(Source: ACE MF)
(Base: Rs 10,000)
The Indian equity markets started on a cheerful note in March 2010 as the Government declared a progressive Budget for fiscal year 2010-11. However, later (in the month of April) as the Euro Zone crisis unfolded and did not seem to “go away”, the Indian equity markets started shivering (FIIs pulled out their gains, to set-off losses made in European markets). However, gold became bold and scaled new highs. During the period April to June, 2010, Indian equity markets eroded investor’s wealth (-1%), whereas gold built investors wealth (+15%).
So, if one were to invest Rs 10,000 on April 1, 2010 his investment in Indian equities would have been worth Rs 9,910; whereas the same investment in gold would have yield him Rs 11,455 on June 29, 2010.
We believe that gold as well as equities are two fantastic asset classes for wealth creation over the long-term. However, to manage the inherent risk in equities, one should have 5% -10% allocation towards gold, as it acts as a hedge against any economic turmoil.
We are open to self-regulation: AMFI
Impact
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Interestingly, AMFI expressed its assent on becoming a SRO, only after SEBI Chairman Mr. C.B. Bhave suggested last week at the CII Mutual Fund Summit that, AMFI should "seriously" examine donning the role of a SRO. Mr. Bhave, at the CII Mutual Fund Summit had said, “A lot of debate is going around on self regulation and AMFI has been demanding the status of self-regulatory body... so, it can give a policy paper on the same to SEBI”.
Presently as per Mr. Kurian, AMFI is working on a paper for policy framework for the SRO to create a clear roadmap for the industry.
In our opinion AMFI so far has only voiced, the concerns of the industry players - thus truly being only an industry body. Pro-investor moves have never been made by them. In our opinion SEBI should continue regulating mutual funds, as they have done a remarkable job in protecting investor’s interest. Moreover, we also think that conferring an SRO status on AMFI may lead to conflicting interest.
POLL
"Will the conferment of a Self Regulatory Organisation (SRO) status to AMFI, be in conflicting interest to its role?"
Click here to give your views...
Another pro-investor move from SEBI
Impact
In a move to help mutual fund investors, SEBI brought in the next round of changes by proposing that mutual fund houses should mandatorily benchmark the performance of their equity oriented schemes, "primarily" with one of the two most widely accepted indices i.e BSE Sensex or Nifty, along with the index chosen for the particular fund [as mentioned in the Scheme Information Document (SID)].
The discussion paper issued by SEBI’s Advisory Committee on Mutual Funds said, "while the objectives or strategies adopted by schemes may be different, the benchmark indices provide the simplest medium for the investors to assess the performance of the scheme. Mutual funds should select appropriate benchmarks for a scheme after a proper assessment of their investment objectives, investment universe and proposed asset allocation”.
Similarly for debt schemes, the Committee has proposed that they should be benchmarked against 364-day T-bill or the 10-year G-Sec rate, depending upon the maturity profile of the scheme. However, they could also follow a separate benchmark for the scheme as selected by the fund house and as disclosed in the SID.
In 2002, SEBI amended and thereby enhanced the disclosure norms. SEBI told mutual funds to disclose the benchmark returns as part of their performance disclosures. Prior to this rule, mutual funds used to disclose only the returns generated by a scheme over various time frames while providing the performance.
We believe such a move as proposed by the Committee, is in the long-term interest of the investors and is step towards broadening disclosure norms for mutual fund houses. It will also preclude mis-leading information, since very often benchmarks selected by fund houses are inappropriate and irrelevant.
INTERVIEW
In an interview with the Economic Times, Mr. S.B. Mathur - Secretary-General of the Life Insurance Council of India, shared his view about the Government’s decision on IRDA regulating ULIPs and the taxability of ULIPs in light of revised proposals to the Direct Tax Code (DTC).
On the Government’s decision on IRDA regulating ULIPs, he expressed that today we are seeing a situation where there is a convergence in features of financial products. Therefore, this according to him, will create a situation of ambiguity about the role of a regulator. He also mentioned that in this matter, the Life Insurance Council had asked for a credible and acceptable machinery to be put in place which would address all the issues relating to insurance and insurance products
On the taxability of ULIPs, in light of the revised proposal to the DTC, he mentioned that the move to tax policy holders at the time of withdrawals would be clearly anti-industry and anti-consumer. “As an industry, we had made a detailed presentation to the tax authorities on the issues surrounding ULIPs”, he said.
AND OTHER NEWS...
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As part of a fresh effort to weed out money laundering and terror funding from the market, SEBI in its circular has made it mandatory for all market intermediaries (stock brokers, mutual fund houses and other market intermediaries) to update their Client Due Diligence (CDD) on a periodical basis, instead of the current practice of doing it as a one-time exercise.
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Core sector industries grew by 5% in May 2010, as against 3.2% in May 2009, thus indicating that the Index of Industrial Production (IIP) growth could be high even for May. The six industries that make up the core sector – crude oil, petroleum, coal, electricity, cement and finished steel, account for 26.7% weight in IIP.
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Reliance Life Insurance launched a unique mobile-based insurance initiative, named "Mobinsure". The mobile portal offers range on insurance related services such as tracking policies, fund switching and premium payment, through the use web-enabled mobile phones (both CDMA and GSM).
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RBI will soon launch a Housing Start-Up Index (HSUI), which will gauge the level of activity in the construction sector, which in turn will help the central bank to determine the state of the real estate sector.
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The country’s largest bank – State Bank of India (SBI) fixed its base rate at 7.5%, and set the stage for a new bank rate regime which came into effect from July 1, 2010. Among the private sector banks, ICICI Bank and Axis Bank pegged their base rate at 7.5%, while HDFC Bank got into a competition spree setting it at 7.25%.
Base rate is the floor rate, below which a bank cannot lend to even the top most client. It is arrived after factoring in a bank’s cost of fund and other operating expenses.
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RBI issued a directive to banks, asking them not to honour cheques with overwriting. This directive will come into effect from December 1, 2010, instead of the earlier scheduled date of July 1, 2010.
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Sundaram Finance will buy out the 49.9% stake of its French partner BNP Paribas Asset Management Company and the shares in the trustee company. By virtue of this transaction Sundaram Finance will own 100% in the mutual fund – Sundaram BNP Paribas Asset Management Company. The decision came in after SEBI asked BNP Paribas earlier this year, to limit its presence in India’s mutual fund industry to a single entity, since it also owned Fortis Mutual Fund here.
Present, regulations do not permit one firm owning stakes in two Asset Management Companies.
New Issues
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HDFC Mutual Fund launched an open ended Gold Exchange Traded Fund (Gold ETF) named "HDFC Gold Fund"". As per the offer document, the fund is mandated to invest 90% - 100% of the collected corpus in gold bullion (including derivatives), and upto 10% in debt and money market instruments.
As per the offer document, the investment objective of the scheme is "to generate returns that are in line with the performance of gold (and gold related instruments including derivatives - as and when permitted by SEBI), subject to tracking error".
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The fund will benchmark its performance against the domestic prices of physical gold.
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The New Fund Offer (NFO) is open for subscription from June 25, 2010 to July 23, 2010.
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Canara Robeco Mutual Fund launched an open ended large cap fund named "Canara Robeco Large Cap+ Fund". As per the offer document, the fund is mandated to invest 65% - 100% of the collected corpus, in large cap equity and equity related instruments, and upto 35% in debt and money market instruments.
As per the offer document, the investment objective of the scheme is "to provide capital appreciation by predominantly investing in companies having a large market capitalization".
The fund will benchmark its performance against the BSE 100 - a large cap index.
The New Fund Offer (NFO) is open for subscription from June 28, 2010 to July 27, 2010.