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| June 21, 2013 |
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| Weekly Facts |
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Close |
Change |
%Change |
| BSE Sensex* |
18,774.24 |
(403.69) |
-2.10% |
| Re/US$ |
59.58 |
(1.6) |
-2.74% |
| Gold Rs/10g |
27,760.00 |
(100.0) |
-0.36% |
| Crude ($/barrel) |
105.41 |
2.4 |
2.35% |
| FD Rates (1-Yr) |
7.00% - 8.75% |
Weekly change as on June 20, 2013
*BSE Sensex as on June 21, 2013
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Impact 
Target oriented advisers have been mis-selling mutual funds to gullible investors, of whom many are the first timers. Such practices have resulted in fizzling interest of retail investors in taking mutual fund route. Being concerned over this, the Securities and Exchange Board of India (SEBI) has decided to come down heavily on those who mis-sell. In September 2012, SEBI issued an order to Association of Mutual Funds in India (AMFI) to allot unique identification number to all employees, relationship managers and all other salesmen who sell mutual fund products. Till now it was relatively difficult to catch hold of the one who really perpetrated the mis-selling. And now, June 2013 has been the deadline for complying with the requirement of allotting Employee Unique Identification Number (EUIN).
PersonalFN believes allotting EUIN would help bring down the malpractices while selling financial instruments. You see, employees of banks and other distributors have been quoting the AMFI Registration Number (ARN) till now for being able to claim commission; and apparently they are always under pressure to garner greater business. This leads them to mis-sell. PersonalFN is of the view that holding them personally responsible for their advice would go long way in protecting investors' interest. For them it would be detrimental now to mis-sell since it would be easy to nail them down.
By introducing EUIN, SEBI has taken a one more step in the direction of rooting out mis-selling. Early this year, SEBI had issued (Investment Advisers) Regulations, 2013 enunciating requirements related to obtaining a certificate of registration, qualification, capital adequacy, period of validity of the certificate, and has also mentioned other general obligations and responsibilities on the part of investment advisors.
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Impact 
Indian debt markets had a good run since RBI started cutting rates in April 2012. Foreign Institutional Investors (FIIs) had been investing in Indian debt as it offered them attractive interest rate spreads. Inflation too started dropping which triggered buying of even higher scale. The new 10-year, 2023 benchmark sovereign bond was launched at a cut-off of 7.16% which was substantially lower than that for the one issued last fiscal. However, the game has changed in no time. Bond yields have been shooting up and heavy selling pressure is being witnessed.
(Data as on June 20, 2013)
(Source: ACE MF, PersonalFN Research)
The reasons for it being...
Widening Current Account Deficit (CAD): India has been importing more than it exports which has resulted in net indebtedness to the external world. This has put tremendous pressure on Indian rupee which is getting weaker by the day and recently touched the mark of 60 against US dollar. Rapidly appreciating dollar makes Indian debt unattractive for foreign investors as it negates the gains made on interest rate spreads. Trade deficit has worsened in May (USD 20.1 billion) making rupee vulnerable to further shocks.
Possibility of End of Quantitative Easing (QE) in United States: Excessive interest in emerging market debt was primarily on account of easy liquidity in the developed economies and attractive interest rate spreads elsewhere. But now the US economy, in opinion of policy makers in the US, seems to be recovering well. The possibility of winding up monetary stimulus in the form of QE is being discussed. This has led to unprecedented appreciation in US dollar making yield spreads unattractive for FIIs.
For the aforesaid reasons FIIs turned net sellers to the tune of Rs 23,921 crore over last 1 month in the Indian debt market.
So now what strategy debt investors should adopt?
PersonalFN is of the view that, it would be best to refrain investing in longer maturity debt papers in the aforesaid backdrop, and instead prefer shorter maturity debt papers. In case if one wishes to take exposure to longer duration instruments or debt mutual fund schemes holding longer maturity papers (as permitted by their high risk appetite), PersonalFN recommends that you do so by investing in dynamic bond funds, since there would always be intermediate interest rate risk involved.
In the current scenario while investing in debt instrument, it would be ideal to invest in shorter duration instruments vide debt mutual fund schemes having shorter maturity profile. Investors with an extreme short-term time horizon (of less than 3 months) would be better-off investing in liquid funds for the next 1½ months, or liquid plus funds for next 3 to 6 months horizon. If you as an investor have a short to medium term investment horizon (of 1 to 2 years), you may allocate a part of your investment to short-term income funds, provided that you are willing to take some interest rate risk. Avoid investing in G-sec funds , as they may see high volatility and may not be an ideal instrument to yield fruitful returns. Fixed Maturity Plans (FMPs) of 3 months to 1 year period can also be considered as an option to bank FDs only if you are willing to hold it till maturity. Alternatively you can also invest in 1 year Fixed Deposits (FDs), as banks are offering interest on 1 year FDs in the range of 7.50% - 8.75% p.a.
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Impact
Not only equities are volatile; debt too can witness bouts of volatility. Under falling interest rate scenario, bond prices rise and yields fall and vice-a versa. However, there are intermediate periods of uncertainty where direction of interest rates cannot be predicted with certitude. Under such circumstances investors find solace in Fixed Maturity Plans (FMPs), a subcategory of debt mutual funds. In simple words, FMP is a close-ended fund investing in debt instruments of maturities concurrent with that of the fund itself. Through FMPs investors try to lock in their money for pre-specified time period and negate the interest rate risk. Maturity profile of FMPs ranges from 1 month to 3 years while most of them have a maturity of less than 1 year time period. To read more about this news and the view of PersonalFN over it, please click here.
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Impact
It is time of the year, where many of you may be rushing to your Chartered Accountant's (CA's) office will all the requisite documents to file your Income-Tax (I-T) returns. However, this year your job doesn't end with mere gathering of all documents and handing them over to your CA or tax consultant. You see, the Central Board of Direct Taxes (CBDT) has widened the scope of e-filing of I-T returns (vide a notification), thereby making it compulsory for all individuals with a taxable income of over Rs 5 lakh during the financial year 2012-13 to file their I-T returns online. It is noteworthy prior to this, e-filing of I-T returns was mandatory for individuals having a taxable income of more than Rs 10 lakh. So let us look what is the process of filing I-T returns online, assuming you are a salaried individual having no other income and therefore no additional taxes. To read more about this news and the view of PersonalFN over it, please click here.
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- Claiming provident fund has been a tedious job so far. In some cases Employees' Provident Fund Organisation (EPFO) takes months to settle claims. However, it might soon be a history if it speeds up the process as planned. EPFO has shortened the deadline from 30 days to 3 days for settling the claims. At present the organisation manages retirement savings worth nearly Rs 5 lakh crore. From the start of this financial year i.e. from April 01, 2013 to June 11, 2013, EPFO settled only about 15% claims within 3 days of submission.
PersonalFN is of the view that although the intent of EPFO is applaudable; it appears to have been overambitious in setting target, going by its track record so far. At present, the process involves taking 47 approvals before one gets the claimed amount. Nonetheless, if EPFO manages to expedite the processes it may still serve the purpose of reducing the lapsed time and facilitating faster settlement.
- Turbulent markets are proving to be nip in the bud for the mutual fund industry. The equity oriented schemes have seen closure of about 17 lakh folios this calendar year of which massive 7 lakh folios were lost in May 2013 alone. The overall equity base has shrunk to about 3.2 crore accounts to take the industry back to the levels seen in 2007-08. What's more, as per the data published by SEBI, only about 1 crore folios are active. This means only about 1/3rd of the folios regularly see transactions.
PersonalFN is of the view that moving out of equity as an asset class only because markets are turbulent and have not generated significant returns in the recent past wouldn't be wise. On the contrary, PersonalFN believes that one should chalk out a personalised asset allocation plan after giving due consideration to various factors and stick to it. Asset allocation helps ascertain weightage of various asset classes including that of equity. Systematic Investment plans (SIPs) offered by mutual funds eliminate the risk of timing the market and hence you shouldn't abandon your SIPs when markets are under pressure.
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Hedge Fund: An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).
Source: Investopedia
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Quote : "Never spend your money before you have it" - Thomas Jefferson
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