Mutual Funds

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It's a cakewalk

In the mutual fund space, almost all categories, technology and pharma being the exceptions, have brought home decent returns for investors. Over the past six months, as the Sensex moved northwards from the 14,000 levels to cross 20,000, gaining over 42%, three equity fund categories — banking, index and tax planning — outperformed the Sensex.

The category of banking funds churned out an impressive 55% gain. However, technology funds have succumbed to the pressure of the strong rupee and sub-prime fears. The category saw a value erosion, recording a negative return of over 9% over the past six months. The groups of equity auto and equity pharma funds too were languishing at the bottom of performance chart, with returns of 2.61% and 0.96%, respectively.


Banking Funds

Banking stocks have witnessed a strong rally on the bourses over the past one year. In the past six months, the ET Bank Index surged over 55%. The growth in the banking scrips was well captured by the sector funds as well. Among the two funds in this category, UTI Banking performed better with a return of almost 58% in six months.

The top two holdings of both the funds — SBI and ICICI Bank — were flying on bourses. These two scrips put together constitute 44% and 28% of the holdings of UTI Banking and Reliance Banking, respectively.

Index funds

The basket of index funds too offered huge bounty to its investors. The category with funds pegged to different indices recorded a gain of over 33% over the past three months. With the indices outperforming many equity-diversified funds, index funds actually benefited over the past one year.

Banking BeES tops the list returning over 65%, way ahead of the second-best Birla Index (47.16%). Index funds, while only mimicking Sensex and Nifty, differ in returns due to varied expense ratios and tracking errors.

Tax Planning

Tax planning funds as a group was the third-best performer among all equity fund categories. The funds logged in a 42% growth over the past six months. DWS Tax Saving and Birla Sun Life Tax Relief were the best performers with each gaining over 58%. High exposure to the energy and financial sector companies helped these stage impressive returns.

Equity-diversified funds

The largest category in the equity fund universe hasn’t let investors down. Equity-diversified funds, as a category, has reported a gain of almost 42% in the past six months. Funds with infrastructure theme or high exposure to infrastructure or capital goods companies top the return charts.

Schemes like Sundaram BNP Paribas CAPEX (81.83% gain since May 2007), Canara Robeco Infrastructure (81%), Sundaram BNP Paribas CAPEX (80.59%), Tata Infrastructure (73.53%) and DWS Investment Opp (71.58%) not only managed top slots in the category, they staged the best show among all equity funds.

Technology funds

The journey for tech funds has not been a smooth one in the recent past. The sector has come under pressure due to the strengthening rupee and turmoil in the financial sector in the US. In the past six months, all funds in this category, except DSPML Technology.com, have logged in negative returns.

The worst being UTI Software and Franklin Infotech with losses of 18.89% and 17.15%, respectively. As the IT stocks were languishing on the bourses, the category as a whole lost over 9% in the past six months.
sOURCE:ET
 
MFs can short-sell, lend, borrow shares

Capital market regulator SEBI on Friday said mutual funds can engage in short-selling of securities as well as lending and borrowing of securities. However, these amendments will take effect at a later date to be notified by SEBI.

This will be after the new framework for short-selling and securities lending and borrowing is put into place.
“It brings two-fold benefits. One, it opens up another avenue of revenue. Two, on days when there is a sharp movement in the market, you have the option to lend securities to generate liquidity.

These factors will go a long way towards stemming volatility. Besides, it is a developed market criteria,” said Ajay Bagga, CEO, Lotus India AMC. Mutual funds currently hold around 1,70,000 crore of equity securities in hand. When the final guidelines on short-selling are implemented, it would ensure that these are ably deployed, say fund managers. When contacted, AMFI chairman AP Kurien said it was a welcome move.

“Short-selling has been allowed by RBI for banks and others in government securities provided you settle on the same day. We had mooted this sometime ago to Sebi that this may also be allowed for mutual funds. The next stage is allowing short-selling in other securities like equity. However, for that we are awaiting the Sebi guidelines on the same,” Mr Kurien said.

According to Mr Bagga, the measure is significant as it would lend depth to the market.
Source:ET
 
Mutual Fund Assets Under Management (Rs. cr.)
September-07 October-07 Change % Change

Reliance Capital Mutual Fund
70,441 79,974 9,533 13.53



ICICI Prudential Mutual Fund
50,370 56,213 5,843 11.60



UTI Mutual Fund
45,003 51,753 6,750 15.00



HDFC Mutual Fund
41,333 47,745 6,412 15.51



Birla Sun Life Mutual Fund
27,900 33,707 5,807 20.81



Franklin Templeton Mutual Fund
30,482 32,042 1,560 5.12



SBI Mutual Fund
23,739 26,594 2,855 12.03



Kotak Mahindra Mutual Fund
18,923 22,199 3,276 17.31



Tata Mutual Fund
17,365 20,199 2,834 16.32



HSBC Mutual Fund
16,867 20,080 3,212 19.04



DSP Merrill Lynch Mutual Fund
15,762 18,163 2,401 15.23



Standard Chartered Mutual Fund
12,999 16,750 3,752 28.86



LIC Mutual Fund
12,504 16,245 3,741 29.92



PRINCIPAL Mutual Fund
14,989 15,833 844 5.63



Deutsche Mutual Fund
10,483 13,272 2,789 26.60



Sundaram Mutual Fund
10,184 12,110 1,926 18.91



Fidelity Mutual Fund
10,199 11,514 1,315 12.90



ING Mutual Fund
7,733 8,771 1,037 13.41



J M Financial Mutual Fund
5,906 8,610 2,704 45.79



ABN AMRO Mutual Fund
6,964 8,575 1,612 23.14



Lotus India Mutual Fund
6,386 8,143 1,757 27.51



Benchmark Mutual Fund
6,230 8,086 1,856 29.80



DBS Chola Mutual Fund
3,829 5,162 1,333 34.80



AIG Global Investment Group Mutual Fund
2,289 4,140 1,852 80.89



Morgan Stanley Mutual Fund
3,655 4,129 474 12.97



Canara Robeco Mutual Fund
2,212 3,346 1,134 51.27



JPMorgan Mutual Fund
1,868 2,163 296 15.84



ING OptiMix
981 993 12 1.19



Taurus Mutual Fund
347 390 43 12.54



Sahara Mutual Fund
198 203 5 2.64



Escorts Mutual Fund
173 188 15 8.76



BOB Mutual Fund
101 107 6 5.65



Quantum Mutual Fund
61 71 10 15.96




Total 478,474 557,470 78,996 14.17
 
hey there guys
this is one of the 100mks final assignment on IPO and some interesting articles on SEBi and IPO from like TYBMS 2005 batch. has been on my old system since ages. posting it here before deleting it for good. might be usefull for someone.
cheers!
 
Who invests in mutual funds?

How do you describe a typical Indian mutual fund investor? A question probably many advertisers would ask marketing head honchos of mutual funds. A survey showed that he (and not she) is actually a 45-year-old married man who is fickle minded about his investing. While there have been no gender related studies done in the past, this survey indicated that 92% of mutual fund investors were actually men.

For starters, the age factor for Indian mutual fund investors almost resembled that of a developed country like the US. ‘Is there a problem’, one may ask. There is, since the demographic break up of India is very different from that of the US. India is a young country with an average age of 30 years. More than 50% of Indians are below the age of 35 years. In contrast, the average age of an American is much higher – around 45 years.

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The statistics seem to indicate that youth is splurging a lot more than saving for posterity. Cars, snazzy mobiles and Loius Vuitton bags are taking precedence over savings. More of them are also buying houses – leaving little to save. The average age of home buying has been falling. It is down to 32 years. So EMI payments - and their movement above – seem to be keeping them occupied. With little to save, they aren’t probably investing much in mutual funds.

Does marital status affect the way you invest? Yes, if you are an Indian. Some insurers mention that the insurance policies are usually bought after marriage. This is because the concept of risk seeps into the mind of an average Indian male only after he ties the knot.

What about the responsibility towards you parents during the bachelor days? one may ask. This is best left unanswered.
Also with investment (mutual fund) needs usually following that of risk protection, the propensity to invest is lesser among the youth. The average mutual fund investor is 45 years old. Probably at this age he is freed from home loan debt to actual start concentrating on investing needs.

According to the survey, Indian MF investors were found to be fickle minded unlike the US investors. In US, according to ICI survey 2007, average tenure of mutual fund investment was five years. 13% of its investors had an average investment horizon of 10 or more years, 27% with an investment horizon of 5 to 9 years, 15% for 3 to 4 years and 26% for 1 to 2 years. In India, over the years the average investment tenure has, in fact, fallen from 18 months to less than a year.

Heavy churning of MF portfolio — thanks to unscrupulous distributors, is bringing down the average holding period.

What’s the average number of mutual fund schemes that an investor holds? In the US, it is 4 mutual funds and the statistic in India is not very different (four). With its unique individual characterisctics, the Indian investor is truly turning out to be an enigma for MF marketers.

sOURCE: ET
 
Equity funds which multiplied their NAV by ten times

Records are meant to be broken, goes the saying. But then there are some which are difficult to beat. For instance, look at returns of some of the top equity funds. Seven equity funds managed to multiply their NAV by ten times in the last five years. A big achievement considering that they also managed to outperform their respective benchmark index by a wide margin.

So how much return did these G-7 funds manage to get? SBI Contra gave an absolute return of 1227% in the last five years, SBI Global 1115%, Sundaram BNP Paribas Select Midcap 1046%, Reliance Growth 1169% and Birla Equity 913%. HDFC Taxsver and DSP equity earned a return of 925% each.

Returns were calculated as on Sep 30, 2007 and only for growth options.

photo.cms


The year 2003 and 2005 have been major return getters for these funds. Almost 60% of the total five year returns were earned during these two years. If Rs 1000 is the total return earned by an investors, Rs 374 was earned in '03 and Rs 192 in '05. The bearish phase of 2002 was a drag with only Rs 62 earned. The years 2004 and 2006 were almost identical giving around Rs 140 each.

2003 - the year when the great Indian stock market bull run actually started (in April '03) - was a major return getter. Around 38% of overall returns earned over the five year period was achieved during the calendar year 2003. Larger exposure to midcaps helped many of these funds to give higher returns than the Sensex. During the year '03, Sensex was up 73% while ET Midcap was up by a huge percentage of 177%. During the year, all the above mentioned funds managed to give more than 100% returns. Sundaram Select Midcap gave a return of 157% in '03, Reliance Growth 156%, DSP Equity 130%, HDFC Taxsaver 121% and Birla Equity 119%.

The year 2004 saw a slower growth compared to the previous year. Around 14% of five year returns were earned during this year. Again it was the year of midcap with ET midcap giving a return of 36% as compared to 13% for Sensex. While the share price appreciation slowed down during the year, exposure to midcaps added zing to NAV prices. SBI Magnum Global (69%), SBI Magnum contra (65%) and HDFC Taxsaver (49%) were among the highest return getters in '04 and almost all the players managed to give better returns than Sensex.

Sensex hit the fast lane in '05 with the index going up by 42%. During the same period, ET midcap gave a higher return of 50%. By this time the returns between midcap and largecap indices had narrowed. SBI Global (78%), SBI Contra (71%) and HDFC Taxsaver (75%) were the top performers.

Starting 2006, the midcaps didn't see as much appreciation as the large cap index like Sensex or Nifty. In '06, Sensex was up 47% while ET Midcap was up 36%. From this year onwards outpeformance was increasingly becoming difficult for equity fund managers. While traditionally, these fund managers used the midcap route to beat sensex returns, the year 2006 was the year of midcaps. HDFC Taxsaver and Birla Equity gave lesser return than Sensex in this year while Sundaram Select midcap gave the highest return of 61%. During this year, sharp appreciation of some realty stocks benefited the Sundaram fund much more than the rest.

The nine months of year 2007 have seen almost same movement of Sensex and ET midcap - both were up 25% during the year till date. Birla Equity was the top performer with a return of 41% while SBI Global and HDFC Taxsaver lagged the Sensex returns.

SOURCE:ET
 
Single-point KYC clearance for MF investors

Come January 15, 2008, mutual fund investors will have a single-point of dissemination of all financial documentation essential to fulfil the mandatory KYC norms as prescribed by SEBI.

Mutual funds association AMFI, in collaboration with CDSL Ventures, a subsidiary of Central Depository Services (India), has developed a single centralised platform, to store these documents for access by asset management companies in line with the enhanced “Know Your Client” norms, AMFI chairman AP Kurian told ET.

The AMFI chief said with PAN being made mandatory for all mutual fund investments from January 1, 2008, the association had decided to facilitate a common KYC process to ease matters for investors. “Besides as part of the PMLA Act, the back-up documentation has to be kept for a period of 10 years. If there is no common system evolved, think of the wastage in terms of human resources,” he adds.

However, unlike PAN, this system would be introduced in two stages. In the first stage, every investor with a fresh investment of Rs 50,000 and above in mutual funds will be asked to adhere to the KYC norms. The second stage would see the limit phased down to zero. “We have tentatively decided on kick-starting the process from January 15 or latest by February 1,” Mr Kurian said.

Investors will henceforth be able to submit all the required documentation at around 300 points of services, that include non-AMCs (registrars, distributors, CVL, CDSL etc) and AMCs. The essential documentation includes proof of identity and residence apart from the financial status of the individual.

“This will help the investors to give the required documents and information only once. No new number will be issued. PAN will be the only identification and reference number,” said Mr Kurian. In terms of the Prevention of Money Laundering Act 2002, the rules issued there under the Sebi guidelines regarding the Anti Money Laundering (AML) Laws, all intermediaries, including MFs, have to formulate and implement a client identification programme, verify and maintain the record of identity and addresses of investors.

Source:ET
 
Mutual Funds as long-term investment


Mutual Fund is a collection of money from many individual and corporate investors. This pool of money is managed by professional money managers for investment in market instruments. People who pool money to buy shares of a mutual fund are its owners or shareholders (unit holders).

Fund managers invest this money to buy securities such as stocks and bonds. A mutual fund can make money from its securities in two ways: a security can pay dividends or interest to the fund or a security can rise in value.

Advantages of investing in mutual funds include professional management of funds, securities research, investment diversification, variety, liquidity, affordability, convenience, government regulation etc. On the other hand, disadvantages of investing in mutual funds include payment of charges regardless of fund's performance, lack of control on investments made by fund managers etc.

Making investment decisions

It is very important to identify the financial needs and goals before making investment decisions. Financial needs/goals could be short/medium term goals like planning for a vacation, creating an emergency fund etc and long term goals like child's education, retirement planning etc.

Identifying your financial needs and goals helps in selecting the investment instruments and quantum of investment. These are some general points that investors could keep in their mind while planning for investment portfolio.

Don't put all the eggs in one basket. Look for diversification of your investment instruments Since the markets are volatile in short term, it is not possible to time the market (entry at lowest point and exit at highest point).

Always have realistic expectations about investment performance. Try to understand why a fund has capability to outperform. The reasons could be due to sector of investments, or experienced fund managers. Remember that the past performances of the instrument may not be repeated. Consider the fees/loads and taxes applicable on the investment.

It's not always advisable to invest in a new mutual fund as they have no or limited track record. Beware of a salesperson who tells you to invest in Mutual Fund IPO and that it is at par (zero premiums).

Investment Review

Although the investment in Mutual Fund is termed as Passive investment yet the investors are required to review their performances on regular basis (at least once in three month). These are the things that investors should keep in mind while reviewing the performance of a mutual fund and making exit decisions Always check the fund's total return.

This is easily available in the Mutual Fund's periodic reports, websites and in various business magazines/newspaper Investors can also compare the Mutual Fund return with some benchmark index, but while comparing mutual fund performance with that of an index (Large cap Mutual funds vs Nifty or BSE Sensex, mid cap Mutual fund vs BSE 200 or BSE 500), remember that your fund's performance is calculated after fees and expenses have been deducted; the performance of the index does not reflect the costs associated with constructing and maintaining an identical portfolio.

It is not advisable to compare one mutual fund directly with another. Every Mutual Fund invests based on certain focus e.g. Blue Chip funds invest only in big companies which has established track record. Mid cap mutual funds invests in mid cap (medium to small) companies and hence they are on the upper end of Risk-Reward matrix.

Similarly there can be funds which are sector based e.g. Information Technology funds, Infrastructure funds etc. Usually in short term market rallies, some sectors do well and others do not and therefore investors should not switch out of their Mutual Funds investment based on short term performances of mutual funds.

Avoid frequent switching from one fund to another. Switching from one fund to another involves transaction cost and that will reduce your profits. However, if a fund is consistently underperforming then it is advisable to switch your funds to other instruments.

Source:ET
 
MFs may get to invest $7 bn abroad

Mutual funds may get more liberty in 2008 in terms of their overseas investments. They are likely to be allowed to invest upto $7 billion collectively in overseas markets, which is a good 40% jump over the present ceiling of $5 billion. The present ceiling has been raised from $4 billion just about three months back.

Both financial regulators — Reserve Bank of India (RBI) and Securities & Exchange Board of India (SEBI) — have in principal agreed to the proposal to enhance the overseas investment ceiling further. According to top industry sources, the papers are lying with the government for final clearance.

Accordingly, the individual investment ceiling is also going to be raised from the current limit of $300 million. Not only will the proposed move allow fund houses to deepen their investment basket, a higher capital outflow would also ease the pressure on RBI in managing the dollar deluge.

Mutual funds can invest in American depository and global depository receipts, equity of overseas companies, foreign debt securities in the countries with fully convertible currencies and money market instruments rated not below investment grade.

When contacted by ET, SEBI officials declined to comment on the issue. Mutual fund circles close to the development, however, said SEBI had written sometime in November to the central bank seeking permission to raise total overseas investment by all mutual funds by $2 billion to $7 billion.

According to a senior RBI official, so far the mutual funds collectively have invested just about $1 billion in overseas markets, which is well under the current limit. “However, some aggressive fund houses have exhausted their individual investment limits of $300 million. These players have requested an enhancement of the ceiling,” he said.

Supporting this, Association of Mutual Funds in India (AMFI) chairman AP Kurian said: “So far, some five to seven fund houses have launched special schemes for investment in overseas securities. The total mop-up by these funds is yet to reach anywhere near the present $5 billion cap. This notwithstanding, we have been assured by both SEBI and RBI that they are open to consider increasing the overall overseas investment limit if needed.”

AIG Global Asset Management Company (India) CEO Saurabh Sonthalia said: “This industry has taken a step forward by investing in overseas securities. However, a lot of MF houses have launched hybrid funds which invest about 65% in India and the balance 35% in overseas securities primarily because of lower limits and tax considerations. But clearly there is an increasing demand for 100% offshore products. We have also sought SEBI approval for launching an overseas fund for investing in global gold mining companies.”

Source:ET
 
MF investors are finally free of entry load​

Entry load is finally off the back of mutual fund investors. In a circular, the Securities and Exchange Board of India (SEBI) on Monday said investors will not be charged an entry load while directly applying with a mutual fund. This means an investor will not have to pay the entry load of 2.25% for equity funds unless he avails the services of a distributor.

So, hypothetically, if an investor puts Rs 1,000 in a scheme and the entry load is 2.25%, he would receive units worth Rs 977.5 only (2.25% of Rs 1,000), thereby impacting his investment’s net asset value (NAV). The market regulator felt that the current structure denied investors the entire benefits of
the investment.

“This circular shall be applicable for investments in existing schemes with effect from January 4, 2008 and in new schemes launched on and after the said date,” SEBI said.

“It shall also be applicable to additional purchases done directly by the investor under the same portfolio and switch-in to a scheme from other schemes if such a transaction is done directly by the investor,” it added.

Source:ET
 
SEBI to scrap amortisation in closed-ended funds


Big-Budget promotional campaigns for new-fund offerings from mutual fund houses could soon be a thing of the past. More specifically, asset management companies (AMCs) can still go in for extravagant ad campaigns, but investors can’t be billed for it.

Capital market regulator Securities and Exchange Board of India (SEBI) is planning to scrap the regulation that allows MFs launching closed-ended funds to amortise the initial issue expenses.

And since closed-ended funds are not allowed to charge ‘entry loads’, fund houses will now have to pay for the fund marketing expenses and distributor commissions through the asset management fees they collect. Two years ago, SEBI had abolished this regulation for open-ended schemes.

‘Amortisation of initial issue expenses’ is an accounting procedure that allows funds to spend the amount collected as fees, when the new fund offer is on (currently, about 6% for a three-year fund) in stages, and not at one go. Typically, about 3% is paid to brokers as commission while the rest is used to pay for the billboards, television spots and other marketing expenses.

Sources said the new regulation may be announced next week. The launch of a slew of close-ended funds in the past couple of months is being viewed by industry sources as a pre-emptive move on AMCs’ part.

Following the SEBI move to scrap the amortisation benefit for open-ended schemes, there was a sudden spurt in closed-ended scheme launches. Of the 34 new fund offers in 2007, as many as 24 were closed-ended. While investors will benefit from the move tremendously, its implication on the asset management industry will be mixed.

MF houses will not have any special incentive to launch closed-ended funds, as the existing regulation allowed them to tap into the investor money to pay for distributor commissions and advertisements.

Distributors will now look to sell more open-ended funds to investors, as they stand to get better commissions, if the amortisation in closed-ended funds is banned. AMCs will have to dig into their asset management fees (approximately 1% per year of the then assets) to pay for all this. Naturally, their profitability will be affected.

“Investors and media have created a big hue and cry about Sebi banning entry fees in funds, without realising that this amount is only a small part of the income for fund houses,” says a Mumbai-based financial planner, who did not wish to be quoted.

“It may appear tiny at 1%, but the biggest chunk of income for fund houses are asset management fees,” he suggests. The way our markets (and hence assets under management) are soaring, this fee component is also zooming and, hence the move will not make much of a difference, says this financial planner.

A marketing officer at a fund house felt that banning amortisation will force funds to come out with closed-ended funds, only if the proposed investment concept deserved such a structure. “For instance, a small mid-cap fund should be closed-ended, but certainly not a large-cap one,” he remarked.

SEBI recently allowed investors to save on initial fees in open-ended funds if they approach fund houses directly and not through a broker. This, along with banning of amortisation in closed-ended funds, will be one of the most important policy moves that is expected to change the face of the industry in the coming years.

Source:ET
 
gr8 yaar...
gd work guys ..
dis really helpd me in clearin my fundas abt mutual funds....
i wud also lik 2 kno apprx how muh returns u gt while investin in mutual funds?
w8in for ur reply....
nyways THANKS
 
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