Performing Mutual Funds increase asset base

The BSE Sensex is down nearly 14 per cent over one year and the average equity fund has lost 18 per cent of its Net Asset Value. But studies show that mutual fund investors have become savvy and have exited the poorly performing funds and have invested in better performing funds.

In a study done by Business Line Newspaper research, data on assets managed by equity schemes show that equity funds which have handled the market meltdown well over the past year have managed to sharply expand their assets under management.

Twenty four of the 300 open-end equity funds in operation doubled their asset base between August 2007 and August 2008. This includes funds such as Sundaram Select Focus, Kotak Opportunities, Reliance Diversified Power and Reliance Regular Savings Fund, all of which contained declines in their NAV to levels much lower than the Sensex, in a falling stock market. Each of these funds has witnessed substantial fresh inflows over the past one year. It could have been done using SIPs as well other than new subscriptions alone.Even small-sized funds such as DWS Investment Opportunity have seen inflows on the back of a good show.

Expanded base
Some of the already large funds which expanded their asset base were Reliance Diversified Power, which managed Rs 1,790 crore in August 2007 and expanded to Rs 5,080 crore by August 2008, and DSP ML Top 100 Fund, which saw its assets go up from Rs 469 crore to Rs 1,032 crore. Index funds from UTI Mutual Fund and LIC Mutual Fund have also expanded sharply.

In contrast, investors have also been quick to exit equity funds which saw significant NAV erosion during this period. The asset base for funds such as ABN Amro Future Leaders, DBS Chola Contra, Kotak Lifestyle and ICICI Pru Emerging STAR has shrunk by as much as 55-60 per cent, after the funds suffered negative returns of 24 to 38 per cent over the past year. The assets dwindling much more than the funds’ NAV is suggestive of investors pulling out money from these funds.

Thus it is important to invest based on past track record of the fund house, scheme and compare it with the benchmark rather than investing based on advertisements, NFO value of Rs 10 (which is meaningless), poor track record or no track record etc.

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.

Changes in IPO refunds

The Economic Times news paper reported today that one may no longer have to wait for weeks for a refund if one fails to get an allotment in an initial public offer (IPO).

The Primary Markets Advisory Committee (PMAC) of the market regulator Sebi is actively considering introducing a value-paid instrument, that would be backed by an irrevocable lien. In simple terms it means that banks would block the full application amount — the total value of the shares applied for — in the investor’s account till the shares are allotted.

This blocked amount would continue to remain in the client’s account but would not be available for withdrawal or cheque payment. It would, therefore, continue to earn interest in the intervening period. On receipt of advisory from the registrar about the allotment of shares, the bank would release the amount equal to the cost of total number of shares the client has been allotted. This move would apply to both physical and electronic applications.

The proposed move would come as a relief to investors who face liquidity crunch as their investment remains locked in till companies refund the amount. In some cases, this could take a month, making it difficult for the small investor to invest in other issues. The new norm is also aimed at making the IPO process more efficient and transparent.

The move is aimed at cleaning up the IPO process and making it investor-friendly, a source close to the development said. The proposal after getting cleared by the PMAC will go to the Sebi board for consideration.

The proposal will remove a layer that led to blocking of retail investors’ funds. At present, it takes 15-50 days for the investor to get his refund.

Besides streamlining the financial aspect, the application form would be shortened to a single page of A-4 size and the IPO process till listing shrunk to 7-8 days. At present, the process from the day IPO opens for subscription to, till it lists on the stock exchanges takes 20-22 days.

The proposed move is to help investors who face liquidity crunch. It is also aimed at making the IPO process more efficient The measure will remove a layer that delays refunds. At present, it takes 15-50 days for retail investors to get refund After PMAC nod, it will go to the Sebi board for consideration

Bharti AXA gets SEBI nod for MF foray

Bharti AXA Investment Managers has received regulatory approval from SEBI to start its mutual fund business in India. The company is a joint venture between Bharti Ventures, AXA Investment Managers (AXA IM) and AXA Asia Pacific Holdings.

AXA IM is one of the largest Europe-based asset managers with $830 billion in assets under management as of end December 2007. Bharti Ventures is part of Bharti Group, with interests in telecom, agri-business, insurance and retail.

Now one will see a flurry of schemes opening up from this company and there will be a flood of NFOs coming up.