Since the ban of entry loads on mutual funds from September 2009, many distributors are not showing keen interest in distributing mutual funds. This has directed fund houses to team up with banks to take advantage of the latter's large sales network. With individual / independent distributors not agreeing to sell funds at lower commission, asset management companies (AMCs) are finding it necessary to forge alliances with well-networked banks. By partnering with banks for distribution, mutual funds are seemingly applying brakes to distributor-induced portfolio churning by investors. Another factor that has lured fund houses to banks is the lower commission rates charged by the banks (as compared to individual mutual fund distributors). Typically they (most banks) are willing to distribute funds at lesser commission (say at 0.50%-1.00%) than individual mutual fund distributors).
But, the detrimental point to mutual fund distribution by banks is that, they are advising their client base to invest in mutual funds the prudent way. A study conducted by the Securities and Exchange Board of India (SEBI) reveals that big banks such as ICICI Bank and HDFC Bank, distributing mutual funds, are directing 75% - 80% of all investments to their own group companies mutual fund products, with HSBC being the rare exception. The regulator feels that a major problem faced by the mutual fund industry is that money isn't coming from smaller towns. There's a concentration of investment in the top 12-15 cities and distributors are losing out; but some big banks, which are distributing products, are gaining in a major way.
Moreover, another noteworthy fact is that the under-penetration of mutual funds in smaller towns is not restricted only to smaller and / or newer asset managers. Large fund houses like HDFC Mutual, Reliance, Birla Sunlife and ICICI Prudential Mutual too collect dominant amount of their corpus (around 64% to 75% of their assets) from top 5 cities. However, fund houses like DSP Blackrock, Franklin Templeton, IDBI, Mirae Asset, Principal Mutual and Sundaram Mutual Fund have relatively strong presence in non-metro top-10 cities like Ahmedabad, Hyderabad, Rajkot, Indore, Pune, Nashik and Jaipur.
We are of the view that the study conducted by SEBI, is revealing some glaring and dreadful facts in a time when individual mutual fund distributors are not showing keen interest in promoting mutual funds. While many trust banks for advice on investment matter, we think that enough prudence should be adopted by investors themselves to take a wise and wealth creating decision. While many large banks as cited above are promoting their own group companies mutual fund products, one should recognise that your investment decision in mutual funds should not be guided by the size of the mutual fund house. Also there ought to be proper diversification across mutual fund houses and type of schemes held in your portfolio. Moreover, we think that having a bank account in a respective bank shouldn't oblige you to buy a mutual fund scheme distributed by that bank. Also, as mentioned earlier the expertise of the advice provided by your bank should be reckoned, which can thus help in powering your portfolio with rewarding mutual funds.
In order to have winning mutual funds in your portfolio, immense research and analysis goes into sorting out consistent performing mutual funds. Hence, it becomes prudent that you take help from professionals who have sufficient experience and expertise in researching mutual funds, and moreover who gives an independent and unbiased advice keeping his vested interests (of earning commissions) at bay.
In India the precious yellow metal - gold has surged +8.1% over the last six months - January 2012 to June 2012. With the global economic headwinds in the backdrop, depicting still a gloomy picture and Indian rupee depreciating against the U.S. dollar, gold investments in India have delivered better return, when compared to investment in gold in U.S. dollar terms - which has reported gains of mere +2.4% over the same period.
Gold in INR vs. Gold in USD
(Source: ACE MF, PersonalFN Research)
Moreover, with equities around the globe reeling under pressure due to the sovereign debt crisis which has engulfed the Euro zone and U.S. growing at a snail's pace, the inverse correlation has also been evident. Central banks too have been piling up gold, in the backdrop of downbeat global economic data, thereby attributing to the upward trend in the prices of the yellow metal.
We believe that, given the fact that debt-overhang situation in the Euro zone still exists, and the developed economies are reporting dismaying economic growth numbers, we think smart investors would continue to take refuge under gold, which would lead to its gradual ascending move. Hence in this context GETFs would continue to do well. In fact it is noteworthy that performance of GETFs has been steady despite a consolidation phase in gold; which in turn is also signalling that smart investors are still worried about global macro-economic scenario and surrounding currency debasements.
Moreover, with the series of festivals lined up in India from the month of August 2012, the demand for gold will continue to be high and this will entice the stockist to pile up the bullion in order to meet the growing demand. However, traders would also eye the progress of the monsoon rains, which have been scant so far. Rural areas, which contribute to 60% of the gold demand, depend on monsoon rains for better farm productivity, yields and profits.
Financial exuberance and innovation has not only made the world of investments complex, but also left investors in dynamic environment. While galore of newsflashes released on policy initiatives and other issues, which stalwarts of the finance industry try to be abreast with; investors are often left confused in the maze of information.
The story of Rajiv Gandhi Equity Savings Scheme (RGESS) isn't any different. Right since the time the Government proposed the introduction of a tax rebate under RGESS, there has been host of information disseminated by the press. With lack of clarity right since the proposal stage, information has moved back and forth, often confusing investors on how the tax benefits would be passed on to them.
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In the hustle and bustle of city life it is not uncommon for many to forget refilling cash in their wallet before they step out of their homes, for work place or for any other reason. Earlier, in the era prior to plastic money, while one have regretted and be inconvenienced by such a forgetful act; today, with advancement of technology facilitating e-transactions, getting cash or transacting isn't troublesome, with plastic money (such as credit and debit cards) in one's wallet - which is widely accepted. But then there are one-off occasions where you need cash and plastic money (using debit or credit cards) just won't be accepted. In such cases you visit your nearest Automated Teller Machine (ATM) to withdraw cash (mainly by using your debit card as using credit card could prove costlier).
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Recently we came across an interview in the Business Standard, of Mr Stephen Bird - CEO of Asian Pacific region at Citigroup, where he labelled India and China as twin engines of growth due to the strong consumption and development stories possessed by them; although there are short-term issues. He also cited that lower oil prices are a positive for India, and the fact that India is a less of an export economy. In context to such view of the esteemed gentlemen, we think that yes, indeed India and China are engines of growth in Asian economy, and are reporting luring economic growth as compared to the developed economies. But on the consumption theme, we think that India's demographics with relatively young population works in its favour, than for China which has aging population. On the point of lower Brent crude oil prices helping India, however we are of the view that although Brent crude oil prices have lowered the upside risk of crude oil prices still persists, which could put significant pressure on India due to subsidised domestic fuel consumption.
Also while Mr Bird is of the view that India has been able to achieve a two trillion economy despite the lack of good infrastructure facilities and good have added more provided more to growth if infrastructure was right, we would like to cite a point that the Government has given enough focus on infrastructure spending since last so many Union Budgets. But unless the funds aren't given in right hands, and mechanism to control graft in the infrastructure story isn't present, luring infrastructure is a difficult task to build. Moreover for the country to clock more appearing growth rate, reforms need to put at the forefront by achieving enough political consensus, and not myopic oppositions as at present.
- The Securities Appellate Tribunal (SAT) , a quasi-judicial body, has directed HSBC Mutual Fund to compensate the losses suffered by some investors in one of its debt schemes. These unit holders had invested their money in HSBC Gilt Fund, which had two plans - short term and long term. They opted for the short-term plan, which according to the offer document, would invest in gilts with an average maturity of the portfolio not exceeding 7 years and modified duration not exceeding 5 years.
However, in February 2009, the fund house made some changes. The short-term plan which was meant for investment in government securities for a period of 5 to 7 years was changed to a term investment not exceeding 15 years. This resulted in substantial losses to the investors. SEBI rules mandate fund houses to inform investors of any changes in the policy whether fundamental or otherwise, which would affect the interest of the investors. But when, the aggrieved investors approached SEBI seeking its intervention, the regulator had merely let off the fund house with a warning.
In our opinion, this is a glaring example of the regulator SEBI not taking stern action on the fund house for not following one of its mandates. This incident brings out the extent to which individual investors need to be vigilant about their investments and take the right step in case of some fundamental changes in the nature of the mutual fund scheme. In such cases, professional help from experts can go a long way in taking smart investment decisions.
Alternative Asset: Any non-traditional asset with potential economic value that would not be found in a standard investment portfolio. Due to the unconventional nature of alternative assets, valuation of some of these assets can be difficult.
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