IPL: Of serious money and awesome valuations

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

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

Shinsei sayonara to MF venture

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

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

DIN - Document Identification Number

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

SBI Mutual introduces online payment option

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

Edelweiss Super Select Equity Fund files offer document with Sebi

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

Mirae Asset Indo China Consumption Fund files offer document with Sebi

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

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

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

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

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

Canara Robeco InDiGo Fund files offer document with Sebi

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

MF distributors yet to submit KYC documents to AMCs

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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