissions.” He cites the example of the demat revolution that changed the face of the brokerage industry 15 years ago.
“When demat was first introduced, people had similar apprehensions. They thought life would become difficult for the brokers. But look at what has happened. Volumes have grown exponentially. I expect a similar result here also,” he said.
However, the no-commission model will not be the only model in operation. Distribution comes at a cost and someone will have to bear the cost if not the consumer, say some distributors.
While there is some expectation that fund houses will fray some of the costs, say experts, there is also the hope that this will lead to innovation in distribution models such as deep discount brokers, discount brokers, premium brokers and full advisories.
Some mutual fund distribution companies, which predominantly cater to low-value retail investors, have decided not to charge for their services from customers beginning August. Even larger distributors, which handle a broader variety of clients including high net-worth investors and companies, have decided to keep a no-commission model open for smaller investors.
A July rule from capital markets regulator Securities and Exchange Board of India, or Sebi, does away with entry loads of up to 2.25% for investors and caps at 1% the portion of exit loads used for marketing expenses.
However, the new regulation, effective 1 August, has created a logistical logjam for distributors.
Earlier, the invested amount would go directly to the asset management company, which would deduct the commission and pass it on to the agent. Under the new regulation, if a person invests Rs1,000, distributors will need to collect a cheque of Rs25 as commission separately.
Rather than increase overhead costs by investing in technology, staff and other back-end services, and hoping for the customer to pay for it, some companies have decided to entirely do away with commissions for small, retail investors.
J. Rajagopalan, managing director, Bluechip Corporate Investment Centre Ltd, 90% of whose clientele is retail investors, says, “For a multi-location distribution house like us with 240 locations, managing back-office operations becomes a huge issue. We do not have the infrastructure to manage the flood of low-value cheques that will hit us if we implement the twin-cheque system. Internally, we have decided we will not charge investors from 1 August.”
Also, charging investors under the new environment is not going to be an easy task, said K. Venkitesh, national head (distribution), Geojit BNP Paribas Financial Services Ltd.
“Imagine buying a shirt for Rs600 and giving two cheques, one for the manufacturer for Rs450 and one for the shopkeeper for the remaining amount. This is the same thing. It is not going to be easy to convince the consumer what he is paying for,” he said.
New Delhi-based Bajaj Capital Ltd had also decided to forego a commission for low-value customers. “We don’t like charging the customer. If a person really wants only the transaction services and does not want any advisory or support services, we will not charge,” said joint managing director Sanjiv Bajaj.
However, he added that if a customer wanted services such as consolidated statements, portfolio advice, etc., he would have to pay for it.
Rajagopalan of Bluechip said the trail commission, which agents get from fund houses at the end of the year based on the assets they helped bring in, would help them cover costs of providing services to retail investors.
New distribution companies, however, have already started offering the no-commission model, saying that the new model will, in the long term, work to everyone’s benefit.
Chennai-based Wealth India Financial Services, has launched a free website where investors can buy and sell funds without paying any upfront charges.
“We decided to start a company that would be positioned to take advantage of this development,” said Srikanth Meenakshi, director, Wealth India Financial Services. “We launched FundsIndia.com, where retail investors could come (and) register, become investors and buy or sell mutual funds with no loads, no transaction fees for any amount.”
FundIndia has empanelled with 16 mutual funds and is in talks with more. It plans to have a country-wide online-only network without any regional sales points, a low-cost, scalable model that can be sustained with just the trail commission.
S. Raghunathan, head of Computer Age Management Services Pvt. Ltd, an industry veteran who has been associated with the mutual fund industry for at least three decades, said the new regulation would work out to be a “win-win” situation. “As we reduce distribution costs, more and more people will start gaining confidence and volumes will grow. As volumes grow, everybody can make enough money through the trail commissions.” He cites the example of the demat revolution that changed the face of the brokerage industry 15 years ago.
“When demat was first introduced, people had similar apprehensions. They thought life would become difficult for the brokers. But look at what has happened. Volumes have grown exponentially. I expect a similar result here also,” he said.
However, the no-commission model will not be the only model in operation. Distribution comes at a cost and someone will have to bear the cost if not the consumer, say some distributors.
While there is some expectation that fund houses will fray some of the costs, say experts, there is also the hope that this will lead to innovation in distribution models such as deep discount brokers, discount brokers, premium brokers and full advisories.
Friday, July 10, 2009
With no entry load, MF distributors eye HNIs
With market regulator Securities and Exchange Board of India (Sebi) abolishing 'entry load' for investors from August 1 2009, several distributors have slightly altered plans to include high net-worth individuals (HNIs) in their targets rather than retail investors. With the ban on entry load or commission an investor pays while purchasing units of a mutual fund, the earnings of distributors will take a huge hit, and they would want to compensate for this by targeting HNIs.
According to mutual funds players, this will be the distributor strategy for at least the first few months starting August 1.
Distributors feel HNIs will provide appropriate remuneration for their advice, while it will take few months for retail investors to decipher with their distributor a 'non entry load' fee structure for advice rendered.
Kanwar Vivek, CEO of Birla Sun Life wealth management says, "The move to end the entry load structure is one of the ground-breaking events for the Indian mutual fund (MF) industry. We are planning several strategies that can attract investors after August 1. However, for the first few months, we will be targeting HNIs along with retail investors. We are also preparing what commission we can charge from retail investors, as this step has been taken to help retail investors investing in MF."
Last month, Sebi had banned entry load from August 1 in all the MF schemes. A senior official from one of the leading asset management companies (AMC) said, "This move will have a huge impact on the distributors and independent financial advisor (IFAs). However, we might not see any major New Fund Offer (NFO) in the coming months, due to this ban on entry load. It will take at least a year for things to settle, but in the long term, this can be very helpful for retail investors."
In the month of June, MF assets under management (AUM) stood at Rs 6,70,993.13 crore, a rise of 4.98% or Rs 31,863.31 crore compared to Rs 6,39,129.81 crore in May. Sebi has directed AMCs to carry a suitable 'disclosure' on application forms that upfront commission will be paid by investors directly to the distributors based on their assessment of various factors including the service rendered by the distributor.
On 'exit load' paid by investors, Sebi said that a maximum of 1% will be maintained in a separate account by mutual fund companies to pay commission to the distributors. It directed distributors to disclose all commissions payable to them for different competing schemes of various mutual funds.
According to mutual funds players, this will be the distributor strategy for at least the first few months starting August 1.
Distributors feel HNIs will provide appropriate remuneration for their advice, while it will take few months for retail investors to decipher with their distributor a 'non entry load' fee structure for advice rendered.
Kanwar Vivek, CEO of Birla Sun Life wealth management says, "The move to end the entry load structure is one of the ground-breaking events for the Indian mutual fund (MF) industry. We are planning several strategies that can attract investors after August 1. However, for the first few months, we will be targeting HNIs along with retail investors. We are also preparing what commission we can charge from retail investors, as this step has been taken to help retail investors investing in MF."
Last month, Sebi had banned entry load from August 1 in all the MF schemes. A senior official from one of the leading asset management companies (AMC) said, "This move will have a huge impact on the distributors and independent financial advisor (IFAs). However, we might not see any major New Fund Offer (NFO) in the coming months, due to this ban on entry load. It will take at least a year for things to settle, but in the long term, this can be very helpful for retail investors."
In the month of June, MF assets under management (AUM) stood at Rs 6,70,993.13 crore, a rise of 4.98% or Rs 31,863.31 crore compared to Rs 6,39,129.81 crore in May. Sebi has directed AMCs to carry a suitable 'disclosure' on application forms that upfront commission will be paid by investors directly to the distributors based on their assessment of various factors including the service rendered by the distributor.
On 'exit load' paid by investors, Sebi said that a maximum of 1% will be maintained in a separate account by mutual fund companies to pay commission to the distributors. It directed distributors to disclose all commissions payable to them for different competing schemes of various mutual funds.
Saturday, July 4, 2009
India Funds dominate world top-100 stock funds in Q2
MUMBAI (Reuters) - Fifty one India-focused funds were among the world's top 100 performing stock funds in the quarter to June as domestic shares leapt by nearly half, recording their biggest surge in 17 years, data from fund tracker Lipper showed.
They are led by those investing in shares of infrastructure firms, a favoured theme in Asia's third largest economy after the Congress-lead coalition won a strong mandate in April-May polls raising hopes for higher spending on roads, ports and bridges.
The Lipper's list of 29,942 world stock funds with a track record of at least a quarter showed India funds recording an average 50.45 percent jump in their net values in three months to June as compared to just over 18 percent gain for the fund group.
India funds were led by Naya Bharat Property Company fund, domiciled in the Isle of Man, which gave a return of nearly 135 percent, followed by JM Core 11 Fund, a concentrated 11-stock portfolio, which rose more than 100 percent.
"Stocks in India were spurred on by a steady diet of positive macro data and the strong victory of the incumbent Congress party in national elections mid-May" said Rajeev Baddepudi, a senior research analyst for ASEAN at Lipper.
Indian shares surged 49.3 percent during April-June, the fastest in Asia after Vietnam, on signs of economic recovery and hopes for market-friendly policies by the re-elected Congress-lead government.
The gain was the biggest rise for the benchmark in any quarter since it soared 124.5 percent in January-March in 1992 when Manmohan Singh, the then finance minister, kicked off reforms to open up the economy.
INFRASTRUCTURE
Hopes are high that Manmohan Singh, currently in his second-term as prime minister, would further open up the economy to foreign investment and remove policy bottlenecks.
This has led to sharper surge in shares of infrastructure firms, with capital goods stocks rising nearly twice as fast as the bechmark index in June quarter, lifting portfolio gains for funds primarily investing in the sector.
For instance, all top five Indian funds part of the Lipper's top-100 list are infrastructure or property funds.
Fund houses JM Financial Asset Management and Sundaram BNP Paribas Mutual Fund have four funds each in the list, while Benchmark, India's passive fund manager, DBS Cholamandalam, SBI (SBIN.NS : 1809.65 +50.2) Funds Management and Taurus Mutual Fund had three schemes each.
(For more news on Reuters Money click http://in.reuters.com/money)
They are led by those investing in shares of infrastructure firms, a favoured theme in Asia's third largest economy after the Congress-lead coalition won a strong mandate in April-May polls raising hopes for higher spending on roads, ports and bridges.
The Lipper's list of 29,942 world stock funds with a track record of at least a quarter showed India funds recording an average 50.45 percent jump in their net values in three months to June as compared to just over 18 percent gain for the fund group.
India funds were led by Naya Bharat Property Company fund, domiciled in the Isle of Man, which gave a return of nearly 135 percent, followed by JM Core 11 Fund, a concentrated 11-stock portfolio, which rose more than 100 percent.
"Stocks in India were spurred on by a steady diet of positive macro data and the strong victory of the incumbent Congress party in national elections mid-May" said Rajeev Baddepudi, a senior research analyst for ASEAN at Lipper.
Indian shares surged 49.3 percent during April-June, the fastest in Asia after Vietnam, on signs of economic recovery and hopes for market-friendly policies by the re-elected Congress-lead government.
The gain was the biggest rise for the benchmark in any quarter since it soared 124.5 percent in January-March in 1992 when Manmohan Singh, the then finance minister, kicked off reforms to open up the economy.
INFRASTRUCTURE
Hopes are high that Manmohan Singh, currently in his second-term as prime minister, would further open up the economy to foreign investment and remove policy bottlenecks.
This has led to sharper surge in shares of infrastructure firms, with capital goods stocks rising nearly twice as fast as the bechmark index in June quarter, lifting portfolio gains for funds primarily investing in the sector.
For instance, all top five Indian funds part of the Lipper's top-100 list are infrastructure or property funds.
Fund houses JM Financial Asset Management and Sundaram BNP Paribas Mutual Fund have four funds each in the list, while Benchmark, India's passive fund manager, DBS Cholamandalam, SBI (SBIN.NS : 1809.65 +50.2) Funds Management and Taurus Mutual Fund had three schemes each.
(For more news on Reuters Money click http://in.reuters.com/money)
Portfolio Management Under Sebi Scanner
The Securities and Exchange Board of India (Sebi), after tightening the norms for the mutual fund industry, is now looking at portfolio management services. The market regulator will soon be coming out stricter and comprehensive guidelines for PMS.
According to a senior banker with a leading foreign bank that offers wealth management and portfolio management services, Sebi has been in dialogue with several service providers to get their views on making the services more transparent and investor-friendly. "We have been deliberating with the regulator and it should be coming out with guidelines in the coming few weeks," the executive said on the condition of anonymity.
Earlier, a senior Sebi official has mentioned the watchdog is indeed looking at all areas for making things transparent and investor-friendly. According to industry sources, there are several aspects that the regulator is looking at and one important aspect is the PMS fees.
There are no restrictions now on fees charged by service providers. However, since the market is competitive, rates remain reasonable. "But there are instances of fee structures changing with the market trend. During the boom of 2007-08, some charged atrocious fees, and there were also some handsome profit sharing agreements," says a Mumbai-based broker. Hence, the regulator is expected to cap the fees charged by portfolio managers.
This, however, might not go down well with the 229-odd portfolio managers registered with Sebi. But rthe regulator isn't much worried about that. "In 1992, when we had asked brokers to disclose the fees they charge to clients, there was an uproar, and trading closed for four days, however, they had to comply and things are much better now," said the Sebi official.
Generally, portfolio managers have three schemes, one where a flat fee of around 2% of the portfolio amount is charged, and the service provided includes investment advice at regular intervals and managing the portfolio. The second scheme includes a fixed fee and a profit-sharing scheme, the latter usually kicks in when a return over the government bond (risk-free return) rate is crossed. Then, there is the totally variable scheme where the manager charges a total variable fee structure based on profit sharing.
The first two are said to be the more popular, and the third variety usually gains ground when the market is booming and is offered to high-ticket clients.
The norms are also expected to cover the 'wealth management' area. There are no specific norms now for this burgeoning industry that has several service providers like banks, brokers, financial service firms and individuals. Sebi has applied to the finance ministry to extend the definition of the term 'securities' in the Sebi Act to several instruments, especially alternative investments like those in art and several structured products that usually beat the definition and thereby the Sebi purview. Wealth managers are known to offer such products to their clients and there is usually an issue in the valuation of these instruments, noted a banker. They don't want a Madoff- like situation happening in India where exotic products are peddled to wealthy clients under Ponzi schemes, he adds.
The market size of PMS is estimated to around Rs 1 lakh crore. Sebi has been tightening the PMS norms over the years. In May 2008, Sebi had increased the networth requirement for portfolio managers from Rs 50 lakh to Rs 2 crore and also asked the portfolio managers not to pool accounts of clients. Pooling of clients would mean portfolio managers becoming quasi-mutual funds, not giving customised services.
On June 23, 2009, Sebi clarified that there should be a clear segregation of each client's fund through proper and clear maintenance of back-office records. It also mentioned that portfolio managers were not allowed to use funds of one client for another client. Portfolio managers will also have to maintain an accounting system containing separate client-wise data for their funds and provide statement to their clients for such accounts at least every month. Importantly, managers will have to reconcile client-wise funds with the funds in their bank account every day.
Transparency drive
and#149;Sebi likely to set limits on fee charged by PMS providers
and#149;Guidelines may cover 'wealth managers' as well
and#149;Alternate assets like art, structured products under lens
and#149;Emphasis on reporting asset position and charges likely
and#149;Has already ordered separate client accounts and statement
According to a senior banker with a leading foreign bank that offers wealth management and portfolio management services, Sebi has been in dialogue with several service providers to get their views on making the services more transparent and investor-friendly. "We have been deliberating with the regulator and it should be coming out with guidelines in the coming few weeks," the executive said on the condition of anonymity.
Earlier, a senior Sebi official has mentioned the watchdog is indeed looking at all areas for making things transparent and investor-friendly. According to industry sources, there are several aspects that the regulator is looking at and one important aspect is the PMS fees.
There are no restrictions now on fees charged by service providers. However, since the market is competitive, rates remain reasonable. "But there are instances of fee structures changing with the market trend. During the boom of 2007-08, some charged atrocious fees, and there were also some handsome profit sharing agreements," says a Mumbai-based broker. Hence, the regulator is expected to cap the fees charged by portfolio managers.
This, however, might not go down well with the 229-odd portfolio managers registered with Sebi. But rthe regulator isn't much worried about that. "In 1992, when we had asked brokers to disclose the fees they charge to clients, there was an uproar, and trading closed for four days, however, they had to comply and things are much better now," said the Sebi official.
Generally, portfolio managers have three schemes, one where a flat fee of around 2% of the portfolio amount is charged, and the service provided includes investment advice at regular intervals and managing the portfolio. The second scheme includes a fixed fee and a profit-sharing scheme, the latter usually kicks in when a return over the government bond (risk-free return) rate is crossed. Then, there is the totally variable scheme where the manager charges a total variable fee structure based on profit sharing.
The first two are said to be the more popular, and the third variety usually gains ground when the market is booming and is offered to high-ticket clients.
The norms are also expected to cover the 'wealth management' area. There are no specific norms now for this burgeoning industry that has several service providers like banks, brokers, financial service firms and individuals. Sebi has applied to the finance ministry to extend the definition of the term 'securities' in the Sebi Act to several instruments, especially alternative investments like those in art and several structured products that usually beat the definition and thereby the Sebi purview. Wealth managers are known to offer such products to their clients and there is usually an issue in the valuation of these instruments, noted a banker. They don't want a Madoff- like situation happening in India where exotic products are peddled to wealthy clients under Ponzi schemes, he adds.
The market size of PMS is estimated to around Rs 1 lakh crore. Sebi has been tightening the PMS norms over the years. In May 2008, Sebi had increased the networth requirement for portfolio managers from Rs 50 lakh to Rs 2 crore and also asked the portfolio managers not to pool accounts of clients. Pooling of clients would mean portfolio managers becoming quasi-mutual funds, not giving customised services.
On June 23, 2009, Sebi clarified that there should be a clear segregation of each client's fund through proper and clear maintenance of back-office records. It also mentioned that portfolio managers were not allowed to use funds of one client for another client. Portfolio managers will also have to maintain an accounting system containing separate client-wise data for their funds and provide statement to their clients for such accounts at least every month. Importantly, managers will have to reconcile client-wise funds with the funds in their bank account every day.
Transparency drive
and#149;Sebi likely to set limits on fee charged by PMS providers
and#149;Guidelines may cover 'wealth managers' as well
and#149;Alternate assets like art, structured products under lens
and#149;Emphasis on reporting asset position and charges likely
and#149;Has already ordered separate client accounts and statement
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