Impact 
You being an investor holding your investments in mutual fund schemes of one of the respected fund house in India might be worried with the news of your fund manager exiting its India business. And what next, it has finalized the buyer of its India business, though subject to regulatory approvals.
Yes you might be well aware till now that L&T Finance, a subsidiary of L&T Finance Holdings Ltd. and operating L&T Mutual Fund will acquire FIL Fund Management Private Ltd. (Fidelity AMC) and FIL Trustee Company Private Ltd., which are carrying on the Fidelity's mutual fund business in India. The acquisition transactions are however subject to regulatory approvals from SEBI and Competition Commission of India.
With this acquisition, L&T MF intends to become one of the top players in the Rs 6,82,000 crore Indian Mutual Fund Industry. After the deal is through, L&T MF will become the 13th largest fund house with a market share of around 2%. As of December 2011, L&T MF is the 24th largest fund house in India with just 0.7% market share. With this deal L&T MF also aims to strengthen its equity base and balance its overall assets.
| (Rs in Crore) | L&T MF | % of AAUM | FIL MF | % of AAUM | Post-Acquisition | % of AAUM | | Equity Funds | 259.2 | 5.6 | 6,068.4 | 69.0 | 6,327.6 | 47.2 | | Debt Funds | 4,165.7 | 90.2 | 2,693.9 | 30.6 | 6,859.5 | 51.1 | | Hybrid Funds | 191.2 | 4.1 | 34.5 | 0.4 | 225.8 | 1.7 | | AAUM | 4,616.1 | 100.0 | 8,796.9 | 100.0 | 13,413.0 | 100.0 | Average AUM Date as on December 31, 2011
(Source: AMFI; PersonalFN Research)
To know whether you should continue your investments in Fidelity Mutual Fund schemes please click here.
| Impact
Concerned about the increased risks to the banking system and retail investors from the rapid growth in "loan against gold" market, the Reserve Bank of India (RBI) has tightened rules for lending against gold by finance companies. The RBI has directed that companies having half their assets in gold should have a minimum equity capital, or tier-I capital, of 12% by April 2014. Further, these companies can't lend more than 60% of the value of gold jewellery. Also, the central bank has banned companies from lending against bullion, primary gold and gold coins, leaving just jewellery.
Non-Banking Finance Corporations (NBFCs) lending against gold have seen almost 50% annual growth in the past few years as rising prices of the yellow metal led many people without access to banks, to borrow from these companies. Since business was booming, companies such as Muthoot Finance and Manappuram Finance began borrowing substantially from banks and also through sale of bonds in order to meet the rising demand for loan against gold. The RBI is worried that since these companies lend 70% - 75% of the value of gold, a fall in prices could destabilise the system.
We believe that the RBI is right in pulling the strings at an early stage in order to safeguard the banking system from any crisis. Lending against gold is not a bad business but an over exposure to gold may lead to operational crisis if the price of the yellow metal falls.
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| Impact
The sight of your income being reduced by way of tax (usually Tax Deducted at Source (TDS)) is not a welcome sign for most of you. It brings in the feeling of anxiety, doesn’t it! After all the hard work one puts in a particular task or service, the final compensation needs to be adjusted for TDS. But as we all know the Government has to levy a certain amount of service tax on certain services in order to boost its revenue by way of indirect taxes. However, in the Budget 2012, the Finance Minister introduced the concept of ‘negative list’ under the Service Tax regime. The services included under the negative list will be exempt from the Service Tax net.
To know more about the changes in the service tax please click here.
This Week's Poll !!!
Do you avail of a loan by pledging your gold?
| Impact
Incentives can do wonders when given in the right amount and in the right way. But more often than not investors pay a heavy price for taking investment decisions driven purely by incentives. When incentives are luring, greed overpowers rational thinking and leads investors to make the silliest mistakes they could have avoided.
It seems that the Security and Exchange Board of India (SEBI) too, is trying to incentivise small investors in opening a demat account so that ultimately investors invest directly in the equity markets. Let's find out how.
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In an interview with the Business Standard Ms Foo Mee Har - Global Head (Priority & International Banking), Standard Chartered Bank shared her views on wealth management in India and philanthropic investments in charitable causes.
Ms Har believes that the gaining popularity for financial advisory amongst the affluent Indian's who have been traditionally averse to appoint professional managers to manage their wealth, is a result of two key factors. "First, it is a result of the last financial crisis. Now, people are willing to put in more time in understanding where their money is invested. The second factor is that currently there are many investment options, as people are open to opportunities - not only locally but around the world. Naturally, it helps if you are working with a partner like us with a global presence. The affluent understands that they need to leverage banks for information, and connect them with opportunities globally. We have found that the Indian affluent are more international in their outlook; they look beyond their own doorstep for worldwide opportunities," she said.
According to Ms Har, there is an increasing trend of "giving back" among the affluent segment in India. "The government needs to play an active role to encourage initiatives to make economic development inclusive. For instance, in Singapore, the government offers a very generous tax deduction of 250 per cent on philanthropic investments. It is one of the main drivers for corporates - and individuals there to invest in charitable causes. Hence, we saw that philanthropic investments there sustained even during the financial crisis," she said.
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- In an effort to do away with the upfront commissions on mutual fund schemes in a phased manner, the Asset Management Companies (AMCs) are mulling over multiple options such as
- Each AMC to decide its own upfront commission (status quo)
- Abolish upfront and hike trail linked to stickiness of assets
- Higher upfront for business of up to Rs 5 lakh or higher trail commission (no upfront) for business of more than Rs 5 lakh
However, a few others believe paying higher trail commissions is a win-win situation for both AMCs and distributors, as distributors will not churn portfolios while AMCs are assured of long term assets. A higher trail (with no upfront) for big distributors like banks and National Distributors (NDs) will help them generate enough cash flows to run their business. But this model doesn't work well for Independent Financial Advisors (IFAs) bringing in small ticket applications.
In our opinion, a fee based model should be adopted wherein the distributor of the IFA would be paid fees based on the advice given by them to the investors. However, for the fee based model to be effectively implemented, a lot of efforts are required on the investor education front and also convince investors to pay for genuine investment advice they receive from either an IFA or a distributor.
Apart from the advice the distributors or IFAs should also take concentrated efforts to provide after sales service to the investors for maintaining long term clientele relationships.
- L&T Finance, a subsidiary of L&T Finance Holdings acquired Fidelity India's Mutual Fund arm for an undisclosed amount. The acquisition will provide a fillip to L&T Mutual Fund's equity assets. The combined average asset under management (AUM) of L&T Mutual Fund and Fidelity Mutual Fund will be Rs 13,497 crore as of the December quarter and it will the 13th biggest player in the mutual fund industry in terms of asset under management and 10th biggest in terms of the combined equity portfolio.
- According to the World Bank, India's Gross Domestic Product (GDP) can grow at 7% provided the process of reforms is expedited. The country needs to tackle effectively six structural challenges viz., energy, population, agricultural productivity, integration of the domestic market, urbanisation and the legal and regulatory framework.
- As per the new regulation announced in the Budget 2012, many money-back life insurance policies such as short-term endowment plans, limited premium payment and single-premium plans will not be able to offer tax benefits with effect from the financial year starting April 1, 2012. The budget has proposed to increase the sum assured (life insurance cover) to 10 times the premium paid from 5 times under the prevailing regulation for tax benefits. Hence, life insurance companies will have to make changes to their existing products that are not compliant with the new norms and file them with the insurance regulator for approval.
- Finance Minister - Mr Pranab Mukherjee said that the Direct Tax Code (DTC) will be made operational by next year at a post-budget interactive session organised by Federation of Indian Chambers of Commerce and Industries (FICCI).
- Federal Reserve Chairman - Mr Ben Bernanke said that the U.S. economy needs to grow more quickly to bring the unemployment rate down further. However, Mr Bernanke did not give any indication, whether the Fed is keen to embark on a third round of bond purchases, but at the same time he also made it clear that the central bank is in no rush to reverse course after responding aggressively to a deep recession.
- In order to have access to long term funds and also instil more savings habit amongst the small savers in the country, the Government has raised interest rates on small savings scheme. Interest rate on the PPF has been increased to 8.8% from the present 8.6%. Similarly, the interest rates on 5 year NSC and 10 year NSC have been increased to 8.6% and 8.9% from earlier 8.4% and 8.7% respectively. However, the bank rate has been kept unchanged at 4%.
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Endowment Plan: Life insurance policy that pays the assured sum (face amount) on a fixed date or upon the death of the insured, whichever comes earlier. Endowment policies carry premiums higher than those on conventional whole life policies and term insurance, but are useful in meeting special lump sum needs such as college expenses or for buying a retirement home. Also called endowment life policy or endowment policy.
(Source:BusinessDictionary.com)
| | QUOTE OF THE WEEK
"If your outgo exceeds your income, then your upkeep will be your downfall."
- Bill Earle
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