Are mutual fund investors ready to pay a fee to distributors?

Mutual fund (MF) distributors across India are finding new ways to remain in the business. They are now thinking of charging their clients for investing in MFs.

“I have kept my clients informed about what is happening in the industry. The 0.50% commission paid by the asset management company (AMC) will not continue for a long time. AMCs are bleeding. I charge 2% from my clients. We are able to charge only our existing customers who know our quality of services. It’s difficult to charge a new customer,” said Thiru Murugan, CEO, Wealth Creation & Management Services.

“I know a typical case where a person who went to deposit Rs10 lakh was sold ten different ULIPs (unit-linked insurance plans) for the entire family. Next year he received a notice that he has to pay Rs10 lakh as renewal. The Securities and Exchange Board of India (SEBI) says that it is protecting investors, but I don’t know who will regulate banks,” adds Mr Murugan.

But there are others who feel that if the fund does not perform well, then investors will rush to their office to demand a return of the fee.

“Customers only pay to banks and big institutions. Clients invest Rs5,000 initially after taking advice and then invest Rs1 lakh directly. If an MF doesn’t gives good returns then clients will come and ask me to pay back the fees,” said a certified financial planner (CFA).

A distributor gets Rs6 as commission for a client investing Rs500 per month in a systematic investment plan (SIP) for one year (a total investment of Rs6,000). Distributors are finding it unviable to continue providing service to such clients. There are talks among the IFA community of charging a uniform rate. IFAs are planning to come up with a rate card enumerating various charges.

However, this uniform fee model would not be relevant across India for all distributors. The charges are likely to differ from one distributor to another depending on the advisory. As of now, distributors are thinking of charging anywhere from 1% to 2% of the total investment from their clients. SEBI had earlier mandated that the upfront commission to distributors shall be paid by the investor to the distributor directly. — Ra

Industry AUM dips in March

The assets under management (AUM) of the mutual fund industry dipped once again in March after having risen in February. The industry's total AUM stood at Rs 7,43,783.24 crore, a fall of 4.28 per cent compared to its end-February figure.
In January, the fund industry's AUM had dipped 4 per cent compared to its December AUM. However, in February it rose to 7,81,154.27 crore, up 2.65 per cent compared to the end-January figure.
Of the 37 (out of the total 38) fund houses whose AUMs were made available by the Association of Mutual Funds of India (Amfi), 22 witnessed a decline in their AUMs. In January, too, an equal number of fund houses had seen their AUMs decline, while in February the number had been only 14.
The fund house that saw the highest decline in AUM in March was JP Morgan: it lost 23.68 per cent of its AUM. The next biggest loser was AIG, whose AUM declined by 20.62 per cent. In addition, eight fund houses saw their AUMs decline by more than 10 per cent.
The larger fund houses too saw their AUMs erode. Reliance Mutual Fund's AUM stood at Rs 1,10,412.71 crore at the end of March, a decline of 4.61 per cent. Other large fund houses suffered similar losses. HDFC's AUM fell 6.69 per cent to Rs 88,779.84 crore while Birla Sun Life's assets fell 5.97 per cent to Rs 62,367.11 crore.
ICICI Prudential and UTI, however, managed to buck the trend of declining AUMs. Their AUMs grew 0.57 per cent and 1.14 per cent respectively during March.
In terms of percentage change, the latest entrant into the industry, Peerless Mutual Fund, witnessed the highest increase in AUM -- 149.88 per cent. In February its AUM stood at Rs  121.10 crore while in March it rose to Rs 302.60 crore.

Assets Under Management
		Assets (Rs Cr)
Fund House		Mar-10		Feb-10		Change (%)
Peerless Mutual Fund		303		121		149.88
Edelweiss Mutual Fund		149		114		30.43
DSP BlackRock Mutual Fund		21,491		19,934		7.81
Quantum Mutual Fund		93		88		5.61
ING Mutual Fund		1,606		1,527		5.20
Morgan Stanley Mutual Fund		2,257		2,176		3.73
SBI Mutual Fund		37,417		36,072		3.73
Bharti AXA Mutual Fund		549		537		2.23
Mirae Asset Mutual Fund		251		246		2.01
Sahara Mutual Fund		635		624		1.79
UTI Mutual Fund		80,218		79,310		1.14
Sundaram BNP Paribas Mutual Fund		13,878		13,733		1.06
ICICI Prudential Mutual Fund		81,018		80,555		0.57
Escorts Mutual Fund		203		203		0.20
Franklin Templeton Mutual Fund		34,034		33,998		0.10
Fidelity Mutual Fund		7,790		7,795		-0.05
L&T Mutual Fund		2,511		2,538		-1.05
IDFC Mutual Fund		25,775		26,568		-2.99
Tata Mutual Fund		21,935		22,621		-3.03
Reliance Mutual Fund		110,413		115,753		-4.61
Taurus Mutual Fund		2,307		2,429		-5.00
HSBC Mutual Fund		6,215		6,563		-5.29
Axis Mutual Fund		3,552		3,754		-5.38
Birla Sun Life Mutual Fund		62,367		66,330		-5.97
HDFC Mutual Fund		88,780		95,144		-6.69
Canara Robeco Mutual Fund		9,220		10,017		-7.96
LIC Mutual Fund		40,665		44,727		-9.08
Religare Mutual Fund		12,945		14,841		-12.78
Fortis Mutual Fund		7,904		9,138		-13.50
Benchmark Mutual Fund		1,999		2,312		-13.54
Kotak Mahindra Mutual Fund		34,787		40,466		-14.03
Principal Mutual Fund		6,997		8,273		-15.43
JM Financial Mutual Fund		7,997		9,507		-15.87
Deutsche Mutual Fund		10,477		12,525		-16.35
Shinsei Mutual Fund		367		459		-19.93
AIG Global Inv Grp Mutual Fund		1,138		1,433		-20.62
JPMorgan Mutual Fund		3,541		4,640		-23.68
Grand Total		743,783		781,154		-4.28
Source: AMFI

Deutsche MF Unveils Global Agribusiness Offshore Fund

The scheme offers regular plan with dividend and growth option. Further, the dividend option offers payout and reinvestment facility. The scheme would allocate 80% to 100% of assets in units / securities issued by overseas mutual funds or unit trusts with medium to high risk profile. Moreover, it would allocate upto 20% of assets in debt instruments that includes government securities as well as corporate debt, money market instruments (including cash and units of domestic money market mutual funds) with low to medium risk profile. The scheme shall initially invest predominantly in the units of DWS Invest Global Agribusiness Fund, domiciled in Luxembourg or similar mutual funds at the discretion of the Investment Manager.

For Transparent Insurnace-Let insurers go public early.

Insurance companies going public should be transparent in disclosing their assets and liabilities to prospective investors. So should all companies raising money from the public, for which regulation already exists. For the insurance industry, the sector regulator, Insurance Regulatory and Development Authority, has identified the specific kind of disclosures needed.
These relate to the companies' assets and liabilities, intrinsic value of their present business, agreements with foreign promoters, product offerings and investment performance of unit-linked insurance plans and so on. Companies that do not comply with the regulator's norms should be debarred from going public.

The government should, in addition, ease the rule that mandates an insurance company to go public only after 10 years of operations. Insurance companies need a lot of capital to grow their business. A larger life insurance business will mean more people taking life covers.

This will improve insurance penetration in this sorely underinsured country. More money will also be available to finance construction of roads, ports, airports, towns and other infrastructure. Infrastructure needs long-term funds and a large chunk of the needs can be met only by insurers and pension funds, whose liabilities have a long maturity profile.

The money raised through public offers would give insurance companies the capital they need to grow their business. A growing insurance business would generate investible funds for long-gestation infrastructure projects. There would be positive spinoffs for domestic promoters of insurance joint ventures as well — they would not have to depend on their foreign joint venture partners to bring in funds.

It would also widen choice for retail investors. The capital market regulator also has to be a facilitator and allow insurance companies to raise money from the public, even if these companies make losses. The regulator allows other lossmaking companies to go public if they follow the compulsory book-building method for price discovery.

A similar facility can be accorded to the insurance industry as well. Discerning investors can be trusted to deal with the risk associated with such issues.
  
Retail investors also need to make sense of the disclosures. It would help if institutional investors and credit rating agencies analysing the financial strength of insurance companies make the analysis public.

Market looks beyond fourth quarter for leg up

 Market looks beyond fourth quarter for leg up

Analysts and market watchers are already looking beyond corporate results for the fourth quarter even though it has a full week to go.

Any hint of earnings for the next fiscal, through management guidance or otherwise, would help them decide if the benchmark indices have the strength to pull higher. “The market has started looking at FY11 earnings, which are expected to be better than the current year,” says Dhiraj Sachdev, vice-president and fund manager at HSBC Global Asset Management. “The earnings for the current quarter have already been partially discounted in the current index levels. The markets are likely to look beyond these figures to FY11 for cues,” says Mallinath Madineni, CEO, Fa Capital Advisors. Expectations on earnings are running high, with market participants seeing growth in excess of 20% next fiscal. “We may see FY11 earnings at around Rs 1,045 (per share for the Sensex), which is around 23% growth over this year,” says Naresh Kothari, president, Edelweiss Capital. Sandip Sabharwal, CEO - portfolio management services, Prabhudas Lilladher is looking at a 25-30% growth. However, worries remain on the effect interest rate hikes would have on the bottomlines of companies. “The latest rate hike by the Reserve Bank of India (RBI) was unexpected. One might see a further 50 basis points increase soon. This increases the borrowing cost for corporates and could affect profitability,” says Madineni. RBI had on March 19 raised its repo rate, the interest charged by it when lending money to banks, by 0.25% to 5%, on March 19. It also raised the reverse repo rate, the interest banks get on money parked with the central bank, by 0.25% to 3.50%. A major factor for the interest rate hike is inflation. Wholesale price index based inflation had weighed in at 9.89% for February. But market watchers feel the trend of rising inflation is nearly over. “Inflation has almost peaked out this month and we may see it returning to 4-5% levels going ahead,” says Sabharwal. According to him, the RBI move was part of a normalisation process as interest rates have been low for some time. Foreign Institutional investors have been net buyers by more than Rs 15,500 crore in March, which has seen the Sensex gain 1129.30 points to 17558.85 as of Thursday. “Fund flows have been strong. We may see markets moving up 8-10% in next 3-4 months,” says Sabharwal.

 

Union Bank of India, Belgian KBC in MF venture

Union Bank of India has tied up with Belgium's KBC group for a mutual fund joint venture and is in the process of receiving regulatory approval, the companies said in a joint statement on Friday.

Union Bank will own 51 per cent of the JV, while KBC will own the rest, the statement said.

IPO GREY MARKET PREMIUM HEARD ON THE STREET

Company Name	Offer Price (Rs.)	Premium (Rs.)
DQ Entertainment (Inter.)	80	48 to 50
PradipOverseas	100 to 110	15 to 16
ILFS Transportation	242 to 258	32 to 34
Persistent Sys.	290 to 310	132 to 135 (Buyer)
Shree GaneshJewellery	260 to 270	10 to 12
InfrasoftTechnology	137 to 145	58 to 60
GoenkaDiamond & Jewellery	135 to 145	8 to 9 (Seller)

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."