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| March 11, 2016 |
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Impact 
At present, only 7.0% (approximately) of Indians invest in mutual funds, which is an abysmally low participation by any standard. Despite spending a good deal of money on advertisements and awareness campaigns, the spread of mutual funds is largely restricted to the top 15 cities of India.
Which raises the question: “Is money the solution to all problems?” Certainly not. Squandering crores of Rupees may not guarantee achieving the desired objective. Though educating investors is pivotal to attracting them to mutual fund avenues, what is even more important is to ensure that the money budgeted for investors’ education is spent towards the very cause.
In fact, if the masses distrust you; isn’t it crucial to make all efforts to address the concerns of people to genuinely build trust? Instead, splurging money on image-building campaigns, may serve none. On the contrary, it makes matters worse, especially if the follow-up actions are in complete contrast with your commitments, your image will take an even bigger hit.
The solution is simple—walk the talk, admit mistakes, and change genuinely.
So far, Mutual Fund Houses have been refusing to do any of these. The efforts to creating awareness about mutual funds have not produced encouraging results. To add to the worries of the regulator, lately mutual funds have failed to deliver on their commitments.
As a part of the investor education drive, mutual funds are expected to spend at least 0.02% of their Assets under Management (AUM) on investor education programmes every year. However, their actual spending has been nowhere near the projected spending. PersonalFN wrote a story highlighting this on January 20, 2016. To address this problem, the Securities and Exchange Board of India (SEBI) has asked mutual funds to transfer 50% of the sum earmarked for being spent on awareness programmes to the Association of Mutual Funds of India (AMFI). AMFI will ensure that the money is spent wisely for the right cause.
This happens at the time when even SEBI has fallen short of utilizing available resources optimally.
The SEBI has spent money on educating investors. As published by Business Standard dated March 08, 2016; SEBI spent Rs 7 crore on investor education programmes between April 2015 and December 2015. However, the SEBI is expected to spend Rs 42 crore in the current fiscal year that ends on March 31, 2016. Even in the last Financial Year (FY) 2014-15, against the allocation of Rs 44.41 crore, the SEBI spent only Rs 26.42 crore on investor education programmes.
One more try
The SEBI has decided to make an all-out effort to increase the reach of mutual funds among Indian households, and are expecting mutual funds to double their reach.
The SEBI chief is scheduled to meet with the top brass of mutual fund houses on March 16, seeking their suggestions on popularising mutual funds. Before the mutual fund industry receives more acceptances from the investors’ community, it will have to address some tough questions. They include…
- How long will they take to move away from the commission driven distributors’ growth model?
- If they are going to continue with distributor’s model even in the future, what are they going to do to ensure that distributors offer quality advice and offer suitable products?
- How will mutual fund houses handle the responsibility in case the investor is miss-sold any product?
- What are their business growth strategies besides launching New Fund Offers (NFOs) mindlessly?
It seems mutual fund houses will find themselves in awkward silence should they try answering these questions. On this backdrop, the meeting of SEBI chief with Industry leaders is being considered as a crucial one.
In the past, the capital market regulator had voiced its concerns on a number of topics. Unfortunately, fund houses haven’t taken them seriously.
Fat pay packages of the top management of fund houses have already come under the lens of the capital market regulator. PersonalFN enlightened investors on this issue by publishing an article on August 24, 2015. Before mutual fund houses grow their businesses further, they will have to take efforts to reward their investors. The SEBI has been insisting fund houses to curb product replication under the name of NFOs. PersonalFN had covered this story too on November 2015.
SEBI tried even weeding out non serious players by imposing stricter net worth criteria. Apparently, even this didn’t work. PersonalFN covered this development on July 03, 2013.
PersonalFN opines that, mutual fund houses have been dilly dallying for quite a long time. Clearly, the time has come for mutual fund houses to get out of their comfort zone. Hopefully, SEBI will stress on critical questions to mutual funds instead of beating around the bush this time.
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Impact
The Budget 2016-17 has not given taxpayers reasons to smile. Income tax slabs have remained unchanged. Income tax rates have also stayed largely unchanged. However, the Finance Minister has tried simplifying the compliance processes and providing more clarity on a number of issues. Those who frequently trade in equity shares may take note of this important development. Now, the stock traders will have an option to treat their short term capital gains, made by the sale of equity shares, as “Income from Capital Gains” instead of “ Income from Business and Profession”.
In the established arrangement, the Assessing Officer (AO) of the Income Tax Department has powers to classify such incomes under either of these heads at his/her discretion, justified by circumstantial evidence. Number of transactions was the main criterion often used by the AOs.
This is a significant change, putting a full stop to any potential disputes arising between the taxpayer and the department due to the differential treatment in tax under these two income heads. All sales transactions done within the first 12 months of purchase on recognized stock exchanges are subject to 15% tax (plus cess and surcharge) on gains. The rate for such short term gains is 15%. Large traders whose profits exceeded Rs 10 Lakh were paying tax at 30% (plus cess and surcharge).
However, there are a few conditions attached to the relief provided to traders
Once they opt to be taxed at 15% (plus cess and surcharge), treating their income as “Income from Capital Gains”, they will have to continue this practice even in the future.
The flip side is
When you opt to classify your income as “Income from Business and Profession”; you are entitled to claim all business related expenses, which is not allowed on income that is classified as “Income from Capital Gains”. Only incidental expenses, such as brokerages, can be reduced from the realized gains in the second case.
The bigger picture...
Disputed tax matters run in lakhs of crore Rupees. Diminishing the powers of AOs and streamlining the processes to calculate income are expected to reduce frictions between the tax department and taxpayers.
A word of caution
PersonalFN is of the view that, a trader’s mindset may earn you more profits in the short run, but it could be extremely counterproductive in the long run. PersonalFN believes you should invest in stocks and equity oriented mutual funds only with a long term view. If you are unsure about which funds may help you create the long term wealth, you may opt for unbiased mutual fund research services provided by PersonalFN.
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Impact
The path to success is never an easy one. But can you trample someone else’s future under your heel to walk the “red carpet”? Many financial planners and self-proclaimed financial advisors have done exactly that. Instead of providing advice that suits the client’s requirements; financial advisors have dished out advice that earns the maximum commissions. For sometime this trick worked for those advisors who place no value on ethics.
As the financial literacy is low in India, unscrupulous financial advisors still manage to survive, but what they overlooked is this—the well-informed investors know the concealed agenda of these financial advisors.
Unscrupulous advisors have another achievement to their credit. They have earned a bad reputation for their professional community, especially affected are those competent, ethical, genuine advisors who know how to put the interest of the clients before their own. They don’t expect to arrive at the red carpet; they wish to assist their clients in wealth creation.
The time has come to draw the line that separates out ethical advisors from the unethical ones. PersonalFN has taken the initiative to set the ball rolling. We, at PersonalFN, have decided to provide an online platform to honest and ethical advisors, connecting them with prospective clients who need genuine and ethical advice.
To ready more about this story, please click here.
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Impact 
Fortunes can change in a blink of an eye. The speculation on the Federal Reserve (Fed) lifting off all monetary support and hiking interest rates suppressed the movement of gold throughout 2015. Speaking about the movement of gold in the international market, it had fallen a little over 10% during 2015, registering a loss of over 21% in the last 3 year. As against to, the fall of less than a per cent in India over a 3-year timeframe looks less scary. In India, the precious metal slipped about 6.0% in 2015, despite the rising US$. Nevertheless, gold has made a smart comeback in first 2 months of 2016 by rallying around 17%. Have investors’ fortunes changed by betting on gold? Read to know more...
The only reason why gold has performed relatively well in India has been primarily due to the fall in Indian Rupee vis-à-vis U.S$. Indian currency dropped approximately 23% against the US$ over the last 3 years. Since the start of 2016, a double digit gain in gold investments in India is attracting the attention of many Indian investors.
Is Gold Set To Reward Investors In 2016?  | | Data as on March 01, 2016
(Source: ACE MF, PersonalFN Research)
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The weakness Gold experienced over last few years reflected the build-up of investors’ sentiments about global growth. As the possibility of the Fed normalising the interest rates in the U.S. gathered strength, gold weakened. For the last 7-8 years have seen gold prices rally in the U.S. Global uncertainties and hyperinflation are two other important factors that push the gold prices up.
To ready more about this story and PersonalFN’s views over it, please click here.
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Foreign mutual fund houses setting up businesses in India have gotten something terribly wrong and are exiting India one after the other. While on one hand, the regulator and the Government is concerned about the low penetration of mutual funds in India, foreign fund houses seem to simply refuse to look upon it as an opportunity. Most of them find it difficult to sustain their heavy cost structures and are often forced to exit India.
As far as speculations on the street goes, JP Morgan is going to be the sixth fund house to follow suit. Tata Mutual Fund is rumored to be interested in buying the India operations of JP Morgan Mutual Fund.
Incidentally, JP Morgan has been in limelight for all unpleasant reasons. Two of its debt schemes have suffered heavy losses due to their investments in defaulting Amtek Auto.
But both fund houses have declined to make any official statement in this regard.
In short, it’s nothing more than market speculation at this stage. However, if such a buy-out happens, investors of JP Morgan will have to review their investments.
If indeed this deal does shape up, PersonalFN is happy to guide investors through it.
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Economic Stimulus: Attempts by governments or government agencies to financially stimulate an economy. An economic stimulus is the use of monetary or fiscal policy changes to kick start a lagging or struggling economy. Governments can use tactics such as lowering interest rates, increasing government spending and quantitative easing, to name a few, to accomplish this.
(Source: Investopedia)
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Quote : “My experience indicates that most people who’ve accumulated a great deal of wealth haven’t had that as their goal at all. Wealth is only a by-product, not the original motivation.”
- Michael Milken
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