  | | November 09, 2012 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 18,683.68 | (71.8) | -0.38% | | Re/US$ | 54.38 | (0.7) | -1.25% | | Gold Rs/10g | 31,200.00 | 260.0 | 0.84% | | Crude ($/barrel) | 106.76 | (2.6) | -2.42% | | FD Rates (1-Yr) | 7.50% - 8.90% | Weekly change as on November 08, 2012
*BSE Sensex as on November 09, 2012 | |
Impact 
Recognising that mutual fund industry is struggling to get every penny from investors in a turbulent market scenario, the capital market regulator - the Securities and Exchange Board of India (SEBI) facilitated them to collect cash investment upto Rs 20,000 from small investors, who may not be tax payers or have PAN and bank accounts. The move was intended to widen the reach of mutual funds and revitalize the industry.
But now this move seems to have gone awry with mutual fund houses refusing to launch cash investment route, as they do not see huge investment inflows through this route. Their contention is that, why would a person who does not have even a bank account invest in mutual funds. Also they believe that the cost involved in handling cash investments (by setting up cash management facility) and accounting complexities are deterrents. Also the following aspects associated with cash investments are holding them back, which are:
- Fear of frauds;
- Money laundering; and
- Meddling by tax official and economic intelligence agencies
Moreover, they are of the view that the pie is too small and thus may not get many inflows, and hence may not be profitable to operate the cash management route when it requires a substantial capital investment. Also fund houses are not very clear about Know Your Client (KYC) norms to be followed while collecting cash.
We are of the view that, mutual fund houses have studied the option of providing the cash investment route, more from a feasibility perspective - which they are right in doing so, and are also wary about the risk associated with cash investment such as fear of fraud, money laundering and embezzlement. They have put forth genuine points, but we think that a step taken by SEBI to allow cash transaction in mutual funds upto Rs 20,000 could have helped to widen the reach of mutual funds. Thus now for small investors, investing in mutual funds could be a distant dream if mutual fund houses desist from launching the cash investment route.
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Impact
The exuberant times of 2007 were sunny days for the Indian realty sector, with consumerism well supporting its upside. But the emergence of the U.S. sub-prime mortgage crisis battered the Indian realty sector as well, due to negative ripples felt by the Indian economy. Property prices in India corrected upto good -40% in 2008, as nervous sentiments hit consumer confidence and demand.
Even, while the Indian economy did display a phase of recovery from the aftermath of the U.S. sub-prime mortgage crisis, the Indian realty sector didn't show much respite as stiff inflation elevated their input cost and even now the sector is reeling under pain from slowdown demand as investors seem to wary of investing at inflated prices due to rising cost of construction.
Data as on November 07, 2012
(Source: ACE MF, PersonalFN Research)
The above chart depicts how the detrimental dynamics and undercurrents have had their impact on the BSE Realty Index. If one were to invest in BSE realty - say a sum of Rs 10,000 on November 7, 2007 getting carried away by exuberance then, he would have eroded his hard earned money and fetched a mere sum of Rs 1,845 as on November 7, 2012, whereas a similar investment although led to loss in the BSE Sensex as well, would have fetched a sum of Rs 9,799.
For those who invested in property directly, while they may be in profits today, let us apprise you that sluggish demand could hamper the amount you fetch. While banks are offering festive teaser home loan offers to rejuvenate demand and property exhibitions are organised to lure home buyers; demand could stir up only in few selected markets. For instance, the demand in Mumbai has slipped behind Pune due to escalated costs.
We are of the view that, if one is looking at investing in property directly one has to be very careful in selecting the region of investment, and undertake a detailed study. One should be wary of asset prices in the real estate market as well stocks, and know their impact on the economy. Basic economic says that product prices should fall as demand descends, but the realty sector has been unable to see that due to leveraged balance sheets, high interest cost and rise in cost of construction. Moreover, speculation is also responsible for making housing expensive. We think to make to housing affordable to the common man; the Government should promote affordable housing and not merely sanction luxury projects which become a home for only the rich and famous.
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Impact
As an investor you may have sought to change your name in the investment account for various legitimate reasons, but simply put the decision to another day avoiding the rigmarole. We recognise that the cumbersome procedures and paperwork involved, may have refrained you to put your investments in order; but don't worry here's in fact some good news for you.
Recently, the capital market regulator - the Securities and Exchange Board of India (SEBI) relaxed the procedures to be followed by investors while changing names in "individual accounts" (vide a circular). Thus now all one needs to do is furnish relevant document(s) showing the publication of name change in official gazette. So say if there is a change in name after marriage, according to the capital market regulator, all that an individual investor needs to do is, simply submit either a copy of marriage certificate or passport showing husband's name or any other document showing the publication of name change in official gazette. To read more about this news and know what it means, please click here.
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Impact
Many of us work really hard and have a desire to buy our dream home. But very often, the rise in cost of living, along with steep interest rates and high property prices deter us from taking a decision. But now, aiding to provide a push to the housing sector (which has been experiencing a slump) and to give a flight to your desire to buy a dream home, banks are out with teaser festive offers.
Recently ICICI Bank launched a cash back offer, whereby 1% of every EMI (Equated Monthly Instalment) will be returned back to customers, wherein either it could be credited to the customers savings account, or adjusted the outstanding principal amount. To read more about this news, and what should be your approach towards such festive teaser home loan offers, please click here.
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- Recently, the world's third largest bank, HSBC stopped selling mutual fund and insurance products in India, due to mounting allegations of mis-selling and certain sharp practices. The London headquarters of the British bank, carried out a "culture audit" of the Indian retail banking and wealth management practices, and ordered a suspension of sales.
Last year the foreign bank which has been doing business in India for close to 150 years, reported a 30% spurt in commissions on mutual fund sales, in times which was said to be one of the toughest years for the wealth management and financial services industry. Apparently apart from mis-selling, many well-heeled clients were also asked to frequently churn their mutual fund portfolio, in the banks aim to gain from commission income. The parent organisation at present has given HSBC India two months to fix the system in order to ensure that customer complaints come down.
We believe that although a time period has been given to bring down the number of complaints, it would not do any good to investors whose interest have been sabotaged by mis-selling and frequent unwarranted churning. We at PersonalFN believe that in the business of investment advisory, it is imperative handle clients' money with enough prudence as you would adopt while handling our own. It is also imperative for clients to be responsible investors and not be wooed by tall claims, because after it's your hard earned money.
- With an aim to increase the penetration of the mutual fund industry and to incentivize distributors beyond the metros, the Association of Mutual Funds in India (AMFI) reduced the registration fees for mutual fund distributors to Rs 3,000 from 5,000 earlier. Even renewal fees have been reduced from Rs 1,500 from Rs 2,500 earlier
We are of the view that while this move is brought in keeping in mind SEBI's aim to increase retail participation from beyond the tier-I and tier-II cities and the capital market regulator has also created new category of distributors which includes individuals like senior citizens, postal agents, retired teachers and other retired government officials (who have been in service for at least 10 years in their respective organisation), it is necessary for mutual fund products to be responsibly sold evaluating the needs of investors. Mere pushing products may leads to incidences of mis-selling and thus give a feeling of being betrayed to investors, which we believe is absolutely an unethical practice.
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Portfolio Turnover: A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by taking either the total amount of new securities purchased or the amount of securities sold - whichever is less - over a particular period, divided by the total net asset value (NAV) of the fund. The measurement is usually reported for a 12-month time period.
Source: Investopedia
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Quote : "A wise man should have money in his head, but not in his heart." - Jonathan Swift
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