Monday, February 24, 2014


February 2014

The Indian mutual fund industry's assets under management jumped 9.4% to a record high of Rs 9.03 lakh crore in January 2014 on the back of strong inflows into liquid funds. According to a report by CRISIL, the mutual fund industry's AUM was at Rs 8.25 lakh crore in December 2013. The figure stood at Rs 8.90 lakh crore in November 2013. There are about 45 fund houses in the country. The rise in monthly AUM in January 2014 was primarily on account of Rs 83,500 crore inflows -- the highest since April 2013. According to the CRISIL report, liquid funds saw net inflows worth Rs 77,500 crore, the highest in nine months, leading to a 43% rise in the segment's AUM to Rs 2.59 lakh crore.
The year 2014 has begun on a positive note for India's equity mutual funds when it comes to net inflows. However, it is still not out of the woods as investors' base continues to decline. For the third month in a row, the equity segment witnessed a net inflow of money. According to the latest statistics available from the industry body Association of Mutual Funds in India (AMFI), the equity segment saw a net inflow of Rs 427 crore in January 2014. Inflows remained in the positive territory despite the fact that overall markets remained weak throughout the month, with fear of tapering hitting sentiments. Prior to this, the sector had got Rs 699 crore and Rs 857 crore in the months of November 2013 and December 2013, respectively. Sales of equity funds which recently reached over Rs 5,500 crore are once again down to Rs 4,558 crore - which is not encouraging.
On top of it, the sector has failed to arrest the decline in folio numbers in equity funds. According to SEBI, January 2014 saw erosion in equity investors' base by 2.21 lakh. Though, it is the lowest decline in the past five months, it is still beyond the sector's comfort zone. In August 2013, the industry could bring the folio closures to below 1 lakh mark to as low as 62,000. But in the ensuing months, the situation worsened further with over a ten lakh folio closures in the successive two months. Mutual fund industry has lost an estimated over 29 lakh investors, measured in terms of individual accounts or folios, in the first 10 months of the current fiscal, mainly due to profit-booking and various merger schemes. Of more than 29 lakh investors lost during April 2013 to January 2014, most of the folio closures were seen in the equity portfolio despite the efforts of the mutual fund industry to educate investors about staying invested for the long-term. According to SEBI data on total investor accounts with 45 fund houses, the number of folios fell to around 3.99 crore at the end of January 2014 from 4.28 crore in the last fiscal (2012-13), indicating a decline of 29.41 lakh. The last financial year marked the fourth consecutive year of loss of folios by mutual funds. During the preceding three financial years, the mutual fund industry had lost over 15 lakh investor accounts.
Piquant Parade
Market regulator SEBI has given an in-principle approval to the Institution of Mutual Fund’s Intermediaries (IMFI) to form self-regulatory organization. According to SEBI rules, the SRO must be a company registered under section 25 of the Companies Act, 1956, and must have a minimum net worth of Rs 1 crore. SEBI had invited applications for SRO in March 2013. The regulator had said there will be only one SRO to regulate mutual fund distributors. There were two more applicants in the race for SRO - Organization of Financial Distributors (OFD) floated by Financial Intermediaries Association of India (FIAI) and Financial Planning Standards Board of India. SEBI’s decision to give AMFI promoted Institution of Mutual Funds Intermediaries (IMFI) the go ahead to form self-regulatory organization (SRO) for distributors has evoked mixed responses from industry stakeholders. Some believe that AMFI is best placed to regulate distributors while others feel that a distribution association should have been entrusted the responsibility to form SRO.
Despite incentives, assets from smaller cities rise only 40 bps in the last five quarters. It was in September 2012, that SEBI had permitted fund houses, an extra 30 basis points (bps) if they got assets from the B-15, the smaller cities and towns. Fifteen months later, the situation remains almost the same. Against 12.57% in September 2012, the sector has 12.97% of their assets under management from B-15 as on December 2013. The contribution from top cities - Mumbai, Delhi, Kolkata, Bangalore and Chennai - had in fact, scaled up higher during this period, though marginally, from 74.32% to 74.37%. It was thought that SEBI's incentives would encourage players to penetrate B-15, though it would take some quarters to see positive growth. It is over five quarters now and the inertia remains. Setting aside the recent explosive expansion by SBI MF and UTI MF, wherein the former opened 51 branches and the latter 101 centres in one go, expansion in the B-15 cities is pathetic.
The AUM of mutual funds is unevenly distributed across the country. Presence of mutual funds is heavily skewed in favour of 60 districts, out of which a lion’s share originates from Mumbai. Lack of penetration may be due to low demand of mutual fund from the public outside the top 15 cities (T-15). This may be due to low level of financial literacy, cultural attitudes towards savings and investments, etc. Further, low supply of mutual funds outside the major cities may be on account of perceived lack of demand from general retail investors or due to lack of good talent for training and hiring mutual fund agents. The distribution costs as a function of AUM generated in the top districts are far higher than in the lower districts. Demographic and social development factors such as adult literacy, bank penetration (Savings accounts) do not show strong co-relation with mutual fund presence.
Regulatory Rigmarole

SEBI shakes up the mutual fund sector and revamps governance norms for listed entities with a series of new rules. These norms aim to make independent directors on company boards more accountable and give a bigger say to public shareholders in these entities. SEBI introduced a number of curbs on independent directors, considered torch-bearers for minority investors, and brought new restrictions to related-party transfers. An independent director could be on the board of a maximum of seven companies; it could be no more than three if the person is a wholetime director. The move is in line with the new Companies Act. This cap is an important way of making sure that they are able to perform their duties adequately, especially if the role or responsibility is large. SEBI also mandated all companies to have at least one woman as a director on the board and restricted the total tenure of independent directors to two terms of five years each. The regulator also mandated companies to make more disclosures on their renumeration policies and to disclose the performance evaluation of their board, a move likely to put more of a spotlight on the pay and performance of senior officials at listed companies. The regulator also mandated prior approvals of the audit committee, and restricted promoters from voting, on related-party transactions (RPT). The move is aimed at curbing the menace of “abusive RPTs”, which put minority shareholders in a disadvantageous situation. The new corporate governance norms, which take effect from October 1, 2014, will apply to all listed companies.
To ensure only serious asset management companies (AMCs) stay in business, SEBI increased the minimum net worth from Rs 10 crore to Rs 50 crore and also asked all entities to invest at least one per cent, or a maximum of Rs 50 lakh, as “seed capital” in all their open-ended schemes. Seed capital will ensure the 44 players in the sector have a stake in the performance of their schemes. Having fund houses invest in their own scheme could help in creating a track record for the fund. It will also help investors take a safe and informed decision while investing.
SEBI proposed Mutual Fund Linked Retirement Plan (MFLRP), which will be a long term investment product with additional tax incentive of Rs 50,000 under 80C of Income Tax Act. The regulator will implement the proposed non-tax related changes for the mutual fund industry. However, it will have to wait for the new government to clear the tax-related proposals. 
Making Know-Your-Client process easier for investors, SEBI cleared a proposal to allow various market entities such as brokers and mutual funds to get investor details from centralised KYC agencies, rather than carrying out a fresh KYC verification procedure. Presently, there is an option available to a market intermediary that it may access the centralised KRA (KYC Registration Agency) system in case of a client who is already KYC compliant, or it may also carry fresh KYC process. SEBI decided to do away with the second option of fresh KYC processing being carried out, if the concerned investor has once gone through the KYC procedure with any of the registered intermediaries.
SEBI unveils stringent disclosure norms for mutual funds. To bring in greater transparency, market regulator SEBI has asked the players to make monthly disclosures about group investment in their assets under management.
Market regulator SEBI expects its new long-term policy for mutual funds to help their total asset base to grow to Rs 20 lakh crore within five years, from about Rs 9 lakh crore currently. According to the draft policy, which will be notified after changes suggested by the SEBI board, there is a huge scope for expanding the reach of mutual funds and channelising household savings into them. This growth would be accompanied by an increase in folio numbers, substantial contribution from smaller cities and a higher number of distributors, among others, according to SEBI. The policy calls for measures to weed out non-serious players and safeguard investors' interest while promoting mutual funds as a key long-term investment option. Growth in the mutual fund industry has remained sluggish in the past couple of years although the regulator has taken several measures to re-energise the sector. According to an estimate, over 44% of households in the US have their savings in mutual funds, while in India the figure is a mere 2.5%. The growing Indian middle class can be tapped to augment the mutual fund retail investor base

Monday, February 17, 2014


February 2014

Flurry of equity NFOs

Equity is back in favour if the recent flurry of fund launches is anything to go by. Indian mutual funds were on a selling spree for the greater part of 2013 as redemptions rose and inflows dried up. But things changed in November 2013 after a 19% jump in equity indices attracted investors and pushed wary fund managers into launching new funds. New fund offerings from some of India’s top-rated funds raised Rs 2,400 crore, the biggest such inflow in the past three years, according to data from Morningstar, an investment research firm. Bulk of the money came in November-December 2013 when funds, including the biggest such as ICICI Prudential collected a record Rs. 650 crore in its ICICI Prudential Value Fund. Subsequently, there have been a series of close-end and even open-end equity fund launches. Most of these close-end equity funds are betting on the mid and small cap companies, in anticipation of these companies benefiting, once the economy bounces back.

Motilal Oswal MOSt Focused 30 Fund

Opens: February 3, 2014

Closes: February 17, 2014

Motilal Oswal Mutual Fund has launched Motilal Oswal MOSt Focused Midcap 30 Fund, an open-ended equity fund. The investment objective of the fund is to achieve long term capital appreciation by investing in a maximum of 30 quality mid-cap companies having long-term competitive advantages and potential for growth. The fund will allocate 65% to 100% of assets in equity and equity related instruments selected between Top 101st and 200th listed companies by market capitalization, up to 25% in equity and equity related instruments beyond the Top 200th listed company and with market capitalization not lower than the smallest company in the CNX Midcap Index with high risk profile and up to 10% in debt, money market instruments, G-Sec, Bonds, Cash and Cash equivalents etc. with low risk profile. The benchmark index for the fund is CNX Midcap Index. The fund managers will be Taher Badshah (Equity) and Abhiroop Mukherjee (Debt).


HSBC Asia Pacific (Ex Japan) Dividend Yield Fund

Opens: February 3, 2014

Closes: February 17, 2014

HSBC Asia Pacific (Ex Japan) Dividend Yield Fund (HAPDYF) is an open ended Fund of Funds from the stable of HSBC Mutual Fund, which will focus on investing predominantly in units of the underlying fund - HGIF Asia Pacific Ex Japan Equity High Dividend Fund (HEHDF) and a small proportion of its assets in money market instruments and/or units of liquid mutual fund schemes. The underlying fund HEHDF is an open ended fund based in Luxemburg which will enable investors to invest in long term investment opportunities available in the emerging markets of the Asia Pacific region. The investment objective of HEHDF is “to seek long-term capital growth and a high level of income by investing primarily in a diversified portfolio of investments in equity and equity equivalent securities of companies which have their registered office in and with an official listing on a major stock exchange or other Regulated Market of any Asia Pacific country (excluding Japan) as well as companies which carry out a preponderant part of their economic activities in the Asia Pacific region (excluding Japan), that offer short-term sustainable dividend yields above the market average and/or the potential for dividend growth above the market average over the short-term”. The fund is of the view that Asian companies are undergoing a structural change: emphasising quality through de-leveraging, cash-flow generation and sustainable earnings. Hence the fund aims at identifying and investing in companies which combine mis-priced profitability with sustainable and attractive dividend yield through bottom up approach and fundamental research. The fund will be managed by the duo Piyush Harlalka and Sanjay Shah.

ICICI Prudential Multiple Yield Fund – Series 6 – Plan A

Opens: February 10, 2014

Closes: February 24, 2014

ICICI Prudential Mutual Fund has launched a close-ended income fund, ICICI Prudential Multiple Yield Fund - Series 6 - Plan A. The primary objective of the fund is to seek to generate returns by investing in a portfolio of fixed income securities/ debt instruments. 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 75% to 95% of assets in debt securities (including government securities) with low to medium risk profile. It will allocate up to 20% of assets in money market instruments, cash and cash equivalents with low to medium risk profile. On the flip side, it will allocate 5% to 30% of the asset in equity or equity related securities with medium to high risk profile. Of the investments in debt instruments, 82% to 87% will be invested in AA rated non-convertible debentures. The benchmark index for the fund will be CRISIL MIP Blended Index. The equity portion of the fund will be managed by Rajat Chandak. Rahul Goswami and Aditya Pagaria will jointly manage the debt portion. The investments under the ADRs/GDRs and other foreign securities will be managed by Abhishek Pathak.

IDFC Equity Opportunities Fund – Series 3

Opens: February 10, 2014

Closes: February 24, 2014


IDFC Mutual Fund has launched a new fund named IDFC Equity Opportunity - Series 3, a close-ended equity fund. The tenure of the fund is 21 months from the date of allotment. The fund will invest 80%-100% of its assets in equities and equity related instruments with high risk profile and invest up to 20% of its asset in debt & money market instruments with low to medium risk profile. Investment in derivatives can be up to 50% of the net asset of the fund. Benchmark Index for the fund is S&P BSE 500 Index. The fund aims to create a portfolio of high dividend paying companies with average dividend yield of the portfolio at least 50% higher than the benchmark dividend yield. The fund manager is Ankur Arora.


IDBI Debt Opportunities Fund

Opens: February 11, 2014

Closes: February 24, 2014


IDBI Mutual Fund announced the launch of IDBI Debt Opportunities Fund, an open ended income fund, which is an accrual based product with focus on generation of interest income. The fund will invest in good quality rated corporate bonds through rigorous selection and monitoring process. The investment objective of the fund is to provide investors with regular income and opportunities for capital appreciation while maintaining liquidity through active management of a diversified portfolio comprising of debt and money market instruments across the investment grade credit rating and maturity spectrum. The fund will invest 0-90% of assets in debt instruments including securitized debt instruments with low to medium risk profile and invest 10-100% in money market instruments with low risk profile. The Benchmark Index for the fund is CRISIL Short Term Bond Fund Index. The fund managers will be Mr. Gautam Kaul and Mr. Anil Dhawan.
Reliance Multi Asset Advantage Fund, Motilal Oswal MOSt Focused Multiple Fund, LIC Nomura Mutual Fund Capital Protection Oriented Fund Series 3 to 5, Franklin India Feeder Franklin European Growth Fund, IIFL Global Equity Fund, JP Morgan India Blue Chip Fund, Pramerica Tax Savings Fund, LIC Nomura RGESS – Series 2, and Mirae Asset Global Great Consumer Fund are expected to be launched in the coming months.

Monday, February 10, 2014


February 2014

The holy grail of investing

The holy grail of sensible investing is figuring out a good asset allocation and then rebalancing your portfolio. A Fund of Fund (FoF) does exactly this. FOFs are efficient products as they provide you with the benefit of diversification in multiple and well-researched mutual fund schemes. The first FOF was launched by Franklin Templeton Mutual Fund on October 17, 2003. Fund of Funds can be Sector specific e.g. Real Estate FOFs, Theme specific e.g. Equity FOFs, Gold based gold ETF Fund, Objective specific e.g. Life Stages FOFs or Style specific e.g. Aggressive/ Cautious FOFs etc, or overseas FoFs which invest across the globe. They invest in other domestic mutual funds (FT Life Stage Fund of Funds, Kotak Equity FoF), domestic exchange-traded funds (ETFs) (Reliance Gold Saving Fund, Kotak Gold Fund, Quantum Gold Savings Fund), or overseas mutual funds (Fidelity International Opportunities Fund, Franklin Asian Equity, Kotak Global Emerging Market Fund, BNP Paribas China-India Fund, ICICI Prudential Indo Asia Equity, Fidelity Global Real Assets Fund, and DSP BlackRock World Gold Fund).

All the GEMs that dazzled in the February 2013 GEMGAZE have retained their pre-eminent position in the February 2014 GEMGAZE also.


FT India Life Stage Fund of Funds Gem

Franklin Templeton AMC offers five plans based on life stages that will suit your age profile - FT India Life Stage FoF 20s, FT India Life Stage FoF 30s, FT India Life Stage FoF 40s, FT India Life Stage FoF 50s Plus, and FT India Life Stage FoF 50s Floating Rate. The first four plans were launched in November 2003 and the last plan was launched in July 2004. All these are plans of a single fund that has assets of around Rs 81 crore. The AUM of each plan is Rs 9 crore, Rs 7 crore, Rs 12 crore, Rs 10 crore, and Rs 43 crore respectively. The top three sectors in the portfolio are finance, energy, and technology. The allocation to equity tapers from 81% in the first plan to a measly 20% in the last plan. The one-year returns of the plans are 0.57%, 1.68%, 2.96%, 2.7%, and 6.69% respectively. While the expense ratio for all the plans is 1.33%, 1.5%, 1.62%, 1.66%, and 0.79% respectively, the portfolio turnover ratio hovers around 4%.

ICICI Prudential Advisor Fund   Gem


ICICI Prudential Mutual Fund offers Fund of Funds through five plans launched in November 2003: ICICI Prudential Advisor–Very Aggressive, ICICI Prudential Advisor–Aggressive (ICICI Prudential Advisor Series - Long Term Savings Plan w.e.f. December 6, 2013), ICICI Prudential Advisor–Moderate, ICICI Prudential Advisor–Cautious, and ICICI Prudential Advisor–Very Cautious. The AUMs of the Very Aggressive, Aggressive, Moderate, Cautious, and Very Cautious Plans are Rs 4 crore, Rs 6 crore, Rs 5 crore, Rs 3 crore, and Rs 1 crore respectively. The top three sectors in the portfolio are finance, technology, and energy. The allocation to equity is 71%, 69%, 54%, 34%, and 0% respectively. The one-year returns of the plans are 1.03%, -0.71%, 1.84%, 0.66%, and 5.29% respectively. While the expense ratio for all the plans is the same at 0.75%, the portfolio turnover ratio is 257%, 205%, 206%, 208%, and 0% respectively.


Birla Asset Allocation Plan   Gem

Birla Asset Allocation Plan is an open-ended fund of funds, launched in January 2004, which offers three plans – Aggressive, Moderate, and Cautious. The AUM of Aggressive, Moderate, and Cautious Plans is Rs 8 crore, Rs 4 crore, and Rs 3 crore respectively. The allocation to equity is 79%, 57%, and 23% respectively. The one-year returns of the plans are 1.51%, 1.94%, and 1.63% respectively.

FT India Dynamic PE Ratio Fund of Funds   Gem

P/E funds are funds which rebalance their portfolios to take advantage of market movements. They base their investment strategy on some pre-determined P/E ratios of an index like Sensex or Nifty.
FT India Dynamic PE Ratio Fund of Funds redirects your money into two good funds from the Franklin Templeton stable – Franklin Bluechip Fund and Templeton Income Plan. FT Dynamic PE Fund pegs its equity-debt mix to the Nifty’s price-earnings multiple. If the Nifty PE is below or equal to 16 times, the fund can invest its entire portfolio in equities. If the PE moves above 16 times, it cuts equity allocation to 50-70%. Should the Nifty PE move beyond 24 times, the fund can shift into debt and out of equities. This translates into selling stocks at highs and buying them on declines. By end-September 2013, the fund held 75% in Franklin Bluechip and 25% in Templeton India Income Fund. The AUM of the fund is an impressive Rs 992 crore. The top three sectors in the portfolio are finance, energy, and technology. This predominantly large cap fund has an allocation to equity of 61% at present. The key argument for investing in the FT Dynamic PE Fund is its ability to keep up with balanced funds during bull phases, while containing losses well during bear phases. Consider its track record. The fund’s five-year return of 16.3% is on par with the balanced funds category. For three years, its return of 5% is well above both balanced and equity large-cap funds. But where the fund is head and shoulders above competition is in shielding its investors during market falls. During the 2011 crash, this fund lost just 5%, while balanced funds, on an average, lost 16% and equity funds averaged a 24% loss. The one-year return of the fund is 1.2% as against the category average of 1.45%. While the expense ratio is at 1.45%, the portfolio turnover ratio is 25%. 

Monday, February 03, 2014


February 2014

Fund of Funds - A smart way of investing in mutual funds

Fund of Funds (FoFs) offer investors a unique and excellent investment proposition. These are meta-funds, mutual fund schemes that invest in the schemes of other mutual funds. They take the concept of mutual fund investing to the next level. While mutual funds invest in stocks of various companies, FoFs invest in the schemes of their own fund house or a third party fund house, a smart way of investing in mutual funds. Conceptually it does what you do, create a portfolio of funds. The difference being, when you buy funds yourself, you buy them individually and hold and track them separately, while when you buy a fund of funds, you hold just one fund which in turn holds other mutual funds inside it.
Fund of Funds stand out
How does it benefit investors, you may ask? Well, the benefits of a FoF are numerous. You can obtain combinations of the best performing funds of different fund houses. FOFs are designed to provide greater diversification than regular mutual fund schemes. Diversification helps reduction in volatility while maintaining average returns. FOFs fund manager takes care of the research and process required to select the right fund in the portfolio. FoFs allow you to diversify risk by stage and size of investment and industry sector by investing across a wide spectrum of leading funds. A lay investor will not always be able to distinguish a scheme which is an excellent performer and one which is mediocre. It stands to reason that an experienced fund manager is in a better position to make superior fund selection decisions. FoFs also provide access to top-tier fund investments which are often inaccessible to small or new investors. With multiple fund managers and schemes in the underlying portfolio, FOFs helps reduce the impact of bad performance by any of the fund manager or the fund. More importantly, mutual fund schemes are exempt from taxes on their capital gains. This would make a FoF a very tax-friendly instrument whenever the portfolio is re-adjusted between equity and debt. As compared to this, you have to pay capital gains tax when you redeem profits from the funds. By investing in FoFs, you do not need the services of a financial advisor whose advice could at times be biased, unsuitable, and expensive.
Fund of Funds have their downside too
For the funds, the downside is that expense fees for FoFs are higher than that in the case of ordinary schemes since management fees have to be paid twice. Their cost structure will include the fees already charged by the funds in which the investments are made. Another flipside is that since the FoFs invest in a whole host of schemes which are themselves invested in a wide range of stocks it is possible and sometimes inevitable that it will be investing in the same stock through the different schemes. In terms of taxation, a FOF enjoys the status of debt mutual funds even if it invests 100% of its corpus in equity mutual funds.
Fund of Funds on a roller coaster ride
Fund of Funds have grown manifold in the last decade. They have shown phenomenal increase from a mere three funds in 2003 to 39 in 2012. Not only in terms of numbers, but also in terms of assets under management, the growth has been tremendous. The assets under management have increased from Rs 645 crore in 2003 to a high of Rs 6741 crore in 2012. During 2013 there have been no new FoFs. There has been a 20% slide in the AUM of FoFs during the past one year. In addition to the drought in FOFs in the NFO market, redemptions have been rife. With the Sensex scaling new heights, investors tried to capitalize on the gains. The previous dip was in 2008, which can be attributed to the global financial crisis.
Fund of Funds still a non-starter?
Fund of Funds by their very design are meant to lose less. Still, only 1% of the Indian mutual fund industry's AUMs are made up of FoFs. Because it holds many funds in it, FoFs will not deliver performance equal to or better than the single best performing fund that it has invested in. The return of fund of funds will always be closer to the weighted average returns of the funds it has invested in, quite like the return of your own portfolio of funds. And by the very same logic, a FoF will not go down as much as the worst performing fund it holds inside it. For this very reason, fund of funds are known to give superior risk adjusted returns. Secondly, FoF, until very recently, were perceived as competition by distributors. If one single FoF itself can buy, hold, sell, over-weight, under-weight the funds it invests in, then how will a distributor add value to the investor. This misplaced perception has begun changing in the recent past. Thirdly, the larger share of FoFs currently available in India, actually invest in funds of only their own fund house. This limits the diversification benefits an investor aims for when he himself buys mutual funds from different fund houses.
The bottom line
FOFs can be a pain-free entrance into the harsh mutual fund world for investors with limited funds, or for those who have limited experience with mutual funds, but this does not mean every FOF will be the perfect fit. You should read the fund's marketing and related materials prior to investing so that the level of risk involved in the fund's investment strategies is understood. The risks taken should be commensurate with your personal investing goals, time horizons, and risk tolerance. As is true with any investment, the higher the potential returns, the higher the risks. If you do not have the time and/ or the inclination to select STOCKS - Invest in MUTUAL FUNDS. If you do not have the time and/ or the inclination to select MUTUAL FUNDS - Invest in FoFs.