It is always difficult for retail investors to decide when to invest in and pull out of the stock markets. It becomes all the more difficult to do a long-term financial planning if markets are volatile and investors are not confident to invest in equities directly.
During such a phase, a retail investor can look at systematic investment plan (SIP) of mutual funds. As the name suggests, it is a method of investing a fixed sum regularly in a mutual fund and is like saving in a recurring deposit. It makes more sense to invest in a SIP when markets dip as one is not buying units at peak but small amounts continuously which will average out over a period of time. So, over a longer period of time upwards of five years your chances of making profit are much higher when compared to an one-time investment.
One of the key advantages of SIP is rupee cost averaging. It means that when markets go down, the fixed SIP installments buy more units and vice-versa. Since SIP installments are made at different points of time and at different net asset values, the purchase price of units average out over the investment period. (See graphic)
The popularity of SIPs in India can be gauged from a recent report by Boston Consultancy Group and CAMS which says that from 7 lakh live SIPs in 2003, the number has risen up to 22.5 lakh till date. In fact, in the first quarter of 2010, SIP subscriptions accounted for 19% of total inflows into equity mutual funds, compared with just 2% in 2005.
The report also underlined that average tenure of equity money staying invested in one scheme is about 30 months and nearly 50% of the asset under management (AUM) has an investment tenure greater than two years. Nearly 70% of equity money has investment tenure exceeding 12 months.
One needs to be a disciplined investor to pay the SIP installment every month. However, if you miss paying any installment you can pay the amount the following month and continue with the benefits. Like most other investments, SIPs too come with a three-year lock-in-period.
One does not need to accumulate a lump sum to begin investing in SIP. However, if one invests Rs 10,000 per month in an equity fund and has a surplus of Rs 100,000 with a long view, the amount can just be pushed into the SIP account. Remember, SIP is just a payment mode and not a scheme. A SIP enables an investor to take advantage of the growth potential of mutual funds even if he/she does not have a large sum to invest. Most mutual funds require only Rs 500 per month to start a SIP. An investor can opt to pay the amount every month via electronic clearance service from his/her bank. The mutual fund will debit the amount from the account every month. An investor should monitor the scheme every 3-6 months and check what returns the fund has given.
Though SIP is a disciplined way to invest and any time is a good time to start, experts say an investor should avoid investing in too many funds. If one does so, there are chances of investing in similar type of funds and returns getting fragmented. To start with, it is always advisable to choose four to five funds and divide the investable surplus equally. For example, if one has Rs 5,000 to invest in SIPs every month, he/she should go for two funds which has given good returns over a period of five years. Similarly, if one has Rs 10,000, he/she should pick up four or five funds. By doing this, funds can be tracked closely, returns can be maximised and risks associated with every market-linked investment products can be spread out.
Tuesday, July 27, 2010
Thursday, July 22, 2010
Fund Pointer: Churning Pot
When fund managers churn portfolios to capture momentum and ride the short-term cycles, performance invariably takes a hit
Old habits die hard for many fund managers. Instead of making wise long-term investment decisions, some of them behave like traders and churn portfolios—their churning ratios going as high as 200%. Though they profess not to, many try to time the market, trade in derivatives and change their equity exposure at will. Out of the total 216 equity diversified schemes currently available in the market, 48 schemes have a churning ratio of more than 100%!
Many fund advertisements have an illustration of how a stock held over years can fetch handsome returns. They emphasise the importance of a buy-and-hold strategy. Sadly, many fund houses don’t seem to practise what they preach. The truth is: many fund managers try to chase momentum. Sometimes, they buy and sell the same stocks erratically for no sound reason.
This behaviour goes completely against the grain of mutual fund investing—making investments and staying invested for the long term. A high portfolio turnover does not necessarily lead to higher returns. On the contrary, returns often get eroded as a result of constant churning. The portfolio turnover ratio indicates the frequency of trades carried out by the fund manager—or the number of times he buys and sells stocks. Take, for instance, ICICI Prudential Growth Plan, which has yielded only 7% returns since inception, with a portfolio turnover of 232%. The ICICI Prudential Service Industries Fund too has provided returns of just 9% on its way to recording a turnover ratio of 231%. DSP BlackRock Top 100 Equity Fund recorded a churning ratio of 316% till March 2010. Returns were 6%. Similarly, the IDFC Enterprise Equity Fund, with a high turnover ratio of 206%, has managed to yield returns of just 3% since inception until March 2010. Others with a significantly higher turnover ratio but measly returns include Sahara Growth Fund, IDFC Strategic Sector (50-50) Equity Fund and JM Hi Fi Fund. On an average, schemes with a portfolio turnover ratio higher than 100% have yielded returns of 8% since inception.
On the other hand, schemes with comparatively low churning ratio (less than 100%) have provided better results. They have yielded 9% returns, on an average, since inception. Maybe returns have nothing to do with the number of times you buy and sell your holdings. The Templeton India Growth Fund, with a churning ratio as low as 8%, has managed to deliver 16% returns since inception. HDFC Mid-Cap Opportunities Fund has yielded 18% returns since inception with a churning ratio of 20%. Similarly, funds like the Tata Dividend Yield Fund (16%) and Reliance Equity Opportunities Fund (20%) have put in a decent performance, despite recording low churning ratios of 19% and 46%, respectively.
But that doesn’t mean that churning should not be practised at all. Slight churning of the portfolio every six months is advisable for a variety of reasons—to re-balance the portfolio and to account for drastic changes in the outlook for particular companies or sectors. However, constant and extravagant churning, as highlighted above, puts the portfolio under severe strain and the scheme ends up losing out in the long run. Interestingly, this is what fund managers preach, by and large. If this is supposed to be true for your individual investments, why should it not apply to fund companies?
Old habits die hard for many fund managers. Instead of making wise long-term investment decisions, some of them behave like traders and churn portfolios—their churning ratios going as high as 200%. Though they profess not to, many try to time the market, trade in derivatives and change their equity exposure at will. Out of the total 216 equity diversified schemes currently available in the market, 48 schemes have a churning ratio of more than 100%!
Many fund advertisements have an illustration of how a stock held over years can fetch handsome returns. They emphasise the importance of a buy-and-hold strategy. Sadly, many fund houses don’t seem to practise what they preach. The truth is: many fund managers try to chase momentum. Sometimes, they buy and sell the same stocks erratically for no sound reason.
This behaviour goes completely against the grain of mutual fund investing—making investments and staying invested for the long term. A high portfolio turnover does not necessarily lead to higher returns. On the contrary, returns often get eroded as a result of constant churning. The portfolio turnover ratio indicates the frequency of trades carried out by the fund manager—or the number of times he buys and sells stocks. Take, for instance, ICICI Prudential Growth Plan, which has yielded only 7% returns since inception, with a portfolio turnover of 232%. The ICICI Prudential Service Industries Fund too has provided returns of just 9% on its way to recording a turnover ratio of 231%. DSP BlackRock Top 100 Equity Fund recorded a churning ratio of 316% till March 2010. Returns were 6%. Similarly, the IDFC Enterprise Equity Fund, with a high turnover ratio of 206%, has managed to yield returns of just 3% since inception until March 2010. Others with a significantly higher turnover ratio but measly returns include Sahara Growth Fund, IDFC Strategic Sector (50-50) Equity Fund and JM Hi Fi Fund. On an average, schemes with a portfolio turnover ratio higher than 100% have yielded returns of 8% since inception.
On the other hand, schemes with comparatively low churning ratio (less than 100%) have provided better results. They have yielded 9% returns, on an average, since inception. Maybe returns have nothing to do with the number of times you buy and sell your holdings. The Templeton India Growth Fund, with a churning ratio as low as 8%, has managed to deliver 16% returns since inception. HDFC Mid-Cap Opportunities Fund has yielded 18% returns since inception with a churning ratio of 20%. Similarly, funds like the Tata Dividend Yield Fund (16%) and Reliance Equity Opportunities Fund (20%) have put in a decent performance, despite recording low churning ratios of 19% and 46%, respectively.
But that doesn’t mean that churning should not be practised at all. Slight churning of the portfolio every six months is advisable for a variety of reasons—to re-balance the portfolio and to account for drastic changes in the outlook for particular companies or sectors. However, constant and extravagant churning, as highlighted above, puts the portfolio under severe strain and the scheme ends up losing out in the long run. Interestingly, this is what fund managers preach, by and large. If this is supposed to be true for your individual investments, why should it not apply to fund companies?
The downfall: Commissions, IFAs, cheques and folios
The number of cheques released by AMCs to mutual fund distributors is dwindling as well as the number of active IFAs.
The sweeping changes introduced by market regulator Securities and Exchange Board of India (SEBI) in the mutual fund industry are still showing their after-effects. According to sources, two years back, some 39,000-odd monthly cheques were issued by asset management companies (AMCs) to pay upfront commission to distributors. In 2010, this number has plunged to around 9,000-10,000. Upfront commission is released on a monthly basis while trail is paid quarterly. A distributor gets upfront commission when he acquires new business while trail is paid to service the existing client. Currently 0.25% is paid as upfront commission and 0.50%-0.75% is paid as trail depending on the fund house.
“The number of payments received through the electronic clearing service (ECS) as well as cheques has dropped. People either wanted to consolidate or leave the business. People who have decent assets under management (AUM) are undeterred. New people are not joining. The general perception is that this business is not as remunerative as it used to be for a new person to join. This is because of SEBI’s misplaced perception that there is no role of an intermediary,” said a top official from a leading fund house, preferring anonymity.
“The number of cheque issuances among AMCs have dropped,” says a Mumbai-based distributor on the condition of anonymity.
However, registrar and transfer agent (RTA) sources say that the drop in cheques is primarily due to the ECS system. ECS facility was extended to distributors because of the delay and misplacement of cheques.
The following message doing the rounds in the mutual fund industry is a shocking revelation of the number of active IFAs. “What is the similarity between tigers and IFAs? Only 1,411 left. Thanks to SEBI.”
According to an official from a mid-sized AMC in Mumbai, the number of active IFAs bringing in new business has gone down to 1,200 from 5,000 in Mumbai alone. Around 80% of the business comes from metros like Mumbai, New Delhi, Chennai and Bengaluru. In Pune, hardly 40-45 active mutual fund distributors are working. In industry parlance, an active IFA is defined as someone who is still giving door-to-door service and bringing in new clients.
“Last year’s HDFC and Reliance Mutual Fund list showed 1,400 IFAs in Pune but now it has come down. I was submitting 30-40 new applications earlier, now I submit hardly 5-7 applications,” said a Pune-based financial planner.
The drop in the number of monthly cheques indicates that new business is not coming in and distributors are relying on the trail commission and past Systematic Investment Plans (SIPs). The industry added just 2,355 folios while equity funds lost 1.47 lakh folios in the month of July.
Some distributors are now shifting their focus to allied financial services like general insurance and company fixed deposits, which offer decent commissions while others are completely changing their business model.
After the crackdown on upfront commissions, distributors are struggling to acquire new business. The commission does not even cover the cost of acquiring a client. Now, even the trail commission is not paid to a new distributor in the event of a broker change.
“I have been in this business since 19 years and have a decent AUM. Around 650 families are investing through me since 1994. I have incurred an operating loss of Rs1.75 lakh in the last one year because of ‘no load structure’. Investors are not ready to pay the advisory charges because a number of bank channels are offering free services. We are not able to cover the operating cost of our organisation. It is very difficult to survive. After a lot of convincing we get around Rs40,000 to Rs50,000 worth of investments,” said Yogesh Kulkarni, proprietor, Royal Investments.
Sources also indicate that some mutual fund distributors have completely stopped sending self-declaration forms to AMCs due to the paltry commissions involved. SEBI rules mandate that all intermediaries send a self-declaration form to fund houses annually, failing which the fund house can stop the commission paid to distributors. The self-declaration form contains an acknowledgement that a distributor has disclosed the commission received by him to the investor.
The sweeping changes introduced by market regulator Securities and Exchange Board of India (SEBI) in the mutual fund industry are still showing their after-effects. According to sources, two years back, some 39,000-odd monthly cheques were issued by asset management companies (AMCs) to pay upfront commission to distributors. In 2010, this number has plunged to around 9,000-10,000. Upfront commission is released on a monthly basis while trail is paid quarterly. A distributor gets upfront commission when he acquires new business while trail is paid to service the existing client. Currently 0.25% is paid as upfront commission and 0.50%-0.75% is paid as trail depending on the fund house.
“The number of payments received through the electronic clearing service (ECS) as well as cheques has dropped. People either wanted to consolidate or leave the business. People who have decent assets under management (AUM) are undeterred. New people are not joining. The general perception is that this business is not as remunerative as it used to be for a new person to join. This is because of SEBI’s misplaced perception that there is no role of an intermediary,” said a top official from a leading fund house, preferring anonymity.
“The number of cheque issuances among AMCs have dropped,” says a Mumbai-based distributor on the condition of anonymity.
However, registrar and transfer agent (RTA) sources say that the drop in cheques is primarily due to the ECS system. ECS facility was extended to distributors because of the delay and misplacement of cheques.
The following message doing the rounds in the mutual fund industry is a shocking revelation of the number of active IFAs. “What is the similarity between tigers and IFAs? Only 1,411 left. Thanks to SEBI.”
According to an official from a mid-sized AMC in Mumbai, the number of active IFAs bringing in new business has gone down to 1,200 from 5,000 in Mumbai alone. Around 80% of the business comes from metros like Mumbai, New Delhi, Chennai and Bengaluru. In Pune, hardly 40-45 active mutual fund distributors are working. In industry parlance, an active IFA is defined as someone who is still giving door-to-door service and bringing in new clients.
“Last year’s HDFC and Reliance Mutual Fund list showed 1,400 IFAs in Pune but now it has come down. I was submitting 30-40 new applications earlier, now I submit hardly 5-7 applications,” said a Pune-based financial planner.
The drop in the number of monthly cheques indicates that new business is not coming in and distributors are relying on the trail commission and past Systematic Investment Plans (SIPs). The industry added just 2,355 folios while equity funds lost 1.47 lakh folios in the month of July.
Some distributors are now shifting their focus to allied financial services like general insurance and company fixed deposits, which offer decent commissions while others are completely changing their business model.
After the crackdown on upfront commissions, distributors are struggling to acquire new business. The commission does not even cover the cost of acquiring a client. Now, even the trail commission is not paid to a new distributor in the event of a broker change.
“I have been in this business since 19 years and have a decent AUM. Around 650 families are investing through me since 1994. I have incurred an operating loss of Rs1.75 lakh in the last one year because of ‘no load structure’. Investors are not ready to pay the advisory charges because a number of bank channels are offering free services. We are not able to cover the operating cost of our organisation. It is very difficult to survive. After a lot of convincing we get around Rs40,000 to Rs50,000 worth of investments,” said Yogesh Kulkarni, proprietor, Royal Investments.
Sources also indicate that some mutual fund distributors have completely stopped sending self-declaration forms to AMCs due to the paltry commissions involved. SEBI rules mandate that all intermediaries send a self-declaration form to fund houses annually, failing which the fund house can stop the commission paid to distributors. The self-declaration form contains an acknowledgement that a distributor has disclosed the commission received by him to the investor.
Tuesday, July 20, 2010
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
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
Thursday, July 8, 2010
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. |
Wednesday, July 7, 2010
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.
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. | |
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Thursday, July 1, 2010
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% |
Wednesday, June 23, 2010
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
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