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| April 26, 2013 |
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| Weekly Facts |
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Change |
%Change |
| BSE Sensex* |
19,286.72 |
270.3 |
1.42% |
| Re/US$ |
54.23 |
(0.0) |
-0.04% |
| Gold Rs/10g |
26,970.00 |
1,290.0 |
5.02% |
| Crude ($/barrel) |
101.24 |
1.7 |
1.74% |
| FD Rates (1-Yr) |
7.50% - 9.00% |
Weekly change as on April 25, 2013
*BSE Sensex as on April 26, 2013
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Impact 
In the Union Budget 2013, the finance minister clarified that the returns from Pass-Through Certificates (PTCs) are exempt from tax. The clarification came in as the mutual industry body - the Association of Mutual Funds in India (AMFI) approached the finance ministry last year after the Income-tax (I-T) department maintained that income from instruments such as PTCs is taxable.
But now again the I-T department has sent fresh notices to mutual fund houses, asking them to pay tax on income from PTCs (which is a securitised product), despite Bombay High Court in March 2012 having quashed the I-T department's demand for tax on income from mutual funds' investments in securitised instruments such as PTCs, in response to an appeal filed by UTI Mutual Fund. However it appears that with petitions of some mutual fund houses on this matter yet pending in the Court, the I-T department is trying to have its way. It is yet maintaining that income from instruments such as PTCs is taxable, while the mutual fund houses are arguing that since they are held on behalf of the unit holders, they (PTCs) should be exempt from tax.
It is noteworthy that in India securitised debt instruments are offered through a Special Purpose Vehicle (SPV) registered as a trust, which issues the PTCs to various investors such as mutual funds.
In the current times with turbulence in the economy since a couple of years and learning from the aftermath of the U.S. sub-prime mortgage crisis (which led to Lehman Brothers bankruptcy in September 2008), mutual fund houses in their debt portfolio have reduced exposure to illiquid PTCs fearing liquidity problems.
PersonalFN is of the view that taking into fact that changes in tax rules will take effect only once Finance Bill 2013 goes through Parliament approval, the I-T department is capitalising on the same and also that there are petitions pending one this matter in the Court, which would be dealt with independently. PersonalFN agrees to argument made by mutual fund houses that they are held on behalf of investors, and therefore should be exempt from tax.
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Impact
As many of you may be aware that the financial year gone by has been the toughest for the Indian mutual fund industry to garner more Assets Under Management (AUM). The turbulence in the Indian capital markets, downbeat sentiments in both global and domestic economy along with political uncertainty have kept investors away from risky asset classes and investment avenues therein.
But it is evident that domestic mutual fund houses are leading the race of garnering more AUMs when compared to their foreign counterparts. In the last quarter of the financial year gone by, domestic mutual fund houses could manage to garner AUM to the tune of Rs 7.24 lakh crore - an increase of +23.6%, while foreign mutual fund by 17.6%.
AUM garnered by domestic and foreign mutual fund houses
Data as on March 31, 2013
(Source: AMFI, PersonalFN Research)
However persistent turbulence in the Indian capital markets has attributed to tepid growth in AUM on an annual basis. It is noteworthy that in the last financial year, the growth in AUM for domestic mutual fund houses and their foreign counterpart has been mere 8.4% and 10.0% respectively.
PersonalFN is of the view that trust and track record thus far seem to have helped domestic mutual fund houses in the race of garnering more AUM. Moreover surge in inflows in debt mutual funds schemes, too seems to have attributed to the rise in AUM for domestic mutual fund houses.
PersonalFN believes that in today's era where mutual fund houses and PMS (Portfolio Management Service) managers are all boasting of managing large AUMs - calling themselves big; one should not fall in for mutual fund houses having large AUMs while selecting mutual funds, but instead select mutual fund schemes prudently evaluating their overall performance. Mind you PersonalFN is not saying that all mutual schemes with large AUMs are bad. But of course if you make your investment decisions solely based on the pro- large AUM size talk given by your agent / distributor / relationship manager, then that is certainly bad, as you may erode your wealth. Selecting a mutual fund scheme based on its AUM size is rather absurd. Yes PersonalFN calls it absurd, because the ability of the fund in sailing through distress times, is a function of its stock picking exercise, which is reflected through the investment processes and systems followed by the fund. Remember it's your hard earned savings which you are investing in mutual fund schemes with the objective of wealth creation. Hence it becomes imperative for you to select funds which can stand by you through sickness and health.
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Impact
The Indian equity markets are found to be rather tantalising by many investors in their objective of wealth creation. With host of indices today launched by bourses and themes and sectors too talked about, investors often have view on investing in each of them and accordingly structure their portfolio. In recent times where the Indian equity markets have been quite volatile and range-bound, many investors have been risk averse and treading conservatively on the path to wealth creation. And weighing this fact, country's premier exchange - the Bombay Stock Exchange Ltd (BSE) is contemplating launch of new version of the Sensex, which can help investors to bet on low volatility and high dividend yield stocks. To read more about this news and to know PersonalFN's view over it, please click here.
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Impact
As many of you may have witnessed, after beginning the year 2013 on a positive note in January 2013 (with gains of +2.4% on absolute basis) the Indian equity markets have depicted a descending move (-2.9% on year-to-date basis) with host of factors in play such as:
- Downbeat domestic economic data;
- Non-populist Union Budget 2013 (aimed at walking tight on the path of fiscal consolidation);
- Global headwinds; and
- Uncertain political environment
Being concerned about the aforementioned factors in play redemption pressures too have been on rise for Domestic Institutional Investors (DIIs), thereby they turning net sellers in their activity. In fact every up-move of the Indian equity markets after a corrective have been used by investors to exit from their equity mutual fund schemes and / or Unit Linked Insurance Plans (ULIPs).
But in the recent past with recent slump in prices of gold, equities have garnered attention of many investors thereby resulting in it to show sharp inverse correlation between the two asset classes (see chart below). It is noteworthy that in the last seven trading sessions, equities have gained +3.3% (on an absolute basis), while gold has descended by -12.5% (on an absolute basis) thereby losing its sheen. To read PersonalFN's view on whether equities are likely to do well vis-à-vis gold, please click here.
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- As many of you may be aware that the Reserve Bank of India (RBI) finally pronounced norms for new banking licenses in the last week of February 2013 and set July 1, 2013 as the deadline for filing of applications. The guidelines pronounced empowered the central bank to reject those whose "business model" and "culture" are not in lines with the banking and endeavoured to issue banking licenses only to "fit and proper" business houses.
In the final norms, RBI had said an entity would be considered fit to set up banks if it has a track record of sound credentials and integrity, and has been financially sound over the past 10 years. But now this has raised concerns amongst some aspirants with cases pending with the Central Bureau of Investigation, Enforcement Directorate, Income Tax Department, etc.; as they could be disqualified and are therefore seeking clarification from the regulator, asking if such pending cases would indeed amount to disqualification.
PersonalFN is of the view that, the norms as pronounced by RBI are very robust and emphasise on integrity and sound credentials of the applicants, and should not be compromised on to allow more new banks. It is imperative for the central bank to stimulate more trust for customer, and thus strict norms are required in the Government's agenda of inclusive banking.
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Pass-Through Certificate: Fixed-income securities that represent an undivided interest in a pool of federally insured mortgages put together by the Government National Mortgage Association (Ginnie Mae).
Mortgage-backed certificates are the most common type of pass-through, where homeowners' payments pass from the original bank through a government agency or investment bank to investors.
Source: Investopedia
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Quote : "Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little." - Fred Schwed Jr.
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