FUND FULCRUM - DECEMBER 2008

FUND FULCRUM (contd.)

(December 2008)

Ever since mutual funds caught the fancy of the Indian investors, they used to be a means of gain for investors in both good and bad times. But 2008 was different.

A sprawling global crisis of confidence emerged during 2008, dragging financial markets into unprecedented levels of volatility. The year began with a U.S. housing market correction already in progress. Falling housing prices, rising mortgage default and foreclosure rates, and financial-sector write-downs tied to mortgage-backed securities were all elements of this correction that gained momentum throughout 2008. The presence of deteriorating mortgage assets on the books of commercial and investment banks plus instability fueled by credit default swaps led to takeovers, bankruptcies and government intervention among financial firms.

Indian mutual funds became poorer by about Rs 1,50,000 crore, or about one-third of their total size. So did the investor’s kitty…

Piquant Parade

At a time when the mutual fund industry is reeling under the pressure of recessionary tendencies, Kolkata-based Peerless General Finance & Investment Company Limited, the first financial services company in Eastern India, has got preliminary in-principle approval from SEBI to set up an asset management company.

Cost cutting comes automatically in times of falling AUMs. Fund houses have begun negotiating with brokers, custodians and transfer agents to lower service charges. Several brokers, on their part, have reduced dealing charges (for institutions) from 0.25% to as low as 0.10% of the total transaction size.

On the other hand, in a bid to bolster their sagging AUMs, mutual fund houses are pampering distribution agents with unique incentives to boost sales. Fund houses are handing out upfront commission and monetary remuneration to increase fund sales. In addition to the 2.25% as entry load and 0.5% trail commission, distributors are being offered 0.5% extra commission for every fund sold. Instead of annual commission, which was the case until some time ago, fund houses are now offering an upfront commission of 1% for selling gilt and income funds.

Regulatory Rigmarole

SEBI has made the listing of all close-ended mutual fund schemes (except equity-linked schemes) that are launched on or after December 12 mandatory. Since the trading of units takes place only on the exchange, NAVs will not be impacted. Investors who stay on in the scheme are protected to a great extent and the fund manager is also not forced to sell securities before maturity at a huge discount, as is the case now when large investors in close ended schemes pull out. However, there will be a listing cost involved in the form of listing fees which may be recovered from the investors in the scheme. These will be part of the expenses for the fund, but will be lower than the exit load. For close ended schemes, the underlying assets will not have a maturity beyond the date on which the scheme expires. The new norms have come in wake of a liquidity crisis faced by the mutual fund industry when investors heavily redeemed from fixed income funds fearing their credit quality after rumors that funds had invested in commercial papers of real estate companies and NBFCs who were unable to pay them back.

New tougher norms are likely to be created for Fixed Maturity Plans (FMPs) if SEBI accepts the recommendations of AMFI. FMP schemes, which have a maturity between one and three months, must have a minimum 30% allocation to cash, collateralised borrowing and lending obligations (CBLO), bank fixed deposits, treasury bills and others - all safe and liquid instruments. In addition, AMFI has recommended that 30% of the investment can be made in bank fixed deposits against a present norm of 15% in bank FDs and 20% with board approval. Moreover, the maturity-mismatch has to be contained at 10% of the tenure of the instrument or one month, whichever is lower. AMFI has also recommended that all fixed-rate instruments above three months (instead of six months at present) should be marked to market. For debt funds, the valuation of the underlying papers is currently based on CRISIL`s valuation matrix. AMFI has proposed outsourcing these valuations to an independent third party. The Securities and Exchange Board of India in its board meeting today decided to fix the structural flaw in fixed maturity plans. It was decided that no early exit will be allowed in any scheme of mutual fund in the nature of a closed-end scheme. The schemes which have been approved earlier but not yet launched will also have to be amended accordingly.

The issue of sectoral caps on mutual fund investments has come up for discussion. Company-wise and industry-wise caps are being discussed by the Association of Mutual Funds in India. Some funds have over 90 per cent exposure to the banking and financial services sector. With real estate stocks facing the brunt of the meltdown, SEBI is likely to take steps to discourage mutual funds’ high exposure to the real estate sector.

The Securities and Exchange Board of India is discussing the issue of increasing the borrowing limit of a mutual fund from the existing 20 per cent to 40 per cent of the net assets of a scheme for a six-month period. This is to enable them to meet temporary liquidity needs like repurchase, redemptions or payment of interest or dividend. In order to meet sudden redemption pressures, liquid funds may be disallowed from holding securities with a maturity exceeding 90 days.

SEBI is set to discontinue the differential loads on high-value investments, in an attempt to provide a level-playing field to mutual fund investors. The move will balance the load for retail investors, who often end up subsidising their institutional counterparts.

The mutual fund advisory committee to SEBI, headed by S A Dave, has recommended that investors should pay the commission to distributors directly. As per the current norm, the commission is deducted from the total investments in mutual funds. As per the committee, since distributors provide services to investors, the commission should come from the investors themselves. Further the committee feels commission can also be negotiated, depending on the standard of the service.

The Dave committee has recommended that the practice of mutual funds declaring indicative return and indicative portfolio be stopped. However, the market regulator may make it mandatory for funds to disclose their entire portfolios once a month on their websites. Currently, most fund houses do not disclose the extent of exposure they have to pass through certificates (PTCs) and securitised paper.

The committee has discussed hiking the minimum networth requirement for mutual funds from Rs 10 crore to Rs 50 crore and networth of the sponsor to be five times the networth of the fund. However, this may take some time because the advisory committee that includes representations from investors’ associations is divided on this issue. A section of the industry feels that mutual fund is the domain of the fund manager. Raising the networth requirement may hamper individual fund managers from entering the asset management space.The other view is that a strong sponsor can infuse additional capital and provide liquidity support, if required.

Government has allowed navaratnas and miniratnas to invest upto 30% of their surplus in equity through public sector mutual fund schemes. The scheme to allow navratnas and mini-ratnas in this regard expired on August 1 this year, a year after it was notified.

Indian banks, insurance companies and mutual funds will soon have the opportunity to manage pension funds. The Pension Fund Regulatory and Development Authority (PFRDA) sought applications from entities wishing to float pension funds to manage retirement assets of all Indian citizens, other than government employees already covered under the existing pension scheme. Detailed criteria set out by PFRDA in its primary information memorandum (PIM) entitle government institutions, banks, insurance companies and mutual funds to sponsor a pension fund. One important criterion is that the sponsor must have at least five years of experience in running debt and equity funds and should have managed average monthly assets of Rs 8,000 crore for 12 months ended November 30, 2008.

SEBI has asked fund houses to aggressively market debt schemes to retail investors and also to focus on rural markets. According to data compiled by SEBI out of the 44.4 million investors, 87% are from urban centers. The corporate sector accounted for 56.55% of the mutual fund industry's AUM in debt schemes. The share of retail investors was only 6%, with the remaining accounted for by HNIs and other institutional investors.

The weak close to the year 2008 could provide an excellent ground for rebuilding as this is the appropriate time for investors to buy for the long term. Probably on account of this, the industry saw new fund houses entering or planning to enter the space this year. The ensuing year, 2009, could see much more consolidation on the back of declining assets under management and the rising cost of services, when a number of small fund houses could be sold to their bigger rivals. The much-awaited turnaround could also materialize in 2009…..but let us not resort to crystal gazing…..let events unfold at their own pace…..for informed and intelligent investors the opportunities beckon right now!!!

FUND FULCRUM - DECEMBER 2008

FUND FULCRUM
(December 2008)

Indian fund houses would like to forget 2008-09 as they witnessed their assets under management decline by Rs 1,89,898 crore between April (Rs.5,95,010 crore) and November(Rs.4,05,112). The drop can mainly be attributed to the global financial turmoil, leading to a liquidity crunch and prompting investors to pull their money out of mutual fund schemes. However, the AMFI data show that nearly 84 per cent or Rs 25,097 crore of redemptions in September and October — the worst months for fund houses — were as a result of the schemes maturing during those days. Mutual funds are set to witness a fresh round of redemption of Rs 36,848 crore between December 2008 and March 2009, with many of their debt schemes such as fixed maturity plans (FMPs), quarterly and monthly interval plans, fixed horizon plans and money market-related schemes set to mature during the coming months.

During November, redemption pressure on mutual funds came down from 97000 crore in October to 30000 crore. Mutual fund outflows in November were less than one third of outflows recorded in October, and the liquidity situation is improving though there is still investor wariness about equity schemes. Regulators continued with their liquidity support measures along with other confidence building measures. Both SEBI and AMFI confirmed that RBI measures had addressed the mutual fund industry’s liquidity requirements to a large extent. Besides, the special refinancing window for mutual funds (which has now been extended till March 2009), the RBI cut its repo rate by 150 basis points, cash reserve ratio (CRR) by 350 basis points and the statutory liquidity ratio (SLR) by 100 basis points since October to ease liquidity. On December 6, RBI announced another set of rate cuts, i.e., 100 bps cut in the repo rate to 6.50% and 100 bps cut in the reverse repo rate to 5%.

After a huge fall in assets under management of 27% during October (18% in September), the industry has seen a 7% decline in November, almost in line with overall market fall. Reliance Mutual Fund witnessed the biggest fall in its AUM in absolute terms, with an erosion of Rs 3278 crore but it still managed to maintain its coveted numero uno position with an AUM of Rs.67,816 crore. HDFC Mutual Fund maintained its second position intact and recorded a fall of 2.68 per cent in its AUM. UTI Mutual Fund’s assets have risen marginally by Rs 74 crore (0.19 per cent) to Rs 38,358 crore. It has taken over the third position from ICICI Prudential whose AUM stands at Rs 37,055 crore. Most fund houses have seen a decline except for Tata Mutual Fund which has seen a rise of about 3.2% and UTI Mutual Fund which has seen its assets almost stable rising by only 0.2%. Clearly the situation has improved a little for a few fund houses as compared to October but most of the fund houses still see their assets eroding substantially.

Piquant Parade

India's oldest mutual fund, UTI Asset Management Company, is eyeing to divest 26% to a strategic partner. It is reportedly in talks with three potential buyers, which include US-based T Rowe Price and Vanguard Mutual Fund. The buyer is expected to pay Rs 1500 crores to Rs 1800 crores, which would value the AMC at between Rs 6000 crores and Rs 7500 crores. The deal will not require an expansion of capital. Instead, all the four government-owned promoters of UTI AMC - State Bank of India, Punjab National Bank, Bank of Baroda and Life Insurance Corporation of India, will divest their 25% holdings proportionately. All four promoters have given UTI AMC`s management a mandate to find a strategic partner.

Religare Enterprises announced that following the acquisition of 100% share holding in Lotus India Asset Management by Religare Securities, a wholly owned subsidiary of the company, Lotus has become a step down subsidiary of the company. Following the acquisition, the name of Lotus India Asset Management has been changed to Religare Asset Management. The name change is effective from December 16, 2008.

The country’s third-largest private sector lender, Axis Bank, has received in-principle approval from the Securities and Exchange Board of India to set up its own asset management company. The bank is now waiting for the equity markets to stabilise before launching its first fund.

Principal PNB AMC issued a statement reinforcing its confidence in its India business. There have been reports that Principal is in talks with Birla Sun Life AMC to sell its mutual fund operations. The fund house expects the announcement will quell rumours about its operations. In fact, Principal Financial Group is looking to acquire an AMC in India as it wants to scale up its mutual fund operations in India. The company feels that the current market situation is the best time to do an acquisition because of lower valuations commanded by companies.

Edelweiss Asset Management Company entered into a distribution tie-up with Bank of Rajasthan for distribution of its products and services. Under the agreement, Bank of Rajasthan intends to distribute Edelweiss Mutual Fund's products through approximately 100 out of its 463 branches in India. The tie-up will help to strengthen its distribution network and increase its penetration across India.

Morgan Stanley Mutual Fund's flagship equity scheme - the close-ended Growth Fund launched in January 1994 - is set to become open-ended from January 15, 2009. In line with the SEBI guidelines, existing investors will be given an option to redeem the fund at the current NAV without any exit load. They can remain invested or switch fully, or partially, to the only other scheme managed by the fund house, ACE.

Life Insurance Corporation of India (LIC), the government owned insurer has purchased illiquid paper worth Rs 1755 crore from its mutual fund arm LIC Mutual Fund Asset in October. The insurer resorted to this off-market deal with it`s mutual fund arm to provide liquidity to it to meet redemption pressures. The acquired debt included bonds worth Rs 650 crores sold by BPTP, Rs 543 crores by Housing Development and Infrastructure, Rs 195 crores by Unitech and Rs 117 crores by Sobha Developers, among others.

Fidelity Mutual Fund has launched an innovative volatility tool designed to help advisers and investors put the current market uncertainty in the context of a longer term perspective. Fidelity`s volatility tool demonstrates the importance of longer term investing and staying focused on financial goals. The tool available at the website of Fidelity India uses investing truths, up-to-date data and dynamic graphics along with simple design. It is visually engaging and showcases several scenarios and themes that will educate advisers and investors about volatility. The web site has three tools that deal with different aspects of market volatility.
The tools on the website deal with:-
Timing the market : This tool helps investors establish how much they could lose on a notional investment of Rs. 0.10 million if they miss the 10, 20, 30 and 40 best days in the Indian market over a ten-year period.

Unpredictable returns : This tool helps investors look at how volatility increases or dips as investments are held over a one-year to a ten-year period.

Market crises : This section allows investors to check out how long the market took to return to its previous level after various crises.

To be continued.....

NFO Nest - December 2008

NFO Nest
(December 2008)

A silver lining in the dark cloud…

“The SBI Mutual Fund, with an investor base of over 55 lakh and a large network across the country, has mobilised Rs 1,677 crore under SBI Debt Fund Series-90 Day-32 plan that was closed on November 25, 2008. The scheme received good response from both retail and institutional investors with 2,300 applications being received during the New Fund Offer period…” so goes the news item. Today, such a news item in the field of finance is few and far between.

The following funds find their place in the NFO Nest in December, 2008.

Benchmark S& P CNX 500 Fund

Opens: 17 Nov, 2008 Closes: 15 Dec, 2008

Benchmark S&P CNX 500 Fund, India's first passively managed fund tracking the S&P CNX 500, aims at generating capital appreciation through equity investments by investing in securities which are constituents of S&P CNX 500 index in the same proportion as in the index. The fund will have at least 90 per cent exposure in the stocks of its chosen index. In case, it is not able to buy a stock that is stated in the index, then it can have exposure in its derivative instrument of up to 10 per cent. The fund may also invest in various debt instruments like money market instruments, G-Sec, Bonds, Debentures and Cash but it should not be more than 10 per cent of the total net assets.

Popular globally, index funds are yet to attract significant assets in India. Nearly 60 percent of the diversified stock funds have seen their net asset values fall more than the benchmark index's 54 percent fall this year, according to global fund tracker Lipper. Benchmark S&P CNX 500 Fund will be a low cost choice for investors seeking a broad exposure of Indian equity. Index funds can have a maximum expense ratio of 1.5% compared to 2.25% for actively managed funds. This fund is likely to provide one of the the widest equity exposure to investors. The index provides a broad diversification across sectors and industries accounting for nearly 92 per cent of the market capitalization. The case for indexing is getting stronger. In the current market meltdown many funds have collapsed far more than their benchmark, for lack of disciplined investment approach.

IDFC Tax Advantage Fund

Opens: 1 Dec, 2008 Closes: 17 Dec, 2008

IDFC Tax Advantage (ELSS) Fund seeks to generate long-term capital growth from a diversified portfolio of predominantly equity and equity related securities. The scheme will invest in well-managed growth companies that are available at a reasonable value and offer a high return growth potential. Companies would be identified through a systematic process of forecasting earnings based on a deep understanding of the industry growth potential and interaction with company management to access the company’s long term sustainable profit growth. The scheme aims at investing 65% to 100% in equity and equity related securities, 0% to 20% in debt and money market instruments and 0% to 20% in securitized debt instruments. The performance of the scheme will be measured against the BSE 200 index.

Sahara Star Value Fund, Sahara Annual Interval Fund, Sahara Super 20 Fund, Canara Robeco Dynamic Bond Fund, Tata Smart Investment Plan, Birla Sunlife Medium Term Plan, Gilt Benchmark Exchange Traded Scheme, Goldman Sachs India Money Market Fund, ING US Opportunistic Equity Fund, Baroda Liquid Plus Fund and Lotus India Active Nifty Fund are expected to be launched in the coming months.

GEM GAZE - DECEMBER 2008

Gem Gaze

Is the party (banquet for the prodigal son) over?

After four years of subdued existence, debt mutual funds made a sparkling come back in 2007. Diversification to debt is one of the better options available to investors in the current uncertain period in the markets, when equities wilted under the heat of the global financial market meltdown. The superior show by debt funds, led by a sharp rise in bond prices in the past few months, was on hopes that inflation would decline and trigger a spate of interest rate cuts. The bet has turned out to be right so far, but it is uncertain as to whether such a sterling performance can be repeated next year. This is because prices of these bonds are expected to slip on higher-than-estimated borrowing by the government. The government’s borrowing programme for 2008-09 may overshoot its target of 2.5% of gross domestic product (GDP), or Rs 1.33 trillion. Higher government borrowing results in increased supply of bonds, which negatively impacts prices and pushes up yields. In addition to fundamental reasons, smaller fund size (around Rs 150 – 200 crore) would be critical for debt schemes to maintain their performance of 2008.

The Dashing Debt Dynamites of last year have not lost hold of their grip on the Gem status, save one. Principal Income Fund failed to live up to our expectations and has been replaced by the gaiety gait of ICICI Prudential Gilt Fund, with its robust returns.

Birla Sunlife Income Fund Gem

Bounty at the Banquet

Launched in March, 1997, this decade-old fund with an asset base of Rs.194.96 crore (Rs.31.94 crore in June 2007) and an average maturity of 8.28 years, has several awards to its credit. The noteable awards during the past one year include the 2007 CNBC-TV18 CRISIL award, the 2008 Lipper Awards for the Best Fund (3 and 10 years performance) and the ICRA Five Star Award (1 and 3 years performance). Rs 1 lac invested on 8-Dec-2003 in Birla Sun Life Income Fund is worth Rs.135735 as on 5-Dec-2008. A similar investment in the benchmark CRISIL Composite Bond Fund Index would have been worth Rs.118655. The one-year returns are 13.15% as against the category average of 8.69%. With 61.93% invested in Government of India Securities and 25% in AAA rated bonds and 20 % in cash, safety ranks high on the fund’s agenda.

Kotak Bond Regular Fund Gem

Quality quadruples kitty

Kotak Bond Regular Plan, a medium-term, open-ended fund has generated consistent returns since its inception in November 1999, yielding 9.72 per cent per year. For a 1-year period, the fund has delivered returns of 8.58 per cent, which is better than the benchmark’s 5.75 per cent and the peer group’s 6.14 per cent. Kotak Bond Regular has not only generated decent income for its investors, but has done so with a reasonably low level of volatility. It has managed this by investing in quality rated corporate papers keeping 60-70 per cent of its portfolio in high yielding assets such as bonds, commercial paper, corporate deposits and securitised debt. The balance 30-40 per cent is deployed in riskier government securities. The emphasis on a high yield portfolio and spreading the risk across a wide maturity horizon and different kinds of issuers in debt markets has helped keep the fund’s volatility low. At the same time, no opportunity has been lost to book gains when the market has provided profit booking opportunities. Besides, savvy short-term calls in the g-sec market have helped the fund generate superior returns. The g-sec exposure doubles up as a means to address redemption pressures, thanks to relatively high liquidity in that market. On the other side of the spectrum, instruments such as securitised debt are used to increase the average yield of the portfolio. This is despite the fact that such instruments are illiquid. But then, securitised debt accounts for only about 14 per cent of the portfolio, and even in a case of redemption pressure there may be no need to liquidate this part of the portfolio. The expense ratio of 0.89 per cent is very impressive and is significantly lower than the category average. But now, the expense ratio stands at an all-time high of 2.25% in view of the active interest rate bets taken by the fund. The scheme currently managed assets worth Rs 37.46 crore. It has seen outflows in the last couple of quarters. This erosion in fund size is attributed to the overall trend in the debt market. In a nutshell, Kotak Bond Regular is a reliable fund which delivers high returns, with about average volatility. A reduction in expenses will make it a truly quality offering.

LIC Bond Fund Gem

Lean Lead

This medium-term, open-ended debt fund, launched in November, 1999 has an asset base of Rs. 58.42 crores. Its one-year return has been 11.25 % as against the category average of 8.69%. With 43.3% of its assets in Government of India securities, 49.52% in Debentures (20% in AAA rated papers) and 8.46% in Structured Obligation, safety seems to be the overriding concern.

UTI Bond Fund Gem
Upholding Ubiquity
Launched in May 04, 1998, the fund aims at providing regular savings facility, easy liquidity and attractive post-tax returns to the investors through capital appreciation. It has an asset base of Rs. 215.18 crore with 41.66 % in Government of India Securities, 27.4% in NCDs, 25.37% in Debentures and Bonds and 5.57% in current assets. Its 1 year return is 9.72% relative to 2.68% of the benchmark J.P.Morgan Indian Government Bond Composite Index.

ICICI Prudential Gilt Investment In

Gaining Ground

The 2008 Lipper Award winning ICICI Prudential Gilt Investment Plan has generated an annualised return of 12.2 per cent and has consistently outperformed the benchmark I Sec I-Bex by a comfortable margin since its inception in August 1999 and this period spans varying trends in the interest rate cycle. Even as equity markets were struggling to generate a positive return, ICICI Prudential Gilt has piggybacked on rising gilt prices to generate a return of 25.3 per cent over a one-year period as against the category average of 15.7 per cent. A major part of this return has been achieved during the past few months, amid the sharp slide in yields. Though returns of this order may not be repeated, returns are likely to remain healthy (in the 10-11 per cent range) over the next one year, given the softening bias to interest rates. According to the November portfolio, the fund had 91.6 per cent in long-term bonds (above 10-year maturity), 3 per cent in CDs and term deposits and the balance in money markets and other assets. The preference for long-dated securities, reflected in the 10-year yield-to-maturity, has dropped from a high of 9.5 per cent to 6.7 per cent. The softening of inflation and the anticipated cut in interest rates have pushed down yields and helped prices of long-term bonds over the past six months. The fund intends to hold 70 per cent of the assets in long term instruments and 25-30 per cent will be churned to generate higher yields. With the interest rate heading south, ICICI Pru Gilt Investment has a potential to generate better returns. A conservative investor might find the liquidity of the fund and the sovereign guarantee that backs its securities attractive. Those in the higher tax brackets may also find it a tax efficient way to earn debt returns.

The equity market has belied investors’ hope of a quick revival, what with the correction that started in January 2008, showing no clear signs of waning. However, given the interest rate movement over this period, those who had invested in debt funds would have derived some comfort. Whether this cushion will remain soft or hurt in 2009 remains to be seen…

FUND FLAVOUR - DECEMBER 2008

FUND FLAVOUR

Debt Funds

Dime (Debt Funds) a dozen…


Mutual funds offer a wide bouquet of debt funds. The recent hardening of interest rates has opened up a lot of opportunities for those looking to invest in debt instruments. Depending upon your investment horizon, tax status and liquidity needs, you can make your choice. Of course, no investment is without risk. But as long as you make an informed investment, you can minimize the risks and maximize the returns.

Here is a look at the different avenues in debt instruments and how they have fared in the year gone by…

Gilt Funds

G(u)ilt free edge…

In October 2008, the mutual fund industry witnessed a massive loss in its average assets under management (AAUM) of over Rs 97,000 crore. However, a small segment of debt schemes managed to buck the trend — gilt funds. We have witnessed aggressive monetary easing across the globe in response to the credit crisis... In India, RBI has also cut its key rates in recent months to ease liquidity pressures. This has led to a decline in bond yields, helping the performance of gilt funds. Over the past one year, till October 24, 2008, medium- and long-term gilt funds have been the best performing category among debt funds. Some top-rated gilt funds are giving a return of over 20 per cent. Short-term gilt funds collected the maximum, over Rs 1,500 crore, and the medium- and long-term category netted another Rs 70 crore. In fact, the short-term category’s AAUM is up from a paltry Rs 501 crore to Rs 2,018 crore. While the medium-and-long-term (over one year) category average returns is at 9 per cent, some of the bigger funds have been able to give really good returns — ICICI Prudential Gilt Investment (17.15 per cent), many others have given returns between 14 and 16 per cent. Even the short-term gilt category (less than a year) has given returns of 6.44 per cent.

Fixed Maturity Plans

The Blockbuster goes bust…

In September 2008, returns were on the upswing, thanks to tighter liquidity conditions. FMPs launched in September were offering indicative returns (mutual funds can only indicate and not guarantee returns) of around 11 per cent for both short- and the long-term FMPs. This has now come down to the range of 9.95-11.10 per cent. However, this is still higher than the returns indicated by funds over a year ago. In September 2007, three-month FMPs’ indicative rates were around 8-8.30 per cent, and for over 12 months, they were hovering around 9-9.50 per cent. While the longer duration FMPs are still indicating returns of around 10.5 per cent, the shorter duration ones have begun downward revisions in the indicative yields.

A downward revision in the returns coupled with concerns over the quality of the paper held by FMPs has led to retail investors shying away from FMPs now. This was attributed to the fact that many of them had invested significantly in commercial papers (CPs) and bonds of real estate companies and non-banking financial institutions (NBFCs).There were strong rumours that many of these companies were unable to repay the fund houses on time, leading to rollover of schemes. This fuelled fears that many schemes would be forced to default. When all fund houses declared portfolios of their schemes because of the half-yearly results, it dawned on the investors that the real portfolios were a far cry from the indicative portfolios.

FMPs faced severe redemption pressures in October, 2008 a month which saw the Bombay Stock Exchange’s benchmark Sensex fall a record 23 per cent. According to October-end data, the average assets under management (AAUM) of FMPs stood at Rs 127,080 crore, down Rs 10,718 crore in a single month. Over 25 per cent of the entire AAUM of the mutual fund industry is in this one product. SEBI confirmed that it will make early withdrawals from FMPs tougher, a move that is expected to solve mutual funds’ liquidity problems. At present, investors can exit FMPs by paying 2 per cent of the NAV at any point of time.

Debt Income Funds

Indebted…

The performance of debt income funds has not been very inspiring of late. In fact, even short-term income funds have outperformed longer-term income funds. This is because fund managers of income funds buy debt instruments of varying maturities. In a rising interest rate regime, the market price of bonds fall, as their yields rise, especially those of longer maturities, making longer term debt portfolios suffer a mark to market loss. In the past year short-term income funds have returned 6.68 per cent while long-term debt funds have returned only 5.32 per cent. This avenue of investment does not look very attractive in a rising interest rate scenario. These funds are ideal for people on the verge of retirement or those with moderate risk appetite.

Floating Rate Debt Funds

No longer floating…

Floating rate debt funds are linked to floating rate of return, which change with bond yields and interest rates fluctuations. This means that ideally, floating rate funds should not incur a mark to market loss on their debt portfolio in a rising interest rate scenario. However, returns of these funds have been quite low, with short-term funds returning more at 7.05 per cent than longer-term funds at 6.88 per cent. These funds have given an average return of about 7-8% over the last 6 months to 1 year, which on post-tax basis works out to about 6.15-7%. Similar have been the FD rates; but the post-tax returns work out to around 5.3-6.1%. Though these funds are a better choice over debt income funds in the present scenario, their returns do not make them a preferred vehicle of investment for longer-term investments.

Liquid Funds

Melting in the mouth…

Liquid funds have traditionally experienced considerable volatility in their assets, as their key investors are institutions and corporate treasuries rather than retail investors. Redemptions from liquid funds spiked in March, June and September 2008, following historical patterns as these are months when companies may need additional liquidity to pay taxes and advance taxes. However, redemptions this year have also been influenced by tightening liquidity over the past four months, corporates facing a funds crunch and an investor flight to safety. In the last one year, liquid funds have returned between 7.7 per cent and 8.85 per cent. Liquid-plus funds, on the other hand, have slightly higher returns between 8.4 and 11.29 per cent. Obviously, that makes them a better choice as against money earning a dismal 3-3.5 per cent in your savings account. But worries about a deteriorating credit environment have led to corporates and institutions moving to fixed return investments such as fixed and bulk deposits as also hard cash. Interest rates on alternatives such as bank deposits started to rise sharply in the second half of the year. These offered attractive and safer options, atleast for high net worth investors, which may explain some of these non-seasonal redemptions.

Concern of the conservatives…

Debt is not a homogeneous set of assets. This variety offers much better control over returns and risks compared to equity, and is thus ideally suited for the more conservative investors. This image of debt funds have taken a severe beating in recent times. In some of the papers, yields on the securities have crossed 50%, which is an indication that the market is beginning to price in a possible default risk on these investments. The bonds are quoting at yields of 27-60% against 12-16% a year ago. A few portfolio managers could well be investing a slice of their corpus in these papers. So how do these discounts or higher yields affect a company’s profile over a period of time? If bonds trade at a huge discount to their issue price for a sustained period of time, it will certainly affect the company’s ratings. A concern indeed for the diehard conservatives.

FUND FULCRUM - NOVEMBER 2008

FUND FULCRUM
(November 2008)

The Indian mutual fund industry shrank sharply in October 2008. The combined assets of the 35 fund houses declined from Rs.5.3 lakh crore in September to nearly 4.3 lakh crore (June 2007 levels), a fall of Rs.97,196 crore or 18.4%. While equity component of the AUMs have shrunk by around 18-25%, their debt assets have dwindled by as high as 60%. Mutual funds faced unprecedented redemptions in liquid schemes and FMPs.

Mirae AMC and AIG saw the sharpest decline in AUMs at 55% and 44% respectively. In fact, no fund house has come out unscathed - all of them have declared a dip in their AUM. The AUM of Reliance fell by Rs.15,400 cr to Rs.71,093 crore. ICICI Prudential and HDFC saw a decline by Rs. 10,594 cr and Rs. 6,519 crore to Rs.39,209 cr and Rs. 45,479 cr respectively. Despite the fall, the major fund houses maintained their respective positions. Among the top 10 fund houses (in terms of asset size), Franklin Templeton has witnessed the highest loss in assets (-22.4%), followed by ICICI Prudential (-21.3%) and Kotak AMC (-20.7%). As expected, the new funds bore the brunt of the widespread decline in AUMs.

Piquant Parade

India Infoline has received the in principle approval from SEBI for sponsoring a mutual fund.

Union Bank of India and KBC Asset Management, the globally active asset manager of the Belgium-based KBC group, have agreed to set up a 51-49 joint venture AMC in India.

DLF Pramerica Mutual Fund, a joint venture between U.S. life insurance major, Prudential Financial and the real estate company, DLF, has received an in principle approval from SEBI to sponsor a mutual fund.

DSP Merrill Lynch Investment Manager has changed its name to DSP Black Rock Investment Manager to reflect the change in ownership of the AMC.

Dutch financial services major Aegon and Religare Enterprises have decided to call off their joint venture. The AMC had recently got SEBI approval for setting up a mutual fund. It had also acquired Lotus India Mutual Fund to strengthen its operation. Sources say that Religare would still go ahead with the Lotus acquisition as it had struck the deal at an attractive valuation and it would help Religare expand its presence in the market.

According to industry sources, Indian asset management arm of the crisis-ridden American International Group, which saw a fall of over Rs.1000 cr in assets in October, is up for sale.

In a cost-cutting drive, UTI Mutual Fund has drastically reduced its advertisment budget by appointing 'Dabbawalas' as relationship managers and using the mobile phone screens to communicate information to investors.

Lipper FMI, a Thompson Reuters company, announces the launch of its Asian Fund Market Almanac 2008, an essential resource for fund strategists to get up to date with the latest development in the fund management industry across nine key Asian markets.

Regulatory Rigmarole

In order to end the liquidity crisis faced by mutual funds, Public Sector Banks have now relaxed norms for accepting CDs of some private and foreign banks as collateral, which have not been previously accepted by them and have agreed to lower the interest rate they charge to fund houses.

The government, which had allowed navratna and miniratna companies to invest 30% of the surplus in Public Sector Mutual Funds last year, now plans to review the situation every 3 months due to current volatility in the market.

At present, investors can exit FMPs by paying 2% exit load on NAV at any point of time. SEBI now plans to make exit from FMP schemes harder so as to keep investors invested in schemes for the entire duration of the scheme.

The minimum capital an AMC has to maintain to manage the assets is expected to go up. This measure is being contemplated by SEBI to combat the bitter experiences of the turbulent market. Currently mutual funds are operating on a thin capital base of Rs.10 cr. It is also planned to introduce the concept of capital adequacy, due to which the quantum of funds managed by AMCs would be linked to their capital base.

SEBI is planning a proposal to remove the short-term tax benefits on dividends paid by mutual funds. According to current norms, there is no tax on short-term dividend payout and for debt funds the tax is 22.66% for companies and 14.16% for individuals. This is in contrast to the short-term Capital Gains tax of 15% on equities and 33% on debt. Using this loophole, many firms and High Networth Individuals exit funds after they get interim dividend. These early redemptions mean loss in the NAV of long term investors.

The raw deal...the ray of hope

The RBI data reveals the rapid fall in the bank exposure in mutual funds from Rs.21,699 cr in September to Rs.13,630 cr in October, 2008 (Rs. 60,000 in early May, 2008). The timely RBI rescue (the mutual fund industry had borrowed Rs.22,000 cr out of which Rs.9000 cr has been paid back) has put the mutual funds on the road to recovery and staved off a plausible bankruptcy of a few mutual funds.

NFO NEST - NOVEMBER 2008

NFO Nest
(November 2008)

Waning FMPs …waning NFOs …

• At least three fund houses — Franklin Templeton Mutual Fund, Kotak Mutual Fund and Taurus Mutual Fund — have extended the NFO period for their fixed maturity plans (FMPs) in the last few days.
• Some funds have started charging an exit load on their debt schemes to discourage redemptions.

While redemptions were not as big as feared, the launch of new FMPs has drastically come down in October and the money collected through New Fund Offers stood at Rs 6,778 crore, compared to Rs 23,173 crore in September. This has hurt the industry hard. NFOs have, for all practical purposes, served to roll over monies from maturing schemes.

The following funds find their place in the NFO Nest in November, 2008.

UTI Wealth Builder Fund Series II
Opens : 21 Oct, 2008 Closes : 19 Nov, 2008

The ongoing global economic and stock market turmoil has fewer investors asking whether or not they should invest in gold. The relevant question is increasingly – how can we invest in gold? Besides buying actual gold bars, in India we have two options. One is to invest in mutual funds that buy the stocks of mining companies abroad or invest in Gold Exchange Traded Funds (ETFs).

Now there is one more interesting option thrown up – a mutual fund that invests in gold, equity as well as debt. UTI Wealth Builder Fund-Series II will invest in a diversified portfolio of equity and equity related instruments, debt as well as Gold ETFs. The equity allocation will not be restricted to any market capitalisation or sector. It will be tilted towards large caps though and will also employ derivatives to hedge and manage volatility. The exposure to equity can vary from 65% to 100%. However, the exposure to Gold ETFs will be anywhere from 0 to 35%. The same percentage applies for debt and money market instruments. The fund has the following benchmarks: BSE 100 (equity), CRISIL Bond Fund Index (debt), gold price as per SEBI regulations for Gold ETFs (gold).

This combination of equity, debt and gold is an innovative scheme and looking at the asset allocation and large cap tilt, it should be a conservative offering with low volatility. It is mandatory to have a demat account when investing in a Gold ETF. That requirement is eliminated here. Moreover, unlike funds which buy gold mining stocks, this one will directly have exposure to gold via an ETF. A well thought out combination of gold and equity. Since the equity exposure is a minimum of 65%, for tax purposes it will be treated like an equity fund. So investors selling their units after a year will not have to pay any capital gains tax.


UTI Wealth Builder Fund - Series II is the first of its kind in the mutual fund industry to offer an asset allocation which combines traditional as well as non traditional asset class i.e. Equity and Gold. It is important to have an alternative asset in one’s portfolio and to build a portfolio around assets that have low correlation. Gold has proved to be "counter cyclical" or low correlated asset class as compared to equity investments and has generally been considered as a safe haven during times of economic upheavals and volatile equity markets. The investment in Gold ETFs will diversify portfolio risk and reduce overall volatility of returns in a reasonable time frame.

ICICI Pru S.M.A.R.T. Fund – Sr D and G
Opens : 15 Oct, 2008 Closes : 28 Nov, 2008

ICICI Prudential S.M.A.R.T. (Structured Methodology Aiming at Returns over Tenure) series D and G aim at investing in short-term and medium-term debt instruments with fixed and/or floating payouts linked to the equity indices normally maturing in line with the time profile of the schemes (24 months in the case of Series D and 36 months in the case of Series G). (Series D opened on 16 October and will close on 20 November).

DBS Chola Tax Advantage Fund - Series I, DWS Treasury Plus Fund, Edelweiss Equity Linked Savings Scheme, Edelweiss Arbitrage Fund, Tata Infrastructure Tax Saving Fund, Religare Ageon Business Leaders Fund and Lotus India Active Nifty Fifty Fund are expected to be launched in the coming months.

GEM GAZE - NOVEMBER 2008

GEM GAZE

Defense pays but……divergence prevails

The broad market fall from January 2008 has taken its toll on the tax planning ELSS funds as well. The downside protection strategy has a common thread across several funds. Many of the funds have significantly increased exposure to large-cap stocks as a result of the volatility associated with mid-cap stocks. The increase in asset size has also necessitated a move to large cap stocks over the past year. Concentration of stocks and sectors has also quite reduced. Some funds have moved heavily into cash/debt investments. The year-to-date returns of these funds have significantly lagged the Sensex, Nifty and BSE-100 returns. Barring Sundaram Tax Saver and Taurus Libra Tax Shield (a bolt from the blue since it has been a laggard in the past), none of the funds yielded positive returns on a one-year basis. The gulf between the top and bottom five funds’ returns is quite wide, indicating that stocks and sectors chosen may have made a big difference.

Magnum Taxgain Gem

Street Smart

Magnum Taxgain has emerged as the prodigious son of the ELSS category. The top performing fund in the 3- and 5-year time frame, SBI Magnum Taxgain retains the flexibility to move into whichever market segment it sees opportunities in. Since January 2007, the fund has been consciously reducing its exposure to technology, while increasing exposure to auto and financial services. The allocation to the tech sector is down to 8.98% from 16.6% last year. The share of financial services has gone up by five times from 3% last year to 15% this year. The past performance of the fund and its ability to move into various segments of the market makes it an attractive proposition for investors willing to put up with a degree of uncertainty for higher returns.

HDFC Taxsaver Gem

Vital Veteran

An exemplary track record and a highly reliable fund house make HDFC Taxsaver one of the best in its category. Since November 2004, it has steadfastly held on to its five-star rating. Known for its astute stock picking and stellar performance, it has also shown resilience while protecting the downside time and again. But despite being a compelling tax-saving option, it has stumbled a bit lately when there was a change in fund manager. Once at the helm, the new fund manager made a couple of visible changes to the portfolio. Exposure to auto and construction stocks was significantly lowered while notable positions were built in sectors like energy, banking and services. The increased investment in Reliance Industries and banking stocks proved rewarding but the higher allocation to technology has dented performance. Though held in high regard, as far as the category of tax-planning funds is concerned, the fund is not completely out of the woods. But going by its great performance history and the reliability of the fund house, this fund remains a vital ingredient of a core portfolio despite its recent setback.

Birla Equity Plan Gem

Meticulous Model

Birla Equity Plan has come a long way since inception to emerge as a category beating fund. Except for 2007, the fund has consistently beaten the category returns over the past five years. The fund manager churns the portfolio quite aggressively. He moves swiftly in and out of sectors spotting opportunities and strategically timing his entry and exit. With a fund size of Rs 196 crore, the fund is still small enough to be nimble while moving in and out of sectors and stocks. From a concentrated portfolio of 32-35 stocks, the fund has gone to a more diversified portfolio of 45-50 stocks in the last six months. While this reduces the risk in the fund, it also limits the gains from good stock picks. The refreshing difference in the portfolio is the lower than average allocation to the technology sector. This has stood the fund in good stead in the recent market meltdown.

Fidelity Tax Advantage Gem

Youthful Yarn

In its short life, Fidelity Tax Advantage has managed to consistently shine over its category. This fund prefers to play it safe and has maintained an average large-cap allocation of 62 per cent. This move has paid off well for the fund as in the ongoing market turmoil. The portfolio is diverse with stocks ranging between 66 to 91 and rarely any stock accounts for four per cent of the fund’s portfolio. Nearly three fourth of the fund’s portfolio has been held for over one year. The fund manager has picked small positions ahead of many others in a series of small companies which have been very rewarding. The fund manager seems to be bullish on the financial services sector and has been consistently increasing the stake in this sector. Technology and Energy are the other dominant sectors in the fund’s portfolio.The fund has evolved to be a steady well-diversified offering that has consistently beaten the category average.

Sundaram BNP Paribas Tax Saver In

Sensible Star

A defensive strategy of maintaining nearly 30% as cash compared to 10% a year earlier has enabled it to hold its head above water (earn a positive return) as opposed to its peers who have had to remain under water (earn negative returns). The fund has always maintained a well-diversified portfolio with 55-60 stocks. So, even if one, or few stocks underperform, the overall performance will not be at risk. The fund has reduced its large-cap exposure in the last quarter of 2007 unlike most funds that increased holdings in large-cap stocks during the period. As a fund that can shift across segments, the ability of the fund manager to identify trends early enough has been crucial in the fund's performance and is suitable for investors willing to take this risk. Its AUM has been surging at a breakneck speed. It started out as a fund having assets of Rs 3.8 crore in January 2001. At the end of January 2008, the AUM surged to Rs 402 crore, an increase of 100 times in seven years!

Principal Personal Tax Saver In

Super Saver

The Principal Personal Tax Saver is a diversified ELSS which has been around for more than a decade now. The fund offers a high amount of stock and sector level diversification with top five sectors constituting 42% of the corpus and a consistent 35-45 scrips in its kitty which currently stands at 44. The fund made early inroads into infrastructure and related sectors when the sector started booming and consistently maintained a high exposure especially to capital goods which witnessed a spectacular run and has still continued to show great potential. The fund has taken a contrarian stand with high exposures to IT and textiles which have been reeling due to Rupee appreciation and has only recently pruned its exposure to Auto although this does not seem to have dented the fund’s fantastic performance. The stock selection has consistently been excellent. The fund has traditionally been an aggressive offering with the fund manager often resorting to high portfolio churn and high levels of exposure to small caps and mid caps. But more recently it has witnessed a significant change in style with a much needed increase in exposure to large caps and adoption of a more conservative strategy with the entry of the new fund manager. The new fund manager has retained a majority of the small and mid cap stocks that have contributed handsomely to the fund’s performance, thus creating an excellent balance between safety and aggression.

Taxing Times

The trauma of the financial sector has (t)painted the present scenario as taxing times. Nevertheless, the towering tax tycoons of last year have maintained their position refusing to be torn by the typhoon or rather tsunami that devastated the hitherto invincible (so we thought!) financial behemoths. A red carpet has indeed been spread to accord a royal welcome to two of the most resilient ELSS funds that have embellished the entourage!

FUND FLAVOUR - NOVEMBER 2008

FUND FLAVOUR

Equity Linked Savings Scheme (ELSS)

A boon blossoming from the boom…

A booming stock market (till December 2007) coupled with relaxations in the overall investment limits for ELSS funds eligible for tax breaks over the past three years have prompted investors to allocate larger sums to equity linked tax saving schemes floated by mutual funds. Assets managed by ELSS mutual funds have grown nine-fold between April 2005 and March 2008, from a minuscule Rs 1,727 crore to Rs 16,000 crore. While there have not been too many new launches in this space, established ELSS funds, which have topped the return charts over the past three years have been the ones to see substantial inflows. These funds have managed to generate an astounding return of 41.30 per cent per annum in the last five years (as on June 2, 2008). While the equity-linked funds have gained popularity, thanks to the relatively shorter lock-in period, collections under small savings avenues such as the National Savings Certificates have seen a decline in recent times. In 2004-05, total collections under NSC stood at Rs 10,097 crore. But these stood at only Rs 3,628 crore in the first nine months (until December 2007) of 2007-2008, as per the data provided by the Accountant-General, Posts and Telegraph.

The ban(e) bombarding from the bust…

The market meltdown in the past ten months has raised a question as to whether the investors should opt for the Equity Linked Savings Scheme (ELSS) of mutual funds or take a mix of fixed income tax saving investments and diversified mutual funds that would provide them with some flexibility even while offering tax benefits. The question has arisen because of the steep decline in the value of equity linked savings schemes which come with a lock in period of three years, thus blocking the exit route for the investors in any falling market before the mandatory three year period is served. It is true that it is not only the ELSS but the diversified mutual funds which have taken the stick in the sharp fall the market has witnessed in the past ten months - from a high of more than 21,000 points of BSE Sensex in January to around 10000 now. But the sustained market volatility has led to a huge fall in the NAV of ELSS of even established fund players with proven track record. The rising interest rates of bank deposits and the fact that diversified equity funds offer the flexibility of cashing out in a falling market without worrying about lock-in period have further eroded the NAV of ELSS Funds.

A look at the data published by Value Research in a recent issue of ‘Mutual Fund Insight’ shows that the returns from Tax Planning Equity Funds has sharply come down not only on a one year basis but on a three year basis as well, which should be of concern. The inconsistency in performance of fund houses is also visible and some of the funds that figure prominently in five year category of top performing funds do not find a place in the next two categories – three years or one year. The wild swing in performance can be attributed to government policies and business environment of a particular sector and valuations at which stocks are purchased by a mutual fund also have an important role to play. If some funds had invested in power, capital goods and engineering, and real estate sectors some 10 months back, they would have underperformed as valuations in this space have been de-rated considerably whereas funds with greater exposure to IT and/or pharma would have given better yield than their peers. ELSS funds invest across all sectors because of the flexi cap mandate. Funds which could do relatively better did so due to better stock picking capability and probably higher concentration (in) specific stocks.

Will the market turmoil lead to investors having a re-look at their ELSS investment options? Considering the current valuations and potential over the next 3-5 years, staying away from equities carries a greater risk than staying with it.

A more rewarding option......to help finance your future

Come March 31 and you will, like every year, find people running around, looking to invest in tax-saving instruments. Most choose the regular ELSS (equity-linked saving scheme) instruments that have a three-year lock-in period as it gets them tax benefits under Section 80C. But this year, there have been some interesting options. Mutual fund houses have launched products similar to the usual ELSS, but with a much longer tenure of 10 years. What is more, since these are new funds, they come with the added advantage of having no entry load, unlike existing funds which carry an entry load of 2.25 per cent.

Nuggets to gnaw at…

By keeping a few strategies in mind, you can make the most of your ELSS investment.

Keep financial goals in mind: Every ELSS adopts different stock picking strategies. Some schemes such as Franklin India Tax Shield maintain a large-cap focus and are suitable for those who have a lower risk profile. On the other hand, funds that have greater exposure to small- and mid-cap stocks, such as Principal Tax Savings Fund, fit the portfolio of those willing to take a higher degree of risk. Ignoring this aspect would lead to a mismatch between the fund and your profile.

Diversify among styles: The role of the ELSS in a portfolio is restricted to providing tax benefits without compromising on the return. It cannot form the core of a portfolio. A portfolio should ideally stick to at best two schemes with varying investment styles and market focus.

ELSS & SIP – A Perfect Match : The first option gives you twin benefits of tax savings and capital gains. The next option helps you take advantage of fluctuations in the stock market and averages your cost of investment. What more does one need? However, remember that each instalment will be subject to a 3-year lock-in. So, if you enroll in a 3-year SIP and invest systematically every month for three years, you will get your entire proceeds only after six years, after your last instalment (at the end of the third year) completes three years.

Growth or dividend option: Choosing the growth option ensures compounding and capital appreciation in a mutual fund investment. However, in the case of an ELSS, the dividend payout option provides a degree of liquidity even during the lock-in period. The dividend paid out can be invested in other investment options, whether equity or debt, depending upon the rebalancing needs of the investor's portfolio and, thereby, reduce the risk in the overall investment plan. From the tax perspective, both options are equally efficient.

Do not chase NFOs: A new fund does not offer a track record to bank on. Populating your portfolio with ELSS NFOs every year is a mistake.

Buy from the company: Why pay Rs 2.25 entry load on every Rs 100 you invest to the agent ? Go to the fund office and buy.

See the whole to avoid the hole…

ELSS should be treated as part of the overall portfolio and not merely as a tax-saving instrument. This will ensure that all your investments will be as per your risk profile. Moreover, it will be goal oriented and not for the temporary purpose of saving tax only. You get returns from the equity market only when you have a long time horizon. If you keep adding money in a disciplined manner, you create a good corpus. It is indeed a good option to save tax and create long-term wealth with ELSS.

FUND FULCRUM - OCTOBER 2008

FUND FULCRUM
(October 2008)

Tight times

The global financial crisis, particularly the turmoil seen in the US financial circles, has had its impact on the Indian capital markets as well. The Indian stocks markets witnessed a significant fall in September, the Sensex shedding nearly 12 per cent. The unpredictable markets, that seem to shake at the slightest provocation, have hurt the investors' sentiments and predictably the fortunes of the fund houses as well. In addition, September is the period when inflows into equity are generally tight as the banking sector has to redeem its funds on account of balance sheet concerns at quarter end. Most corporations also redeem their money to meet their advance tax liabilities.

In September, the combined assets under management of fund houses fell by 2.76 per cent. The assets under management of the mutual fund industry now stand at Rs 5,29,121.75 crore against Rs 5,44,173.95 crore at end of August. 20 of the 36 fund houses witnessed a dip in their AUM. All the top 10 fund houses have seen a steep decline in their assets. Reliance Mutual Fund retained the top slot in terms of assets under management even though its assets declined by two per cent to Rs 86,494 crore. HDFC Mutual Fund was the second largest fund house with assets worth Rs 51,998 crore, which was down by Rs 1,860 crore from the previous month. ICICI Prudential Mutual Fund, held the third position with assets worth Rs 49,772 crore even though it was a whopping Rs 3,320 crore less than the previous month. UTI Mutual Fund which held Rs 44,623 crore, after losing Rs 2,324 crore was the fourth largest in terms of assets under management.

Silver lining in the dark sky…

On a brighter note, some fund houses also saw a surge in their assets. Canara Robeco Mutual Fund saw its assets surge by nearly Rs 1,090 crore to Rs 6,006 crore. Sundaram BNP Paribas Mutual Fund added Rs 642 crore while Franklin Templeton Mutual Fund added Rs 632 crore to their respective AUMs. Apart from these, ABN AMRO Mutual Fund (Rs. 591 crore), Kotak Mahindra Mutual Fund (Rs. 389 crore) and Deutsche Mutual Fund (Rs. 228 crore) also saw a significant surge in their assets. Another notable development this month was that the new fund house, Edelweiss Mutual Fund declared its AUM for the first time which stood at Rs 301 crore.

Piquant Parade

At the annual Outlook Money NDTV Profit Awards, Principal Asset Management Company was declared the Best Mutual Fund House as well as the best debt fund house in India.

ABN AMRO Asset Management Company has been acquired by Fortis Investment Management and would be renamed Fortis Investment Management (India). This change comes after a consortium comprising of The Royal Bank Of Scotland, Fortis and Banco Santander acquired the entire share capital of ABN AMRO Holding in October 2007 and each member of the consortium acquired parts of ABN AMRO that best synergized with their business.

Tata Mutual Fund has entered into a strategic tie-up for the distribution of its funds with State Bank of Hyderabad. Under this new arrangement SBH will distribute the entire product range of Tata Mutual Fund schemes across 1,001 branches and 45 extension counters of the bank.

Regulatory Rigmarole

In what seems to be a victory for the Mutual Fund industry, mutual fund houses can now sell insurance cover bundled with mutual funds. The finance ministry has intervened in the dispute between insurers and fund houses to end a ban by life insurance industry providers on providing group life insurance covers to mutual funds. Insurance companies had planned to discontinue the offer of group life insurance cover on mutual fund products starting from Oct. 1, 2008.

Domestic mutual funds need to make more disclosures about the portfolios of their fixed-maturity plans (FMPs) to enhance investor confidence in such schemes, according to Crisil FundServices. This observation comes at a time when there has been a huge redemption from many FMPs because of concerns over the creditworthiness of many of the securities in them. If the credit quality of FMPs’ investments is strong, then investors have much to gain by holding these investments to maturity. In this situation, it is actually premature redemption, which could lead to sub-optimal returns.

The Securities and Exchange Board of India has widened the band for valuation of bonds, which is used to calculate NAVs of mutual funds. Funds could value a rated debt security with duration of up to 2 years between 150 basis points (bps) below and 500 bps above its value, up from a band of 50 bps below and 100 bps above. For securities with a maturity of more than two years, the range has been fixed at 100 bps below and 400 bps above its value, up from 25 bps below and 75 bps above the value.

This will not only bring in more efficiency while calculating net asset values of funds, but also help fund managers get a better price while exiting their investments in times of redemptions. Money market schemes, which invest in debt paper of a duration — generally less than one year — were facing large-scale redemptions by corporates and other institutional investors. The market turmoil had made it very difficult for fund managers to ascribe a value to bonds. So, in times of such redemptions, bonds often had to be sold at a loss. Fund managers can now hope for better prices while selling units of schemes, when investors seek their money back. Arriving at the NAV of these funds — the price at which investors exit or enter the scheme — has always been a challenge for fund managers, since there is no active market for most of these instruments.


The Reserve Bank of India cut CRR by 250 basis points (in tranches) and announced a scheme to provide liquidity to mutual funds. According to RBI’s scheme, banks are allowed to lend money to Mutual Funds against Certificate of Deposits (CDs) for a period of 15 days from October 14. Banks have also been permitted to buy back their own CDs from Mutual Funds. It is estimated that Mutual Funds hold Certificate of Deposits worth more than Rs one lakh crore. According to bankers, the problem is that most banks do not have excess SLR securities against which they can borrow in the repo market. And many banks are still on the borrowing side, as is evident from the RBI’s daily repo and reverse repo auctions.

Since the scheme was launched, banks have so far availed themselves of a total of Rs 8550 crore from RBI for lending to Mutual Funds. Two leading public sector banks have lent over Rs 3,500 crore to Mutual Funds so far, which includes the special repo window, other direct lending and by buying CDs from Mutual Funds. To further ease pressure, RBI will extend the liquidity window for mutual funds till further notice.

We are living in extraordinary times. The events that have unfolded globally have been far worse than anything the best risk managers could ever plan for. The deviation from the mean — in terms of change in human behaviour, widening of credit spreads, tendency to hoard cash and the scale of panic — has been of such magnitude that even the synchronised effort of multiple governments, central banks and policymakers have had little palliative effect. The tremors of the events in the US and Europe were felt as far as Singapore and Hong Kong where sovereign guarantees had to be issued to prevent flight of bank deposits. It is common wisdom that if all depositors withdraw their money in a bank together, leave aside the liquidity issues, the solvency of the institution will be at risk.Thankfully, for mutual funds the risk is one of liquidity alone.

NFO Nest
(October 2008)

NFOs go abegging…

Domestic fund houses are finding it difficult to get investors for their newly-launched schemes. Players like ICICI Prudential and Principal are extending the last date of their NFOs. This development has come at a time when the mutual fund industry was already grappling with a reduction in funds raised from new fund offers - for instance, during the June 2008 quarter, 146 new schemes raised Rs 29,799 crore, while a year earlier, 162 schemes raised Rs 38,653 crore, according to data gathered from the industry body AMFI. However, some of the fund houses like IDFC Mutual Fund and Bharathi AXA are putting a brave face. We are witnessing signs of a drying up of liquidity in the market given tax payments and other external factors.

The following funds find their place in the NFO Nest in October, 2008.

Principal Emerging Bluechip Fund

Opens: 22 Sept 2008 Closes: 20 Oct, 2008

It takes the brave to do something different and tread on the path less taken. And Principal Mutual Fund is one such brave fund house that has decided to swim against the tide. The AMC has launched the Principal Emerging Bluechip Fund that aims to invest in stocks of mid- and small-cap companies, and that too in a highly volatile market scenario where the mid- and small-caps are suffering the most. The fund will allocate 65-95 per cent of its corpus in equity and equity-related instruments of mid-cap companies, 5-15 per cent in equity and equity-related instruments of small-cap companies and up to 30 per cent in equity and equity related instruments of companies other than mid-cap and small-cap. While the fund aims to allocate 70-100 per cent in equity, up to 30 per cent allocation will be towards cash and money market instruments including fixed income securities. The fund will be benchmarked against the CNX Midcap Index.

DWS Gilt Fund

Opens: 7 Oct, 2008 Closes: 21 Oct, 2008

Deutsche Mutual Fund has launched DWS Gilt Fund, an open-ended gilt fund. The investment objective of the scheme is to generate reasonable returns by investing in Central/ State Government securities of various maturities. The scheme offers two plans viz. regular and institutional plan with dividend payout and growth option. The minimum investment amount under regular plan is Rs. 5,000 and under institutional plan it is Rs. 50 lakh. The fund will charge no entry load under both regular and institutional plan. The regular plan will charge 1 per cent exit load if redeemed before 12 months. The fund will be managed by Mr. Nitish Gupta and is benchmarked against I – Bex.

Goldman Sachs Sustain Fund, UTI Wealth Builder Fund Series II, Edelweiss Gilt Fund, Birla Sun Life 130 30 Fund, Religare Aegon Liquid Fund, Religare Aegon Liquid Plus Fund, ICICI Prudential R.I.G.H.T (Rewards of Investing and Generation of Healthy Tax Savings) Fund, Fidelity European Dynamic Growth Fund and Fidelity Global Industrial and Natural Resources Fund are expected to be launched in the coming months.

GEM GAZE - OCTOBER 2008

Gem gaze

The gems in the sectoral space continue to exhibit their lustre despite the radical changes on the diversified equity front and the stock markets…

DSPML TIGER Gem

DSPML TIGER with its impressive performance has seen a tremendous asset rise. There appears to be continuity in holdings in a significant portion of the portfolio while the balance is frequently churned. Out of the universe of 171 stocks invested in since inception (May 2004), 51 have appeared for less than six months. Stocks like Reliance Industries, ICICI Bank, L&T and BHEL have been long-time favourites. This large-cap tilted fund appears bloated with 60 stocks, but is an improvement from 72 (September 2007). The top five holdings comprise only 20% of the portfolio, while the figure is 35.75% for the top 10 holdings put together. Among various sectors, the fund has the largest exposure in energy (16%) and financial services (15.24) companies followed by basic engineering (11.36%), services 11.03% and metals & metal products (10.85%). The broad investment mandate, large-cap tilt, intense diversification and attractive returns have resulted in its asset base rise by 254 per cent last year.

Reliance Diversified Power Sector Gem

Reliance Diversified Power has not only generated returns superior to most other equity funds but has also demonstrated consistency in performance since its launch in April 2004. The fund’s return of 60 per cent since inception far outpaces its benchmark’s (India Power Index) return of about 40 per cent. At close to Rs 2,300 crore, the assets under management are significant but spread across only 18-20 stocks. Power generation is monopolised by the public sector and there are simply not enough sound power companies available. If the fund manager is restricted by the investment universe, he has ample flexibility on other fronts. His mandate actually permits him to invest the entire portfolio in not only equity, but also entirely in fixed income securities (of power companies and those related to the power sector). So this equity offering can well turn into a debt fund. With the mandate to even go 100 per cent in cash and equivalents, the cash holdings are significant if the fund manager does not find good investment opportunities. What is interesting is that the high cash holding has not dented the fund's performance. The fund manager is not restricted by market capitalisation either. While power stocks have undergone re-rating in valuations during the market rally in 2007, a good number of them have been beaten down during the recent market correction. However, unlike a few other sectors that are unlikely to regain their premium valuations, stocks in the power space continue to hold high earnings potential given the current macro scenario. For one, the peak power deficit situation remained at a high 14.6 per cent even as recently as the April-June quarter. This has prompted a recent revision in the capacity addition programme under the Eleventh Plan (up by 15 per cent to 90,000 MW). The additional planned capacity translates into new business for the entire spectrum of power companies. Two, even as the country failed to add even a single megawatt of nuclear power capacity between April-July (according to the CEA report), the waiver received from the Nuclear Suppliers Group is expected to throw open new opportunities. With prospects for the sector appearing strong over the next couple of years, this fund may be a good vehicle to ride the energy theme.

Prudential ICICI Infrastructure Gem

ICICI Prudential Infrastructure Fund, grabbed the top rank, with eight Indian equity funds ranking among world's top 10 best performing infrastructure funds in 2007, according to fund tracker Lipper. Over the past one year, the fund pruned exposure to sectors such as ferrous metals, construction, capital goods and oil. The power sector, which is expected to witness huge capacity additions, appeared to be the fund’s favourite as it nearly doubled allocation to this segment. It accumulated stocks such as NTPC and Tata Power over the past six months, resulting in a four-fold increase in holdings in each of the stocks. Allocation to banking space appeared sizeable in comparison to peers. Reliance Industries, a preferred stock for many a fund house, saw increased weight of 9.2 per cent to enter the fund’s top 10 holdings. The ferrous metals sector has been viewed cautiously by the fund. Allocation to the construction sector has not moved much relative to the increasing asset size while holdings in the cement space increased marginally. Bharti Airtel was the lone stock to represent the telecom space even as its holdings over the past six months almost doubled. These moves have stood the fund in good stead, the volatile markets notwithstanding.

DSPML Technology Gem

Despite the pounding that IT stocks received in the past one year, DSPML Technology has delivered strong returns, vis-a-vis its benchmark — BSE Tech — which it has bettered over one, three and five-year periods, making it the best performing technology fund. The fund has managed to beat its category convincingly time and again as a result of fund manager Apoorva Shah's radical moves. Faced with an appreciating rupee and fears of a U.S. downturn, he reduced the allocation to software service export companies and began to increase it to service and media stocks like Educomp Solution, Tata Teleservices and NDTV. The fund’s 82 per cent exposure to technology (January 2007) fell to 57 per cent (January 2008) while services (including media) were up at 32 per cent. The fund appears to have picked up stocks that have lower US centricity and those with lower exposure to the banking and financial services vertical. The other noticeable trend is exposure to companies in the fast-growing domestic IT training segment. Last year, it also steadily reduced its position in large caps and in March 2008, the mid- and small-cap exposure was at 72 per cent. The moves paid off well and the corpus of the fund swelled by 437 per cent last year. Infosys, TCS, Tech Mahindra, Rolta and Mphasis are among stocks that have stayed on. The portfolio consists of 49 stocks currently. Those interested in the telecom, media, technology and technology enabled sectors must give this fund a serious consideration.

The broad investment mandate and tactical moves by these gems have ensured perennial prosperity and enabled them to hold on to their esteemed status! Investors with an appetite for risk and a long term perspective can adorn their portfolio with these GEMs.

FUND FLAVOUR

Sector Funds

Marketing via Returns machine

The media and the recent return charts have struck a chord with investors who are keen on adding a sector fund to their portfolio. The marketing gimmicks kindle investor fancy. In reality, sectoral funds have seldom given returns higher than the Indian stock market. These funds are not known to outperform the blue-chips belonging to the sector they focus on. The indices designed by stock exchanges to track sectors such as the Bombay Stock Exchange’s BSE Pharma or BSE Auto too comfortably beat returns from sectoral funds that invest in the stocks belonging to the same industries. There are very few funds that have managed to buck the trend. The information and technology sector funds are the only ones that have beaten both the Sensex and the BSE IT Index over the last five years. The infrastructure and banking boom have been a recent and short-lived phenomenon.

Banking Funds - Bubble or Buoy?

While the financial crisis has felled several international banking giants, closer home, it is the banking sector funds that have outperformed all other categories of funds over the last three months. Seven of the 10 top performing mutual fund schemes during the July-September quarter were banking schemes. Three funds focused on the financial and banking sector have filed their offer documents with SEBI - HSBC Banking and Financial Services Fund, SBI Magnum Sector Funds Umbrella (MSFU) - Banking and Financial Services Fund and ABN AMRO Banking and Financial Services Fund. Sundaram BNP Paribas Financial Services Opportunities, Reliance Banking ETF, ICICI Prudential Banking and Financial Services Fund, Lotus India Banking and Sahara Banking and Financial Services were launched in 2008. This sudden enthusiasm for the financial sector seems paradoxical considering the fact that questions are being raised at the financial institutions both domestically and globally on how they are managed and why they have hidden the risk associated with some of their products. So, why are we seeing so much interest in financial and banking sectors and that too now of all times? One reason could be that in the past one year, net assets of the existing banking funds have grown at the rate of 24 per cent overshadowing that of other sectors. This shows that the banking funds have been able to hold the attention of the investors. The fund companies are launching financial funds responding to investors' fondness to this sector. The launch of too many specific sector funds could be a time to keep away from them. Remember how technology funds betrayed our trust in 2001. High time we learnt our lesson.

Technology Funds - Cash Fails to Rescue…

Year 2008 may end on a jarring note for technology sector fund investors. With a slew of negative news for the sector, technology funds hit a fresh low with ICICI Prudential Technology Fund and IL&FS eCOM Fund plunging by more than 50 per cent from their IPO price of Rs 10. The fall in technology counters has been so rapid that even a large cash position in most funds has failed to stem the slide in net asset values. The average cash holding was an uncharacteristically high 16 per cent with some funds holding more than 20 per cent of their assets in money market instruments. There are currently two schools of thought on the impact of the US slowdown on Indian IT companies. Nearly 50 per cent of the Indian IT industry's turnover during the first half of the current fiscal had come from the US market. A section of the market believes that the slowdown will adversely impact the Indian IT sector while another segment opines that a cut in IT spending will benefit the Indian industry as US corporations seek to reduce costs by outsourcing more IT related activities. Currently though, it is the first line of thought that continues to dictate the market movement. The top rung technology companies may not earn revenues in excess of 70-80 per cent but they are sure to maintain growth at a healthy pace in future and outperform other sectors of the economy.

Pharma Funds - Health Blues

The pharma sector has proved to be a laggard in the past one year. There are currently five pharma funds in the industry, managing overall assets of Rs 351 crore. All of them together delivered an average return of 9 per cent, underperforming the index.

Auto Funds - Overheated Engines

As concerns about the auto sector seem to be mounting, the funds dedicated to this sector are feeling the heat. Auto sector funds are at the bottom of the equity category - they rank even below the debt funds. The reasons for the poor performance of the sector are not difficult to find. Interest rates touched a five-year peak and this hit the auto sector which is very interest rate sensitive. This resulted in a slow-down of the demand for cars and sport utility vehicles in the country, where majority of the vehicles are bought on credit. The RBI diktat to banks on January 31 2008 to curb lending and investment to check inflation also proved to be a major deterrent for the first timer buyers. Total sales of cars, trucks and two-wheelers declined in the first quarter of the current financial year. The slowdown has been more visible for two-wheeler companies like Hero Honda, Bajaj Auto and TVS. Consequently there had been a sharp decline in the share price of the top auto companies this year.

Infrastructure funds - a safe haven?

One way of staying away from the volatility of the market, and still betting on the growth story of India, will be investing in infrastructure funds. Infrastructure funds have ruled the roost in the rally with almost all the funds doling out handsome returns over the year. These funds invest in companies that are a part of perennial sectors like construction, energy, telecommunications, power etc..., which hold the key to development of any economy around the world. These sectors enjoy maximum government support for development due to high gestation periods, huge investment outlay and primarily because the country`s growth relies on these sectors. At present, there is a wide gap between the potential demand for infrastructure and the available supply. This is a challenge before the economy, and the government through private-public partnerships and FII participation, is trying to fill in the gap. The increased government impetus on infrastructure development and the superlative performances of the corporates provide a window of opportunity to Infrastructure funds. But the 2008 market meltdown has crushed this citadel as well.

Precarious nest egg

Besides the tendency of sectoral funds to underperform as discussed at the outset, investment in them makes little sense for two other reasons. One, their narrow investment objective raises the risk they carry. They, thus, defy the basic principle of mutual fund investment — of diversifing risk by not keeping all eggs in one basket. And two, investors must make no mistake in deciding when to enter and exit these funds, which, again, is in direct contrast to the convenience that mutual funds are supposed to offer. Lack of diversification and dependence on timing makes sector funds a risky proposition. With the days of heady returns way behind us, advocating investment in sectoral funds, even to those brave of heart, would only kill and not make a killing!

FUND FULCRUM (CONTD.) - SEPTEMBER 2008

FUND FULCRUM (contd.)
(September 2008)

The Indian mutual fund industry is growing at one of the fastest rates in the world, along with those in China and Brazil. Total assets under management have expanded five-and-a-half times since August 2002. The total assets under management of mutual funds represents 12.5 per cent of India's gross domestic product, compared to 60 per cent for the US, indicative of the latent potential.

There were an estimated 123,000 millionaires or High Networth Individuals (HNWIs) in India at the end of 2007, up 22.7% from a year earlier, according to the third annual Asia-Pacific Wealth Report published by Merrill Lynch and Capgemini. HNWIs are individuals with more than US$ 1 million in net assets, excluding their primary residence and consumables. Rapid economic expansion, increased foreign investment and gains on the country's stock markets fueled the jump in India's HNWI population last year. The average net worth of Indian HNWIs rose slightly to US$ 3.6 million, compared with US$ 3.4mn for the Asia Pacific region. The global average was US$ 4 million.

Piquant Parade

Religare AEGON Asset Management Company has received the final regulatory approval from SEBI to launch mutual fund business in India. Religare Enterprises is one of the integrated financial groups of India. Its businesses include three key verticals: the retail, institutional and wealth management. AEGON is one of the world’s largest life insurance and pension groups, and a provider of investment products. The AMC is looking at launching its first product for the Indian retail investor by November-December, 2008.

Amidst highly volatile stock markets, the daily systematic investment plan introduced by Bharti AXA Investment Managers is expected to minimize risk and to generate greater risk adjusted returns while increasing investor participation. The feature, introduced for the first time in India with an equity scheme, allows one to invest on a daily basis a minimum Rs 300 per day. It has a lock-in period of one month, during which an investor has to pay the SIP amount without any default. Beyond this time, an investor can withdraw the money invested with return at any point of time. If one should fail to pay the SIP amount on any particular working day, his investment will not default but his return will be adjusted against the failure of payment for that day. If successful, the fund house plans to bring down the minimum amount to Rs 150 to make it more affordable to retail investors across the country. The fund house will also try to make the daily SIP available with its newer schemes in the days to come.

Principal Mutual Fund has entered into an alliance with United Bank of India, a leading public sector bank, for distribution of its products through the bank’s branch network.

Regulatory Rigmarole

In a move that could revolutionise sale and purchase of mutual fund units by investors across the country, AMFI is working towards setting up an electronic platform. This would not only benefit unitholders, but also distributors and fund houses. The electronic platform will bring paperwork to a bare minimum, improve operational efficiency, provide transaction convenience and reduce cost. The proposed electronic platform will help investors trade even in open ended-mutual fund scheme units, like in the case of shares, switch between schemes of different fund houses, and also enable mutual fund investors to view their entire portfolio on a single portal. The modalities of the platform are being worked upon by an AMFI-appointed committee. The AMFI committee received 15 expressions of interest (EoI) from both international and domestic companies including Canada-based FundSERV, focusing on the data standards and security infrastructure. The new platform is likely to be replicated on the same lines as it is operational in several foreign countries such as in Canada, US and Australia. FundSERV, which is one of the interested parties to offer this service in India, is a leading provider of electronic business services to the Canadian investment fund industry. Indian mutual fund industry has so far about 4.6 crore folios (investors), of which more than 95% is held in the physical format. The electronic platform, which could take two years to implement, will not not only ramp up the present model, but also benefit the next generation of mutual fund applicants, who are expected to grow exponentially.

Sebi chairman CB Bhave, who was instrumental in implementing the demat process for shares, had recently suggested that Mutual Fund investors should also have a common statement for all their mutual fund holdings just like the system for equities through depositories like NSDL and CDSL.

Since February 1, 2008, investors in mutual funds putting in Rs 50,000 and above are required to get a know-your-customer (KYC) compliance certificate. The basic idea behind introducing this was to comply with Prevention of Money Laundering Act guidelines. However, six months later, both investors and asset management companies are struggling with the new norms. The reason: confusion over who qualifies as an attesting authority, besides other requirements.

An investor-friendly measure adopted by AMFI has put distributors in a spot. As prescribed in AMFI's best practices, the rule requiring no-objection certificate (NOC) for shifting to a new financial planner (a mutual fund distributor or agent, in this case) has left a hole in the earnings kitty of large distributors. The new rule is being used as a weapon to poach businesses of other distributors by hiring well-networked relationship managers working with established product distributors.

Customers will no longer get insurance covers bundled with mutual funds and many savings and investment products offered by banks. They may, however, continue to get insurance with credit cards and home loans. Beginning October 1, mutual fund houses will have to withdraw all products which offer mutual funds with an insurance cover. Only a handful of companies like Kotak Mahindra AMC, Birla Sunlife AMC, and Reliance AMC offer these products. These fund houses have been buying group policies from insurance companies, clubbing them with mutual fund products, and offering them as a product. This had created an outrage in the insurance industry with the industry vehemently opposing such products. Earlier this month, the life insurance council held a round table with the heads of all life insurance companies deciding not to sell group policies to mutual fund houses. However, those who have already invested in these products will continue to get benefits.

The Fund managers are manipulating NAVs of floating-rate schemes; market regulator Sebi and industry body AMFI are working together on standardising valuations of the underlying assets of these funds - the floating rate bonds. The Sebi with the help of AMFI and rating agencies will set up a common valuation method of floating rate bonds in the next two -three months. Till date fund managers used their own methods to value these bonds. The coupon rate or bond value is generally updated every six months. During the tenure of the bond, many fund houses used the circular trading route to rig NAVs to push up returns.

The recent market turmoil around the globe notwithstanding, Indian mutual fund investors are showing signs of maturity. Although concerned about the status of their investments in different funds, not many are rushing to get out of the market by redeeming their Mutual Fund units. The gargantuan growth of the mutual fund industry, thanks to the mushrooming of HNWIs, the spreading wings of mutual funds throughout the length and breadth of the country, by virtue of SIPs gaining a strong foothold and the maturity of the investing populace augur well for the future of the mutual fund industry.