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Wednesday, March 18, 2020
Saturday, February 01, 2020
On 15th Jan, 2020, the Supreme Court rejected the petitions filed by telecom operators to review the October 24, 2019 verdict that provided three months' time to clear AGR (Adjusted Gross Revenue) dues.
As expected the telecom operators (excluding Reliance Jio) missed the 24th Jan, 2020 deadline to pay the dues. Telecos are finding it extremely difficult to meet the payment timeline given the large quantum of dues and are hoping for relief measures from the government.
The Supreme Court is likely to list the modification appeal filed by the telcos against the deadline for their statutory dues on 3rd Feb, 2020, as per Apex Court's notification stated on 30th Jan, 2020. We cannot speculate on what the Apex Court verdict will be, soon it will be known to all.
Corporates have defaulted on their obligations towards mutual funds even in the past.
Some of the names that come to mind are those of Ballarpur Industries, Amtek Auto, and Jindal Steel & Power. But the recent spate of defaults, including names like IL&FS, ESSEL Group, Dewan Housing Finance Corporation, Reliance-ADAG, Altico Capital, Sintex BAPL etc.
Even Life Insurance Corporation (LIC) has an exposure of more than Rs 20,000 crore to various entities’ debt instruments that have been downgraded to the default category by credit rating agencies.
The exposure, which is for the period ended September 2019, is across various platforms such as life funds, pension funds, and unit-linked funds.
VIL owes AGR dues of over Rs 50,000 crore to the government. VIL Chairman Kumar Mangalam Birla had earlier stated that they will have to shut shop if the Centre does not provide any relief. This puts VIL at a greater risk of default and rating downgrade.
Among other telecom operators, Bharti Airtel has better chances of survival and the ability to compete with Reliance Jio. Bharti Airtel recently raised Rs 21,240 crore through QIP (Qualified institutional placement) and FCCB (Foreign currency convertible bonds). It proposes to utilise the proceeds for any payments that may be required to be made towards AGR dues.
Franklin Templeton MF's Write-down & Side Pocketing of Exposure to Voda-Idea Debt
Franklin Templeton has the highest exposure among mutual funds to the debt papers of VIL. Other AMCs like UTI Asset management Company, Aditya Birla Sun Life AMC, and Nippon India Life Asset Management with significant exposure to VIL debt may follow suit and mark down the exposure.
In the past FTMF had exposure to toxic papers of Reliance ADAG and Jindal Steel and Power. It seems FTMF has taken a leaf from the IL&FS crisis and decided not to rely heavily on credit rating or wait for the securities to be downgraded to junk rating.
The move by FTMF is perhaps in the best interest of the investors and the AMC is well within rights to mark-down its exposure rather than waiting for an affirmation from rating agencies.
The schemes would have faced huge redemption pressure in case of rating downgrade and FTMF would have been forced to sell its high-rated and liquid securities to meet the demand. Consequently, this would have led to increased overall exposure to VIL in the portfolio.
VIL's operating performance continues to be weak. Any payout towards AGR dues would significantly impact its liquidity and affect its future plans.
In view of this uncertainty and its impact on the company's financials, rating agencies CRISIL and India Ratings downgraded VIL's nonconvertible debentures (NCDs) worth Rs 3,500 crore to CRISIL BB and IND BBB respectively, which is below investment grade, while maintaining rating watch with negative implication.
Following this Franklin Templeton MF created side pockets for six of its schemes with exposure to VIL debt. The other three fund houses decided against creating a segregated portfolio despite rating downgrade and are waiting for further developments before taking any decision.
What are the stances of Aditya Birla SL AMC, UTI AMC, and Nippon AMC?
Aditya Birla SL AMC, UTI AMC, and Nippon AMC are no strangers to side-pocketing. In the past, these fund houses had created side pockets for its exposure in downgraded papers of Adilink Infra & Multitrading, Altico Capital, and Reliance Capital, respectively.
As per our understanding these AMCs have possibly decided not to segregate its exposure to VIL as the company has not actually defaulted on any payment yet and are hopeful of relief measures in the near future.
What should the investors do?
It is important for you, as an investor, to approach debt mutual funds with caution and your eyes wide open. Do not assume debt mutual funds, including the one with shorter duration, to be risk-free.
Before investing in debt funds, understand the credit risk involved & have a clarity by consulting an advisor.
As the professional financial advisor has to pay attention to the portfolio characteristic of a debt mutual fund scheme or else it can result in making the wrong investment choices, leading to erosion of your wealth.
As an investor or an advisor it must be clearly understood that, credit risks can randomly knock on doors and avoiding them is almost impossible -- even for a seasoned fund manager or a financial advisor.
We at Master Mind Financial Advisory believe in opting for a fund house whose focus is up on process-driven approach, less dependence on concentrated exposures (for generating higher returns), and focus on portfolio characteristics can help reduce the risk involved while choosing a debt mutual fund scheme.
For case by case discussion of investments into mutual funds suggestions would vary. Feel free to be in touch with us.
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Twitter: @vaid_varun; @MMFA_IN
Saturday, January 18, 2020
These new features will come into effect from March 16, 2020 under Section 10(2) of the Payment and Settlement Systems Act, 2007 (Act 51 of 2007).
All new cards (whether physical or virtual) at the time of issue/reissue will be enabled only for usage at ATMs and Points of Sale (PoS) within India. The cards will no longer come with a default facility for international transactions or online transactions.
Cardholder will have the facility to enable or disable domestic or international transaction as per their discretion. If the cardholder wishes to enable online transactions, they will have to apply to the issuer to avail these services.
Online and international thefts/frauds are difficult to trace. A tighter control over such transaction can go long way to protect cardholders against fraudulent transactions.
Further, no card will be enabled for contactless transaction by default. Contactless cards allow users to pay just by tapping their card at payment machines without PIN or signature, making it an easy target for theft.
For existing cards, issuers may take a decision, based on their risk perception, whether to disable the following:
1. Card not present (domestic and international) transactions
2. Card present (international) transactions,
3. Contactless transaction rights
Existing cards which have never been used for online (card not present) / international / contactless transactions shall be mandatorily disabled for this purpose.
For every type of transaction viz. domestic and international, at PoS / ATMs / online transactions / contactless transactions, etc., cardholders will have the facility to switch on / off and set / modify transaction limits (within the overall card limit, if any, set by the issuer).
The cardholder will be provided alerts / information / status, etc., through SMS / e-mail, as and when there is any change in the status of the card.
Prepaid gift cards and those used at mass transit systems are not covered under this provision.
Previously, RBI had asked banks to replace the magnetic stripe debit card of their customers with a new Europay, Mastercard, and Visa (EMV) card in the wake of increase in the online/ATM fraud through magnetic stripe cards. EMV cards provide enhanced level of security against misuse in the form of skimming, cloning, etc. making it difficult for fraudsters to copy your data. Magnetic stripe debit card of both public and private banks are to be blocked from January 1, 2020.
Precautionary measures to be taken by cardholders
If you come across any unauthorized transaction in your bank account, bring this to your bank's notice immediately. RBI has issued instructions which states that if a customer informs the bank regarding such transaction within three working days of receiving information, his/her liability will be nil. Bank shall credit the amount involved in such transaction to the customer's account within 10 working days from the date of information by the customer.
Furthermore, for better safety of capital, diversify your deposits across different banks instead of parking all your savings in one bank. You may also diversify your investment across other asset classes such as mutual funds and provident funds.
Monday, February 18, 2019
Monday, September 10, 2018
Quite often we at Master Mind Financial Advisory come across with a question that what is the best time to sell our mutual fund investments. In this newsletter we have addressed our revert for your kind perusal.
• Your financial goal is falling due for fulfilment:
For example, you invested in mutual fund schemes to finance the higher studies of your child. In the next six months, your child is applying for a post-graduate programme. You should start redeeming your mutual fund investments under such circumstances to fulfil your goal.
• When your asset allocation has deviated significantly from your original allocation:
For instance, you originally invested 60% of your investable corpus in equity mutual funds, 30% in fixed income instruments, and 10% in gold. But last month you discovered that the proportion of your equity assets in your portfolio has gone up 80%. Under such circumstances, you might book some profit in mutual funds and reduce the weight of equity assets to 60%.
• When mutual fund schemes in your portfolio have been consistently underperforming their benchmark and peers:
You recently found that a mutual fund scheme in your portfolio has been underperforming its benchmark and the category peers consistently across time periods: 5-years, 7-years and 10-years. Perhaps this is the time to eliminate these schemes from your portfolio and replace them with better alternatives.
• The fundamental attributes such as risk profile, investment preferences of the schemes have changed:
Assume, after the implementation of SEBI’s reclassification norms, a mutual fund scheme decided to convert its mid-cap oriented scheme in a multi-cap oriented scheme. You being an aggressive investor, the fund might have become unattractive to you. Under such circumstances, you might redeem a mutual fund scheme.
At Master Mind Financial Advisory we believe it’s not only important to carefully select the mutual funds but to know which funds suit your portfolio best after availing services of an advisor.
Before you invest in mutual funds, you should know:
• The age bracket you are in
• Your current financial health
• Your risk profile
• Follow advice of an unbiased advisor
• The estimated ballpark figure for your financial goals
• Time horizon in hand before financial goals befall
• Chart out a personalised asset allocation chart, which is done by the professional
• Performance track record across timeframes and market phases to invest in best mutual fund schemes, where in expert will be better guidepost.
Aren’t sure which mutual fund scheme you should invest in? This is where a professional plays a vital role. The key to your investment success is quality advice and astute selection of mutual fund schemes by an advisor. You should choose your advisor after due diligence only.
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Disclaimer - All investments in Mutual Funds and securities are subject to market risks and uncertainty of dividend distributions and the NAV of schemes may go up or down depending upon factors and forces affecting securities markets generally. The past performance of the schemes is not necessarily indicative of the future performance and may not necessarily provide a basis for comparison with other investments. Investors are advised to go through the respective offer documents before making any investment decisions. Prospective client(s) are advised to go through all comparable products in offer before taking any investment decisions. Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the fund will be achieved. Information gathered & material used in this document is believed to be from reliable sources. Decisions based on the information provided on this newsletter/document are for your own account and risk.
In the preparation of the material contained in this document, Varun Vaid has used information that is publicly available, including information developed in-house. Some of the material used in the document may have been obtained from members/persons other than the Varun Vaid and which may have been made available to Varun Vaid. Information gathered & material used in this document is believed to be from reliable sources. Varun Vaid however does not warrant the accuracy, reasonableness and/or completeness of any information. For data reference to any third party in this material no such party will assume any liability for the same. Varun Vaid does not in any way through this material solicit any offer for purchase, sale or any financial transaction/commodities/products of any financial instrument dealt in this material. All recipients of this material should before dealing and or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice.
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