Monday, November 30, 2009

FUND FULCRUM (contd.)
(November 2009)

Indian mutual funds booked Rs 12,639 crore profit in the first half of the financial year 2009-10 by selling equity. In the same period last year, fund houses had booked losses of Rs 3,858 crore. Their total loss on sale of investments in 2008-09 was Rs 25,000 crore. Of the 35 mutual funds that have declared half-yearly financial results for the period ended September 2009, six booked a profit of Rs 8,005 crore while the other 27 booked a combined profit of Rs 4,634 crore. The remaining two took a loss of Rs 254 crore. The V-shaped recovery in stock prices from the March 2009 lows has given profit-booking opportunities to fund managers. When markets worldwide fell sharply in the second half of 2008-09 owing to financial crisis in the US, fund managers booked losses to check further value erosion. The fund houses that have booked hefty profit are Franklin Templeton Mutual Fund (Rs 1,470 crore), HDFC Mutual Fund (Rs 1,388 crore), DSP BlackRock Mutual Fund (Rs 1,317 crore), Sundaram BNP Paribas Mutual Fund (Rs 1,313 crore), ICICI Prudential Mutual Fund (Rs 1,287 crore), and Reliance Mutual Fund (Rs 1,229 crore).

Piquant Parade

Bharti AXA Investment Managers has been awarded “The CMO (Chief Marketing Officer) Council Innovating Marketing Strategy Award” for Liq-uity Facility at the recently held CMO Council Awards. Liq-uity, introduced in June 2009, is a facility where the Daily Gains (Daily Dividend/Growth Option), if any, from Bharti AXA Liquid Fund or Bharti AXA Treasury Advantage Fund get transferred to Bharti AXA Equity Fund on all business days.

Regulatory Rigmarole

SEBI has paved the way for investors to buy and sell mutual fund units through stock brokers, thereby, extending the present convenience available to secondary market investors. The existing stock exchange infrastructure, with its reach to over 1500 towns and cities through more than 2,00,000 terminals, can be used for facilitating transactions in mutual fund schemes. Every mutual fund has to disclose the locations of its official points of acceptance in its offer documents and web sites. Stockbrokers will be eligible to be considered as official points of acceptance provided they get the AMFI certification and become empanelled distributors. Such a move is bound to widen the geographical reach of the mutual fund industry, which at present is concentrated on the top 10 cities. From the point of view of the investors, the choice of their transacting mutual fund deals has widened. The fee structure under this new system, however, is still unclear. The market regulator has asked the stock exchanges to provide detailed operating guidelines for facilitating transaction in mutual funds on their platform by their member-brokers.

The National Stock Exchange (NSE) plans to launch a new mutual fund service system or MFSS today. All trading members of the exchange who are registered with AMFI as mutual fund advisors and who have signed up with the specific AMC of a mutual fund are eligible to participate in the new MFSS. For this purpose, trading members shall have to register with NSEIL as participants by submitting an undertaking. Orders will be placed via NEAT-MFSS order collection system between 9 am and 3 pm. The investors have a choice of two modes of investments­­­­­­––the physical and the depository.

The NSE, which pioneered electronic trading in India, and NSDL will together develop a trading platform where mutual fund units could be bought or sold back to funds without an intermediary. To avoid a monopoly, the Association of Mutual Funds in India has also chosen Central Depository Services, a BSE sibling, and registrars CAMS-Karvy to develop a similar platform. The first phase of this online platform will be in place by March 2010. Initially, this would be an order-entry platform and not a trading platform. The second phase, which will see payments being made directly to exchanges, will kick off within three months of the completion of the first phase. This platform will change the way mutual funds are bought and sold in India.

AMFI has constituted a Committee to discuss the impact of extended trading hours on mutual funds and has asked the industry to suggest new mechanisms for a transition into a longer trading day. Over 60% brokers, out of the 395 surveyed by the Association of National Stock Exchange Members of India (ANMI), expressed displeasure at the move.

Fund accountants and administrators, who have been providing back-office services to the mutual fund industry for close to a decade, may soon come under the regulatory framework of SEBI. SEBI is planning to introduce the concept of professional fund accountants and administrators (prevalent in countries like Indonesia and Thailand) in India. Barring a few top fund houses which do fund accounting in-house, most fund houses have outsourced their back-office activities to custodians, who are outside the ambit of regulations as far as fund accounting and administration are concerned.

Domestic mutual funds may soon find themselves playing a bigger role in public shareholder activism. SEBI wants fund houses to play an active role in ensuring superior corporate governance of public listed companies in order to restore faith and protect the interest of investors.

SEBI plans to appoint a Committee to examine if service tax in mutual fund transactions should be borne by investors or mutual funds. While the market regulator does not want investors to bear additional costs, industry body AMFI has been lobbying that service tax should be separately charged to unit holders, as they are the beneficiaries of the service.

SEBI is also examining the issue of the number of investors that every mutual fund scheme should have in order to mitigate risks in case of a huge exodus. The regulator plans to increase the minimum number of investors in a scheme to 50, while reducing a single investor holding to 10-15% from 25% of the assets under management. It plans to extend this structure to a scheme’s sub-plan level (institutional and retail).

The Reserve Bank of India, in a move to curb mis-selling of financial products and ensure transparency, has asked banks to disclose to their customers details of the commissions and other fees received by them while selling mutual funds and insurance policies.

The RBI governor has expressed his concern about the exponential growth in bank’s investment in mutual funds. Banks have been parking in excess of Rs 1 lakh crore (Rs. 1.2 lakh crores on an average) in debt funds in the past few months, which sometimes circulates from mutual funds back to banks with only a portion of it flowing to the corporates. RBI wants banks to directly lend funds to corporates and not through mutual funds.

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has proposed to the government to create a “Sovereign Fund”, proceeds of which are proposed to be utilized to rescue and arrest possible volatility in domestic capital market as also encourage its orderly growth for a stable and progressive financial system. Worldwide there has been tremendous debate to put in place an institutional mechanism having sovereign back up to strengthen and support the capital market shocks. The recent example is that of sovereign fund of Singapore and China. These funds have come handy during the huge panic selling in the domestic market to ward off unprecedented losses. Since the Indian capital market has grown tremendously with an average turnover scaling to Rs. 90,000 crore per day and contributing about Rs. 108 crore per day to the exchequer in the form of STT, a time has come when a quarter of which can be used for setting up of the proposed fund.

Dubai-based mutual funds are keen to tap the Indian market – directly market and sell mutual funds in India. Dubai Financial Services Authority (DFSA) has indicated to SEBI that it is interested in an arrangement wherein Dubai International Financial Centre region’s mutual funds can be directly marketed and sold in India. DFSA’s proposal might mean a paradigm shift in the policy regime in India as far as mutual fund regulations are concerned. But the recent Dubai debt crisis casts a cloud on this proposal. Besides, the unearthing of this crisis has rocked the Indian stock market…volatility is in the air…

3 comments:

nirmaladevi said...

I am having 100 Mutual Fund units but the share is going down, pls tell which is the right time to sell Mutual Fund units? Pls give some tips

Mutual Funds said...

Kindly state the name of the mutual fund you have. Only then can we take a decision.

For more information on the right time to sell mutual fund units, read my article, "When to say Goodbye to your Mutual Funds?" - Parts I and II.

Mutual Funds said...

The article appeared in April 2007.