Mutual Funds - Livemint.com

Mutual funds bet big on growth sectors

N. Sundaresha Subramanian and Anirudh Laskar — Tue, 24 Nov 2009 17:51:00 GMT

Mumbai: Driven by better-than-expected corporate earnings in the quarter ended 30 September and recent government announcements on disinvestments, mutual fund managers are showing their optimism by betting on high-growth sectors despite a doubling of stock prices in the past seven months.

The 30-stock Sensex, the bellwether index of the Bombay Stock Exchange, has risen around 10% from its recent low of 15,404 points on 3 November to close at 17,131 on Tuesday. It has gained 77.57% since 1 January.

A Mint analysis of the portfolio data of diversified equity schemes shows that fund managers have significantly higher allocations for automobile, construction and metal sector stocks.

The analysis looked at the month-end portfolio data of diversified equity schemes between 31 March and 31 October. The data was provided by mutual fund tracker Value Research.

Graphics: Sandeep Bhatnagar / Mint

While energy and financial stocks continue to command the most investment, allocation to sectors such as consumer goods has come down significantly.

Allocation to auto stocks rose to 4% at the end of October from 2.85% in March. Investments in construction companies almost doubled, from 2.5% to 4.9%. Technology stocks saw increased allocation, up from 4.9% to 7.25%.

The aggressive allocation strategy is a reflection of rising confidence in the economy and businesses, fund managers said.

“Overall economy numbers and other indicators like auto and property numbers are much stronger than expected,” said Suresh Soni, chief executive officer of Deutsche Asset Management (India) Pvt. Ltd, which manages Rs13,795 crore in assets. “However, internationally, central banks are not withdrawing the accommodating monetary policy and have said they will continue the easy monetary policy for a specified period. This has put us in a sweet spot, which is propelling optimism.”

Chennai-based N. Prasad, who runs an independent research firm and is former chief information officer of Sundaram BNP Paribas Asset Management Co. Ltd, said: “Most fund managers are increasing allocation to economy-sensitive stocks in their portfolio. (There’s) nothing wrong with this strategy as most confidence indices are turning positive.”

According to Prasad, the fiscal deficit is no longer a big worry. “The government disinvestment programme is expected to bring it back to FRBM targets.”

The FRBM (Fiscal Responsibility and Budget Management) Act aims to bring down the government’s fiscal deficit to 3% of India’s gross domestic product.

Another important factor that has contributed to the increasing weightages is the movement in stock prices.

Ritesh Sheth, fund manager, SBI Funds Management Pvt. Ltd, which manages Rs38,322 crore in assets, said: “It is not clear whether this increased allocation can be fully attributed to the purchases by fund managers. A lot of it would be due to the price action. For example, a sector like telecom is facing an uncertain period. People are keeping away because there are a lot of ifs and buts. One is not sure on what basis the profitability of these companies need to be calculated in the short term. So, everyone is waiting for the dust to settle.” Allocation to the telecom sector has halved.

Fund managers have also been burnt by a high cash strategy that affected fund returns between March and June. Funds had cash levels of 15-20% and missed the rally triggered by return of the United Progressive Alliance to power at New Delhi in May.

A study of equity funds by Crisil FundServices, a research unit of ratings firm Crisil Ltd, also shows that funds with lower cash holdings have outperformed others in the long run.

While funds with higher cash holdings cut their losses in a falling market, they tend to miss out on a subsequent rally. Further, equity funds with minimal cash holdings fared only marginally lower in a downturn, but benefited considerably more from a rally.

The most notable performance in the downturn came from fully-invested funds that made timely and prudent investment calls in sectors such as pharmaceuticals and consumer goods, the Crisil report said.

“Investing in defensive sectors to negotiate a down market proves to be a more effective strategy as such funds can bounce back faster during a market correction,” said Krishnan Sitaraman, director, Crisil FundServices.

“Investors invest in equity funds primarily because they are perceived as value creators and it helps them diversify from their debt investments. By taking cash calls, funds defeat this very basic objective of investors,” Sitaraman added.

However, Prasad cautioned that valuations could be a dampener for fund managers’ optimism. “Market looks rich largely because earnings are below the long-term trend level of 21%,” he said.

The Sensex, India’s most tracked index, has climbed at least 110% since the lows of March, a rate of growth surpassed only during its rise in the early 1990s during a stock market scam engineered by trader Harshad Mehta.

The index is trading at 20.96 times the estimated earnings for the fiscal year to March. The average range of valuation for the index has traditionally been 14-17 times of earnings.

Soni of Deutsche Asset Management said valuations have to be seen from the perspective that they had been depressed unrealistically when market hit historic lows. “In the near term, it’s a concern. But in the medium term, it’s not.” n.subramanian@livemint.com

No free fall in mutual fund inflows after entry load ban

Sun, 15 Nov 2009 14:54:00 GMT

The Securities and Exchange Board of India’s (Sebi) decision to ban the deduction of entry loads by asset management companies hasn’t affected inflows into equity mutual funds as badly as some had feared.

Total inflows into equity schemes have averaged Rs4,162 crore between August and October, according to data collated and published by the Association of Mutual Funds in India.

In July, just before the ban was made effective, inflows stood at Rs8,737 crore, which suggests that inflows have fallen by at least 50%. But then inflows were unusually high in July. They included inflows of Rs2,394 crore from two new fund offerings, including Reliance Infrastructure Fund.

Cautious state: A file photo of brokers at the Bombay Stock Exchange. Many retail investors seem to be of the view that they have “missed the bus” and would wait for a correction before returning. Prashanth Vishwanathan / Bloomberg

In the preceding two months, inflows had averaged Rs5,575 crore. The inflows since the entry load ban became effective are about 25% lower than those levels.

The average net outflow of about Rs2,000 crore in the past two months also seems to suggest that the entry load ban is affecting flows into equity mutual funds. But the net outflows are also because of a large increase in redemptions in the past two months.

Redemptions averaged Rs6,165 crore in the past two months, 50% higher compared with average redemptions of Rs4,100 crore in the preceding few months. Higher redemptions, which are the main reason for the net outflows from equity mutual funds in the past two months, have little to do with the entry load ban.

For perspective, the ban on entry loads results in a drop in commissions for mutual fund distributors. They would now need to depend on customers paying them a fee directly to compensate them for their services, rather than receiving the entry load from mutual fund firms.

Since this would result in a sharp drop in commissions, mutual fund distribution activity was expected to take a large hit. This in turn was estimated to lead to a sharp drop in gross inflows into equity schemes of mutual funds.

But the fact that they have fallen by about 25% from the normalized mean prior to the ban suggests that the going hasn’t been that bad. Besides, the drop in inflows may not be entirely because of the ban. Retail investors have been cautious about participating in this rally because of the harrowing experience of 2008. And the swiftness with which the markets rose from the lows in March caught most of them unawares.

Many retail investors seem to be of the view that they have “missed the bus” and would wait for a correction before returning in large numbers. The fact that the markets have been moving in a relatively narrow band since August hasn’t helped create demand in the past few months either.

With the market regulator now allowing the purchase of mutual fund units through stock brokers, reach would be wider.

Besides, a common online trading platform for mutual funds is expected to be available in less than six months. While these factors will improve access, flows will largely depend on how the market performs.

Write to us at marktomarket@livemint.com

Trading in MF units allowed

N. Sundaresha Subramanian and Anirudh Laskar — Fri, 13 Nov 2009 17:29:00 GMT

Mumbai: Investors will soon be able to buy and sell mutual fund (MF) units on stock exchanges.

India’s capital market regulator on Friday announced this game changer for the Rs7.62 trillion MF industry, three months after it abolished upfront commissions that were being paid to MF distributors.

A file photo of traders at a Mumbai brokerage. In order to sell MF units through exchanges, stock brokers will need to pass a certification course offered by industry lobby Association of Mutual Funds in India. Punit Paranjpe / Reuters

“The infrastructure that already exists for the secondary market transactions through the stock exchanges with its reach to over 1,500 towns and cities, through over 200,000 terminals can be used for facilitating transactions in mutual fund schemes,” the Securities and Exchange Board of India (Sebi), said in a late evening release.

Currently, investors buy MFs either from a distributor or from asset management companies (AMCs).

A few online portals, too, sell these units. The exchange platform will be a critical new channel for the industry, say asset managers.

A.Balasubramanian, chief executive officer (CEO) of Birla Sun Life Asset Management Co. Ltd that manages Rs65,053 crore, said the move will help both the AMCs as well as the investors.

“It will be a cost-efficient channel for both. It will not take much time to implement as we will leverage the existing technological platform and nationwide network established by the exchanges,” he said.

In order to be able to sell MF units through exchanges, stock brokers will need to pass a certification course offered by industry lobby, Association of Mutual Funds in India, Sebi said.

The move comes as a breather to AMCs, hit hard by the market regulator’s move to ban upfront commissions charged by asset managers from 1 August.

The industry has been seeing more redemptions than sales since August. In a recent interview with Mint,U.K. Sinha, chairman and managing director of UTI Asset Management Co. Ltd, said: “No industry can survive with this kind of negative sales.”

“Mutual funds will have a wider geographic reach through exchanges as equity brokers will become eligible to sell fund units like shares. At present, 70-80% sales of mutual funds come from 10 cities, but with this move, funds will be able reach across the country where the two depositories record share sales,” said Dhirendra Kumar, CEO of New Delhi-based MF tracker Value Research.

He, however, does not see any immediate rise in assets of MFs even though this will simplify the procedures of investments in such instruments.

According to Piyush Surana, CEO of Shinsei Asset Management (India) Pvt. Ltd, the exchanges cannot replace the sales function (of distributors) and it is only an additional procedural facilitation. “The move makes mutual funds more accessible to investors, but someone has to sell the fund and someone has to buy. Essentially, one needs to convince the investors (to buy and sell),” he said.

Ashutosh Wakare of Money BEE Institute, a training institute for MF distributors, said it requires a transformation of mindset of investors as “you are bringing a passive investor into an active platform”.

“The idea is to facilitate the buying of mutual fund units through an avenue which has a greater reach. But, I don’t see any distinct advantage of this move, because mutual funds will still be required to be sold through the conventional concept selling methods,” said Hemant Rastogi, CEO of Wise Invest Advisors Ltd, an MF advisory firm.

It is not known when the exchanges will start trading of MF units.

A few online portals that help investors buy and sell MF units say the exchanges are in talks with them. Maju A. Nair, associate vice-president (MF- product manager), Sharekhan Ltd, said the National Stock Exchange (NSE) has already made a presentation of its proposed platform to the brokerage. He is meeting the Bombay Stock Exchange (BSE) soon. “It will make life easier for the online portals as the depositories will take care of the back-office—interactions with registrars,” he said.

Derivatives expiry

Sebi on Friday also allowed the stock exchanges to set the expiry day for equity derivative contracts. At present, the expiry day for equity derivatives is the last Thursday of every month on both the stock exchanges—NSE and BSE.

Mint on Thursday reported BSE has received an approval from Sebi to set the expiry day of its monthly stock future contracts to the second Thursday of every month.

n.subramanian@livemint.com

TVS Shriram Growth Fund to invest Rs35 crore in two firms

Shraddha Nair — Tue, 10 Nov 2009 18:20:00 GMT

Mumbai: TVS Shriram Growth Fund, managed by Chennai-based TVS Capital Funds Ltd, will invest Rs35 crore in Bangalore-based Dusters Hospitality Services Pvt Ltd and Mumbai-based Total Solutions Facility Management Pvt Ltd.

Total Solutions will be merged with Dusters Hospitality in the next 2-3 months and the invested funds will go into the combined business. Both firms provide facility management services and are headed by brothers Shamsher Puri (Duster Hospitality) and Jasmer Puri (Total Solutions).

The stake purchased by TVS Capital is approximately 36%, said D. Sundaram, vice chairman and managing director, TVS Capital Funds, in a conference call Tuesday. According to Sundaram, the facility management services sector is expected to grow at a rate of 20%-25% in the next five years. TVS Capital, which has also started operations in Mumbai, has drawn down 40% of its corpus of Rs600 crore.

T Rowe Price will invest in India through us

Anirudh Laskar and N. Sundaresha Subramanian — Tue, 10 Nov 2009 15:27:00 GMT

Mumbai: Eight years ago, the Indian government convinced four state-owned financial institutions to step in and own equal stakes in UTI Asset Management Co. Pvt. Ltd (UTI AMC), carved out of Unit Trust of India, the country’s oldest fund manager, that was crumbling under the burden of assured return schemes.

On Monday, the asset manager announced the sale of a 26% stake to US-based asset manager T Rowe Price Global Investment Services Ltd.

Setting milestones: UTI AMC chairman and MD U.K. Sinha. Ashesh Shah / Mint

U.K. Sinha, chairman and managing director of UTI AMC, termed this as the second milestone for the company. In an interview, Sinha said that the fund will not get money from the share sale but it will bring business and help UTI AMC’s growth.

He also said that the regulator’s decision to remove the entry load for mutual fund investments from 1 August has dealt a blow to the industry which has seen negative sales between September and November. Edited excerpts:

You are at the helm since 2001. How has the journey been?

There was a crisis with UTI in 2001 and the government had to assure our investors that everything would be alright. The group was bifurcated into UTI AMC and Specified Undertaking of UTI. Those schemes that did not offer assured returns were transferred to UTI AMC. The government invited four financial institutions to be our sponsors—State Bank of India, Life Insurance Corp. of India, Punjab National Bank and Bank of Baroda.

The government was aware that these four entities did have their own mutual fund businesses and there could be a possible case of conflict of interest. But the philosophy which went in favour of these entities was that the government wanted to assure the investors that although it was withdrawing from ownership, four strong institutions would be backing the business of UTI mutual fund. Though these four entities had 25% stake each, the regulator issued a statement saying that these four shareholders would never have a say in our management decisions. So, this was purely a temporary affair.

Didn’t you plan to hit the capital market with an initial public offer?

Yes, we had planned an initial public offering (IPO) and a pre-IPO placement of 20% to provide an exit to these sponsors. These issues got delayed due to bad market conditions during the first half of 2008 and the finance ministry suggested in September that we should find a strategic partner for a 26% stake since the process of IPO was delayed.

What made you choose T Rowe Price?

About 30 firms were shortlisted and we looked into three entities after months of analysis, expression of interest and feedback. After an intensive exercise with these three entities, we selected T Rowe Price. While selecting the partner, it was very clear with the board that no money was coming to the company. This deal has been done to allow the existing shareholders to reduce their stake.

What do you gain from the deal?

The mandate given to us by the government for this deal was that there should be a lot of business and cultural synergy, and business growth should be the guiding principle for this tie-up.

T Rowe Price is the fourth largest asset management firm in the US with assets under management of close to $400 billion. They are pure asset managers and already have major investments in India. So, one advantage is that their investments in India will now happen through us. For instance, UTI mutual fund can now raise a fund in India that would be managed by T Rowe Price. The strength of T Rowe Price will help us to raise more money.

It can also help us managing the portfolio of our $50 million offshore fund—UTI India Offshore Fund. Similarly, we also have a strong $30 million Shariah fund portfolio, where T Rowe Price will be able to help. Essentially, this tie-up will give us a business synergy.

Secondly, T Rowe Price also has a strong technology and research team globally and we will benefit from this.

What role will T Rowe Price play in managing UTI AMC?

With 26% shareholding, they will have proportionate representation on the board. This means one-fourth of our board members will come from T Rowe Price. But these things will happen gradually.

You have certain sales and distribution tie-ups with other players such as Shinsei Bank. Will you terminate these tie-ups?

No, this deal is independent of the existing arrangements and all such arrangements will continue.

When are you planning the IPO?

The tie-up has just happened. Let our fund management processes improve and then, at the second stage, we will look at the IPO. In the history of this company, tying up with T Rowe Price is a milestone and such decisions are not taken everyday.

Is the earlier plan of diluting 49% through the IPO still valid?

We have got some exclusive businesses such as postal life insurance services and new pension scheme through the government. We have to see how these businesses evolve during the coming year. If we see that these businesses are just temporary and not going to stay with us for long then we can decide to dilute even more than 49%. But if these turn out to be beneficial for us, we may consider to dilute less. This matter has to be evaluated with the government.

What are your plans for the company’s private equity and venture capital businesses?

In venture capital we have two funds—a $25 million fund and a $175 million fund—and (we are) in the process of raising the third fund. We plan to raise $300-350 million. We have not gone for retail and high networth individual money but strong institutional investors that will give us respectability, value and confidence.

UTI has also floated a private equity infrastructure fund that will be closed by December. The target is $400 million.

The removal of entry load will dent the income of mutual funds. What will be the impact on your fund house?

Every company has to comply with the regulatory changes and processes. The regulator’s decision to remove the entry load for mutual fund investments from 1 August has dealt us a severe blow. The whole industry has seen negative sales between September and November.

Also, many mutual fund distributors sell insurance products and no such change has been made in the insurance industry. So, the distributors find it more profitable to sell insurance products and this further dampens mutual fund sales. How long can an industry survive with negative sales?

So, it is a serious matter. In fact, some reports suggest that the smaller fund houses may have to close down their businesses.

anirudh.l@livemint.com

MF industry assets hit record high of Rs7.62 trillion

PTI — Wed, 04 Nov 2009 11:26:00 GMT

New Delhi: Assets of the mutual fund industry have touched an all time high of Rs7.62 trillion, while country’s largest fund house Reliance MF witnessed a decline of over Rs1,400 crore in its average assets under management (AUM) at the end of October.

The industry’s average AUM grew by Rs19,391 crore, or 2.61%, in October which analysts believe was mainly on the back of increased inflows in fixed income plans.

The combined average AUM of the 36 fund houses hit the historic Rs7,62,301.82 crore mark at the end of October, the data by Association of Mutual Funds in India (AMFI) showed.

“Fund houses have witnessed a decline in the assets of their equity portfolio. But inflows into fixed income schemes have helped the industry to record a growth in their assets,” Taurus MF managing director R K Gupta said.

Reliance MF maintained its position as the country’s largest fund house despite a decline of Rs1,469.51 crore in its AUM during the month. At the end of October, the AUM of Reliance MF stood at Rs1,16,781.92 crore.

“Reliance MF has increased equity exposure than other portfolios. Since all the investments in equities need to be mark-to-market at the end of the month, the AUM of the fund house suffered a decline during October,” Gupta noted.

The assets of the country’s second largest fund house HDFC MF inched closer to the Rs1 trillion mark with an addition of Rs2,888 crore during October.

MFs waiting to deploy Rs13,957 cr in the market

PTI — Thu, 22 Oct 2009 05:39:00 GMT

Mumbai: “Mutual funds are sitting on an enormous Rs13,957.4 crore cash and are waiting to deploy it in the market,” Sharekhan Ltd mutual fund analyst Sapna Jhawara said on Thursday.

“Mutual funds are sitting on a whopping Rs13,957.4 crore cash but fund managers are anticipating correction before deploying it in the market,” Jhawara said.

“MFs are well placed to maintain buying interest and propel the market forward,” she said adding: “Mutual funds bought stocks in banking and pharmaceutical sectors and slashed their exposure in power, telecom and oil and gas sectors in September 2009.”

Of the Rs13,957.4 crore lying with the existing MFs, Rs912 crore has been mobilised through new fund offerings (NFOs).

The total Assets Under Management (AUM) of equity MFs stood at Rs2,13,043.5 crore in September 2009, registering growth of 5.4% from August 2009. On adjusting for the net inflows/outflows, the growth stood at 6.4%—marginally lower than the growth in the market, which grew by 7.5% in the same period.

Birla Sun life Mutual Fund saw the largest increase of Rs2,008.9 crore in its AUM, followed by Baroda Pioneer and Canara Robeco Mutual Fund.

Cash holdings of mutual funds down to 20-month low

Ravi Krishnan — Wed, 21 Oct 2009 19:45:00 GMT

Mumbai: Indian fund managers are sitting on less money than they have at any point in time in the past 20 months—an indication that they have invested heavily in stocks and, to a lesser extent, that the market may be close to peaking.

Cash holdings of diversified equity funds averaged 5-6% of total assets in September, according to data compiled by mutual funds tracker, Morningstar India. These levels were last seen during December 2007 and January 2008, when the markets were at their peaks.

With stock valuations well above historical averages, more fresh equity issues waiting in the wings (thereby sucking money from the system), and economic recovery in the Western world not stabilizing, voices calling a correction in the market rally and predicting a so-called double dip, or W-shaped recovery, are growing louder.

Also See Liquidity Crunch (Graphics)

Billionaire investor Rakesh Jhunjhunwala talked about this two weeks ago at a private equity conference. And two recent reports from international research houses, too, have raised concerns about this liquidity-led rally.

“This could possibly be one indicator, but it shouldn’t be read alone” said V. Anantha Nageswaran, chief investment officer of wealth management firm Julius Baer Group in Singapore, referring to the decline in cash holdings. Due to government stimulus and a policy of easy liquidity, “money is chasing all kinds of risky assets. Markets have overshot fair valuations,” added Anantha Nageswaran, who is also a Mint columnist.

After toxic debt choked credit and global markets last year, governments and central banks across the world moved to an easy money policy. Some part of the liquidity that subsequently flooded the system found its way to emerging market equities. Globally, fund flows to emerging markets have exceeded the inflows of 2007. In India, foreign institutional investors have pumped in $14.24 billion (Rs66,074 crore) since January after pulling out $12.18 billion last year.

The Sensex, India’s most tracked index, climbed at least 108% since the lows of March, a rate of growth surpassed only during its rise in the early 1990s during a stock market scam engineered by the late trader Harshad Mehta. The index is trading at 20.96 times the estimated earnings for fiscal 2010. The average range of valuation for the index has traditionally been 14-17 times earnings.

A large part of the rally has been fuelled by institutional investors—both foreign and domestic.

A recent Bank of America-Merrill Lynch report said that there could be an imminent correction of up to 10% ahead of a second rally. Similarly, a 20 October report from the research arm of Australian Bank the Macquarie Group noted that “based on valuations alone, the risk/reward trade-off for Asian equities is poor”. According to this report, there is a greater than 60% chance that markets will be lower in three months’ time “if history is a guide”.

To be sure, the conditions between December 2007 and now are different in some ways, as Nilesh Shah, deputy managing director of ICICI Prudential Asset Management Co. Ltd, which manages Rs80,000 crore worth of assets, pointed out.

“Investor behaviour is different now,” Shah said. “In the last quarter of 2007, we were seeing large inflows. That’s not the case now.”

Indeed, equity funds saw net outflows of Rs1,756 crore in September, which is just over 1% of the Rs1.7 trillion of assets under management in that category. India’s 36-firm mutual fund industry had Rs7.4 trillion assets under management in September. A larger portion of money is routed into the market through insurance plans called Ulips.

“These low cash levels reflect the optimism of fund managers. It has gone up in the past six months,” said Ved Prakash Chaturvedi, CEO of Tata Asset Management Ltd, which manages Rs20,200 crore worth of assets. “But independent of cash levels, there’s an expectation of a correction. When and how it will happen, it is difficult to predict.”

Bank of America-Merrill Lynch’s Jyotivardhan Jaipuria and Anand Kumar listed some of the reasons why a correction is on the cards.

In a 15 October report, they noted that while “earnings will beat estimates, market expectations are running much higher. We expect markets to sell on good news”.

The pace of analyst upgrades is starting to slow, which could be negative for markets, they said.

Besides, the large number of fresh issues through initial public offerings (IPOs) and other instruments will suck up liquidity. IPOs and qualified institutional placements, when firms offer shares only to institutions, have mopped up some Rs34,200 crore till September. Merrill estimates this number to increase by $10 billion in the next six months.

Analysts are also worried by a withdrawal of the government’s fiscal stimulus packages worth 3% of India’s gross domestic product that were announced late last fiscal year and which are responsible for some part of India’s sharp recovery.

Local brokerage Enam Securities Pvt. Ltd listed “roll-back of excise and service tax reduction” as a risk factor.

Another worrying factor is the slow recovery in the developed world. India is dependent on capital inflows—both portfolio and direct investment. A weak US and Europe would mean no demand for exports, already under pressure from an appreciating rupee. The local currency has appreciated 8.27% against the dollar in the current fiscal year. A strong local currency brings down the value of dollar earnings of exporters in rupee term.

Ashwin Ramarathinam contributed to this story.

Graphics by Yogesh Kumar / Mint

ravi.k@livemint.com

MFs see outflow of Rs1.44 lakh cr in Sept

PTI — Tue, 20 Oct 2009 10:00:00 GMT

New Delhi: After witnessing heavy inflows in July and August, mutual funds lost favour last month as investors pulled out over Rs1.44 lakh crore, the highest monthly outflow so far this fiscal.

The combined net outflow from the 36 fund houses stood at Rs1,44,327 crore in September, as per the Association of Mutual Funds in India (AMFI) data.

“The outflow was expected as banks pull out hefty amounts from income schemes at the end of every quarter to meet their liquidity requirements. However, there would be reversal at the end of October,” Taurus Mutual Fund managing director RK Gupta said.

Total fund inflows in July and August stood at Rs1,56,352 crore.

So far this financial year, the mutual fund industry witnessed a net inflow of over Rs3.40 lakh crore, while there have been outflows in two months -- June and September -- totalling over Rs 2.28 lakh crore, the data showed.

Investors had pulled out Rs83,937 crore in June, while at the end of September investors pulled out Rs1,44,327 crore, the biggest outflow in a month so far this fiscal.

At the end of September, investors pulled out money from the four major fund schemes -- income, equity, balance and liquid or money market.

Debt funds look up in September

Wed, 14 Oct 2009 20:06:00 GMT

A benign interest rates environment and the Reserve Bank of India buying back government bonds improved investor sentiments in September, thereby pushing bond prices higher. During the month, the yield on the 10-year 6.9% government bond maturing in 2019 declined to 7.19% compared with 7.41% in the previous month. The slow pace of government borrowing also benefited bond prices. The government has scheduled borrowing of Rs1.23 trillion during the October-March period.

Also See Graphics

The central bank bought Rs6,000 crore worth of government bonds, thereby putting more money into the banking system. The ample liquidity, which stood around Rs1.5 trillion, during the month also helped bond prices. The overnight call rate declined to 3.20-3.25%, driven by surplus liquidity in the banking system.

In contrast, the rising inflation, as measured by the Wholesale Price Index (WPI), caused some concern. The annual WPI inflation increased to 0.37% for the week ended 24 September, from -0.95% for the week ended 26 August, driven by a surge in food and crude oil prices. Rising inflation continued to be a concern during the last few weeks as a weak monsoon had raised fears of a drought. The below-normal monsoon is likely to result in lower crop output, which could push food prices higher still.

Graphics by Yogesh Kumar / Mint

Mutual funds need to disclose more in offer documents

Vivek Law / CNBC-TV18 — Sun, 11 Oct 2009 16:33:00 GMT

Mumbai: Market regulator Securities and Exchange Board of India (Sebi) has been trying to clean up the mutual funds industry over the last few months. Sebi’s recently appointed executive director K.N. Vaidyanathan says in an interview that mutual funds need to disclose more in their offer documents. “New fund offers (NFOs) must justify investment strategy and risks. The game of garnering money through NFOs is over.” Edited excerpts:

On efforts to boost transparency, disclosures:

Closer look: Vaidyanathan says the capital market regulator would like the fund offer document to be a self-contained one.

One of the things we are pushing is...a new fund offer document. We would like the fund offer document to be a self-contained document... So if you put money in the mutual fund, you need to know what the investment objectives are, you need to explicitly state what are the risks and the mitigating factors for that are. The idea really is can the manufacturer, which is the mutual fund, talk direct to the investor and tell the investor that “I propose to do the following”. I think that would help investors take more informed decisions about it.

So, one of the things that we have embarked about more recently is to take a closer look at the process we have for evaluating new offers or new funds or new schemes that mutual funds have on this measure of transparency.

On new fund offers:

We had a combination of issues which made it easier for fund houses to raise new money under a new banner than to raise new money under an existing fund. Hopefully, that game is behind us. One of the things that they would have to talk about if I am a fund house and I am launching a new fund is how is “A” different from what I have (offered) in the past.

On the role of trustees in protecting investors’ interests.

It’s a process which has just started. It is too early to say if is paying off, but if we go back to the fundamentals of the mutual fund structure in India, it’s a trust set up. The trust or the trustees are the investor facing entities. They carry the fiduciary responsibility; in a sense they are the first level regulators.

cnbctv18@livemint.com

Investors start to return to PE funds, but with caution

N. Sundaresha Subramanian and Shradda Nair — Thu, 08 Oct 2009 15:51:00 GMT

Mumbai: As market conditions around the globe improve gradually, private equity (PE) firms are readying for fresh fund-raising as investors loosen their grip on capital, though with some caution.

A number of PE funds that Mint spoke with, such as Multiples Alternate Asset Management, Future Capital Holdings, AMP Capital Advisors India Pvt. Ltd and Axis Private Equity Ltd, said they were going back to seek funds from investors to cash in on the improved market environment.

These firms will likely raise at least $2 billion (Rs9,260 crore) over the next six months.

In a Mint poll of at least 30 PE funds at the two-day PE International India Forum in Mumbai this week, at least 70% of the PE funds responded that the fund-raising environment has improved considerably over the past four months.

“Fund-raising is back,” said Yosuke Kogure, vice-president, (Asia Merchant Banking), Nomura International (Hong Kong) Ltd. “It is still not at the levels seen in 2007… But it is lot better than last year’s lows.”

In another sign of improvement, lawyers are beginning to work on fund structures again. Benjamin R. Newland, the Dubai-based partner of US law firm King and Spalding Llp, said he is working on a couple of funds “right now”.

“It was a hard cut last year. But it is recovering,” he said.

Data from Preqin Ltd, a UK-based research firm focused on alternative assets, shows that India-specific vehicles raised $9 billion in 2006, up from about $3 billion the previous year. In 2007, they raised $11.1 billion and $12 billion in 2008.

“An LP (limited partner) told me in 2006 anybody and his dog would have raised an India fund. And in 2007, you didn’t need the two. Only the dog would do,” Alok Gupta, managing director and chief executive officer of Mumbai-based Axis Private Equity, said in his address at the forum.

However, the financial environment took a sharp turn for the worse after the September 2008 collapse of investment bank Lehman Brothers Holdings Inc., followed by a global economic slowdown.

In the first three quarters of 2009, India funds raised just $3 billion.

Vivek Pandit, Mumbai-based partner at global consulting firm McKinsey and Co., said in his address that India needs $85-90 billion of PE investments over the next three years. “The country needs a lot of capital. India’s success so far has been a result of capital being made available,” he said.

Deepak Parekh, chairman, HDFC Bank Ltd, reiterated that sentiment, saying in his keynote address on Wednesday that “India needs private equity much more than private equity needs India”.

That is a gap PE funds are willing to step into.

“As the market uptrend continues, we are planning to raise $300-400 million by 2011 end,” K. Srinivas, managing partner, BTS Investment Advisors Ltd, said.

Samrat Ganguly, managing partner of Singapore-based Capital Square Partners, is planning to raise a $200 million sector-agnostic fund. “We are open to investments all over the world but we will be focusing on Asian investors because Asia understands Asia best,” he said.

Also, a number of PE funds that were struggling to achieve closure are now hopeful of reaching their targets soon.

IL&FS Investment Managers Ltd has received commitments for $640 million in its infrastructure fund and is expected to close it by December.

“We had targeted $750 million when we launched the fund last year but for six months between October and March, the activity had come to a standstill,” Krishnakumar G., managing partner at the firm, who has been meeting investors in Europe and the US, said. “It is only post-May we have started seeing some activity.”

However, LPs, who are the primary source of funds for PE firms, are still cautious about this new found enthusiasm.

“Sentiments have improved over what it was during the beginning of the year. But investors are still cautious,” said Gupta of Axis Private Equity, who is planning to raise $250 million for his India fund.

“We believe there is an overhang of capital. We need to digest that before making further commitments,” said Xiamoei Olivia Ouyang, investment officer, International Finance Corp., which is an investor in PE funds.

Jonathan M. Harris, president of New York-based Alternative Investment Management Llc, put it more precisely: “They (investors) are optimistic, but cautiously optimistic.” n.subramanian@livemint.com

Anirudh Laskar contributed to this story.

ING MF declares 20% dividend for ING CUB Fund

PTI — Mon, 05 Oct 2009 10:32:00 GMT

Mumbai: ING Mutual Fund on Monday declared a 20% dividend under its open-ended equity scheme ING CUB Fund.

The record date for dividend of this scheme is 9 October, the company said in a statement.

“Our focused approach of being invested in predominantly mid-and-small capitalisation companies over the last 3-years has resulted in capital appreciation for our investors which we would like to pay out as dividend,” ING Investment Management’s vice-president and portfolio manager equity, Manish Bhandari, said.

ING CUB Fund is an equity scheme, seeking to provide long-term capital appreciation by investing pre-dominantly in a diversified portfolio of equity and equity-related securities of companies of small market capitalisation.

The net asset value of the fund as on 30 September was Rs14.39.

Indian markets are still far from overheated

Mark to Market | Manas Chakravarty and Mobis Philipose — Wed, 30 Sep 2009 19:45:00 GMT

Do market internals point to an incipient bubble in the Indian stock market? The open interest of all futures and options contracts listed on the National Stock Exchange was around Rs1.2 trillion just before the expiry of the September series last week. This is quite close to the peak open interest (around expiries) of Rs1.25 trillion in December 2007. But before jumping to conclusions about leverage going back to the peak of end 2007-early 2008, one must note that options contracts account for 57% of total open interest currently, compared with just 22% in December 2007.

The open interest of options can be a misleading figure since the exposure of option buyers is limited to the premium paid. The open interest, however, is calculated as the notional value of the contract (or the option premium plus the strike price).

It’s more pertinent to look at the build-up of open interest in the futures segment. Open interest in the single stock futures segment has more than doubled in the past seven months, but then even the markets have doubled in the same period. The rise, therefore, seems to be primarily because of the increase in share prices, and there wouldn’t be much of a build-up in terms of number of contracts.

Compared with December 2007, open interest in the single stock futures segment is still down by about 57%, which shows that traders are still far away from taking the high risks they used to in end-2007. Yogesh Radke, head of quantitative research at Edelweiss Securities Ltd says, “After the markets crashed in early 2008, traders have been running shy of derivatives positions in mid cap stocks. This is the primary reason for the sharp drop in open interest of single stock futures from its peak. The open interest in large cap stocks hasn’t fallen as much.”

An important indicator tracked by derivatives analysts such as Radke is the ratio of single stock futures as a percentage of the total futures market. This had reached a peak of 79.5% in early 2008, and currently stands at 66.5%. In terms of leverage, therefore, there still seems to be a long way to go before the markets look overheated.

But this doesn’t mean that traders are running shy of the derivatives market in general. It must also be noted that most traders now prefer taking positions in the options market. Since risk can be contained using options, taking positions in this segment doesn’t entail the risks of high leverage in single stock futures. If and when the markets correct, there is unlikely to be as much pain as in early 2008.

Fixed maturity plans in demand

Aditya Kalra / Reuters — Wed, 30 Sep 2009 17:38:00 GMT

New Delhi: Money managers in India are scrambling to launch fixed maturity plans (FMPs) on hopes the prospect of better returns than liquid funds will help revive interest in one of the most popular fund categories of 2008.

As many as 18 new FMPs have been launched this month, data from ICRA Online shows, and offer documents of at least 10 more are awaiting clearance from the regulator Securities and Exchange Board of India.

FMPs offer a specific maturity to the investor and invest in debt and money market instruments of the same maturity, thus using the interest payments on those papers to generate returns.

Falling short-term rates and regulatory changes have dented returns on liquid funds, which park funds in instruments up to 91 days, helping boost demand for FMPs which invest in medium-term and long-term papers as well.

“Liquid, liquid plus (fund) returns which were earlier probably in the range of 6-7% have now fallen to... 4-5%,” said Bekxy Kuriakose, head of fixed income at DBS Cholamandalam Asset Management Ltd.

“FMPs can give higher returns now as compared to liquid plus or liquid funds ... now there’s a good rate differential.”

FMPs briefly lost favour as liquid funds were also investing in similar paper and promising liquidity as well, but a recent regulation change which compels liquid funds to invest in paper maturing in up to three months brought investors back.

So, only five new FMPs were launched between April and August, of which three collectively raised only Rs200 crore, while total assets under such plans fell by nearly half to Rs35,000 crore, the Association of Mutual Funds in India’s website shows.

With such plans making a comeback, fund houses will woo retail investors, especially those looking to invest for more than 12 months as FMP returns can be more tax efficient than traditional bank deposits in some cases.

The new 18-month FMP of Tata Asset Management Ltd that closed earlier this month raised around Rs530 crore, a spokesperson for the fund house said, adding that there was a drastic increase in retail participation.

FMPs can generate 150-200 basis points higher return than liquid funds in the current environment, Kuriakose said, which can even prompt some investors to forgo their liquidity requirements and invest in these close-ended products.

Deadline on lower foreign stake extended

PTi — Wed, 30 Sep 2009 16:32:00 GMT

New Delhi/Mumbai: The Union government on Wednesday gave a second extension of up to 31 March to commodity exchanges to pare foreign shareholdings to 5%.

Some foreign investors continue to hold above the permissible 5% limit in commodity exchanges.

The department of industrial policy and promotion, or DIPP, said this was the last opportunity for the exchanges to comply with the 19 August 2008 guidelines, which mandate that a foreign investor cannot hold more than 5% in a commodity exchange.

Over and above this, the regulations require commodity exchanges to cap their overall foreign investments at 49%, with portfolio investments capped at 23% and foreign direct investments at 26%.

Non-compliance would be a violation of the Foreign Exchange Management Act.

“Difficulties have been brought to the notice of the government in complying with the provisions...within the stipulated time frame,” DIPP said in a statement.

It had set a deadline of 30 June and later extended it to 30 September.

At present, there are three commodity exchanges in India—Multi Commodity Exchange of India Ltd (MCX), National Commodity and Derivatives Exchange Ltd (NCDEX) and National Multi-Commodity Exchange of India Ltd (NMCE).

NCDEX has two foreign stakeholders—Goldman Sachs Investments (Mauritius) Ltd and Intercontinental Exchange (ICE), which recently trimmed their holdings to 5% each from 7% and 8%, respectively.

In August, Shree Renuka Sugars Ltd bought a 2% stake in NCDEX from Goldman Sachs and a 3% stake from ICE to hold 5% in the exchange.

MCX, the country’s largest commodity exchange, still has an overseas investor holding of more than 5%. Fidelity Fund (Mauritius), an affiliate of Fidelity International, has a 9.21% stake in the bourse.

Citigroup Strategic Holdings (Mauritius), NYSE Euronext, and Merrill Lynch Holdings (Mauritius) have 5% stakes each in MCX.

Mint’s Anirudh Laskar in Mumbai contributed to this story.

Religare Mutual Fund launches PSU Equity Fund

PTI — Tue, 29 Sep 2009 14:38:00 GMT

New Delhi: Religare Mutual Fund on Tuesday announced the launch of an open-ended PSU Equity Fund.

The fund seeks to generate capital appreciation by investing in companies where the central or state governments has majority shareholding or where the management control lies with the government, Religare Mutual Fund said in a statement.

The fund aims to select fundamentally sound companies having the potential to deliver superior growth in the long term, it said.

The fund will invest in public sector companies having presence in core sectors and companies, which are expected to benefit from the divestment process and reforms.

At least 65% of the assets will be invested in companies, which are part of the BSE PSU Index.

The remaining 35% will be invested in PSUs outside the BSE PSU Index, it said, adding, the fund will also participate in forthcoming IPOs of such companies.

Speaking on the occasion, Religare Mutual Fund CEO Saurabh Nanavati said, PSU companies are attractively priced in terms of valuations vis-a-vis the broader markets and the BSE Sensex-almost at a 20-30% discount, thereby offering a good margin of safety for the investor.

With GDP growth being led by government spending last year and for the next 2-3 years, PSUs will be natural beneficiaries, with strong growth potential, he said.

Mutual funds can submit final offer documents 2 days before launch: Sebi

PTI — Tue, 29 Sep 2009 14:24:00 GMT

New Delhi: With an aim to help investors and create a central data base, Sebi on Tuesday asked mutual funds to submit their final offer documents two days before the launch of a particular scheme as these would be uploaded on the market regulator’s website.

The asset management companies will have to submit “a soft copy of Scheme Information Document (Sid) alongwith printed/ final copy two working days prior to the launch of the scheme,” Sebi said in a circular.

“The move is a good one and is in investor interest. As earlier only draft offers of the MF schemes were placed on Sebi website for 15 days or so, till the scheme was approved. With this circular, fund houses will now have to put the final offer documents on the regulator’s site, which will also create a good data base,” Taurus Mutual Fund managing director R. K. Gupta said.

The fund houses will have to submit a soft copy of the additional information (Sai) document as well.

Moreover, mutual funds are also required to file with Sebi, in PDF format, the updated versions of Sid and Sai within seven days alongwith a printed copy, Sebi said.

NSE, BSE may join hands for mutual fund trading

N. Sundaresha Subramanian and Anirudh Laskar — Mon, 28 Sep 2009 18:20:00 GMT

Mumbai: A working group of the Association of Mutual Funds in India, or Amfi, has recommended that India’s two largest bourses, along with other firms, jointly build a transaction platform for mutual funds trading in India.

The group has suggested jointly engaging three consortia that have bid to build the platform: National Stock Exchange and National Securities Depository Ltd; Bombay Stock Exchange and Central Depository Services Ltd; and registrars Karvy Computershare Ltd and Computer Age Management Services Ltd.

“We have recommended an open architecture where strengths of all three consortia will be leveraged for the benefit of the mutual fund industry,” said Jaideep Bhattacharya, who heads the Amfi committee and is chief marketing officer of UTI Asset Management Co. Ltd.

The committee, which submitted this proposal to Amfi last week, has also suggested that mutual fund trackers Morningstar India and rating agency Icra Ltd provide the data support for this platform.

Amfi expects the platform to go live by March.

The proposed online portal will help investors buy and sell mutual fund units and get consolidated statements. With the abolition of upfront commission, few distributors are keen on servicing small investors and the transaction platform will come in handy for them.

“We have received proposals on the operationalization of the platform. A decision will be taken in a week or two. The final clearance has to come from Sebi,” said A.P. Kurian, chairman, Amfi.

According to him, the platform would provide a better reach for the industry, higher efficiency in transactions and cost control over a long term. “Similar platforms exist in developed markets like Australia and Canada. It is our effort to bring such world-class service to our investors,” he told Mint.

Officials from the bidding companies refused to comment as the proposal is yet to be finalised. The chief executive officers of four leading asset management companies confirmed the broad structure of the proposal but refused to comment as they are not familiar with the details. “A presentation is likely to be made for the members in a couple of weeks, after which a decision will be made,” one of them said.

In a parallel move, Amfi is exploring the listing of open-ended mutual fund schemes on an exchange platform.

The system has to be tweaked in such a manner that the relevant mutual fund will be the counterparty for transactions and the registrar will have to create and extinguish units for every purchase and sale, respectively, say industry experts.

Ask Mint | On Investments

Vipul Verma — Sun, 27 Sep 2009 15:29:00 GMT

I have the following shares in my portfolio: Larsen and Tubro (850 shares), Areva T&D (2,000 shares), Reliance Industries Ltd (65 shares), Reliance Communications (500 shares), Reliance Power (200 shares) and Reliance Natural Resources (2,500 shares). I have a horizon of at least five years. Do I need to reshuffle my portfolio?

A. Chopra

Your portfolio is quite good but not properly balanced, therefore, it is likely to yield you average returns. You must add some better priced stocks to balance your portfolio. In my opinion, a metal stock such as Hindalco Industries, Steel Authority of India Ltd or Jindal Steel and Power should be added. In addition to this, you should look out for Alstom Projects India Ltd on correction. In the cement sector, you may consider Ultratech Cement.

While a government-owned bank such as Canara Bank or Bank of India should also be considered. In the mid-cap space, I would prefer Praj Industries, Power Finance Corp., Power Grid Corp., etc.

I have some queries regarding mutual funds: 1) Please suggest some safe and tax-efficient alternative to bank deposits. 2) What has gone wrong with Franklin India Blue Chip Fund? 3) I have been investing regularly through systematic investment plans; how it will give me a regular monthly income? 4) Can the investments made originally in single name be converted into joint names now? 5) Can the option, i.e. growth or dividend payout or reinvest, be changed at later date?

Kavita

Regarding your first question, safe and tax-efficient alternative to bank deposits are infrastructure bonds. They normally offer you returns which are better than bank deposits; moreover, the returns are tax-free. So, if you are looking for some tax-saving alternative with a view of safety, then I think this is a good option. Regarding your second query, there is nothing wrong with Franklin India Blue Chip Fund. It is a below-average risk scheme with average returns. However, if you’re a long-term investor, then this fund could offer you decent returns due to its portfolio composition and sectoral classification. Regarding your third query, if you want a regular monthly income then you may choose to invest in a monthly income plan. Regarding your next question, investments made originally in one name cannot be converted in two names. However, you may sell the entire investment and invest again in two names. You may change your scheme option—growth or dividend payout—as per your choice.

I am 41 years old and need advice on investments for securing my retired life. Currently, I have only a savings account and a public provident fund account.

Suyog M. Panse

For a good retirement plan, you need to have a diversified approach. I would strongly suggest you to invest in mutual funds, which, though risky, are capable of giving high returns. You may choose to invest in stock markets also, but since the risk associated in secondary market is more, it would be advisable to build a portfolio from decent and well-priced initial public offerings, as this can yield good returns.

Now, to balance your portfolio, you may have some debt and deposit components, and can invest in bonds and public provident fund. This will also take care of your taxes. So, essentially you should make a portfolio which is diversified and not mutually exclusive of other investment options.

Answers are based on a technical analysis of the markets and individual stocks. The views expressed on this page are not the newspaper’s opinion and are provided for information purposes by Vipul Verma. Readers are requested to do their own research before participating in the stock markets. Neither the paper nor the information provider will be responsible for any outcome based on information provided here.