Monday, December 26, 2011

December 2011

With the prevailing uncertainty in equity markets and an indefinite postponement of hopes of any recovery, retail investors accessing stock markets through equity mutual fund schemes are wriggling out fast. Around 125,000 equity investors closed their folios in November 2011 — the second highest in the current financial year after July 2011, when equity folios had shrunk by 330,000. Since the beginning of the current financial year, the industry has lost 770,000 equity folios. The gross sales of equity schemes hit a 31-month low in November 2011. According to the Association of Mutual Funds in India, gross equity sales in November 2011 were Rs 3,183 crore, the lowest since April 2009. Earlier months fetched fund houses an average sale of between Rs 4,000 crore and Rs 5,000 crore. In April 2009, they had sold equity schemes amounting to Rs 1,836 crore. Marred with poor performance, redemption pressure and distributors’ unwillingness to push mutual fund products, fund houses are finding it increasingly difficult to attract investments in equity. Even systematic investment plans (SIPs), which were a saving grace, have started showing a decline on the back of terminations and cancellations. Since August 2011, equity funds continued to get positive net inflows but in November 2011, the initial signals of redemption pressure were visible, with a marginal net outflow of around Rs 50 crore. Interestingly, the drastic decline in equity sales is the highest since the capital market regulator abolished the entry load on equity schemes with effect from August 2009. Despite the load ban, equity sales in some months had crossed Rs 8,000 crore. Currently there are a little over 300 pure equity schemes available.

The mutual fund industry is beginning to bear the brunt of tight liquidity and market uncertainty. All schemes except liquid funds recorded net outflows to the tune of Rs. 2,088 crore, according to the latest AMFI data. The inflows in liquid funds have also fallen compared to last month. In October 2011, liquid funds witnessed net inflows of Rs. 32,745 crore while in November 2011 the net inflows stand at just Rs. 5,861 crore. The AUM of equity funds dropped 8% to Rs. 1.48 lakh crore in November 2011 from Rs. 1.61 lakh crore in October 2011. The industry’s AUM slipped 2% from Rs. 6.95 lakh crore in October 2011 to Rs. 6.81 lakh crore in November 2011.

Piquant Parade

Financial services group IDFC has sold 25% stake in its mutual fund business to French major Natixis Global Asset Management (NGAM) for an undisclosed amount. The new partnership would help IDFC AMC reach international investors interested to pump money into Indian equity markets. Besides, NGAM's presence in Asia, including Japan, Singapore, Taiwan, and China would also receive a boost though this agreement. IDFC AMC now has the ability to offer domestic investors access to international investment opportunities through NGAM investment products.

A few large overseas fund houses like Vanguard, Old Mutual etc. are vying for a strategic stake of anywhere between 26% and 49% in Axis Mutual Fund, promoted by India’s third largest private sector bank, Axis Bank. The foreign players' interest in the asset management firm displays a renewed appetite for the domestic mutual fund story that has been witnessing consolidation in recent times.

Bank of India announced the acquisition of a 51% stake in the mutual fund joint venture between telecom major Bharti Enterprises and Axa Investment Managers for an undisclosed amount. With the acquisition, Bharti Enterprises, which has about 25% stake in the fund house, will exit the asset management business.

Edelweiss Financial Services, a leading financial services firm in India, is in talks with global investors to be a partner in their mutual funds arm Edelweiss Asset Management that manages assets worth about Rs 447 crore.

To enhance investor convenience and ease of accessibility, Quantum Mutual Fund, India’s first and only direct-to-investor mutual fund has tied up with Yes Bank to use its drop box facility across Mumbai. Investors can now drop their subscription applications at any Yes Bank drop box having the Quantum Mutual Fund logo. These drop boxes are located at various locations across the city, including 37 locations at railway stations, 38 ATM sites and 5 airports. However, investors will have to follow a few steps like enclosing the application along with the cheques and supporting documents in a sealed envelope with ‘Quantum Mutual Fund’ written on it, before dropping the application into the drop box.

ICICI Prudential Asset Management Company Limited has partnered with Bloomberg UTV to present on mutual funds and investing with a twist through live plays titled ““Tarakki ke Tarikey – An Innovative Investor Mela. Tarraki ke Tarikey is a part of many such initiatives under the AMC’s investor awareness platform “Tarakki Ahead”. Cutting across conventional financial programmes, the play titled “Tarakki ke Tarikey” by the theatre group “Circus” endeavors to “entertain while educating” investors on mutual funds and breaking some common investment myths. Beginning from Rang Sharda auditorium in Bandra, Mumbai, theater artists would take to the roads across 5 cities entertaining the audience through their 11 appealing short stories related to investment myths.

It seems that the AMFI’s Mutual Fund Utility Platform will take a longer time to be operational. The three month deadline given by AMFI to develop the software is too short.

In what can be called as a trend-setter for the mutual fund industry, IDFC Mutual Fund has allowed investors to invest less than Rs.1 crore as well as redeem mutual funds in its IDFC Money Manager Fund (Treasury Plan). It plans to extend the same facility to other funds as well in the days to come. The investor does not need to sign a cheque every time he wishes to invest. Just one SMS can help him buy funds on the same day’s NAV, thanks to the electronic time stamping mechanism. What makes this initiative different from the already existing mobile buying facility is that investors do not need to own a GPRS or smart phone with internet connection. India has more than 72 crore mobile phone users and the potential seems huge. The facility is currently available for sole proprietors, resident individuals (including guardians on behalf of minor). The AMC has tied up with SBI, Standard Chartered, Kotak Mahindra, HSBC, Axis Bank, ING Vysya Bank, Citibank and plans to extend the facility to more banks going ahead.

The Securities and Exchange Board of India has appointed K V Kamath, chairman of an advisory committee for the regulator’s Investor Protection and Education Fund (IPEF). The committee will be responsible for advising SEBI on investor education and protection activities that may be undertaken directly by the SEBI board, or through any other agency, for utilisation of the SEBI Investor Protection and Education Fund.

Regulatory Rigmarole

The Securities and Exchange Board of India plans to make it more difficult for investment banks to influence the recommendations of analysts through strict new rules aimed at a clear separation of the two functions. There is an inherent conflict of interest in research activities unless it is done by a pure research firm which is not involved in other activities. There should be a Chinese wall between advisory and research; the moment the wall is broken one could influence the other.

The Securities and Exchange Board of India will soon make it mandatory for compliance officers of all market participants to take a certification programme. The programme will be conducted by the National Institute of Securities Markets (NISM). The SEBI move assumes significance in the light of the recent regulatory changes that have made compliance officers responsible for many activities. In one such action, Sebi made compliance officers responsible for unsubstantiated news or rumours related to a listed entity spread by an employee of a market intermediary.

The Securities and Exchange Board of India has directed market intermediaries not to outsource core business activities and compliance functions. The direction comes in the wake of instances wherein intermediaries resorted to outsourcing, to reduce costs and at times, for strategic reasons.

SEBI in its recent circular announced to simplify the Know Your Client (KYC) process to make investing a friendly affair among investors. It has issued guidelines for uniform KYC process for the investors who intend to open accounts with different intermediaries in the securities market. The new KYC procedure will do away with the duplication of KYC registering with different intermediaries. As of now, if an investor intends to open accounts with different intermediaries for the purpose of trading / investment in the securities market, he has to undergo the process of Know Your Client (KYC) again and again. Therefore, to avoid duplication of KYC process with every intermediary, a mechanism for centralization of the KYC records in the securities market has been developed by SEBI. Thus once the investor has undergone the KYC process, an intermediary shall perform the initial KYC of its clients and upload the details on the system of the KRA. If investor intends to open account with another intermediary, the concerned intermediary can verify and download the client’s details from the system of the KRA. For the proper implementation of the KYC process, SEBI has notified KYC Registration Agency (KRA) Regulations. The Regulations cover the registration of KRAs, functions and responsibilities of the KRAs and intermediaries, code of conduct, data security, etc. An applicant for KRA status must also have a net worth of Rs 25 crore and have expertise for technology and systems and safeguards for maintaining data privacy and preventing unauthorised sharing of data. Initial registration would be valid for a period of five years. KRAs would be eligible for applying for permanent registration three months before the expiry of the period of certificate of initial registration. SEBI has also made provisions for inspections of KRA regarding books of accounts, records, infrastructure, documents and procedures.

The April 1, 2012 deadline for implementation of the new DTC (Direct Taxes Code) may not come into force on time.

India's advertising regulator has upheld an allegation that promotional booklets published by Association of Mutual Funds in India were misleading investors about returns from mutual fund investments. An investor had complained against the advertisements to the Advertising Standards Council of India's consumer complaints council, claiming that the promotional campaigns wrongly assured 'better' returns on mutual fund investments.

It has been a tumultuous couple of years for India's mutual fund business. A host of regulatory changes, especially the abolition of entry loads has meant a rapid reinvention of the business. Independent Financial Advisors (IFAs), who have been grappling with regulatory changes over the last two years, are still betting more on mutual funds than other financial products. IFAs are coming together for the first time to form a body, which will lobby to protect their interests. The association, planned on similar lines as the domestic mutual fund industry body AMFI, will voice its views in matters related to rules governing financial product distribution and investment advisory business. The association will function as the voice of IFA community. It will also double up as a knowledge sharing platform for IFAs. The association will cater to about five lakh IFAs, who sell a gamut of financial products from insurance to bank deposits, bonds, postal savings schemes and mutual funds, across the country.

Monday, December 19, 2011

December 2011

Drowning of the Equity Fund drought?

After several months of drought, new equity schemes are surfacing again from the stables of old fund houses. Last week, LIC Nomura and Canara Robeco filed offer documents for open-ended equity-oriented schemes with the Securities and Exchange Board of India. These are the first such scheme documents filed for pure-play equity schemes by experienced fund houses in more than a year. According to the SEBI website, the last such scheme document was filed 15 months ago, in September 2010, when IDFC Mutual Fund had filed for a small cap fund. SEBI began to discourage look-alike schemes towards the later half of 2009. Since then only new fund houses filed and got approvals for launching plain open-ended equity schemes. Older fund houses tried new product structures like gold funds, life stage funds, children funds, capital protection funds, etc. to make sure their new offer does not resemble existing ones.

Keeping out the experienced fund houses, which have well-oiled distribution machinery, has hit inflows coming into the industry significantly. According to figures by the Association of Mutual Funds in India, just eight equity schemes were launched in the first 10 months of 2011. They collected Rs 602 crore, at an average collection of Rs 60 crore a month. In four of these months, not even a single new equity scheme was launched. In comparison, 20 schemes were launched in the first 10 months of 2010 raising Rs 4,570 crore. Average collection was much higher at Rs 457 crore a month. To put things in perspective, in the first 10 months of this year, 565 closed ended debt schemes, most of which were fixed maturity plans, raised Rs 99,450 crore.

Sundaram CapitalProtection-oriented Fund(3years–series 7)

Opens: December 7, 2011
Closes: December 19, 2011

Sundaram Capital Protection Oriented Fund 3 Years (Series 7) is a closed ended debt fund with an investment objective to seek income and minimise risk of capital loss by investing in a portfolio of fixed income securities. The fund may invest a part of the assets in equity to seek capital appreciation. The fund's portfolio structure has been rated as AAA (so) by CRISIL, which indicates highest degree of certainty regarding payment of face value of the investment to unit holders. The scheme will allocate 80% to 100% of assets in fixed income securities including money market instruments with low to medium risk profile. It would further allocate up to 20% of assets in equity and equity related instruments with a high risk profile. Exposure to derivatives will be limited to 50% of the net assets. Benchmark Index for the scheme is CRISIL MIP Blended Index. Dwijendra Srivastava will manage the debt portion and the equity portion will be managed by Srividhya Rajesh.

DWS Interval Fund (Series 1)
Opens: December 7, 2011
Closes: December 19, 2011

Deutsche Mutual Fund has launched a new fund named as DWS Interval Fund – Series 1, a closed ended debt fund with an investment objective to generate income by investing in debt and money market instruments maturing on or before the beginning of the immediately following Specified Transaction period of the scheme. The scheme would invest 100% of assets in domestic debt instruments including government securities and money market instruments with low to medium risk profile. Benchmark index for the scheme is Crisil Liquid Fund Index. The fund manager for the scheme will be Kumaresh Ramakrishnan.

L & T Short Term Debt Fund
Opens: December 7, 2011
Closes: December 21, 2011

L & T Short Term Debt Fund is an open-ended fund with an investment objective to generate returns for investors with a short-term investment horizon by investing in fixed income securities of shorter term maturity. The portfolio could comprise of CDs, CPs, government securities, money market and other debt/ fixed income instruments having shorter-term maturity. The fund would allocate 65% to 100% of assets in debt and money market instruments with residual maturity up to 24 months with low risk profile. On the other side, it would allocate up to 35% of assets in debt instruments with residual maturity greater than 24 months and less than 60 months with low to medium risk profile. The scheme may invest in securitized debt up to 50% of the portfolio. The fund is an appropriate fixed income product for investors who can benefit in the short term from the possible change in interest rate scenario in the coming quarters. CRISIL Short Term Bond Fund Index is the benchmark index for the fund. The fund will be managed by Ms. Bekxy Kuriakose.

Axis Capital Protection-oriented Fund (Series 3)
Opens: December 9, 2011
Closes: December 23, 2011

Axis Capital Protection oriented Fund – Series 3 is a close-ended capital protection oriented fund with an investment objective to protect the capital by investing in a portfolio of debt and money market instruments that are maturing on or before the maturity of the fund. The fund also aims to provide capital appreciation through exposure to equity and equity related instruments. The fund will invest 80%-100% in debt and money market instruments including derivative instrument up to 75% of the net assets of the scheme. And 0%-20% in equity and equity related instruments. The fund is benchmarked against Crisil MIP Blended Index. The fund will be managed by Mr. R. Sivakumar and Mr. Sudhanshu Asthana.

IDBI Dynamic Bond Fund, Canara Robeco Multicap Fund, Morgan Stanley Gilt Fund, Quantum Multi Asset Fund, Baroda Pioneer Sensex Plus Fund, Union KBC Small and Midcap Fund, SBI Tax Advantage Fund Series II, and LIC Nomura Midcap Fund are expected to be launched in the coming months.

Monday, December 12, 2011

December 2011

The unexplored treasure

In India, it is still the institutional investors who mostly invest in fixed income mutual fund products. Retail investor participation in this asset class through mutual funds is negligible. This is counter-intuitive considering the vast amount of savings that the Indian investors have in bank fixed deposits. If one looks at the asset allocation pattern of Indian retail investors, it is evident that Indians are predominantly fixed income investors by nature and convention. This anomaly is clearly an opportunity for the mutual fund industry. In terms of diversity of product offerings, the industry has come a long way. Debt mutual fund products come with different permutations of liquidity (or tenors), credit quality and interest rate-related volatility to address various investment requirements based on an investor's investment objective, risk appetite, and time horizon. The product bouquet encompasses liquid and ultra short-term funds, which invest in money market securities; fixed maturity plans that invest in securities matching the scheme tenure so as to lock in the yield prevailing at that time; income and gilt funds; capital protection-oriented schemes; and a vast offering of hybrid products with different combinations of equity and debt. The industry needs to invest in increasing awareness among retail investors so that they can take advantage of a wide array of useful products.

In December 2011 GEMGAZE, I showcase the GEMs among the debt funds. Kotak Bond Regular Fund and BNP Paribas Flexi Debt Fund have made an unceremonious exit paving way for fresh blood both from the Birla lineage – Birla Government Securities Fund and Birla Floating Rate Fund.

ICICI Prudential Gilt Investment Fund Gem

ICICI Prudential Gilt Investment Fund, a pure debt fund that invests only in government securities, has an AUM of Rs. 221 crore. The average maturity of the fund is high at 6.99 years, the yield to maturity (YTM) is 8.8%, and the credit quality is high. The portfolio is concentrated with 6 holdings with 84% in Government of India securities and 16% of the portfolio in cash. The fund has returned 6.43% in the past one year as against the category average of 6.40%. In recent times, the RBI has undertaken a series of rate cuts to infuse liquidity into the system. The falling interest rates have translated into an appreciation in prices of long-term bonds and government securities alike. Expectedly, this fund has benefited. The returns since launch have been a laudable 10.6%. The expense ratio is 1.5%.

Canera Robeco Income Fund Gem

Canara Robeco Income Fund (CRI), a pure debt fund that mostly invests in securities with maturity of over a year, has an AUM of Rs. 119 crore. The average maturity of the fund has fallen drastically from 8.23 years to 1.74 years, the average YTM is 9.59%, and the credit quality is high with AAA rated papers. The fund maintains a well-diversified portfolio of 17 holdings with the top 5 holdings constituting 52.76% of the total portfolio. Debentures constitute 48% of the portfolio, Government of India securities 8%, Commercial Paper 23% and cash 20%. The fund has delivered superior performance over the last three- and five-year periods, despite slipping somewhat in performance lately. Over a three-year period, CRI registered a 13.5% return, against the category average of 6.5%. Last year income funds, in general, under performed the debt category when compared with short-term debt funds. The rise in yields over this period led to fall in prices for the longer-term securities, affecting their portfolios. However, the fund consistently beat its benchmark CRISIL Composite Bond Fund Index. The fund's one-year return stood at 7.7%, against the category average of 8.02%. The returns since launch have been 8.78%. The expense ratio is 2.2%.

Birla Sunlife Dynamic Bond Fund Gem

Gilt funds can deliver negative or low returns when interest rates rise. However, with the yields on the benchmark 10-year government security now poised at 8.9%, a three-year high, investments made now in long term gilts/bonds may face limited downside risk. The Birla Sun Life Dynamic Bond Fund appears a good play in the above scenario, due to three factors. One, the fund has the flexibility to actively lengthen or shorten the maturity of its portfolio to deal with interest-rate risk. The fund has increased the average maturity of its portfolio from 1.6 years in March to 4.3 years in its latest portfolio. The longer maturity may pay off as interest rates peak out over the next few months. Two, the fund has actively invested in a mix of corporate bonds and gilts to take advantage of the widening or narrowing of spreads between the two. In June 2011, corporate debentures took up 51% of assets while certificates of deposit made up 18%. In recent months, the fund has halved its exposure to certificates of deposit and added both cash and gilts. A 23.5% exposure to cash equivalents gives the fund, the ability to add gilts or even lengthen the maturity profile further, if interest rates do plateau. Three, despite being actively managed, the fund has stayed clear of instruments with doubtful credit quality. In the October portfolio, 59% was invested in triple-A while only 11.9% was in papers with AA+ rating. The focus on credit quality could become important in the months ahead as companies grapple with the lag impact of recent increases in interest rates. The average YTM is 9.7%, and the credit quality is high. The portfolio is diversified with 34 holdings and the top 5 holdings constitute 51% of the total portfolio. The fund has returned a commendable 8.96% in the past year as against the category average of 8.02%. The returns since launch have been 8.01%. The expense ratio is very low at 0.88%.

Birla Sunlife Government Securities Fund (LT) Gem

Incorporated in October 1999, Birla Sunlife Government Securities Fund - Long Term has an AUM of Rs. 382 crore. Risk-averse investors looking for relatively safe debt options in the mutual fund category can consider investing in Birla Sun Life Government Securities Fund Long Term Plan. With a compounded annual return of 11.3% over the last three years, the fund convincingly beat its benchmark I-Sec Li-Bex, by over four percentage points. Active management of interest rate risk and ability to identify and benefit from short-term technical abnormalities in the interest rate curve have ensured that the fund is among the top five in the medium and long-term debt funds category. While the name of the fund may suggest that it is a typical long-term gilt fund, the fund has a highly flexible strategy. It can take exposure to Government securities of both Central and State governments and can also invest in more short-term treasury bills. To this extent, it can take advantage of any rallying interest rate scenario by moving to short-term treasury bills. This not only protects the portfolio from any lacklustre performance in long-dated instruments but also peps up returns albeit for a short duration. A more important asset allocation mandate is that the fund can only invest in government securities. This effectively brings the credit risk of the fund's portfolio to almost nil as all government instruments come with a sovereign guarantee. The average yield to maturity of the fund is 8.77% and the credit quality is high. The portfolio has 5 holdings with Government of India securities constituting 98% and cash 2%. The fund has returned 7.32% in the past one year as against the category average of 6.4%. The returns since launch have been an impressive 9.43% and the expense ratio is 1.5%.

BSL Floating Rate Fund (ST) Gem

Incorporated in June 2003, Birla Sunlife Floating Rate Short Term Fund aims to generate regular income through investment in a portfolio comprising substantially of floating rate debt/money market instruments. The fund sports an AUM of Rs. 2200 crore. The YTM is at 9.29%, and the credit quality is high. Looking at the investment strategy, the scheme has invested in high-quality bonds, which are the safest bets. This conservative approach has helped the fund generate positive returns even when the market plunged in 2008. The portfolio has 17 holdings and the top 5 holdings constitute 52.24% of the total portfolio. Certificates of Deposit constitute 76% of the portfolio, cash 10%, term deposits 8%, and Commercial Paper 6%. The fund fetched 6.02% and 7.07% returns compounded annually for 2-year and 5-year period, respectively, while its benchmark stood at 5.01% and 6.52%. The fund has returned 8.84% in the past one year as against the category average of 8.47%. The returns since launch have been 6.53%. Having a lower expense ratio of 0.36% has been favourable for the fund.

Monday, December 05, 2011


Ride the interest rate cycle…

With a series of hikes over the past year, interest rates have risen sharply and it is likely that they may inch up in the near future. While fixed deposits will fetch higher returns, debt funds may feel the pinch. This is due to the inverse relationship between bond prices and interest rates. When interest rates rise, bond prices come down, which, in turn, reduce the net asset value (NAV) of debt funds. On the other hand, falling interest rates result in a spike in the prices of the underlying bonds, leading to a rise in the NAV. So, when interest rates are increasing, debt funds become unattractive. This does not mean you should completely avoid debt funds as a category. A close scan can reveal funds that are likely to perform better than other fund types even in this scenario. So, if you know how to pick the right ones, you can benefit despite a rise in interest rates. The best way to select debt funds is to look at their maturities, apart from the quality of underlying assets and the liquidity offered. This goes a long way in determining how your debt portfolio will ride the interest rate cycle.

Gilt Funds
Making a comeback

Gilt funds, which lost their lustre due to hardening yields on government bonds, are slowly moving up the performance charts on the back of an increase in bond prices in recent months, thanks to the series of rate cuts undertaken by the RBI. The falling interest rates have translated into an appreciation in prices of long-term bonds and government securities alike. Medium and long term gilt funds, which invest primarily in government securities, have given 2.3% returns in three months, the best in the debt category. They moved up by nearly 0.7% in one month, just below sectoral equity funds and gold exchange-traded funds. Bond yields are expected to remain in the 7.5%-7.7% band. Of course, you must understand that to make the most of your gilt fund investments, being invested for the long haul (to cover an interest rate cycle) is important.

The prodigal’s son

With the high interest rates, the rates on Fixed Deposits are also increasing, so why are investors looking for FMPs? Though FMPs are advantageous for all kinds of investors these work best for those who earn above Rs 5 lakhs and fall under the tax bracket of 30%. On bank fixed deposits you pay 10% TDS (you can avoid the TDS by submitting Form 15G) and another 20% tax on interest received on fixed deposits when you file the return for income tax (assuming that you pay personal income tax in the range of 30%), but in FMPs tax rate on capital appreciation is 11.22% without indexation( it is a technique to adjust income payments by means of a price index, to maintain the purchasing power of the public after inflation) and 22.44% with indexation benefit. Another advantage with FMPs is that they can be used to park funds temporarily in volatile markets. Most FMPs provide returns that are at least 2-3% higher than the rates of fixed deposits . So if the banks give an average of 9% now, you can expect around 11-12 % of returns.

Income funds
The black sheep

Income funds, which invest a majority of their portfolio in short- and medium-term instruments, were the worst performers in the debt fund category on account of a hardening of short-term yields due to the prevailing tight liquidity situation and expectation of a rise in inflation. Income funds gave a return of 0.84% as compared to 1.4% in gilt funds and 1.71% in liquid funds. Yield on the one-year Certificate of Deposit firmed up by 145 basis points and credit spreads across maturities widened as corporate bond yields hardened more than the yields on government securities. While this negatively impacted the performance of income funds, the short-term debt categories benefited.

Floating Rate Funds
Lacklustre presence

The primary reason for lacklustre presence of floating rate funds in the mutual fund industry has been investor ignorance of the nature of floating rate funds. There is a shortage of sufficient long-term floating rate instruments. Because of this, fund managers divert certain portion towards fixed interest securities. The primary advantage of these funds is that they are less volatile than other types of debt funds. This advantage arises due to the inherent structure of the floating rate bonds. Floating rate funds vary from conventional fixed rate investments mainly on the basis of coupon rate i.e. the coupon is revised at regular intervals (means floating) with respect to change in the benchmark rate. Consequently, if there is a rise in the interest rate, the coupon rate usually reflects this change, thereby, securing the interests of investors during rising interest rates. Usually investors turn to these funds when they look for safety for their investments. Considering the fact that not a single long term floating rate fund has slipped into the negative terrain suggests that the performance of the floating rate funds have been quite good. Investors looking for capital preservation during times of rising interest rates cannot afford to ignore floating rate investments. However, they must note that while floating rate funds do well in a rising interest rate scenario, when the scenario turns (i.e. interest rates fall), floating rate funds underperform their fixed rate counterparts.

Liquid funds
Attractive alternative to bank accounts

A recent study carried out by CRISIL Fund Services concludes that liquid funds offer an attractive alternative to retail investors vis-à-vis parking idle funds in a savings bank account. Not only do liquid funds offer higher post-tax returns, they also provide a reasonable degree of safety in terms of the principal invested. Moreover, these investments are highly liquid. They can be redeemed within 24 hours and have no exit load. Further, liquid funds invest in securities with a maximum maturity of 91 days, which cuts down the credit risk. Most liquid fund schemes are also highly rated (P1+f), signifying very strong protection against losses from credit defaults. Over the last 5 years, liquid funds have given an annualised post-tax return of 5.78% as compared to 2.5% given by a savings bank account. Within liquid funds the dividend option is more tax-efficient. This option would be more suitable for investors who fall within the 20% and 30% tax brackets, as it attracts a lower dividend distribution tax of 12.5%. Post tax deduction, liquid funds yield better returns vis-à-vis savings accounts and fixed deposits, wherein the interest earned would be taxed based on an individual’s tax slab.

…to savour the flavour of debt

Depending on the interest rate outlook, investors should alter their debt portfolios in favour of products with suitable maturities. Depending on the tenure, the sensitivity to interest rate movements varies across debt funds. Shorter duration funds are not affected as much by interest rate fluctuations as the long-term ones. So, if the rates are falling, you should invest in longer maturity debt funds, such as income funds and gilt funds. However, in a rising rate scenario, short duration plans such as liquid funds, ultra short-term funds and fixed maturity plans (FMPs) are the right choices. So it is advisable to have a debt fund portfolio with adequate allocation for various categories so that you are well placed to benefit from various phases of the interest rate cycle.

Monday, November 28, 2011

November 2011

The mutual fund industry saw its asset base grow by 8.3% in October 2011, led by inflows from the corporate sector. According to the Association of Mutual Funds in India, assets under management stood at Rs 695,437 crore in October 2011 (Rs. 6.41 lakh crore at the end of September 2011). Of this, equity assets contributed 23% at Rs 1,61,532 crore, as against 24% of the industry’s assets in September 2011. The start of every quarter sees inflows into the industry as money that moves out as advance tax payments finds its way back into the system. Liquid/money market funds get a bulk of this investment. The total AUM under liquid/money market funds increased from Rs 1.28 lakh crore to Rs 1.62 lakh crore in October 2011, an increase of 26.46%. Gold ETFs were the next big gainers in October 2011 with the total AUM moving from Rs 8,173 crore to Rs 9,090 crore. Equity schemes have increased in AUM by 4.3% from Rs 1.54 lakh crore in September 2011 to Rs 1.61 lakh crore in October 2011. After collecting good inflows of Rs. 1,401 crore in September 2011, equity funds mopped up just Rs. 181 crore in October 2011. Overall inflow during the month was Rs 41,287 crore, which pushed the flows so far in 2011-12 to Rs 96,566 crore, against net outflows of Rs 6,194 crore during the previous corresponding period.

Equity mutual funds lost another six lakh folios in the first half of this fiscal. From 3.92 crore folios as at end March 2010, the total number of equity folios came down to 3.86 crore folios. However, the debt folios have seen an increase of 3.8 lakh or nine per cent, in folios during the same period. This fiscal has seen a lot of consolidation of schemes which has probably led to a decrease in the number of folios in the equity schemes. Moreover, there is now an overall acceptance of debt as an asset class. The number of SIP folios in the industry has seen a steady rise. There are about 75 lakh SIP folios in the industry and they bring in close to Rs 1,200 crore a month. However, the creation of SIP folios does not amount to an increase in the total number of folios.

The total number of folios in the industry is 4.71 crore, down by 62,413 folios from 4.72 crore as at end March 2011. However, in the last one year period, the number of folios has risen from 4.69 crore, as at end September 2010 to 4.71 crore as at end September 2011. According to data available with the Securities and Exchange Board of India, 61,000 equity folios were closed during October 2011.

In an interesting turn of events, the two leaders in the mutual fund sector have swapped positions. For four-and-a-half years, there was a single market leader in assets, Reliance Mutual Fund. In the quarter ended September 2011, HDFC Mutual Fund took that slot. The latter, however, has yielded the slot of the most profitable asset management company to Reliance Mutual Fund.

Foreign-owned fund houses lost market share (assets under management) by 11.4% in the last one year, when the industry AUM itself remained flat. According to data on the AMFI website, the cumulative AUM of the foreign fund houses stood at Rs 77,411 crore in September 2011, down by Rs 9,942 crore from Rs 87,353 crore in September 2010. The industry, during the same period, declined by about Rs 618 crore — from Rs 7.13 lakh crore to Rs 7.12 lakh crore. The Indian mutual fund houses, however, have fared better and added Rs 9,323 crore to their cumulative AUM. The AUM of the Indian fund houses moved from Rs 6.26 lakh crore to Rs 6.35 lakh crore during this period. Of the foreign fund houses, Bharti AXA saw the highest decline in AUM at 65.5% from Rs 510 crore to Rs 176 crore. JP Morgan Asset Management was next with a decline of about 44 % from Rs 8,447 crore to Rs 4,747 crore. Fund houses say that the decline is mainly due to the erosion in the value of the fund schemes themselves.

Piquant Parade

Parag Parikh Financial Advisory Services (PPFAS), Bank of India, and Bajaj FinServ Ltd. have announced their plans to enter the Indian mutual fund industry. While PPFAS is one of India’s oldest portfolio management services firms, Bank of India is a public sector bank which was in the mutual fund business in the 1990s, and Bajaj FinServ is the financial services firm of the Bajaj Group. Already two asset management companies (AMCs), India Infoline and Indiabulls have launched their operations recently.

A leadership vacuum at UTI Asset Management is taking a toll on the health of India's oldest mutual fund, dealing a setback to the Asian growth ambitions of its joint venture partner, US money manager T Rowe Price Group. The US-based asset manager, which holds 26% in the fund house, has been protesting at the appointment of an IAS officer without enough fund management experience as the company’s chairman. UTI had been headless for nine months since the last incumbent, U K Sinha, quit to take over as chairman of the Securities and Exchange Board of India. A similar delay happened after M Damodaran left to join IDBI Bank.

UTI Mutual Fund flagged off its second UTI Knowledge Caravan from Mumbai as part of its Investor Education Initiative called “Swatantra”. The Investor Education Initiative is in partnership with Ministry of Corporate Affairs, Government of India. During its journey, the caravan will cover more than 14000 kms in about 260 days. As a part of this initiative four UTI Knowledge Caravans will travel through the length and breadth of the country for spreading financial literacy. The first caravan was flagged off on October 31, 2011 from Delhi. UTI Mutual Fund will conduct Investor Meets for investors and educational programs at schools and colleges to spread the message of savings and investments to the youth of India.

AMFI has invited expression of interest (EOI) from software developers to develop, maintain, support and train for its long awaited Mutual Fund Utility Platform. The Mutual Fund Utility will provide order routing and payment mechanisms with connectivity to RTAs, AMCs, stock exchanges, DPs, banks and centralized KYC repository. The prospective software developers will have to develop the software in three months and maintain the software for five years post implementation. Investors will be able to make a single payment for multiple transactions. New investors into mutual funds will be required to open a ‘common account number’ and complete the KYC and submit the documents to the centralized account opening repository. The mutual fund Utility will then generate a unique account number for the investor which has to be used for all transactions in mutual funds. AMFI is likely to charge a fee for transacting through this platform in order to fund the maintenance costs. It will be operated on a ‘no profit no loss’ basis.

Regulatory Rigmarole

According to the Association of Mutual Funds in India the mutual fund industry has implemented the SEBI directive to issue consolidated accounts statement (CAS) to its investors from October 2011. This is an investor-friendly initiative to allow investors a single-window view of all their transactions in mutual funds. The consolidation of folios will be on the basis of the Permanent Account Number (PAN) provided by investors. Monthly CAS will include only those folios in which financial transactions have taken place during the month provided the folios have valid PAN numbers available for all the unit holders. CAS will include all types of financial transactions like purchase including NFOs, redemption including maturity, switches, systematic transactions like SIP, SWP, STP, dividend payouts or reinvestments, merger, bonus transactions etc. CAS will be sent on or before the 10th calendar day of the following month for folios which have been transacted in the previous month. Currently CAS will be sent only via physical and not electronic.

In order to improve transparency, market regulator SEBI has asked all mutual funds to disclose names of distributors, who receive commission in excess of Rs 1 crore annually or have presence in more than 20 locations, on their websites from March 2012. The disclosure, which would be uploaded on the mutual fund industry body AMFI’s website, is mandatory from November 10, 2011. Distributors earn an upfront commission from the mutual funds in the first year which is generally higher for selling equity schemes and lower for debt schemes. Further, they also earn a ‘Trail Commission’, which is a percentage of total business brought by the distributor. This commission is paid in the subsequent years and accounts for a huge earning for the distributors.

SEBI has allowed fund houses to participate in ‘AAA’ rated corporate debt securities with a 10% cap on exposure of the net assets of the scheme. The cumulative gross exposure through repo transactions in corporate debt securities along with equity, debt and derivatives shall not exceed 100% of the net assets of the concerned scheme. SEBI has directed fund houses to disclose the details of repo transactions of the schemes in corporate debt securities, including details of counterparties, amount involved and percentage of NAV in the half yearly portfolio statements and to SEBI in the half yearly trustee report.

Soon, you may be able to buy mutual fund units, shares, insurance policies, bank deposits and other such financial products with a single Know Your Customer (KYC) compliance. Financial Intelligence Unit-India (FIU-Ind), the national agency monitoring suspect financial transactions, has initiated discussions with different financial sector regulators to build a common database, which could be utilised by all financial services agencies. At present, each sectoral regulator - the Securities and Exchange Board of India, Insurance Regulatory and Development Authority, the Reserve Bank of India, Pension Funds Regulatory and Development Authority and the Forward Markets Commission have different KYC requirements. This means users are now required to fill in numerous columns in multiple forms every time they buy a new product. This common KYC database will help the different regulators and intermediaries monitor suspicious transactions and terrorist financing more efficiently.

Amid shrinking asset bases and declining investor folios, only a handful of mutual fund houses are pushing themselves to spread out to smaller towns and villages. As per data shared by asset management companies, about 15 of the 35 fund houses have over 80% of their assets mobilised from the top five cities - Mumbai, Delhi, Kolkata, Chennai and Bangalore. The industry body, Association of Mutual Funds in India (AMFI), had asked fund houses to disclose the geographical spread of assets managed by them. Higher proportion of fixed income assets - mainly belonging to banks and corporate treasuries headquartered in metros and top-tier cities - has skewed the spread of assets towards top cities. This, coupled with lower distributor support in smaller cities and increased focus of fund houses on city-based investors, has made mutual funds an exclusive investment product for urban Indians. Funds such as Peerless, Edelweiss Mutual, Sahara, Baroda Pioneer, Daiwa Mutual and Pramerica derive over 90% of their assets from four metros and tech-savvy Bangalore. The under-penetration of funds is not restricted to smaller and newer asset managers alone. Large fund houses like HDFC Mutual, Reliance, Birla Sunlife, and ICICI Prudential Mutual collect about 64-75% of their assets from top five cities. The asset spread of well-established large fund houses drop to about 11-15% in next 10 cities (cities after metros), about 4-5% in next 20 cities (after metros and top 10 non-metro cities) and about 2-3% in real small cities (cities beyond next 20 cities). Significantly, foreign fund houses such as DSP BlackRock, Franklin Templeton, Fidelity, and Mirae Asset have relatively strong presence in non-metro top-10 cities like Ahmedabad, Hyderabad, Rajkot, Indore, Pune, Nashik, and Jaipur. The obvious potential in smaller cities and towns (beyond the top 20) is largely retail which is long-term and sticky in nature. The fundamental challenge is of educating and hand-holding them to invest in the equity market through funds.

Monday, November 21, 2011

November 2011

Of Centuries and Millenia…

IDBI Gold Exchange Traded Fund, the NFO launched by IDBI Asset Management, has collected over Rs 110 crore, predominantly from around 11,000 retail investors, including HNIs. Indiabulls Mutual Fund has garnered Rs 1,107 crore through its maiden liquid fund, which was open for subscription for just one day. This is the first instance in this calendar year that any mutual fund has mobilised more than Rs 1,000 crore in a single working day.

Axis Capital Protection Oriented Fund – Series 1 (3 years)
Opens: November 8, 2011
Closes: November 22, 2011

Axis capital protection oriented fund – Series 1 (3 years) will endeavor to protect the capital by investing in a portfolio of debt and money market instruments that are maturing on or before the maturity of the fund. The fund also aims to provide capital appreciation through exposure in equity and equity related instruments. The fund shall invest 80-100% in debt and money market instruments including derivative instrument up to 75% of the net assets of the fund. The fund shall also invest up to 20% in equity and equity related instruments. The fund may also use fixed income derivative instruments subject to the guidelines as maybe issued by SEBI and RBI and for such purposes as maybe permitted from time to time. The fund shall not make any investments in securitized debt and unrated debt securities. The fund is benchmarked against the Crisil MIP Blended Index. The fund managers of the fund are R. Sivakumar and Sudhanshu Asthana.

Templeton India Corporate Bond Opportunities Fund
Opens: November 15, 2011
Closes: November 29, 2011

Franklin Templeton Investments has launched Templeton India Corporate Bond Opportunities Fund in order to help investors take advantage of the current high yields and to build a strong presence in pure fixed income space. Templeton India Corporate Bond Opportunities Fund will primarily invest in medium and short-term securities issued by corporates. It will focus on corporate bonds with moderate maturity and relatively higher accruals. Its average maturity will never exceed three years. The fund also aims at allowing capitalisation on opportunities by active interplay on credit, liquidity, and interest rate opportunities. The corporate bond market provides good opportunities in India for multiple reasons, including a fast growing economy, strong corporate balance sheets, and expected increase in issuances. However, when compared to other similar markets, the corporate bond market in India is still at a nascent stage and is growing. Mr. Umesh Sharma and Mr. Sachin Padwal Desai will manage the fund together. The fund is benchmarked against Crisil Short Term Bond Fund Index.

Religare Gold Fund
Opens: November 15, 2011
Closes: November 29, 2011

Religare Mutual Fund has launched a new fund namely, Religare Gold Fund an open ended fund of fund. The investment objective of the fund is to provide returns, which closely correspond to returns provided by Religare Gold Exchange Traded Fund. The asset allocation is up to 95% in gold and balance 5% in debt and money market instruments. This fund is well suited for people who do not have a demat account but want to invest in gold. Besides acting as a hedge against inflation, Religare Gold Fund provides easy liquidity, less charges compared with gold jewelry and coins, no worry about gold theft and offers SIP facility. The performance of the fund will be benchmarked against the prices of gold and will be managed by Mr Nitish Sikand.

Sundaram Capital Protection Oriented Fund – Series 4 (5 years)
Opens: November 18, 2011
Closes: November 30, 2011

Sundaram Capital Protection Oriented Fund-Series 4 - 5 yrs, is a close-ended capital protection oriented scheme. The objective of this fund would be to seek income and minimise risk of capital loss by investing in a portfolio of fixed income securities. The scheme may invest a part of the assets (0 to 30%) in equity to seek capital appreciation. The fund manager of the equity portion of the fund is Srividhya Rajesh and that of the debt portion is Dwijendra Srivastava. The fund is benchmarked against the Crisil MIP Blended Index.

Union KBC Tax Saver Scheme
Opens: November 8, 2011
Closes: December 9, 2011

Union KBC Mutual Fund has launched a new fund named as Union KBC Tax Saver Scheme, an open ended Equity Linked Savings Scheme with lock in period of 3 Years. The investment objective of the scheme is to achieve long-term capital appreciation by investing substantially in a portfolio consisting of equity and equity related securities. The scheme will allocate between 80-100% in equities and up to 20% in debt. The fund manager will follow a combination of bottom up and top down approach in his investment strategy. The performance of the scheme will be benchmarked against BSE 100 Index and will be managed by Mr. Ashish Ranawade.

Sundaram Capital Protection Oriented Fund 2 Years (Series 6-7), Sundaram Capital Protection Oriented Fund 5 Years (Series 5-6,) Sundaram Capital Protection Oriented Fund 3 Years (Series 9-10) and BNP Paribas Gold and Income Fund are expected to be launched in the coming months.

Monday, November 14, 2011

November 2011

There are 48 Equity Linked Saving Schemes offered by 41 mutual fund houses. Out of this 36 are open-ended schemes and 12 are close-ended schemes. The industry wide assets for all ELSS are Rs 26,515 crore representing around 4% of the industry corpus. ELSS Funds help you save taxes as well as generate decent returns. But, how do you separate the wheat from the chaff?

GEMGAZE does it for you. The towering tycoons in the tax-saving space have retained their GEM status and have secured their position in the hall of fame by virtue of their consistency.

Magnum Taxgain Fund Gem
Losing steam?

Launched in March 1993, SBI Magnum Taxgain is one of the oldest and largest tax-saving ELSS schemes in the country with an AUM of nearly Rs 5000 crore. An interesting feature of the fund is its stock picking which is more inclined to companies that have disproportionately large market share. For a fund with a size as large as Rs 5,000 crore, SBI Magnum Taxgain's portfolio is well diversified to incorporate an average of about 60 stocks across sectors. The top 5 holdings account for 22.69% of the portfolio. While the fund has a multi-cap approach, it is clearly biased towards large-cap stocks. Nearly 70% of its equity portfolio is invested in the large caps. For the sectoral allocation, the fund has a reasonable exposure in healthcare and FMCG sectors, with an exposure of 10% and 7%, respectively. However, compared to the benchmark BSE 100, the fund is underweight on the financial sector, which was one reason for the fund's underperformance in 2010. It maintains 3% of AUM in cash. Over the past few years, it has developed itself into a defensive investment and therefore, failed to outperform the benchmark returns even when the market was rallying. Until SBI Magnum Taxgain moves out of its defensive positioning, investors can expect consistent but not outstanding returns. One-year return of the fund is –17.67% as against the category average of –18.35%. The expense ratio is 1.81% and the portfolio turnover ratio is 0.42%.

HDFC Tax Saver Fund Gem
Consistent contrarian

At Rs 3032 crore, it is the second largest ELSS fund in the industry. With the exception of 2007, the fund has done well in falling as well as rising markets. In keeping with its large size, fund manager prefers to diversify the portfolio, perhaps a bit much. It follows an investment strategy wherein it looks to invest in stocks irrespective of the market capitalization to take advantage of the then prevailing market conditions. Currently, large caps account for 60% of the portfolio. HDFC Taxsaver takes contrarian bets but its performance history speaks for itself. It is among the very few funds, which have invested in the Indian Depository Receipts (IDR) of Standard Chartered PLC (UK) and is amongst the few not holding Reliance Industries in its portfolio. Even in its sector allocation the fund is not wary of contrarian moves. The rising asset base has led to an increase in the number of stocks to 38. However, the fund has a long tail of stocks (currently 23) each with an allocation of less than 1%. They collectively account for close to 10% of the fund's portfolio. With the top 5 holdings accounting for 30%, the fund looks well diversified. Allocation to a single stock has rarely exceeds 7%. The expense ratio is 1.84% and turnover ratio is 32.19%. In the past one year, the fund has earned a return of –17.58% as against the category average of –18.35%. The fund has generated superior returns and shown resilience while protecting the downside time and again. You seldom get a mutual fund with a history of 14 years with consistent performance.

Fidelity Tax Advantage Fund Gem
Award-winning spree…

Fidelity Mutual Fund has won three awards for its Fidelity Tax Advantage Fund at the ICRA Mutual Fund Awards 2011. The Fidelity Tax Advantage Fund received the ICRA 7-Star Gold Award and the 5-Star Award in the Equity Linked Savings Schemes (ELSS) category for its 3-year performance and 1-year performance respectively as on December 31, 2010. The ICRA 7-Star is awarded to the best performing fund in the category and the ICRA 5-Star is awarded to the top 4.6% in terms of performance in the category. The one-year return of the Rs 1183 crore fund is –14.35% as against the category average of –18.35%. The fund has had a glorious run so far. What sets the fund apart is consistency in its portfolio—its top 10 scrips and sectors have been consistent throughout 2010. The fund manager goes by the balance sheet more than what the market is chasing. So it is not surprising to see that 17 of his holdings have been held in the portfolio almost since inception. Despite a large-cap bias, the portfolio is very diversified across 64 stocks. Apart from Reliance Industries, allocation to a single stock has rarely exceeded 6% of the portfolio. However, the fund takes numerous small bets. Fidelity Tax takes significant exposure to mid-cap stocks as with many funds of this genre. This has been to the tune of 20-25% of the portfolio across market cycles. This enables the fund to benefit from broader market rallies. Top 5 holdings constitute 25% of the portfolio. The expense ratio is 2% and the portfolio turnover ratio is 20%.

Sundaram Tax Saver Fund Gem
Off the mark…

Launched on November 12, 1999, Sundaram Tax Saver fund is managed by Mr Satish Ramanathan, Head of Equities at Sundaram Mutual Fund. The fund has a concentrated portfolio of 43 stocks with 69% of the portfolio invested in large-cap stocks. The fund is very actively managed and is also known for taking cash calls when the fund manager is not bullish on the market. The huge cash call, which the fund took in 2008, really helped the fund during the 2008 crisis. In last couple of years, the fund has seen its AUM increasing substantially from around Rs 480 Crore to more than Rs 1,407 crore. Top five holdings constitute 22% of the portfolio with a total of 41 stocks. Energy, financial and FMCG are the top 3 sectors. The fund follows both top-down and bottom-up approach for making investments. Its one-year return has been –20.79% as against the category average of 18.35%. The expense ratio is 1.95% and the portfolio turnover ratio is 190%.

Canara Robeco EquityTax Saver Fund Gem
Consistent outperformer…

Though around for a long time, Canara Robeco Equity Tax Saver has emerged as a strong contender only from 2007, thanks to its diversified portfolio. The fund invests in growth-oriented companies with strong fundamentals, making it a consistent offering. This Rs 302 crore fund has been pretty successful in utilising the agility that a small fund offers by spotting opportunities and capitalising on them. There are 52 stocks in the portfolio. Though allocation to a single stock has gone up to 9%, it is seen only in few large caps. Allocation to the top 5 holdings (24%) is in line with the category average. In 2010, exposure to mid caps was halved and that to large caps increased to around 70%. However, allocation to small caps has barely exceeded 15% since 2007, a drastic change from its past. The massive outperformance though has been possible as a result of 20% holding in midcap stocks. The fund also appears adept in reducing stakes in equity and switching back again. This helped it contain declines to about 47% in the 2008 market fall as against 55% equity category average. One-year return is –11.61% as against the category average of –18.35%. The expense ratio is 2.33% and portfolio turnover ratio is 57%.

Religare Tax Plan Gem
Ferocious fledgling…

With downside protection and decent returns, Religare Tax Plan made its mark in a short period of time. The fund’s ability to provide good downside protection capabilities accompanied with decent returns during markets rallies rewards investors over the long run. The fund’s focus on bottom-up stock picking leads to quality picks. The mid-cap picks are biased in favour of growth, quality of balance sheet and strength of underlying cash flow rather than sheer under valuation plays. Momentum and cyclical plays are avoided, which may result in subdued returns during market rallies. The late entry into technology also hit performance. Selective (and unusual) stock picking is the strategy of the fund. You may have to wait a while for the bets to play out. It has done well across market cycles. The fund follows a multi-cap strategy. Although benchmarked against BSE 100, the base universe is the BSE 200, to which stocks in the CNX Midcap index are added. Moreover, a few handpicked companies from the BSE Small Cap and BSE PSU indices are considered. This universe is reviewed every quarter.Under normal circumstances, allocation to a single stock is restricted to 6%. The top three sectors are finance, energy, and services. The fund is well-diversified with 50 stocks and the top five holdings constitute 26%. Large cap stocks make up 59% of the portfolio. The one-year return is –13.43% as against the category average of –18.43%. The expense ratio is 2.49% and the portfolio turnover ratio is 62%. With a corpus size of Rs 110 crore, Religare Tax Plan is one of the smallest schemes in its category, but it packs in quite a punch.

DSPBR Tax Saver Gem
Temporary lull?

The fund uses a multi-cap strategy like many of it peers and also deploys cash efficiently. Banking sector, a favored sector in the past rallies, does figure as the top sector even in the recent portfolio. Its top 5 sector picks constitute both growth-oriented and defensive sectors. The churning of stocks too is quite aggressive, which may subject the fund to volatility in returns. DSPBR Tax Saver has a fund corpus of around Rs 941. The fund has a growth-oriented multi cap portfolio with 54% of the corpus in large cap stocks. There are 81 stocks in the portfolio. DSP BR Tax Saver fund has offered –21.6% returns for the last one year as against the category average of –18.35%. The expense ratio is 2.11% and the portfolio turnover ratio is 70%.

Monday, November 07, 2011

November 2011

Goodbye ELSS!

We never did envisage the day when ELSS would become a thing of the past. From April 2012, this entire category of equity based tax saving schemes would be history. Frankly, this is a blow to investors. ELSS was the only tax saving instrument that combined tax saving with the higher return that is possible only through equity and the lowest lock-in period amongst all the other saving schemes. In fact, for many young investors, it was the gateway product through which they entered the stock market. It was after exploring this avenue that they began to get a taste for investing in diversified equity funds. Fund managers certainly were fond of these products. The 3-year lock in period ensured that investors could not walk out anytime and so sudden or frequent redemptions were not a prime concern. This enabled them to take a longer-term perspective on their portfolio.

Extinction of the generic ELSS?

ELSS Fund has become a generic term in the mutual fund industry. If we expand this term and say Equity Linked Savings Scheme Fund – it sounds odd. The assets under management of the 49 open and closed-end ELSS funds stand at Rs 24,571 crore. This is about 3.5% of the overall industry AUM and nearly 15% of the assets managed by all equity funds. ELSS products were introduced nearly two decades ago and initially there was a cap on investments allowed under this category, which was withdrawn around seven years ago. Investors are shifting from lump-sum investment to the systematic investment plan. The number of IFAs (independent financial advisors) selling mutual funds has come down significantly over the past year. This trend has hit inflows into ELSS in a big way. Lack of clarity on tax implications under the impending new DTC (Direct Tax Code) rules was the last straw on the camel’s back. ELSS Funds are on the death row. Their demise is slated for April 2012, when the Direct Tax Code comes into effect. This kept retail investors away from ELSS funds during the last fiscal, when inflows plunged 58%. Net inflows into equity-linked saving schemes, which provide tax benefits to investors, dropped to Rs. 606 crore last fiscal from 1,437 crore a year earlier. At the peak of the bull market in 2007, these funds raised assets worth 5,499 crore in the "tax-season months" between October 2007 and March 2008.

Promising performance

Over a 3 year time frame, most ELSS mutual funds have delivered competitive returns with Religare Tax Plan being the frontrunner (by delivering a return of 16.1% CAGR). Moreover, it has exposed its investors to fairly low risk (as revealed by its Standard Deviation of 7.72%), but has provided luring risk-adjusted returns (as revealed by the Sharpe Ratio of 0.15), thus making it a low risk-high return investment proposition in the category. Interestingly, the returns have been clocked by the fund without indulging in much portfolio churning (as revealed by its low portfolio churning of 0.66 times). Similarly, the other ELSS Funds such as Fidelity Tax Advantage Fund, Reliance Tax Saver Fund, Franklin India Taxshield Fund, HDFC TaxSaver Fund and DSPBR Tax Saver Fund too have delivered appealing returns over a 3-year time frame by managing their risk well (i.e. keeping it low) and thus providing luring risk-adjusted returns. As far as portfolio strategy is concerned, most ELSS funds hold a fairly diversified equity portfolio but predominantly of large caps. Moreover, most ELSS mutual funds generally follow a blend style of investing which enable them to follow both - growth as well as value investing. Speaking about the sectoral exposure, they generally occupy positions depending upon how the respective fund manager perceives each sector to be resilient and offers promising long-term growth prospects. However, as an approach to stock picking they follow the bottom-up approach, which help to identify promising investments.

Points to ponder
In the past, at present…

Invest in ELSS with a holistic perspective. First check your overall portfolio. Does it need more equity exposure? If yes, then you can go for ELSS; if no then you can go for PPF or NSC. Do not invest in ELSS except from tax saving point of view. Otherwise, it is better to invest in plain vanilla diversified equity funds. There are basically two reasons - liquidity and performance.

Spread your investment across 2 ELSS funds but not more. Choose growth over dividend and reinvestment option. Equity investments are for long term, say 5 years or more. Though the lock-in period in ELSS is 3 years, it is better to invest with a time horizon of 5 years or more.

You need to keep in mind that systematic investment plan is the best form of investing in mutual funds and ELSS is not an exception. So doing a SIP in ELSS is a good strategy to be followed.

You need to be careful in choosing the right ELSS scheme. Past performance, risk adjusted return, consistency over a minimum of three years are a few parameters to be evaluated in selecting a best performing ELSS scheme. Be wary of advertised returns.

…and in the future

Investments made before the date of commencement of DTC, in instruments which enjoy exempt-exempt-exempt (EEE) method of taxation under the current law, would continue to be eligible for EEE method of tax treatment for the full duration of the financial instrument. Individuals who want the tax benefit by investing in ELSS have only till March 31, 2012 to avail of it. Make hay while the sun shines. Which brings us to the next question, what will happen to ELSS Funds? Will all these tax saving schemes morph into plain vanilla equity diversified schemes? Once the tax saving benefit is pulled out, the lock-in period of 3 years makes absolutely no sense. We will have to wait and watch to see how funds deal with it.

Monday, October 31, 2011

October 2011

Retail investors are becoming more impatient in holding on to their equity fund investments if the recently released AMFI data is anything to go by. Retail investors held Rs. 96,855 crore in equity assets for more than 2 years as on September 2010 which has dropped to Rs. 78,572 crore in September 2011, a fall of 19%. As a percentage too, assets held for a period above two years now account for 62% as against 65% a year earlier. Consequently, retail equity holding in the period 6-12 months and 12-24 months as a percentage have seen an increase. The aggregate holding of retail equity assets has slipped to Rs. 1.27 lakh crore as on September 2011, down 15 % from Rs. 1.49 lakh crore compared to the corresponding period last year. Retail investors continue to hold the largest pie in equity assets at Rs. 1.27 lakh crore (65%) of the aggregate Rs. 1.96 lakh crore assets as on September 2011 followed by HNIs at Rs. 43,210 crore.

Rising inflation and consistent rate hikes have made debt funds popular among retail investors. Retail investor’s allocation in debt funds for a period ranging from 6 months to 12 months has jumped from Rs. 3,733 crore in September 2010 to Rs. 4,397 crore in September 2011. Similarly retail investors’ average age of holding in non-equity assets ranging from 1 month to 3 month and 6 months to 2 years has seen an increase in the last six months. However, there is a decline in the age of retail debt assets exceeding 2 years during the same period. HNIs are investing for a longer period in debt funds. HNI investment holding horizon between 6 months to 1 year has galloped 49% by Rs 10,821 crore from Rs. 22,209 crore (as on September 2010) to Rs. 33,030 crore in September 2011. On the other hand, there is a decline of Rs. 6,408 crore in equity assets held for more than 2 years by HNIs from Rs. 21,682 crore as on September 2011 to Rs. 15,274 crore during the corresponding period last year.

Piquante Parade

To gain popularity among investors and expand their reach, IFAs are joining hands with AMCs to hold investor education programs. This new trend is slowly picking up, as it is a win-win technique for both AMCs and IFAs. ICICI Prudential has been a pioneer in these tie-ups as they feel that IFAs need brand support for expanding their clientele. They usually hold 600 such seminars in a year where eminent speakers share important insights on mutual funds with investors. Reliance Mutual Fund believes in tying up with IFAs who share the same conviction for mutual funds. They have held 1750 such programs in various parts of the country. They feel that these seminars usually increase the penetration level for IFAs and also help investors to know more about their products. DSP BlackRock Mutual Fund arranges minimum six seminars in a month in association with IFAs. Fidelity Mutual Fund also arranges at least six investor education seminars along with IFAs. IDFC Mutual Fund does it a little differently. Any new IFA, who ties up with IDFC, is handed a movie called - ‘Bachat Nivesh Badhat’. This movie is based on a bollywood theme and showcases how investments lead to fulfillment of dreams. Therefore, rather than showing investors power point presentation they show their investors a bollywood masala short movie.

Mutual Fund houses have started disclosing geography and scheme wise break up of their assets to comply with SEBI’s recent diktat issued on August 22, 2011. SEBI had asked AMCs to bifurcate their AUM into debt/equity/balanced etc, and percentage of AUM by geography (i.e. top 5 cities, next 10 cities, next 20 cities, next 75 cities and others). Fund houses are required to put out this data on their websites. A few fund houses like Canara Robeco, DSP Black Rock, IDBI, HSBC, Franklin Templeton and Sundaram have disclosed their geography wise assets on their respective websites. In line with the popular belief, more than 50% of mutual fund industry’s AUM is concentrated in the top five cities while the next top 20 cities account for around 20% of the business. Fund houses will also start disclosing aggregate commission paid out to distributors at the end of this financial year.

Regulatory Rigmarole

SEBI released a concept paper on the proposed AIF norms, which would cover venture capital funds, private equity funds, debt funds, PMS, real estate funds and PIPE (private investment in public equity) funds, among others. It has proposed a minimum investment size of Rs 1 crore. The current norms allow a high net worth individual (HNI) to participate in a portfolio management scheme with as little as Rs 5 lakh. Mutual Funds would be the biggest beneficiary of the proposed norms, as a lot of HNIs with an investment corpus of less than Rs 1 crore would not be able to invest in PMS or other funds that come under the purview of AIF regulations.

Market regulator, Securities and Exchange Board of India, has proposed to regulate the activity of investment advisors in the country through a self-regulatory organisation (SRO). The proposed regulatory framework, which will cover independent financial advisors, banks, distributors, fund managers among others, will mandate the person who will interface with the customer to declare upfront whether he is a financial advisor or an agent of the AMC. The regulator said an advisor would be required to have a much higher level of qualification like CA or MBA and would receive all payments from the investor. However, agents who are associated with the AMC and receive their remuneration from them will be prevented from claiming they are financial advisors. Besides, they will also have to maintain records of all forms of communication made with investors for at least five years. Since investment advisors advice on a range of products such as mutual funds, insurance, bonds, fixed deposits, commodities and stocks, their activities come under multiple regulators including SEBI, RBI, IRDA and PFRDA.

About 39,000 of the 45,000 AMFI-registered fund distributors will not levy transactional charge on investors. Distributors, who have opted out of transactional charges, will continue charging advisory fees mutually agreed between fund sellers and investors. In July 2011, SEBI had imposed a transactional charge of Rs 100 on existing mutual fund investors and Rs 150 on first-time investors - an attempt by the regulator to incentivise distributors.

The mutual fund advisory committee has shot down the proposal to raise the capital base of asset management companies to Rs 50 crore from Rs 10 crore to ward off 'non-serious players' and to ensure higher safety for investors.

Fitch Ratings has changed its Indian mutual fund rating scales in line with the guidelines issued by the Securities and Exchange Board of India dated June 15, 2011. Prior to this change, Fitch had two different rating scales in keeping with its global practices. First, a money market fund (MMF) rating scale (with an ‘mmf’ suffix) - applicable to funds whose objectives are capital preservation and investor liquidity. Secondly, a bond fund rating scale, where credit and volatility ratings are assigned together to reflect credit and market risks. Fitch will therefore rate short-term funds whose market and liquidity risks are considered extremely low by the agency, notably Indian liquid funds, on the short-term scale. As such, the outstanding Indian MMF rating of ‘AAA (mmf)(ind)’, applicable to liquid funds, will be converted to ‘A1+mfs(ind)’ under the new scale. Short-term funds with marginally higher risk profiles - in terms of liquidity, maturity and credit quality - will be rated ‘A1mfs (ind)’. As such, the ratings of short-term funds will be capped at ‘A1mfs (ind)’ unless the asset management company manages liquidity and market risks at a level comparable to a liquid fund. Fitch will continue to rate long-term bond funds on the long-term scale.

With an aim to strengthen its market oversight and policymaking capabilities in the wake of fast-changing market dynamics, SEBI has begun the process of an overhaul of its own functions and organisational structure. The capital market watchdog is of the view that a turmoil in the global financial markets in recent years and emergence of a number of new market segments have brought to the fore newer challenges and the need for a stronger regulatory mechanism. To start with, the regulator has decided to strengthen its research and economic policy teams with the appointment of a Chief Economist. This would be followed by SEBI engaging an external consultant to recommend changes in its roles, functions, vision and organisational structure. Subsequently, SEBI aims to set up an International Advisory Board to guide it while framing policies to meet the challenges emerging from various global market developments. The Advisory Board could meet twice a year to assess the trends in global markets and to guide the activities towards meeting the emerging challenges. Besides, SEBI also plans to organise brainstorming sessions with international and domestic experts, including its own past chairmen. After the external advisor makes recommendations on changes in SEBI’s organisational structure, human resources, technology and its regulatory and oversight roles, those would be taken up with the central government agencies for further implementation. The areas where SEBI is looking up for major changes include use of latest available technologies, incentives to attract and retain talent and acquiring expertise for dealing with complexities associated with various market segments. SEBI last went through an organisational restructuring in 2003 and the market has gone through a sea change since then.

Monday, October 24, 2011

October 2011

Total Assets Under Management of the mutual fund industry that fell by 4% in August 2011, dipped by 8% (by Rs. 54801 crore) to Rs. 6.41 lakh crore in September 2011. The decline was attributed to huge outflows from liquid and income funds, as banks and corporates withdrew their mutual fund investments to meet their quarter end commitments. On the other side, the average assets under management fell by 4% to Rs. 7.12 lakh crore for the quarter ended September 2011 as compared with Rs. 7.43 crore for the quarter ended June 2011. Liquid and Income Funds witnessed net outflows to a tune of Rs. 41078 crore and Rs. 15263 crore respectively in September 2011. Except Gold Exchange Traded Fund (ETF), whose AUM surged by 7.9%, rest of the category faced decline in AUM in September 2011. The net outflow from the industry stood at Rs. 54173 crore in September 2011 as against Rs. 14597 crore net outflows during the month of August 2011. So far in 2011, equity-related schemes have seen net inflows of Rs 2,510 crore, against net outflows of Rs 15,361 crore last year. It was only in April 2011 that the industry witnessed a mass exodus of over 300,000 equity folios only to see the situation improve in the subsequent months. According to the Securities and Exchange Board of India, the overall folios as on September 30, 2011 stood at 4.71 crore, a fall of around 62,000.

HDFC Mutual Fund has dethroned Reliance Mutual Fund and emerged as the largest fund house in terms of assets under management. Statistics from the industry body, the Association of Mutual Funds in India, show the average assets under management of Reliance Mutual Fund plunged in the September quarter by 10.5% to Rs 90,661 crore from Rs 1,01,259 crore in the quarter ending June 2011. On the other hand, HDFC's assets declined marginally by 0.2% during the same period to Rs 91,827 crore from Rs 92,033 crore. During the quarter, the overall industry's assets slipped by 4.2%. The past year saw HDFC Mutual Fund lose 1.4% of its assets, while Reliance Mutual Fund lost a whopping 16% of assets. However, the latter maintained a wide gap from its immediate competitor. Still, in a single quarter the fund house had a massive erosion of assets to the tune of close to Rs 10,600 crore. This not only lost it the top position but also brought it below Rs 1 lakh crore in assets. It was in May 2009 that Reliance surpassed the Rs 1 lakh crore mark and maintained this level. Its assets had reached as high as Rs 1.22 lakh crore later that year. HDFC had briefly tasted the Rs 1 lakh crore mark in November 2009 and May 2010. It could not sustain this level.

Foreign fund houses seem to be gaining ground in the Indian mutual fund industry, which is dominated by local players. So far this year, foreign asset managers have registered a relatively high growth, owing to a low asset base, improvement in performance ratings and recognition of brands among investors. In the first half of the current financial year, assets of foreign fund managers grew by 4.56% to Rs 77,412 crore from Rs 74,037 crore. The same period saw the industry adding 1.74% more assets to Rs 7,12,742 crore, while domestic players — they control a lion’s share in the market —could grow their assets by a meagre 1.4%. Interestingly, the previous financial year saw the contribution of local fund managers in the overall fall of industry’s assets at a whopping 97% or Rs 45,724 crore. The industry had lost Rs 46,987 crore of assets in the year. So far, global players contributed around 28% in adding fresh assets during this fiscal. The rest came from local fund houses. In terms of ratings too, global players’ schemes have made their presence felt among the top performers.

Mutual Fund industry saw its net profits plunge by 50% in the financial year 2010-11 as industry expenditure surged 20% and equity inflow declined 41% even though the revenues declined by a mere 1%. Surprisingly, during the same period the Mutual Fund management fees (excluding PMS fees) saw a marginal decline of 3% against the same in the previous year. Industry expenditure rose sharply to Rs 3,405 crore in the fiscal year 2010-11, a jump of 20% from Rs 2,837 crore in the previous year. Business promotion /brokerage/fund expense and employee cost have surged 40% and 12% respectively from the previous year. In addition, equity inflow has seen a sharp dip (down 41%) during the same period. Overall, the industry has seen a net outflow of Rs 49,406 crore as compared to a net inflow of Rs 83,081 crore in the previous year. Meanwhile, during the fiscal year 2010-11, AMCs launched 23 equity funds accumulating Rs 3,299 crore (down 45%) as against the previous year where AMCs launched 19 equity funds and accumulated Rs 5,989 crore. For financial year 2010-11, Reliance MF's profit was the highest at Rs 261 crore, up around 34 per cent compared to Rs 195 crore in the previous year. During the year, the profitability of HDFC Mutual Fund grew 16.3% to Rs 242 crore, as against Rs 208 crore last year. There are 45 players in the industry, with an average AUM of Rs 7,12,742 crore as on September 30, 2011.

Piquant Parade

Reliance Capital Asset Management (RCAM) is looking for a foreign partner like Japanese Nippon Life Insurance to facilitate its mission of going global and is also in talks with overseas distributors for selling its products. RCAM is also looking at frontier markets (markets lower than emerging ones) like Sri Lanka and Bangladesh for its products and is waiting for regulatory approvals from Jakarta for its Indonesian Fund.

An agreement between AIG and Bridge Partners has resulted in PineBridge becoming the new sponsor of AIG Mutual Fund. Subsequently, the name of AIG Mutual Fund will be changed from “AIG Global Investment Group Mutual Fund” to “PineBridge Mutual Fund”.

Morgan Stanley Investment Management, one of the earliest foreign fund houses to set shop in India, has reworked its capital structure. The company, which launched its first fund 17 years ago, has bought back shares held by Alanoushka Finlease and Investments, the Indian arm of Morgan Stanley Mauritius company, making it a fully foreign-owned enterprise. Following the exercise, it asked the Association of Mutual Funds of India to reclassify it as a foreign fund house. In the early days, fund houses preferred the joint venture structure to take advantage of the minimum capital requirement norms. While foreign fund houses were required to bring higher capital, joint ventures with Indian companies reduced the capital requirements to a fraction.

Motilal Oswal Financial Services was looking to sell a little less than 26% stake in its asset management and investment banking businesses.

Parag Parikh Financial Advisory Services has proposed to channel assets from its portfolio management services (PMS) business to set up a mutual fund. The Securities and Exchange Board of India’s (S EBI) proposal to increase the minimum threshold from Rs5 lakh to Rs25 lakh added to a series of other existing operational issues, resulting in a decision to switch to a mutual fund structure to manage its clients’ money. They hope to be ready to start operations in 4-5 months pending final regulatory approvals.

Prashant Jain, chief investment officer & executive director of HDFC Mutual Fund, and Chaitanya Pande, head – fixed income, ICICI Prudential Asset Management Company, are the Business Standard Fund Managers of the Year. While Jain was the best fund manager in the equity category, Pande was the chosen one for debt, for their spectacular performance during the year ended March 31, 2011.

Union KBC Asset Management Company Pvt Ltd (Union KBC), a subsidiary of Union Bank of India, is to introduce mutual fund-related transactions through ATMs. Initially, the facility christened as ATMfunds@Union Bank will be available to all the customers of Union Bank, who have a debit card. Union Bank KBC has also introduced UB KBC Prabodh, a series of investor awareness programmes for mutual fund investors. Prabodh is a multi-layered initiative, not only focused on education, but also the practical goal of getting more informed clients to invest in mutual funds.

Tata Mutual Fund may go in for strategic tie-ups that will offer opportunity to qualified foreign investors (QFIs) to tap the Indian market. In order to promote the portfolio investment route, the Government last month allowed QFIs -- individual, group or association -- to invest up to USD 13 billion in equity and debt schemes of mutual funds in the infrastructure sector. Besides, with an aim to further liberalise the capital market, the Government is contemplating to allow foreign individuals to buy equities directly in stock markets.

The Association of Mutual Funds in India plans to launch a portal, MF Utility, by the first week of April 2012 that will facilitate transactions by customers, distributors, and financial advisors in schemes offered by various asset management companies on a single, unified platform.

In order to create awareness among investors, AMFI has been conducting various advertising campaigns across the country. Till August 2011, 3,486 investor awareness programmes covering 173 cities have been organised.

To be continued…

Monday, October 17, 2011

October 2011

Yearning for the yellow metal!

Record-level gold prices may have dampened the demand for jewellery, but it has hardly dented investors’ appetite for products based on the yellow metal. Gold schemes with the facility to make periodic purchases, floated by Reliance Mutual Fund, Kotak Mutual Fund and SBI Mutual Fund, have seen sizeable inflows, prompting other asset management companies to plan similar product launches. ICICI Prudential opened its gold fund-of-fund NFO for subscription last month. Birla Mutual Fund and Baroda Pioneer Mutual Fund have filed drafts with market regulator SEBI to launch such schemes and many others are expected to follow suit. Fund houses are looking to cash in on the frenzy for gold products among investors, who are fleeing stocks because of the uncertainty over the debt crisis in Europe and worries about a recession in the US. Little wonder that two of the four funds in the October 2011 NFONEST are gold funds.

Tata Retirement Fund
Opens: October 7, 2011
Closes: October 21, 2011

Tata Mutual Fund is launching India’s first ever retirement specific mutual fund scheme, a carefully structured suite of plans designed to meet the investment needs of investors in different age brackets. It offers three unique options to investors – Progressive Plan, Moderate Plan and Conservative Plan - with varied percentage of equity and debt assets. The progressive plan, for investors aged below 45, will have 85% to 100% allocation to equity; the balance, if any, will be invested in debt. Once the investor turns 45, the corpus will be switched to the moderate plan, where the equity allocation is lower between 65% and 85%. Finally, when the investor turns 60, the investments will be shifted to the conservative plan, which will have debt allocation between 70% and 100%, with a small part of 0% to 30% going to equity. Tata Retirement Savings Fund is specifically designed keeping in mind the young and middle aged working generation. The fund is tailor-made to support the monetary needs of investors post their retirement so that they can meet the 30:30 challenge. With increasing life expectancy, one can assume a post retirement life of 30 years after 30 earning years. The challenge clearly is the ability to maintain the same life style post retirement. Tata Retirement Savings Fund comes with a unique “Auto-Switch” feature, which does away the hassles of adjusting the equity-debt proportion with increasing age. Normally, an investor depends on his advisor for switching assets between equity and debt with increasing age. Yet another unique feature of the fund is the “Auto-Systematic Withdrawal” facility. This is designed with the objective of providing the investors with regular cash flows after they turn 60. The “Auto-Systematic Withdrawal” facility comes with two options of Monthly - 1% of market value of investment as on date of completion of 60 years of age or Quarterly - 3% of market value of investment as on date of completion of 60 years of age. The performance of Progressive Plan of the scheme will be benchmarked against BSE SENSEX while Moderate Plan and Conservative Plan of the scheme will be benchmarked against CRISIL Balanced Fund Index and CRSIL MIP Blended Index respectively. The fund will be jointly managed by Mr.Bhupinder Sethi, Mr. Murthy Nagarajan and Dinesh Da Costa (for overseas portfolio).

HDFC Gold Fund
Opens: October 7, 2011
Closes: October 21, 2011

HDFC Gold Fund, an open ended Fund-of-Funds scheme, will enable investors to invest systematically in gold, hedge their risks against market volatility and to effectively diversify their portfolio. Gold FoFs enable the investors to invest through a single investment or through Systematic Investment Plan (SIP). The minimum denomination of investment is Rs 100. The corpus collected through the NFO will be invested in HDFC Gold ETF to seek capital appreciation. As at the end of the September quarter, HDFC Mutual Fund managed average assets worth Rs 91,827.11 crore.

Pramerica Credit Opportunities Fund
Opens: October 7, 2011
Closes: October 21, 2011

Pramerica Mutual Fund has launched Pramerica Credit Opportunities Fund, an open-ended debt scheme. The objective of the scheme is to generate income by investing in debt /and money market securities across the credit spectrum. The scheme will also seek to maintain reasonable liquidity within the fund. The scheme will invest 100% of assets in debt securities and money market instruments with low to medium risk profile. The Benchmark Index for the scheme will be CRISIL Composite Bond Fund Index. The fund manager of the scheme will be Mr. Mahendra Jajoo.

Opens: October 19, 2011
Closes: November 2, 2011

IDBI Mutual Fund has launched IDBI Gold Exchange Traded Fund, an open ended Gold Exchange Traded Scheme. The investment objective of the scheme is to invest in physical Gold and Gold related instruments with the objective to replicate the performance of Gold in domestic prices. The ETF will adopt a passive investment strategy and will seek to achieve the investment objective by minimizing the tracking error between the fund and the underlying asset. The scheme will invest 95% to 100% of assets in gold and gold related instruments and up to 5% of assets in debt and money market instruments with low to medium risk profile. The Benchmark Index will be domestic price of physical Gold. The scheme will be managed by Mr. Gautam Kaul.

Daiwa Dynamic Bond Fund and Daiwa Gilt Fund are expected to be launched in the coming months.