FINANCIAL ADVISORY

Sebi to weigh ban on payment of upfront commissions in mutual fund schemes

2011-12-29T21:48:00.001+05:30

Sebi is expected to take a close look at a suggestion madeby CEOs of leading fund houses to ban payment of upfront commission todistributors of mutual fund schemes.

Battling redemptions, some MFs are luring distributors with high commission - apractice that breeds unfair competition and goes against the principle of the"no-entry load regime" that kicked off from April 2009.

The subject cropped up at a meeting between Sebi and heads of as many as 15fund houses. Faced with a dismal market, MFs have also suggested that know-yourcustomer(KYC) norms be simplified and the period of exit load extended beyond a year toattract long-term investors.

"Sebi is keen to promote mutual funds as a 'savings' product as against an'investment'. It will form a team to take up with the government to mandateretirement funds to invest in mutual funds.

This could be similar to 401K, the US retirement savings plan foremployees," said a person present at the meeting. Such a move will pushthe growth of the mutual fund industry in a big way, said a Sebi source.

On the issue of upfront commission, an industry source said big fund houses,which introduced the practice, are now opposing it as they lose out to newfunds. According to industry sources, fund houses are paying anywhere between0.95% and 3% as upfront commission to distributors from their own pockets.

Between October and March, fund houses pay higher upfront commission todistributors to sell their tax-saver funds. During the two-hour meeting, thefund CEOs proposed that qualified foreign investors (QFIs) would be encouragedto put in money if KYC norms are streamlined. They also asked for introductionof share-class structure and valuation models of gold funds.

"Sebi wanted our views on key issues facing the industry. The regulator,it seems, is not happy about falling asset bases and investment outflows. Wethink Sebi will take quick decisions on KYC for QFIs, transaction charges andextension of exit load structure," said a CEO who attended the meeting.

According to sources, the regulator may take a decision not to make PAN(permanent account number) mandatory for QFIs who want to invest in Indianmutual funds. The regulator will look into rules laid down by overseasregulators for enabling individual foreign investors, particularly fromcountries with a strong regulatory framework, to put money in Indian MFs.

Offshore distributors, selling Indian MFs to QFI, may be entrusted with theresponsibility of completing the KYC procedure. Industry representativesstrongly backed the agenda on a possible extension of the exit load period fromone year to two or three years.

This, they think, will arrest sudden outflows and distributor-induced fundportfolio churning. In order to make the marketing structure more flexible, thedecision to charge a transaction fee should be left to the discretion of adistributor. At present, distributors recover a charge of Rs 150 from allinvestors, irrespective of the size of investment.

"This is not a good practice... If someone is investing Rs 1 lakh, thedistributor should have the freedom not to levy a charge," said the headof another fund. The regulator may soon exempt independent financial advisorsfrom disclosing their fees on the websites of fund houses, he felt.

Among other things, the regulator said it would also lookinto the valuation model of gold fund-of-funds which have gold prices as thebenchmark but valued at closing net asset value (NAV). This, according to fundmanagers, is resulting in widen variance between performance of goldfund-of-funds and their NAVs.

The regulator, however, was also not comfortable with the idea of introducingdifferential share class in mutual funds. "Differential share classdiscriminates between investors and it cannot be implemented," the regulatortold the MF executives.

source: ET

Government revamps small savings schemes

2011-11-14T21:30:00.001+05:30

Investments in small savings instruments will now fetch investors more, with the Union government on Friday deciding to rationalize schemes in these and to align the rate of interest with government maturities. The rate of interest on the Public Provident Fund (PPF) is proposed to be increased to 8.6 per cent from the present eight per cent and the annual ceiling on investment under the scheme to be increased from Rs 70,000 to Rs 1 lakh. The decision take effect with effect from December 1.

In line with deregulation of the rate of interest on banks’ savings deposits, the interest rate on post office savings accounts is top be be raised from the present 3.5 per cent to four per cent. The rates on time deposits, recurring deposits and National Savings Certificates (NSC) will also go up, with a new 10-year NSC offering as high as 8.7 per cent per annum. Kisan Vikas Patras are to be discontinued.

“The rate of interest on small savings schemes will be aligned with G-sec rates of similar maturity, with a spread of 25 basis points (bps), with two exceptions. The spread on 10-year NSC will be 50 bps and on Senior Citizens Savings Scheme, 100 bps. The interest rates for every financial year will be notified before April 1,” the finance ministry said on Friday.

The decisions were taken on the recommendation of a committee set up in July 2010 for a comprehensive review of the National Small Savings Fund (NSSF). The panel, headed by former Reserve Bank of India deputy governor Shyamala Gopinath, gave its report this June.

The maturity period for Monthly Income Scheme (MIS) and NSC will be reduced from six years to five years. Interest on loans obtained from the PPF will be increased to two per cent per annum from the existing one per cent. Liquidity of the Post Office Time Deposit, with maturities of one year to five years, will be improved by allowing premature withdrawal at a rate of one per cent less than time deposits of comparable maturity. Payment of five per cent bonus on maturity of MIS will be discontinued.

Payment of one per cent commission on PPF schemes and 0.5 per cent on the Senior Citizens Savings Scheme will be discontinued. Agency commission under all other schemes will be reduced from the existing one per cent to 0.5 per cent.

The minimum share of states in net small savings collections in a year, for investment in state government securities, will be reduced from 80 per cent to 50 per cent. The remaining amount will be invested in central government securities or lent to other willing states or in securities issued by infrastructure companies/agencies wholly owned by the Centre.

Yearly repayment of NSSF loans made by the Centre and the states are to be reinvested in central and state government securities in a 50:50 ratio. The period of repayment of NSSF loans by the Centre and states will be reduced to 10 years, with no moratorium.

For the current financial year, the prevailing interest rate of 9.5 per cent will continue. From April 1, 2012, a revised interest rate will be notified.

source: Business Standard

HAPPY DIWALI - 2011

2011-10-25T22:06:00.000+05:30

Everything You Wanted To Know About Your EPF

2011-10-19T21:08:00.001+05:30

Our salary slips always show some contribution towards a Provident Fund (PF) account. We also see our employer contributing to the same account. However, most often than not, we are not aware how much is contributed by us and by the employer every month towards the Provident Fund Account.

Let us understand in detail about this long term savings instrument.

Types of PF

Firstly there are 2 types of Provident Funds:

Statutory Provident Fund

A statutory provident fund is for the government and semi- government employees (ex: railway officer or any other government body/institution)
Recognized Provident Fund

A Recognized provident fund is the fund which is recognized under Employee Provident Fund and Miscellaneous Provisions (EPF & MP) Act 1952. The recognized provident fund is further classified as 1) Government managed fund and 2) Private trusts managed by the organizations.

There are 3 critical components to Recognized Provident Fund

Employee Provident Fund (EPF)

In this fund the employee and the employer contribute a defined amount every month with the objective of long term savings/savings for retirement. Here, you contribute 12% of the specified salary (either Rs. 6,500 or your actual Basic if it is higher - whichever you choose) and your employer contributes 3.67% of the specified salary (either Rs. 6,500 or the actual Basic, whichever is higher, if it so chooses)
Employee Pension Scheme (EPS)

In this fund the employer and the central government contribute a defined amount every month with the sole objective of providing regular pension to the employee post retirement. You as an employee do not contribute to your own Pension Scheme, this is contributed by your employer and by the Central Government. Your employer contributes 8.33% of Rs. 6,500 Basic salary to the Employee Pension Scheme, and the Central Government contributes 1.16% of the same. The EPS provides you with regular annuity after your retirement.
Employee Deposit Linked Insurance (EDLI)

The contribution needs to be at least the lower of the following for both the employer and the employee:

12% of Specified salary (Basic)

OR
12% of Rs. 6,500/- (i.e. Rs. 780)

Contribution Matrix:

Employee Contribution - Total 12% of specified Salary ---> 12% goes towards EPF & 0% towards EPS**Employer Contribution - Total 12% of specified Salary ---> 3.67% goes towards EPF & 8.33% towards EPS**
Central Government - Total 1.16% of specified salary ---> 0% goes towards EPF & 1.16% towards EPS**

Total Contribution per month -15.67% towards EPF & 9.49% towards EPS**

Let's take an example to understand the matrix:

Scenario 1

Mr. Shah, our favourite fictional case study character, draws a Basic salary of Rs. 25000/- per month and the employer's contribution towards PF is similar to Mr. Shah's contribution. Their contribution is not on specified salary but on the statutory limit of Rs. 6500/-

Mr. Shah's Contribution - Total 12% of 6,500 out of which Rs. 780 towards EPF and Rs. 0 towards EPSEmployer Contribution - Total 12% of 6,500 out of which Rs. 239 towards EPF and Rs. 541 towards EPSCentral Government - Total 1.16% of 6,500 out of which Rs. 0 towards EPF and Rs. 75.40 towards EPS

Total Contribution per month - Rs. 1,019 towards EPF and Rs. 616.40 towards EPS

Please Note:
Out of the 12% contribution from the employer, 8.33% of the contribution, subject to a maximum of Rs. 541 per month, is contributed to the Employee Pension Scheme.

So in the case above where Mr. Shah's Basic Salary is Rs. 25,000, and his employer also contributes on 12% of the actual Basic i.e. 12% of Rs. 25,000, totally, only 8.33% of Rs. 25,000 subject to a maximum of Rs. 541 gets contributed to the EPS, and the rest is contributed to Mr. Shah's PF account.

Based on this, the following contributions are made by his employer:

Employer's contribution to Mr. Shah's EPS: 8.33% of Rs. 25,000 = Rs. 2082.50, subject to max of Rs. 541
So, employer's contribution to Mr. Shah's EPS: Rs. 541
Employer's contribution to Mr. Shah's PF: 12% of Basic less EPS contribution = Rs. 2,459

Scenario 2

Mr. Shah's Contribution - Total 12% of 25,000 out of which Rs. 3,000 towards EPF and Rs. 0 towards EPSEmployer Contribution - Total 12% of 25,000 out of which Rs. 2,459 towards EPF and Rs. 541* towards EPS
Central Government - Total 1.16% of 6500 out of which Rs. 0 towards EPF and Rs. 75.40* towards EPS

Total Contribution per month - Rs. 5,459 towards EPF and Rs. 616.40 towards EPS

*(Note: Contribution by Employer and Central Government towards EPS (Employee Pension Scheme) is always on Rs. 6500/- (i.e. in case of Employers contribution the balance is contributed towards EPF: Rs. 3,000-541= 2,459)

Hence, as seen in the above two scenarios, you and your employer would be either contributing Rs.780 and Rs.239 respectively towards your PF account or 12% and 3.67% of your specified salary (Basic) towards your PF account.

Additionally, you can choose to increase your own PF contribution from Rs. 780 to 12% of your Basic, but if you do so, your employer need not do the same, your employer can continue to contribute Rs. 239 toward your PF account, based on the basic salary of Rs. 6,500.

Contributing towards Provident Fund always proves to be fruitful because of the following reasons:

Employee's contribution towards PF is exempt from tax u/s 80C of Income Tax Act, 1961, with a maximum limit of Rs.1 Lakh.
Interest accumulated is tax free.
Safest instrument as return is guaranteed by the government.
The entire corpus is tax free during maturity.

(Note: Employer's contribution is tax free during maturity only if the account is active and maintained for a minimum of 5 years)

There are some points to be noted to make the most of your EPF, which are as follows:

Always make sure you have nominated someone for your PF account. You can nominate one or more nominees for the account. They should be your family members. Only if a person doesn't have a family, can he nominate any other person.
Even if you shift your job, always maintain one PF account. This will be beneficial over the long run due to compounding of interest in the same account and secondly becomes easier to track.
Provident Fund account gives 8.5% tax free return (except in 2010-11 where EPFO declared interest at 9.5%) which comes to 12.14% pre tax return. This is much higher than the Bank FD rates and more secured. Additionally, EPF is tax deductible from your salary under Section 80C so you do not pay any tax on this part of your income. So you have a dual tax benefit on your EPF.
You also have the option of contributing to the Voluntary Provident Fund (VPF). As an employee, you have the option of contributing an additional 88% of your Basic to the VPF. This brings y our total contribution of EPF + VPF to 100% of your Basic + DA.
This will earn you the same tax free rate of interest of 8.50% p.a., however this amount is not tax deductible over and above the limit of Rs. 1 lakh under Section 80C.
Additionally, your employer will not contribute to your VPF, this contribution is done solely by you.

What are the Forms I need to make changes in my EPF account?

While the EPF is a safe and strong investment avenue for the salaried class, you might want to make changes such as transferring your PF from one employer to another if you change your job, or withdrawing your PF, or availing advances / withdrawals and so on. If you want to make any such movements in your PF, you will need to fill the relevant form and submit it to the EPFO.

A list of useful forms is given below:

To shift your PF from one employer to another:
You will need Form 13.
To avail an advance or to withdraw part or all of your PF contribution for certain specified reasons:You will need Form 31.

If you are withdrawing your PF for purchase, construction or remodeling of a house or plot, you will also need to submit a declaration stating the exact reason and furnishing relevant proofs. There is a format for the declaration available on the EPF India website.
To apply for financing a life insurance policy out of your PF account:
You will need Form 14
To withdraw your PF on retirement / leaving the job / termination:
You will need Form 19
If you are a nominee and need to claim the PF account of a deceased family member:
You will need Form 20.

Conclusion

As you can see, there's a lot more to the EPF than meets the eye. So do go through your salary slip and decide whether you would like to increase your EPF contribution and avail the tax benefit.

How will the GDP growh outlook pan out?

2011-09-28T14:39:00.000+05:30

IMF's (International Monetary Fund) GDP forecasts for 2011 and 2012 do not really paint a rosy picture. As today's chart of the day shows, although China and India lead the pack, growth rates would still not match what they were in the last couple of years. This is not surprising given that both economies are battling inflation as a result of which their central banks have been tightening interest rates. Despite this, both these countries are way ahead of the rest of the pack in terms of growth.

Source: The Economist

SEBI releases Concept Paper on Regulation of Investment Advisors

2011-09-28T14:15:00.000+05:30

CONCEPT PAPER ON REGULATIONOF INVESTMENT ADVISORS

1. Background

1.1 Section 11 (2)(b) of SEBI Act empowersSEBI to register and regulate working of Investment Advisors and such other intermediaries who may beassociated with securities market in any other manner.

1.2 As decided by SEBI Board inits meeting dated March 22, 2007,SEBI had posted a consultative paper on the “Regulation of Investment Advisors”on its website inviting public comments. Based on public comments received onthe consultative paper as also the USAID (Fire Project), a memorandum was placed before the SEBI Board proposinga regulatory approach for Investment Advisors. It was proposed that the Regulationsshall be implemented through an SRO. As Investment Advisors offer productsacross asset classes, it wasfelt that the respective regulators may take a view and formulate similar normsand code of conduct.Accordingly a reference was made to the HLCC on Financial and Capital Markets.

1.3 HLCCFM in its meeting heldon December 22, 2008 setup the D. Swarup Committee to re‐examine the issue. The committeesubmitted its report to government in December 2009 which was discussed in theHLCCFM meeting in March 2010. Subsequently, regulatory issues relating toWealth Management and / Private Banking undertaken by banks were discussed bythe FSDC Sub‐Committeein its meeting on March 4, 2011.

1.4 Inthis background, SEBI has developed a framework for regulation of investment advisors through the SRO route.

2. Tackling Conflict of Interestin Distribution of FinancialProducts

2.1 It is axiomatic that anyindustry, in order to achieve scale and high productivity, must be free ofinternal contradictions and conflicts of interest. Financial sector is noexception. The financial product distribution space is particularly fraughtwith these conflicts between the manufacturers of financial products likebanks, mutual funds, and insurance companies, etc. and the distributors whichsell these products who call themselves by various names like agents, financial advisors, financialplanners, etc.

2.2 Itis necessary to resolve or at least mitigate these conflicts, especially in thecase of financial products because of their two peculiar characteristics.Firstly, the products are intangible and conceptually more difficult tounderstand. Secondly, the pay‐offs are in a distant future and can be camouflaged byseveral factors external to the product. It is in this context that thedistributors occupy a key role; all the more so considering the low levels offinancial literacy and awareness in India.

2.3 Twomajor conflicts of interest in the financial product distribution space are thefollowing:

a. Dual role played bydistributors as an agent of investors as well as of the manufacturers. This isdue to the fact that with respect to many financial products, agents receivetheir payments from two sources: commissions from the manufacturers (either directlyor through deductions from the investment amount of investors), and advisoryfees or other charges received from the investors. This immediately raises thequestion: whose interests do they represent: the manufacturers’ or theinvestors’? This question has also been raised in the Devendra SwaroopCommittee report on ‘Minimum Common Standards for Financial Advisors andFinancial Education’. This prevalence of divided loyalties may not be in thebest interest of all the stakeholders concerned. It often results in asituation where the distributors are loyal to only themselves. They wouldhappily churn investors’ portfolio and also squeeze more commission from themanufacturer.

b. A situation might arise wheredistributors are likely to be partial to, and would sell more products of themanufacturer who is the best paymaster; and ultimately, other manufacturerswould scramble to do the same, thus leading to a race to the bottom. Thus,there is an inherent conflict in the activities of an agent/distributordistributing similar products of various manufacturers.

2.4 There could be many possiblesolutions to these issues ‐ the most obvious and the easiest being enhanceddisclosures. However, in a country like Indiawhere levels of literacy are low and financial literacy even lower, disclosureshave a limited effect.

2.5 The Financial ServicesAuthority, UK,had outlined plans to ban commission payments for product providers and enforcefinancial advisors to agree on fee payments with clients upfront. It definedtwo categories of service: independent and restricted, on the basis of whichadvisors would charge the fee. Examples of restricted advice may be whereadvisors offer advice only about the products of a particular manufacturer; orabout the products from a defined list of manufacturers. Independent advicewould include unrestricted advice based on a comprehensive and fair analysis ofthe relevant market. However, there is a kind of restricted advice called‘basic advice’. With Basic Advice, the consumer is asked some pre‐scriptedquestions about their income, savings and other circumstances to identify theconsumer’s financial priorities and suitability for a stakeholder product, buta full assessment of their needs is not conducted nor is advice offered onwhether a non‐stakeholderproduct may be more suitable. ‘Basic advice’ is excluded from the new rulesi.e. in case of basic advice, commissions can be paid and the new advisorcharging rules are not applicable to the same. Also, non‐ advised or executiononly sales would be remunerated only by commission and would not fall withinthe ambit of the advisor charging rules. Thus, in the FSA model, the firstconflict of interest as per para 2.3(a) seems to have been addressed byensuring that the distributor/advisor owes allegiance to only one paymaster ata time‐eitherthe manufacturer or the investor.

2.6 SEBI, with effect from August 01, 2009, had banned entryloads in mutual fundinvestments and had mandated that the upfront commission should be paid directlyby the investors to the distributors based on factors like assessment of theservice of the distributor. However, the distributor continued to earn trailcommissions from the Asset Management Companyat the same time. Thus, the first conflict of interest was only partiallymitigated in this model.

2.7 Inthis paper, we are attempting to deal with only the first type of conflict ofinterest. The possible model for tackling this conflict of interests may be thefollowing:

a. The person who interfaces withthe customer should declare upfront whether he is a financial advisor or anagent of the manufacturer.

b. If he is an advisor, he wouldbe subject to the Investment Advisors Regulations; and would require a muchhigher level of qualifications. He would act as an advisor to the investor onall financial products. He would receive all payments from the investor andthere would be no limits set on these payments. On the other hand, there willbe agents who will be associated with the manufacturer and would receive theirremuneration from them. However, they will be prevented from styling themselvesas financial advisors and will have to call themselves as agents only.

c. This will resolve the first conflict ofinterest as in para 2.3 (a).

3. Structure of Proposed Regulations

3.1 Theproposed regulatory framework intends to regulate the activity of providinginvestment advisory services in various forms by a wide range of entitiesincluding independent financial advisors, banks, distributors, fundmanagers etc. The investment advice may be provided for investments in variousfinancial products including but not limited to securities, insurance products,pension funds, etc. While the activity of giving investment advice will beregulated under the proposed framework through an SRO, issues relating tofinancial products other than securities shall come under the jurisdiction ofthe respective sectoral regulators such as action for mis‐selling,violation of code of conduct, conflict of interest etc. The SRO set up for theregulation of Investment Advisors shall follow the rules/regulations laid downby respective regulators for products falling in their jurisdiction, includingbut not limited to suitability and appropriateness of the products.

3.2 The SRO formed to regulateinvestment advisors will be registered under the SEBI (Self RegulatoryOrganization) Regulations, 2004. SRO will have sufficient resources to performits functions. Its duties would include registering and setting minimum professionalstandards, including certification of investment advisors, laying down rulesand regulations and enforcing those; informing and educating the investingpublic; setting up and administering a disputes resolution forum for investorsand registered entities etc. Persons desirous of registration as InvestmentAdvisors shall obtain registration with the SRO established for the purpose.The SRO will be entitled to charge a fee for granting registration and anannual fee.

3.3 Complaints / disputesarising out of investment advisory services will be taken up by the SRO withthe respective regulatory authority, while the complaints regarding thefinancial products and their manufacturers will be handled by the respectiveregulators.

3.4 InvestmentAdvisors tend to call themselves by varied names viz. wealth managers, privatebankers etc. This causes much confusion as to their role and responsibility.Hence the regulations will provide that no person can carry on the activity ofoffering investment advice unless he is registered as an Investment Advisorunder the regulations. On the other hand any person who has obtained thecertificate of registration as an Investment Advisor must necessarily use theword “investment advisor” in his name.

4. Definitions

4.1 InvestmentAdvisor

Investment advisor for the purpose of theregulations shall be any person or entity that provides investment advicedirectly or indirectly for a consideration, which may be received directly fromthe investor or who holds himself out as an investment advisor.

4.2 InvestmentAdvice

Investment advice shall be an advice written,oral or through any other means of communication given regarding investment offunds in financial products or products that are traded and settled likefinancial products purportedly for the benefit of the investor. It shallinclude:

(a) Financial advice; or

(b) Financial planning service or

5. Coverage

5.1 Individuals

The following set of individuals would need toget registered under the regulations to be able to provide Investment AdvisoryServices:‐

a. Independent InvestmentAdvisor– Independent Investment Advisors are professionals who offerindependent advice on financial matters to their clients and recommend suitablefinancial products or products that are traded and settled like financialproducts.

b. Representatives of investment advisors orintermediaries who on behalf of the investment advisor or intermediaryprovide investment advice to investors: Representative would mean a person, inthe direct employment of, or acting for, an investment advisor, who performs onbehalf of the investment advisor any investment advisory service, whether ornot he is remunerated, and whether his remuneration, if any, is by way ofsalary, wages, commission or otherwise, and includes any officer of aninvestment advisor who performs for the investment advisor any investmentadvisory service whether or not he is remunerated, and whether hisremuneration, if any, is by way of salary, wages, commission or otherwise;

5.2 Non‐individuals

The following set of non‐individuals (corporateentities) would need to get registered under the regulations to be able toprovide Investment Advisory Service:

a. Banks providing investment advisory/ wealth management services: In IndiaBanks are allowed to perform only Investment Advisory Services. Those bankswhich provide similar services would be required to get registration underthese regulations.

b. Any entity, other than an individual person ‐ representing investment advisor, whoon behalf of the investment advisor provides investment advice to investors :Representative would mean a person, acting for, an investment advisor, whoperforms on behalf of the investment advisor any investment advisory service,whether or not it is remunerated, and whether its remuneration, if any, is byway of, commission or otherwise, and includes any officer of such an entity whoperforms for the investment advisor any investment advisory service whether ornot he is remunerated, and whether his remuneration, if any, is by way ofsalary, wages, commission or otherwise;

6. Persons Exempt from the regulations

6.1 A person shall be deemed notto be engaged in the business of providing investment advice, if the advice issolely incidental to some other business or profession and the advice is givenonly to clients of the person in the course of such other business orprofession and the advice does not specify particular securities and is limitedto general comments made in good faith in regard to trends in the securitiesmarket, the economic situation of the country.

6.2 Thefollowing shall be exempt from registration under these regulations:

a. An advocate and solicitor or law firm, whoseoffer of financial advice is solely incidental to his legal practice.

b. Chartered accountants who are registered underthe Institute of Chartered Accountants of India providing of any investmentadvice is solely incidental to the accounting practice.

c. Any person who publishes magazine/newspaper,where —

I. the newspaper isdistributed generally to the public in India;

II. the advice given, or analysis or reportissued, is promulgated only through that newspaper;

III. that person receives no commission or otherconsideration, apart from any fee received from subscription to or purchase ofthe newspaper, for giving the advice, or for issuing or promulgating theanalysis or report; and

IV. the advice is given, or the analysis orreport is issued or promulgated, solely as incidental to the conduct of thatperson’s business as a newspaper proprietor.

d. Any person who owns, operates or provides aninformation service through an electronic, or a broadcasting ortelecommunications medium, where —

I. the service isgenerally available to the public in India;

II. the advice given, or analysis or reportissued is promulgated only through that service;

III. that person receives no commission or otherconsideration, apart from any fee received from subscription to the service,for giving the advice, or for issuing or promulgating the analysis or report;and

IV. the advice is given, or the analysis or reportis issued or promulgated, solely as incidental to that person’s ownership,operation or provision of that service.

e. Any stock broker or sub‐brokeras registered under SEBI( Stock Broker and Sub‐ Broker) Regulations, 1992, whoprovides any investment advice as per Regulation 7 read with Schedule IIof SEBI (Stock Broker and Sub‐broker) Regulation, 1992 and not charging anyconsideration for such advice.

f. Any person offering exclusively insurancebroking services under regulation of Insurance Development and RegulatoryAuthority.

7. Registration Requirements

7.1 TheIndividuals who wish to get registered under these regulations would need tosatisfy the following criteria:

a. Individuals should acquire aProfessional Qualification from a recognized institute for e.g. CharteredAccountancy form ICAI, MBA in Finance or similar qualification from arecognized university or should have at least 10 years of relevant experience;and

b. Certification from NISM orsuch other organization approved by SEBI for this purpose

c. The individuals should conform to the Fit andProper Criteria s laid down in Schedule II of SEBI (Intermediaries)Regulations, 2008.

7.2 Entitieswho wish to get registered under these regulations would need to satisfy thefollowing criteria:

a. Capital Adequacy Requirement:Entities would need to maintain a minimum net worth which would be separatefrom the net worth required for other activities.

b. Key personnel: Entities shouldhave at least 2 key personnel having the relevant experience exclusively forsuch activity. Such key personnel should also acquire the certification fromNISM or such other organization as approved by SEBI for this purpose and haveminimum qualification as prescribed.

c. The entity should conform tothe Fit and Proper Criteria laid down in Schedule II of SEBI (Intermediaries)Regulations, 2008.

d. The applicant must haveadequate infrastructure to enable it to discharge its functions as anInvestment Advisor.

8. Obligations of an Investment Advisor

8.1 Fiduciary Responsibility to Investors

All information received and provided by theinvestment advisor would be in fiduciary capacity. The investment advisor willbe responsible to maintain confidentiality of the investment adviceprovided to the client and information provided by the client. Advice should begiven by the advisor in the best interest of the investor.

8.2Suitability and Risk Profiling

The Investment Advisors or their representativeswould be required to do adequate risk profiling of the client before anyinvestment service is provided to them. Based upon the risk profiling performedby the investment advisor or their representative suitable investment adviceshould be provided. The records of such risk profiling and investment adviceshould be maintained by the Investment Advisor.

8.3 Advertising and Marketing Material

Investment Advisors should not use anyadvertisement that contains any untrue statement of material fact or that isotherwise misleading. They should not use or refer to testimonials (whichinclude any statement of a client’s experience or endorsement).

Refer to past, specific recommendations made bythe advisor that were profitable, unless the advertisement sets out a list ofall recommendations made by the advisor within the preceding period of not lessthan one year and complies with other specified conditions.

8.4 Conflict of Interest

No financial incentives! consideration would bereceived from any person other than investors seeking advice. In case of adviceregarding investment in entities related to the investment advisor, adequatedisclosures shall be made to investor regarding the relationship.

8.5 Maintaining Records

Records in support of every investment recommendation!transaction made which indicates the data, facts and opinion leading to thatinvestment decision would be maintained by the Investment Advisor. Recordsshould be retained for at least 5 years. Systematic record of all advisesprovided would be kept including audio recording of any oral advice given.

8.6 Fees and Charges

The Investment Advisor would clearly indicate toits clients the fees and charges that are required to be paid by them. Aninvestment advisor shall disclose to a prospective clients all materialinformation about itself, its businesses, its disciplinary history, the termsand conditions on which it offers advisory services, its affiliations withother intermediaries and such other information as is necessary him to take aninformed decision whether to avail of its services.

9. Execution Services

Investment advisors shall not accept funds /securities from investors, except the fee for investment advice. If Non‐individualinvestment advisors (corporate entities) offer assistance in execution servicessuch as broking, custody services, DP services, accounting etc., they must makeappropriate disclosures, clarify that the investor is under no obligation to usetheir services and maintain arms length relationship through creation ofChinese walls. The choice of opting for execution services offered byinvestment advisor should be left to the investors. Fees and charges paid toservice providers should be paid directly to them and not through investmentadvisors.

10. Outsourcing

Other than sourcing of research reports, no otherpart of investment advisory activity can be outsourced.

11. Liability

The investment advisors shall not be liable forcivil or criminal liability in respect of advice given unless the advice isnegligent or mala‐fide in nature. Any dispute between the investment advisorand his client would be resolved through grievance redressal mechanism orarbitration created by SEBI

12. Entities registered as Portfolio Managers

Portfolio Managers who provide only investmentadvice would need to be registered only as investment advisors after theirpresent registration expires. Portfolio Manager Regulations would be amended inview of the proposed AIF Regulations as well as the Investment AdvisorRegulations.

13. Public Comments

Public Comments are invited on the Concept Paperon Regulation of Investment Advisors. All comments may be forwarded by e‐mailto Shri Manish Tekriwal, Manager, Investment Management Department, Division ofFunds ‐1 at manisht@sebi.gov.in latest by 1730 hours on October 31, 2011.

Easier PAN norms for FIIs, foreign nationals

2011-09-13T00:00:00.000+05:30

In a move which could improve the fund flow and provide some stability to the choppy Indian bourses, the finance ministry has relaxed norms for foreign nationals and foreign institutional investors to obtain Permanent Account Numbers (PAN) that could also double up as KYC (know your customer) compliance for any investment they make in Indian stocks.

Till now, FIIs or foreign nationals had to obtain a PAN and separately meet KYC requirements prescribed by the market regulator before investing in stocks. The tax obligation on any transaction is twice the due amount if they fail to mention PAN.

In the revised rules that come into effect from October 1, a foreign national will have to only produce either h/his citizenship number or taxpayer identification number to obtain a PAN. The government is making amendments in Rule 114 and Form 49A of the Income Tax Rules and has proposed to introduce a new Form 49AA. While Form 49A will be used for Indian citizens, the other is for foreign nationals and FIIs.

Earlier rules stipulated that citizenship or taxpayer identification number would not be accepted as proof of identity in case of foreign nationals seeking PAN card. The applicant is required to take prescribed documents to an officer of Indian Embassy or High Commission where he is a resident to get them attested.

The revised guidelines ensure that a foreign national or an FII need not make rounds of Indian Embassies or High Commissions anymore. They can get copies of their documents attested by recognized authorities in their respective countries. Several countries and trade and industry organizations had represented the finance ministry seeking changes in the rules, in particular documents to be accepted as proof of identity and address and their attestation.

The department of economic affairs and the central board of direct taxes (CBDT) also worked on harmonizing the requirements of PAN and meeting KYC obligation. "Since most of the basic information for both are common, it was decided to harmonize them into one so that compliance burden for a foreign investor is substantially reduced," said a senior finance ministry official. The directorate of Income Tax has devised a single integrated form that incorporates the requirements of both PAN and KYC.

SEBI: Circular for Mutual Funds

2011-09-12T23:55:00.001+05:30

Securitiesand Exchange Board of India

CIRCULAR

Cir/IMD/ DF/13/ 2011

August22, 2011

AllRegistered Mutual Funds/ Approved Asset Management Companies (AMCs)

Sir/Madam,

Sub:Circular for Mutual Funds

A.Transaction charges

1.Please refer to SEBI circular no. SEBI/IMD/CIR No. 4/168230/09 dated June 30,2009 regarding empowering investors through transparency in payment ofcommission and load structure.

2.It has been represented to SEBI that distributors incur expenditure ontraveling and incidentals for reaching investors and procuring business forMutual Funds. Distributors are also required to set up appropriateinfrastructure for servicing investors as well as incur certain expenses whilemarketing the units of Mutual Funds.

3.In order to enable people with small saving potential and to increase reach ofMutual Fund products in urban areas and smaller towns, it has been decided thata transaction charge per subscription of `10,000/- and above beallowed to be paid to the distributors of the Mutual Fund products from thedate of this circular. However, there shall be no transaction charges on directinvestments. The transaction charge shall be subject to the following:

i. For existing investors in a Mutual Fund,the distributor may be paid ` 100/- as transactioncharge per subscription of ` 10,000/- and above.

ii. As an incentive to attract new investors,the distributor may be paid ` 150/- as transactioncharge for a first time investor in Mutual Funds.

iii. The terms and conditions relating totransaction charge shall be part of the application form in bold print.

iv. The transaction charge, if any, shall bededucted by the AMC from the subscription amount and paid to the distributor;and the balance shall be invested.

v. The statement of account shall clearlystate that the net investment as gross subscription less transaction charge andgive the number of units allotted against the net investment.

vi.Distributors shall be able to choose to opt out of charging the transactioncharge. However, the ‘opt-out’ shall be at distributor level and not investorlevel i.e. a distributor shall not charge one investor and choose not to chargeanother investor.

vii. The AMCs shall be responsible for anymalpractice/mis-selling by the distributor while charging transaction costs.

viii. There shall be no transaction charge onsubscription below ` 10,000/-

ix. In case of SIPs, the transaction chargeshall be applicable only if the total commitment through SIPs amounts to ` 10,000/-and above. In such cases the transaction charge shall be recovered in 3-4installments.

x.There shall be no transaction charge on transactions other than purchases/subscriptions relating to new inflows.

4.Mutual Funds shall institute systems to detect if a distributor is splittinginvestments in order to enhance the amount of transaction charges and takestringent action including recommendations to AMFI to take appropriate action.

5.Mutual Funds/AMCs shall carry out an exercise of de-duplication of foliosacross all Mutual Funds within a period of 6 months from the date of thiscircular.

6.It is also clarified that as per SEBI circular no. SEBI/IMD/CIR No. 4/168230/09, dated June 30, 2009, upfront commission to distributors shallcontinue to be paid by the investor directly to the distributor by a separatecheque based on his assessment of various factors including the servicerendered by the distributor.

B.Distributors of Mutual Fund products

1.It has been felt that in the interest of investors there is a need to regulatethe distributors through AMCs by putting in place a due diligence process to beconducted by AMCs as follows:

i.The due diligence process shall be initiallyapplicable for distributors satisfying one or more of the following criteria:

a. Multiple point presence (More than 20locations)

b. AUM raised over ` 100Crore across industry in the non institutional category but including highnetworth individuals (HNIs)

c. Commission received of over ` 1Crore p.a. across industry

d.Commission received of over ` 50 Lakh from a singleMutual Fund

ii.At the time of empanelling distributorsand during the period i.e. review process, Mutual Funds/AMCs shall undertake adue diligence process to satisfy ‘fit and proper’ criteria that incorporate,amongst others, the following factors:

a. Business model, experience and proficiencyin the business.

b. Record of regulatory / statutory levies,fines and penalties, legal suits, customer compensations made; causes for theseand resultant corrective actions taken.

c. Review of associates and subsidiaries onabove factors.

d.Organizational controls to ensure that the following processes are delinkedfrom sales and relationship management processes and personnel:

i.) Customer risk / investment objectiveevaluation.

ii.)MF scheme evaluation and defining its appropriateness to various customer riskcategories.

iii.In this respect, customer relationshipand transactions shall be categorized as:

a. Advisory – where a distributor representsto offer advice while distributing the product, it will be subject to the principleof ‘appropriateness’ of products to that customer category. Appropriateness isdefined as selling only that product categorization that is identified as bestsuited for investors within a defined upper ceiling of risk appetite. Noexception shall be made.

b.Execution Only – in case of transactions that are not booked as ‘advisory’, itshall still require:

i.) The distributor has information tobelieve that the transaction is not appropriate for the customer, a writtencommunication be made to the investor regarding the unsuitability of theproduct. The communication shall have to be duly acknowledged and accepted byinvestor.

ii.) A customer confirmation to the effectthat the transaction is ‘execution only’ notwithstanding the advice ofin-appropriateness from that distributor be obtained prior to the execution ofthe transaction.

iii.)That on all such ‘execution only’ transactions, the customer is not required topay the distributor anything other than the standard flat transaction charge,as mentioned in part ‘A’ above.

c. There shall be no third categorization ofcustomer relationship / transaction.

d.While selling Mutual Fund products of the distributors’group/affiliate/associates, the distributor shall make disclosure to thecustomer regarding the conflict of interest arising from the distributorselling of such products.

iv.Compliance and risk management functionsof the distributor shall include review of defined management processes for:

a. The criteria to be used in review ofproducts and the periodicity of such review.

b. The factors to be included in determiningthe risk appetite of the customer and the investment categorization andperiodicity of such review.

c. Review of transactions, exceptionsidentification, escalation and resolution process by internal audit.

d. Recruitment, training, certification andperformance review of all personnel engaged in this business.

e. Customer on boarding and relationshipmanagement process, servicing standards, enquiry / grievance handlingmechanism.

f. Internal / external audit processes, theircomments / observations as it relates to MF distribution business.

g.Findings of ongoing review from sample survey of investors

2.Mutual Funds/AMCs may implement additional measures as deemed appropriate tohelp achieve greater investor protection.

C. Transparency of information

1. SEBI vide circular no. SEBI/IMD/CIR No. 4/168230/09, dated June 5, 2000, has stipulated that only compounded annualizedyield shall be advertised if the scheme has been in existence for more than 1year.

2. It has been decided, henceforth, that whenthe scheme has been in existence for more than three years:

i.Point-to-point returns on a standardinvestment of ` 10,000/- shall also be shown in addition toCAGR for a scheme in order to provide ease of understanding to retailinvestors.

ii.Performance advertisement shall beprovided since inception and for as many twelve month periods as possible forthe last 3 years, such periods being counted from the last day of the calendarquarter preceding the date of advertisement, along with benchmark indexperformance for the same periods.

3. Where scheme has been in existence formore than one year but less than three years, performance advertisement ofscheme(s) shall be provided for as many as twelve month periods as possible,such periods being counted from the last day of the calendar quarter precedingthe date of advertisement, alongwith benchmark index performance for the sameperiods.

4. Where the scheme has been in existence forless than one year, past performance shall not be provided.

5.For the sake of standardization, a similar return in INR and by way of CAGRmust be shown for the following apart from the scheme benchmarks:

Scheme Type	Benchmark
Equity scheme	Sensex or Nifty
long term debt scheme	10 year dated GoI security
short-term debt fund	1 year T-Bill

These disclosures shallform a part of the Statement of Additional Information and all advertisementsof Mutual Funds.

6. Any disclosure regarding quarterly/half yearly/yearlyperformance shall pertain to respective calendar quarterly/halfyearly/yearly only.

7. When the performance ofa particular Mutual Fund scheme is advertised, the advertisement shall alsoinclude the performance data of all the other schemes managed by the fundmanager of that particular scheme.

In case the number ofschemes managed by a fund manager is more than six, then the AMC may disclosethe total number of schemes managed by that fund manager along with theperformance data of top 3 and bottom 3 schemes (in addition to the performancedata of the scheme for which the advertisement is being made) managed by thatfund manager in all performance related advertisement. However, in such casesAMCs shall ensure that true and fair view of the performance of the fundmanager is communicated by providing additional disclosures, if required.

AssetsUnder Management (AUM) disclosure

8. Wherever the MutualFunds discloses the AUM figures for the fund, disclosure on bifurcation of theAUM into debt/equity/ balanced etc, and percentage of AUM by geography (i.e.top 5 cities, next 10 cities, next 20 cities, next 75 cities and others). TheMutual Funds shall disclose the aforesaid data on their respective websites& to AMFI and AMFI shall disclose industry wide figures on its website.

Commissiondisclosure

9. Mutual Funds / AMCs shall disclose on their respective websitesthe total commission and expenses paid to distributors who satisfy one or moreof the following conditions with respect to non-institutional (retail and HNI )investors

i.Multiple point of presence (More than 20 locations)

ii.AUM raised over ` 100 crore across industry in the non institutional category butincluding high networth individuals (HNIs).

iii.Commission received of over ` 1 crore p.a. across industry

iv.Commission received of over ` 50 lakh from a single Mutual Fund/AMC.

10. Mutual Funds / AMCs shall also submit the above data to AMFI.AMFI shall disclose the consolidated data in this regard on its website.

D. The aforesaid circularsstand modified to the said extent.

E. This circular is issuedin exercise of powers conferred under Section 11 (1) of the Securities andExchange Board of India Act, 1992, read with the provisions of Regulation 77 ofSEBI (Mutual Funds) Regulations, 1996, to protect the interests of investors insecurities and to promote the development of, and to regulate the securitiesmarket.

Yours faithfully,

AshaShetty

Deputy GeneralManager

Tel no.022-26449258

Email-ashas@sebi.gov.in

Sensex could surge past 23,000 in one year: Reliance MF

2011-09-12T23:42:00.002+05:30

Indian stock market is poised for robust growth in 12-18months and the BSE benchmark Sensex may soar to a record 23,000 mark by nextAugust, the country's largest fund house has said.

In its latest report on Indian equity markets, Reliance Mutual Fund said theglobal as well as domestic economic headwinds were expected to subside considerablyin the next one year.

Besides, it added, various policy actions initiated by the government forfurthering the economic reforms would also help improve the corporate andinvestor sentiment.

Terming the prevailing concerns as short-lived, Reliance MF said theenvironment might not remain as gloomy going forward and investors can expectbetter returns over 12 to 18 months.

Based on its estimates for corporate earnings growth and other factors, theSensex could rise to 23,100 level by August 2012, the fund house said.

This would be higher than the record high of 21,206.77 points, which the Sensexscaled on January 10, 2008.

The Bombay Stock Exchange 30-share index currently stands at 16,866.97 pointsand has lost over 1,900 points or more than 10 per cent in the past one year.

The fund house further said the Sensex could rise to as high as 30,568 pointsby August 2012, in the best-case scenario for corporate earnings growth andother market fundamentals.

The worst-case scenario pegs the index at 15,977 points by August 2012, whilethe average estimates puts it at 22,852, the report said in its analysis forthe one-year Sensex forecast under various earnings growth and PE (price-to-earnings) multiples.

In an earlier report published last month, Reliance MF had said that thecorrection trigged by concerns over debt crisis in the US and Europe could beseen as an attractive share buying opportunity for investors.

It had also asserted at that time that a doomsday scenario like the oneexperienced during the global financial crisis of 2008 was unlikely to returnto Indian markets, as the variables are very different this time.

Taking forward its analysis in the latest report, the fund house noted,"Indian markets have remained under pressure for the last few quarters dueto significant macro headwinds both on the domestic and international front.

"While the market has been pricing a lot of those concerns, we think theseheadwinds are peaking now. Investors should put in perspective that currentconcerns may be short-lived and the environment may not be as gloomy or ratherbe pretty decent over a year."

The fund house said that Indian markets saw an outflow of $ 3 billion lastmonth after the US rating downgrade.

"Other than global headwinds, domestic macro concerns have led to low riskappetite and in turn dismal portfolio inflows in Indian equities," itsaid.

However, most of these headwinds would subside in the next one year, RelianceMF said.

It added, "Other than inflation and rates, another key reason for theinvestors' despondency is the Govt policy inactivity and related uncertainties.

"Govt policy disappointment resulted in lack of confidence amongcorporates who postponed their expansion plans and that has disappointedinvestors. However, in recent weeks we have seen definite steps towardsimproving the policy environment."

The report listed them as, "cabinet reshuffle, a much overdue fuel pricehikes, revamped GST taskforce, softer stance on pesky environmental clearanceissue and clearance of land acquisition bill, roadmap to cut down stateelectricity board's losses, etc."

The fund house said it expects further pickup in momentum in policy action overthe next one year, resulting into developments like introduction of GST (Goodsand Services Tax) and DTC (Direct Tax Code), new banking licenses, FDI inretail and insurance and reforms on infrastructure financing.

These developments could help assuage the investors' concerns, the reportnoted.

Source: ET

Five things to check before you invest in NCDs

2011-08-15T20:11:00.000+05:30

The weakness in the stock markets and the high returns offered by debt instruments are making investors rush to the safety of fixed income options. After fixed deposits and FMPs, non-convertible debentures (NCD) have caught the fancy of investors. Right now, the NCD issue of India Infoline Investment Services was open for investment, with the company offering 11.9% on the 5-year bonds. Three more issues are in the pipeline. However, before investing in these bonds, here are a few things you should check.

How safe is your capital?

You are investing in debt because you want safety, right? However, private issuers can default on the repayment of the principal. This is where the credit rating of bonds comes into focus. Credit rating is an independent assessment of the ability of the issuer to meet its financial commitments. It's important because it also determines the price that a bond will command in the secondary debt market. A high rated bond will fetch a higher price than a bond with a lower rating.

The rating assigned to a bond is not for perpetuity as it may change with the fundamentals of the issuing company. Any downgrading of rating will bring down the price of the bonds in the secondary market. So, you need to keep your eyes open for any change in the rating of the bonds that you hold. Any variation in rating is usually announced by the agency and reported in the media.

Is the issuer on a sound footing?

Unlike in the case of bank deposits, which are insured up to `1 lakh, investments in non-convertible debentures are not backed by any guarantee. However, as a lender to the company, an investor in NCDs has the first right over the company's assets if it faces liquidation. However, this information is useful only if the company has sufficient assets. So, before investing, take a look at the company's financials. Check whether it is sufficiently capitalised and if it has a healthy book value. "Stay away from companies that have a highly leveraged balance sheet," says Ritesh Jain, head of investments, Canara Robeco Mutual Fund. A little bit of spadework here can save you a lot of heartburn later.

How liquid is the investment?

The investor is not obligated to hold the debenture till maturity because it can be traded in the secondary debt market. That's the theory. The reality is that these instruments are not very liquid and have very few buyers. So, check the liquidity of similar instruments issued by the company before you are taken in by the sales pitch. You may find that some NCDs are not traded for days, which is not the state of liquidity you expect from a product sold on a national exchange.

Is there a put and call option?

Some NCDs come with riders called put and call options. The put option means that the investor has the right to sell the NCD back to the company after a specified period, while the call option gives the company the option to repay prematurely. While the put option favours the investor in a rising rate scenario, the call option acts as a cushion for the company if the rates fall and it wants to retire the high-yielding NCDs prematurely. Find out whether the put and call options suit your needs before you invest in the NCD. For instance, the five-year NCDs by Shriram Transport Finance have a put and a call option after 48 months, whereas the Indian Infoline Investment Services NCD does not have any put or call option.

What is your post-tax yield?

Lastly, consider the tax implications of the investment. The yields being advertised by the issuers obviously do not take into account the tax liability of the investor. Any income from the NCD is to be added to the total income for the year and taxed at the normal rate. In the 10% tax bracket (income of up to `5 lakh a year), the 11.5% yield drops to 10.35%. In the 20% tax bracket (income of up to `8 lakh a year), it falls to 9.2%. And in the highest 30% tax bracket, it is barely above 8%, which is no more than that offered by the PPF.

Happy Independence Day

2011-08-15T19:18:00.000+05:30

Registration must for alternative investments

2011-08-02T14:40:00.002+05:30

The Securities and Exchange Board of India (Sebi) on Monday framed a separate set of regulations for ‘alternative investments’ now classified as ‘collective investment schemes’.

The new rules will apply to all hedge funds, real estate, private equity, debt, venture capital, private investment in public equity, infrastructure, social venture, strategy and small and medium enterprise funds.

While debt funds would mean all unlisted debt instruments, social or strategic investment funds would also cover investments into art or pieces of heritage and more.

In a discussion paper put out on Monday, comments for which have been invited till August 30, Sebi has laid out detailed eligibility and registration criteria and fund structure.

The move is aimed at safeguarding investors from falling prey to dubious schemes of portfolio managers.

Under the proposed regulations, it would be necessary for all private pools of capital and investment funds to seek registration with Sebi.

The funds could be formed as companies, trust or bodies corporate, including limited liability partner structure. The regulations would require that the fund manager, asset management company or trustees of the fund be specified, and change of such entities be reported to the regulator.

Also, all these funds will have to mention their categories, the targeted size of the proposed fund, life cycle and the target investor, said Sebi.

Sebi has also specified that funds will have to be raised only through private placement of information memorandum and all schemes will be close ended in nature.

Minimum investment would be 0.1 per cent of fund size subject to a minimum floor of Rs 1 crore. Sebi has specified that the minimum size of the fund would be Rs 20 crore.

“The minimum inv estment criterion would prevent retail investors straying into such funds and the granularity would ensure a maximum number of investors at 1,000, precluding the possibility that some funds might disguise themselves as private pools while approaching a large number of retail investors,” said Sebi.

In case of an alternative investment scheme constituted as company or limited liability partner firm, the number of shareholders or partners may not exceed 50 and the size of issue will not be less than Rs 10 lakh.

Misuse of Banking Channels – Issue and Payment of Demand Drafts for Rs. 50,000/- and above

2011-08-02T12:35:00.000+05:30

RBI/2011-12/135

DBOD.BP.BC. No. 26 / 21.01.001/2011-12, Dated- August 1, 2011

Misuse of Banking Channels – Issue and Payment of Demand Drafts for Rs. 50,000/- and above

Please refer to our circular DBOD.BP.BC.No.114/C.469(81) – 91 dated April 19, 1991 in terms of which demand drafts, mail transfers, telegraphic transfers and travellers cheques for Rs.50,000 and above should be issued by banks only by debit to the customer’s account or against cheques or other instruments tendered by the purchaser and not against cash payment. These instructions were extended to retail sale of gold/silver/platinum vide our circular DBOD.No.IBS.1816/ 23.67.001/98-99 dated February 4, 1999.

2. It has been brought to our notice that some banks have recently issued demand drafts of Rs. 50,000 and above on deposit of cash and not against debit to the customer’s account or against cheques or other instruments tendered by the customer.

3. In the current scenario where the integrity of the financial system in general and the banking channels in particular is of paramount importance, breach of these guidelines is a matter of serious regulatory concern in view of the wide ranging ramifications.

4. In the above context, we reiterate that the instructions conveyed vide our circular dated April 19, 1991 referred to above may be strictly complied with by banks. Any violation of these instructions will be viewed seriously.

Yours faithfully,

(P. R. Ravi Mohan)

Chief General Manager

NBFCs, MFs can launch infra debt funds

2011-08-02T12:07:00.000+05:30

Taking a cue from government’s interest in raising funds forinfrastructure financing, the Securities and Exchange Board of India (Sebi) hasallowed both existing mutual funds and non-banking finance companies (NBFCs) tolaunch infrastructure debt funds (IDFs).

Schemes would invest 90 per cent of its assets in debtsecurities of infrastructure companies or special purpose vehicles (SPVs)across all infrastructure sectors. Funds could launch close-end schemes thathave a maturity of more than five years or it could also introduce intervalschemes with a lock-in period of five years. Even companies that have been inthe infrastructure financing sector in the last five years can set up a fund.

Under the guidelines, these companies can have a minimum offive investors where no single investor shall hold more than 50 per cent ofassets. Strategic investors could invest up to to Rs 25 crore in the fund.

The minimum investment into the fund would be Rs 1 crorewith the minimum lot size being Rs 10 lakh for the unit. “Given that, thequantum of funds that can be invested is high, it will attract institutionalbuyers and high networth individuals (HNIs),” says Amar Ranu, senior manager,third-party products research, Motilal Oswal Wealth Management.

However, one can expect some liquidity since the fully paidunits of the funds shall be listed on stock exchanges. Mutual funds launchingthese funds may issue partly paid units to its investors.

According to the government’s 12th Five Year Plan, it hasplanned $1-trillion investments in infrastructure projects. It was $500 billionduring the 11th Plan (2007-12) and the government has been keen to raise fundsthrough debt instruments like bonds and other routes such as units in thecapital markets.Finance Minister Pranab Mukherjee had announced tax breaks forIDFs in his budget speech for this fiscal (2011-12), to attract foreigninvestments in the various infrastructure projects.

In the earlier guidelines for released by Reserve Bank ofIndia in June 2011, NBFCs who set up these IDFs have been permitted to sellbonds to refinance public private projects, once the construction is complete.This would also help PPPs to attract long term funds at lower costs because oflower risk. However, in terms of attracting investments, IDFs would have tocompete with the existing triple AAA rated papers which provide a liquidmarket.

source: Business Standard

Mutual Fund: Updating your folio with New bank details

2011-08-01T17:07:00.000+05:30

We sometimes hear an investor say, “I have changed my bankaccount and did not inform the mutual fund. I have received a dividend chequewith the old bank details printed therein. Please resend the cheque with thenew bank details.”

Credit to an investor account may usually not happen if theaccount has been closed and the investor has to request for a fresh cheque.

It is therefore imperative to update the current bankdetails in your folio. We give below a checklist for investors to ensurecorrect and speedy payout of dividend and redemption proceeds.

Core-banking account number: There could be a change in bankdetails as an investor's bank may have installed Core-Banking Solutions. Investorsshould remember to update the new account number.

This can be updated by sending a written request duly signedby the unit holder(s), along with a cancelled cheque leaf with the investor'sfull account number printed therein, to update the same.

IFSC Code: IFSC or Indian Financial System Code is theelectronic address of the bank branch where funds would be transferred. It isan alpha-numeric code containing 11 characters, allotted by the RBI to uniquelyidentify bank branches in India.

Investors who register their IFSC codes in their folios willbe eligible to get electronic payouts through National Electronic Fund Transfer(NEFT) / Real Time Gross Settlement (RTGS). Attach a cancelled cheque leafreflecting the code, along with a signed request to get the same updated.

Mode of payout: While sending a request to update the IFSCcode in the folios, investors may also request for the mode of payout ofdividend / redemption proceeds in the folio to be changed to electronic.

Opting for the electronic mode of payout ensures a faster,safer and more definite receipt of payout compared to cheques.

Registration / Deletion of bank account(s): Mutual Funds nowoffer a facility to individual investors to register up to five bank accountsin a folio.

To register additional bank accounts, investors have to fillin the registration form. Forms are available at the mutual fund websites /service centres. Investors have to attach a cancelled cheque leaf with theirname and account number printed therein or a copy of the bank pass book /statement of bank account containing the name and address of the account holderand account number.

This copy should be certified by the bank manager with his /her full signature, name, employee code, bank seal and contact number.

Registering for this facility enables you to receiveredemption proceeds into any one of the registered bank accounts of your choicewithout having to provide for bank details and the supporting documentation atthe time of redemption.

A point to note is that mutual funds now have a coolingperiod before payout of redemption proceeds if an investor opts for a change inbank details at the time of redemption. Some funds may even not process achange in bank details if requested along with redemption.

The same form used for registering additional bank mandateshas a section for deleting a bank account and investors should ensure thataccounts not in use are deleted.

Default Bank Account: At the time of registering multiplebank accounts, investors have to specify any one bank account as a ‘Default'bank account. Dividend proceeds are processed only into this ‘Default' bankaccount. Investors may specify any of the bank accounts for the credit ofredemption proceeds. If no account is specified in the redemption request,redemptions will be processed into this default bank account.

Reliance Equity Advantage Fund to be Renamed as Reliance Top 200 Fund

2011-07-23T12:39:00.000+05:30

Reliance Mutual Fund has decided to rename Reliance EquityAdvantage Fund as Reliance Top 200 Fund with effect from 26 August 2011.Accordingly, the investment objective, benchmark index and asset allocationpattern of the scheme will be altered.

Investment Objective: The primary investment objective ofthe scheme is to seek to generate long term capital appreciation by investingin equity and equity related instruments of companies whose marketcapitalization is within the range of highest and lowest market capitalizationof BSE 200 Index. The secondary objective is to generate consistent returns byinvesting in debt and money market securities.

Benchmark Index: BSE 200

Asset Allocation Pattern: The scheme will have a revised assetallocation pattern to invest 65% to 100% of assets in equity and equity relatedinstruments with medium to high risk profile. On the other side it wouldallocate upto 30% of assets in debt instruments and money market instruments(including investments in securitized debt) with low to medium risk profile.

Unit holders of the scheme are being provided with an optionto exit the scheme at the prevailing NAV without any exit load. The option toexit without payment of exit load will be valid from 27 July 2011 upto 25August 2011.

Mutual Funds panel for removing expense ratio cap

2011-07-22T13:03:00.000+05:30

The committee on mutual funds appointed by SEBI to look intothe issues faced by the industry is likely to submit its recommendations to theBoard of SEBI when it meets on July 28.

One of the issues that the committee has addressed pertainsto the expense ratio of asset management companies, sources said. Thecommittee, it is gathered, is recommending that the sub-head caps within theexpense ratio be done away with. This will provide some room to mutual funds togive better commissions to their agents.

Expense ratio is how much an investor pays a fund inpercentage terms every year for management of his money. This could involvemanagement fees, commissions to agents, fees to registrars and marketing andpromotion expenses.

Currently the expense ratio has been capped at 2.5 per centfor equity funds; and there are various sub-categories of expenses which alsohave their own caps. It is known that the committee is planning to do away withthese caps and leave the break up of expense distribution to the discretion ofthe mutual funds.

It may be recalled that SEBI had, during the Chairmanship ofMr C B Bhave banned entry loads on mutual funds. A large part of this entryload used to be paid as distributors' commission. After the ban the mutualindustry went through a black patch when many distributors stopped sellingmutual funds.

When Mr U K Sinha took over as Chairman at SEBI, heappointed a seven-member committee, chaired by whole time member Mr PrashantSaran to look into the problems of the mutual fund industry.

Mr Sinha after taking over at SEBI has been often quoted assaying that while mutual fund distributors should be incentivised, the entryload ban will not be lifted.

In fact one of the first circulars issued by SEBI after hetook over related to mutual funds. SEBI in March said that load balances ofmutual funds shall be segregated into two accounts – one to reflect the balanceas on July 31, 2009 and the other to reflect accretions since August 2009. Thefirst load balance can be used for marketing and selling expenses includingdistributor/agents' commissions, subject to not more than one third of thebalance being used in any financial year. The second account could be usedwithout any restrictions.

Yet another recommendation of the mutual fund committee isfor a one time flat fee of Rs 100 to Rs 125 to be paid by newcomer to a mutualfund.

Growth or dividend option? Let cash flow needs, tax outgo help you decide

2011-07-19T15:31:00.000+05:30

While investing in mutual fund schemes, investors can choosefrom the dividend or growth option. When it comes to fixed income funds, boththe options have certain advantages. But there are some factors to beconsidered before you make your choice.

CASH FLOW NEEDS

The primary criterionfor choosing an option is cash flow requirements .

If there is no interim cash flow requirement, the growthoption is better; in this option, the returns are reflected in the movement ofthe NAV. There are also no hassles in investing the interim cash flows. Ifthere is requirement for interim cash flows from the investment , then thedividend option is better. The frequency of the dividends would be as per therequirements of the investor and the availability of the dividend frequencyoptions (monthly, quarterly, etc) in the fund.

The asset management company (AMC) endeavours to maintainthe stated dividend frequency, subject to availability of distributablesurplus.

TAX TREATMENT

The other relevant parameter is the tax efficiency ofthe returns being taken home through the dividend and growth options. Dividendsare tax-free in the hands of the investor, but there is a dividend distributiontax (DDT) that is deducted by the AMC on behalf of the investor and passed onto the government.

The rate of the DDT in case of liquid funds is 25% (plussurcharge/cess). For non-liquid fixed income funds, there are two rates of DDT:for individual /HUF investors, it is 12.5% (plus surcharge/cess) and forcorporate investors, the rate is 20% (plus surcharge/cess). From June 1, theDDT rate for corporate investors has gone up to 30% for all categories of fixedincome funds. In the growth option, the gains are taxable in the hands of theinvestor, ie, there is no distribution tax. As per the current tax laws, thegrowth option taxation depends on the holding period: returns from mutual fundunits held for a period of less than a year are called short-term capital gains(STCG), and from holdings of more than a year are long-term capital gains(LTCG).

STCG is taxable at the slab rates for individuals; mostinvestors nowadays are in the highest tax bracket of 30% (plus cess). In caseof LTCG, the investor has the choice of paying the incometax either at 10%(plus cess) without taking the benefit of cost inflation index or at 20% (pluscess) after taking the benefit of cost indexation. As we see from the taxstructure , as per the current tax laws, the choice of dividend/growth optionshould be based on the intended holding period.

For a horizon of less than a year, the dividend option isbetter as the individual DDT rate of 12.5% (plus surcharge/cess) is lower thanthe STCG rate of 30% (plus cess). The only exception to this would be anindividual who is in the 10% tax slab, for whom the STCG tax rate would belower, but that would be a rare case. For a horizon of more than a year, thegrowth option is preferable , as the 10% (without indexation ) rate is lowerthan the current DDT rates. The investor should opt for the 20% rate only ifthe net tax incidence (with indexation benefit) is lower than the 10% rate.

EFFECTS OF DTC

So far so good, in that the choice between dividend and growthoptions is based on cash flow requirements and tax efficiency.

The grey area comes with the proposed Direct Tax Code (DTC),scheduled to be implemented from April 1, 2012. It is a grey area because atthis point of time, it is a proposal which is yet to be made into law and may undergochanges by the time it is implemented. As per the proposals, the returns fromthe dividend option will be clubbed with the income of the investor (ie, therewould be no distribution tax) and would be taxable at the slab rates.

In the growth option, there would be no distinction betweenshort-term and long-term holdings as such, but the benefit of indexation wouldbe applicable for a holding period of one year from the end of the financialyear in which the asset is acquired . The taxation on the growth option wouldbe as per the slab rates, which means 30% for most investors. Since bothdividend and growth options would be taxable at the hands of the investor,there would not be much of a difference in terms of taxation except where theintended holding period would be enough to be eligible for indexation benefit.In that case, the growth option would be more tax efficient.

source: Economic Times

FAQ on Exemption from filing of Income-tax Return for Salaried having total income not exceeding Rs. 5,00,000

2011-07-19T12:23:00.000+05:30

FAQ ON EXEMPTION FROM FILING OF INCOME-TAX RETURN

What is the purpose of this notification and who are proposed to be exempted from the requirement of filing of the return?

1. The primary objective of this notification is to exempt those salaried taxpayers from the requirement of filing income-tax returns, who have (i) total income not exceeding Rs. 5,00,000, and (ii) the total income consists only of income chargeable to income-tax under the head ‘Salaries’ and interest income from savings bank account if such interest income does not exceed Rs. 10,000.

Further, such salaried taxpayer would be eligible for exemption from filing a return of income only if tax liability has been discharged by the employer by way of Tax Deducted at Source (TDS) and the deposit of the same to the credit of the Central Government. For this purpose, taxpayer has to intimate his interest income to the employer during the course of the year.

For Example –

(i) If an individual has salary income of Rs. 4,90,000 and interest income from savings bank account not exceeding Rs.10,000 (which has been reported to the employer and tax has been deducted thereon), then the taxpayer would be exempt from the requirement of filing income-tax returns since the total income from both the above sources does not exceed five lakh rupees.

(ii) A taxpayer having salary income of Rs. 4,98,000 and interest income from savings bank account of Rs. 2,000 (which has been reported to the employer and tax has been deducted thereon), would also be eligible under this Scheme.

(iii) A taxpayer having salary income up to Rs. 5,00,000 and nil interest income would also be eligible under this Scheme.

(iv) A taxpayer having salary income of Rs.5,50,000, interest income from savings bank account of Rs. 8,000(which has been reported to the employer and tax has been deducted thereon), and who has claimed deduction of Rs. 70,000 under section 80C (on account of certain payments/investments/savings) would also be eligible under the Scheme.

(v) A taxpayer having salary income of Rs. 6,10,000, interest income from savings bank account of Rs. 10,000 (which has been reported to the employer and tax has been deducted thereon), and who has claimed deduction of Rs. 1,00,000 under section 80C (on account of certain payments/investments/savings), a deduction of Rs. 20,000 under 80CCF (Infrastructure Bonds) and a further deduction of Rs. 15,000 under section 80D (Health Insurance Premium) would also be eligible under the Scheme.

Whether a salaried taxpayer having total income of less than Rs. 5,00,000 and claiming a refund of Rs. 3,000 would be eligible under this Scheme

2. No. The taxpayer has to file a return of income for making a claim of refund.

Is having a valid PAN a precondition for being covered by the notification?

3. Yes. The notification clearly specifies that the individual has to report his PAN to the employer. Hence having a valid PAN is a precondition for falling within the ambit of the notification.

Can an individual who is getting income under the head “salaries” from more than one employer take benefit of the notification?

4. No. A salaried taxpayer who has earned income from more than one employer during the financial year is not covered under this Scheme.

Whether this notification would also cover taxpayers having ‘loss from house property’, which are often reported by the employees to the employer.

5. No. Under the existing procedure, DDO/employer can give credit to the employee for a claim for loss under the head “income from house property” under section 24 made by the employee. As a result, a salaried employee’s total income may reduce to less than Rs. 5,00,000 as loss from the head “income from house property” would have been set-off against salary income. Such a taxpayer is not exempted from filing his return of income as the notification exempts only cases where the total income is under the head “salary” and from savings bank account (income from other sources) not in excess of Rs. 10,000. If the taxpayer has any loss under the head “income from house property”, he will not be eligible for exemption from filing a return of income.

Does savings bank account include other banking accounts like fixed deposits or recurring deposits accounts?

6. No. The benefit of the notification is available to taxpayers whose interest income comprises of interest earned on savings bank account ONLY.

Circular No. 8/2010, dated 13-12-2010 which is applicable for Assessment Year 2011-12 stipulates that the Drawing and Disbursing Officer (DDO)/Employer while deducting TDS from salary of an employee cannot allow deduction u/s 80G except donations made to the Prime Minister’s Relief Fund, the Chief Minister’s Relief Fund or the Lt. Governor’s Relief Fund. Whether the notification would cover only these cases?

7. Yes. An individual cannot avail the exemption under this notification if the claim of deduction for donations under section 80G is for donations other than those mentioned in Circular No. 8/2010. A taxpayer has to file a return of income for making a claim in respect of claim of deduction under section 80G for such donations (not specified in Circular No. 8/2010).

Will a salaried individual having agricultural income, which is exempt from tax, be covered within the ambit of the notification?

8. A salaried individual with agricultural income exceeding five thousand rupees shall be out of the ambit of the notification. A return will have to be filed in such a case, even if other conditions of the notification are satisfied as the agricultural income (of more than Rs. 5,000) has to be included, for rate purposes, in the total income.

Did you know? Overseas Investments by resident Individuals

2011-07-18T15:33:00.000+05:30

When constructing a portfolio, most investors think ofdiversification across assets to spread the risk. Another way to do this is todiversify across geography and the Reserve Bank of India’s (RBI) LiberalisedRemittance Scheme allows Indian investors to invest abroad.

How much can you invest?

If you are an Indian resident, you can remit or makepurchases overseas up to $200,000 (Rs. 89.20 lakh) every financial year. Youare not required to repatriate any earnings generated out of investments evenif it takes your total investment limit above $200,000. In other words, onlythe principal you invest is subject to this limit.

The limit is in addition to any amount that you may havecarried overseas while travelling, or for studies and medical treatment, but itincludes any amount sent overseas as a gift or donation.

There is no limit on the frequency of transactions.

Where can you invest

You can buy and hold immovable property, shares orfixed-income instruments outside India without RBI’s prior approval. You canalso invest in mutual fund units and exchange-traded funds.

Where you can’t

What is not permitted is buying and selling of foreigncurrency convertible bonds issued by Indian companies and foreign exchangetrading. The regulation does not allow margin trades; you can buy securitiesonly if there is enough money in your trading account. So you can’t trade infutures and options or short sell a security.

Other limitations

Under this scheme, you can’t invest in Bhutan, Nepal,Mauritius or Pakistan. You also can’t make remittances directly or indirectlyto countries identified, from time to time, by the Financial Action Task Forceas “non co-operative countries and territories”.

Investing process

Individuals can open and maintain foreign currency accountswith banks outside India for carrying out transactions; you can even link themto your overseas trading account. Your broker can help open the tradingaccount. You start with completing your know-your-client formalities and fillup an account opening form for an overseas trading account. Your broker willthen contact the overseas broker partner along with your documentation. Theforeign partner will then send account details where the money needs to be sent.

Money is usually sent through a wire transfer, which takesabout three-four days. So ensure you have sufficient money in your account ifyou are investing in markets abroad.

Affluent investors flock to structured mutual fund debt schemes promising higher returns

2011-07-15T18:51:00.001+05:30

Structured mutual fund debt schemes that promise to fetchhigher returns than plain-vanilla fixed income products are finding many takersamong affluent investors and companies nowadays.

These schemes simultaneously invest in banks' one-year certificate of deposits(CD) and high-yield corporate bonds with 15- to 18-month maturity to gain theedge over basic debt products. Fund managers of these schemes, as part of thisstrategy, lock in a significant portion - about 70%- of the investmentportfolio in one-year CDs and the remaining in corporate bonds, includingnon-convertible debentures.

In this strategy, the CD investments help the fund manager lock-in a higheryield similar to a fixed maturity plan, while the corporate bonds drive theadditional returns. At current rates, the investment in one-year CDs couldyield as high as 10%. The year when the CD matures, the portion invested incorporate bonds, with 15-18-month maturity, would still carry a residualmaturity of 3-5 months.

This is where the fund managers look to cash in. Yields on corporate bonds tendto fall (and prices rise) as the securities near maturity; bond prices andyields move in opposite direction. As bond prices rise, fund managers redeemthem, enabling them to gain from the upsides.

"Investors should ideally have one year investment horizon for theseschemes. This strategy over one year generally cannot go negative even in theworst case scenario," said Sunil Jhaveri, chairman of MSJ Capital , a firmspecialising in fund research and advisory.

"Investors have been tired of taking interest rate and duration calls ondebt schemes. Products like FMPs or bank fixed deposits are good, but investorslose out on liquidity and prospects of capital gains."

Templeton India Short Term Plan, Pramerica Treasury Advantage Fund and BNPParibas Bond Fund have adopted this strategy. Investors hope to pocket10.5-11.25% returns on such structured portfolios.

"Structured short-term open-ended debt funds are for investors who want togain from higher short-term rates marked at different (type of) debt papers andtenures," says Mahendra Jajoo , CIO, fixed income, Pramerica Mutual Fund .

"Such type of funds are open-ended in nature. They allow investors theflexibility to restructure investments in the wake of direct tax code roll-outnext year," Jajoo said.

The government is likely to take away indexation tax benefits from investorsunder the new DTC rules. Under the current tax regime, if investors buy a370-day FMP in March, 2011, s/he is eligible to claim benefits of inflation fortwo years before calculating the capital gains tax liability.

The fund is structured on the premise that short-term rates will decline in ayear's time. In the event of an inverted yield curve (that is when long-term debtinstruments have a lower yield than short term debt instruments of the samecredit quality), returns on these funds could fall marginally.

Fund managers claim that they have a back-up plan if the existing strategy forthis scheme goes wrong. "We'll be able to realign even if our call oninterest rates go a bit out of place. In case the rates go up in the interim,we'll replace the existing constant portfolio with higher-yielding securities.This, in a way, will enhance portfolios returns after one year," Jajoosaid.

Interest on Post Office savings account taxable from current fiscal

2011-07-02T16:29:00.000+05:30

The government has decided to levy tax on the interest obtained on Post Office savings schemes from the current financial year. The Central Board of Direct Taxes ( CBDT )) has brought out a notification in this regard recently, which stipulates that any interest earned beyond Rs 3,500 (in case of individual accounts) and Rs 7,000 (in case of joint accounts) will be taxable from the running fiscal.

The CBDT– which is the administrative authority of the Income Tax Department– has issued the notification to all the tax collection ranges across the country for implementation.

Taxpayers will have to reflect this investment on their income tax returns.

“Taxpayers who now invest in the post office saving accounts schemes will now have to show the interest earned on this scheme while filing their income tax returns. Interest upto Rs 3,500, in case of single accounts and and Rs 7,000 in case of joint accounts, is exempted,” a senior I-T official said.

The Assessing Officer (AO) will compute the tax on the interest earned, beyond the exemption limit, accordingly, he said.

The current interest rates for Post Office savings deposits is 3.5 per cent per annum.

The minimum investment limit in this scheme is Rs 50 while the maximum limit is Rs one lakh for an individual account and Rs 2 lakh in case of a joint account.

Mutual funds may benefit from long-term money

2011-07-02T16:01:00.000+05:30

The finance ministry’s guidelines allowing foreignindividual investors to invest in Indian mutual fund schemes should be music tothe ears of the industry. Fund-starved since the entry load ban, the industrywould look to tap international investors aggressively.

The finance ministry has capped the cumulative investmentlimit to $10 billion or Rs 45,000 crore. This will be reviewed after sixmonths. The Securities and Exchange Board of India (Sebi) will notify the finalguidelines by August 1.

As on May 31, the mutual fund industry’s total assets undermanagement stood at Rs 731,448 crore. The entry of foreign investors is likelyto make the market more vibrant.

The advantages are obvious. According to market experts,internationally, foreign retail investors hold mutual funds in their countryfor an average of five years. In comparison, Indian retail investors hold itfor only 18-24 months. In addition, they invest larger sums. This implies moremoney as well as stable money. This, in turn, could increase the depth of themarket.

The reverse is also true. Today, foreign institutionalinvestors dominate the Indian equities market. Their inflows and outflowsimpact the benchmark indices substantially. In fact, they more or less decidethe market sentiment. Since January, they have sold net equity (according todata with the exchanges) worth Rs 12,049 crore. This has dragged the marketsdown by more than 10 per cent.

One fear experts have is that any change in the sentimentcan lead to large outflows as well, leading to redemption pressures on thescheme. This could hurt domestic investors as the net asset value of the schemewill suffer.

The new class of investors, called qualified foreigninvestors (QFI), will be able to invest through the depository participantroute as well as the unit confirmation receipt system, which will involvecustodians. QFIs can be individuals and bodies, including pension funds. Thoughindustry players are rather upbeat about the announcement, they say they areawaiting final guidelines from Sebi regarding the same. Fund houses, too, willhave to gear up to attract foreign retail investors.

While Sebi guidelines are awaited, it would be interestingto see if the market regulator separates schemes for foreign investors. Forinstance, even as a fund house has the same scheme today, collections fromretail and institutions are kept separately. That is, ICICI Prudential IndoAsia Equity has a separate institutional and retail scheme. The question is,would foreign retail investors be allowed to invest in the Indian retail schemeor a third variant would be made available to them? Experts say this move ismore beneficial for investors from smaller countries. In bigger countries,investors have the option to invest in the country through India-dedicatedfunds.

Earnings from bribe may be made criminal offence under Income Tax Act

2011-06-15T16:14:00.000+05:30

In a bid to tackle tax evasion and check generation of illicit money, the government is considering classifying earnings from illegitimate sources like bribery and corruption as criminal offense under the income tax laws. “The income earned from illegitimate means could be classified as a criminal offense in the Income Tax Act”, said a senior Finance Ministry official.

The official said the issue of tightening the tax laws is being considered by a committee set up by the government to suggest measures to check the menace of black money and prevent its generation.

Generally tax avoidance on income earned through legitimate sources is treated as a civil offence under the Income Tax Act.

Elaborating on the possible illegitimate sources, the earnings from which could be classified as a criminal offence, the official said, “these could include income from bribe, corruption, terrorism, narcotics, money laundering etc”.

Once such deeds are classified as “criminal offences” under the Income Tax laws, it would become easier for the tax authorities to “quickly book” such culprits and recover the income from illegitimate means, sources said.

The issue of making tax evasion a criminal offence is being considered by a high-powered committee headed by the chairman of the Central Board of Direct Taxes (CBDT).

The mandate of the panel is to suggest within six months changes in laws to curb generation and recover black money and prevent its illegal transfer abroad.

Bharti to sell entire stake in AXA JVs to Reliance Industries

2011-06-10T23:46:00.002+05:30

Bharti Enterprises said on Friday it would sell its entire stake in two insurance joint ventures with AXA to Mukesh Ambani-controlled Reliance Industries Ltd.

Bharti will use the proceeds from the sale towards other group businesses in India and abroad, it said in a statement.

Bharti entered into the joint ventures with the AXA Group in 2006 and held a 74 percent stake in both these ventures - Bharti AXA Life Insurance and Bharti AXA General Insurance .

'Retail Investors' have lesser share of 'Market Capitalisation'

2011-06-10T17:35:00.002+05:30

Thechart shows that retail investors' share in the market capitalisation ofactively traded stocks on the BSE has been on the decline and is currentlythe lowest in last few years. The proverb 'once bitten, twice shy' quiteexplains the story. If you look at the numbers, retail investors held 19% shareof the market capitalization in 2006. Then the market crashed in 2008 and sincethen their share has been on the decline. It is a clear indication that thevolatility in the stock markets has put off retail participants.

It also tells that to get most out of such volatility Mutual Fund SIPwould have surely helped & if it was one with 'Goal Orientation' & 'Asset Allocation', one would be reaping its benefits. It also clearly tellsthat retail investors are actually flowing with the markets but if they flowagainst the tide, they will make more wealth. "Remember, that by followingthe masses one cannot be the winner, only acting smartly & wisely will makeyou the one."

(As on 31st March, 2011)
Data source: Business Standard

Panel recommends MIS term to be reduced to five years from the current six-years

2011-06-10T14:16:00.000+05:30

Monthly Income Scheme (MIS) of the post office remains the flagship product under small savings scheme owning to better returns. MIS alone garnered Rs 54,302 crore against the total fund generation of Rs 2,50,931 crore during 2009-10. Thus, nearly 20 per cent was contributed by the product, as per the report by Committee on Small Savings Scheme.

Since the effective rate of interest on MIS has been higher than other scheme, it is popular among those subscribers seeking regular additional income.

The product provides monthly income and yields an effective annual rate of interest of 8.82 per cent inclusive of 5 per cent maturity bonus.

Under the scheme, the depositors get Rs 80 per month for 6 years for MIS deposit of Rs 12,000. At end of maturity the money is returned along with a bonus of 5 per cent per annum.

The maximum deposit ceiling under the scheme is Rs 4.5 lakh in single account and Rs 9 lakh in the joint account.

Besides, this the other popular small savings scheme are Public Provident Fund, Recurring Deposit, Kisan Vikas Patra and National Savings Certificate.

During 2009-10, Public Provident Fund mobilised Rs 33,449 crore, Recurring Deposit Rs 30,353 crore and Kisan Vikas Patra Rs 21,167 crore.

“Whereas the term deposit rates of post offices are broadly aligned with the market rates, the effective rate of interest on MIS is significantly higher than the bank deposit rate and the G-sec yields of comparable maturities,” the report prepared by government panel noted.

Notwithstanding the rigidity in pre-mature withdrawal of the scheme, MIS is a relatively popular instrument in view of the higher than market rate of return, the panel headed by RBI Deputy Governor Shyamala Gopinath observed.

The panel recommended the MIS term be reduced to five years from the current six-years.

source: PTI

Know your Provident Fund (PF) account details online from 1st July

2011-06-10T14:01:00.000+05:30

The Employees Provident Fund Organisation (EPFO) on Wednesday said account details would be available online from July 1.

“You can watch the account balance of your PF online from July 1,” Assistant PF Commissioner Kanchan Roy said at an interactive session at Bengal National Chamber of Commerce and Industry.

“This indeed would be a great help to about 5 crore PF subscribers in India,” he said.

EPFO plans to replace PF account number with unique identification number, a move which will help in speedy transfer of a subscribers’ funds in case of job change and allow them to track their accounts online.

The replacement of PF account number with the UID number will be done after inter-connecting all regional and sub offices of the EPFO by March, 2012.

Mutual funds pay extra to banks for ‘exclusive sales’

2011-06-10T13:57:00.000+05:30

Mutual funds are leaving no stone unturned to keepdistributors in good humour.

Asset management companies (AMCs) are paying a higher upfront fee todistribution subsidiaries of foreign and private banks nowadays to drive'exclusive sales' of their schemes, mainly equity. This commission is inaddition to the upfront and annual trail fees that mutual funds paydistributors for selling their schemes, said top AMC officials.

AMCs are paying large distributors anywhere between Rs 50 lakh and Rs 2 crorethis year as part of the so-called marketing support fees. Last year, suchpayout was in the range of Rs 45 lakh to Rs 75 lakh. Fund houses saiddistributors, who have been deprived of the entry load after its ban sinceAugust 2009, are demanding a higher fee, citing difficulty in selling equityschemes in unfavourable market conditions.

The marketing support fee would depend on the size of the fund house andperformance of the equity scheme, AMC officials said, "Fund houses withlarge asset bases, performing funds and good credentials will have to pay less.New and ailing fund houses will be required to pay higher fees," said thechief executive of mid-sized fund house "The benefit of paying additionalfees is that bank distributors will strive harder to sell schemes of fundhouses which have paid the money," he said.

The chief executive adds that bank distributors sell only those funds that aredoing well. "They do not push products that are not in favour or arelosing money. Bank distributors take turns to include top performing schemes offund houses (which pay extra money) in their quarterly fundrecommendations," he said.

Most top bank distributors including HDFC, HSBC and Citibank, among others,have hiked marketing support charges this year, say mutual fund industrysources. But, the banks deny this. "We only accept upfront commission andtrail from fund houses to sell funds. We're an open architecture distributor;we advise funds of almost all fund houses (to our clients), if they areperforming well," said Abhay Aima, head of equities, private banking andthird party products, HDFC Bank .

According to Aima, exclusive tieups are only done on the distribution side."The fund house pays for marketing expenses. Under such tie-ups, we givethem good shelf display, exclusive space for selling their funds, help themhost investor melas and arrange campaigns. But at no cost, we take money toadvise a particular fund," Aima added. A senior Citibank official,requesting anonymity, said, "We only collect upfront commission and trailfees from asset management companies. Citi sells funds of 21 fund houses. Ithas no exclusive tieups with any particular fund house."

Fund houses pay an upfront commission in the range of 0.75 - 1% and 50 - 75 bpsas annual trail fees. Bank distributors are also promised an additional 25 bpstrail (termed loyalty fees) if investors stay for more than five years.

An email query sent to HSBC did not elicit a response. According to industrysources, by accepting money for exclusive promotion and marketing support, bankdistributors are already working on tied-agency concepts, which the recentlyconstituted Sebi mutual fund panel is planning to introduce. Bank distributorshave always been accused of resorting to aggressive portfolio churning by fundindustry experts. Going by registrars' data, portfolio churning is high amonginvestors who are serviced by bank-promoted distributors. Only 21% of equityAUM mobilised by banks remained with fund houses for more than 900 daysvis-a-vis 53% collected by independent financial advisors.

My Comments -

Many of our investors have suffered churning impact because of bank employees lack of knowledge & experience of the very product they recommend. Quite often they sold the product without understanding there exact need & requirement.

The best way is to go is by making an appropriate financial plan with the help of a professional. Proper cash flow analysis has to be done & portfolio has to be made not just by one measure rather by all the measures required like asset allocation, need analysis, goal orientation, risk appetite, insurance need, retirement planning etc.

One thing is for sure without trying, one cannot know its true benefits.

"TO HAVE A HAPPY LIFE PLANNING IT IS QUITE VITAL."

Total AUM of MF Industry Declines by 6.87% in May 2011

2011-06-09T00:34:00.000+05:30

Total Assets Under Management (AUM) of the mutual fund (MF) industry fell by 6.87% or by Rs 53926 crore to Rs 7.31 lakh crore in May 2011. The decline was attributed due to huge outflow of funds from Liquid Funds, Income Funds, Other ETFs. It declined by Rs 39603 crore, Rs 11141 crore and Rs 631 crore respectively.

The net outflow from the industry was recorded at Rs 48850 crore in May 2011 as against a net inflow of Rs 1.84 lakh crore in April 2011. Though there were huge outflows from debt funds, money flowed into Equity Funds (Rs 1546 crore), Gold ETFs (Rs 569 crore), Fund of Funds Investing Overseas (Rs 343 crore) and Balanced Funds (Rs 217 crore).

Funds mobilized from 41 newly launched schemes in May 2011 stood at Rs 7941 crore, out of which Rs 7416 crore came from 37 close ended income funds.

Low Retail Investor Interest A Cause Of Concern

2011-06-09T00:28:00.000+05:30

H N Sinor, CEO, Association of Mutual Funds of India, tells Tanvi Varma that mutual funds should be viewed more as 'investment managers'.

Of late, the mutual fund industry has seen some de-growth, especially in equity funds. What according to you are the reasons and how does the industry plan to tackle this?
We are concerned about this. While most of the segments under the financial services industry i.e. banking, insurance, NBFCs, have seen an annual growth of 15-25% during the last 2 years, the mutual fund industry has seen a decline in business during the period.

We have seen a lot of volatility in institutional participation, but we are more worried about low retail participation. We have seen stagnation in equity, balanced and tax-saving schemes that most retail investors invest into.

There are various reasons for this including low investor awareness, mindset of investors, fund house performances and the role of the distributors and financial advisors. Investor awareness is a long-term issue and is essential in bringing in more participation. Investors still identify mutual funds with capital markets and are apprehensive, while the fact is that funds help to spreads one's risks, especially when you don't have the expertise, and generate better returns.

What is the role of the financial advisor or distributor in servicing an investor, post the entry-load ban?

Mutual funds need to be pushed and that is where the distributors come in. Post entry-load ban (which came into effect from August 1, 2009), we are still trying to figure out what will be the change in the business model, which can be a win-win for all stakeholders-investor, manufacturer and distributor.

Unless all are in sync with each other, the industry cannot grow and the investor will not benefit. Earlier, the investor used to pay the financial planner by way of entry load, which was embedded in the money one invested. This is the practice in markets such as the US and Europe. But now, a financial advisor has to collect his commission directly from the investor. It is difficult for a distributor to go to individual investors and get a fee from him, unless the investor is an HNI and a portfolio management fee is charged on an annual basis. This model has not worked.

Do you think we can go back to the entry load system?

I doubt it.

How is the Indian mutual fund industry doing compared to those in developed markets?

Internationally, the mutual fund industry has come about by way of investments from compulsory saving instruments that get tax breaks like the 401k retirement savings in the US. Pension and provident fund investments automatically flow into mutual funds, which are actually called 'investment managers'. In India, mutual funds are voluntary investments and often face competition from other products such as bank deposits, insurance, unit-linked plans, other pension products, etc.

We have simple things to be done. All compulsory savings should come naturally to investment managers. We don't need insurance companies to have their own treasuries. All money pooled by insurance companies and pension money should come to investment managers (let us not call ourselves mutual funds) to the extent that they are required to be invested in the capital market.

Further, there have been turf wars in the investment community. Pension regulators want pension under them, the Forward Markets Commission (FMC) wants the commodity Exchange Traded Funds (ETFs) under them. We cannot have fragmented regulators. Ideally we should have a super-regulator at some point, though I think this is wishful thinking.

How cost-efficient is our mutual fund industry?

We are extremely cost-efficient compared to global markets. The annual expense ratio in the US, for instance, is around 4%, while our mutual funds (equity) work on 2 to 2.5%. In fact mutual funds work on a shoe-string. This business gives only 10 to 15 basis points on the entire assets under management (AUM).

Now-a-days we don't see many new fund offers (NFOs) hitting the market. What has changed?

The regulator has not seen NFOs in good light and permission is tough to come by. They believe that we have too many schemes and that manufacturers should focus on their mother schemes.

How adept are the financial advisors or distributors of mutual funds in advising investors?

Both financial advisors and agents have to pass the same exam, whether he is a commerce graduate or a doctorate. Ideally, an advisor should be put through a tougher examination. For agents also, the Associatoin of Mutual Funds of India (Amfi) is trying to ensure that only serious people are in this business. We increased our fee from Rs 500 to Rs 5,000 for individuals. Earlier, large number of agents did not even update themselves in terms of skill-sets. We are changing that by making certification tougher.

There are a lot of new funds houses in the mutual fund space. What would your advice be to the retail investor?

Although there are no entry barriers, there is a licensing arrangement in place, which comes with strong duediligence by the regulator. Investors must take it for granted they have been properly scrutinised and are not fly-by-night operators. The ultimate aim of regulators is to ensure that small investors' money is protected. So, one should not worry about new names. What is more important is performance, the kind of offering etc.

Will the new Direct Taxes Code change the way people make investments?

Immediately, we could see a negative impact. Having said that, people will get used to it. We have been trying with the Revenue Secretary to get some leeway on investments in equity-linked savings scheme (ELSS). In spite of the changes, people should continue with their mutual fund allocation and think of it as a long-term plan. Systematic investment is the best route of investment for the middle class, salaried person.

source: Business Today

Equity Diversified Funds with High Large Cap Tilt See High Growth over Two Year Period

2011-06-01T01:05:00.000+05:30

AUM of Equity Large Cap Funds See a significant growth

Equity Large Cap Funds that have major portion of its exposure in fundamentally strong scripts have sailed through the ups and downs in the Indian equity market during the last two years. The Assets under Management (AUM) of this category has seen a significant growth, up over 100% from Rs 25914.75 crore in March 2009 to Rs 55466.38 crore in March 2011. The return from this category of schemes, have been in the range of 1.66% to 29.03% return over two year time period upto 25 May 2011.

Though the markets have gained in the long term, in the last few months' market have got beating. Indian equities have skid down since the beginning of the new calendar year 2011 due to various factors as global cues, political crisis, high crude prices & inflation and Reserve Bank of India had increased the interest rates to curtail inflation. Sensex has been in the range of 17463.04 points to 20561.05 points (data from 1 January 2011 to 25 May 2011).

Risk-Return Analysis for Large Cap Equity Funds

Equity Large Cap Funds had delivered an average two year return of 15.53% as on 25 May 2011. We have tried to explain with the help of a diagram, which is divided into four quadrants, with each quadrant containing schemes of a particular risk-return profile. The size of the bubble indicates the size of the fund. (Returns are compounded annualized and open ended growth schemes alone are considered).

Funds Positioned in Low Risk High Return quadrant: During the two year period ended 25 May 2011, equity large cap funds covered in the Low Risk High Return quadrant had returns in the range of 16.51% to 29.03%. There were sixteen schemes which appeared in this quadrant.

The schemes in the low-risk high returns quadrant outperform the peer group on the risk-adjusted returns basis as they deliver higher returns compared to the peers without exposing the portfolio to very high risk. Quantum Long-Term Equity Fund had taken a low risk of 0.94% and had delivered a two year return of 29.03%. The other schemes which had been in the same quadrant include, HDFC Equity Fund with a low risk of 1.13% had delivered a high return of 26.97%. HDFC Core & Satellite Fund had taken a low risk of 1.07% and delivered a high return of 26.01%. HDFC Top 200 Fund with a low risk of 1.12% delivered high return of 22.20%. DSP BR Equity Fund with a low risk of 1.06% delivered high return of 21.12%. Principal Large Cap Fund with a low risk of 1.06% delivered high return of 20.90%.

Funds Positioned in High Risk High Return quadrant: The schemes in the high-risk high returns quadrant follow a very aggressive approach and deliver high compounded annualized growth return (CAGR). The equity large cap funds covered in the High Risk High Return quadrant had posted returns in the range of 16.15% to 20.01%. Templeton India Growth Fund had taken a high risk of 1.18% and had delivered a two year return of 20.01%.

The other schemes which had been in the same quadrant include Sundaram India Leadership with a high risk of 1.32% had delivered a high return of 18.19%. Birla Sun Life Top 100 Fund had taken a high risk of 1.18% and delivered a high return of 17.96%. Tata Pure Equity Fund with a high risk of 1.17% delivered high return of 17.30%. Sundaram Growth Fund with a high risk of 1.31% delivered high return of 16.41%. Reliance Vision Fund with a high risk of 1.19% delivered high return of 16.15%.

Fund Analysis

We have analyzed the top four equity large cap funds based on the sharpe ratio. Sharpe Ratio reflects the risk adjusted returns, that is, the returns per unit of risk. A high ratio is always better than a low ratio.

Quantum Long-Term Equity Fund though being one of the small fund in the equity large cap fund category with a corpus of Rs 76.68 crore as at the end of April 2011, it has managed to deliver a high risk adjusted over the two year time period. Moreover this scheme has topped this category in terms of return over two year time period. The latest portfolio of this scheme indicates that it has high exposure towards sectors such as Banks (14.10%), Software (8.96%), Finance (7.76%) and Automobile (7.03%) among the others. This scheme has outperformed its benchmark index, TRI Sensex by 2.37%, 14.54% and 11.09% over 1 year, 2 year and 3 year time period respectively.

HDFC Core & Satellite Fund has outperformed its benchmark index, BSE 200 by 4.65%, 11.90% and 10.58% over 1 year, 2 year and 3 year time period respectively. The schemes latest portfolio indicates that its has high exposure towards sectors such as Software (15.92%), Banks (9.47%), Pharmaceuticals (7.66%) and Capital Goods – Electrical Equipment (7.55%) among others.

HDFC Equity Fund and HDFC Top 200 Fund from the HDFC Mutual Fund family have continued to be top performers for investors over long time. The size of these funds is huge and the fund manager has compensated the investors with good returns for investing into these funds over long run. Both these funds have outperformed their respective benchmark by huge margin over 1 year, 2 year and 3 year time period.

DSP BR Equity Fund has high exposure towards sectors such as Banks (12.32%), Finance (7.64%), Software (7.28%) and Crude Oil & Natural Gas (6.11%) among others. It has outperformed its benchmark index, S&P CNX 500 by 3.33%, 8.46% and 7.67% over 1 year, 2 year and 3 year time period respectively.

Conclusion

The equity diversified funds with high large cap tilt are expected to do well due to its advantage of investing in fundamentally sound scripts. Equity Large Cap Funds offer better protection to investors in the downturn. These schemes are suitable for investors who are not aggressive but would like to benefit from the equity markets over long run.

Moreover these funds would get assistance from India's economic growth. India's domestic economy continues to remain on a strong footing with long term growth prospects visible. The same is expected to drive the equity market over a longer period of time.

Higher crude oil prices, higher inflation and higher interest rates kept the equity market sentiments lower in recent times. Equity Large Cap Fund investors should make of the dip in the market as an opportunity to invest for long term.

IRDA asks all insurers to file a certificate confirming compliance with the stipulations on public disclosures

2011-06-01T01:01:00.002+05:30

Effective from year ending March 2011

Insurance Regulatory Development of India (IRDA), effective from the year ending March 2011, have asked all the insurers to file a certificate confirming compliance with the stipulations on public disclosures.

IRDA had issued the Exposure draft inviting comments from all the stake holders on public disclosures by the insurance companies in 2009 and finalized the public disclosures to be made by the insurers in January, last year.

In April 2010, in order to have uniformity among the insurers on disclosures IRDA mandated that all insurers should file public disclosures at periodic intervals. Insurers were also asked to host on their website the disclosures for a minimum period of 5 years. But the insurers were not required to display last 5 years data on quarterly and half yearly basis. According to the formats specified by IRDA, insurers were required to display information based on the yearly audited statements.

Now the IRDA have asked all the insurers to file a certificate confirming the compliance with the stipulations on disclosures requirements on the insurer's website and on publication in the newspaper. The certificate is to be submitted to the authority within one week of applicable timelines under respective disclosures requirements as stipulated by IRDA.

Reliance MF Extends Reliance SIP Insure Facility under Three Schemes

2011-06-01T00:58:00.000+05:30

With effect from 8 June 2011

Reliance Mutual Fund has provided an add on feature of life insurance feature cover under a Group Term Insurance to Individual Investor opting for an add on feature which is called “Reliance SIP Insure”, without any extra cost to the investor. (the Cost of the Insurance Premia is being borne by Reliance Capital Asset Management Limited (RCAM).

Reliance SIP Insure facility has been extended to schemes such as Reliance Long Term Equity Fund, Reliance Infrastructure Fund and Reliance Small Cap Fund with effect from 8 June 2011.

Revised Feature of “Reliance SIP Insure” – with effect from 8 June 2011

Sum Assured: An amount equivalent to the aggregate balance of unpaid SIP installments, subject to a maximum of Rs 10 lakhs per investor across all schemes / plans and folios will be invested in the Nominees' account.

Eligibility Criteria: Only individual investors whose completed age is between 18 years and 45 years (inclusive of both) at the time of investment.

SIP Tenure:

a) Maximum Period of Contribution for SIP: No upper limit for SIP tenure. The investor can opt for Perpetual SIP also. However the insurance cover ceases when the investor attains 55 years of age or upon the completion of the SIP insure tenure whichever is earlier.

b) There will be an exit load of 2%, if the accumulated units acquired or allotted under Reliance SIP Insure are redeemed or switched out or the SIP Insure is discontinued or it is defaulted before the maturity of committed SIP Insure tenure or before completion of 55 years of age whichever is earlier as opted in the respective scheme either by the SIP Insure unitholder or by the nominee, as the case may be.

Upon completion of 55 years of age, if there are still balance unpaid SIP installments, those will be treated as with the relevant exit load as may be existing from time to time. The following exit load structure is applicable for all kinds of redemptions in the following schemes as on date: Reliance Growth Fund – Retail Plan, Reliance Vision Fund – Retail Plan, Reliance Equity Opportunities Fund – Retail Plan, Reliance Equity Fund – Retail Plan, Reliance Equity Advantage Fund – Retail Plan, Reliance Regular Savings Fund – Equity Option, Reliance Regular Savings Fund – Balanced Option, Reliance Banking Fund – Retail Plan, Reliance Pharma Fund, Reliance Media & Entertainment Fund, Reliance Diversified Power Sector Fund – Retail Plan, Reliance Natural Resources Fund – Retail Plan, Reliance Quant Plus Fund – Retail Plan, Reliance Long Term Equity Fund and Reliance Infrastructure Fund – Retail Plan.

1 % if redeemed / switched out on or before completion of 1 year from the date of allotment of units. Nil if redeemed / switched after completion of 1 year from the date of allotment of units.

While Reliance Small Cap Fund has the following exit load:

2 % if redeemed or switched out on or before completion of 12 months from the date of allotment of units. 1 % if redeemed or switched out after 12 months but on or before completion of 24 months from the date of allotment of units.

While nil load in Reliance Tax Saver (ELSS) Fund.

Weekly Scenario: Debt Funds Inch Up

2011-05-24T00:57:00.000+05:30

The Indian markets continued to trade soft during the week. In the absence of any major event, global markets remained in a tight range for the week. Indian markets reacted negatively to the sharp increase in petrol prices by the oil marketing companies and higher than estimated reading of 8.66% on inflation. This coupled with continued selling by the FIIs resulted in weak markets. Markets sold off again on SBI numbers which were way below estimates. Markets rebounded on Friday on strong growth outlook provided by L&T.

The decline in Indian equities resulted decline in one week return of equity funds. All the major categories in equity fund witnessed loss during the week ended 20 May 2011; Mid Cap Funds declined the most by 1.55%, followed by Large Cap Funds by 1.36%, Tax Savings Funds by 1.29%, Multi Cap Funds by 1.19% and Index Funds by 1.10%.

When we look at the sectoral funds; Banking Funds declined by 3.03%, FMCG Funds by 0.53%, Pharma Funds by 0.23%, while Infotech Funds gained by 0.05%.

Among the debt fund categories, Ultra Short Term Funds was the top gainer by 0.16%, followed by Liquid Funds, Floating Rate Income Funds - Short Term and Short Term Income Funds that climbed by 0.15%, Floating Rate Income Funds – Long Term surged 0.14%, Income Funds by 0.10% and Gilt Funds – Short Term by 0.07%. On the other hand Gilt Funds – Medium & Long Term declined by 0.05%.

Arbitrage Funds was the only gainer among the Hybrid Funds which gained by 0.21%. On the other hand Equity Oriented Balanced Funds, Debt Oriented Balanced Funds and Monthly Income Plans declined by 0.90%, 0.41% and 0.15% respectively. Among the ETFs, Gold ETF's gained by 0.51%, while Other ETF's gained by 1.79%.

Ultra Short Term Funds: Out of 43 funds, 9 bettered the category average. ING Treasury Advantage Fund was the top performer gaining by 0.19%. It was followed by Tata Treasury Manager Fund - RIP and JM Money Manager Fund that gained 0.18%. Mirae Asset Ultra Short Term Bond witnessed the minimum gain of 0.12% in this category.

Liquid Funds: Out of 52 funds, 26 bettered the category average. Escorts Liquid Plan and IDFC Ultra Short Term Fund were the top performers gaining by 0.19% and 0.18% respectively. It was followed by Quantum Liquid Fund and JM High Liquidity Fund that surged up 0.17% each. Templeton India Cash Management Account witnessed the minimum gain of 0.11% in this category.

Infotech Funds: Franklin Infotech Fund and ICICI Pru Technology Fund were the gainers by 0.66% while the rest of the schemes in this category witnessed decline.

Arbitrage Funds: Reliance Arbitrage Advantage Fund and JM Arbitrage Advantage Fund were the top performers gaining by 0.31% and 0.28% respectively. UTI-SPrEAD Fund witnessed the minimum gain of 0.11% in this category.

LIC issuing receipts without affixing revenue stamps

2011-05-11T22:02:00.001+05:30

Several branches of the country’s largest insurance company Life Insurance Corporation of India are allegedly causing huge loss to exchequer by issuing receipts without affixing revenue stamps.

The matter came to light during a hearing before the Central Information Commission which directed the LIC to make public details of all the revenue stamps purchased by the Corporation between 2006-10.

The case relates to an RTI applicant who sought to know from the LIC details of revenue stamps purchased by it during the last five years along with other queries but the request was denied saying compiling of information would divert the resources disproportionately.

My Comments:-

It's fact many of my clients have also informed about the same. As per IRDA guidelines it is mandatory to disclose investments made as far as ULIPs are concerned.

All Life Insurers are disclosing there fact sheets & purchased scrips besides LIC, another matter of concern. It seems LIC is waiting for another RTI applicant.

SEBI boss concerned about low retail partcipation

2011-05-11T21:54:00.001+05:30

Retail investors are losing interest on Indian market. Overthe last few quarters, retail participation has only been 10% in the market and90% in futures and options (F&O). This is definitely a matter of worry forSecurities and Exchange Board of India (SEBI).

In his first TV appearance after taking over as chairman ofSEBI, Sinha told CNBC-TV18’s Udayan Mukherjee that his top priority is toincrease market participation and penetration-- be it for retail investors,pension funds, domestic institutions or mutual funds.

Sinha said that he is setting up committees to look intothese matters and take concrete steps.

Noting that the low retail participation is worrisome, Sinhasaid that SEBI is planning to hike retail participation and penetration byemploying technology and creating massive investor awareness programmes.

Stressing on the need to promote domestic institutionalinvestors, Sinha said that SEBI wants to increase competition in market.

IPOs: disclosure issues

Sinha said that SEBI has set up a committee to look into IPOmarket. He emphasised on the need to prioritise information anddisclosures required for companies to go public. He also informed that SEBI isinvestigating IPOs where issue may have been manipulated.

Meanwhile, Sinha has set up a panel of six to seven expertsto look into the issues faced by mutual fund industry. will makerecommendations by mid june and in two to three months, a significantchunk of problems of the industry will be resolved.

Here is a transcript of the exclusive interview onCNBC-TV18. Also watch the accompanying videos.

Q: Over the last few months and quarters, there has beenvery-very poor retail participation that has characterised the market. Overall,delivery volumes in the market are 10%, 90% is futures and options, does thisworry you that it has become too much of a gambling or trading kind of a marketwith not adequate depth?

A: I won’t use the word gambling. But it is a matter ofconcern for us in SEBI that why retail participation is going down, especiallyfrom the past trends. Our effort will be to increase that participation. We, inSEBI, would like to create the right environment for retail to participate in abig way, not only in big cities, but also in small towns and districts.

Unfortunately, while we have seen a lot of progress ingrowth in the market, lack of penetration, lack of retail participation is amatter which has not yet been addressed properly. We are doing number of thingsto remove this anomaly.

Q: Why do you think this is the case? If you just look backthree years, there was a fair amount of retail participation. But right nowit’s just futures and options. It seems a set of few thousands or a few lakhpeople are engaged in the market and the broader investor participation iscompletely lacking.

A: There are many reasons for it. One, a decision was takenabout taxation on options, now on the premium amount only, you have to pay thesecurities transaction tax (STT). So, that has encouraged a lot of people to goto options. If you look in F&O, the earlier trend of singular stock futureshas gone down and options have increased. So, to some extent, I would agreewith you that it has become more trading oriented rather than investmentoriented.

One larger issue is that why institutional money is notcoming, why retail money is not coming through the institutions. There you havean issue that mutual fund penetration has also not been good, in fact therehave been reduction in folios, there have been net outflow in the equity money.Cities, areas, geographies, from which the money is coming in the mutual fundindustry, are also going down. By same region, the retail participation is alsocoming down.

How are we going to tackle this? One, encourage people touse technology to participate in the market from a smaller place. There aresome bottlenecks with regards to how transactions are being done.

The second area is to create a massive programme of investorawareness and financial literacy. These are two areas which we will take upright now. Third is we would like to encourage competition.

If we are able to get all these three things together, Ithink some of these trades will be reversed. So, we are worried, we areconcerned that retail participation is showing a decline. We are worried thatpeople are getting into all sorts of speculative activities instead ofinvesting.

Q: Do you think it is also because of lack of adequatevehicles to participate through? You mentioned mutual funds where there hasbeen a clear dwindling. Unit-linked insurance plan (ULIP) as a product has alsotaken a bit of a back seat. So, is it because some of the retail channels forlong-term investment money getting into the market have also dried up?

A: Yes. But the most important of them is the pension money.Unfortunately, in India, pension money is not allowed to be invested in themarket. There was a decision taken by the Ministry of Finance as back as 2005,the same has not been implemented. People are talking of government providing aguarantee or somebody providing a guarantee for the returns on the equity. Assuch the large chunk of money, which fueled the growth of retail participationin other parts of the world, is missing in the Indian market.

There is also another dimension. While you talked abouttrading versus investing, there is another dimension of foreign investorsversus domestic institutional investors. There also our current trend is notvery favourable. We plan to act on this also from the point of view ofproviding a counter balance. Not that FIIs are not welcome, but in a country ofour size with growing economy, there is need to promote domestic institutionalinvestors.

Q: Is it creating imbalances in the market? Our market isdriven so much by relatively small dollops of FIIs money, relatively smallpileups of futures and options positions because these two seems to be thedominant players in the market. The domestic institutional money or retailmoney does not seem to be playing that counter balancing role. Is it creatingpotential for distortion or not perfect price discovery in the market,according to you?

A: I have studied this question rather deeply, especiallywhen I was chairing that committee on foreign capital flows for the government.I would not subscribe to the view that FIIs as a class are conspirators againstIndia. The right way to appreciate it is that domestic institutions can providea counter balance. One of the main reason is that their investment horizon islimited. By and large, subject to some of the small exceptions, they areallowed to invest only in Indian market, whereas a foreigner can invest in anypart of the world. So, he has more options and opportunities.

We examine various data points. For example, whenever therewas a major volatility in the Indian market, we found the data showing that agood amount of money went out of India, another large chunk came to India. So,it’s not that they are working in unison as conspiring to go out of India. So,if they see value in any particular stock at a particular time, at a particularprice, they would invest. Let us not forget that same is the view or approachor domestic investors also. There have been periods when the market has beengoing down and the domestic institutions have been selling. But there have beenperiods when FIIs have been selling and domestic institutions have been buying.So, the better part is to have large number of players in the market havingdifferent views. That provides comfort and the strength to the market.

Q: Foreign investors are clearly not conspirators. Eventhere, would you concede that very good quality long-term foreign money throughpension funds, university endowments, that kind of money we fallen a bit shortof attracting in India, a large number of those players have not walked in yet?

A: I have been talking to a large number of industryexperts. They have been telling me that if they go and talk to a potentialpension fund out of India, the first question they have to answer is, is thepension fund in India investing. And they a have to say no, they areprohibited. So, that provides a very negative first impact about whether asovereign wealth fund or a pension fund could be investing in India.

Q: That is not the only the only reason surely.

A: That is not the only reason. But I would say that itvitiates the entire industry. If you can go out and say that pension funds inIndia have invested ‘x’ amount and they have made ‘y’ amount of gain, it wouldcreate a different environment.

So, how to attract large pension funds and others? SEBI hasbeen encouraging the market participants to go out on road shows. In the past,Sebi has also gone along with them on road shows. We have no objection inhelping in that direction. If there are any bottlenecks in the minds of FIIs,we have no hesitation in removing those bottlenecks. But I do concede thatlarge pension funds have still been coming in a very small measure in India.

Q: Is it recognition of that that recently there has beensome talks of getting sovereign wealth funds to own upto 20% of a stock? Is ityour small step towards, if indeed that is action, a small step towardsaddressing that problem where long-term holders from the foreign capital basketare allowed and encouraged to buy more of Indian stocks?

A: No, I won’t subscribe to this view. Based on a particularagreement signed at the highest level between two governments, SEBI has triedto find out a solution how to operationalise it. The regulations within SEBIwere not in conformity with what has especially been recognised by the twosovereign governments. We have only facilitated that part. The intention isdefinitely not to allow people to go beyond the current FII regulationceilings. This is an exception.

Q: So beyond that specific example, you are not going toallow any foreign owner to own more than 10% of a listed entity?

A: The way the regulations have been amended, it says thatif there is an existing sovereign agreement between two countries then in orderto facilitate that SEBI can take a view accordingly. That means there has to bean existing and subsisting agreement between two governments. To the best of myinformation, there is only one agreement so far of this type.

Q: With Singapore?

A: Yes.

Q: So, other sovereign wealth funds are not privy to this20% relaxation?

A: I don’t think so. The regulation has been made only toaccount for the agreement signed by the two governments at the highest level.

Q: You have done a lot of work yourself on making it simplerfor foreign investors to come in by thinking of issues like giving themqualified foreign investor (QFI) status, a single window. When can all of thatbecome a reality?

A: Government has partially accepted the recommendation ofthe working group on foreign capital flows. In the budget, this year, anannouncement has been made that individuals as well can invest in Indian equitymarket for the mutual fund route. In pursuance of that budget announcement,SEBI has formulated a scheme. That scheme has been sent to government andReserve Bank of India. We are in consultation with them. It will be difficultfor me to give an exact timeframe. But this is an important budgetannouncement. I see no major obstacles in it. So, we will be able to do itsoon. But don’t ask me for a specific timeframe.

Q: Not time frame, but the modality in terms of the KYC(know your customer) or whatever is required to get that money in? A lot ofpeople perceive that KYC to be a stumbling block between the money actuallycoming in, though the permission has been granted in principal.

A: We understood that the current FII regulations prescribeand allow for a very high degree of KYC compliance. We discovered that that isnot the case. Our assumption was not right. So, what the working group hadrecommended was to be very strict on KYC requirements. So, on the operationalpart of this decision the suggestion by the group was that depositaries,participants, which are licensed by SEBI, can be encouraged to open foreignbranches or have any tie-up abroad and they would have to qualify with thestringent KYC requirements. So, KYC will be taken care of in the sense thatpeople won’t have to travel to India to make a small investment here. Whichevercity or part of the world they are, KYC can be done there. The whole idea is tosimplify the process.

Q: Let me ask you about mutual funds now, you come from thatindustry. Is there a solution to the problems of distribution that has plaguedthis industry for the last one year?

A: There has to be a solution. There are two-threeapproaches to this. There is a feeling that the incentive to the distributor,which was discontinued in a particular manner in 2009, has led to the declineof the industry or increase in the folios. There were also some issues withregard to the exit load of schemes not being allowed.

The second part we have already addressed. I am told theindustry had gained because of that in a very small way. We have set up a smallgroup of six or seven people. They are looking at entire gamut of suggestionsthat have been received from various quarters. The group has already startedworking. Our idea is to complete the recommendations by middle of June. So, itwon't take very long time.

Q: Can entry loads come back in any form? Can it come backin any form or is it a closed chapter?

A: I would say that I would like to wait for therecommendations of the group on this. But undoing something completely is alsosomething which we need to look at every serious. So, I won't be able to tellyou whether entry load will be reintroduced or it is a closed chapter. I wouldgo by the advice received from many of the experts. However, we will definitelytake care of the issues of the distribution industry because we do feel thatreasonable amount of incentive is required for the penetration of this market.

Q: But how can it be worked? If there is no load, what is afeasible distribution format between the AMC and the distributor?

A: I don’t want to prejudge or guide the committee on whatthey think is right. But let me tell you that other than entry load, there aremethods. There are other methods also to incentivise the industry and theparticipants. It is not that entry load is the only thing.

In the last two years, almost two years that have gonethrough, industry has also moved on. I have been talking to people in theindustry, I have been talking to other participants. So, the problem is there.The solution is not only reintroduction of entry load. One can argue that whileit was there, at that time also the growth was not at the optimum level. So, weare trying to look at a solution which will be workable.

We also feel that other than this aspect use of technologyis going to be a very major driver. For example, a growing number of people,who have disposable surplus for investment and who are tech savvy, they wouldnot like to go to any adviser. They would like to do their transactions ontheir own. Then there are people, who are in smaller towns, who are not sosavvy, would like to work with some of the distributors or advisors and usetechnology. So, these are issues on which some half hearted measures have beentaken. May be we are not convinced, so it was more by way of a pilot or anexperiment. What I would like to do is to take this thing forward in a big way.Coupled with our focus on investor education, I think it will lead towardsbetter participation.

Q: So, are you saying by end of June or say early July, youwill have a format where the distribution fraternity will not feel completelymiffed as they have been for the last one year and that will resolve this issueof distributors actually selling mutual funds?

A: The way you have framed the question gives the impressionthat in two months all the problems of mutual fund industry and of thedistribution industry will solved. Some of them will be solved, a major portionof them, not some, a major portion of them.

Q: Can you give me a hypothetical example of how thedistributor problem can be addressed? We are not going to hold you to it as thefinal solution, which will come in July, just give me a hypothetical example,just for my knowledge.

A: I would say that there are multiple ways to do it. If Igive you another example, you will get the impression that we are moving inthat direction.

Q: I will not, since the board has not met, your advisorycommittee has not met yet.

A: One of the suggestions, which AMFI has made to us, forexample, is why not allow a transaction cost. In the smaller towns, it iscommon knowledge that Individual Financial Advisors (IFAs) have to go out to the placeof the investor, help him in filling up of the form, help him in completing thetransaction. Now, his incentive for this has got substantially reduced. So, wewill have to look into details, but allowing him to charge some transactioncost perhaps could be one idea.

Q: What kind of transaction cost, quantum?

A: I can’t comment on quantum as if some decisions have beentaken. But AMFI has come out with a recommendation that this could be onesolution. There are many other solutions or suggestions that are on the plate.

What we will like to do is, for example, empower theinvestor to make a good assessment of the scheme in which he is investing. Thedisclosures and disclaimers are there, but it is very difficult for a potentialinvestor to assess how their scheme has performed with regards to other schemesor how it has performed with regard to any benchmark index. One suggestion, forexample, is why can’t we disclose that if you had ‘x’ amount of money investedin a particular scheme, so many years back, what would be the amount today.Right now, the advertisement requirements from SEBI do not allow that sort of athing. So, the committee is looking into this, whether we can permit this sortof a thing. So, for the retail investor, he will have a very importantbenchmark for comparison.

There are a lot of other things. For example, a mutual fundor an asset management company, how many branches it has, in how many cities ithas, what is the equity AUM it has, these things are not disclosed. We areworking towards making more and more disclosure, so that an investor finds outthat whether this particular AMC has a presence or not, whether it is thrivingonly on short-term liquid money or it has also got some track record of workingin equity or in balanced schemes. So, all those disclosures can help in peoplecoming to a better decision.

Q: Should distributors or private wealth advisors beregulated by SEBI?

A: They should be regulated, there is no dispute about it.

Q: Why not by SEBI? Who is in a better position to regulatethem?

A: We have a working paper on this. This matter is underdiscussion in the sub committee of FSDC. May be the final consensus will betowards SEBI regulating it and we are preparing ourselves for that. Sincemajority of the participants in this industry are regulated industries of otherregulators, we need to take them on board. May be the final solution could betowards SEBI doing it. But as of now that decision has not been taken. But weare working towards it. But that they need to be regulated has been establishedagain and again.

Also, we are running a risk by not regulating them becausesome of the example, which we have seen, of certain type of misconduct, nobodywas asking them any question, nobody was regulating them. So, there is arealisation of the need to regulate them.

Q: Also for private wealth managers?

A: Yes.

Q: On this subject of regulation, do you get the sense thatpeople are stepping on each others toes? There was this issue with IRDA a whileback. Also with FMC on Silver futures, which is pending now, which has not gotstarted off, may be in the future with interest rate futures SEBI and RBI willhave some common ground. How do you resolve these issues? You were not therethen, but the IRDA thing became an ugly spat and it was all over the media.Surely we want to avoid issues like that.

A: I would say that what happened in 2010 has been a greatleveler. So, today I find that regulators are more willing to co-operate andmore willing to understand each other. There is a general realisation. Youmight have seen the debates inside the Parliament or the statement of membersof Parliament around that time, so there is a general realisation that theseare matters which are better resolved within the community rather than they aretaken outside.

There are areas where coordination is required. There areareas where clarity is still missing. Some of that clarity can come, only whencertain new acts are passed or certain existing acts are amended. As you knowthat is a time taking process.

In any case, government has decided to set up a commissionfor review of all the financial sector laws. That will take its own time. Butmy feeling is that the regulators are cooperating, trying to understand eachother. I hope that we will not have any repeat of these things in future.

Q: Let me ask you about the initial public offering (IPO)market. I was in Jaipur recently and I met a lot of investors for an investorcamp. There seems to be a lot of anguish about the quality of IPOs which havecome in, quality of disclosures, people have lost money in many of these smallIPOs. I don’t know whether you agree with that assessment or not, but thefeedback from the ground is that this whole IPO process is not what it shouldbe, with the exception of a few large ones like Coal India etc where peoplehave made money. What is going on? Do you sense there is a lot of manipulation,lack of disclosure in this whole primary market process?

A: I won’t subscribe to the view of manipulation.Disclosures, obviously there are serious issues. I myself hold the view thatthe way the disclosures are being made today, it is very difficult for anybodyto make out any meaningful information.

I have been telling some people that there is too much ofdisclosure in unstructured manner. Again here I have set up a group and thatgroup has started working. The idea is that how do we prioritise theinformation that is required or the disclosure that is required. For example,if there are criminal cases or other risk factors, they are today coming invarious places. Why can’t we tell them right in the beginning?

Another thought, which the committee is looking at, again byway of illustration, is what has been the track record of the merchant bankersso far as price is concerned. It doesn’t mean that if you are a first timemerchant banker, you will not be allowed. But if you have done ten issues, fiveissues in last one year at any given price, what has been the trend and howdoes it compare with the index against which it should be benchmarked. Thistype of information would perhaps help the retail investors come to some betterunderstanding.

Third point, which the committee is looking at, is at anygiven point, what is the PE ratio based on the last years performance and howdoes it compare with the peers. So, basically what we are looking at is toprovide him some meaningful information which will help him in taking a betterdecision.

However, I must clarify that we are not looking at goingback to the old system where the merit of an issue is decided by SEBI or byCCI. So, the basic point is that the disclosure based regime will continue. Weare not going to make any change from disclosure based system. However, thequality, prioritisation of the information, making the forms easy, making theprospectus easy, that is the area we are working on.

Q: On this point of manipulation, which you disagree, therehas been at least a dozen of very small issues over the last six months, whichattract a lot of HNI interest, allotment patterns are very suspicious because alarge part of the issues are allotted to six-seven entities. Post listing, inthree days, the stock becomes three times the price and then in subsequent oneweek it becomes half the issue price. If that is not a sign of an issue gettingmanipulated, what is?

A: I can only disclose to you that any issue where this sortof a thing has happened is under your radar. Our surveillance and investigationpeople are looking into it. But these things before they become actionable theyneed some probing and they need some time. All these issues, all these cases arebeing looked at.

Q: But nothing concrete has been found at all over issueswhich were six months old even where such instances happened.

A: I will have to check up and my information is these arework in progress.

Q: The retail IPO level got lifted from 1 lakh to 2 lakh, doyou see merit in raising it further to say 5 lakh? What is your personalopinion?

A: We must understand why we want to raise it, what we wantto achieve by this. There are people who say, for example, that even raising itfrom 1 lakh to 2 lakh was not a good idea because ultimately in HNI who wasearlier in HNI qualifies as a retail and gets into it.

The whole system should be looked into the perspective thatone, we want retail to participate. But at the same time, we are not holdingout any brief for an issue to be making money for him or making loss for him.So, if an issue is successful and the retail quota is several timesoversubscribed, people complain. If an issue is not successful, retail quota isnot made then the issuers complain. So, I think we have reached a reasonableamount of balance about what should be the mechanism of allotment for variouscategories of people.

There are arguments, for example, that leave everything tothe qualified institutional bidders and once the issue is getting listed, theywill sell it to retail. We are not getting into all this. But let us not lookat retail qualification or retail quota only from the point of view of missingout a possible opportunity because IPOs can go either way.

Q: This morning there has been a report suggesting that youhave gone back on your earlier stance with the NSDL case and have refused togive them a clean sheet as earlier. Is that a fair, an accurate assessment ofthe facts?

A: No. It is not a fair and accurate assessment. But let mealso qualify by saying that this is a matter before the Honourable SupremeCourt. The matter came up yesterday. We are still awaiting the final ordersbecause it has not yet been communicated to us. But what we have seen in theprint media today is not a correct and complete reflection of what SEBI Boardhas decided or what SEBI has filed in the affidavit.

The legal position as we understand in India today is thatSEBI doesn't have power to review its own orders. In this particular case, thedilemma was that there were certain observations and findings against theworking of SEBI itself. So, in their wisdom the then board decided to declareit as ‘non-est’. Since we were asked to communicate our view whether we arewilling to reconsider this, what we have communicated to the Honorable SupremeCourt is that, yes, we are willing to reconsider. But we have also said thatsince we do not have a power of review, this matter can be done with thedirections of the Supreme Court and also the observations against SEBI need tobe expunged. So, we have said these two things.

Unfortunately, the last two points have not come out in theprint media today giving the impression, people like you have, that there is acomplete change. So, our position remains that the observations against theSEBI need to be looked in. But since we can't review, we have sought SupremeCourt's permission in this.

Source: Money Control

Debt schemes of MFs under Sebi scanner

2011-05-11T21:44:00.000+05:30

Sebi has also asked firms to disclose if an instrument was downgraded by their internal credit teams

The Securities and Exchange Board of India (Sebi) has asked fund houses to furnish data on all debt-oriented schemes launched in April-December 2008 as the capital market regulator suspects that many may not have adhered to proper accounting norms, said three persons with direct knowledge of the matter.

At least 870 fixed maturity plans (FMPs) were launched during this period by fund houses. Apart from them, other debt schemes, too, are being scanned by the regulator.

Debt funds invest in instruments such as certificates of deposit, commercial paper and pass-through certificates issued by banks and corporations.

Sebi has directed fund houses to furnish details of the types of instruments bought or sold, the names of the issuers of such instruments, the total amount invested and the amount rescheduled.

Typically, when a firm is not able to meet redemption of its debt paper placed with a fund house, it rolls it over for a fresh tenure and a revised interest rate, which is typically termed as “reschedulement”. During such events, investors may suffer as redemption payouts may get delayed.

Sebi has also asked fund houses to disclose whether an instrument was downgraded by their internal credit teams due to such rescheduling.

Mint has reviewed a copy of the letter sent by Sebi to the fund houses.

“Apart from managing assets, the asset managers also have a fiduciary duty. Sebi wants to ensure that none of the fund houses has transferred any loss to any scheme while handling the redemption pressure during that period,” said one of the persons.

None of the three officials wanted to be identified as the matter is a regulatory one and the letter sent to the firms is not in the public domain.

A Sebi official declined to comment for this story.

Sebi has also sought details of all non-performing assets under debt-oriented schemes and the provisioning made by the fund houses. The letter was sent to the fund houses in February and the process of evaluation is still on.

In the wake of the liquidity crisis that hit the global financial system in 2008, all categories of investors preferred to get into cash, leading to large-scale redemptions by mutual funds (MFs). To honour this, fund houses extensively used inter-scheme transfers. “While doing such transfers, it is possible that the fund houses may not have strictly adhered to all the rules,” said one of three persons cited above.

There are 43 fund houses in the Rs. 7 trillion Indian asset-management industry. Traditionally, 60-70% of the industry’s assets have always been debt-oriented schemes.

In the second half of 2008, all cash-strapped financial services firms, including banks and asset management funds, were offering high returns on debt-oriented products to attract money from customers.

Real estate firms, among the hardest hit at the time and facing an acute shortage of working capital, floated debt paper offering high returns. MFs had, in fact, started increasing their exposure to the sector even before the global meltdown sparked by the fall of Lehman Brothers. For instance, LIC Mutual Fund Asset Management Co. Ltd’s FMP Series 35 invested 86% in construction. About 25% of the corpus was invested in assets with a rating of less than AA.

There were several FMPs in the market that had their investments in low-rated scrips.

They also invested in scrips with maturities longer than the schemes themselves. For instance, a three-month FMP used to invest in scrips maturing after six months, technically causing asset-liability mismatches. To be sure, there was no ban on such investments at the time, but Sebi subsequently clamped down on them.

Real estate developers’ problems got compounded when investors made panic withdrawals from debt schemes that had exposure to the sector. This forced the realty firms to opt for a rollover of debt as they did not have enough money to return to bondholders.

When an FMP matures, it redeems underlying securities and pays the money back to investors. For FMPs and interval funds (closed-end income schemes that allow fresh inflows and redemption's at regular intervals), the crisis intensified when underlying assets weren’t enough to repay the principal at redemption time.

“Sponsors of the affected fund houses had to compensate the investors by paying them from their own pockets,” said an income fund manager, who did not want to be named. He also said some interval funds suffered from asset-liability mismatches as many investors used to roll over investments beyond the interval.

Source: Live Mint

Proxy voting: Sebi asks mutual funds to inform 'urgently'

2011-05-11T21:38:00.001+05:30

The Securities and Exchange Board of India (Sebi) has asked asset management companies (AMCs) to inform it on an “urgent basis” about the steps taken by them with respect to their role in ensuring better corporate governance of listed companies.

The stock market regulator sent a letter last week to mutual fund (MF) houses in this matter, according to persons familiar with the matter.

In March last year, the stock market regulator had mandated AMCs to disclose their general policies and procedures for exercising the voting rights in respect of the shares held by them on their websites as well as in the annual report distributed to the unit holders from the financial year 2010-11.

As per Sebi norms, AMCs are also required to disclose on their websites as well as in the annual report from 2010-11 the actual exercise of their proxy votes in the annual general meetings/extraordinary general meetings (AGMs/EGMs) of the investee companies. The matters on which AMCs are required to disclose their proxy votes include changes in the state of incorporation, merger and other corporate restructuring, anti-takeover provisions, changes to the capital structure, including increases and decreases of capital and preferred stock issuances, among other things.

However, there is no uniformity in the term disclosures made by fund houses. For example, Quantum MF and Mirae MF have put out both the proxy voting policy as well as the details of the exercise of proxy votes in the AGMs/EGMs of companies in which they have made investments.

There are some mutual fund houses such as Reliance MF, Religare MF, UTI MF, Fidelity MF and Birla Sun Life MF, which have just disclosed their proxy voting policies on their websites.

When contacted, a couple of fund houses said they would disclose the details of their proxy votes at the time of sending their annual reports.

Sebi has asked fund houses to upload the details of proxy votes by May 31 on their websites, said the chief executive officer of a domestic fund house. Officials at some other fund houses were not very clear about the deadline.

“Mutual fund houses should not wait to disclose the details about their proxy votes till they send their annual reports. They should upload this information as soon as possible after the exercise of the proxy vote,” said one of the members of the mutual fund advisory committee.

Sebi’s objective to mandate fund houses to disclose their proxy voting policy and proxy votes was to make them play an active role in ensuring better corporate governance of listed companies.

Source: Business Standard

How much is the world paying for petrol?

2011-05-10T21:31:00.002+05:30

Energy consumption in India is amongst the highest in the world. Being the number two in terms of economic growth and population, India's energy needs will only grow. But with rising oil prices, India's oil imports could become a sticky situation for the government.

Despite government subsidies, high fuel prices have spiked the consumer inflation in India over the past few months. As of now, Indians pay Rs 63 per litre of petrol. The chart below shows that when compared to prices across the globe, the cost of petrol appears very skewed. While in Turkey a litre of petrol costs Rs 114.5, in Saudi Arabia the same costs Rs 5.35. In fact, in Venezuela, all you have to pay is 71 paise for a litre of petrol. India stands pretty much in the middle. However, China and the US comparatively pay much lesser for their fuel.

Data Source: Rediff

Business Columns FDs are hot, but stay with equities; Sebi, don't bring back loads

2011-05-10T20:59:00.000+05:30

With commercial banks increasing their fixed deposit (FD)rates to double digits, a lot of citizens are moving towards this investmentvehicle. And why not? The alternatives today are not confidence inspiring —markets have fallen by 15% in the past six months, gold and silver have movedinto bubble territory, and land has taken its 20-35% leap over the past year.

On the other side, inflation is eating into the purchasingpower of money, pushing Reserve Bank of India (RBI) to increase India's policy ratesnine times in 13 months, the last one being a 50-basis-point increase in therepo rate (rate at which RBI lends to commercial banks) to 7.25% last Tuesday.

That effort seems to be in vain, however — all that RBI andthe government have been able to transmit are promises of lower inflation, butno real action. As a result, while borrowers are feeling the pinch of higherrates on their home loans, lenders are gradually rediscovering an oldinvestment flame: fixed deposits (FDs). At more than 10%, FDs could give seniorcitizens the higher returns they're seeking at virtually zero risk. In theshort term, say, for the next three years or so, that is probably a goodidea.

But in the longer term — and many senior citizens in theirearly 70s will live well into their 90s — fixed deposits may not be quite theplace to park all that money. To protect their money from inflation, they mustkeep 25% or more in equities. For the young, it should be 75% and more.

An economy that grows at a 'slower' rate of 8% that makesIndia the world's second-fastest growing economy after China means the earningsof the underlying organised sector companies that are listed will, on anaverage, grow by 20% or more. To miss this biggest-ever ride of Indian equitieswould be an investment error. The trouble is that investors confuse getting an'equity exposure' with 'buying stocks'. The latter is best left to experts,brokers, fund managers. But as far as equity exposure is concerned, India todayhas the world's cheapest product — mutual funds — that investors must buy into.

At an annual cost of less than 2% or less, you can getaccess to some of the best-performing mutual funds that deliver 20-50% returnsevery year. But unlike FDs, these returns are not consistent — they may fall insome bad years, could double or treble in very good years. But at the end of 20years, you can expect a return of 15-20% — meaning you can multiply your money30-fold.

From the noises I am hearing in newspapers through selectleaks, however, it looks as if Securities and Exchange Board of India (Sebi)under its new chairman UK Sinha is planning to reintroduce 'loads' — the pricethat an investor must pay while buying into an equity fund. Knowing theinvestor-friendly DNA of Sinha, I don't think he will succumb to the pressureof distributors to fatten their bottomlines.

Load was a burden previous Sebi chairman CB Bhave had ended,making mutual funds even better for investors. Following this, the equityassets of the industry fell by a statistically-insignificant 2%.

In fact, over the past 12 months, a new wave of investors,armed with systematic investment plans(a small amount, say R5,000 every month)have invested in mutual funds with a never-befre-seen enthusiasm. It is thisset of investors that Sebi needs to keep in mind and serve as its primaryconstituency.

Globally, this is where the markets are moving — UK plans toend entry loads on all financial products by 2012; other countries are going tofollow. At a speech to financial planners from 23 countries I made last year inTaipei, I argued for two points. One, the world must learn from India and endall entry loads on financial products. And two, while financial planners mustcharge for the advice they give, they must be regulated. Instead ofreintroducing loads, Sinha would do well to work towards regulating advisors.

source: HT

Aegon to exit India's mutual fund business

2011-05-10T19:36:00.000+05:30

Dutch financial services group Aegon intends to surrenderits licence to operate in India's mutual fund industry, which is going throughits roughest patch following a string of regulatory restrictions. An Aegonofficial is said to have met capital market regulator Securities and ExchangeBoard of India (Sebi) recently in this regard.

An email query to Aegon on why the group plans to exit India's mutual fundindustry did not elicit a response till the time of going to the press. But sourcesin the mutual fund industry said Aegon no longer considers the asset managementbusiness in India as a 'strategic fit' for its growth plans in the country.

This is the first instance where a mutual fund has expressed its intention tothe market regulator to give up its licence, industry officials said."It's a little surprising. Despite the hurdles faced by fund houses, Indiacontinues to be one of the hottest emerging markets," said a fund managerwith a private mutual fund.

Aegon is yet to launch a mutual fund product in India since receiving theli-cence from Sebi in October 2008 to start an asset management venture withNew Delhi-based Religare Enterprises . But a month later, Aegon and Religareparted ways amid speculation of a rift between the two. The two companiescontinue to be partners in their life insurance joint venture, Aegon ReligareLife Insurance .

Mutual fund industry officials said Aegon has been hunting for a partner,espe-cially a bank, for the asset management business since the split, but didnot man-age to find one. The speculation is that the inability to find a jointventure partner could have contributed to the proposal to give up the mutualfund licence.

"Being a late entrant into industry, it was important for Aegon to get apartner with a decent network because it is really expensive and tedious tostart afresh without distribution support," said an analyst, requestinganonymity.

Most foreign financial groups, which are part of India's 41-member strong assetmanagement industry, have felt the need to partner a local bank, especiallyafter the ban on mutual funds to charge investors to pay distributors anupfront fee, known as entry load. Distributors almost stopped selling mutualfund products after the move, affect-ing inflows into mutual fund equityschemes, which fetched them maximum fees.

Some mutual fund industry officials are surprised by Aegon's plan, as they feelthe group is well-placed to take advantage of the offshore advisory business.Leading asset management companies nowadays are focusing more on their"offshore advisory" business, where they give research-based adviceto foreign funds that invest in India for a fee.

SEBI to focus on new set of reforms

2011-05-10T19:33:00.000+05:30

Sinha forms panels to address concerns on IPOs, mutual funds; warns local firms not following regulations

Retail investors occupy centre stage for capital market regulator U.K. Sinha, but their protection need not rob the market of its growth, something a section of market intermediaries says his predecessor C.B. Bhave had done.

“There has to be a market and then only you can protect the investors,” Sinha said on Friday in an interview. “If there is no industry and no market, then whom do you protect?”

Bhave is of the opinion that the industry could survive only when investors’ interest is protected.

The new chief of the Securities and Exchange Board of India (Sebi) is preparing for the second stage of reforms in the primary as well as the secondary market.

As the first step, he has instituted a few committees to look into issues such as the procedures of initial public offerings (IPOs) and the impact of the ban on the so-called entry fees on the Rs. 7 trillion mutual fund industry. Some of the committees are expected to submit reports in as early as six weeks.

Sinha is also emphatic that he would continue Sebi’s battle again local firms that are not following the rules of the game. Big companies can delay Sebi’s decisions because they have financial muscle and can fight hard, but the regulator will not be intimidated by them, he said.

“I would like people to know that be careful, Sebi is watching,” he said. “As a regulator, I would put my energy more on deterrence rather than punishment, if there is a choice.”

Sinha has taken charge at Sebi at a time when the regulator is handling a number of critical issues, including the new takeover code and the ownership and capital issue norms for market infrastructure institutions such as exchanges, depositories and clearing houses.

He expects the new takeover code to be in place ahead of framing rules for market infrastructure institutions on which a panel, headed by former Reserve Bank of India governor Bimal Jalan, submitted a report last year.

Sinha said the proposal to change takeover norms has been discussed at the Sebi board twice and will be finalized after government gives its suggestions.

On another contentious issue, allowing MCX Stock Exchange Ltd (MCX-SX) to trade in equities, he did not give a specific response as the case is being legally fought, but said Sebi will encourage competition.

“One of the areas of worry today is lack of competition. We will take policy measures to ensure that there is more competition,” he said. “Over the past three years particularly, the competition in the exchange industry has become concentrated. In some cases, a very high percentage of business is with one exchange.”

Sebi did not allow MCX-SX equity trading as it found the exchange did not fully conform with ownership norms.

In August 2009, Sebi had scrapped entry fees—an upfront commission paid by an investor for putting money in a mutual fund scheme. Since then, the mutual fund industry has been complaining about a decline in sales.

Sinha, who was then heading India’s fourth largest asset management firm, UTI Asset Management Co. Ltd, had vehemently opposed the ban.

The idea behind setting up a committee to look into the affairs of mutual fund industry is “to see how the growth of the industry can be accelerated, and to arrest the decline”.

Stating that the geographical reach of the industry has shrunk, Sinha said he will strive to “enhance the reach of the industry”.

Though many claim that the industry’s growth and reach have suffered following the entry load ban, between August 2009 and March 2011, investors have saved at least Rs. 2,500 crore in various schemes. The gross inflow during this period was about Rs. 1.15 trillion.

“Despite the entry loan ban in 2010, gross inflows in equity funds touched a three-year high,” a Morgan Stanley report in February said.

In a 5 May interview with AsianInvestor magazine, K.N. Vaidyanathan, executive director of Sebi, said he wanted the fund industry to grow in terms of muscle, and not fat. He also said asset management companies should grow steadily but not at the cost of investors’ money.

At a Mumbai seminar in 2010, Bhave had criticized the industry for running several schemes with suboptimal returns and launching one scheme after another that provided incentives only to distributors, but confused investors and failed to meet their expectations.

Sinha also plans to simplify disclosures made by firms in offer documents for IPOs and follow-on public offers (FPOs). It may force merchant bankers to disclose their track record in offer documents and clearly justify the pricing of an issue in a more transparent way.

Pricing of IPOs and FPOs has always remained a major concern in India.

In September, while addressing a conference of Association of Merchant Bankers of India, Bhave questioned the transparency of the merchant bankers while pricing IPOs and FPOs.

“If you look at maximizing the price for promoters, then obviously you are not looking after the interests of investors,” Bhave had said.

According to a Mint analysis, till the first week of May, 39 of the 56 IPOs that were launched during fiscal 2011 were trading below their offer prices.

“We are discussing what better information we can provide to the investors on pricing. For instance, if you are a merchant banker and you have done five issues in the last one year, can we provide the track record of you on those five issues?…For IPOs, can we disclose at a certain price...what is the price earning ratio of the stock?” said Sinha.

He also wants to simplify other market-entry procedures such as opening a demat account with a bank or an account with a brokerage to buy and sell shares.

“When somebody is trying to get registered with a broker and trying to open a demat account, I am told that there are 50 signatures required… All sorts of assertions and all sorts of obligations are made,” he said. “Obviously it is discouraging the retail investors. We would like to simplify that.”

Source: LiveMint

RBI announces increase in Savings Deposit Rate

2011-05-03T16:43:00.000+05:30

The RBI today decided to increase the savings deposit rate from 3.5% currently to 4%. In the recent period, the spread (difference between interest rates) between savings bank deposit rates and fixed deposit rates have increased sharply. The hike in savings account rate was imperative considering that real interest rates (adjusted for inflation) on savings account balances have been in the negative for quite a while now.

This move will impact banks which have a high CASA (current account and savings account) base. The likes of SBI, HDFC Bank etc that have benefited from a larger proportion of low cost deposits will be seeing some margin pressure. However, the same will only be temporary before the benefit of a larger account base catches up. However, the RBI has not ruled out deregulation of the savings rate, a move that may see banks trying to cannibalize market share of their peers.

Sebi panel to review 2009 MF changes

2011-05-03T16:22:00.000+05:30

The Securities and Exchange Board of India (Sebi) has formeda seven-member panel chaired by Prashant Saran, whole-time member, to examinethe mutual fund sector’s grievances on the abolition of entry loads in August2009. It had its first meeting on Friday.

K N Vaidyanathan, executive director, who heads the MFdepartment at Sebi, is conspicuous by his absence in the committee, raising theindustry’s hopes of a policy change. Vaidyanathan has been one of the strongestambassadors and a strict enforcer of the no-loads regime that came into forceunder then Sebi chief C B Bhave.

FELT SIGNAL

U K Sinha, who took over as Sebi chairman in February, was one of the loudestcritics of the Sebi moves when chairman of UTI Asset management. There waswidespread speculation in the MF industry that Sinha’s assuming the office ofregulator would bring relief. The formation of this committee and exclusion ofVaidyanathan from it are seen as clear moves in that direction. The industryclaims to be suffering from loss of distribution force and erosion of assetsunder management.

According to two panel members, this committee has beenformed with a specific mandate to look into post-August 2009 issues and shouldnot be confused with the existing MF advisory committee.

Others on the panel are H N Sinor, chief executive of theAssociation of Mutual Funds in India; V Ganesh, CEO of Karvy Computershare Ltd;Dhirendra Kumar, CEO, Value Research; Narendra Mehta, investor grievancescell;, G Sethu of National Institute of Securities Markets, and S Ravindran,chief general manager-MF, Sebi.

Sinor refused to comment but has informed the fund houses ofthe new committee through an email. He said it would look into “sustainable andorganised growth of the industry”. And, that it would discuss issues liketransaction costs, single-cheque payment by customers, etc.

Amfi will take up issues with the committee from time totime, he said in the mail to fund houses.

A panel member said: “It’s very exploratory. A lot of peoplehave complained about the transaction costs. This is making peopledisinterested and move out of the industry. So, the panel will look at ways toaddress these issues.” He said the findings are expected to come in a “fewweeks.”

According to the him, the panel is clear that the advice andsales functions need to be kept separate. Another panel member termed it aneffort to bring back entry loads through the back door.

OTHER ISSUES

Two key issues it would examine are the twin cheque system and the commonaccount statements introduced by Sebi, with the associated transaction costs.

To distinguish the payment made to the distributor for hisservices, Sebi had mandated this be done separately. And, the regulator hadpushed for a common account statement.

“We made our stand clear to Amfi that there should be asingle cheque payment system. Even after two years of entry load ban, thedistributors are finding it difficult to charge investors for the advice. Webelieve an investor should give a single cheque to the AMC and mention(overleaf) how much commissions he/she wants to pay to the distributors. Adouble cheque system only adds to the confusion,” said a CEO of a mid-sizedfund house.

IRDA raises premium rates for third-party motor insurance

2011-04-18T16:37:00.000+05:30

Insurance Regulatory and Development Authority (IRDA) has raised the premium rates for third-party motor insurance policies by 10% to 65% across different categories of vehicles and ownerships.

While third-party premiums for personal cars and two-wheelers were raised by 10%, new premiums for commercial vehicles would be higher by 65%. The new rates are effective from 01 April 2011.

Third party motor premiums in India are regulated by Tariff Advisory Committee, a constitutional body under IRDA. Third party motor premiums for commercial vehicles rose for the first time in four years.

IRDA also specified third party motor premiums would be revised annually, based on inflation and claim experience. Third-party premium rates for commercial vehicles were stagnant for the last four years, owing to opposition from transport unions.

The revised schedule of premium is available in the website of the Authority www.irda.gov.in

Birla Sun Life Gold ETF Floats on

2011-04-18T16:30:00.000+05:30

NFO Period from 25 April to 09 May 2011

Birla Sun Life Mutual Fund has launched a new fund named Birla Sun Life Gold ETF, an open ended gold exchange traded fund. Each unit of Birla Sun Life Gold ETF shall be issued at a premium equivalent to the difference between the allotment price and the face value of Rs 10 each. The new issue will open for subscription from 25 April and close on 09 May 2011.

Investment Objective: To generate returns that is in line with the performance of gold, subject to tracking error.

Minimum Application Amount: Minimum of Rs 6000 and in multiples of Rs 2000 thereafter per application.

Benchmark: Domestic price of physical gold

Load: Nil

Asset Allocation: The scheme will invest 95%-100% in physical gold and may also invest upto 5% in debt and money market instruments (including cash and cash equivalent).

Fund Manager: Mr. Satyabrata Mohanty

Franklin Templeton MF Declares Dividend for FT India Dynamic PE Ratio Fund of Funds

2011-04-18T16:28:00.000+05:30

Record date for dividend is 21 April 2011

Franklin Templeton Mutual Fund has approved the declaration of dividend on the face value of Rs 10 per unit of FT India Dynamic PE Ratio Fund of Funds. The record date for dividend has been fixed as 21 April 2011.

The quantum of dividend will be Rs 0.440 per unit for Individuals & HUF and Rs 0.411 per unit for Others. The scheme record NAV of Rs 34.4324 per unit as on 13 April 2011.

FT India Dynamic PE Ratio Fund of Funds is an open ended Fund of Funds scheme which has the investment objective to provide long-term capital appreciation with relatively lower volatility through a dynamically balanced portfolio of equity and income funds.

Weekly Scenario: Mid Cap Funds Outperform Large Cap Funds

2011-04-18T16:25:00.000+05:30

Indian market ended the short week on a bleak note amid high volatility. After starting the week on a depressing note, short covering was seen on Wednesday which pulled the market to mount upto 400 points.

High prices of vegetables and manufactured items drove the headline inflation in March to 8.98%. The overall inflation measured on the basis of Wholesale Price Index (WPI) was 8.31% in February.

Among the major categories in equity fund, Mid Cap Funds and Multi Cap Funds were the gainers by 0.57% and 0.04% respectively over the one week period ended 15 April 2011. On the other hand, Index Funds, Large Cap Funds and Tax Savings Funds were the losers by 0.25%, 0.07% and 0.04% respectively. When we look at the sectoral funds, FMCG Funds gained a maximum of 2.09%, followed by Pharma Funds by 1.34% and Banking Funds by 0.63%. Infotech Funds was the loser among the sector funds losing by 3.69%.

Among the debt fund categories, Ultra Short Term Funds and Floating Rate Income Funds – Short Term were gainer by 0.16% each, Floating Rate Income Funds – Long Term and Short Term Income Funds by 0.15% each, Liquid Funds by 0.14%, Income Funds by 0.10% and Gilt Funds – Short Term by 0.05%, while Gilt Funds – Medium & Long Term was loser by 0.15%.

Debt Oriented Balanced Funds surged the highest among the Hybrid Funds by 0.18%, followed by Equity Oriented Balanced Funds by 0.18%, Monthly Income Plans by 0.11% and Arbitrage Funds by 0.06%. On the Other hand Gold ETF's gained 1.19% and Other ETF's by 0.03%.

Mid Cap Funds: Out of 41 funds, 25 bettered the category average. UTI-Mid Cap Fund was the top performer, which gained by 1.29%, followed by Canara Robeco Emerging Equities which climbed 1.18% and DSP BR Small and Mid Cap Fund rose 1.17% among others. SBI Magnum Midcap Fund, BNP Paribas Mid Cap Fund and HSBC Midcap Equity Fund ended at the bottom of this category declining by 0.70%, 0.10% and 0.06% respectively.

Multi Cap Funds: Out of 71 funds considered, 28 outperformed the category average. Escorts Leading Sectors Fund was the top performer, which gained by 1.25%, followed by Sundaram Rural India Fund which climbed 0.94% and Birla Sun Life India Reforms Fund rose 0.89% among others. Tata Select Equity Fund and ICICI Pru Equity Opportunities Fund ended at the bottom of this category declining by 0.73% and 0.63% respectively.

FIIs continue buying

2011-04-08T00:08:00.002+05:30

Inflow of Rs 716.30 crore on 6 April 2011

Foreign institutional investors (FIIs) bought shares worth a net Rs 716.30 crore on Wednesday, 6 April 2011 which was a result of gross purchases Rs 2983.70 crore and gross sales Rs 2267.50 crore. There was an inflow of Rs 607.90 crore into the secondary equity markets which was a result of gross purchases Rs 2875.10 crore and gross sales Rs 2267.20 crore. The BSE Sensex had fallen 74.62 points or 0.38% to settle at 19,612.20 on that day.

There was an inflow of Rs 108.30 crore into the category 'primary market & others' on Wednesday, 6 April 2011 which was a result of gross purchases Rs 108.60 crore and gross sales Rs 0.30 crore.

FII inflow in April 2011 totaled Rs 6366.30 crore (till 6 April 2011). FIIs had bought equities worth Rs 6897.80 crore in March 2011. FII inflow in the calendar year 2011 totaled Rs 3865.40 crore (till 6 April 2011).

FII had bought equities worth Rs 133266 crore in the calendar year 2010. In dollar terms the net equity inflow in 2010 totaled $29.36 billion, compared to an inflow of $17.45 billion in 2009. The annual inflow in 2010 was at record level.

There are a total of 1,723 foreign funds registered with the Securities & Exchange Board of India (Sebi).

Mutual funds continue selling

2011-04-08T00:07:00.002+05:30

Outflow of Rs 202.60 crore on 6 April 2011

Mutual funds (MFs) sold shares worth a net Rs 202.60 crore on Wednesday, 6 April 2011, lower than an outflow of Rs 345.80 crore on Tuesday, 5 April 2011.

The net outflow of Rs 202.60 crore on 6 April 2011 was a result of gross purchases Rs 537.60 crore and gross sales Rs 740.20 crore. The BSE Sensex had fallen 74.62 points or 0.38% to settle at 19,612.20 on that day.

MFs sold shares worth net Rs 683.30 crore in April 2011 (till 6 April 2011). Mutual funds had sold equities worth a net Rs 253.30 crore in March 2011.

FIIs turn buyers in 2011

2011-04-07T00:50:00.002+05:30

Inflow of Rs 1562.70 crore in 2 trading sessions on 4 & 5 April 2011

Foreign institutional investors (FIIs) bought shares worth a net Rs 1562.70 crore during two trading sessions on Monday, 4 April 2011 and Tuesday, 5 April 2011. The net inflow of Rs 1562.70 crore was a result of gross purchases Rs 4917.90 crore and gross sales Rs 3355.20 crore. There was an inflow of Rs 1471.30 crore into the secondary equity markets which was a result of gross purchases Rs 4823.70 crore and gross sales Rs 3352.30 crore.

There was an inflow of Rs 91.40 crore into the category 'primary market & others' during two trading sessions on Monday, 4 April 2011 and Tuesday, 5 April 2011, which was a result of gross purchases Rs 94.20 crore and gross sales Rs 2.80 crore.

FII inflow in April 2011 totaled Rs 5650 crore (till 5 April 2011). FIIs had bought equities worth Rs 6897.80 crore in March 2011. FII inflow in the calendar year 2011 totaled Rs 3149.10 crore (till 5 April 2011).

There are a total of 1,718 foreign funds registered with the Securities & Exchange Board of India (Sebi).

Tata MF Announces Change in Key Personnel

2011-04-07T00:48:00.000+05:30

With effect from 1 April 2011

Tata Mutual Fund has announced that Mr. Atul Bhole has been designated as Fund Manager for equity portfolio of Tata Young Citizens Fund, Tata Monthly Income Fund and Tata MIP Plus Fund (the schemes) with effect from 1 April 2011.

Mr. Venugopal M. ceases to be the Fund Manager for the equity portfolio of the above mentioned schemes with effect from 1 April 2011.

FIIs step up buying

2011-03-29T00:05:00.002+05:30

Inflow of Rs 1518 crore on 25 March 2011

Foreign institutional investors (FIIs) bought shares worth a net Rs 1518 crore on Friday, 25 March 2011, substantially higher than an inflow of Rs 345.50 crore on Thursday, 24 March 2011.

The net inflow of Rs 1518 crore on 25 March 2011 was a result of gross purchases Rs 3329.90 crore and gross sales Rs 1812 crore. There was an inflow of Rs 1518.20 crore into the secondary equity markets which was a result of gross purchases Rs 3328.80 crore and gross sales Rs 1810.60 crore. The BSE Sensex had jumped 464.90 points or 2.53% to settle at 18,815.64 on that day.

There was an outflow of Rs 0.20 crore from the category 'primary market & others', on 25 March 2011, which was a result of gross purchases Rs 1.10 crore and gross sales Rs 1.30 crore.

FII inflow in March 2011 totaled Rs 3872.20 crore (till 25 March 2011). FIIs had sold equities worth Rs 4585.50 crore in February 2011. FII outflow in the calendar year 2011 totaled Rs 5526.50 crore (till 25 March 2011).

There are a total of 1,712 foreign funds registered with the Securities & Exchange Board of India (Sebi).

Birla Sun Life MF Declares Dividend For Tax Relief 96 Fund

2011-03-29T00:04:00.002+05:30

Record date for dividend is 31 March 2011

Birla Sun Life Mutual Fund has announced 31 March 2011 as the record date for the declaration of dividend on the face value of Rs 10 per unit under dividend option of Birla Sun Life Tax Relief 96 Fund.

The quantum of dividend will be Rs 4 per unit as on the record date. The scheme recorded NAV of Rs 79.29 per unit as on 24 March 2011.

Birla Sun Life Tax Relief 96 Fund is an open ended equity linked savings scheme with a lock-in of 3 years from the date of allotment. It has the investment objective of long term growth of capital through a portfolio with a target allocation of 80% equity, 20% debt and money market securities.