Protecting you from the big fish Nov 13, 2009

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Nov 13, 2009

Weekly Facts
	Close	Change	%Change
BSE Sensex	16,696.03	632.1	3.94%
Re/US$	46.57	-0.5	-0.96%
Gold Rs/10g	16,880.00	270.0	1.63%
Crude ($/barrel)	77.51	-0.3	-0.40%
FD Rates (1-Yr)	4.75%-6.50%

Weekly change as on Nov 12, 2009

Protecting you from the big fish

Impact

Last year, due to the liquidity crisis, the mutual fund industry was rocked by sudden withdrawals by large investors, especially in debt schemes, leading to destabilisation of schemes. In order to protect retail investors from the impact of sell-offs by large investors and corporates, SEBI proposes to make changes to reduce single investor holding in a fund.

At present, SEBI's rule requires a mutual fund scheme to have a minimum of 20 investors, with a single investor not owning more than 25% of the Assets Under Management (AUM). This is popularly known as the 20-25 rule which is applicable only at the scheme level and not at the plan or sub-plan level. Typically a scheme offers different plans viz. growth, dividend (pay-out and reinvestment) and bonuses.

SEBI has proposed to amend this 20-25 rule to increase the minimum number of investors in a mutual fund scheme, plan/sub-plan level from 20 at present; and also reduce the maximum holding by a single investor from the current level of 25%.

We believe that the proposal is in the interest of the investors on account of the merits which it holds:

Preclude redemptions by few big investors which leads to destabilisation of schemes, thus impacting retail investors
Enabling fund managers to stick to best fund management strategies

Axis Mutual Fund launches Axis Equity Fund

Impact

Axis Bank promoted Axis Mutual Fund has launched its maiden equity fund called 'Axis Equity Fund' with Mr. Chandresh Nigam (Head - Equity) managing the fund. Mr Nigam has over 18 years of experience in equity markets and his previous work experience includes TCG Advisory, ICICI Prudential AMC and Zurich India AMC. He is a Mechanical Engineer from IIT Delhi and has a PGDM from IIM Calcutta.

The New Fund Offer (NFO) price for the fund is Rs 10. The fund opened for subscription on November 11 and will close on December 8, 2009. It will thereafter re-open for purchase and redemption on January 7, 2010.

The fund is mandated to invest at least 80% of assets in equity and equity related instruments and upto 20% in debt and money market instruments. The scheme may also invest upto 100% of its net assets in derivatives and upto 40% in foreign securities i.e. ADRs, GDRs, foreign equity and debt securities. The fund will be benchmarked to the S&P CNX Nifty.

The fund under its portfolio strategy intends to hold overall 35-40 stocks in its equity portfolio. Under its large cap and mid cap holdings it would hold 15 - 20 stocks in each category i.e large cap and mid cap.

The investment proposition offered by Axis Equity Fund is basically of diversified equity; which is good. However, the firm is yet to establish its mark on the performance front with respect to the quantitative and qualitative parameters.

Ensuring transparency

Impact

SEBI in its Issue of Capital and Disclosure Requirement (ICDR) norms for listed companies has taken the following measures which will help the investors to obtain transparent and recurrent information on the financial health of a company. The ICDR will replace the Disclosure and Investor Protection (DIP) guidelines which were formulated in 1992.

Disclosure of balance sheets (audited figures or unaudited figures with limited review) which will include cash flow statements on a half yearly basis by the companies
Mandatory disclosure of audited quarterly financial results within 45 days of the end of the quarter
Mandatory disclosure of audited results within 60 days for companies who opt to submit annual results on a stand-alone basis
SEBI has also asked stock exchanges to disclose details of complaints lodged by clients and investors against trading members and listed companies

This move will make it difficult for the companies to window dress their books, as the cash flow statements are disclosed. This will enable the investors to get a more realistic picture of the companies' financial health which will help them take prudent fundamental decisions whilst investing and also ensure transparent grievance handling mechanisms.

AND OTHER NEWS...

According to the Ernst & Young Institutional Investor IPO Survey 2009, a handful of Initial Public Offering (IPO) markets would show recovery by the end of 2009. Of over 300 institutional investors surveyed across the world, 57% believe that India and Brazil are most likely to lead recovery by the end of 2009.

India's financial hub Mumbai and the capital Delhi, along with other emerging markets are likely to make it to the league of the world's wealthiest cities by 2025, says a report.

SEBI has recently amended 'employee reservation' for allotment of share to employees in case of Follow-on Public Offers (FPO) to Rs 1 lakh and has also altered the discount to employees on the issue price from 10% to 5%.

To bridge the fiscal deficit which is at Rs 401,000 crore, or 6.8% of GDP, the government hopes to raise Rs 25,000 crore, which is 6.2% of the fiscal deficit. This will be raised from stake sale in public sector companies in the current financial year ending March, as a divestment strategy.

IRDA and SEBI are paving the way for guidelines for listing insurance companies. A committee set up for the said purpose will look at the level of divestment that a company could undertake with the stock market and also discuss the valuation norms. The move will pave the way for life insurance companies to get listed on the exchange.

UTI Dividend Yield fund, an open ended equity scheme declared a 5% tax free dividend. The record date for the dividend is fixed as November 13, 2009.

Subscribers to CRA Lite - the low cost version of the New Pension Scheme, will not be able to open the Tier II accounts like the normal subscribers. The Pension Fund Regulatory and Development Authority (PFRDA) is negotiating the annual maintenance charges for this account with the central record keeper National Securities Depository Limited (NSDL) to bring charges to Rs 60.

MFs online trading platform would be available by March 2010. The platform is currently subject to regulatory clearances. The platform will allow retail investors to trade, switch over and compare schemes online through a single window.

The repurchase (repo) of corporate bonds on the stock exchange is likely to begin in the year 2010. This move is expected to give the much needed fillip to the development of the listed corporate bond market in the country.

World confidence slips as the Bloomberg Professional Global Confidence Index fell to 60.3 from 61.7 in October. The index exceeded 50 levels for a four month period, which means there were more optimists than pessimists. The fall in this index is mainly due to the central banks' look to withdraw stimulus.

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