| 28th September, 2012 |
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| Weekly Facts |
| ||Close ||Change ||%Change |
|BSE Sensex* ||18,762.74 ||9.9 ||0.05% |
|Re/US$ ||53.03 ||1.4 ||2.50% |
|Gold Rs/10g ||31,170.00 ||(790.0) ||-2.47% |
|Crude ($/barrel) ||110.87 ||1.9 ||1.76% |
|FD Rates (1-Yr) ||7.50% - 8.75% |
Weekly change as on September 27, 2012
*BSE Sensex as on September 28, 2012
Taking concrete steps towards regulating mutual fund distributors and reduce complaints regarding mis-selling of mutual funds, the Securities and Exchange Board of India (SEBI) has proposed to set up a Self-Regulatory Organisation (SRO), to regulate their mutual fund distributors. The capital market regulator, has also put forth its view that the Asset Management Companies (AMCs) could bear the recurring costs for Operating the SRO by charging 2 to 3 basis points (i.e. 0.02% - 0.03%) of their Assets Under Management (AUM); while the seed capital for setting up of the proposed SRO would be provided by SEBI and the mutual fund industry body - AMFI (Association of Mutual Funds in India). At present, some entities have also shown interest in sponsoring such an SRO, and as far as the process to select them is concerned, SEBI has assured that it will be entirely transparent.
It is noteworthy that the proposed SRO could be a registered company under Section 25 of the Companies Act 1956, wherein all profits are ploughed back into its operations, and will regulate distributors of securities like mutual fund, portfolio management and related products.
We are of the view that, while the formation of SRO will help infuse efficiency among the mutual fund agents and distributors community, and may even curb incidences of mis-selling, it is imperative that SEBI continues to adopt vigil while regulating the mutual fund industry, thereby making sure that there are no untoward incidences. The SRO should maintain adequate data, about the mutual fund distributors and agents which will be vital in case of any mis-selling case props up. Moreover, the SRO should be accessible to the investors in case of any information about the background or performance of a particular mutual fund distributor or agent.
This will infuse proficiency amongst the mutual fund agents and distributors as the distinguishing factor amongst them will be the nature of services provided to the investors. Thus holistically the SROs should function in a transparent and unbiased manner to protect the investor community and revive the fortunes of the mutual fund industry.
The Indian equity markets started the calendar year 2012 on a positive note; with the benchmark index BSE Sensex rising about 19% in just two months. But soon after as the nervousness gripped the markets due to fears of a Euro zone breakout and low growth registered by the U.S., the bulls lost their momentum and the bears tightened their grip on the Indian equity markets. The FIIs too supported the up-move by exuding confidence at the beginning of the year and maintained their net buy positions; in the last three months they seem to have gone gung-ho after reforms being put on the fast track by the Government in power.
Data as on September 25, 2012
(Source: ACE MF, PersonalFN Research)
The chart above depicts that, although the BSE Sensex had a turbulent phase (as they descended from near 18,500 to sub 16,000 levels) from mid-February until June the FIIs maintained their focus towards the Indian equity markets. It is noteworthy that on a year-to-date basis, FIIs have net bought to the tune of Rs 76,339 crore in the Indian equity markets. The easy money policy followed in the developed world as well as better growth prospects in India as compared to the developed nations, have attributed to their roaring participation.
We believe that, the recent developments taking place on the reforms front and the political front might further attract FII flows into the country. The bond buying programme in Europe and the QE3 adopted by the Federal Reserve of the U.S. have created appetite for risk assets which has led to FII flows in the Emerging economies such as India. Going forward, if the Indian Government continues to keep the reforms momentum going and the developed nations do not emanate any drastic negative news like the breakup of the Euro zone, then the FIIs will continue to pump in money in the equity markets.
Investors should therefore adopt a staggered approach given that uncertainty is still looming in the developed economies – which could send their negative ripples to India. In the domestic economy, while reforms have been put in the forefront, political uncertainty has elevated, which is further adding to the risk. Thus in this backdrop, for investing in mutual funds adopting the SIP (Systematic Investment Plan) mode of investing would be prudent as this enable you to manage the volatility of the markets well (through rupee-cost averaging) and power your portfolio with the benefit of compounding. However while selecting mutual fund schemes for your portfolio, we recommend that you prefer the diversified equity mutual funds (with an investment horizon of 3 to 5 years) and avoid investing in sector / thematic funds (since they could expose you to sector specific risk). A well-diversified portfolio could help you reduce the risk on your portfolio prudently.
After a long lull the Government in power seems to be going gung-ho in flooding the Indian economy with reforms, thereby proving their mettle and sending out a strong message to the global economy about the growth prospects in the country. This reforms rush have revitalised investor sentiments which were clearly reflected in benchmark index (i.e. the BSE Sensex), as it has risen by around 6% since the reforms kicked in.
In order to keep the momentum going and improving the investment climate in the country, the Government is now mulling ways to boost the insurance sector, particularly life insurance. The Finance Ministry along with the insurance regulator - the Insurance Regulatory and Development Authority (IRDA) are about to revamp the ailing insurance sector. To know more about the reform measures undertaken by the Finance Ministry, please click here.
Planning at an early stage in life is essential, in order to create a corpus which can meet your retirement needs. Planning early also helps you to undertake a little more risk and thereby earn high returns, which otherwise may not possible in case if you are starting rather later.
While planning for your retirement you may have come across pension plans offered by various institutions such as mutual fund houses or insurance companies. But, while selecting a pension plan, especially from an insurance company you need to adopt caution and make sure that the pension product you are opting for is matching your retirement needs and is structured in a manner to do so. To know more about IRDA’s stance on pension products, please click here.
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- The Government is mulling ways to reduce the burden on the consumer paying 12% service tax on food bills at restaurants, on cable television charges and on most other services. The proposal seeks to examine whether the service tax paid by the final consumer could be moderated while retaining the rate of service tax paid by industries and business houses at the current level. Businesses get credits on the taxes paid on input services and goods.
The motive behind this move is to give some reprieve to the consumer, who has to bear the service tax levied by the Centre, value-added tax (VAT) levied by the state and also the impact of all other indirect taxes that get built into the value of a purchase or consumption that diminish his spending capacity in a slowing economy.
We are of the view that, any reduction in the burden of service tax on the end consumers will bring cheer to them. The Indian growth engine is driven by the consumption fuel and anything affecting the consumption story positively will translate into better growth prospects for the country.
- The Insurance Regulatory and Development Authority (IRDA) has proposed to adopt the ‘lead insurance model’ replicating the ‘lead banking model’ followed by banks. In the banking sector, lead bank model is followed in specific geographies in order to give emphasis on availability of various banking services in one particular zone, which the regulator is considering to replicate.
We believe that, such a model in the insurance sector will help the insurance companies to know more about a particular geographical area which will help them plan their strategies accordingly. Knowledge about a particular area is vital in creating awareness about insurance in the minds of the people of that area. Through this initiative, it will be possible for the insurance companies to achieve insurance inclusion in India.
Indirect Tax: A tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products. An indirect tax is most often thought of as a tax that is shifted from one taxpayer to another, by way of an increase in the price of the good. Fuel, liquor and cigarette taxes are all considered examples of indirect taxes, as many argue that the tax is actually paid by the end consumer, by way of a higher retail price.
|Quote : "Success is not final and failure is not fatal. It is the courage to continue that counts." - Winston Churchill |