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| September 18, 2015 |
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| Weekly Facts | | | Close | Change | %Change | | S&P BSE Sensex* | 26218.91 | 608.7 | 2.38% | | Re/US $ | 66.46 | -0.03 | -0.05% | | Gold Rs/10g | 26,270.00 | 10.00 | 0.04% | | Crude ($/barrel) | 46.12 | -0.37 | -0.80% | | F.D. Rates (1-Yr) | 6.25% - 8.20% | Weekly changes as on September 16, 2015
*BSE Sensex as on September 18, 2015 |
Impact 
Evaluating mutual fund schemes may get better if standardised disclosures norms are followed.
Investors have every right to know, where their money gets invested. But unfortunately, there is no uniformity in the way vital facts are presented.
The recent episode of mutual funds holding high-risk debt papers though has brought forth the issue of poor disclosure norms and soon there is likely to be a change in the way mutual funds disclose vital information. The Securities and Exchange Board of India (SEBI) has directed mutual fund houses to standardise their fact sheets.
Thus going forward, fund houses will have to disclose the following in their factsheets…
- Monthly Average AUM
- AUM as on last day of the month for which the factsheet is being released
- Weighted average expense ratio for the month
- Dividend history (past three dividends)
- At least top 10 holdings in the portfolio ( while the best practice is to disclose the entire portfolio)
- Graphical representation of sectorial allocation in case of equity schemes
So far, publishing factsheets has had not been mandatory for mutual fund houses. Yet Asset Management Companies (AMCs) were putting out factsheets in accordance with best-practice guidelines of the Association of Mutual Funds of India (AMFI) every month.
PersonalFN is of the view that, releasing factsheets in a standardised form will make it easy for investors to compare funds and graphical representation may help too.
However, the key issue is whether the new disclosure norms would expose wrong practices of mutual funds, if at all they indulge in. For example, if a fund / scheme is churning its portfolio multiple times during the month but bringing it back to similar level as it was on the last day of previous month, would this action be caught? There are remote chances. It has been observed that, few fund houses don't disclose average maturity of their debt portfolios for even 6 months sometimes. Although this may be well within their legal framework, these are not better disclosure.
PersonalFN believes the minute detail as to how a factsheet should look like need to be decided by the industry in the best interest of investors. More the uniformity, the better it would be and be effective.
PersonalFN believes all you investors should evaluate a mutual fund factsheet prudently before you invest your hard earned money. While considering investing in an equity fund look at portfolio characteristics (top-10 holding and sector allocation), the asset allocation, portfolio turnover ratio, expense ratio and fund manager ratio amongst host of other facets. Likewise if you considering investing in a debt scheme keep an eye on average maturity, credit rating profile and asset allocation amongst others.
Take a well-informed decision in your journey of wealth creation and be a responsible investor.
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Impact
If you limit the ownership of the business to a few entities; at some point in time, it may cause a problem. When huge risk is shared by a small group, even the slightest error or misjudgment may prove to be very costly. Sometimes, risk involved in the business affects many people, besides owners. Therefore having stable ownership structure becomes even more important for such companies. Keeping this in mind, Insurance Regulatory and Development Authority of India (IRDA) has decided to make it mandatory for big insurance companies to list their businesses.
Based on the information of sources having familiarity with the new developments at IRDA, Business Standard dated September 14, 2015 broke the news. According it, private insurance companies with Assets under Management (AUM) of over Rs 60,000 crore will have to come up with IPOs. In other words, ICICI Prudential Life, SBI Life and HDFC Life will soon have to go public. So far, only HDFC Life has expressed its intent of listing its business. At least for now, it is unclear whether the guidelines apply to the Government owned LIC but IRDA may direct the state-insurer too, if it feels so.
What listing of insurance companies would mean?
- More transparency in operations
- Greater accountability
- Diverse ownership would branch out the risk and profits too would be shared
- Overall improvement in corporate governance
Most of private companies have started their operations about 14-15 years back; however, they have refrained from going public in the past for various reasons that included;
- Restrictions on foreign ownership (before they were relaxed from 26% to 49%)
- Pressure on margin (with changing regulatory framework, margins of private insurers shrank)
- Unfavourable market conditions to launch IPOs
- Large insurance companies have been adequately capitalized
After the Insurance Laws (Amendment) Bill, 2015 was passed in both the houses, the major hurdle in equity dilution of insurance was cleared; but other factors discouraged private insurers from going public.
PersonalFN is of the view that, compulsory listing would be beneficial for the industry as a whole in the long run. It may also address the issues related to risk management and governance which have a larger impact on policy holders.
PersonalFN believes, you should buy only term insurance plans. You should assess the track record of the company, capital structure, solvency ratios and claim settlement ratio for shortlisting the companies. Only low premium doesn't make any insurance plan a better proposition over the other.
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Impact
In equity oriented funds, the fund manager has a chance to pick severely undervalued stocks and reward investors by holding them patiently until their true worth is realised. However, when it comes to debt funds, fund managers have limitations as to how much they can outpace their peers. It is usually expected that, high risk bearing investments should compensate investors with correspondingly high returns. Many investors are aware about the risk element of equity oriented schemes, but when it comes to debt oriented funds, they badly undermine the potential threats.
Quest for high returns makes many fund managers compromise on the creditworthiness of the borrower. This is why the Securities & Exchange Board of India (SEBI) has stepped up vigilance on debt mutual funds amid ratings downgrades of corporate debt papers held by them. Due to a slowdown in the economy, corporate India and the banking sector has been facing pressure of increasing NPA's. JP Morgan Mutual Fund has been in the news for having exposure to debt issued by Amtek Auto whose rating was suspended by CARE for failure to share crucial information for facilitating a rating opinion.
To know more about this and PersonalFN's views over it, please click here.
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Impact
While China is slowing down, India seems to be doing reasonably well as far as industrial performance of the country is concerned. Growth in India's industrial output measured by the movement of Index of Industrial Production (IIP) has come in at 4.2% in July 2015 as against the growth of 0.9% recorded in July 2014. With this, IIP has managed to stay in positive for 9th consecutive month now, after recording a fall of 2.7% in October 2014.
Revival in manufacturing, which forms about 75% of the index, has helped the industry beat analysts' estimates in July. Manufacturing industries collectively grew at 4.7% whereas electricity and allied sectors recorded an uptick of 3.5%. At 1.3%, growth in the mining output may look mediocre, nonetheless, it came higher than -0.5% recorded in June 2015 and 0.09% witnessed in July 2014. IIP for the month of June 2015 has been revised sharply upwards from 3.8% to 4.4%.
Is Industrial Performance Of India Reviving?
(Data as on September 11, 2015)
(Source: MOSPI, PersonalFN Research)
Out of 22 manufacturing industries, 12 have recorded positive growth among which, growth in furniture manufacturing jumped massively at 69.3%. Apart from that, wearing apparel (21.7%) and electrical machinery (20.9%) grew briskly in July 2015. Output in capital goods sector sprang up sharply 10.6%. That in the basic goods segment too grew at a pace 5.2%. These are construed to be positives for the Indian economy. Performance of consumer durable segment has been satisfactory as the growth has aggregated at about 11.4% for the constituting industries. However, sharp slide in consumer non-durables (-4.6%) remains a worry.
To read more about this news and our views, please click here
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- You may not be used to getting faster response from government officials but your perception about bureaucracy may now change a little. Your refund order would be processed within 7-10 days after you submitted the return and it got electronically verified by the income tax department. However, this privilege will only be available to those who have linked their returns to Aadhaar.
PersonalFN is of the view that, use of technology in tax administration may plug the loopholes for tax evasion. Moreover, direct transfer of refund may lessen the chances for corruption. It remains to be seen how effectively this initiative is taken forward. PersonalFN believes, you should pay off your all tax dues before the due date and file your returns in time. |
Capital Structure: "A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds."
(Source: Investopedia)
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Quote : "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble." - Warren Buffett
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