L&T Insurance all set to kick off operations

Private sector non-life insurer L&T General Insurance has received R3 approval from the insurance regulator, Insurance Regulatory & Development Authority (Irda). The company will start its operation after it gets necessary approval for more than 20 products, for which it has applied for.
YM Deosthalee, wholetime director & chief financial officer, L&T, said that entry into the general insurance is a part of the overall vision to build a wholesome financial services business in India.
Talking to media in Mumbai on Monday, Joydeep Roy, chief executive of L&T Insurance, said the capital base of the company will be Rs 175 crore. "In the retail space, we are focusing on four areas microinsurance in rural parts of the country, health insurance in the urban areas, lifestyle products like providing cover to motor and home loans and finally, livelihood insurance, including providing insurance cover to commercial vehicles," said Roy.
In the corporate segment, SME and construction engineering will be the focus areas for the company. When asked about the synergy of the company with its parent company, Larsen & Toubro, Roy said that distribution of network as being enjoyed by L&T Finance with 300 of its branches and the ecosystem of L&T will help them a lot in growing their business. "We have already opened 10 branches initially. We will be going to tier-II & -III cities of the country later on. The company has already employed 100 people so far," said Roy. He maintained that the company will go for underwriting-based pricing for its products

Exit load likely on early redemption in liquid plus plans from August 1

Indian fund houses plan to charge a fee, known as exit load, for early redemption of investments in the popular liquid plus schemes of mutual funds, starting August 1, which may prompt institutional investors such as banks and corporates to switch a part of their surplus money to other short-term debt schemes. Mutual funds may impose an exit load of 0.1-0.5% for early redemption in liquid plus schemes, which constitute about 35% of the mutual fund industry’s total assets under management (AUM) of Rs 6.76 lakh crore, according to officials in fund houses and mutual fund distributors. The bulk of the investments in such schemes are in money market and debt securities with a maturity of over 91 days. Fund houses intend to charge this fee to smoothen flows into such schemes and reduce volatility in returns as a new norm to value debt securities with maturities of over 91 days kicks in on August 1. Mutual funds fear that the new valuation rules could increase uncertainty in returns from this product, thereby reducing their popularity among investors. The period for which this fee or exit load would be charged would depend on the tenure of the scheme. “Liquid plus schemes can go negative on a day-to-day basis if average maturity profiles are longer and the mark-to-market (MTM) portion is higher,” said Sunil Jhaveri, chairman, MSJ Capital and Corporate Services, a New Delhi-based mutual fund advisor. Liquid plus schemes with an average maturity of 100-110 days could have exit loads between 7-15 days while the more aggressive liquid plus products with an average maturity of 120-140 days are likely to have exit loads between 15-30 days, according to Jhaveri and mutual fund industry officials. “By imposing exit loads depending on the average maturity, we are telling investors give us at least this time to give you reasonable returns,” said a senior official with a leading private mutual fund. “If there is volatility in the corpus, it will be difficult for us to manage the scheme,” he said, requesting anonymity. The imposition of exit load after August 1 could lead to some investors shifting money from liquid plus to liquid schemes. Liquid funds, which invest in debt instruments with maturity below 91 days, do not have exit loads. Fund officials said some mutual funds that had introduced this fee on early liquid plus redemptions a couple of years ago were forced to withdraw it because of protests from investors. This time, the fee may stay as industry officials and distributors do not expect investors to throng to liquid schemes because liquid plus schemes fetch better returns and are taxed lower. A DDT of 28.33% is charged on liquid funds while it is 22% for other debt schemes, including liquid plus schemes. Liquid plus schemes are likely to return 4-4.25% annualised in August because of their investments in securities of longer maturity. Returns from liquid schemes are expected to be 3.50-3.75% when the liquidity improves next month. “Investors have few alternatives... Many of them would be forced to stick to liquid plus,” said. Not all asset management firms are likely to impose these exit loads. “We are not likely to impose any exit load on our liquid plus scheme. Instead, we would advice investors to put money in our short-term fund (of maturity 6-15 months), which has a 15-day lock-in, that is of minimal risk,” said Nandkumar Surti, chief investment officer, JPMorgan Asset Management.

A matter of fact dealmaker

Had Sunil Sanghai not been an investment banker, he could have been a senior strategist with one of the national political parties, or a career diplomat or the backroom boy of a corporate thinktank.

He shuns being photographed, rarely goes on record, and is the master of polite conversation: if he wants to, he can for hours talk to you without saying anything.

After a long, liquid lunch with a CEO or a senior bureacract, where Sunil will either stick to his spartan Marwari fare or skip food entirely because he’s on fast — and, he often is — our man will inevitably end up collecting more information than he shares.

He will meticulously make a mental note of all little details and trivia — tidbits of the corporate world, whispers in the corridors of power and winds of change in business environment.

Here’s a man who believes in cultivating people of all kinds and remembering whatever they say.
   
In the cut-throat world of investment banking, these qualities have come handy. Having spent four years in Goldman Sachs where he contributed significantly to the firm’s initial success in India — having executed complex transactions like the Satyam sale last year — Sunil will join HSBC in September as managing director, head of global banking.

In HSBC he would be responsible for the bank’s corporate banking and investment banking businesses in India.

In the world of deal making, Sunil was at the right place at the right time. He received his training from India’s No 1 dealmaker Nimesh Kampani at JM Morgan Stanley and had a brief stint with Morgan Stanley Singapore — experiences that shaped his understanding of financial products, and local and international markets.
   
In 2007 he became the managing director at Goldman, and in 2009 moved up to become i-banking co-head.
   
Over the years, as he made new friends, kept in touch with the old ones and picked up all the buzz that mattered, Sunil got himself associated with many firsts in the Indian capital market.

He was involved in ICICI’s first book building process in 1996, the institution’s first umbrella prospectus filing in 1997, several international listings by Indian companies, the first non-convertible debenture plus warrant issuance by HDFC, the largest follow on offering out of India by ICICI Bank in 2007, and the first IDR issue that was recently completed by the British bank StanChart.

“Somehow, he enjoys finding a creative solution to something that’s complex and difficult,” says a former colleague.
   
Surviving in an unforgiving world of dealmaking, Sunil is a disciplined, matter of fact man with a strange taste for religious writings, and all kinds of biographies.

“There’s always something to learn from such books,” he tells his friends. At 42, Sunil is a regular at the Mumbai marathon, and usually turns to his sitar and keyboard when he’s not scanning the Geeta or visiting temples in Varanasi.

That’s curious for an i-banker, a tribe that conjures images of flashy lifestyle and holidays in the Bahamas.

But make no mistake. Sunil may be far away from anything exotic, but he won’t waste a moment to step into that less familiar world if he feels a deal is brewing.

SBI MF appoints Dharmendra Grover as Fund Manager

The funds that will be being managed by him at SBI MF are Magnum MultiCap Fund, SBI Tax advantage Fund – Series I, Magnum Investment NRI – FAP and Magnum Balanced Fund.

SBI Funds Management Pvt. Ltd., Investment Managers for SBI Mutual Fund, one of the largest mutual funds in the country, has appointed Mr. Dharmendra Grover as Fund Manager of SBI FMPL. The funds that will be  being managed by him at SBI MF are Magnum MultiCap Fund, SBI Tax advantage Fund – Series I, Magnum Investment NRI – FAP and Magnum Balanced Fund. Dharmendra brings with him rich experience in the Indian equities market across equity research, fund management, corporate strategy and investor relations and has worked with organizations such as Llyods securities, Credit Suisse First Boston, Principal MF, Tata Motors and Artemis Advisors. He was last working with Tata Securities ltd setting up PMS. As part of a research advisory enterprise, he was also involved in providing research on Indian companies for a foreign based fund.

Mutual fund investors to get single statement across all investments

SEBI has asked the four RTAs like CAMS, KARVY, Franklin Templeton and Deutsche Investor Services to club investor data together and provide a consolidated statement of account for all investments in mutual funds

Have you invested in five different schemes of different fund houses and are tired of receiving five different statements of accounts? Then you will be in for some relief. Market regulator Securities and Exchange Board of India (SEBI) is mulling to cut down the paperwork and provide a common account statement for all mutual fund investors with the help of four registrar and transfer agents (RTAs). This move will reduce the paperwork and cost for AMCs. 

Deutsche Investor Services Pvt Ltd, Computer Age Management Services (CAMS), Franklin Templeton and Karvy Mutual Fund Services are the four RTAs who will work on compiling investor data.

“There is a plan to set up a separate platform so that the industry can deliver one statement across investments in various mutual funds. We have done some work on conceptualisation, scope of services, etc. Huge economies will flow in. It will reduce the efforts of investors and distributors,” said a source in the know of the development.

“There are two efforts that are being undertaken. One is that those who have a demat account (equity investors) can get their MF units in demat form for which the consolidated information is available with the National Securities Depository Ltd (NSDL) and Central Depository Services (India) Ltd (CDSL). There is another effort going on where RTA data is being clubbed to provide a consolidated statement. There are resources available for aggregating data. There will be no sharing of investor information between NSDL and RTAs. The data aggregation will be based on PAN and things like that,” said another source close to the development.

For instance, if an investor is holding MF units in demat form with NSDL or CDSL and also some units through RTAs, he will get two separate consolidated statements. That is, one from NSDL and the second consolidated statement from the four RTAs. If he is also holding stocks, then the same demat statement will reflect his stock and fund investments together. If an investor’s information is with RTAs then he will get a single account statement across the RTAs.

CAMS and KARVY currently provide an online service on their website for investors to track their transaction status, account information and to see a consolidated view of account by providing an email ID. Investors are required to create a user account on the CAMS or KARVY website. There are plans to club this data across RTAs and send a single consolidated statement to MF investors.

The RTAs are awaiting SEBI’s nod for implementing this new system. According to sources, it is expected to be implemented by the next three to six months. KN Vaidyanathan, executive director, SEBI, had recently shared this plan in a recent mutual fund CII summit. “The third area where the regulator is working on is for those who come directly through the asset management companies (AMCs) or one of the investor services centre providers like KARVY or CAMS. We want to make sure that if the investor so chooses he should get a single view. We will put in place a mechanism where the investor will get a single view.”

“The proposal has been made. The regulator is very positive about it,” said a source close to the development. “This is good for the investors and industry at large. It’s late but it’s good that SEBI is thinking about implementing this. It will benefit all stakeholders,” said an official from a fund house.

Base rate of all banks

Ahead of the Reserve Bank of India's (RBI) review of monetary policy on 27 July, most of the banks have announced their base rates.

 RBI had directed all the banks to switch over to the base rate system from the existing Benchmark Prime Lending Rates (BPLR) system  with effective from 1 July.

 All new loans sanctioned after 1 July and those falling due for renewal from 1 July, (except exempt categories as per RBI Guidelines will now be priced with linkage to base rate.  

Banks	Base Rate (PA)
State Bank of India	7.5%
Punjab National Bank	8%
Bank of Baroda	8%
Union Bank	8%
Central Bank of India	8%
Bank of Rajasthan	8%
Indian Bank	8%
Uco Bank	8%
IDBI Bank	8%
Indian Bank	8%
Dhanlaxmi Bank	7%
Federal Bank	7.75%
State Bank of Mysore	7.75%
Corporation Bank	7.75%
Karur Vysya Bank	8.5%
Canara Bank	8%
Indian Overseas Bank	8.25%

 

Pramerica’s DART to nimbly move between debt and equity—but it may not hit the bull’s eye

he newly-entered fund house Pramerica Mutual Fund’s new fund offer comes with an option of a ‘dynamic plan’ that adjusts the fund’s exposure in tune with market valuation. It is a marketing gimmick—as the examples of three other funds show

Pramerica Mutual Fund, sponsored by the US-based Prudential Financial firm which received the Securities and Exchange Board of India (SEBI) approval to enter the mutual fund business in India last month, has filed a draft offer document to launch the ‘Pramerica Growth Fund’. Pramerica has also filed its draft offer document with the regulator for its ‘Pramerica Liquid Fund’ and Pramerica ‘Ultra Short Term Bond Fund’ on 16 June 2010.

The ‘Pramerica Growth Fund’ scheme comes with two plans. The first one is an equity plan and the second is dynamic. The Equity Plan will invest 35% of its portfolio in debt and 65% in equity. Around 60% of this portfolio will be mainly invested in large-cap companies which comprise the top 75% of the total market capitalisation of the National Stock Exchange (NSE).

Under the dynamic plan, 30% of the portfolio will have exposure to equity and up to 70% in debt. The debt portion of the dynamic plan will be actively managed while the equity portfolio of the plan will closely replicate the equity investments of the ‘Equity Plan’.

The fund house will use Pramerica Dynamic Asset Rebalancing Tool (‘Pramerica DART’ tool) which will determine the allocation between equity and debt. According to the prospectus, Pramerica DART works on the philosophy of mean reversion. The theory of mean revision suggests that prices and returns eventually move back towards the long-term average. Such an average can be the historical average of price or return.

The model factors in three elements like fundamentals, liquidity and volatility. DART assigns a score which indicates whether the stocks are undervalued or over-valued. Based on these scores, the model then calculates the optimum equity-debt mix.

Will DART hit the bull’s eye? Ideas of moving between equity and debt are old and usually add no value to investors. Tata Mutual Fund had launched a similar fund called ‘Tata Equity Management Fund’ in June 2006 which came up with a novel method of pre-deciding the exact quantum of hedging under different market conditions. TEMF, like anybody else, banked on historical data of high and low P/Es to determine degrees of overvaluation. Moneylife had previously reported about the scheme when it was first launched. (Read here: http://www.moneylife.in/article/81/5319.html). This was too simplistic and the scheme has not lived up to its promise. The fund has posted 9.14% return since inception while its benchmark S&P CNX Nifty has posted 18.96% since the fund’s inception.

How have the other funds with similar strategies done? HSBC had launched its ‘HSBC Dynamic Fund’ in August 2007. This fund is benchmarked against the BSE 200. The fund has posted -1.79% returns since inception while its benchmark has yielded 7.53% returns since the fund’s inception.

Similarly, ICICI Prudential launched ‘ICICI Dynamic Fund’ in October 2002. The scheme is benchmarked against the S&P CNX Nifty. The fund has yielded 34.98% since inception while its benchmark has yielded a whopping 58.07% return in the same period.

The ability of fund managers to time the market is a myth, as these three examples show. But fund companies never tire of marketing them, as the Pramerica example shows

Equity funds underperform the rise but buck the fall during the recent round trip of the Sensex

The Sensex rose more than 2,000 points in the Feb-April period and then gave up all the gains thereafter in April-May. How did equity funds do during this period?
The Sensex went up from 15,725 on 5th February this year to its peak of 18,047 on 7th April and quickly fell back to 15,960 on 25th May. The mutual fund sector's performance in this round trip was a study of contrasts. In the rally of 14% in the Feb-April period, only 49 equity diversified growth schemes out of 216 schemes outperformed their respective benchmarks.

This stands in sharp contrast to the performance during the decline of 11% in the April-May period when as many as 174 schemes outperformed their benchmarks. This shows that funds have been conservative with their portfolio construction. By and large they have stayed away from highly volatile stocks that ensured an outperformance during the recent market decline.

The top performer among the 216 schemes during the rally was Canara Robeco Force Fund. Its Net Asset Value (NAV) was up 17% over the period while its benchmark, S&P Nifty was up 14%. Birla Sun Life Long Term Advantage Fund - Series 1 was second with NAV rise of 16%, while BSE500, its benchmark, changed 13%. Templeton India Growth Fund (up 16%), Escorts Growth Plan (up 15%), IDFC Strategic Sector (50-50) Equity Fund-Plan A (up 15%) were among the top five. Out of the 49 schemes, which outperformed their benchmarks, 21 schemes have beaten the Sensex.

Schemes of JM Financial Mutual Fund have been laggards in any market scenario. It repeated this unique distinction during this short rally too. JM Core 11 Fund, JM Emerging Leaders Fund, JM Small & Mid-Cap Fund were among the bottom five. Their NAV yielded a return of 6%, 5% and 3% respectively while their benchmark BSE Sensex, BSE200, CNX Midcap were up between 13-14%. Sahara REAL Fund and SBI Magnum Midcap Fund were the others in the bottom five. Their returns rose 7% and 6% respectively.

Following this rally, the Sensex tumbled 11% between 7th April and 25th May. In this fall, out of the 216 schemes, the NAVs of two schemes actually were up: DSP BlackRock Micro Cap Fund and HSBC Small Cap Fund. The first was up 3% and the second 2% while their benchmark, BSE Small Cap, fell 9%. Others among the top five outperformers were dividend yield plans-Escorts High Yield Equity Plan (1%), Tata Dividend Yield Fund (3%) and ING Dividend Yield Fund (3%) while their benchmark CNX100, Sensex and BSE200 fell 10%, 11% and 10% respectively.

Among the worst performers during this decline were Bharti AXA Equity Fund, Franklin India High Growth Companies Fund, Reliance Natural Resources Fund, Birla Sun Life Special Situations Fund and Religare AGILE Fund. Remember these names. They have stocks that are inherently more volatile.

DSP BlackRock Micro Cap Opens The Door For New Investor......

DSP BlackRock Micro Cap Fund, the only Closed Ended Fund in the Equity basket of DSP BlackRock Mutual Fund, has become an Open Ended Fund from today viz. from 15^th June, 2010. The Fund is now made Open Ended for daily transactions from today onwards.

DSP BlackRock Micro Cap Fund was launched in June, 2007 and the units were offered at Rs. 10/- per unit. The NAV of DSP BlackRock Micro Cap Fund as on 14^th June, 2010 was Rs. 14.765 per unit registering a gain of 14.52% CAGR since inception, one of the best performing Funds in the Equity Fund category in last 3 years.

Background:

As the name of the Fund indicates, DSP BlackRock Micro Cap Fund was launched with an objective to generate long term capital appreciation from a portfolio primarily constituted of Companies not forming part of Top 300 Companies by market capitalization.

The Fund has generated very good returns since its inception (14.52% CAGR) in the respective category mainly because of the better stock selection and active fund management by the experienced fund management team of DSP BlackRock Investment Managers Pvt. Ltd. The following is the return snapshot of the Fund for your information.

Attached herewith please find

(a)   The latest Single Pager of DSP BlackRock Micro Cap Fund.

(b)   The latest Portfolio of DSP BlackRock Micro Cap Fund as of 31^st May, 2010.

(c)   A detailed Presentation on DSP BlackRock Micro Cap Fund explaining its positioning, performance, rationale and opportunities in the Micro Cap segment.

We hope this information will be useful to you to showcase DSP BlackRock Micro Cap Fund to create wealth for your esteemed investors.

We solicit your wholehearted support in the promotion of DSP BlackRock Micro Cap Fund on its re-opening from today for further subscription.

Mutual Funds line up index funds

Fund houses are in a race to launch index funds to shore up their assets under management (AUM). The latest to join is ICICI Prudential Mutual Fund which has floated a new open-ended fund named Nifty Junior Index Fund. The new fund offer (NFO) opened on 10th June 2010 and closes on 21st June 2010. ICICI had launched ICICI Pru Index Fund in February 2002. The scheme is benchmarked against the S&P CNX Nifty.

Over the past decade, there have been only about 20 index funds. But suddenly in the last few months, four new index funds have hit the market. Taurus Mutual Fund launched Taurus Index Fund; IDFC Mutual Fund introduced the passively managed IDFC Nifty Fund in April 2010; and in May 2010, IDBI Asset Management Company (AMC) launched IDBI Nifty Index Fund as its first fund offering.

ICICI Pru's fund will be benchmarked against the CNX Nifty Junior Index and will invest 90% of its corpus in the underlying Nifty Junior Index stocks and 10% in debt and money market instruments.  The CNX Nifty Junior consists of 50 stocks and represents about 12% of the free-float market capitalisation as on 31 December 2009.

The scheme carries a 0.25% exit load if redeemed or switched less than seven days after investing.  Investors can choose growth or dividend option. The Fund bears a maximum annual expense of 1.50%, depending on the corpus of the fund.
Index funds are supposed to exactly replicate their benchmark and outperform most actively managed funds.

Most of the index funds are benchmarked against Nifty or Sensex. The Nifty Junior index is much more volatile than these two main indices. Nifty Junior rises sharply in a bull run and falls as sharply when the market crashes. From the bottom of October 2008 to the peak of April 2004, the Nifty was up 113% whereas the Nifty Junior was up 206%. Earlier, the Nifty Junior had crashed 73% from January 2008 to October 2008 while the Nifty had declined 61% in the same period.   
 
The Fund will compete against the much cheaper 'Junior BeES' launched by Benchmark Mutual Fund, which launched India's first mid-cap index fund in the year 2003.