Investors get alternate payment option for IPOs

In a proposal made by SEBI, retail investors who are ready to apply at the cut-off price in a public issue on the condition that they will not revise their bids later on, will be eligible to use the proposed Applications Supported by Blocked Amount (ASBA) mode of payment. Under ASBA, the application money will not leave the investor’s account till the basis of allotment has been finalised.

SEBI has worked out the modalities for the proposed system and has invited public comments for the same. June 6 has been fixed as the last day for submitting comments or suggestions. However, ASBA method will be only an optional one and would co-exist with the current system of investors using cheque as a payment instrument.

According to the proposed process, retail investors would have to submit bids at the cutoff price through self-certified syndicate banks (SCSBs) in which they have their accounts. Thereafter, the banks would accept the applications, block the funds to the extent of bid payment amount, upload the details in the electronic bidding system of BSE or NSE, unblock the money once the basis of allotment is finalised and transfer the amount for allotted shares, to the issuer. At the same time, if sufficient balance for blocking the amount is not available in the applicant’s account, the application shall be rejected.

Banks that wish to be recognised as SCSB must hold a valid registration certificate as a banker to issue under the Sebi (Bankers to an Issue) Regulations, 1994. Banks also need to undertake mock trial run of its systems with BSE or NSE and few registrars and in order to check that the adequate systems and infrastructure are in place at its controlling branch and the designated branches.

Such banks must also have an arrangement with BSE or NSE, which would allow them access to the web-enabled interface of BSE or NSE for uploading the bid/application data in their electronic bidding system.

Sebi has directed the stock exchanges to make available a web-enabled access to their electronic bidding system to the SCSB and the designated branches for uploading of the bid/application data.

SCSBs, which wish to enable online application through ASBA, will have to use its own net banking facility and will not be allowed to compel the investor to apply through brokerage entities that are its subsidiaries or associates or with whom it might have some arrangements.

Reliance launches Banking ETF

The Reliance AMC has launched a banking ETF (Exchange Traded Fund). The launch comes as a surprise because the AMC already runs the largest actively managed banking mutual fund called Reliance Banking that has an AUM of Rs. 938 crore. Though Reliance Banking as done well with a total return of 41 per cent per annum, the fund has barely managed to beat its benchmark in its 5-year life.

ETFs are like Index funds which trade on the market like shares where customer can buy and sell the bankin index. The Reliance Banking ETF will deliver returns exactly like the banking Index, but minus the expenses. Like any index fund, the fund will have lower expense.

This fund will track the CNX Bank Index, which has 12 liquid and large Indian banking stocks. Since inception, its return has been 27 per cent on an average. As on April 30, 2008, its constituents included -- State Bank of India (27.85 per cent), ICICI Bank (24.3 per cent), HDFC Bank (13.43 per cent), Axis Bank (8.21 per cent), Kotak Mahindra Bank (6.78 per cent), Bank of India (4.47 per cent), Punjab National Bank (4.31 per cent), Bank of Baroda (2.85 per cent), Canara Bank (2.42 per cent), Union Bank of India (2.01 per cent), IDBI (1.88 per cent) and Oriental Bank (1.36 per cent).

The scheme's asset allocation will be 90 per cent in the equities of its Index and rest 10 per cent in other equities or debt instruments.

Similar Funds
This will be the second ETF to track a bank index. The first was Benchmark's Banking BeES, which has delivered 36 per cent return since its launch in May 2004. There are two relatively new ETFs as well, which track the PSU Bank Index - Kotak PSU Bank ETF and PSU Bank BeES.


Scheme Details:
Issue Opening Date : May 12, 2008
Issue Closing Date : May 30, 2008
Fund Category : Exchange Traded Fund
Fund Type : Open-end, Exchange traded
Benchmark : CNX Bank Index
Cost : The fund has 2.25% entry load during NFO. Investors will incur brokerage on sale and purchase after listing of the ETF inline with the brokerage that the broker will normally charge.
Minimum Investment : Rs 5000(During the NFO)

New SEBI Rules for Portfolio Management Services

Smaller investors may now find it difficult to get portfolio management services (PMS), with the market regulator SEBI last week disallowing pooling of resources by the portfolio manager. Most PMS portfolio managers buy the shares in bulk and apportion the same to each investor of the fund in the ratio of the the investment made. The advantage that the PMS manager used to get is the economies of scale wrt to brokerage, opening of Demat accounts and related accounts wrt to operational activities. Now however, SEBI’s directive raises the operational burden for portfolio managers who would now prefer to deal with clients who can invest higher amounts, believe analysts.

Earlier, the portfolio manager would take his call on a particular stock and distribute it on a weighted average basis among his PMS clients. The large PMS operators, especially, will now find it a nightmare, servicing hundreds of clients.

However, with the new guideline, the comfort level of the client is expected to go up; it is also in line with the international practice.

The minimum investment that portfolio managers commonly accept from clients for PMS is Rs 5 lakh. However, many foreign players only deal with clients who invest Rs 50 lakh or more. Therefore, to provide better services, the size of the minimum investment could increase in future.