Monday, April 25, 2011

April 2011

Total assets under management (AUM) of 41 mutual fund houses in India rose to Rs 7,00,538 crore at the end of March 2011, according to AMFI data. The AUM of the largest mutual fund in India, Reliance Mutual Fund witnessed a fall of Rs 490 crore to Rs 1,01,576.60 crore. HDFC Mutual Fund's average assets shrunk by Rs 1,600 crore or 1.81% to Rs 86,282.24. ICICI Prudential Mutual Fund and UTI Mutual Fund bucked the broader industry trend and registered an increase in their AUM. While ICICI Prudential's average asset base rose by Rs 7,625.23 crore or 11.58% to Rs 73,466.10 crore, UTI Mutual Fund saw an increase of Rs 1,801.58 crore or 2.76% to Rs 67,188.82 crore in March 2011. The top five fund houses own assets worth nearly Rs 4 lakh crore, which is about 55% of the average AUM of all the fund houses. The total AUM of the remaining 36 fund houses currently stands at about Rs 3.09 lakh crore. The mutual fund industry, which is facing withdrawal pressure, saw their asset base dwindle over the last year. The average AUMs of the industry declined by over 6% in March 2011, from Rs 7.47 lakh crore in March 2010.

Advance tax payments, coupled with high dividend payouts, led to the mutual fund industry losing 16% of its average assets under management (AUM) in March 2011. The fall in AUM from February 2011 to March 2011 was Rs 1.15 lakh crore. March 2011 saw net outflows of Rs 1.2 lakh crore, of which the liquid and income schemes accounted for the most outgo at Rs 98,255 crore and Rs 30,612 crore respectively. At the end of every quarter, the industry sees large withdrawal of money, particularly from income and liquid funds. The outflow was mainly on account of dividends paid on various schemes. As many as 45 funds paid dividends in March 2011. However, the Sensex and Nifty have performed well during this period increasing by 5% each.

The number of fund houses are increasing each year in the fast growing Indian economy but when it comes to the size, the top five players control over half of the country`s mutual fund business. An analysis of average assets under management (AUM) by over 40 fund houses shows that the top five layers-- Reliance Mutual Fund, HDFC Mutual Fund, ICICI Mutual Fund, UTI Mutual Fund and Birla Sun Life -- together control more than half of the total assets managed by the mutual fund industry in India.

Piquant Parade

LIC Mutual Fund has now been rechristened as LIC Nomura Mutual Fund, following Nomura's acquisition of 35% stake in the domestic major. Nomura has acquired 35% of the fully paid-up equity share capital of both LIC Mutual Fund AMC and the Trustee Company - LIC Mutual Fund Trustee Company Private Ltd. Both the product range and service delivery will be strengthened through this partnership. The primary objective underlying the joint venture between Nomura and LIC Mutual Fund is to leverage the respective business skills, know-how, experience, and expertise of both parties to maximize the potential of LIC Nomura Mutual Fund AMC.

Goldman Sachs Asset Management has agreed to acquire Benchmark Asset Management Company. The transaction is expected to close later in 2011, subject to regulatory approvals. The terms of the transaction were not disclosed. Benchmark Asset Management Company was founded in 2001 and has so far launched the maximum number of ETFs in India. It has approximately Rs 3000 crores of assets under management. Goldman Sachs Asset Management already has an experienced team of eight based in Mumbai. The team currently provides research for off-shore funds including Indian equities and BRIC equities. In addition, Goldman Sachs Asset Management intends to bring actively managed on-shore funds to India.

Regulatory Rigmarole

The mutual fund industry has reason to hope for some relief soon from the various strict guidelines of the Securities and Exchange Board of India (SEBI). U K Sinha, the new SEBI chairman, had in an interaction with its Mutual Fund division, made his view clear on the need for some moves to spur overall development for the sector.

Industry players, interestingly, feel the regulator should reward performance. They feel if the fund management fee could be linked to performance of the fund, then it would make managers work harder. Internationally, it is an established practice but in India, the industry cannot charge such fees from investors. Fund houses have internally thought about this but the regulator has some issues with it. If the regulator comes up with this kind of change, it would help the industry grow and will also be good for the investors.

The Association of Mutual Funds in India (AMFI) has conveyed to the Securities and Exchange Board of India (SEBI) that fund houses are not well equipped to do due diligence of institutional distributors and the regulator is in a better position to carry out the exercise.

SEBI may soon frame a stringent set of rules for funds investing in art works, antiques, coins and stamps, with an aim to check black money flow into these products and safeguard the interest of genuine investors. SEBI considers investment funds focused on art works, antiques, coins and stamps as “Collective Investment Schemes”, which come under the ambit of the capital market regulator. Fearing flow of illicit wealth into these funds and also a high level of risk posed by them to the general investors, SEBI is now considering framing a specific set of regulations for these funds. As per the existing regulations, only an entity registered with SEBI as a Collective Investment Management Company is allowed to offer any collective investment fund or scheme, including those focused on art works.

In its new set of rules for an estimated $1 trillion wealth management industry, SEBI is planning to set up an intermediary regulatory body with representation from among the wealth managers themselves. In the proposed self-regulatory model, the market watchdog will put the onus entirely on wealth managers for compliance to the regulations and the new entity to be created under SEBI’s guidance would work as the first stage regulator as also market development authority. The decision to set up a self-regulatory organisation (SRO) for wealth managers has been taken with a twin objective of regulating them without hampering the growth prospects of this burgeoning segment of financial services sector. The SRO model, where the wealth managers or investment advisors would be asked to develop a stringent code of conduct in consultation with SEBI, would be complemented with stern penalty measures for erring entities. SEBI would provide an initial funding of Rs 10 crore for setting up of this SRO for wealth managers, after which the industry would have to pool in their own resources. The proposed move is in line with similar measures earlier taken for mutual funds and merchant bankers, whose industry bodies AMFI (Association of Mutual Funds in India) and AMBI (Association of Merchant Bankers in India) serve as first stage regulators. The new body would also serve as a medium for SEBI to implement its various initiatives for the wealth managers.

To resolve investors' grievances and spread financial literacy, market regulator SEBI will set up a toll free helpline to respond to queries of investors and help track the status of their complaints. The investors, according to a strategic action plan approved by the SEBI board earlier, will be able to communicate in their own languages. The investor awareness and education plan also includes a web-based centralised investor grievances tracking system to help investors track their complaints. Besides, SEBI will launch a media campaign to demystify the securities market for investors, through films, and advertisements in newspapers, radio and television in various languages. It will also conduct workshops for pan-India target groups through its empanelled Resource Persons to spread financial awareness and literacy. Besides, the market watchdog will offer financial education programmes to school children, and launch an investor awareness campaign for mutual fund investors directly and jointly through Association of Mutual Funds in India (AMFI). SEBI also plans to organise an international seminar along with the Organization for Economic Cooperation and Development (OECD) on investor education.

Monday, April 18, 2011


April 2011

Whither NFO Culture?

Several open-ended equity schemes have failed to attract any meaningful investment, but are still alive. The list is long and almost all fund houses are still selling such schemes, which were launched long ago, but failed to mop up enough money from investors. Many of the small schemes are a product of the NFO culture prevalent till recently. Fund houses exploited the high entry loads and upfront charges by rolling out schemes till SEBI broke up the party. The regulator has stopped clearing NFOs unless it is convinced that a new scheme will have an investment objective different from the available schemes and capable of fetching sufficient returns for investors. Following the tightening of norms, the net inflow in NFOs has come down to Rs 5,000-crore as against Rs 25,000-30,000 crore in earlier years.

Four funds from diverse categories make their appearance in the April 2011 NFO NEST.

Axis Dynamic Bond Fund

Opens: April 6, 2011 Closes: April 20, 2011

Axis Mutual Fund has launched Axis Dynamic Bond Fund, an open-ended debt fund. The fund will endeavour to generate optimal returns while maintaining liquidity through active management of a portfolio of debt and money market instruments. The fund will allocate upto 100% of assets in debt instruments including Government Securities and corporate debt with low to medium risk profile. On the other side, it would allocate upto 100% of assets in money market instruments with low risk profile. Debt instruments include securitized debt upto 30% of the net assets of the scheme. Investments in derivatives shall be up to 75% of the net assets of the scheme. The benchmark index for the fund is CRISIL Composite Bond Fund Index. The fund will be managed by Mr. R. Sivakumar and Mr. Ninad Deshpande.


Opens: April 14, 2011 Closes: April 27, 2011

ICICI Prudential Mutual Fund has launched ICICI Prudential MIP 5, an open-ended income fund. The primary investment objective of the fund is to generate regular income through investments in fixed income securities so as to make regular dividend distribution to unit holders seeking the Dividend Option. The secondary objective of the fund is to generate long-term capital appreciation by investing a portion of the fund's assets in equity and equity related instruments. The fund will allocate 90% to 100% of assets in debt securities, money market instruments and upto 10% of assets in equities & equity related securities with medium to high risk profile. The fund offers Cumulative and Dividend Options. Cumulative Option shall also have the facility of Automatic Encashment Plan. Dividend option shall have dividend payout and dividend reinvestment facility with dividend reinvestment as default facility. Dividend option will have Monthly, Quarterly and Half Yearly dividend frequencies. The minimum investment amount is Rs 5000 and in multiples of Rs 1 under Cumulative and Dividend option. Whereas under, Automatic Encashment Plan it is Rs 25000 and in multiples of Rs 1. The fund’s performance will be benchmarked against Crisil MIP Blended Index. The fund will be managed by Mr. Chaitanya Pande (Debt) and Mr. Mrinal Singh (Equity).

HSBC Brazil Fund

Opens: April 15, 2011 Closes: April 29, 2011

HSBC Mutual Fund has launched the HSBC Brazil Fund (HBF), an open-ended Fund-of-Funds Scheme that seeks to provide long-term capital growth by investing in Brazil - an emerging market economy through HGIF Brazil Equity Fund. The Brazilian economy has a pronounced investment in commodities. The fund may, at the discretion of the Investment Manager, also invest in the units of other similar overseas mutual fund schemes, which may constitute a significant part of its corpus. The fund may also invest a certain proportion of its corpus in money market instruments and / or units of liquid mutual fund schemes, in order to meet liquidity requirements from time to time. The fund will invest up to 95%-100% units/shares of HGIF Brazil Equity Fund with medium to high risk profile and invest upto 5% in Money Market instruments (including CBLO & reverse repo) and/or units of liquid mutual fund schemes with low to medium risk profile. HBF will not invest in the underlying scheme(s), which invest more than 10% of their net assets in unlisted equity shares or equity related instruments. Benchmark Index for the scheme is MSCI Brazil 10/40 Index. Gaurav Mehrotra and Niren Parekh will be the fund managers for foreign securities and Sanjay Shah will be the fund manager for investments in Indian market.

Birla Sunlife Gold ETF

Opens: April 25, 2011 Closes: May 9, 2011

Birla Sun Life Mutual Fund has launched Birla Sun Life Gold ETF, an open-ended gold exchange traded fund. The investment objective is to generate returns that are in line with the performance of gold, subject to tracking error. Birla Sun Life Gold ETF is a passively managed fund tracking the price of Gold and reflects the performance of the Gold price. The fund would invest in physical gold of prescribed quantity and quality (fineness) and endeavour to track the spot price of gold. The fund invests in gold regardless of investment merit. The fund would invest upto 100% in Physical Gold and/or upto 5% in debt and money market instruments to meet the liquidity requirements, subject to tracking error. The fund may buy or sell gold at different points of time during the trading session at the then prevailing prices which may or may not correspond to its closing price, due to disinvestments to meet redemptions, transactions cost and recurring expenses, execution of large buy/sell orders etc. The benchmark is the domestic price of physical gold. The fund manager of the fund will be Mr. Satyabrata Mohanty.

Tata Retirement Fund, Edelweiss Midcap Fund, Axis Gold Fund, Fidelity Income Saver Fund, L & T Short-term Debt Fund, Tata SIP Fund, FT India Feeder – Franklin US Opportunities Fund, FT India Feeder – Templeton Asian Growth Fund, Peerless Equity Fund, Axis Hybrid Fund, Pramerica High Yield Fund, and ICICI Prudential Pharma and Life Sciences Fund are expected to be launched in the coming months.

Monday, April 11, 2011


April 2011

An Additional Avenue

For the average Indian investor, international avenues are still a relatively unexplored territory. However, the easing of overseas investment norms for mutual funds has made it possible for you to participate in international markets and add a foreign flavour to your portfolio. A variety of globally focused funds are available, which not only invest in equities but also participate in other asset classes like gold, real estate, and commodities. Besides this, there are global funds concentrating on certain key markets like China, Latin America, and other emerging markets. Many of the funds use the 'fund of funds' route for investing abroad, by investing in a global fund of the parent fund house abroad. Some even invest directly in international stocks. Presently, there are around 28 funds that invest in global markets.

The glittering GEMs from among these global funds that are worthy of adorning your portfolio have been handpicked and presented in the April 2011 GEMGAZE.

Principal Global opportunities Fund Gem

The first global fund to be launched in India in March 2004, Principal Global Opportunities Fund, has an AUM of Rs 49.19 crore at present. This feeder fund, which invests almost the entire corpus in Principal Global Investors – Emerging Market Equity, earned a one-year return of 16.23%, almost on par with the category average of 16.81%. The expense ratio is 0.42% and the portfolio turnover ratio is 10%.

Templeton India Equity Income Fund Gem

Next in line and the largest global fund with an AUM of Rs 1135.07 crore is Templeton India Equity Income Fund, launched in April 2006. 98.19% of the fund is in equity with a mere 28% in foreign equity. Large caps constitute 49% of the portfolio. 53% of the assets are in the top three sectors – finance, metals, and energy. The one-year return of 13.44% surpasses the category average of 8.59% by a huge margin. While the expense ratio is quite high at 2.02%, the portfolio turnover ratio is only 2.81%.

Fidelity International Opportunities Fund Gem

Launched in April 2007, Fidelity International Opportunities Fund sports an AUM of Rs 421.51 crore. With 99.26% in equity, foreign equity is a paltry 16%. 62% of the assets are in large cap stocks. The top three sectors - finance, metals, and energy - constitute 58.17% of the portfolio. The one-year return of 13.7% is well above the category average of 8.6%. The expense ratio at 2.22% and the portfolio turnover ratio of 50% are on the higher side.

DWS Global Thematic Offshore Fund

DWS Global Thematic Offshore Fund, launched in August 2007, has an AUM of Rs 31.65 crore. It is a feeder fund investing the entire corpus in DWS Invest Global Thematic Fund. The one-year return has been lacklustre at 10.19% as against the category average of 16.72%. The expense ratio has risen to 1.6%.

Sundaram Global Advantage Fund Gem

Launched in July 2007, Sundaram Global Advantage Fund has an AUM of Rs. 70.58 crore. 93.36% of the portfolio is in foreign equity and the rest in cash. The one-year return at 14.32% is a tad less than the category average of 16.72%. The expense ratio at 0.75% is reasonable.

ICICI Prudential Indo Asia Equity Fund Gem

ICICI Prudential Indo Asia Equity Fund, with an AUM of Rs 239.66 crore, was launched in September 2007. The fund invests 93.53% of the corpus in equity out of which 32% is in IOF Asian Equity Fund. 89% of the assets are in large caps. 65.95% of the portfolio is in the top three sectors – finance, energy, and technology. The fund has posted an impressive 11.69% in the past one-year as against the category average of 8.2%. The expense ratio of 2.36% and the portfolio turnover ratio of 92% are on the higher side.

Mirae Asset Global Commodity Stocks Fund Gem

The latest entrant of the lot, Mirae Asset Global Commodity Stocks Fund, was launched in July 2008. The AUM at present is Rs 43.14 crore. Of the 96.71% of the corpus in equity, 70% is in foreign equity. Large cap stocks constitute 89% of the portfolio. 65.14% of the portfolio is in the top three sectors – energy, metals and construction. The fund has posted a not so impressive 11.71% in the past one-year as against the category average of 16.72%. The expense ratio of 2.5% and the portfolio turnover ratio of 50% are on the higher side.

Monday, April 04, 2011


April 2011

On the platter…

Global funds are schemes that invest at least 65% of their corpus in foreign stocks or overseas mutual funds. A total of 26 global funds have been launched since foreign investment norms were eased in 2007. On offer are three types of funds: those that allow direct investing into global markets; funds that use the feeder route to invest in an existing global fund; and lastly, fund of funds that invest in several funds to achieve international exposure. Moreover, variety in international funds also comes from the fact that some of them invest in a particular region (say, China or South America). There are others that are commodity plays. They could be investing in gold mining companies or in agri-based companies, and so on. So, this is obviously a category for the sophisticated investor who knows exactly what kind of exposure he wants. Many of these funds come with adequate track records that will give you a sense of how they have performed in the past.

Why go global?

Diversification may be an oft-heard, hackneyed chant, but it can work wonders for returns from your stock investments. Global funds invest in various markets, allowing you to diversify and gain from the rise in other emerging and developed markets. In the past one year, the Sensex has risen by less than 7%, and the domestic diversified equity funds have earned an average return of just over 2%. On the other hand, investors in global funds, which diversify their investments in overseas markets, have earned close to 19% average returns during the same period. While most developed markets have been on a roll in the past year, the correction in the Indian markets has pulled down the returns of domestic-oriented schemes. Developed countries are following a different economic cycle. While the recovery in India is peaking, the developed world has just entered the recovery phase. The foreign investors, who had flocked to India and other emerging economies in 2010, have started packing up. Moreover, most global funds have performed better than the domestic funds mainly due to the rally in global commodity prices. The rally in gold prices has made AIG World Gold Fund the best performer in the past one year with 35.7% returns.. Another advantage of going global is that you get to buy a wider range of assets through your fund portfolio. For instance, silver ETFs and real estate investment trusts are common in developed markets. Global funds give you access to asset classes that are not even available in India. Moreover, you can invest in overseas markets without the paraphernalia of paperwork that is part and parcel of foreign investment.

A word of caution

Before you invest in global funds, keep in mind that the risks involved in overseas investments are far more complex than those in domestic markets. These include the country-specific risk, policy risk, as well as the exchange rate/currency risk. Some experts also believe that global funds do not truly diversify your portfolio. These are niche funds and, hence, the edge of true geographical diversification is missing. Besides, to exploit the diversification benefit, the choice of funds makes a bigger difference. The global funds that are highly focused on emerging economies tend to mitigate the diversification edge as they usually have a high correlation with India. The key is to evaluate the pros and cons to see if this investment avenue fits your needs.

Investing in international funds is for mature investors looking to diversify away risks. Once you have some idea of the risks and benefits of global investing, make an informed choice about whether you should enter this investment arena. You could make a cautious start by investing in a sector or theme that you understand and can track. Only then increase your exposure to global markets through global mutual funds.


In 2007, as many as eight funds were launched that planned to invest overseas. All of them have performed very badly since inception. On an average, they have given returns as low as 0.1%. Only three to four funds among the lot have been able to give double-digit returns. Funds such as Birla Sun Life Commodity Equities Fund-GPM, Birla Sun Life Commodity Equities Fund- GA, Birla Sun Life Commodity Equities Fund-GMC, and Mirae Asset Global Commodity Stocks, have given double-digit returns of 16.2%, 26.4%, 18.1%, and 11.6 % respectively. All the others have given either a single digit return or negative returns, worse than a decent bank deposit. Global markets have been beset with many problems in the past three years -a financial meltdown in the US, debt troubles of European countries, Icelandic volcanoes, the fall and rise of commodity prices, etc. Concerns over Greece's debt overshadowed the tottering finances of Portugal, Spain, and Italy. Global funds have not been able to ride this volatility.

A fledgling at four (years)

Investing in global funds is relatively new to Indian investors. Most of the Indian investors have a concentrated India portfolio largely due to the fact that mutual fund / investment offerings in the country have been centered on the domestic market. Now that more international funds have come in through the feeder funds route, entering these funds will not only help in geographical diversification, but also reduce the overall portfolio risk. If you are a new investor, global funds are not for you. If you already have a sizeable sum invested in domestic funds, go in for global funds. But global equities should not take up more than 10-15% of your incremental investment in equities.