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| April 02, 2015 |
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| Weekly Facts | | | Close | Change | %Change | | S&P BSE Sensex* | 28,260.14 | 801.5 | 2.92% | | Re/US $ | 62.5 | 0.17 | 0.27% | | Gold Rs/10g | 26,500.00 | -500.00 | -1.85% | | Crude ($/barrel) | 53.34 | -1.02 | -1.88% | | F.D. Rates (1-Yr) | 7.25% - 8.75% | Weekly changes as on April 01, 2015 |
Impact 
The beginning of the new Financial Year (FY 2015-16) may not be as blissful as some mutual funds might have expected. Association of Mutual Funds in India (AMFI) had proposed an upper cap of 1% on upfront commissions paid to mutual fund agents and distributors. The Asset Management Companies (AMCs) are divided on this proposal. While a few are willing to follow AMFI and limit the commissions to 1%; others are fiercely opposing it. Needless to say, mutual fund distributors are extremely unhappy with the decision. In the recent past AMFI had issued a circular asking fund houses to cap upfront commissions at 1% From April 01, 2015.
No action from SEBI...
Instead of taking a firm stance on the matter, capital market regulator, Securities and Exchange Board of India (SEBI) assumed a role of that of a spectator and hinted that, it would give its silent approval to the proposal of AMFI. In response to the bossy behaviour of AMFI, chief of SEBI, Mr. U.K. Sinha said, “This decision was taken by AMFI and it is under their jurisdiction. We would not like to get involved in the issue.” Some fund houses may seek a legal recourse against AMFI, as they feel such activities are anti-competitive.
It is said that, capping commissions at 1% may help reduce unhealthy churning of investors' portfolio. As experienced in the past, distributors often make people invest in funds that fetch them good commissions and indulged in advocating portfolio churning to earn more upfront commissions without bothering about consequences of such shuffles on the portfolio of their clients.
PersonalFN believes capping upfront commissions may not be a long term solution to curb mis-selling as nothing stops mutual fund distributors from making people churn their investment portfolios.
PersonalFN is of the view that, on the contrary, AMFI should discourage mutual funds from launching New Fund Offers (NFOs) that are near to being identical to some of the existing offerings. As you may be aware, a whole host of fund houses have launched a number of NFOs in rather an opportunistic way, when markets were trending higher. AMFI should discourage such practices. SEBI has already put a cap on maximum expense ratio that can be charged to investors; therefore, investors are not burdened with higher commissions, if mutual fund houses are paying their distributors above 1%. It goes from the profits of mutual fund houses. On the contrary, NFOs usually pay higher commissions which don't see any restriction from AMFI as yet.
PersonalFN believes investor education is the only way to attract more people to mutual funds. PersonalFN has taken a number of initiatives from time to time to educate investors at various platforms.
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Impact
Finance Minister talked about launching gold monetisation schemes during his budget speech. As most of us know, higher gold imports caused problems in India's current account; making it difficult for the country to strike a balance between imports and exports. It's barely a month since budget was presented, but people don't seem to be much impressed with the idea of gold monetisation. As Government hasn't lowered the import duty on the precious metals; smuggling activities are in full swing. As reported by the Hindu Business Line dated, March 30, 2015, the Directorate General of Intelligence (DRI) confiscated huge 161 Kg of gold in just 4 days starting from March 26, 2015 to March 29, 2015. The Gold was raided at various entry points. This happened even when legal imports are on the rise.
PersonalFN is of the view that, high smuggling activity is an indicator of high but supressed demand for gold in India. Government must take a due note of increasing cases of gold smuggling. Such activities don't only lessen the impact of curbs but also lead to other problems such as money-laundering.
PersonalFN believes, you shouldn't invest in gold blindly, rather you must understand its role in your portfolio. Gold being a natural hedge against inflation should be a part of your portfolio and should be treated as a portfolio diversifier. You may invest upto 10%-15% of your portfolio in gold. Gold Exchange Traded Funds (ETFs) remain one of the best alternatives to invest in gold.
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Impact
Exposure of Debt Mutual funds to Government securities (G-secs) has increased to 12.13% of the total Assets under Management (AUM) under debts securities as on February 28, 2015 - the highest since data was made available by the Securities and Exchange Board of India (SEBI). A year ago, G-secs accounted for only 6.2 per cent of debt AUMs. Let's check out why fund managers are increasing their exposure to G-secs.
RBI expected to reduce rates....
The RBI is expected to reduce interest rates further on the backdrop of improved economic conditions and softening of inflation. Fund managers are investing in longer duration papers to reap the benefits of a reversal in this monetary policy stance.
The yield on the benchmark 10-year government security has come down from 9% levels during the start of the financial year to 7.76 at present. There can be further downward movement, if interest rates are eased further. On the backdrop of improving macroeconomic scenario, mutual funds might be expecting RBI to lower interest rates.
To read more about this news and PersonalFN's views on it, please click here.
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Impact
Barring some bigger towns, penetration of mutual funds in India has been abysmally low. While the Government has been seeking to increase retail participation in capital markets, a recent decision of levying 14% service tax on mutual fund distributors is likely to discourage the retail participation. Unfortunately, mutual funds still remain a 'push' product (which is not actively bought) in India.
In the Union Budget 2015-16, exemption given to the mutual fund agents and the distributors from service tax was withdrawn and it was decided that, service tax shall be levied on reverse charge basis at the rate of 14%.
Now if you think, it's a matter between mutual fund houses and the mutual fund agents and distributors; you are missing the intricacies
To know more about this news and to read our views, please click here.
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- It would now be less costly to pass on your wealth to your legal heir if you own any immovable property in Maharashtra. Recently, Maharashtra Government has withdrawn stamp duty on transfer of immovable property to legal heir or the family members. However, it has been clarified that, such changes in the ownership have to be compulsorily registered with the Government.
The Maharashtra Government has been trying to simplify the property registration processes by making it possible to register property sales transactions online. When this happens, would save your time of visiting registration office which is time consuming.
PersonalFN is of the view that, it is always important for you to understand the legal aspects of purchase as well as sales of property, be it movable or immovable.
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Municipal Bond: "A debt security issued by a state, municipality or county to finance its capital expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes, especially if you live in the state in which the bond is issued."
(Source: Investopedia)
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Quote : "Money is like manure. You have to spread it around or it smells." - J. Paul Getty
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