Impact ![]()
Plagued with similar sounding schemes (not much of a difference in the investment objective), the Industry body Assocham (The Associated Chambers of Commerce and Industry of India) has asked the mutual fund (MF) industry to come up with differentiated products. This would help attract more investors to the mutual fund industry.
Assocham is of the view that investors are losing interest as products offered by different MFs are not innovative and offer limited asset classes. The industry body also suggested that the Asset Management Companies (AMCs) should be given the flexibility to charge management fees, since such fees should be determined based on market forces.
On the distribution part, the Assocham commented by saying that, "MF distributors in India are largely unregulated. Distribution supported by quality investment advice is clearly the need of the hour. Herculean effort is required and the entire asset management industry should work towards this goal."
In our opinion Assocham's view of introducing differentiated and innovative products in the mutual fund space, would be a case of exhibiting unnecessary financial exuberance.
We believe, the products should be easy and simple to understand for investors as at present the issue of scheme duplication has been daunting since last many years.
The mutual fund industry should keep aside their objective of garnering more and more AUMs (asset under management) for a while and strive towards simpler and easy to understand products. In our opinion while innovation may bring in unnecessary exuberance, simpler products would attract investors.
Earlier (in June 2010) while addressing at the mutual fund summit organised by the Confederation of Indian Industry (CII), SEBI's Ex-Chairman - Mr. C.B. Bhave too had criticised the mutual fund industry for its financial innovation. He had made a valid point by saying, "Even if you put before me 3,000 investment products, I won't know how to choose from those products. I'll have no idea of which scheme is good for me. If you really want to reach to the so-called small investors in whose name you do everything, does he need 3,000 options? Is there really so much of innovation that is going on? Are these schemes really so different from each other or were there incentives operating in the market that made us generate these 3,000 options?"
Hence dear investors, the next time your agent / distributor / relationship manager tries to persuade you to invest in a New Fund Offer, or a so called "innovative" mutual fund scheme please assess whether that financial innovation is really meant for you.
Remember, a simple and easy to understand financial product can also help you achieve your financial goal!
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 (Source :CSO, PersonalFN Research)
After showing a dismaying growth in industrial output in the last couple of months, the Index of Industrial Production (IIP) once again revealed signs of expansion of 3.7% in the month of January 2011.
The uptick in the IIP growth was attributed to the following reasons:
- Core sector growth: The index of core sector industries [comprising of six industries - viz., crude oil, petroleum refinery products, coal, electricity, cement and finished (carbon) steel] registered a growth of 7.1% for January 2011, as against 9.8% in January 2010. However, if analysed for the period April 2010 to January 2011 it has reported a growth of 5.6% as against 5.5% for the same period last year.
- Improving manufacturing index: The manufacturing index (which constitutes around 80% of the IIP) increased to 3.3% in January 2011, from 2.0% in December 2010.
Moreover when assessed over the period April 2010 to January 2011, manufacturing index has posted a respectable growth of 8.6% as against 9.9% for the same period last year.
- Mixed sectoral performance: The capital goods index once again took a beating and registered a negative growth of 18.6% in January 2011 as against a negative growth 9.3% in December 2010. But interestingly, intermediate goods index registered a smart growth of 7.9% in January 2011 as against 6.6% in December 2010.
Consumer durables on the other hand posted a strong growth of 23.3% in January 2011. Consumer non-durables too reflected a strong up-move by registering a positive growth of 6.9% in January 2011 as against a negative growth of 1.4% in December 2010.
We believe that while the number of 3.7% (for January 2011) may appear petite, the average growth for the period January 2010 to January 2011 is quite robust at 10.0%. Going forward in our opinion, while IIP may display a northbound movement, we see the following economic aspects acting as impediments to the up-move in IIP:
- Rising borrowing costs due to rise in interest rates
- High input costs due to inflation in non-food items
- Slowdown in consumption
- Impact of any global events
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Impact ![]()
In order to mark its entry into the Indian mutual fund industry, Goldman Sachs Asset Management Company (AMC) is all set to acquire Benchmark Asset Management Company, India's largest exchange traded funds (ETF) player (subject to regulatory approvals).
At present Goldman Sachs AMC has an experienced team of eight persons based in Mumbai, headed by Mr. Prashant Khemka. The team currently provides research for off-shore funds including Indian equities and BRIC (Brazil, Russia, India and China).
In our opinion the reasons for such a takeover are quite obvious; to gain a foothold in the Indian mutual fund industry and to have a ready-made platform in terms of assets under management. We also believe that the move is strategic, as the mutual fund industry is facing cut-throat competition.
But now it will be interesting to see how Goldman Sachs AMC with its expertise brings in products which are unique and simple to understand. We expect pro-investor initiatives from Goldman AMC to benefit the investors in the long run.
| | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex* | 17,878.81 | (295.28) | -1.62% | | Re/US$ | 45.19 | (0.0) | -0.02% | Gold /10g | 20,610.00 | (315.0) | -1.51% | | Crude ($/barrel) | 110.16 | (5.2) | -4.47% | | FD Rates (1-Yr) | 7.00% - 9.00% | Weekly change as on March 17, 2011
*BSE Sensex as on March 18, 2011
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In this issue
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In an interview with the Business Standard Mr. Arvind Virmani, India's Executive Director at the International Monetary Fund shared his views on monetary policy stance in the current situation and banking licences for industrial houses.
Mr. Virmani believes that it is easier for the monetary policy to address issues like capital flows and agricultural shortfalls when the fiscal consolidation is quicker and stronger. He says that it would be easier to control inflation if fiscal consolidation proceeds rapidly over the next few years.
On banking licences for industrial houses, Mr. Virmani thinks that it is a very difficult issue and that is why no decision has been taken as yet. He further explains by saying that, "The important lesson from the global situation is that you have to be very careful with the regulatory systems. One assumes the RBI now feels confident enough of the regulatory aspects to let this happen. As long as it is regulated properly, the more the competition, the better it is. However, we also know that in a sensitive sector like banking and finance, without regulation you can get all kinds of malpractices when banks compete too strongly, on the assumption that they will eventually be bailed out by the government. So, risk-taking can be very high."
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Launched with an objective to generate long term capital appreciation through an actively managed portfolio of equity and equity related securities of companies that are likely to benefit either directly or indirectly from consumption led demand in India/China.
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Misery Index: A measure of economic well-being for a specified economy, computed by taking the sum of the unemployment rate and the inflation rate for a given period. An increasing index means a worsening economic climate for the economy in question, and vice versa.
(Source: Investopedia) | |
QUOTE OF THE WEEK
"Plan for the unplanned and you'll level out the ups and downs of your financial roller coaster."
- Jesse Mechum | |
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