Birla Sun Life Mutual Fund (MF) is keen to attract fixed-deposit holders through its Capital Protection (CP) Fund and aims to mop up as much as Rs700 crore. According to sources, the company’s new fund offer (NFO), Birla Capital Protection Fund, had been extended to 10th March from 5th March as it was unable to meet its ambitious target. Birla MF is targeting close to Rs600-Rs700 crore and has so far managed to generate only Rs200 crore.
“The NFO was launched on 5 February 2010 and was scheduled to go on for a month. However, in view of the fewer days on account of holidays and breaks and to ensure convenience for investors, the due date was extended to 10th March. The NFO collection figures can only be verified after the scheme is closed for subscription, and the MIS is generated,” said a spokesperson for Birla MF.
While the fund is aggressively marketing the capital protection product, the irony is that the product will leave a hole in the capital of Birla Asset Management Company (AMC). Industry sources reveal that the company can earn 1.75% per annum in this product over a period of 27 months, which is the duration of the scheme. This means an earning of 3.9%. However, the cost of running the scheme will be much higher. Here is the math.
The processing charge for the issue will be about 0.3%. This leaves the AMC with 3.6% out of the fees. As against this, Birla MF will offer 2.75% as commission to distributors. That leaves it with 0.85%. If the Fund manages to raise, say, Rs500 crore from the scheme, its earnings over the 27 months will be just Rs4.25 crore. However, the Fund has already spent over Rs7 crore in advertisements and other promotional costs. This leaves the fund house with a large loss.
“The advertisement for the NFO had been done extensively with the aim of generating awareness for the Fund. The expense ratio that the Fund intends to charge the investor would be 1.5%,” added the company official. The official, however, declined to divulge any details of the Fund’s target or how the company would recover its advertisement costs.
“The advertisement charges are sometimes deducted from the scheme after some time. The NFO has collected around Rs220 crore,” said an independent financial advisor (IFA).
This would be hard in this kind of a Fund where returns are thin. The Fund will allocate 90% of the money to bonds and 10% to equity. It intends to reduce tax liability by the triple-indexation method.
Courtesy :-http://www.suchetadalal.com/?id=bb5b242f-20e7-0c4a-4b979662bb0f&base=sections&f
Thursday, March 11, 2010
Don't expect great returns
During the end of the financial year, insurance companies try to tap tax-payers with innovative schemes, including guaranteed returns products.
Life Insurance Corporation of India (LIC) recently launched Wealth Plus, which gives guaranteed returns. Last year, it had launched Jeevan Aastha, which promised to give Rs 9 and Rs 10 for every Rs 100 invested, depending on the policy tenure. The earlier policy invests in debt instruments such as government bonds. Wealth Plus, on the other hand, invests in equities and assures returns linked to the highest net asset value (NAV) of the fund over a seven-year period.
LIC is not alone in the market with such a product. Reliance Life Insurance has Reliance Life Highest NAV Guarantee Fund, which assures the highest NAV for the entire term of the policy. Many other players have similar plans. Tata AIG Life insurance sells such a scheme under the name InvestAssure Apex Pension Plans; Birla Sun Life Insurance has Platinum Premier Plan; SBI Life Insurance calls it Smart Ulip; ICICI Prudential Life Insurance sells Pinnacle; and Bajaj Allianz Life Insurance's Max Gain gives a similar guarantee.
These plans capture the highest NAV of the fund and lock it. Thus, a customer gets returns based on the highest NAV, even if stock markets undergo a correction. However, before buying, there are a few things you should look at.
Working: To give the highest NAV-based returns, insurance companies follow a trading strategy known as constant proportion portfolio insurance (CPPI). Institutions around the world use this model to ensure a fixed minimum return for investors who are risk-averse.
In CPPI, a fund allocates the corpus between safe assets (debt-based papers) and risky assets (equities), depending on stock market performance and interest rates. Depending on losses or gains from the equity investment, the insurance company constantly rebalances the equity-debt mix to lock the highest NAV.
Returns: Most of these products are available for a limited period. In the initial phase, the company decides the asset allocation between equity and debt. "The debt portion could be small if interest rates are high and equity markets have low volatility," said Sashi Krishnan, chief investment officer at Bajaj Allianz Life Insurance Company. He explained that if the market falls, the allocation to debt is increased and vice-versa. "As it is not a pure equity product, it will definitely not give pure equity-based returns," said Manish Kumar, head of investments at ICICI Prudential Life Insurance.
Costs: Most insurance companies charge a guarantee fee over and above the 3 per cent cap that the Insurance Regulatory and Development Authority (Irda) has prescribed. "This is primarily to make up for any shortfall," said Krishnan.
Insurance companies normally charge 0.2 -0.5 per cent. For example, LIC's Wealth Plus has a guarantee charge of 0.35 per cent of the fund value every year. While Bajaj Allianz levies a charge of 0.25 per cent on the fund value every year, ICICI Prudential's Pinnacle charges 0.10 per cent annually to give the guarantee. "This also includes the cost the insurance company incurs for setting up algorithms and other infrastructure related to this product," Kumar said.
Should You Buy? For small investors, products based on this structure are available with insurance companies only. High net worth individuals (HNIs) can approach wealth management companies for such arrangements.
Risk-averse investors who want to avoid insurance due to high costs can look at monthly income plans (MIPs) of mutual funds. These are essentially for investors who have low appetite for volatility. They invest 10-30 per cent in equities and the rest in debt. In the MIP category, the top 10 funds by returns have given yields of over 10 per cent in the past five years.
Life Insurance Corporation of India (LIC) recently launched Wealth Plus, which gives guaranteed returns. Last year, it had launched Jeevan Aastha, which promised to give Rs 9 and Rs 10 for every Rs 100 invested, depending on the policy tenure. The earlier policy invests in debt instruments such as government bonds. Wealth Plus, on the other hand, invests in equities and assures returns linked to the highest net asset value (NAV) of the fund over a seven-year period.
LIC is not alone in the market with such a product. Reliance Life Insurance has Reliance Life Highest NAV Guarantee Fund, which assures the highest NAV for the entire term of the policy. Many other players have similar plans. Tata AIG Life insurance sells such a scheme under the name InvestAssure Apex Pension Plans; Birla Sun Life Insurance has Platinum Premier Plan; SBI Life Insurance calls it Smart Ulip; ICICI Prudential Life Insurance sells Pinnacle; and Bajaj Allianz Life Insurance's Max Gain gives a similar guarantee.
These plans capture the highest NAV of the fund and lock it. Thus, a customer gets returns based on the highest NAV, even if stock markets undergo a correction. However, before buying, there are a few things you should look at.
Working: To give the highest NAV-based returns, insurance companies follow a trading strategy known as constant proportion portfolio insurance (CPPI). Institutions around the world use this model to ensure a fixed minimum return for investors who are risk-averse.
In CPPI, a fund allocates the corpus between safe assets (debt-based papers) and risky assets (equities), depending on stock market performance and interest rates. Depending on losses or gains from the equity investment, the insurance company constantly rebalances the equity-debt mix to lock the highest NAV.
Returns: Most of these products are available for a limited period. In the initial phase, the company decides the asset allocation between equity and debt. "The debt portion could be small if interest rates are high and equity markets have low volatility," said Sashi Krishnan, chief investment officer at Bajaj Allianz Life Insurance Company. He explained that if the market falls, the allocation to debt is increased and vice-versa. "As it is not a pure equity product, it will definitely not give pure equity-based returns," said Manish Kumar, head of investments at ICICI Prudential Life Insurance.
Costs: Most insurance companies charge a guarantee fee over and above the 3 per cent cap that the Insurance Regulatory and Development Authority (Irda) has prescribed. "This is primarily to make up for any shortfall," said Krishnan.
Insurance companies normally charge 0.2 -0.5 per cent. For example, LIC's Wealth Plus has a guarantee charge of 0.35 per cent of the fund value every year. While Bajaj Allianz levies a charge of 0.25 per cent on the fund value every year, ICICI Prudential's Pinnacle charges 0.10 per cent annually to give the guarantee. "This also includes the cost the insurance company incurs for setting up algorithms and other infrastructure related to this product," Kumar said.
Should You Buy? For small investors, products based on this structure are available with insurance companies only. High net worth individuals (HNIs) can approach wealth management companies for such arrangements.
Risk-averse investors who want to avoid insurance due to high costs can look at monthly income plans (MIPs) of mutual funds. These are essentially for investors who have low appetite for volatility. They invest 10-30 per cent in equities and the rest in debt. In the MIP category, the top 10 funds by returns have given yields of over 10 per cent in the past five years.
Tuesday, March 9, 2010
Low MF assets speak volumes on investor apathy
At a time when the Indian economy is being lauded for its relentless growth and Indian companies are in the process of raising thousands of crores in the primary markets, the mutual fund industry is standing out like an eyesore. The sorry state of affairs in the mutual fund industry is evident from the miniscule corpus many of the fund houses are managing.
Here are the unpleasant facts. 18 out of 37 Asset Management Companies (AMCs) have less than Rs1,000 crore as assets under management (AUM) in their equity schemes. From these, 13 funds have less than Rs500 crore of AUMs. On an average, these 18 fund houses have Rs355.99 crore in equity MF schemes. Between them, they are managing a ridiculously low corpus of Rs6,407.80 crore.
Reliance Mutual Fund, the largest fund house, has AUM of Rs35,204 crore. HDFC Mutual Fund manages a corpus of Rs22,657 crore. These amounts might seem princely when compared to the small fund houses, but compared to international fund houses, even these are paltry.
Shinsei Mutual Fund is the smallest among the 18 funds, having a corpus of Rs19.47 crore as on 10 February 2010 while Escorts Mutual Fund and Benchmark Mutual Fund have Rs28.32 crore and Rs48.88 crore respectively in their kitty.
Quantum Mutual Fund and Baroda Pioneer Mutual Fund have AUM of Rs48.96 crore and Rs66.14 crore respectively.
Some of the bigger names in the industry like Bharti AXA Mutual Fund (Rs308.37 crore), AIG Mutual Fund (Rs612 crore) and Axis Mutual Fund (Rs874.11 crore) also appear in the list of funds having less than Rs1,000 crore.
Indian companies are capitalising on the recent bull-run by raising thousands of crores through IPOs and FPOs. In 2010, 17 companies have come out with public offers, (as on 8 March 2010). Despite the rush for raising funds and the flourishing equity markets, the investing public seems disinterested in vying for a share of the pie. The action in the equity markets has failed to catch on to the mutual fund industry.
Indeed, the lull being witnessed by most equity fund houses is a study in contrast to the growth of the economy. Despite equities being touted as the best asset class for the long term, investors continue to shy away from equities. Even the government’s efforts towards encouraging participation in equity mutual funds have failed to do the trick.
Monday, March 8, 2010
No subscription figures till close of public Issues
Regulator moves to curb demand inflation, asks exchanges not to disclose bid details while an issue is open
N. Sundaresha Subramanian and Anirudh Laskar
Mumbai: Capital market regulator Securities and Exchange Board of India (Sebi) is cracking down on the practice of reporting oversubscription in public issues. In a bid to discourage inflation of demand, Sebi has asked the exchanges to stop making the subscription number public while an issue is open, according to two officials familiar with the development.
At present, the category-wise bidding details for a public issue are updated hourly on exchange websites while it is open. For forthcoming issues, the information will be available only after the issue closes.
“Sebi is worried about multiple subscriptions and misrepresentation of demand,” said S. Vishvanathan, managing director and CEO, SBI Capital Markets Ltd. A Sebi spokesperson declined to comment.
The move comes amid steps announced on Saturday by Sebi. This includes institutional investors having to pay their entire subscription as an upfront margin. All public share sales—initial, follow-on and rights issues—that hit the market after 1 May will be subject to the new rules.
The move is aimed at curbing inflated demand in public issues and providing a level playing field to all investors, Sebi said in a statement. Qualified institutional investors (QIBs) are required to deposit only 10% of their subscription. Sebi chairman C.B. Bhave said the steps were in line with the aim to cut the listing timeline to seven days from the current 21.
Experts believe the moves will bring some rationality in the pricing of public issues.
“The days of aggressive pricing will be over,” said U.R. Bhat, managing director, Dalton Strategic Partnership Llp. “Now, only genuine investors will come in for bidding and most of the bids are likely to take place at the lower end of the price band, which is good.”
Bhat said the moves may not affect subscription levels significantly. “Issues floated in the past one year have already been witnessing lower subscriptions, both in QIB and the retail portions, compared to those during the bull run of 2007,” he added.
Smaller funds may be put at a disadvantage, said Naresh Kothari, president, Edelweiss Capital Ltd. “Earlier both small and large long-only funds used to bid for equal number of shares with 10% margin money. But now with 100% upfront margin, large fund investors will have an advantage over small ones,” he said.
Sebi also gave in-principle approval to introduce physical delivery in equity derivatives after discussions with exchanges and market participants.
Sayee Srinivasan, head of product strategy, Bombay Stock Exchange, said physical delivery is unlikely to replace the existing cash settlement system. It could be optional, or a new set of products with physical delivery may be introduced. “I don’t think it’s a good idea to tamper with an existing market which is liquid.”
The step may be easier to implement in single-stock futures as delivering individual stocks that constitute the index could be complicated. “Physical delivery does not mean leverage would come down. The moment there is a margin, the element of leverage automatically comes in whether or not delivery is physical,” he said.
At present, the category-wise bidding details for a public issue are updated hourly on exchange websites while it is open. For forthcoming issues, the information will be available only after the issue closes.
“Sebi is worried about multiple subscriptions and misrepresentation of demand,” said S. Vishvanathan, managing director and CEO, SBI Capital Markets Ltd. A Sebi spokesperson declined to comment.
The move comes amid steps announced on Saturday by Sebi. This includes institutional investors having to pay their entire subscription as an upfront margin. All public share sales—initial, follow-on and rights issues—that hit the market after 1 May will be subject to the new rules.
The move is aimed at curbing inflated demand in public issues and providing a level playing field to all investors, Sebi said in a statement. Qualified institutional investors (QIBs) are required to deposit only 10% of their subscription. Sebi chairman C.B. Bhave said the steps were in line with the aim to cut the listing timeline to seven days from the current 21.
Experts believe the moves will bring some rationality in the pricing of public issues.
“The days of aggressive pricing will be over,” said U.R. Bhat, managing director, Dalton Strategic Partnership Llp. “Now, only genuine investors will come in for bidding and most of the bids are likely to take place at the lower end of the price band, which is good.”
Bhat said the moves may not affect subscription levels significantly. “Issues floated in the past one year have already been witnessing lower subscriptions, both in QIB and the retail portions, compared to those during the bull run of 2007,” he added.
Smaller funds may be put at a disadvantage, said Naresh Kothari, president, Edelweiss Capital Ltd. “Earlier both small and large long-only funds used to bid for equal number of shares with 10% margin money. But now with 100% upfront margin, large fund investors will have an advantage over small ones,” he said.
Sebi also gave in-principle approval to introduce physical delivery in equity derivatives after discussions with exchanges and market participants.
Sayee Srinivasan, head of product strategy, Bombay Stock Exchange, said physical delivery is unlikely to replace the existing cash settlement system. It could be optional, or a new set of products with physical delivery may be introduced. “I don’t think it’s a good idea to tamper with an existing market which is liquid.”
The step may be easier to implement in single-stock futures as delivering individual stocks that constitute the index could be complicated. “Physical delivery does not mean leverage would come down. The moment there is a margin, the element of leverage automatically comes in whether or not delivery is physical,” he said.
Thursday, March 4, 2010
Templeton MF insists on clearance certificate for trail commission
After the Securities and Exchange Board of India (SEBI)’s circular on payment of trail commissions, asset management companies (AMCs) are trying to play safe by insisting on a no-objection certificate (NOC) in case of a change of distributor. The mutual fund (MF) industry is still undecided on whether to pay the trail commission to the new distributor or the old one as the poaching game unfolds.
Small investors are nowhere involved with a say on trail commission as it is decided by the AMC and the agent. But industry sources say that some high net-worth individuals are beginning to bargain for a percentage of the trail commission from distributors. Whether an investor would easily get a clearance letter from the old distributor is another issue.
Source:
http://www.suchetadalal.com/?id=e23df737-3b47-bf5e-4b8e659cf029&base=sections&f
Moneylife has a document sent by Templeton to independent financial advisors (IFAs), which reads: “The payments of trail commission on assets that are transferred from another distributor to your ARN code shall be subject to us receiving a ‘Clearance Certificate’ from the previous distributor. In case any Assets under your ARN Code are transferred to another distributor at the request of the investor, you shall not be entitled to receive any trail commission on such assets.”
Therefore, Templeton is still insisting on receiving a clearance certificate from the old distributor in order to pay out trail commission.
The Association of Mutual Funds in India (AMFI) had instructed all asset management companies (AMCs) in its circular issued in September 2007 that investors can switch to a new distributor without obtaining an NOC from the existing distributor. However, most AMCs continued to demand an NOC from harried investors. Due to such inconsistent practises, SEBI stepped in to reiterate that all AMCs have to comply with the AMFI circular dated 5 September 2007 and not to insist on an NOC.
The whole issue stems from the growing business of assets under management (AUM) transfer. After the circulars from AMFI and SEBI on payment of trail commission, the AUM snatching game has begun to gain traction. According to industry sources, HDFC MF and UTI MF are not happy to pay trail commission to the new distributor though they have not come out with a formal announcement. Even AMFI took almost two years to implement its own decision on trail commission.
“Most of the AMCs are not insisting on an NOC especially after the SEBI circular,” said an IFA.
“The SEBI circular doesn’t say anything specific about the payment of trail commission. If an investor gives a letter that he wants to change his distributor, then the AMC should not ask for an NOC from the old broker. AMFI has said that an AMC may pay the brokerage to the new distributor subject to rules,” said other IFA.
Harshendu Bindal, president, Franklin Templeton Investments (India), said, “We have been processing all investor requests for a change in distributor without insisting on an NOC from the existing distributor, even before the SEBI circular, as part of AMFI best practices. Our understanding is that the SEBI guidelines are regarding the change of distributor code based on investor request and don’t pertain to payment of trail commission.”
“If the request for change of broker also asks for transfer of trail commission to the new broker we will change the broker code. However, given our contractual obligations with the distributors, we would ask for a consent letter from the old distributor for transferring the trail commission on historical assets. Irrespective of the type of request, we would accept a valid instruction from the investor for changing his broker code,” Mr Bindal added.
“I am not in favour of something which could prevent an investor from shifting to a new distributor. There are some malpractices in the industry where people are poaching on trail (commission). When an investor himself wants to be serviced through a distributor it is necessary that he compensates him indirectly,” said a chartered financial analyst.
“There is still some ambiguity in this case. Some AMCs have taken a stand that they will continue to pay the trail commission to the old distributor,” he added.
Source:
http://www.suchetadalal.com/?id=e23df737-3b47-bf5e-4b8e659cf029&base=sections&f
Tuesday, February 23, 2010
Thursday, February 11, 2010
Equity MFs see first revival since entry load ban
The mutual fund (MF) industry saw net inflows in equity schemes in January, the first time since the Securities Exchange Board of India banned entry load on equity schemes in August last year. During the month, sales of equity MFs almost doubled on a month-on-month basis.
According to data released by the Association of Mutual Funds in India (AMFI), the equity segment registered net inflows of Rs 980 crore as against net outflows of Rs 2,185 crore in December. Equity sales during the month stood at Rs 7,837 crore as against Rs 4,047 crore in December as the three new fund offers in the equity segment during the period mopped up Rs 1,590 crore.
Equity heads and chief investment officers of various fund houses said a relatively stable market in January attracted investors.
"Retail as well as HNI (high net worth individual) money poured into equity schemes in January," said an equity head of a mid-sized fund house.
Distributors said investors who booked profit when the market rallied sharply last year were coming back.
POSITIVE NOTE
Net inflow/(outflow) in equity schemes
Month Inflow/ (Outflow)
August ‘09 (142)
September ‘09 (1,756)
October ‘09 (2,123)
November ‘09 (1,109)
December ‘09 (2,185)
January ‘10 (980)
All figures in Rs crore.
Figures in bracket shows outflow
Source : Association of Mutual Funds in India (AMFI)
On the debt side, the industry saw net inflows of Rs 1,06,092 crore. The entire flow remained in the positive territory for all the schemes combined (at Rs 97,242 crore)
Liquid and money market schemes continued to see net outflows (Rs 10,218 crore). This figure was Rs 14,267 crore in December.
Gilt funds and fund of funds were the other two categories that saw net outflows, of Rs 257 crore and Rs 58 crore, respectively.
In January, total sales of MF products stood at Rs 8,84,738 crore as against Rs 7,76,811 crore in December
According to data released by the Association of Mutual Funds in India (AMFI), the equity segment registered net inflows of Rs 980 crore as against net outflows of Rs 2,185 crore in December. Equity sales during the month stood at Rs 7,837 crore as against Rs 4,047 crore in December as the three new fund offers in the equity segment during the period mopped up Rs 1,590 crore.
Equity heads and chief investment officers of various fund houses said a relatively stable market in January attracted investors.
"Retail as well as HNI (high net worth individual) money poured into equity schemes in January," said an equity head of a mid-sized fund house.
Distributors said investors who booked profit when the market rallied sharply last year were coming back.
POSITIVE NOTE
Net inflow/(outflow) in equity schemes
Month Inflow/ (Outflow)
August ‘09 (142)
September ‘09 (1,756)
October ‘09 (2,123)
November ‘09 (1,109)
December ‘09 (2,185)
January ‘10 (980)
All figures in Rs crore.
Figures in bracket shows outflow
Source : Association of Mutual Funds in India (AMFI)
On the debt side, the industry saw net inflows of Rs 1,06,092 crore. The entire flow remained in the positive territory for all the schemes combined (at Rs 97,242 crore)
Liquid and money market schemes continued to see net outflows (Rs 10,218 crore). This figure was Rs 14,267 crore in December.
Gilt funds and fund of funds were the other two categories that saw net outflows, of Rs 257 crore and Rs 58 crore, respectively.
In January, total sales of MF products stood at Rs 8,84,738 crore as against Rs 7,76,811 crore in December
Wednesday, February 10, 2010
SIPs losing sheen, net addition declines to 50,000 a month
Inflows into systematic investment plans (SIPs), where investors put money in mutual funds periodically, are on a decline because of poor returns and distributors' lack of interest in serving small investors.
According to executives at various distribution houses, net SIP additions have come down to 50,000 accounts per month from a high of 250,000 in 2007 and 2008. Also, lapsed SIPs are not being renewed. There is no official data on SIP account details.
"SIPs had slowed down, but we have seen the momentum come back in the last two months," said Sundeep Sikka, chief executive, Reliance Mutual Fund.
Bajaj Capital Chief Executive Anil Chopra said the main reason for SIPs not finding favour with distributors was that they were not finding it profitable to serve smaller customers. "The economics does not seem to be working out. If you look at the numbers, SIPs have actually died down. For most advisors on the offline platform, serving a small ticket size like Rs 2,000 or 3,000 per month does not cover even petrol expenses. So, it becomes unviable."
LOST BATTLE
For the period between Feb 1, 2009 to Feb 1, 2010
Fund Annualised
SIP return Annualised
non-SIP return
DSP Balckrock Opportunities 53.89 79.33
HDFC Top 200 80.55 97.95
Birla Sunlife Top 100 50.86 82.01
IDFC Premier equity 85.65 108.08
Principal Large Cap 59.03 75.62
UTI Opportunities 50.04 79.92
All the figures in % Source: Valueresearch Online
According to rough estimates, there were close to 4.2 million SIPs running at the peak of the bull run, which has come down to 2.5-3 million. SIPs took a big hit in 2009 when adverse market conditions played havoc with retail investors' portfolios. A lot of investors cancelled their SIPs after failing to meet their commitments. Several distributors also blame the new commission regime for the fall.
According to Maju Nair, head of distribution at Sharekhan, banks and independent financial advisers (IFAs), which were major contributors to SIPs, had been badly hit by the new commission regime. "IFAs have gone out of business and are looking at other revenue streams by selling insurance products. Bank are also not pushing for SIPs in a major way as they are getting only 50-80 basis points."
"The cost of providing the service has become more than the money they will make. So, everybody across the distribution spectrum is looking for a substantial size," said Nair.
The worst affected, according to experts, is the micro SIP segment, with distributors finding it difficult to serve investors with ticket sizes as low as Rs 50 and Rs 100. Distributors said this had turned out be a loss-making proposition for most fund houses.
However, Sikka of Reliance Mutual Fund said, "Investor confidence seems to be returning and we are getting fresh inflows. Advisors will have to look at the life-time value of a customer and not just short-term interests. The micro SIP is more of an entry-level strategy where we are trying to bring retail investors at the smallest level into the fold."
Reliance mutual fund has a micro SIP, Reliance Common Man SIP, in which one can invest a minimum of Rs 100 per month. Similarly, SBI has Chhota SIP and UTI has IIMPS (Invest India Micro Pension Services).
According to executives at various distribution houses, net SIP additions have come down to 50,000 accounts per month from a high of 250,000 in 2007 and 2008. Also, lapsed SIPs are not being renewed. There is no official data on SIP account details.
"SIPs had slowed down, but we have seen the momentum come back in the last two months," said Sundeep Sikka, chief executive, Reliance Mutual Fund.
Bajaj Capital Chief Executive Anil Chopra said the main reason for SIPs not finding favour with distributors was that they were not finding it profitable to serve smaller customers. "The economics does not seem to be working out. If you look at the numbers, SIPs have actually died down. For most advisors on the offline platform, serving a small ticket size like Rs 2,000 or 3,000 per month does not cover even petrol expenses. So, it becomes unviable."
LOST BATTLE
For the period between Feb 1, 2009 to Feb 1, 2010
Fund Annualised
SIP return Annualised
non-SIP return
DSP Balckrock Opportunities 53.89 79.33
HDFC Top 200 80.55 97.95
Birla Sunlife Top 100 50.86 82.01
IDFC Premier equity 85.65 108.08
Principal Large Cap 59.03 75.62
UTI Opportunities 50.04 79.92
All the figures in % Source: Valueresearch Online
According to rough estimates, there were close to 4.2 million SIPs running at the peak of the bull run, which has come down to 2.5-3 million. SIPs took a big hit in 2009 when adverse market conditions played havoc with retail investors' portfolios. A lot of investors cancelled their SIPs after failing to meet their commitments. Several distributors also blame the new commission regime for the fall.
According to Maju Nair, head of distribution at Sharekhan, banks and independent financial advisers (IFAs), which were major contributors to SIPs, had been badly hit by the new commission regime. "IFAs have gone out of business and are looking at other revenue streams by selling insurance products. Bank are also not pushing for SIPs in a major way as they are getting only 50-80 basis points."
"The cost of providing the service has become more than the money they will make. So, everybody across the distribution spectrum is looking for a substantial size," said Nair.
The worst affected, according to experts, is the micro SIP segment, with distributors finding it difficult to serve investors with ticket sizes as low as Rs 50 and Rs 100. Distributors said this had turned out be a loss-making proposition for most fund houses.
However, Sikka of Reliance Mutual Fund said, "Investor confidence seems to be returning and we are getting fresh inflows. Advisors will have to look at the life-time value of a customer and not just short-term interests. The micro SIP is more of an entry-level strategy where we are trying to bring retail investors at the smallest level into the fold."
Reliance mutual fund has a micro SIP, Reliance Common Man SIP, in which one can invest a minimum of Rs 100 per month. Similarly, SBI has Chhota SIP and UTI has IIMPS (Invest India Micro Pension Services).
Saturday, September 12, 2009
Lessons from the world financial crisis
The collapse of Lehman triggered the world financial crisis this time last year. Stock markets crashed; credit was frozen and banks were scurrying for cash; crude oil prices dipped and gold prices shot up; investment shrank.
Finally, the financial crisis translated into recession with severe loss of employment and income. With the inter-linking of economies no country escaped these drastic consequences.
India was hit badly but avoided recession. Nevertheless growth dropped and is yet to recover. FIIs repatriated more than $13 billion and deepened the fall in stock prices.
Sensex plunged 62 per cent, much more than Dow Jones. The RBI had to draw down reserves. The rupee fell 20 per cent, industrial production declined and exports slumped.
Indian banks, except probably two, did not have exposure to sub-prime debt since they did not have much international business. Besides, the regulations of RBI did not permit excessive debt:equity ratio. Hence Indian banks were largely unaffected.
The international crisis prompted the Indian Government to act. That was more to avert recession than to back up the financial system.
Stimulus packages were introduced mainly aimed at increasing demand by reducing excise duties and increasing investment in infrastructure. The RBI did pump in liquidity with cuts in CRR, SLR, and the repo and reverse repo rates. Recovery has started but progress is slow.
There are lessons to learn from the crisis and new initiative to be taken.
First, with large infusion of cash by Federal Reserve, it is likely that the dollar will weaken in future against other currencies. RBI has a large part of its foreign exchange reserves in dollars and should therefore change the composition of reserves in favour of the euro and gold.
Second, although most banks are owned by Government, they should be financially sound on their own. Therefore the capital base of banks has to be sound and conform to the new Basel standards. Banks should be modernized and to attain economic size through mergers.
Third, financial supervision has to be strong. That also requires that there should be coordination among the concerned agencies like the RBI, fiscal authorities, Sebi, etc.
Fourth, regulation should go hand in hand with innovation of financial instruments. The financial crisis was to a large extent spurred by financial instruments like Collateralized debt obligations (CDO).
Fifth, RBI should keep constant watch on liquidity requirements. The financial system in the U.S. would have collapsed but for the timely release of cash by Federal Reserve. The measures taken by RBI were a little too late.
Sixth, Government should curb fiscal deficit to ease pressure on the market and continue to take steps to open up the economy, whether in respect of trade, convertibility of the rupee, external commercial borrowing and foreign investment, since the benefits would be much more than the safety of a closed system.
It appears that the worst is now over and the salvage operations are complete. It is time to reform the system to enable it function smoothly and efficiently under good supervision.
(You can e-mail Dinker H. Pai Panandiker at: dpanandiker@gmail.com)
Finally, the financial crisis translated into recession with severe loss of employment and income. With the inter-linking of economies no country escaped these drastic consequences.
India was hit badly but avoided recession. Nevertheless growth dropped and is yet to recover. FIIs repatriated more than $13 billion and deepened the fall in stock prices.
Sensex plunged 62 per cent, much more than Dow Jones. The RBI had to draw down reserves. The rupee fell 20 per cent, industrial production declined and exports slumped.
Indian banks, except probably two, did not have exposure to sub-prime debt since they did not have much international business. Besides, the regulations of RBI did not permit excessive debt:equity ratio. Hence Indian banks were largely unaffected.
The international crisis prompted the Indian Government to act. That was more to avert recession than to back up the financial system.
Stimulus packages were introduced mainly aimed at increasing demand by reducing excise duties and increasing investment in infrastructure. The RBI did pump in liquidity with cuts in CRR, SLR, and the repo and reverse repo rates. Recovery has started but progress is slow.
There are lessons to learn from the crisis and new initiative to be taken.
First, with large infusion of cash by Federal Reserve, it is likely that the dollar will weaken in future against other currencies. RBI has a large part of its foreign exchange reserves in dollars and should therefore change the composition of reserves in favour of the euro and gold.
Second, although most banks are owned by Government, they should be financially sound on their own. Therefore the capital base of banks has to be sound and conform to the new Basel standards. Banks should be modernized and to attain economic size through mergers.
Third, financial supervision has to be strong. That also requires that there should be coordination among the concerned agencies like the RBI, fiscal authorities, Sebi, etc.
Fourth, regulation should go hand in hand with innovation of financial instruments. The financial crisis was to a large extent spurred by financial instruments like Collateralized debt obligations (CDO).
Fifth, RBI should keep constant watch on liquidity requirements. The financial system in the U.S. would have collapsed but for the timely release of cash by Federal Reserve. The measures taken by RBI were a little too late.
Sixth, Government should curb fiscal deficit to ease pressure on the market and continue to take steps to open up the economy, whether in respect of trade, convertibility of the rupee, external commercial borrowing and foreign investment, since the benefits would be much more than the safety of a closed system.
It appears that the worst is now over and the salvage operations are complete. It is time to reform the system to enable it function smoothly and efficiently under good supervision.
(You can e-mail Dinker H. Pai Panandiker at: dpanandiker@gmail.com)
Wednesday, September 2, 2009
MFs: Tackling a missing intermediary
There are several issues that are faced by investors when they are dealing with their mutual fund investments.
One of these relate to a disruption in the mode of receipt of services related to the investment. This happens when there is no existing distributor available to serve the investor. This is an important matter that has become a reality for several people and hence will need a clear strategy from the investor regarding the manner in which this will be tackled.
Developing situation
There are times when the investor is put in a strange situation. In most cases, investors use the help of distributors or other advisors for making their mutual fund investments.
The total assets of mutual funds at the end of July 2009 stood at nearly Rs 6.90 lakh crore and a very miniscule percentage of this involves direct investment by the investor. The process involved various types of services in the process of making the investment.
In several cases, there is a situation where the distributor no longer wants to serve the client or there might be a situation where the distributor even exits the business. In the last six months, there has been a sharp fall in the interest of investors.
During the period April - July 2009 for which figures are available the number of new schemes varied in the range of 4-6 a month impacting a major source of income for intermediaries. In such a situation, the investor finds that when it comes to solving some question, they have to look at some different option.
The easiest way is to look for another distributor and advisor and shift to this route, but now with additional payment required on the part of investors for using their services, there is an increasing bent towards going it alone. This can result in a sticky situation where the investor realises that there needs to be some steps for the purpose of ensuring that there is no disruption in the service that they receive.
Contact possible
In case of any situation, the investor has to understand that the mutual fund is the entity with which the entire investment is based. This remains the base entity with which all the details about the investment is available and hence the investor can ensure that they get any required information from the mutual fund itself.
This is the best source for ensuring that there is clarity about the entire situation and this will also provide options for ensuring the smooth continuation of activities. The data required for this purpose is the Folio Number that is present on all mutual fund statements. All the necessary details are available with the mutual fund, which can be retrieved.
There is the entire list of mutual funds that are available with the market regulator SEBI (Securities and Exchange Board of India) and the fund association AMFI (Association of Mutual Funds in India). There are around 35 mutual funds in operation at the end of July in the country.
Code
There is now no entry load that is present for making an investment into a mutual fund. This means that there is no expense that the investor has to worry about now as compared to the situation earlier when only direct investments did not have any entry load.
If the investor is careful and they take a look at the details on the mutual fund statement that they get then they will be able to see that there is a space where the code for the distributor is mentioned.
This means that the commission for the investment goes to that particular entity and they are the ones who will be servicing the investor. When it comes to the issue of ensuring that there is a direct investment that is made, then the investor would have to ensure that the space for the code is blank or that it is mentioned direct.
This will also ensure that there is no trail commission that is going to any entity, especially if the investor is direct. If the investor wants to check directly with the fund then various funds allow transaction through their own website and this includes funds like HDFC MF, Franklin Templeton MF, ICICI Pru MF among others.
Checking
There are two angles to the entire investment that they have. One of them relates to the investment that has already been made and hence this will have a separate situation because this is complete, but the requirement here deals with proper monitoring.
On the other hand, there is also the case of new investment and if this is done using a distributor then the investor will have to pay fees that are decided between the two parties. In case of a small distributor, this can be negotiated, so you might end up paying something like Rs 500 for a Rs 50,000 investment.
On the other hand, big players leave little room for bargain and the amount here is fixed like Rs 30 per transaction for systematic investment and so on. This is the reason why they need to be clear about the manner in which they are investing so the choices can be selected.
There can also be a direct interface that is set up between the mutual fund and the investor. This can be done through interacting through some center of the fund or through the transfer agent. Most major cities have these offices.
Another way in which the same situation can be set up is through the route of using the internet for the interactions. In this situation, the investor makes further investments as well as redemption and other changes through their login on the internet and hence there is some clarity available for them about the exact status of their investment.
Using either or all of these will help the investor meet their requirements.
One of these relate to a disruption in the mode of receipt of services related to the investment. This happens when there is no existing distributor available to serve the investor. This is an important matter that has become a reality for several people and hence will need a clear strategy from the investor regarding the manner in which this will be tackled.
Developing situation
There are times when the investor is put in a strange situation. In most cases, investors use the help of distributors or other advisors for making their mutual fund investments.
The total assets of mutual funds at the end of July 2009 stood at nearly Rs 6.90 lakh crore and a very miniscule percentage of this involves direct investment by the investor. The process involved various types of services in the process of making the investment.
In several cases, there is a situation where the distributor no longer wants to serve the client or there might be a situation where the distributor even exits the business. In the last six months, there has been a sharp fall in the interest of investors.
During the period April - July 2009 for which figures are available the number of new schemes varied in the range of 4-6 a month impacting a major source of income for intermediaries. In such a situation, the investor finds that when it comes to solving some question, they have to look at some different option.
The easiest way is to look for another distributor and advisor and shift to this route, but now with additional payment required on the part of investors for using their services, there is an increasing bent towards going it alone. This can result in a sticky situation where the investor realises that there needs to be some steps for the purpose of ensuring that there is no disruption in the service that they receive.
Contact possible
In case of any situation, the investor has to understand that the mutual fund is the entity with which the entire investment is based. This remains the base entity with which all the details about the investment is available and hence the investor can ensure that they get any required information from the mutual fund itself.
This is the best source for ensuring that there is clarity about the entire situation and this will also provide options for ensuring the smooth continuation of activities. The data required for this purpose is the Folio Number that is present on all mutual fund statements. All the necessary details are available with the mutual fund, which can be retrieved.
There is the entire list of mutual funds that are available with the market regulator SEBI (Securities and Exchange Board of India) and the fund association AMFI (Association of Mutual Funds in India). There are around 35 mutual funds in operation at the end of July in the country.
Code
There is now no entry load that is present for making an investment into a mutual fund. This means that there is no expense that the investor has to worry about now as compared to the situation earlier when only direct investments did not have any entry load.
If the investor is careful and they take a look at the details on the mutual fund statement that they get then they will be able to see that there is a space where the code for the distributor is mentioned.
This means that the commission for the investment goes to that particular entity and they are the ones who will be servicing the investor. When it comes to the issue of ensuring that there is a direct investment that is made, then the investor would have to ensure that the space for the code is blank or that it is mentioned direct.
This will also ensure that there is no trail commission that is going to any entity, especially if the investor is direct. If the investor wants to check directly with the fund then various funds allow transaction through their own website and this includes funds like HDFC MF, Franklin Templeton MF, ICICI Pru MF among others.
Checking
There are two angles to the entire investment that they have. One of them relates to the investment that has already been made and hence this will have a separate situation because this is complete, but the requirement here deals with proper monitoring.
On the other hand, there is also the case of new investment and if this is done using a distributor then the investor will have to pay fees that are decided between the two parties. In case of a small distributor, this can be negotiated, so you might end up paying something like Rs 500 for a Rs 50,000 investment.
On the other hand, big players leave little room for bargain and the amount here is fixed like Rs 30 per transaction for systematic investment and so on. This is the reason why they need to be clear about the manner in which they are investing so the choices can be selected.
There can also be a direct interface that is set up between the mutual fund and the investor. This can be done through interacting through some center of the fund or through the transfer agent. Most major cities have these offices.
Another way in which the same situation can be set up is through the route of using the internet for the interactions. In this situation, the investor makes further investments as well as redemption and other changes through their login on the internet and hence there is some clarity available for them about the exact status of their investment.
Using either or all of these will help the investor meet their requirements.
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