FUND FULCRUM (contd.)

 

December 2012

 

The year gone by must have been one of the worst for the Indian mutual fund industry. Whether it was rampant closure of equity folios (primarily retail), poor sales, action-packed regulatory environment, or in several cases shutting down of branches across the country - all had a telling impact on the struggling industry. However, industry officials are optimistic and expect the coming years to be less tough as they foresee improvement in the macro economic scenario and stability in the regulatory framework. Despite an unexpected rally of over 20% (the initial part of which was completely missed by fund managers) in the country's stock markets, participation from domestic investors remained abysmal till date. At every rise, the fund industry faced redemption pressure as the retail segment was quick to book profits and exit the mutual fund space. Amidst an uncertain environment with highly volatile equity markets, the sector witnessed closure of a massive 39 lakh equity folios during the January-November 2012 period - never before seen in the history of the industry. The last month of the year may not be any different. Poor sales and wafer-thin margins amidst tight regulatory framework burdened fund houses further. Expectations of rate cuts, continuation of easy global liquidity, bottoming out of economic data, more action from the government, and return of domestic investors into equity markets should propel equities to a new high next year.

 

Regulatory Rigmarole

 

Securities and Exchange Board of India (SEBI) has brought mis-selling of mutual fund schemes under its norms on prohibition of fraudulent and unfair trade practices. SEBI has inserted an additional clause whereby mis-selling of mutual fund schemes would be deemed to be a fraudulent trade practice. “Mis-selling” would refer to sale of units of a mutual fund scheme by any person, directly or indirectly by making a false or misleading statement or concealing material facts and associated risks or not taking reasonable care to ensure suitability of the scheme to the buyer. Distributors would now need to document each and every sale by risk-profiling clients. They may have to take the signature of their clients before executing a transaction in order to protect themselves. It appears that with SEBI now terming mis-selling as ‘fraud’, the penalty for distributors is likely to get harsher. If a distributor sells ETF or sector fund to a retired person it could be an act of mis-selling as per the client’s risk-profile. If investor insists that he/she wants to invest in a sector fund, then distributor could take a signature of the client to document the sale. In this regard, the market watchdog has brought in amendments to SEBI’s Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations. They would come into force on the date of their publication in the Official Gazette.

Mutual fund investors who have done their KYC before January 01, 2012 are required to provide certain additional mandatory information to invest in new mutual funds from November 30, 2012. The additional mandatory information includes father’s/spouse name, marital status, nationality, gross annual income or net worth and in-person verification (IPV) if they wish to invest in a new mutual fund (new AMC). Existing investors in a fund who are KYC compliant can continue to invest if their KYC status is verified by CVL KYC Registration Agency (KRA). All investors investing after November 30, 2012 with a new fund house need to comply with this rule. Only after complying with the new KYC norms, investors would be able to open a new account/folio with any other new mutual fund. Non-individual investors need to do their full KYC again. The KYC requirements for non-individual investors are stringent as compared to individual investors. For instance, corporates need to provide a copy of the balance sheets for the last two financial years, copy of latest share holding pattern, copies of the memorandum and articles of association and certificate of incorporation, among other things.

Distributors are not supposed to approach individual AMCs, RTAs for any modification in their employee unique identity number (EUIN) data from January 2012. AMFI-unit of CAMS will create a centralized comprehensive database of distributors that will comprise the list of employee unique identity number (EUIN) submitted by various distributors. SEBI, in its circular in September 2012 had directed mutual fund houses to capture the unique identity number (EUIN) of the employee/relationship manager/sales person of the distributor who are interacting with investors for selling mutual fund products. The AMFI-unit of CAMS will be sharing the list of EUIN with all RTAs. It will also update all RTAs on new EUIN generated and deletions/modifications of existing EUIN. It will also frame and implement procedure and business rules for EUIN. AMCs will not accept any modification related to corporate ARN, name of the corporate, employee name, EUIN, from any distributor from January 2013. Distributors have to approach the AMFI-unit of CAMS for any changes. AMCs shall highlight in the Key Information Memorandum the importance of providing EUIN, particularly in advisory transactions, and state that EUIN will help the fund houses to curb mis-selling even if the employee/ relationship manager/sales person/ distributor quits the company. The fund houses are also supposed to tally EUIN records with transactions and identify inconsistencies, if any, between the numbers of transactions by EUINs vis-à-vis total number of EUIN registered by the ARN holder or the total sales staff of the ARN holder. AMCS have been advised to put in place necessary systems and processes in order to implement the above system by January 15, 2013.

Canadian Securities Administrators, the securities market regulator of Canada, has barred Indian asset management companies from selling investment products to local investors, dealing a blow to these fund houses, which raise a sizeable amount from that country. The Canadian regulator has mandated a registration process for investment managers, which also includes AMCs managing monies of local residents outside Canada, to protect the investments of local residents. Non-resident investment fund managers that manage one or more investment funds that have distributed securities to residents of a local jurisdiction will have to register as an investment fund manager in that local jurisdiction unless an exemption from registration is available. By local jurisdiction, the regulator refers to the Canadian provinces of Ontario, Quebec and Newfoundland and Labrador. The ruling will have a significant impact on Indian fund houses, which raise a significant amount of investments from Indians settled in that country. Domestic fund house Franklin Templeton Investments has already said it will not sell its India-domiciled funds in Canada. Other Indian asset managers such as UTI, Birla Sun Life Mutual, Kotak Asset Management, Reliance Mutual Fund, ICICI Prudential Mutual Fund, and Religare Mutual Fund, among others, may follow suit.

The Securities and Exchange Board of India has set up a committee headed by Cabinet Secretary K.M. Chandrasekhar which will look into a single route for all different categories of FIIs.

A total of 48 warning letters have been issued to mutual funds regarding violations of norms in the past three fiscal years. Of these, 30 letters were issued in 2010-11, 14 in 2011-12 and four letters were issued in 2012-13 up to November 2012. In addition, Sebi has issued 26 deficiency letters in 2010-11 and 6 such letters in 2011-12. For the year 2012-13 (up to November, 2012), no deficiency letters have been issued by Sebi. 5 entities have been prohibited from buying, selling or dealing in securities directly or indirectly, till further orders and required to deposit the illegitimate gain identified in the investigations in an escrow account till further orders, in the last two years. During the same time a consent order has been issued in 5 cases. In 7 cases, related to 2011-12 adjudication proceedings are underway. SEBI takes administrative action by way of issuing warning and deficiency letters against mutual funds found to have committed irregularities. Enforcement actions such as direction, adjudication, enquiry, etc. can be initiated under SEBI's norms, depending upon the severity of the violation observed.

Three years after the then SEBI chief CB Bhave shook up Indian fund houses, the mutual fund industry is now in the cusp of another big change. Come January 2013, several bank and corporate treasuries that comprise the largest investor group in mutual funds will sidestep intermediaries and invest directly to earn higher returns. A fortnight ago, many such big ticket investors who regularly park surplus funds in liquid mutual fund schemes, have communicated their decision to leading distributors. These investors will subscribe to 'direct plans' which will be cheaper by 50-75 basis points as customers have the flexibility to invest directly without incurring any incidental costs. According to a SEBI decision taken earlier in 2012, every fund and scheme must have a direct plan for investors who do not want distributor support and the net asset values of such plans will be given separately.

The Indian mutual fund industry has come a long way from the launch of India’s first mutual fund – Unit Trust of India. However, there is a huge gap between India and global peers in terms of penetration as well as AUM, according to CRISIL Research. The domestic mutual fund industry’s AUM is less than 5% of the country’s GDP, whereas it is 77% for the US. Among developing economies, certain markets such as Brazil, where assets managed by the mutual fund industry are 41% of its GDP, highlight the gap that needs to be bridged. Global mutual fund assets stood at USD 25 trillion as of June 2012. Of these assets, the Americas comprised 57%, Europe 30%, Asia-Pacific 12% and Africa less than 1%. Equity funds constitute 40% of global mutual fund assets, bond funds 25%, money market funds 19%, hybrid funds 11% and others less than 5% of total assets. This is in sharp contrast to the distribution of assets in the Indian mutual fund industry where bond and money market funds together constitute close to 65% of the AUM. After two consecutive years of plunge, the Indian mutual fund industry managed to register a smart turnover in 2012, with its assets base seen nearing Rs 8 lakh crore with an increase of about Rs 2 lakh crore this year. As some wide-ranging reforms initiated by the market regulator SEBI and the government are yet to translate into true business gains for the investors and fund houses, the industry is hopeful of even better days ahead in 2013.

FUND FULCRUM

December 2012

According to rating agency CRISIL, the mutual fund industry's assets under management during November 2012 grew by 3.25% to touch Rs 7.93 lakh crore, the highest month-end assets for the industry since April 2010, mainly due to inflow of funds into money market. Money market saw net inflows worth Rs 11,400 crore, garnering over 91% of the total inflows (of Rs 12,600 crore) seen by the industry in the month. The inflows were, however, lower compared to Rs 18,200 crore in the previous month. Inflows in the category are part of the cyclical money flow in the category as corporates invest their short-term investments in this category during the quarter before withdrawing a major chunk at the end of the quarter to meet their advance tax requirements.

Continuing redemptions and a drop in sales led to a net outflow of Rs 1,525 crore during November 2012. From June 2012 to November 2012, there has been an outflow of over Rs 10,000 crore from equity mutual funds. Though the quantum of redemptions was much lower than that of the previous three months, the new inflows through sales could not balance the outflows. The total equity assets under management, in November 2012, increased by 3.5% to Rs1.90 lakh crore, whereas, the Sensex moved up by 4.5% over the same period. For the calendar year, equity schemes witnessed just two months of positive net inflows. There have been just seven new fund offers (NFOs) launched during the last 11 months. The latest NFO—Goldman Sachs India Equity Fund—was able to amass just Rs 67 crore in the last month. Sales for the past month declined by 12% year-on-year to Rs 2,777 crore from Rs 3,173 crore in November 2011. This is the fourth month in a row where sales have declined continuously month-on-month. Except, for a peak in sales in February and March 2012 (above Rs 3,500 crore), sales for other months varied between Rs 2,900 crore to Rs 3,350 crore.

Investors pulled out Rs 10,784 crore from equity funds from April to November 2012 to cash in on the rally in Indian equities, resulting in a drop of more than 30 lakh folios, which is the highest fall so far. Equity folios account for 79% of the mutual fund industry’s total investor folios of 4.40 crore. Investors pumped in Rs 25,241 crore in equity funds, which is the gross mobilization, and redeemed Rs 36,025 crore which resulted in a net outflow of Rs 10,784 crore. Since April 2012, the industry has seen net inflow in only one month, May 2012 when Rs 506 crore came in. Balanced funds also saw net outflows of Rs 336 crore with more than one lakh folio closures. Fund of funds which invest overseas also saw net outflows to the tune of Rs 315 crore. These funds have been seeing continuous outflows since June 2012. Industry’s assets under management went up to Rs 7.87 lakh crore from Rs 6.60 lakh crore, up 19 % during the same period. Overall, the industry recorded a net inflow of Rs 1.61 lakh crore from April to November 2012, largely on account of inflows in debt funds. As equity markets remained volatile, fund industry has largely been promoting fixed income funds, particularly FMPs and bond funds. Debt funds saw net inflows of Rs 1.71 lakh crore with close to seven lakh accounts being opened in this category. The total count of industry’s folio dropped 5% to 4.40 crore in November 2012 from 4.64 crore in March 2012.

During October 2012, mutual funds saw a net inflow of Rs 46,720 crore (of which Rs 34,901 crore were mobilised by private sector and Rs 11,819 crore by public sector) as compared to a net outflow of Rs 51,907 crore (of which Rs 37,588 crore were from private sector and Rs 14,319 crore from public sector) during September 2012, according to SEBI. This significant level of fund mobilisation has also helped the total asset under management of mutual funds to grow to Rs 7.68 lakh crore as on October 31, 2012. So far in the current fiscal year (2012-13), overall net investment in mutual fund schemes rose to Rs 1.48 lakh crore from Rs 96,566 crore mobilised in the corresponding period last year.

Net SIP registrations have been negative each month from April 2012 to September 2012. The SIPs that ceased or expired accounted for a greater number than new SIP registrations leading to a decline of nearly 3.09 lakh SIP accounts despite the fact that the number of new SIP registrations was showing a rising trend from June 2012 to September 2012. And now with the consolidation of plans according to the new regulations, the SIP accounts are expected to decline further.

Even as the BSE Sensex lost more than 1700 points in FY11-12, at least seven mid-sized AMCs have managed to cut their losses, shows a Cafemutual study of 15 mid-sized AMCs that are currently ranked 10 to 25. Axis, Baroda Pioneer Mutual Fund, LIC Nomura, IDBI, JM Financial, J P Morgan, and Peerless managed to minimize their losses to the tune of Rs 82 crore. Axis (Rs 513 crore), Deutsche (Rs. 3,958 crore, IDBI Rs (Rs 1954) and JP Morgan (Rs 2959) recorded an increase in their assets in FY12. The combined net loss of 8 AMCs came down to Rs 161 crore in FY12 as against Rs 292 crore in FY 2010-11. Six AMCs posted a combined profit of Rs 54 crore as against Rs 48 crore the previous year, showing a marginal improvement in their businesses. Among the profitable players, Sundaram and Deutsche recorded a dip in their profits in FY12. Sundaram Mutual Fund’s profit after tax dipped from Rs 13 crore in FY11 to Rs 11 crore in FY12. Deutsche AMC saw its net profit decrease from Rs 11 crore in FY11 to Rs 6 crore in FY12. Tata AMC saw its net profit grow from Rs 17 crore in FY11 to Rs 31 crore in FY12. Among the mid-sized players, HSBC and Principal reported an increase in their losses. HSBC Mutual Fund’s net loss increased from Rs 8 crore in FY11 to Rs 27 crore in FY12 while Principal Mutual Fund’s net loss went up to Rs 8 crore from Rs 3 crore during the same period. Religare Mutual Fund turned profitable by posting a net profit of Rs 0.31 crore against a net loss of Rs 50 crore in FY11. BNP Paribas AMC which reported a net loss of Rs 24 crore in FY11 reported a profit of Rs 1 crore in FY12. Cost rationalization and right product mix will be important for mid-sized and small AMCs to sustain their businesses. Raising assets has also helped some AMCs cut their losses.

Piquant Parade

L&T Finance, a part of the diversified group Larsen & Toubro, has completed the acquisition of Fidelity's mutual fund business in India for an undisclosed amount. On completion of this transaction, the all new L&T Mutual Fund has over Rs 12,800 crore in managed assets and an investor base of close to 9.5 lakh investors from more than 200 cities and towns. This transaction is one of the largest mergers and acquisition deals in the Indian mutual fund industry and provides L&T with the necessary size, scale, and momentum to move to the next level. Over the last few months, they focused on a seamless transition and added high quality talent to their investment team and other areas. The new entity will answer different customer needs with a range of investment options spanning 25 funds across asset classes, risk profiles, and time horizons.

DSP BlackRock has received an in-principle approval from PFRDA to act as a fund manager for National Pension Scheme (NPS). Currently seven firms manage private and government retirement corpus - LIC, SBI, UTI, IDFC, ICICI, Kotak Mahindra, and Reliance Capital. NPS was initially launched for central government employees and later extended to all citizens from May 2009. According to PFRDA, NPS has 38.28 lakh subscribers with assets under management of Rs 21638 crore as on September 2012. PFRDA had recently revised the fund management fee to 0.25% p.a. of the AUM from November 1, 2012. Fund managers are to revise the investment management fee once a year.

SEBI has asked AMFI to expedite the process of creating a new simplified route for broad basing the distribution force. SEBI had identified postal agents, retired government and semi-government officials, retired teachers and bank officers, bank correspondents as the new cadre to sell mutual funds. These new cadres of distributors would require a simplified NISM certification and AMFI registration. AMFI is said to be in the process of finalizing the structure of this new certification with NISM. Details like minimum passing percentage, language, validity are also being worked out. The process of registering with AMFI for ARN is also being reviewed. These distributors will only be allowed to canvas simple schemes like diversified equity schemes, fixed maturity plans (FMPs), and index schemes having track record which equals to or is better than their benchmarks for each of the last three years. For simplifying this exam, NISM could do away with the negative marking for wrong answers or bring down the minimum percentage of mark from 60% to 50%. The curriculum could also be converted into regional languages. The KYD requirement could also be done away with. SEBI’s decision to expand the distribution force comes in the wake of declining active distributors in India. There were more than 80,000 ARNs registered with AMFI and the number came down to 40,000 after KYD was introduced. KYD is mandatory for selling mutual funds. Unofficial reports peg the active distributors count at 5,000 to 10,000

Anoop Bhaskar of UTI bagged the best equity fund manager award while Maneesh Dangi of Birla Sun Life walked away with the best debt fund manager award. HDFC Mutual Fund won the best fund house award while UTI emerged as the runner-up at the Outlook Money Awards 2012. HDFC also bagged the best equity fund house award. The best debt fund house award went to Kotak Mahindra.

Mutual Fund houses have started issuance of the mutual fund common account statement in electronic form in association with AMFI. The facility was introduced from November 2012. SEBI had earlier mandated that all fund houses provide a common account statement (CAS) to investors with an objective to offer an investor enhanced value, convenience and security with benefits such as anytime/anywhere access. Since November 2011, physical copies of CAS are being dispatched to investors. It is issued each month to mutual fund unit holders in whose folios financial transactions have taken place during that month. Now, the electronic version of this statement will be sent to the investor's e-mail ID, that is, the e-mail ID registered as per the investor's KYC (know-your-customer) records or the one registered in the last transacted folio during the month. With eCAS, investors will have further convenience and will together make a positive impact on environmental responsibility through this go-green initiative.

To be continued…

NFO NEST

December 2012

Banking Debt Funds flood the NFO market

Asset management companies have started offering banking debt funds, a thematic debt fund designed as a long-term investment solution for debt investors looking for a focused exposure and for investors averse to taking credit risk on their investment portfolios. Investors have been showing interest in these funds, despite concerns of rising non-performing loans among public sector banks. Religare Mutual Fund, Principal Mutual Fund, and Axis Mutual Fund already have banking debt funds in their portfolios. Several others are in the pipeline, Reliance Mutual Fund, ICICI Mutual Fund, and Birla Sun Life Mutual Fund, to name a few. Banking debt comprises investment in CDs and bank bonds. A bank debt fund or CD fund is launched primarily to take advantage of attractive yields prevalent for bank CDs which are considered to be relatively superior credit as compared to corporate debt. The benchmark 3-month CD is currently trading at 8.4% p.a. Bank debt funds generate 'liquid fund type returns' over a one-year period. Liquid funds, as a category, have returned 9.4% over the past one year. Investment in bank debt and money market instruments, treasury bills, government securities, and securities issued by Public Financial Institutions is primarily with the intention of maintaining high credit quality and liquidity.

Two debt funds and one hybrid asset allocation fund find its place in the December 2012 NFO NEST. A welcome change indeed!

Union KBC Asset Allocation Fund - Conservative

Opens: December 3, 2012

Closes: December 17, 2012

Union KBC Asset Allocation Fund - Conservative Plan is an open ended hybrid fund which will build a portfolio by investing across equities, gold, and debt. Union KBC, a Joint Venture setup between Union Bank of India and KBC Asset Management NV is a relatively new entrant to the mutual fund space and has been in existence only since 2011. Union KBC Asset Allocation Fund - Conservative Plan will have a 15-25% allocation to equity, 55-95% allocation to debt, and 0-20% allocation to gold. While the equity and debt component of the portfolio will be actively managed, the gold portion of the portfolio will be invested in Gold ETFs of other mutual funds. Investors who do not have actively managed portfolios can use such multi asset allocation funds. Since these funds invest in multiple assets there is automatic rebalancing which works in favour of the investor. These funds are taxed like debt funds and hence will give lower post-tax returns. The fund is co-managed by Ashish Ranawade (CIO) and Parijat Agrawal (Head-Fixed Income).

 

IDBI Gilt Fund

Opens: December 5, 2012

Closes: December 17, 2012

IDBI Mutual Fund has launched a new fund namely, IDBI Gilt Fund, an open ended gilt fund. The investment objective of the fund is to provide regular income along with opportunities for capital appreciation through investments in a diversified basket of central government securities, state government securities, treasury bills, and other similar instruments. IDBI Gilt Fund is an approved instrument for investment by exempt provident funds, superannuation funds, gratuity funds and also under the new pension scheme. IDBI Gilt Fund will invest in Gilt securities which bear zero-credit risk and offer adequate liquidity. The fund will dynamically manage duration of gilt securities so as to optimize returns in the backdrop of present uncertainties. The performance of the fund will be benchmarked against CRISIL Gilt Index. The fund will be managed by Gautam Kaul.

Religare Bank Debt Fund

Opens: December 10, 2012

Closes: December 24, 2012

Religare Bank Debt Fund is an open ended debt fund. The investment objective of the fund is to generate optimal returns by investing in a portfolio of debt and money market instruments issued primarily by banks. The fund will invest 80%-100% of assets in debt and money market instruments issued by banks while up to 20% of the assets will be invested in securities issued by public financial institutions, treasury bills, CBLOs, government securities, units of debt and liquid mutual fund schemes. Risk averse investors looking for a portfolio with relatively low credit risk and offering superior liquidity can consider investing in a bank debt fund. The performance of the fund will be benchmarked against CRISIL Short Term Bond Fund Index. The fund will be managed by Mr. Nitish Sikand.

Morgan Stanley Gilt Fund, Morgan Stanley Ultra Short-term Bond Fund, R*Shares CNX 100 Fund, Axis Hybrid Yearly Interval Fund – Series 1 to 3, Sundaram Select Microcap – Series 1, BOI AXA Gold Income Stabilizer Fund, and Edelweiss Gold Exchange Traded Fund  are expected to be launched in the coming months.

GEMGAZE
December 2012

Debt mutual funds are in a way considered suitable for retail investors, who with a small investment amount want to diversify their portfolio and benefit from various highly rated and high-yielding debt instruments. In the last one year, when benchmark indices have given a negative return of 15%, long-term bond funds have given an average of 4%, with many funds even giving returns in the range of 6% to 8%. A bond fund’s total return measures its overall gain or loss over a specific period of time. The total return includes income generated by the underlying bonds and (both realized and unrealized) price gains or losses.

All the five GEMs in the December 2011 GEMGAZE have retained their pre-eminent position in the December 2012 GEMGAZE too.

ICICI Prudential Gilt Investment Fund  Gem

Launched in August 1999, ICICI Prudential Gilt Investment Fund sports an AUM of Rs 239 crore. Being a gilt fund, the credit quality of the portfolio is very high with Government of India securities constituting 91.27% of the total assets. There are seven holdings in all with an average maturity of 10.72 years. The fund earned a return of 10.98% in the past one year as against the category average of 10.26%. The expense ratio is 1.5%. The fund is benchmarked against the I-SEC Li-BEX index. The fund is managed by Mr. Rahul Goswami.

Canara Robeco Income Fund Gem

Canara Robeco Income Fund was launched nearly a decade ago in 2002. The current AUM of the fund is Rs 203 crore with 17 holdings. Being an income fund, debentures constitute 44.56% of the total assets, with reverse repo and Government of India securities constituting 31% each. The credit quality of the fund is reasonably high. The interest rate sensitivity of the fund is high with the average maturity at 6.53 years. Canara Robeco Income Fund has had a rough ride in the past two years. Its return in the past one year was 10.06%, almost on par with the category average of 10.03%. The expense ratio of the fund is high at 2%. The fund is benchmarked against the CRISIL Composite Bond Index. The fund is managed by Mr Ritesh Jain.

 

Birla Sunlife Dynamic Bond Fund Gem

Birla Sunlife Dynamic Bond Fund delivers superior annual performances and has often been a top quartile performer. Of the 29 quarters of its existence, the fund has underperformed in just four. The fund returned an annualised 9.5% over a five-year period. That is a good 2.4 percentage points higher than its benchmark. The category average return was an annualised 7.4% during this period. The fund has returned 10.6% in a year, thanks to falling yields across instruments with various maturity periods. Higher accruals (interest payout from the instruments) also propped returns. Birla Sunlife Dynamic Bond Fund has flexibility to increase or decrease its portfolio maturity based on the interest rate outlook. This essentially shifts the responsibility of managing a debt portfolio actively from the investor to the fund manager. Their dynamic nature, nevertheless, makes funds of this category slightly risky. The duration of the portfolio as of October 2012 was 3.75 years compared with 2.7 years in August 2011. The yield to maturity of the portfolio is 9.08%. The fund managed Rs 12,125 crore of assets as of December 2012. Its large size, besides high cash holding, allows it to latch on to good debt opportunities when they arise and also diversify the portfolio. The cash holdings also provide for investor redemptions without affecting fund performance. The cash holdings as of October 2012 accounted for 9% of the portfolio. In spite of high cash holdings, the fund holds instruments of 66 different issuers in its portfolio. This somewhat diversifies the fund from company-specific risks. The holdings are predominantly in high quality instruments such as gilts, AAA rated bonds, AA+ rate bonds, and top rated short-term debt. Top-rated instruments have better liquidity than the ones with lower rating. This allows the fund to churn the portfolio without too much price risks. The expense ratio of the fund is 1.12%. The fund is benchmarked against the CRISIL Composite Bond Index. The fund is managed by Mr Maneesh Dangi.

Birla Sunlife Government Securities Fund (LT) Gem

Launched in October 1999, the fund has an AUM of Rs 303 crore. The one-year return of the fund is 10.97% as against the category average of 10.26%. The fund has five holdings with an average maturity of 10.67 years and the yield to maturity of 8.34%. 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 scheme may suggest that it is a typical long-term gilt scheme, 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 lack-lustre 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 fund has also been adept in changing the maturity profile of its portfolio. It has now shifted to 91-day treasury bills from holding gilts with a maturity of 7.7 years five months ago to ride the current high short-term interest rate wave. The expense ratio of the fund is 1.5%.

BSL Floating Rate Fund (ST) Gem

This relatively young fund, launched in October 2005, boasts of a massive AUM of Rs 4423 crore.  In the past one year, this liquid fund has returned 9.83% as against the category average of 9.28%. Commercial Papers constitute the lion’s share of the portfolio at 44% and Certificate of Deposit at 11%. The cash exposure is very high at 40%. Being a liquid fund, the average maturity is 0.09 years. The number of holdings in the fund’s portfolio is 23 with an average yield to maturity at 8.6%. The expense ratio is a mere 0.2%. The fund is benchmarked against the CRISIL Liquid Index. Sunaina da Cunha and Kaustubh Gupta are the fund managers.

FUND FLAVOUR

December 2012

Low penetration despite performance…

Debt funds have been around in the Indian market for several years now. However, the penetration of debt mutual funds among retail investors remains quite dismal. Data from AMFI shows that retail investors account for a negligible portion – about 5-10% of the overall assets in most debt fund categories. In some categories like liquid funds, retail investment accounts for just 1% of the category assets. Meanwhile, retail investment in equity funds has grown over the years and presently accounts for about 68% of assets of all equity oriented funds. This is despite the fact that debt mutual funds across categories and tenure performed well in 2012.

Gilt Funds

Gilt funds are good vehicles to play downward movement in interest rate cycle. Gilt funds invest in government securities that have little default risk. Though there is no default risk, a gilt fund investor faces the interest rate risk, wherein a fund may offer losses if the yields move up drastically in the short term. These are ideal for those who want more safety for their investments or are risk-averse and, at the same time, are looking for reasonable returns on their money. According to mutual fund rating agency, Value Research, medium and long-term gilt funds gave returns of 3.84% for the year ended May 30, 2012. In the short-term (less than a year), they have returned 4.18%. Gilt funds were the best performers across categories during the quarter ended June 2012. Gilt funds returned 3.1% over the quarter, outperforming both equity and other debt oriented categories. This was mainly on account of the softening of yields on the back of the Reserve Bank of India reducing the repo rate by 50 basis points (bps) to 8% in its Annual Monetary Policy for 2012-13 in April 2012. Compared to the gilt funds, equity funds returned 1.4% during the quarter, while the S&P CNX Nifty index was up 1.9% and the S&P CNX 500 index was up 1.1%. The higher returns from gilt funds failed to translate into increase in AUM for the category. For the quarter ended June 2012, the average AUM of gilt funds analyzed fell by 13% to Rs 2,574 crore, compared to Rs 2,968 crore in the previous quarter. This was primarily because investors were uncertain about the pace at which the central bank would reduce interest rates. Post the repo rate reduction in April 2012, the RBI retained key policy rates at its mid-quarter policy review in June 2012, giving priority to inflation over growth. Thus, even though gilt funds outperformed other categories, investor interest in this category was muted. Total assets under management under 40 gilt funds stand at Rs 4393 crore, as on October 31, 2012.

Fixed Maturity Plans

The whirring volatility in the stock market has seen many investors rush to the safety of debt instruments like Fixed Maturity Plans (FMPs). Most people are drawn in by the high returns and the superior tax efficiency that they offer compared to that of other debt options such as fixed deposits (FDs). Fixed maturity plans appeared to lose some of their charm among investors during May- June 2012. Indeed, a few fund houses had to withdraw their issuances for want of investors. Inability on the part of fund houses to mobilise the SEBI-mandated 'minimum target amount' of Rs 20 crore was one of the reasons for fund houses withdrawing their fixed term plans. Moreover, many fund houses could not meet the mandatory '20 investors' norm. As per SEBI guidelines, individual FMPs should have a minimum of 20 investors and no single investor shall account for more than 25% of the fund. Apart from about 20 FMP  cancellations, fund houses like ICICI Mutual, L&T Mutual, Tata Mutual, UTI, DWS and Reliance Mutual Fund among others, had to extend their subscription phase to pool in necessary investments and the required number of investors. Now, FMPs are back in vogue. Corporate treasuries are the biggest category of investors in fixed maturity plans. Declining surpluses, over the past few months, have forced corporate investors to cut back their investments in FMPs. However, fund managers feel, short-term debt products like FMPs still offer handsome investment opportunities from a risk-return trade-off perspective. To make up for the shortfall, fund marketers are now pushing fixed term plans to retail investors.

Liquid funds

Liquid funds are getting increasingly popular these days because of the high interest rates, safety, and tax advantage that they offer. Liquid funds invest in treasury bills, government securities, call money, repo and reverse repos and other such instruments that are quite safe in nature and have a short maturity. This means that they are good for parking that part of your money that you would have otherwise put in a bank savings account. Last year has been particularly good for liquid funds, and that is beginning to show in the fund inflows as well. During the month of May 2012, liquid funds had the largest inflow of funds in any category and the inflow was a massive Rs 26,742 crores. The liquid fund category has given average returns of 8.2% over the last one year, according to data from Value Research, an independent provider of mutual fund data and investment information. Meanwhile, savings accounts gave returns of 4%.

…could low risk be the answer?

In its efforts to reduce debt mutual funds’ overexposure to specific sectors, the Securities and Exchange Board of India (SEBI) has imposed a sector cap on the debt mutual fund schemes since SEBI observed that several debt funds, especially Fixed Maturity Plans, were taking huge exposure to specific sectors, raising worries about systemic risk. Each fund house used to decide how much it invests, in which sector. The advisory committee has recommended a cap on debt schemes’ exposure to any sector at 30% within a period of one year. The aim is to reduce exposure of debt schemes to non-banking finance companies (NBFC), as they have the largest exposure, followed by banking and Public Sector Undertakings (PSUs). This could lower the risk of debt fund investing, thereby, increasing its penetration among retail investors.

FUND FULCRUM

November 2012

India’s mutual fund industry has continued to see money going out of its equity segment for the fifth month in a row in October 2012. Compared to the previous month — when the sector witnessed two-year high net outflows — it is relatively better. However, the sector is still not out of the woods. The equity segment, where contribution by retail investors is the highest, is unable to increase its gross sales. Instead, redemption continues to be high. During October 2012 when the country's benchmark indices traded more or less in a range-bound fashion and lost a little less than one-and-a-half-percentage points, investors continued to book profits and exit their investments. According to the statistics available from AMFI, October 2012 witnessed a net outflow of Rs 1,984 crore from equity schemes, including the equity-linked saving schemes (ELSS). Though the figures are still high, it was a relief for fund managers as in September 2012, when markets rose steeply industry had seen outflows of a whopping Rs 3,559 crore. With the latest outflows, the current financial year so far has seen overall net outflow of Rs 9,258 crore from equities alone, which during the same period last year stood in the positive territory with net inflows of Rs 3,750 crore.

Total Assets Under Management (AUM) of the mutual fund industry increased by 6.7% (by Rs 48,045 crore) to Rs 7.68 lakh crore in October 2012, due to huge inflow into income and liquid funds. AUM of gilt funds increased sharply by 30.9% (by Rs 1,037 crore) to Rs 4,393 crore in October 2012 and it reported net inflow of Rs 1,018 crore, the highest in the last thirty four months. AUM of liquid funds increased by 13.6% (by Rs 19,703 crore) to Rs 1.64 lakh crore in October 2012 and the net inflow was Rs 18,176 crore. AUM of income funds rose for the seventh consecutive time in October 2012 by 8.8% (by Rs 31,076 crore) to Rs 3.83 lakh crore. The income fund category witnessed net inflow of Rs 29,340 crore. On the other hand, AUM of equity funds fell by 2% (by Rs 3,242 crore) to Rs 1.59 lakh crore, while assets of equity-linked saving schemes (ELSS) dipped by 1.8% (by Rs 452 crore) to Rs 24,183 crore, due to mark-to-market loss. Net inflow into the industry stood at Rs 46,721 crore in October 2012 as against net outflow of Rs 51,908 crore in September 2012.

More than 25 lakh equity folios have dropped in the last six months when the Sensex gained more than 2000 points. After reaching a peak of 4.11 crore folios in March 2009, equity folios have been falling relentlessly since 2009. The latest data published by SEBI for the period April 2012-October 2012 shows that the industry saw a drop of 25.77 lakh folios. The total investor count in equity funds stands at 3.50 crore now. While AMCs are witnessing redemptions in equity funds, the debt category is seeing a healthy rise in investor accounts. More than five lakh folios have been opened in debt funds in the last six months.

Piquant Parade

The board of Daiwa Mutual Fund, the Indian asset management arm of Japan's Daiwa Securities Group, will sell its schemes but may retain the mutual fund licence. The group has decided to adopt a 'scheme transfer' method to exit its domestic fund business. The Daiwa board has chosen to cut down India exposure amid "difficult business conditions"; instead, it will focus resources on the group's overseas fund management and advisory business. Though Daiwa may exit its domestic fund business, it will continue to have a toehold in India to manage the asset manager's offshore funds and advisory business. The Japanese asset manager has offshore portfolios worth $275 million, down about $525 million from peak levels. Daiwa Mutual Fund started its India operations in 2010 when it acquired the fund assets of the Shinsei Bank-owned Shinsei Asset Management Company.

The Aditya Birla group, led by Kumar Mangalam Birla, has taken charge of its mutual fund joint venture with Sun Life Financial of Canada by buying 1% stake from the latter. The Birlas will now own 51% stake in Birla Sun Life Asset Management Co. Ltd. and Sun Life will be left with 49%. The Birlas and Sun Life had set up the mutual fund venture in 1994. Since then, it has grown into one of India’s leading mutual fund companies, with assets under management of Rs 72,900 crore as of September 2012, growing at an annual rate of 8.5%.

Fair trade regulator, Competition Commission of India (CCI), has approved Religare group's 49% stake sale in its mutual fund business to global investment management firm Invesco. According to the deal, reached in September 2012, US-based Invesco is acquiring 49% stake in Religare Asset Management Company and Religare Trustee Company Pvt Limited, which manage assets worth over Rs 14,600 crore for Religare group's mutual fund business. Invesco is acquiring the stake through a group entity, Invesco Hong Kong Ltd, from Religare Securities Ltd. and the deal is estimated to have valued Religare group's mutual fund business at about Rs 1,000 crore.

Regulatory Rigmarole

AMFI has reduced the registration fees for mutual fund distributors to increase the penetration of mutual funds and motivate distributors to look beyond the metros. The revised fee will be applicable from November 1, 2012. First time Individual Financial Advisors (IFAs) will now have to pay only Rs 3,000 for registration, compared with Rs 5,000 earlier. Even the renewal fees for existing IFAs are reduced to Rs 1500 from Rs 2500 earlier. In August 2012, SEBI created a new category of distributors, which includes individuals like senior citizens, postal agents, retired teachers, and other retired government officials who have been in service for at least 10 years in their respective organisations. The fee for this category has been fixed at Rs 3,000 per person. The registration fee for NBFCs has been reduced by 80% from Rs 5 lakh earlier to Rs 1 lakh now and the renewal fee from Rs 2.50 lakh to Rs 50,000 now. Earlier all types of banks, be it private, or co-operative had to pay Rs 5 lakh as registration fee. Now, AMFI has introduced a separate category for regional rural banks, district central co-op. banks that have to pay Rs 1 lakh for getting mutual fund distribution license. This reduction in fee will lead to higher number of distributors entering in Tier-2 and Tier-3 cities, which will benefit the industry over a period of time.

Market regulator SEBI allowed mutual funds to participate in Credit Default Swap (CDS) transactions, which allow business entities to hedge risks associated with the bonds market. Besides, mutual funds could invest in repo or short-term repurchase of forward contract of corporate debt securities having ratings of AA and above that. Mutual funds can participate in the CDS market for hedging their debt risks, but cannot enter into short positions in the CDS contracts. Mutual funds are required to disclose the details of CDS transactions of the scheme in corporate debt securities on the monthly as well as half yearly basis. 

If you have already invested in any particular fund house and now wish to invest in another fund house where you have not invested before January 1, 2012, then you will have to complete the KYC formalities again by filling up the new KYC form implemented after January 1, 2012. From December 1, 2012, certain additional information needs to be submitted as well as ‘in person verification’ (IPV) needs to be completed for further investments in any mutual fund (other than the one in which the investors have already invested). The revised KYC form before January 1, 2012 for individuals has additional provision for details such as father's / spouse name, marital status, nationality, gross annual income / net worth details and in-person verification. The revised KYC form can be used for changing contact details like address, email id and phone no. Hence, existing individual investors who are know your client (KYC) registered prior to January 01, 2012 through CDSL Ventures Ltd (CVL) and who wish to invest in any new mutual fund / through capital market should complete the additional KYC requirements/provisions (as mentioned above) using the KYC Details Change Form on or before November 30, 2012.

Market regulator SEBI allowed mutual fund houses to levy certain amount of brokerage and transaction costs on investors with regard to execution of trades. In a circular, the regulator said that fund houses can levy brokerage and transaction costs, with a ceiling of 0.12% for cash market transactions and 0.05 for derivatives dealings.

Karvy has recently released an India Wealth Report 2012 that gives an update on individual wealth in India. According to the report, the individual investors’ investment in mutual fund increased to Rs 3.11 lakh crore from Rs 2.84 lakh crore in FY 11. Debt-oriented funds grew by 17.2% while equity-oriented funds grew by 2% compared to last year. The individual wealth in the country grew to Rs 92.26 lakh crore as on March 2012 from Rs 86.5 lakh crore the previous year. The total individual wealth in India is expected to double to Rs 179 lakh crore in the next four years from the current Rs 92.26 lakh crore.

NFO NEST

November 2012

Spate of  IDFs in the offing

The creation of Infrastructure Debt Funds (IDFs) was announced in the Union Budget 2011-12 to facilitate long term financing for the infrastructure sector. IDFs can be created in two ways - as a trust by AMCs and as a company by NBFCs. The RBI will regulate IDFs launched through NBFCs while SEBI will oversee IDFs of AMCs. In March 2012, LIC, Bank of Baroda, Citicorp Finance, and ICICI Group signed a memorandum of understanding (MOU) to set up India’s first infrastructure debt fund through the NBFC route. IDBI Mutual Fund, IDFC Mutual Fund, Birla Sun Life Mutual Fund, ICICI Prudential Mutual Fund, Reliance Mutual Fund, SBI Mutual Fund, L&T Mutual Fund, Srei Mutual Fund, and Axis Mutual Fund have submitted their offer documents to SEBI to launch IDFs. So far, only IDFC Mutual Fund and Srei Mutual Fund have received SEBI nod to set up their IDFs.

Only one capital protection-oriented fund finds its place in the November 2012 NFO NEST.

Sundaram Capital Protection-oriented Fund – Series IX

Opens: November 16, 2012

Closes: November 30, 2012

Sundaram Capital protection-oriented Fund – Series IX is a close-ended fixed income fund with a partial equity orientation. This fund is the latest in a series of similar hybrid close-ended funds by Sundaram Mutual Fund, ninth as far as three-year tenured ones are concerned. The fund will invest 80-100% in debt securities and up to 20% in equities. Debt portfolio will mainly be in triple-A-rated non-convertible debentures (NCDs) and if enough of these are not available, then in bank certificate of deposits (CDs) of public-sector banks. Securitised debt and securities of four sectors – real estate, micro finance, airlines, and information technology – will not be invested in. Equity portion will be re-balanced on a dynamic basis. The fund is benchmarked to CRISIL MIP Blended Index.

Union KBC Trigger 50 Fund – Series 1 and 2, DSP BlackRock Constant Maturity 10Y Bond Fund, DSP BlackRock Constant Maturity 10Y G–Sec Fund, IDFC League 1 Fund, IIFL Dynamic Bond Fund, Motilal Oswal MOST Prime Equity Fund, ICICI Prudential Infrastructure Debt Fund, ICICI Prudential Dividend Yield Equity Fund, JP Morgan India Income Opportunities Fund, DSP BlackRock Cash Manager Fund, Birla Sunlife Infrastructure Debt Fund Series A & B, and DSP BlackRock Ultra Short Term Fund are expected to be launched in the coming months.

GEM GAZE

November 2012

With the postponement in the implementation of DTC coupled with the infusion of life in the stock market, all the funds that adorned the November 2011 GEMGAZE have retained their pre-eminent position in the November 2012 GEMGAZE also and the honeymoon continues...

Magnum Taxgain Fund Gem

Grand old diversified dad 

SBI Magnum Taxgain is one of the oldest and largest tax-saving ELSS schemes in the country with an AUM of Rs 4648 crore. An interesting feature of the fund is its stock picking which is more inclined to companies that have disproportionately large market share, with 75% of the funds in large cap stocks. For a fund with a massive asset size, SBI Magnum Taxgain's portfolio is well diversified to incorporate an average of about 50 stocks across sectors. The top 5 holdings account for 26.25% of the portfolio. The top three sectors that the fund invests in are finance, energy, and technology sectors, with an exposure of 24%, 12%, and 11%, respectively. One-year return of the fund is 14.5% as against the category average of 10.74%. The expense ratio is 1.81% and the portfolio turnover ratio is 29%.

HDFC Tax Saver Fund Gem

Temporary lull

At Rs 3224 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. HDFC Taxsaver takes contrarian bets but its performance history speaks for itself. HDFC Taxsaver tends to take a top-down approach before going for potentially outperforming stocks. But in this strategy, it could well deviate from the current market position. With no bias towards any market cap, this fund is a great multi-cap offering with a long history of impressive performance. Currently, large caps account for 56% of the portfolio. The rising asset base has led to an increase in the number of stocks to 62. With the top 5 holdings accounting for 24%, the fund looks well diversified. The expense ratio is 1.85% and turnover ratio is 20.58%. The fund's lower turnover implies that it adopts a buy and hold strategy. In the past one year, the fund has earned a return of 7.46% as against the category average of 10.74%. Many tax saving funds have taken a deep cut in their NAV during bear markets, owing to their mid-cap focus. HDFC Tax Saver, though, has learnt from past lessons and has increased its large-cap exposure. However, it holds more mid-cap stocks when compared with Fidelity or Canara Robeco's tax-saving schemes, which have a clear large-cap focus. Although the fund gradually reduced its exposure to under performing capital goods in the past year it continues to allocate 6% of the assets to the sector. But it still is a strong holding…With a three-year compounded annual return of 27%, it beat the category average of diversified equity funds by 5 percentage points. Over a five-year period, it clocked compounded annualised return of 5.6% and bettered its benchmark CNX 500 by 2.6 percentage points.

Sundaram Tax Saver Fund Gem

Change at the helm of affairs

There has been a recent fund manager change at Sundaram Tax Saver Fund. Manager and head of equities Satish Ramanathan relinquished portfolio management duties of this fund in Jan 2012. He continues to serve as the head of equities at Sundaram and oversees the investment function. The fund is now jointly managed by managers, Srividhya Rajesh and J. Venkatesan. Both managers are old hands at Sundaram and share roughly eight years of portfolio management experience between them. Otherwise, the investment approach remains largely unchanged: The portfolio’s sector weights are loosely aligned with those of the benchmark index BSE 200 with maximum deviations at +/- 8% (absolute), a change that was implemented in early 2011 due to the fund’s ordinary showing in the 2009-10 periods. However, like before, stock selection is independent of benchmark weights, with the managers choosing stocks based on their conviction. Taking cash calls remains integral to the strategy, with the managers increasing cash levels during market downturns or when there is a dearth of investment opportunities. The managers also take contrarian bets when they believe valuations are attractive. In the last couple of years, the fund has seen its AUM increasing substantially from around Rs 480 crore to more than Rs 1,378 crore. Top five holdings constitute 21% of the portfolio with a total of 53 stocks, with 52% of the portfolio invested in large-cap stocks. Energy, finance, 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 13.78% as against the category average of 10.74%. The expense ratio is 1.96% and the portfolio turnover ratio is 133%.

Canara Robeco Equity Tax Saver Fund Gem

Stands out in the crowd

Canara Robeco Equity Tax Saver’s focus on growth-oriented companies has made it stand out in the crowd. Going by its performance over the past five years, consistency is what stands out, whether in a bull market or a bear one. This Rs 456 crore fund has been pretty successful in utilising the agility that a small fund offers by spotting opportunities and capitalising on them. There are 55 stocks in the portfolio. Allocation to the top 5 holdings (24%) is in line with the category average. The massive out performance though has been possible as a result of 20% holding in mid cap stocks. One-year return is 13.15 % as against the category average of 10.74%. The expense ratio is 2.32% and portfolio turnover ratio is 39%. It has been following a defensive strategy of being overweight on sectors such as pharmaceuticals and fast moving consumer goods and underweight on rate-sensitive sectors. This explains its 12% return in the last five years, when the Sensex delivered –2% and mid- and small-cap indices -3 % and -5 %, respectively. The fund's strategy of investing in companies that have less debt and good operating cash flows has worked for it. With a return since launch of around 14.5% and a below average risk grade, this has given decent returns. The fund manager ensures a diversified portfolio with no market cap or sector bias.

Religare Tax Plan Gem

Consistent performer

The fund's ability to provide downside protection accompanied with decent returns during markets rallies help investors over the long run. The risk of investing in this fund lies in its aggressive sector bets. With a corpus size of Rs 120 crore, Religare Tax Plan is one of the smallest schemes in its category, but it packs in quite a punch. The top three sectors are finance, energy, and FMCG. The fund invests across market capitalisation and sectors and spreads its assets over 20-50 stocks without being overly diversified and the top 5 holdings constitute 27%. At present, large cap stocks make up 59% of the portfolio. The one-year return is 10.8% as against the category average of 10.74%. The expense ratio is 2.48% and the portfolio turnover ratio is 44%.

DSPBR Tax Saver Fund Gem

Not for the faint-hearted

DSP Black Rock Tax Saver gets hit harder during bad times, but bounces back impressively in rallies. This fund is not for the faint hearted. Thanks in part to its tilt towards mid and small caps it gets hit harder during market turmoil, 2008 being a case in point. Despite exposure to FMCG and Healthcare and a high cash allocation, it lost more than the average. But it bounces back during rallies and over time the long-term performance is good. A sensible choice for the slightly adventurous, who are comfortable with a not-so-smooth ride. There was a change of guard at this fund’s helm of affairs in July 2012. Manager Anup Maheshwari has relinquished portfolio management duties (he continues to wield significant influence in the overall investment function given his role as the head of equities at DSP BlackRock) and  the fund is managed by Apoorva Shah, an experienced manager who has been with the fund company since April 2006. The investment process remains unchanged: The fund continues to follow a flexi-cap approach wherein the focus is to generate superior returns over a three-year period by moving across sectors and market caps in an unconstrained manner. The stock-picking is rooted to a bottom-up approach, where the main focus is on picking growth-styled stocks. Moreover, investors should note that the decision to invest substantially in small/mid-caps and take big sector bets can lead to higher downside risk in market corrections. Also, the manager’s decision to avoid taking cash calls is a positive, but it could result in the fund relatively under performing peers who get their cash calls right. Indeed, the fund tends to fare poorly in bear markets (2008 and 2011 are cases in point) due to the above-mentioned factors. That said the approach is likely to pay off in rising markets. DSPBR Tax Saver has a fund corpus of around Rs 729 crore. It has a growth-oriented multi cap portfolio with 61% of the corpus in large cap stocks. There are 94 stocks in the portfolio. DSP BR Tax Saver fund has offered 15.74% returns for the last one year as against the category average of 10.74%. The expense ratio is 2.21% and the portfolio turnover ratio is 130%.