| 31st August, 2012 |
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| Weekly Facts |
| ||Close ||Change ||%Change |
|BSE Sensex* ||17,380.75 || (402.5) ||-2.26% |
|Re/US$ ||55.64 ||(0.4) ||-0.69% |
|Gold Rs/10g ||30,705.00 ||190.0 ||0.62% |
|Crude ($/barrel) ||113.26 || (2.8) ||-2.44% |
|FD Rates (1-Yr) ||7.25% - 9.00% |
Weekly change as on August 30, 2012
*BSE Sensex as on August 31, 2012
In response to the bouts of volatility the stock market has exposed its investors; especially small investors have refrained from investing in stocks as well as signing up for Systematic Investment Plan (SIP) in equity mutual funds. According to the data collated by the registrar - Karvy Computershare fresh registrations for SIPs has been steadily falling since the start of the year and has hit a 16 month low at 28,000 in the month of July 2012.
And that's not all. There have been even cancellations by the day for on-going SIPs, thus taking the figure until July 2012 to 16 months high of 73,000. The uncertain global economic environment and vulnerability of the markets thereto, seems to be the cause of this worrisome situation for the mutual fund industry. It is noteworthy that, equity mutual fund schemes have seen outflows in six of the seven months this calendar year, and the uptrend in SIP cancellations has now extended over the last five quarters:
(Source: Karvy Computershare)
|No of SIPs cancelled ||Period |
|123,000 ||Q1 FY12 |
|141,000 ||Q2 FY12 |
|132,000 ||Q3 FY12 |
|155,000 ||Q4 FY12 |
|171,000 ||Q1 FY13 |
Likewise, live monthly SIP folios have touched an 11-month low in July 2012. The Assets Under Management (AUM) of the mutual fund industry stood at Rs 7.3 lakh crore as on July 31, 2012, according to industry body AMFI. Mutual Funds have been struggling to attract investments, ever since entry loads were done away with in August 2009. Equity schemes have seen inflows in only 13 months after the entry load ban was enforced. In FY12, equity funds saw modest inflows of Rs 122 crore and outflows in six out of the 12 months.
We are of the view that, investors have been apprehensive due to no real movement in the equity markets since the peak in early November 2010. Post that, the equity markets have been quite volatile in the backdrop of the uncertain global economic scenario. And to rub into the wounds, the capital market regulator SEBI, recently allowed fungibility in the expense ratio and also allowed an increase in expense ratio by 30 basis points based on some criteria. This has thrown up a negative image about mutual fund investing in the minds of investors, especially small investors who are already burdened with rising cost of living.
However we believe that, investors with on-going SIPs should not get disheartened with the above events and cancel their SIPs. Instead this is one of the opportune times where one can accumulate more units of a mutual fund scheme before the markets again start their uptrend. In a volatile market environment it could be futile timing the market, and hence those who wish to start investing in the Indian equity markets, SIP are a good mode of investing in mutual funds, as they can help you manage the volatility (through rupee-cost averaging) and power your portfolio with the benefit of compounding. But while doing so, enough care should be taken in order to select winning mutual funds prudently – and moreover invest with a long-term investment horizon of 3 to 5 years.
Despite concerns of a rising fiscal deficit and widening current account deficit, raised by the central bank of the country - the Reserve Bank of India (RBI), the Foreign Institutional Investors (FIIs) seem to be unmoved by the weak macro demographics of the country. Barring the year 2008 which witnessed the global meltdown due to the sub-prime mortgage crisis upheaving in the United States of America, the FIIs have been investing heavily in the country.
(Source: ACE MF, PersonalFN Research)
In the current year (2012) too, FIIs have been showing their conviction in the Indian economy. With the change in one of the most important positions in the Government; wherein Mr P. Chidambaram has been designated as the Finance Minister in place of Mr Pranab Mukherjee (now the President of India), there has been an infusion of strong positive sentiments amongst the investors, as they expect that progressive reforms would take place. In fact soon after his appointment, Mr Chidambaram promised new reform measures to be implemented in order to boost investment in financial instruments. Moreover, with the Income-Tax Department ruling Participatory Notes out of the ambit of the controversial tax avoidance rules (GAAR), the FIIs have yet another reason to choose India as their investment destination.
We believe that, though the new Finance Minister has promised to accelerate reforms, it is vital to effective implementation for reform to take place at the earliest, to propel economic growth rate and attract foreign flows. The country's deepening fiscal deficit is also rising - which needs immediate attention of the Government, and it may not be a prudent decision to lower policy rates when inflationary environment persist. Also, along with making the investment environment conducive for FII flows, we think that efforts should be taken to improve FDI flows in the country; as such flows are generally long-term in nature.
It is noteworthy that if the Government fails to reinstate the investor confidence by not delivering on the reforms front as promised, we may see a flight of capital from our country.
We Indians are ardent savers of the hard earned money we earn. But while doing our investments - be it for our retirement or children education / marriage, we seldom feel the need to insure ourselves. In our busy daily lives (mostly of city dwellers), we often ignore or procrastinate, the decision to insure ourselves and our family adequately.
But now here's some good news. In order to compete with Unit Linked Insurance Plans (ULIPs) of domestic insurance companies, now domestic mutual fund houses are reviving a scheme, whereby you'll be provided with an insurance cover as you invest in equity mutual fund scheme(s). It is noteworthy that such an investment- cum-insurance scheme was kept on the backburner almost for three years as the capital market regulator - Securities and Exchange Board of India (SEBI) and the insurance regulator - Insurance Regulatory and Development Authority (IRDA), had crossed swords, after SEBI demanded part-regulation of ULIPs (as they were investment products as well). Thus, mutual fund houses that were set to launch an equity-insurance product, too dropped plans to launch such schemes. To know whether you should opt for equity-insurance products please click here.
A house to live peacefully is what many of us desire. Buying a house property or home for our family involves a lot of emotional decision. And in the process of taking a decision we often encounter several experiences. Right from selecting a suitable location, to availing home loan - there are several experiences and trauma which many home buyers undergo. A home buyer is further drained out by the amount of taxes he or she has to pay followed by the registration charges. But one can't do away with these statutory obligations either, because unless one doesn't defray the same, the legal possession of the property remains under question.
At present too, the tussle between the State Government and the developers over the quantum of Value Added Tax (VAT), is adding to the woes of home buyers. To know more about additional VAT on house property please click here.
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- After a few months of deliberation and lobbying, the mutual fund industry has been finally included under the Rajiv Gandhi Equity Savings Scheme (RGESS). Exchange-traded funds and MFs listed on an exchange and invested only in BSE 100, CNX 100 and blue chip public sector stocks would be allowed tax rebate under the scheme. Some of the important features of the scheme are as follows:
We are of the view that, including mutual funds under the RGESS will protect the interests of first time investors to equity markets. Since the fund management will be under the hands of expert professionals (mutual funds), the investor’s money will be exposed to less risk as compared to investing by the investor on his or her own free will.
- 50% tax rebate to new retail investors who invest up to Rs 50,000 directly in equities and whose annual income is below Rs 10 lakh.
- Investments allowed in follow-on offers of companies in this grouping (BSE 100, CNX 100 and blue chip public sector stocks) and initial public offers of PSUs that have Rs 4,000 crore of turnover
- Lock-in for three years, but investors may be allowed to churn their portfolio in after completion of one year
Moreover, such a move will also boost the fortunes of the mutual fund industry which seen a lot of erosion of funds under management. Having RGESS under its belt, the mutual fund industry stand a better chance to penetrate to tier II and tier III cities.
- The Securities and Exchange Board of India (SEBI) launched no-frills demat account known as Basic Service Demat Account (BSDA) with an aim to attract more and more people to the market and form part of an extensive primary market reform process. With the introduction of BSDA 50% of the demat account holders would not have to pay any charge. The charges will be capped at Rs 100 a year for funds exceeding Rs 50,000.
SEBI is also under consultations with the RBI regarding a proposal to enable investors use credit and debit cards, ATMs and mobile banking facilities for making payments in Initial Public Offers (IPOs).
We are of the view that, SEBI's initiative to start a no-frills demat account is a commendable one. Investors, especially small long-term investors will not feel the pinch to stay invested in equity. This initiative may also lead to greater retail participation in the equity markets.
- Reliance Mutual Fund introduced a facility for its existing investors wherein the investors can start an SIP in specified schemes by just an SMS from their registered mobile phone numbers. The SMS facility is part of Reliance Mutual Fund's "Invest Easy" initiative to reach out to customers. To invest in Reliance Mutual Fund schemes through SMS, customers need to fill up the Invest Easy registration form, which includes personal details and a debit bank mandate to facilitate transfer of funds from the investor's bank. Registered investors can then make a purchase, start an SIP, or redeem their units using their registered mobile phones.
We believe that, such technological innovation can help boost the investor sentiment due to the transaction ease it gives to the customers. This facility may also help to penetrate in the tier II and tier III cities thereby widening the reach of mutual funds.
Value Added Tax (VAT): A type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale. Value-added tax (VAT) is most often used in the European Union. The amount of value-added tax that the user pays is the cost of the product, less any of the costs of materials used in the product that have already been taxed.
|Quote : "Sometimes your best investments are the ones you don't make." - Donald Trump |