After the mad rush for Gold ETF Asset Management companies were actively scouting go the next big idea to launch to seek cover for their dwindling Assets Under Management(AUM). Accordingly, Benchmark Mutual Fund will be launching an ETF based on the Hang Seng Index. Hang Seng BeEs as it is called would be listed on the NSE on Monday , 15th February. The Purpose of this EFT is to enable investors track Hang Seng Live and reveal hang seng index chart on real-time basis.
Benchmark AMC and its Niche:
Benchmark has carved a niche for itself in the Indian Mutual Fund Industry by successfully launching first ETF in Asia(not only India) Nifty BeEs. It is also credited with launching the Gold ETF first time in India. Shariah based ETF products were first introduced to the Indian Mutual Fund Investors by Benchmark Asset Management Company.
Trade on Hang Seng Stock Exchange:
Hang Seng BeEs would be the first ETF to introduce Indian Stock Market Investors to a closed market like China. India and China are two of the fastest growing economies in the world. Indian investors would largely benefit by the diversification offered with the launch of hang seng index based ETF. Hang Seng Stock Exchange is one of the largest exchanges in the world. Hang Seng Index Charts, Hang Seng Futures, Hang Seng Historical Data can also be now be determined and tracked on a real-time basis.
Hang Seng Timings:
Hang Seng BEnchmark Exchange traded Scheme(BeEs) will trade during the Hong Stock Exchange Timings. The Heng Seng Stock Exchange closes two and half hours prior to the NSE Closing timings. The corresponding time would be between 7.30 am to 1.30 pm Indian Standard Time. The timings are better suited to Indian Stock Market traders and investors alike, compared to US Markets and European market timings. The NAV for the Scheme would also include the currency fluctuation.
Taxation Rules for Trading in Foreign ETF:
The ETF are treated as Debt funds for tax treatment and would therefore attract tax rules which are currently applicable to the non-equity funds in India. The Hang Seng Index currently comprises of 42 Stocks and is the benchmark for the China ETF in India. Rs 10,000 is all you need for your ticket to China: The units are available for a minimum amount of just Rs 10,000. To cater to large masses and enable wider market participation the entry amount is kept at Rs 10000 only. All Major Global Corporations have invested billions of dollars in the Chinese Economy. So why Indian Investor should not join the race and participate to diversify their existing portfolios?
Charges for trading on China ETF:
There are no charges levied by the AMC in form of NIL entry load and NIL exit load for buying and selling on the NSE. A minor bid/ask spread, brokerage for trading and needs to be borne by the investor. Hitherto, only High Net worth Individuals was active in using these innovative financial products. In future retail investors should add such products to their overall portfolio diversification strategy.
Monday, March 22, 2010
Friday, March 12, 2010
New AMFI chief blames distributors for mis-selling, ignores role of AMCs
The newly-appointed chief executive of industry body Association of Mutual Funds in India (AMFI) is looking to hit the ground running. Within days of his appointment, he announced his intention to crack the whip on the blatant mis-selling of mutual fund products to retail investors. However, his ire has been misdirected towards distributors, largely ignoring the role played by asset management companies (AMCs) in pushing the distributors to sell products aggressively.
In a recent interview with Business Standard, HN Sinor, the new chief at AMFI, acknowledged that mis-selling runs rampant in the mutual fund industry and that small investors were being short-changed on a regular basis. Announcing that this situation needed to be addressed on a priority basis, he indicated that distributors engaged in mis-selling should be suspended from selling mutual fund products.
While it is heartening to see that the new chief of AMFI has taken up arms against mis-selling, it would be unfair to tie the noose around distributors’ necks. This is very simply because distributors don’t manufacture products. Neither are they responsible for shoddy performance of the majority of mutual fund schemes. If anything, it is the AMCs of mutual funds that are promoting mis-selling in a bid to generate more business. Distributors are merely being lured into the high-stakes game being played by such AMCs.
Moneylife has previously written (see here) about how large AMCs are wooing distributors to sell their products more aggressively by organising lavish junkets for those who meet their business targets. It is this aggression that may lead to mis-selling. Indeed, has anybody ever come across any mutual fund company pulling up any distributor for mis-selling?
An independent financial advisor (IFA) who spoke to Moneylife on the condition of anonymity said, “The regulator gives a verbal indication of what the AMCs should pay to distributors but none of the AMCs follow that. AMCs are forced to lure distributors with upfront brokerage as high as 4% because of the changed rules of the game. After the new rule that payment of trail commission will go to the new distributor, competition for assets under management (AUM) shopping has become very intense. No distributor is certain of the trail commission coming to them. They want to earn future trail commissions upfront. It means there is no obligation or attraction for them to serve investors after the allotment. The new broker will also not service investors because he won’t get any trail commission which is already paid upfront.”
The irony is that if there is any segment of distributor that indulges in mis-selling it is the industry where Mr Sinor has worked for decades—the banking industry. “Banks mis-sell products involving large sums of money under false representation. They rely least on the strength of the product and requirement of investors. They are constantly abusing their trusted relationship with depositors. There is a need to regulate AMCs and bank distributors more,” he added.
Small distributors are also feeling the heat after the no-entry load ban imposed by SEBI last year. In such a scenario, they are under pressure from the large distributors who are leaving no stone unturned to grab their business from under their nose. In the race to fight for their very survival, small distributors are not thinking twice before selling fund schemes blindly to investors. It is time AMFI realised where the root cause of the problem lies. It has come under a lot of fire recently for being a toothless body with no concrete measures or actions for improving industry standards. It has largely done nothing significant to standardise any of the practices. Mutual fund prospectuses are a shame compared to the IPO prospectuses. If AMFI wants to bring about some positive changes, AMFI must look within. It has a lot in its plate to start with.Thursday, March 11, 2010
Will Birla MF’s Capital Protection Fund leave a hole in its capital?
Birla Sun Life Mutual Fund (MF) is keen to attract fixed-deposit holders through its Capital Protection (CP) Fund and aims to mop up as much as Rs700 crore. According to sources, the company’s new fund offer (NFO), Birla Capital Protection Fund, had been extended to 10th March from 5th March as it was unable to meet its ambitious target. Birla MF is targeting close to Rs600-Rs700 crore and has so far managed to generate only Rs200 crore.
“The NFO was launched on 5 February 2010 and was scheduled to go on for a month. However, in view of the fewer days on account of holidays and breaks and to ensure convenience for investors, the due date was extended to 10th March. The NFO collection figures can only be verified after the scheme is closed for subscription, and the MIS is generated,” said a spokesperson for Birla MF.
While the fund is aggressively marketing the capital protection product, the irony is that the product will leave a hole in the capital of Birla Asset Management Company (AMC). Industry sources reveal that the company can earn 1.75% per annum in this product over a period of 27 months, which is the duration of the scheme. This means an earning of 3.9%. However, the cost of running the scheme will be much higher. Here is the math.
The processing charge for the issue will be about 0.3%. This leaves the AMC with 3.6% out of the fees. As against this, Birla MF will offer 2.75% as commission to distributors. That leaves it with 0.85%. If the Fund manages to raise, say, Rs500 crore from the scheme, its earnings over the 27 months will be just Rs4.25 crore. However, the Fund has already spent over Rs7 crore in advertisements and other promotional costs. This leaves the fund house with a large loss.
“The advertisement for the NFO had been done extensively with the aim of generating awareness for the Fund. The expense ratio that the Fund intends to charge the investor would be 1.5%,” added the company official. The official, however, declined to divulge any details of the Fund’s target or how the company would recover its advertisement costs.
“The advertisement charges are sometimes deducted from the scheme after some time. The NFO has collected around Rs220 crore,” said an independent financial advisor (IFA).
This would be hard in this kind of a Fund where returns are thin. The Fund will allocate 90% of the money to bonds and 10% to equity. It intends to reduce tax liability by the triple-indexation method.
Courtesy :-http://www.suchetadalal.com/?id=bb5b242f-20e7-0c4a-4b979662bb0f&base=sections&f
“The NFO was launched on 5 February 2010 and was scheduled to go on for a month. However, in view of the fewer days on account of holidays and breaks and to ensure convenience for investors, the due date was extended to 10th March. The NFO collection figures can only be verified after the scheme is closed for subscription, and the MIS is generated,” said a spokesperson for Birla MF.
While the fund is aggressively marketing the capital protection product, the irony is that the product will leave a hole in the capital of Birla Asset Management Company (AMC). Industry sources reveal that the company can earn 1.75% per annum in this product over a period of 27 months, which is the duration of the scheme. This means an earning of 3.9%. However, the cost of running the scheme will be much higher. Here is the math.
The processing charge for the issue will be about 0.3%. This leaves the AMC with 3.6% out of the fees. As against this, Birla MF will offer 2.75% as commission to distributors. That leaves it with 0.85%. If the Fund manages to raise, say, Rs500 crore from the scheme, its earnings over the 27 months will be just Rs4.25 crore. However, the Fund has already spent over Rs7 crore in advertisements and other promotional costs. This leaves the fund house with a large loss.
“The advertisement for the NFO had been done extensively with the aim of generating awareness for the Fund. The expense ratio that the Fund intends to charge the investor would be 1.5%,” added the company official. The official, however, declined to divulge any details of the Fund’s target or how the company would recover its advertisement costs.
“The advertisement charges are sometimes deducted from the scheme after some time. The NFO has collected around Rs220 crore,” said an independent financial advisor (IFA).
This would be hard in this kind of a Fund where returns are thin. The Fund will allocate 90% of the money to bonds and 10% to equity. It intends to reduce tax liability by the triple-indexation method.
Courtesy :-http://www.suchetadalal.com/?id=bb5b242f-20e7-0c4a-4b979662bb0f&base=sections&f
Don't expect great returns
During the end of the financial year, insurance companies try to tap tax-payers with innovative schemes, including guaranteed returns products.
Life Insurance Corporation of India (LIC) recently launched Wealth Plus, which gives guaranteed returns. Last year, it had launched Jeevan Aastha, which promised to give Rs 9 and Rs 10 for every Rs 100 invested, depending on the policy tenure. The earlier policy invests in debt instruments such as government bonds. Wealth Plus, on the other hand, invests in equities and assures returns linked to the highest net asset value (NAV) of the fund over a seven-year period.
LIC is not alone in the market with such a product. Reliance Life Insurance has Reliance Life Highest NAV Guarantee Fund, which assures the highest NAV for the entire term of the policy. Many other players have similar plans. Tata AIG Life insurance sells such a scheme under the name InvestAssure Apex Pension Plans; Birla Sun Life Insurance has Platinum Premier Plan; SBI Life Insurance calls it Smart Ulip; ICICI Prudential Life Insurance sells Pinnacle; and Bajaj Allianz Life Insurance's Max Gain gives a similar guarantee.
These plans capture the highest NAV of the fund and lock it. Thus, a customer gets returns based on the highest NAV, even if stock markets undergo a correction. However, before buying, there are a few things you should look at.
Working: To give the highest NAV-based returns, insurance companies follow a trading strategy known as constant proportion portfolio insurance (CPPI). Institutions around the world use this model to ensure a fixed minimum return for investors who are risk-averse.
In CPPI, a fund allocates the corpus between safe assets (debt-based papers) and risky assets (equities), depending on stock market performance and interest rates. Depending on losses or gains from the equity investment, the insurance company constantly rebalances the equity-debt mix to lock the highest NAV.
Returns: Most of these products are available for a limited period. In the initial phase, the company decides the asset allocation between equity and debt. "The debt portion could be small if interest rates are high and equity markets have low volatility," said Sashi Krishnan, chief investment officer at Bajaj Allianz Life Insurance Company. He explained that if the market falls, the allocation to debt is increased and vice-versa. "As it is not a pure equity product, it will definitely not give pure equity-based returns," said Manish Kumar, head of investments at ICICI Prudential Life Insurance.
Costs: Most insurance companies charge a guarantee fee over and above the 3 per cent cap that the Insurance Regulatory and Development Authority (Irda) has prescribed. "This is primarily to make up for any shortfall," said Krishnan.
Insurance companies normally charge 0.2 -0.5 per cent. For example, LIC's Wealth Plus has a guarantee charge of 0.35 per cent of the fund value every year. While Bajaj Allianz levies a charge of 0.25 per cent on the fund value every year, ICICI Prudential's Pinnacle charges 0.10 per cent annually to give the guarantee. "This also includes the cost the insurance company incurs for setting up algorithms and other infrastructure related to this product," Kumar said.
Should You Buy? For small investors, products based on this structure are available with insurance companies only. High net worth individuals (HNIs) can approach wealth management companies for such arrangements.
Risk-averse investors who want to avoid insurance due to high costs can look at monthly income plans (MIPs) of mutual funds. These are essentially for investors who have low appetite for volatility. They invest 10-30 per cent in equities and the rest in debt. In the MIP category, the top 10 funds by returns have given yields of over 10 per cent in the past five years.
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).
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