  | | October 04, 2013 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 19,915.95 | 188.7 | 0.96% | | Re/US$ | 61.74 | 0.3 | 0.55% | | Gold Rs/10g | 29,545.00 | (535.0) | -1.78% | | Crude ($/barrel) | 108.92 | 0.1 | 0.11% | | FD Rates (1-Yr) | 8.25% - 9.00% | Weekly change as on October 03, 2013
*BSE Sensex as on October 04, 2013 | |
Impact 
Mutual funds are unpopular with investors, atleast going by investment trends of Indian households. During 2002-07, mutual fund industry grew fast thanks to sustained bullish phase in equities. But in the process of growing asset base; industry witnessed a proliferation of malpractices. To curb such activities and make mutual funds more customer centric, regulator introduced many changes. Raising criterion of capital requirement for Asset Management Companies (AMCs) has been discussed several times till now. We may soon see some regulatory development on this front.
Securities and Exchange Board of India (SEBI), the regulator, is planning to raise networth requirement for AMCs tenfold, i.e. from the current requirement of Rs 10 crore to Rs 100 crore. Earlier it was proposed by SEBI panel to increase the capital requirement to 50 crore. Moreover, SEBI may ask sponsors to invest in its own New Fund Offers (NFOs) to the extent of 1% of total amount raised through a new fund or Rs 50 lakh whichever is higher. SEBI is of the view that this concept of seed capital would work in favour of investors since asset managers will have their own interest to protect in funds they float.
PersonalFN believes that, mere increasing minimum capital requirement may not ensure fund houses are committed to doing serious business. Imagine a fund house promoted by a top banking company having thousands of crore worth market capitalisation. For it, running a business which has a base capital requirement of say, Rs 100 crore may be just a matter of interest and diversification. The promoter has very little to lose even if it has to close asset management business one day. On the contrary a promoter of another fund house with a relatively small asset base might have invested substantial amount (of total sum available with it) which would always keep it interested in doing competitive business. The dedication with which investors are served could also be higher in case of a fund house that is fighting with bigger fund houses for a market share. As remains the effectiveness of the criterion of seed capital; again, for a giant promoter, 1% of total money raised through NFO would be too little.
PersoalFN is of the view that Promptness in servicing investors, quality of fund management and proportion of well-performing assets to the total asset base decides the seriousness of a fund house about its business.
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Impact
You invest in mutual funds to grow your wealth but you may also be concerned with how does your money grow. You would never want your mutual fund scheme to just trade in stocks. On the contrary you might expect your fund to adopt more assertive approach towards companies it invests in. At present there have been only few instances where mutual funds have taken firm stand against company decisions requiring the shareholder's approval. But this may change soon.
Securities and Exchange Board of India (SEBI) has been insisting mutual funds to play a larger role in protecting interest of investors who are minority shareholders otherwise. It is considering a possibility to make it compulsory for fund houses to keep a record of votes it cast in company decisions requiring approval of shareholders. It is also proposed that mutual funds should get auditor's certification on voting reports. In the recent past, some fund houses have opposed big corporate on numerous issues such as unreasonable salaries of top management, payment or guarantees to promoters and transactions involving group companies. Sun TV, Escorts, Jaiprakash Associates, Jindal Steel, Pantaloons, Ambuja Cement, Gammon India, Shriram EPC and Themis Medicare are some of the companies that have seen opposition from fund houses on aforementioned issues.
PersonalFN is of the view that, active participation of institutional investors such as mutual funds works in two ways. It not only protects investors' interest but also keeps check on companies which are reluctant to address issues of minority shareholders. PersonalFN believes that rational opposition to management decisions may positively affect stock prices and thus work in favour of long term investors. Keeping a record of votes and getting a certification of auditor's on voting reports would make the process more transparent.
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Live! Money Simplified's Session 3: Checking your Financial Health.
All of us want to live a healthy life, so we go to our doctors for regular check-ups. But have you visited a Financial Doctor as well?
This session of Money Simplified - Your Guide to Money & Mutual Funds explains why it is crucial for you to check your financial health.
Watch this Video Now! | |
Impact 
Indian debt markets have been witnessing bouts of volatility for last few months. Falling rupee sent shivers down the spine of investors. RBI too was concerned with the pace and the magnitude of fall. In response, RBI hiked short term borrowing rates. This move surprised markets negatively and even liquid funds generated negative returns for next few days following this announcement. Debt markets were further affected by poor economic indicators such as stagnated industrial growth, sustained higher inflation at retail level and possibility of government overshooting fiscal deficit target among others. In August, yields on short term as well as long term debt instruments hardened due to liquidity crunch in the system and higher short term borrowing rates.
Recent developments...
But since the beginning of September, there has been a flow of some positive news as well. Indian exports recorded 13% rise in August which helped narrow down trade deficit. Decision of U.S. Federal Reserve to continue providing monetary stimulus, resulted in huge flow of capital to emerging markets. The newly appointed governor of RBI Dr. Rajan, took some reformative steps immediately after he joined. Markets were optimistic about RBI monetary policy turning pro-growth. Although not many market participants were expecting a rate cut, it was believed that short term borrowing rates might be rolled back. But contrary to these expectations, repo was hiked by 0.25% and Marginal Standing Facility (MSF) rate was lowered only by 0.75% (which was hiked 2.0% earlier) at the second quarter mid review of monetary policy.
A bumpy ride...
Data as on September 27, 2013
(Source: CCIL, PersonalFN Research)
As depicted in the graph above, yields on 7.16%, 2023, benchmark 10 year G-sec bond are already up nearly 52bps since second quarter mid-review was conducted. But, reduction in MSF rates has helped yields on Certificate of Deposits (CDs) and Commercial Papers (CPs) to ease.
Under such circumstances, many of you might find it difficult to take a call on debt mutual funds. Before you device a strategy for such volatile market conditions, let's first see how various categories of debt funds have performed so far.
To read more about this news and the view of PersonalFN over it, please click here.
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Impact
Some of you may have realised the importance of buying health insurance probably when you already had paid hefty medical bills from your pocket. But many of you may share experience of being unsatisfied with your existing health insurance policy despite having been bought it at right age. And what's more, if you are worried about effectiveness of your health insurance policy; you wouldn't be alone to feel so. But from 1st of October 2013 things have changed for better. To make health insurance plans more customer-centric, Insurance Regulatory and Development Authority (IRDA) issued new set of rules this February and made effective from 1st of October.
What will change now?
Minimum entry age: Unlike earlier, you may now be able to buy health insurance till 65 years of your age if you are a first-time buyer. Although some policies may be exclusively offered to people belonging to certain age groups, this comes as good news to those elderly who have not yet bought health insurance and are still healthy.
To read more about this news and the view of PersonalFN over it, please click here.
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- If you are planning to buy a fridge or a two-wheeler this festival session on credit; you have a reason to smile. The government is planning to infuse Rs 14,000 crore as capital in public sector banks. This capital would be utilised by banks to give consumer loans in selective sectors such as consumer durables and autos at concessional rates. This decision was taken with an aim of providing stimulus to sectors beaten down by higher interest rates and lower economic growth.
PersonalFN is of the view that although the consumer loans may become cheaper this Diwali season; one shouldn't take impulsive buying decisions especially where the ticket size is high. Buying luxury consumer goods only because they are available at concessional interest rates may negatively affect your finances in the long run. Moreover, paying EMIs may eat into your financial resources which could have otherwise been utilised towards building a kitty for your retirement. PersonalFN believes rather than buying luxury goods on credit you would be better off delaying your indulgence till you build adequate corpus through your investments to pay for such purchases. A Personalised financial plan helps you prioritise your goals and intelligent asset allocation makes the optimum use of available financial resources for fulfilling your goals.
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Seed Capital: It is, "the initial capital used to start a business. Seed capital often comes from the company founders' personal assets or from friends and family. The amount of money is usually relatively small because the business is still in the idea or conceptual stage. Such a venture is generally at a pre-revenue stage and seed capital is needed for research & development, to cover initial operating expenses until a product or service can start generating revenue, and to attract the attention of venture capitalists."
(Source: Investopedia)
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Quote : "If a business does well, the stock eventually follows" - Warren Buffett
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