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Gilt, debt funds record sharp gains
  • Thanks to the cut in CRR and bank rate on Saturday, gilt and debt funds invested towards the long-end of the market have delivered stupendous returns. Debt securities recorded sharp gains on Saturday and Monday after the rate cut announcement by the apex bank with long-dated gilts gaining an average Rs 2 to 2.5
RBI move signals a lower interest-rate regime
  • The cut in CRR and bank rate will not only infuse more liquidity in the system, it will also give a boost to the net asset value of debt and gilt funds
Contrarian investors
  • If you think mutual funds have pulled 500 points off the BSE Sensex since March 1, then you are mistaken. The numbers speak otherwise. A quick analysis of the daily purchase and selling reveals that domestic funds have been net buyers to a tune of Rs 2.68 billion between March 1 and March 24, 2000
Mergers & Acquisitions amongs Mutual funds force MFs to give exit option to investors
  • GLOBAL mergers and acquisition in the mutual fund industry are having a ripple effect on their Indian associates who find themselves being forced to give an exit option to local investors without any penal charges. So far, three MFs in the recent past have had to give Indian investors an option to exit any schemes they have invested in, without payment of any exit load (i.e. they can exit at net asset value without penal charges), following a Sebi directive. Speaking to The Economic Times, a senior Sebi official said since global takeovers involved a change in the sponsor of the local mutual fund, investors in any of the schemes promoted by the local MF had to be given an option to exit the schemes at NAV. This follows an amendment to the MF regulations which disallowed any change in the fundamental attributes of a scheme to be carried out, unless three-fourths of eligible unit holders responded in the affirmative to the proposed changes. "Since the takeover of the sponsors constitutes a change in fundamental attributes of a scheme, fund houses are required by us to allow investors who do not want to stick with the new promoters to exit without payment of any penal sales charge," said the Sebi official. In the case of Kothari Pioneer MF, the Pioneer Group of the US, which is one of the sponsors of the MF, was acquired by UniCredito Italiano and merged into its asset management subsidiary, EuroPlus. Since this amounted to a change in control of the AMC and change in the sponsor, the fund house gave its investors an exit option. However, Kothari Pioneer MF officials reported that the number of repurchase applications as a result of the special time-bound offer, did not exceed the normal level of redemptions recorded by the MF. In the case of Jardine Fleming India AMC, the acquisition of its ultimate parent - Robert Fleming - by Chase Manhattan Bank, required it to give investors an exit option. According to Jardine Fleming India officials, the fund house saw redemptions of close to Rs 2 crore in its Jardine Fleming India Bond fund/Jardine Fleming India Personal Tax Saver 96 in the exit option period. In the case of ANZ Grindlays MF, the change in sponsor from ANZ Banking Corporation-Australia to Standard Chartered Bank, along with StanChart's acquisition of the controlling stake in ANZ Funds Management Pty, has led to the fund house filing its papers with Sebi for approval of change in sponsor, to be followed by an open offer for all of its investor to exit at NAV. However, while the exit option clause is triggered off in the case of a takeover of the sponsor by another company, a takeover by the sponsor in India of an international AMC who may not have an operation in India, does not attract the Sebi provisions, according to MF compliance officers. The increased pace of international consolidation amongst global asset managers, driven by the dis-intermediating force of the internet and the need to have product and style capability of a wide breadth, has kicked off a wave of consolidation the global asset management fraternity. Fund houses are, therefore, questioning the need to give unit-holders an exit option in the case of a global takeover when there is no change in the management or investment style of the local MF. However, investors are far more seriously concerned over a serious flaw in the exit option offer. Investors in open-end funds benefit from the possibility of an exit at zero load during such an offer. However, investors who have invested their long-term money in the schemes floated by such a fund house are denied the opportunity to exit the scheme though they may be uncomfortable with the new sponsors. This is due to a lock-in period that they agreed to when subscribing to the units. Sebi officials claim helplessness in allowing investors of tax-advantaged schemes of such MFs - like an equity-linked savings on tax scheme or in the Sections 54 EA or EB option of an open-end fund or pension plan - the ability to redeem their unit-holdings in the scheme. "The provisions of the Income-Tax Act which specifically state that such tax-advantaged investments are locked in override our exit option provisions," said a senior Sebi official. This, feel MF industry veterans, defeats the very purpose of such an open offer. Investors in an open-end fund in any case have the ability to enter - and exit - a scheme on payment of a nominal sales charge, at all times. "It's those locked in for a long period and who've invested their money because of the faith in a certain sponsor who need this exit option the most," say MF CEOs. "Sebi needs to work out a system whereby the investor in such a tax-advantaged scheme can shift his investments to a similar plan offered by another fund house without losing the tax benefits and sans payment of any load," said investor rights activists
MFs with diversified portfolio of liquid stocks less hit
  • As against expectations of an at least 50 percent return in six months from MFs, the tech sector meltdown has resulted in many funds giving negative returns even in the balanced funds category. "As opposed to tech sector funds, investors who opted for a systematic investment plan which they stuck to throughout the year have fared much better, at the very least losing less money," say fund managers.Debt funds investors were no better off. For the first time they awoke to the rude shock of negative returns in what were perceived as safe funds, when the RBI increased interest rates in July. And while the year may have ended with a rally in their returns,with 30-day annualized returns for some top funds rising to respectable levels of 15 percent and more, investors are playing it safe. They's much rather settle for a predictable return rather than higher but more volatile return, admit fund marketers. The year has also driven home the benefits of holding a diversified portfolio of liquid stocks. Funds which have stuck to their mandate and delivered on true diversification across sectors and stock have fallen less than their more concentrated peers. Of course, the usual retort is that these funds also appreciated les than their concentrated peers but, net-net , its these funds who have fewer and less bitter investors than their more volatile brethren. This is because the investors in these funds were not educated on the risks of the different schemes but were sold purely on the basis of returns. While MFs may be taking a numbers of service initiatives like web-based transaction comfirmation and acting on non-financial requests in one business day, the one question that's dogging not so gung ho investors, is where to put their money in '01. Clearly, the consensus amongst fund managers is that equity is going to be a volatile story, at least in the near terms. "If you're looking to invest for a three- to-five-year horizen, equities are still your best bet but if your investment horizon is much shorter than you may prefer to rethink your investment strategy," said HDFC AMC managing director Milind Barve. Translated simply, that means that unless you have the stomach for dealing with short-terms volatility with fluctuating NAVs you should opt for a less risky product. Match the balanced fund with your risk profile. This is because as '00 as shown, some balanced fund have actually fallen as much as or even more than some equity funds. When choosing a balanced fund check to see whether it's truly balanced (an ideal scenario is 51 percent equity and balance debt and cash) or haeavily skewed in favour of equity.Investors also need to check the composition of the balanced fund's equities portfolis. A large holding of small cap, mid cap or relatively illiquid and------- speculative stocks are likely to results in a far more ----- fund performance than others. What that means in simple terms for you, is that if ---- choose a fund which exhibits high volatility (---- by its standard deviation ), the timing of your ------- could impact the returns from your portfolio more than it would from lower volatility funds. So the question begging to be answered is what's the best place to invest for the new year? The answer, is a function of three variables: your time horizon, loss-bearing capacity and expected returns per annum.The answer to these three questions will enable you to match your risk -return and investment horizon with the intrinsic characteristics of MF schemes. Surprisingly, while returns in income funds have gone up, inflows from investors continue in the lower margin serial plans and to some extent in liquid funds. Investors prefers the certainty of the lower returns to the risk of a more volatile returns, it seems.But with a stable to bullish interest rate scenario over the next quarter, MFs feels that the income funds are a low risk and comparatively higher yielding investment avenue. Beside serial plans with concentrated investors holdings are likely to come under increasing pressure from Sebi (Securities and Exchange Board of india) which is upset at the back- door portfolio management services being provided for large investors.That is likely to actually benefit the MF industry because the asset earned on serial plans and liquid funds barely allow the fund houses to break even. The prospects for attracting equity inflows are closely tied to the fortunes of the stock markets. But with equity markets having a pall of gloom cast over them, at least in the near term, fund managers are not hopeful of significantly large inflows. So if you are a stock market investor where do you invest in '01? That's an important question for investors because as the table shows, even the top performing sector funds ranked numbers four and five respectively across sectors, gave negative returns for calender year '00. According to Prudential Corporation Asia MD( mutual funds) Ajay Srinivasan, "The market will continue to remain volatile.The days when sectors as a whole moved together are over, so investors are best advised to stay invested in diversified equity and balanced funds." Mr Srinivasan feels that the maximum value today lies front-line tech stocks which have been hit by "excessive pessimism". "These have been beaten down to valuation levels which have not been seen for a very long time," he said. Apart from the IT, media and FMCg sectors, Cholamandalam Cazenove AMC CEO Ved Prakesh Chatyrvedi feels that an infrastructure sector like highways is likely to pick up this year. "This could lead to a turnaround in the fortunes of telecom and power equipment providers in addition to construction companies and cement manufacturers, " he said. Amongest his favourite picks are Infy, Wipro, NIIT, Mukta Arts, ITC, Smithkline Beecham Consumer Healthcare, Bharat Heavy Electricals and L&T. Regardless of the fund management style however, almost all fund managers unlike, in the first quarter of the '00, recommend that investors stick to broad-based and truly diversified equity funds rather than dabble in sector funds. Explains, Jardine Fleming India Asset Management chief investment officer UIIaI Ravindra Bhat," A truly diversified and broad-based fund allows the fund manager to rotate the investments in the stocks and sectors which show maximum potential. By precluding the option via a sector fund, an investor is actually reducing the value addition that a fund manager ought to be contribution". According to Mr Bhat, the theme to watch out for in '01 are stocks witnessing corporate control battles, buy-backs and M&As. " The significant revamp in the banking too will throw up opportunities for investments; as will the opening of the US generics market for pharma companies that have established a marketing presence there," The FII fund house also expects selective stocks in the steel, cement, EPC and telecom spaces to throw up significant investment opportunities.
Kothari Pioneer plans biotech fund
  •  Some of the well managed funds too under-perform the stock market index. Based on this premise Kothari Pioneer MF (KPMF) is planning to launch an index fund. It also has plan to launch a biotechnology fund at a later date.

    "We have plans to launch an index fund, some of the studies have suggested that even the well managed funds sometime under-perform the index," Ajay Bagga, national sales and distribution head, KPMF, said. This apart, KPMF is also envisaging interest in biotechnology industry. " Unfortunately, there are only a few biotechnology companies in country. To launch a biotechnology fund we need to have at least 25 to 30 biotech companies," Mr Bgga said.

     KPMF has a huge retail investor base in Andhra Pradesh, accounting for over 12 per cent of company's retail investor base, which is about 6.5 lakh, nearly 75,000, are in the city alone, " Hyderabad is the sixth biggest market in the country," Mr Bagga said. Further, Mr Bagga said that Pension Funds must be allowed to invest in the stock markets. Amf) is lobbying wit the finance ministry for launching various pension funds in the country.

Introduction of Fund of Funds Schemes
  • Concept A fund of funds (FOF) scheme is a mutual fund scheme that invests in other mutual funds schemes instead of investing in securities. Such schemes are prevalent in international markets. These schemes can have different investment patterns and investment strategies as disclosed in offer documents. The investors may invest their funds in those FOF schemes which meet their investment objectives instead of investing in different schemes of a mutual fund and keeping track of their NAVs. Such FOF schemes may invest in other sector specific schemes or those schemes which have more weightage of certain stocks and can exit from those schemes when growth prospects of those sectors are not good. The investors putting their money in one sector specific scheme may not be able to decide when to exit. Regulatory Requirements At present clause 4 of Seventh Schedule of SEBI (Mutual Funds) Regulations restricts investment in other mutual fund scheme (under the same management or another mutual fund) up to 5% of the net assets of the mutual fund and prohibits charging of management fees on such investments. In view of these restrictions, a mutual fund cannot launch FOF scheme. Earlier, mutual funds had a small number of schemes and hence the concept of FOF was not much feasible. Over the years, all mutual funds have launched a number of schemes and it is now possible for them to launch such FOF schemes. It is also likely that a FOF scheme may like to invest in mutual funds schemes of other mutual funds subject to disclosures in the offer documents. Therefore, the aforesaid Regulations would need amendments so that Clause 4 of the Seventh Schedule of SEBI (Mutual Funds) Regulations is not made applicable to FOF schemes. As discussed with Association of Mutual Funds in India (AMFI), the following restrictions on FOF schemes are proposed: a) A FOF scheme shall not invest in other FOF scheme b) A FOF scheme shall invest its entire net assets in other mutual fund schemes, except the funds required for meeting the liquidity requirements for the purpose of repurchases, as disclosed in offer documents. c) A mutual fund scheme shall not invest in FOF scheme. Expenses and Management Fees Regarding recurring expenses and fees for FOF schemes, one suggestion is that the fees and other expenses charged by the other mutual fund scheme(s) (in which the FOF is investing) together with the management fee and expenses charged to the FOF scheme, should not exceed the total limits on expenses as prescribed under Regulation 52(6). The rationale behind this suggestion is that the mutual fund schemes in which FOF scheme invests, are already charging expenses and fees as specified under the Regulations. However, another suggestion from the mutual funds industry is that monitoring and keeping a track of expenses of FOF and other mutual funds schemes on daily basis would be very difficult. The view is that FOF scheme would have some expenses like marketing and distribution expenses and also would like to charge management fees as it is providing service to investors. It has been suggested that a maximum limit of 0.75% of expenses including management fees should be allowed in case of FOF schemes. Within this upper limit, the mutual funds can charge expenses depending on market forces. They would also disclose in offer documents and in advertisements for FOF schemes that the investors are bearing this expenditure in addition to expenses of other schemes in which FOF invests.








    Different investment avenues are available to investors. Mutual funds also offer good investment opportunities to the investors. Like all investments, they also carry certain risks. The investors should compare the risks and expected yields after adjustment of tax on various instruments while taking investment decisions. The investors may seek advice from experts and consultants including agents and distributors of mutual funds schemes while making investment decisions.


    With an objective to make the investors aware of functioning of mutual funds, an attempt has been made to provide information in question-answer format which may help the investors in taking investment decisions.

    What is a Mutual Fund?

    Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document.


    Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unitholders.


    The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.


    What is the history of Mutual Funds in India and role of SEBI in mutual funds industry?

    Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, Government allowed public sector banks and institutions to set up mutual funds.


    In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The objectives of SEBI are – to protect the interest of investors in securities and to promote the development of and to regulate the securities market.


    As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors.

    All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type.



    How is a mutual fund set up?

    A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unitholders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund.


    SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.

    What is Net Asset Value (NAV) of a scheme?

    The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).

    Mutual funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. For example, if the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis - daily or weekly - depending on the type of scheme.


    What are the different types of mutual fund schemes?


    Schemes according to Maturity Period:

    A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.


    Open-ended Fund/ Scheme

    An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.

    Close-ended Fund/ Scheme

    A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.


    Schemes according to Investment Objective:

    A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

    Growth / Equity Oriented Scheme

    The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.


    Income / Debt Oriented Scheme

    The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.


    Balanced Fund

    The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

    Money Market or Liquid Fund

    These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.


    Gilt Fund

    These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.


    Index Funds

    Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.


    There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

    What are sector specific funds/schemes?

    These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.


    What are Tax Saving Schemes?

    These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.


    What is a Load or no-load Fund?

    A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads.


    A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.


    Can a mutual fund impose fresh load or increase the load beyond the level mentioned in the offer documents?

    Mutual funds cannot increase the load beyond the level mentioned in the offer document. Any change in the load will be applicable only to prospective investments and not to the original investments. In case of imposition of fresh loads or increase in existing loads, the mutual funds are required to amend their offer documents so that the new investors are aware of loads at the time of investments.

    What is a sales or repurchase/redemption price?

    The price or NAV a unitholder is charged while investing in an open-ended scheme is called sales price. It may include sales load, if applicable.


    Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unitholders. It may include exit load, if applicable.


    What is an assured return scheme?

    Assured return schemes are those schemes that assure a specific return to the unitholders irrespective of performance of the scheme.


    A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document.


    Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.

    Can a mutual fund change the asset allocation while deploying funds of investors?

    Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unitholders and giving them option to exit the scheme at prevailing NAV without any load.

    How to invest in a scheme of a mutual fund?

    Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be deposited with mutual funds through the agents and distributors who provide such services. Now a days, the post offices and banks also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors.


    Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decisions.


    Can non-resident Indians (NRIs) invest in mutual funds?

    Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the schemes.

    How much should one invest in debt or equity oriented schemes?

    An investor should take into account his risk taking capacity, age factor, financial position, etc. As already mentioned, the schemes invest in different type of securities as disclosed in the offer documents and offer different returns and risks. Investors may also consult financial experts before taking decisions. Agents and distributors may also help in this regard.


    How to fill up the application form of a mutual fund scheme?

    An investor must mention clearly his name, address, number of units applied for and such other information as required in the application form. He must give his bank account number so as to avoid any fraudulent encashment of any cheque/draft issued by the mutual fund at a later date for the purpose of dividend or repurchase. Any changes in the address, bank account number, etc at a later date should be informed to the mutual fund immediately.

    What should an investor look into an offer document?

    An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsor’s track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc.


    When will the investor get certificate or statement of account after investing in a mutual fund?

    Mutual funds are required to despatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme. In case of close-ended schemes, the investors would get either a demat account statement or unit certificates as these are traded in the stock exchanges. In case of open-ended schemes, a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme. The procedure of repurchase is mentioned in the offer document.


    How long will it take for transfer of units after purchase from stock markets in case of close-ended schemes?

    According to SEBI Regulations, transfer of units is required to be done within thirty days from the date of lodgment of certificates with the mutual fund.


    As a unitholder, how much time will it take to receive dividends/repurchase proceeds?

    A mutual fund is required to despatch to the unitholders the dividend warrants within 30 days of the declaration of the dividend and the redemption or repurchase proceeds within 10 working days from the date of redemption or repurchase request made by the unitholder.


    In case of failures to despatch the redemption/repurchase proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified by SEBI from time to time (15% at present).


    Can a mutual fund change the nature of the scheme from the one specified in the offer document?

    Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g.structure, investment pattern, etc. can be carried out unless a written communication is sent to each unitholder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unitholders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme form close-ended to open-ended scheme and in case of change in sponsor.

    How will an investor come to know about the changes, if any, which may occur in the mutual fund?

    There may be changes from time to time in a mutual fund. The mutual funds are required to inform any material changes to their unitholders. Apart from it, many mutual funds send quarterly newsletters to their investors.


    At present, offer documents are required to be revised and updated at least once in two years. In the meantime, new investors are informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted.

    How to know the performance of a mutual fund scheme?

    The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) http://www.amfiindia.com/ and thus the investors can access NAVs of all mutual funds at one place


    The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format.


    The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year.


    Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds.


    Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc.


    On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme.


    How to know where the mutual fund scheme has invested money mobilised from the investors?

    The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly basis which are published in the newspapers. Some mutual funds send the portfolios to their unitholders.


    The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, government securities, etc. and their quantity, market value and % to NAV. These portfolio statements also required to disclose illiquid securities in the portfolio, investment made in rated and unrated debt securities, non-performing assets (NPAs), etc.

    Some of the mutual funds send newsletters to the unitholders on quarterly basis which also contain portfolios of the schemes.

    Is there any difference between investing in a mutual fund and in an initial public offering (IPO) of a company?

    Yes, there is a difference. IPOs of companies may open at lower or higher price than the issue price depending on market sentiment and perception of investors. However, in the case of mutual funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund scheme takes some time to make investment in securities. NAV of the scheme depends on the value of securities in which the funds have been deployed.

    If schemes in the same category of different mutual funds are available, should one choose a scheme with lower NAV?

    Some of the investors have the tendency to prefer a scheme that is available at lower NAV compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is issuing units at Rs. 10 whereas the existing schemes in the same category are available at much higher NAVs. Investors may please note that in case of mutual funds schemes, lower or higher NAVs of similar type schemes of different mutual funds have no relevance. On the other hand, investors should choose a scheme based on its merit considering performance track record of the mutual fund, service standards, professional management, etc. This is explained in an example given below.


    Suppose scheme A is available at a NAV of Rs.15 and another scheme B at Rs.90. Both schemes are diversified equity oriented schemes. Investor has put Rs. 9,000 in each of the two schemes. He would get 600 units (9000/15) in scheme A and 100 units (9000/90) in scheme B. Assuming that the markets go up by 10 per cent and both the schemes perform equally good and it is reflected in their NAVs. NAV of scheme A would go up to Rs. 16.50 and that of scheme B to Rs. 99. Thus, the market value of investments would be Rs. 9,900 (600* 16.50) in scheme A and it would be the same amount of Rs. 9900 in scheme B (100*99). The investor would get the same return of 10% on his investment in each of the schemes. Thus, lower or higher NAV of the schemes and allotment of higher or lower number of units within the amount an investor is willing to invest, should not be the factors for making investment decision. Likewise, if a new equity oriented scheme is being offered at Rs.10 and an existing scheme is available for Rs. 90, should not be a factor for decision making by the investor. Similar is the case with income or debt-oriented schemes.


    On the other hand, it is likely that the better managed scheme with higher NAV may give higher returns compared to a scheme which is available at lower NAV but is not managed efficiently. Similar is the case of fall in NAVs. Efficiently managed scheme at higher NAV may not fall as much as inefficiently managed scheme with lower NAV. Therefore, the investor should give more weightage to the professional management of a scheme instead of lower NAV of any scheme. He may get much higher number of units at lower NAV, but the scheme may not give higher returns if it is not managed efficiently.


    How to choose a scheme for investment from a number of schemes available?

    As already mentioned, the investors must read the offer document of the mutual fund scheme very carefully. They may also look into the past track record of performance of the scheme or other schemes of the same mutual fund. They may also compare the performance with other schemes having similar investment objectives. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future, this is one of the important factors for making investment decision. In case of debt oriented schemes, apart from looking into past returns, the investors should also see the quality of debt instruments which is reflected in their rating. A scheme with lower rate of return but having investments in better rated instruments may be safer. Similarly, in equities schemes also, investors may look for quality of portfolio. They may also seek advice of experts.


    Are the companies having names like mutual benefit the same as mutual funds schemes?

    Investors should not assume some companies having the name "mutual benefit" as mutual funds. These companies do not come under the purview of SEBI. On the other hand, mutual funds can mobilise funds from the investors by launching schemes only after getting registered with SEBI as mutual funds.


    Is the higher net worth of the sponsor a guarantee for better returns?

    In the offer document of any mutual fund scheme, financial performance including the net worth of the sponsor for a period of three years is required to be given. The only purpose is that the investors should know the track record of the company which has sponsored the mutual fund. However, higher net worth of the sponsor does not mean that the scheme would give better returns or the sponsor would compensate in case the NAV falls.

    Where can an investor look out for information on mutual funds?

    Almost all the mutual funds have their own web sites. Investors can also access the NAVs, half-yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in India (AMFI) www.amfiindia.com. AMFI has also published useful literature for the investors.


    Investors can log on to the web site of SEBI www.sebi.gov.in and go to "Mutual Funds" section for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents filed by mutual funds, addresses of mutual funds, etc. Also, in the annual reports of SEBI available on the web site, a lot of information on mutual funds is given.


    There are a number of other web sites which give a lot of information of various schemes of mutual funds including yields over a period of time. Many newspapers also publish useful information on mutual funds on daily and weekly basis. Investors may approach their agents and distributors to guide them in this regard.


    If mutual fund scheme is wound up, what happens to money invested?

    In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unitholders are entitled to receive a report on winding up from the mutual funds which gives all necessary details.


    How can the investors redress their complaints?

    Investors would find the name of contact person in the offer document of the mutual fund scheme whom they may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of asset management company and trustees are also given in the offer documents. Investors can also approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with them till the matter is resolved. Investors may send their complaints to:



    Securities and Exchange Board of India

    Mutual Funds Department

    Mittal Court ‘B’ wing, First Floor,

    224, Nariman Point,

    Mumbai – 400 021.


    Phone: 2850451-56, 2880962-70







    What is the procedure for registering a mutual fund with SEBI ?


    An applicant proposing to sponsor a mutual fund in India must submit an application in Form A along with a fee of Rs.25,000. The application is examined and once the sponsor satisfies certain conditions such as being in the financial services business and possessing positive net worth for the last five years, having net profit in three out of the last five years and possessing the general reputation of fairness and integrity in all business transactions, it is required to complete the remaining formalities for setting up a mutual fund. These include inter alia, executing the trust deed and investment management agreement, setting up a trustee company/board of trustees comprising two- thirds independent trustees, incorporating the asset management company (AMC), contributing to at least 40% of the net worth of the AMC and appointing a custodian. Upon satisfying these conditions, the registration certificate is issued subject to the payment of registration fees of Rs.25.00 lacs For details, see the SEBI (Mutual Funds) Regulations, 1996.




    What is the procedure for redressal of investor grievances?




    When investors send complaints to SEBI, SEBI takes up the matter with the concerned mutual funds and follows up with them till they are resolved.


    In case of complaints, investors may write to :

    Securites And Exchange Board of India,

    Mutual Fund Dept.,

    Mittal Court 'B' Wing,

    Nariman Point,

    Mumbai 400 021

Pension Plan: Plans your Retirement
  • Save Rs. 3000/- u/s 80CCC, regardless of your income.



    Retirement Planning is based on the dictum that when you can’t earn money in your old age, let your money earn for itself.


    A proper saving plan but in place in early stages in life can really go a long way in assuring a person a secured future when he may not be able to run around for making his living.


    Many private players have come up with various plans, which provide regular income for retirement and also give you, tax benefit under section 80CCC. One can also opt for life cover under some of these plans.


    ICICI Prudential has certain Retirement Solutions that combine the best of investment and insurance.


    1.                  Life Time Pension: A regular premium linked deferred pension plan that gives you the freedom to choose the amount of premium, and invest in market-linked funds, to generate potentiality higher returns.


    2.                  Secure Plus Pension: A regular premium deferred pension plan that gives you the flexibility to choose between 3 levels of sum assured for the same level of total annual contribution.



    3.                  Life Link Pension: A single premium linked deferred pension plan that gives you the freedom to choose the amount of premium, and invest in market-linked funds, to generate potentially higher returns.


    4.                  Forever Life: A regular premium deferred pension plan that helps you save for your retirement while providing you with life insurance protection.


    Consider the 1st plan ie. Lifetime Pension: It is a flexible, unit-linked pension plan that gives you the advantage of reducing your tax burden along with safeguarding your post retirement years. If Sec. 88 is no longer applicable to you or you have exhausted this option, then it is imperative for you to look for alternate tax-saving benefits today!


    Whatever your income, you can avail a deduction of up to Rs. 10,000  from your taxable income under section 80CCC(1)* on the premium paid. This way, you can save tax up to Rs. 3300*, every year, till your retirement.*


1st March 2004:UTI Mutual Fund
  • UTI Mutual fund which has been set up as Trust under Indian Trust Act is going to issue an open-ended scheme UTI Master gain with an objective of investing at least 80% of its funds in equity and equity related instrutments with medium to high-risk profile and upto 20% in debt and money market instrutments with low to medium risk profile. The fund continues to remain positive on the pharma sector, where most of the stocks are poised for good growth prospects. The fund has also increased its exposure to the banking stocks, the fund is very positive on the prospects for the sector on account of increasing credit off take by the corporate sector and accelerated spending in the infrastructure sector. The fund is positive about FMGC, Oil and gas sectors. UTI Mastergain is only the name of the scheme/plan of the UTI Mutual fund and does not in any manner indicate the quality of the scheme/plan or the future prospects or returns.
13th March: Stan chart Mutual Fund:
  • Standard chartered mutual f und is launching Grindlays Fixed Maturity Plan- Annual and Quarterly Plan. The features of the fund are: 1) Tax-efficient returns a) Double Indexation Benefit in the Annual Plan b) Dividend Tax free in the hands of Investors 2) Investment in highly rated Corporate Bonds and debentures, Money market instruments 3) Stable returns with relatively low risk Grindlays Fixed Maturity Plan is a closed-end 100% debt fund investing in high quality corporate debt and Money Market Instruments in line with the duration of the plan/s. It is ideal for investors seeking stable returns over a fixed period, with the advantage of the returns being tax-efficient. Type of Scheme Close ended income scheme Issue Price Rs.10 Entry load Nil. (units for sale only in IPO) Maturity Date Quarterly Plan-July 08, 2004 and Annual Plan-April 11,2005*Quarterly redemptions possible in the Annual Plan subject to exit load. Exit load in Annual Plan Up to June 30,2004-1%, upto September 30,2004-0.75%, December 31,2004 onwards-.50% (on a quarterly basis before maturity). On maturity-Nil Minimum Amount Rs.10000 & in multiples of Re 1 thereafter Investment Objective The investment objective of the Scheme and Plan/(s) Transparency NAV Declaration-every Wednesday Portfolio Disclosure Half Yearly disclosure of portfolio /On Maturity INDICATIVE RETURN CALCULATION Bank FD Annual Plan Quarterly plan 1 year Dividend Growth Double Indexation Dividend Growth A Purchase Price 10 10 10 10 10 10 B Post Expenses Yield 5.00% 5.00% 5.00% 5.00% 4.75% 4.75% C Repurchase Price =A*(1+B) 10.5000 10.5000 10.5000 10.5000 10.1171 10.1171 D GAIN/INTEREST=C-A 0.5000 0.5000 0.5000 0.5000 0.1171 01171 E INDEXED COST =A*(1+IR%) NA NA NA 11.0000 NA NA F INDEXED GAIN= C-E NA NA NA -0.5000 NA NA G Tax Rate 33% 12.81% 11% 22% 12.81% 33% H TAX = G*D 0.1650 0.0641 0.0550 NIL 0.0150 0.0387 I POST TAX GAINS=D-H 0.3350 0.4360 0.4450 0.5000 0.1021 0.0785 J POST TAX ANNUALISED RETURNS-I/A 3.35% 4.36% 4.45% 5.00% 4.14% 3.18%
Banks are now opting out of Mutual Funds in order to be on the safe side.
  • 4th April, 2004 Estimates indicate banks have redeemed some Rs 12,000-14,000 crores worth of MF units during the past few weeks. Nationalized and private banks seem to be moving out of investments in mutual funds over the last few weeks. This is due to the fear that the markets are going to be facing a downslide. Both debt as well as equity schemes are believed to have been redeemed heavily during the period. Normally, investments in MF schemes are classified as non-SLR( statutory liquidity ratio) securities. Investment in non-SLR securities is risky and hence bankers shy away from investing in them. Since investments in non-SLR securities require provisioning for investment fluctuation reserves as per the Reserve Bank of India norms, banks redeem their MF units towards the end of the year, as per banking circles. While fund managers are claiming that when the market was stable, banks and Corporates have sold out their MF investments in order to book profits, some of them have sold their MF units in the last few weeks in order to spruce up their balance sheets.
Birla Sun Life Mutual Fund comes up with Birla MIP – II
  • 24th April 2004: Birla Sun Life Mutual Fund is coming up with a new scheme, Birla MIP – II. The initial offer opens on April 12, 2004 and closes on April 30, 2004. The offer is of units of Rs. 10 each for cash at par during the Initial Offer Period and at NAV based prices during the Continuous Offer. The Sponsors of the Mutual Fund are Birla Global Finance Ltd. part of the Aditya Birla Group, which is a premier conglomerate of businesses in India. The Birla MIP – II scheme is an open ended scheme with the primary objective of generating regular income so as to make monthly payments or distribution to unitholders with the secondary objective being growth of capital. Monthly income is not assured and is subject to the availability of distributable surplus. The scheme offers two plans with varying debt and equity proportions to suit the investors’ risk/return profile. Each plan will have Growth, Dividend and Monthly Payment option. The scheme will offer for repurchase, units at Net Asset Value (NAV) based prices on every business day on an ongoing basis, commencing not later than 30 days from the closure of Initial Offer Period. The first Net Asset Value of the scheme will be calculated and disclosed not later than 30 days from the closure of Initial Offer Period. Thereafter, the NAV will be calculated and disclosed at the close of every business day. The AMC will disclose details of the portfolio of the scheme on a quarterly basis.
DSP Merrill Lynch India T.I.G.E.R. Fund
  • 30th April 2004: The DSP Merrill Lynch India TIGER Fund (The Infrastructure Growth and Economic Reforms Fund) is being launched for the individuals who seek to take advantage of the benefits from the infrastructure development by investing in companies that gain from increase in market capitalization. This is an open ended growth scheme whose primary investment objective is to generate capital appreciation, from a portfolio that is substantially constituted of equity securities of corporates, which could benefit from structural changes brought about by continuing liberalization in economic policies by the government and/or from continuing investments in infrastructure, both by public and private sector. The minimum application amount of the scheme is Rs. 1000 and in multiples of Rs. 1 thereafter. The Registrar to the Fund is Computer Age Management Services Pvt. Ltd. The Intial Offer Period is open from April 27, 2004 upto May 20, 2004.
Mutual Funds plan capital guaranteed funds
  • 6th May 2004: Mutual funds are planning to come up with new investment schemes in the near future. MFs are looking to launch schemes that invest in commodity futures and real estate apart from those investing in global markets and equity derivative market. They are also seeking to come out with capital guaranteed funds. Once these products are launched, the Indian MF industry would be comparable to the fund industry in developed markets like the US, UK and Hong Kong. Most of these global markets enable investors to diversify into various asset classes including commodities and real estates. Initially, MFs had to seek SEBI’s permission to offer real estate schemes and other such schemes. Now SEBI has indicated to the finance ministry that real estate funds would be permitted during the year. Another new scheme that may be offered are capital guaranteed funds. These are quite popular in markets like the UK and Hong Kong where some funds are specialized in offering these kinds of schemes. There is also a move to come out with schemes, which invest in commodity futures with several new commodities exchanges like National Commodities and Derivatives Exchange Limited (NCDEX) and National Multi Commodities Exchange (MCX) seeing growing volumes in the recent past. The Association of Mutual Funds in India (AMFI) has recently set up a committee to work out the framework for introducing commodity future linked products. MFs have sought permission from SEBI to market global funds and are also trying to come out with schemes to channelize investments to global markets after the government allowed individuals to invest upto $25,000 per month.
  • 28th June 2004: The government owned Bank, Indian Bank that is present in the market with a private placement of its debt. The issue is coming with a volume of Rs 300 crore with an option to keep hold of over subscription money of Rs 100 crore.
  • The issue opened on June 23, 2004 and is closing on July 10, 2004. A.K. Capital and SBI Capital will be acting as the major arrangers to the issue.

    Indian Bank has a huge network of 1,377 branches and over 22,000 staff. Indian Bank also has international branches, which are located at Singapore and Colombia. Approx 883 of its branches are computerised.

    The credit rating to the bond is LAA that is given by ICRA and AA (ind) by Fitch. The bond has a minimum face value of Rs. 10 lakh, the instrument, is coming in the form of unsecured, redeemable, non-convertible subordinated bond. The minimum application size is one bond and further investments can be made in multiples of one bond.

    There are two options to the bond. Under Option A, the period of the bond is seven years which carries interest of 6.15 % paid annually. Under Option B, the bond has a period of 10 years with an interest rate of 6.25%, which is also paid annually.

  • 20th July 2004: If the proposed turnover tax and the abolition of long term capital gains tax is implemented it will benefit the primary market investors. The turnover tax will not be applicable to securities allotted in new issues, due to this long-term investors can make tax-free gains. To attract investors towards the new issues, investors and merchant bankers will take this advantage.
  •             Mr. Ajit Sanghvi, a brokerage of MSS Securities said “Provisions of the turnover tax will not be applicable to new issues, as share are allotted directly by companies and are not bought through recognized stock exchanges. Investors can hold shares, which offer good-long – term investment opportunity, beyond one year and save on turnover tax as well as capital gain tax.”

                The turnover tax @ 0.15% has to be levied on the value of purchase transactions routed through recognized stock exchanges, which has been proposed by the Finance Minister. The turnover tax is charged as the tax on the long-term capital gains that have been scraped. The Finance Minister has reduced the percentage of tax charged on the short-term capital gain to 10% form 30 %.

                Mr. Valabh Bhanshali the chairman of Enam Financial Consultants has said that the proposal of turnover tax looks attractive from a primary investor’s point of view, but just to save a small amount of tax, we can’t expect people to put money in the new issues only.

                “The good news lies in the removal of the long-term capital gains tax and the reduction in short-term capital gains tax. For tax benefits, investors do not necessarily invest in IPOs” said Prithvi Haldea, chairman of Prime Database.

               The views of Day traders, who generally survive on small margins, feel that the turnover tax will take away their bread and butter and hence the Finance Minister should reconsider the proposal. The representatives of the broking community who met Mr. Chidambaram last week to express their views over implication of tax and it seems that the meeting turn out to be positive and the finance minister is likely to arrange some solution to the problem soon. Mr. Chidambaram is, expected to announce a lower rate for day traders in Lok Sabha on Monday. There will be changes in the tax rate of different classes of securities- equity, debt, mutual funds and derivatives.
  • 22nd July 2004: The changes in transaction tax give small investors a wider choise in selecting their portfolios. A small detail will, however, change the way in which they pay transaction tax. Since the tax will be split between the buyer and the seller, what this means for a small investor is that if the transaction tax to be paid at the time of purchase of a share is, say, Rs. 20, the buyer and seller would pay Rs 10 each.
  • After the new tax comes into force, this also means that any shares they sell now will bear a part of the levy. Against the benefit received on the capital gains front, this will be a minor sum to pay. However, investors will now look at mutual funds more favorably.

                The equity-oriented mutual fund units will be included under the term securities, which has been promised by the finance minister. It means that long-term capital gains in these units will be exempt from tax, while 10% short-term capital gains will apply. The only worry that seems over here for investors is that they could end up paying both sides of transaction tax because finally the amount paid by the fund will be reflect by the way of expenses which impact the net asset value (NAV).

                To the extent that their investments in debt funds are concerned, the existing tax treatment will continue, since debt securities are exempt from transaction tax. Dividends from mutual funds are continued to remain tax-exempt. Keeping these factors in mind, investors can plan their investments.


  • 06th August 2004: ING Vysya Mutual Fund is planning to raise around Rs 550 crore from the market through its two new plans. The plans are domestic opportunities fund and select debt fund.
  •             Santosh Kamat the director of ING Vysya MF said that the MF house is hopping to raise some Rs 400 crore from the debt fund and Rs 150 crore from the equity fund.

    The funds equity oriented scheme named ING Vysya Domestic Opportunities Fund will primarily seek long-term capital appreciation from a portfolio that is invested in companies deriving a significant proportion of their revenues from the domestic economy. The open-ended ING Vysya Select Debt Fund will invest mostly in debt securities to generate regular income.

  • 12th August 2004: Kotak Mahindra Mutual Fund on 9th August has announced the launch of Kotak Opportunities, an open-ended equity growth scheme. Kotak Opportunities is an aggressive scheme with a flexible investment style. The fund manager will have the freedom to invest a high proportion of the portfolio value in sectors he feels will outperform others over the short-medium term.
  • The fund can invest in both large-cap and mid-cap stocks to derive superior performance and will not have any cap on sectoral investment. Ajay Bagga, CEO, Kotak Mahindra AMC said “Often some sectors outperform others over a short to medium period due to various reasons. Kotak Opportunities fund will endevour to capture these opportunities for investors”. IPO will be open from July 27 to August 25, 04.

  • 16th August 2004: Chola Mutual Fund targets to raise about Rs 100 crore through an initial public offering (IPO) for its floating rate fund which aims to provide stable income especially in the uncertain interest rate environment. Chief executive, Sashi Krishnan informed to reporters that the IPO would be open for subscription on 17th August and closes on 19th August, Cholamandalam Investment and Finance Ltd.
  •             He also said that the open-ended income scheme would be suitable for institutional investors, Corporates and high net worth individuals who have uncertain view of the interest rates. The scheme would invest at least 65% of portfolio in debt instruments including securitised paper and up to 35% in fixed rate debt instruments, he added. Chola MF, a Murugappa group entity, has nine schemes with its assets under management of over Rs 1,300 crore.

  • 18th August 2004: Chola mutual fund (MF) has publicized the launch of its Floating Rate Fund, an open-ended income scheme. The fund's portfolio will substationally comprise of floating rate debt instruments, money market instruments and fixed rate debt instruments swapped for floating rate return.
  • According to a company release, the IPO for the fund will open for subscription on 17 August '04 and will close on 19 August '04. Later, the fund will open for subscriptions and redemptions on an ongoing basis, the release said.

    Chola MF chief executive Sashi Krishnan said, "Interest rate uncertainty in the system has increased. With the global interest rates and inflation moving up, yields in the domestic debt market have hardened. In such an environment, investors in a floating rate fund will be able to protect themselves from interest rate fluctuations."

    Chola Floating Rate Fund will invest at least 65% of the fund's portfolio in debt instruments including securitised debt and up to 35 % in fixed rate debt instruments. Units will be offered at Rs 10 during the initial public offer. The minimum application amount during the initial offer has been fixed at Rs 25,000. The scheme will offer both dividend and cumulative options. Chola MF is promoted by Cholamandalam Investment & Finance - the financial services arm of the Rs 52 billion Murugappa group.

    Cholamandalam has presence in mutual funds, vehicle financing, financial products distribution and general insurance. Cholamandalam AMC established in 1996, manages funds in excess of Rs 13 billion across 9 schemes with over 100,000 investors. The AMC offers the entire range of cash, debt and equity products. Chola AMC is present in over 17 locations and also has a strong distribution network in place.

  • 23rd August 2004: In spite of a restrained equity market, domestic mutual funds have managed to mobilise over Rs 600 crore through IPOs of various new equity scheme which launched in the past two-and-half months. For illustration there are three equity IPOs open for subscription, including the Kotak opportunity fund, the ING Vysya domestic opportunities fund and ABN Amro equity fund. Unconnectedly from this, the SBI Mutual Fund and HDFC MF have announced new schemes will be open for subscription later this month.
  •             The Kotak opportunity fund is an aggressive scheme with a flexible investment style. Here, the fund manager has the freedom to invest a high proportion of his or her portfolio value in sectors he or she feels will outperform others over the short to medium term. HDFC MFs new fund will invest in stocks whose shares are quoting at prices below their true value. A mutual fund analyst said, “There may not be sharp movement in index or the broad market, but there are stocks, which could give good returns. The theme of most of these new funds is to invest in such stocks.” The SBI MFs new fund, ‘Emerging Businesses Fund’ will focus businesses in sectors showing promise, based on the growth potential arising out of export/outsourcing opportunities and global competitiveness.

                Since MFs are able to convince investors about the opportunities in the market, they continue to put money in these schemes. In June, MFs collected Rs 280 crore through new equity schemes, while in July the amount was Rs 123 crore. It is expected that the new launches could raise over Rs 300-Rs 400 crore in August.

  • 11th September 2004: Reliance Mutual Fund (RMF) plans to soon launch an open-ended fund Reliance Small Savings Scheme (RSSS). The fund will offer a growth plan with a debt, equity and hybrid option available, RMF said in its offer document filed with Securities and Exchange Board of India (SEBI). The MF entity is yet to finalise the offer period. The initial offer price will be Rs 10 per unit plus applicable entry load. The fund seeks to collect a minimum corpus of Rs one lakh. There would not be any maximum limit on the amount raised and the fund would make full and firm allotment against all valid applications. The minimum initial pay is of Rs 1,000 for resident investors and minimum of Rs 500 per month thereafter, it added.
  • 11th September 2004: Birla Mutual Fund launched the Birla Dynamic Bond Fund. It is an active managed fund, which will invest in debt and money market instruments. The IPO is open for subscription on September 10, 04 and will close on September 24. The fund will employ active investment management strategy and try to optimise returns keeping in mind various scenarios like inflation, liquidity, monetary policy, government borrowing programme, economic outlook, fiscal policy etc. The minimum subscription for the bond is Rs 5000. The asset allocation and investment pattern for the fund is dynamically designed with no restriction on investing in any debt paper. So, the fund could invest in corporate papers, G-Secs, floating rate bond and interest rate derivatives. The maturity of portfolio will also be actively managed.
Tata Growth Fund has declared 8% dividend
  • 18th September 2004: Tata Mutual Fund has declared an eight percent dividend (80 paise per unit) on face value of Rs 10, for its Tata Growth Fund. This is the second equity scheme of Tata Mutual Fund to pay a dividend this month, the earlier being Tata Equity Opportunities Fund which paid a dividend of seven per cent, the company said in a release yesterday. The record date for the dividend is September 16 and the Net Asset Value on that date is Rs 13.92.
  • 22nd September 2004: Canbank Mutual Fund launched ‘Canindex’, an open–ended index scheme linked to S&P CNX Nifty. The IPO will open on September 17 and will be open till September 27. The investment of the scheme will be made in Nifty stocks in the same proportion and weightage it represents in the index. The scheme will thus replicate returns, commensurate with the index movement.
  •             RV Shastri, chairman and managing director, Canara Bank at a function organised at Mumbai, launched the scheme. The scheme offers two options; income and growth. The minimum investment is Rs 5000. The expense ratio of the scheme is fixed at 1% of weekly average net assets of the scheme. The entire initial issue expenses of the scheme initial issue expenses of the scheme will be borne by the AMC. The CanIndex Scheme is targeted at retail as well as corporate clients.

                Canbank Mutual Fund had launched 24 schemes since its inception and currently, manages 13 open-ended scheme and 2 close-ended schemes. The fund house, currently, manages assets of over Rs 1800 crore and has two lakh investors.

LIC MF has launched the IPO of a hybrid scheme
  • 22nd September 04: LIC Mutual Fund has launched the initial public offer (IPO) of floating rate monthly income plan (MIP), a hybrid scheme which will invest in floating rate instruments and equity. The IPO is open from September 21 to October 8, 2004. The objective of the scheme is to generate consistent returns and minimize interest rate risk and generate capital appreciation, through investing in equity and equity-related instruments. The mutual fund offers investment under two plans, Plan A which will invest up to 80% of the amount in floating rate securities and the remaining 20% of the corpus would be invested in equities. Plan B will invest up to 90% of its assets in floating rate securities and the remaining 10% of its assets would be invested in equities. The minimum investment amount is Rs 5,000 for the growth plan.
Tata MF has announced 5% dividend
  • 24th September 2004: Tata Mutual Fund has declared a maiden 5% dividend for its "equity P/E fund", an open ended scheme, under dividend option. Tata MF said in a release today that the record date for the dividend payout of Rs 0.50 per unit on the face value of Rs 10 each is September 23. The net asset value of the scheme (dividend option) on September 23, 2004 stood at Rs 11.44 per unit.
SBI MF has announced dividends
  • 4th October 2004: Today, SBI Mutual Fund announced dividends for two of its schemes for the period ended September 2004. The company has declared a dividend of one per cent (0.935 per cent for other investors excluding individuals and HUF) under the Magnum Income Plus Fund - investment option, a company statement said. The fund also declared a dividend of 0.50 per cent (0.468 per cent for other investors excluding individuals and HUF) under its Magnum NRI Investment Fund - short-term plan. All investors, who have invested in the schemes as on September 30, 2004, were eligible for the dividend payment, it said.
SBI MF has increased its stake in IVRCL Infra
  • 20th November 2004: SBI Mutual Fund has acquired additional 60,000 shares of IVRCL Infrastructures and Projects Ltd and raised its stake in the company to 5.11%. The mutual fund acquired 0.36% stake (60,000 shares) on November 16 through market operations, SBI Funds Management Private Limited informed the National Stock Exchange. SBI MF's stake in the infrastructure company, after the acquisition, is 5.11% (8.62 lakh shares) of the paid up capital.
Six MF majors post decline in corpus by Rs 6,651 crore in July-October
  • 24th November 2004: Major fund houses like HDFC MF, Prudential ICICI MF, LIC MF, Templeton India MF, Kotak Mahindra MF and Reliance MF have been the worst hit in terms of erosion in corpus during the past four months. An analysis of the latest Amfi (the Association of Mutual Funds in India) data on corpus shows that the six mutual fund majors have seen their asset base shrink by a whopping Rs 6,651 crore during the July-October period when both debt and equity markets went on a tailspin.
  • The comparison considered 15 largest fund houses in the country each having a corpus of more than Rs 4,000 crore and their combined asset base constitutes Rs 1,34,922 crore as against the fund industry’s Rs 1,47,995 crore as on October 31, 2004. The six funds have seen 4-18% fall in corpus, thanks mainly to the huge redemption pressures. The fall in value of portfolio holdings due to market volatility has also contributed to a dip in their asset base. However, UTI Mutual Fund, the country’s largest fund house, has been the best performer as its assets swelled by Rs 1,204 crore followed by HSBC (corpus increased Rs 552 crore) and Principal PNB MF (Rs 262 crore).

    Among the 15 funds, HDFC MF is the biggest loser as its asset base shrunk by 2,298 crore to the current level of Rs 13,807 crore, from Rs 16,105 crore at the beginning of July to Rs 13,807 crore at the end of October, a fall of 14.27%. Prudential ICICI MF follows closely with a loss of Rs 1,367 crore, from Rs 16,071 crore to Rs 14,704 crore, a decline of 8.51%. In terms of percentage, LIC MF is the biggest loser with its corpus plunging 18% during the period, from Rs 4,960 crore to Rs 4,064 crore. In terms of growth, HSBC MF has topped the list of gainers with its asset base galloping 10.1% to Rs 6,015 crore followed by UTI Mutual Fund (corpus up 6.38% to Rs 20,079 crore) and Principal PNB MF (up 5.43% to Rs 5,087 crore). Others like SBI MF (1.85%) and JM MF (0.66%) have also seen marginal growth in corpus.

Do MFs yield more than ULIP? ULIP don’t offer investors any choice
  • 27th November 2004: Mutual funds and unit-linked plans (ULIPs) of life insurance companies address different financial planning needs and cannot be compared. MFs target investment returns while ULIPs aim at life insurance, i.e., protection against financial strains caused by death/critical illness. Investment returns from ULIPs are a secondary benefit. Globally, ULIPs are more popular as they are more transparent, flexible and easier to grasp than traditional insurance products, but they are not superior to MFs.
  • That is firstly since only 70-80% of the payments made are invested in the first few years in ULIPs. The rest pays the broker, fund manager and funds the life cover. The principle of compounding thus works against investors, to dent net returns. It is better to buy the cheapest, most comprehensive, life insurance via a ‘term’ or ‘pure risk coverage’ policy, investing the difference between that and ULIP into a MF. That could net gains of 1% per annum over a decade, despite returns from both instruments being identical.

    Secondly, advantages like Sec 88 are also available in ELSS Funds, which have lower exit loads than ULIPs. Thirdly, funds offer a far wider choice of investments — from aggressive growth funds, income funds, to cash funds. Fourthly, funds have an open architecture in distribution; most big distributors offer funds from all 29 fund houses, but it is largely its “tied agents” who offer a company’s insurance. So, in ULIPs, customers lack choice and cannot compare. Fifthly, tax-free switching is allowed within ULIPs’ sub-plans, but not across companies. Hence ULIP holders must pay the exit load to move investments if the fund performance of one company is poor. So, even if ULIPs offer a well-packaged (and occasionally a ‘principal and returns guaranteed’) product with tax advantages, which is offset by high initial costs, illiquidity, and exit loads.

    In sum, the issue is not of whether to get insurance or MFs, but how much of each. Ignore the savvy marketing of ULIPs as being the “best of both worlds”, and seek out the best rates, benefits and returns. The best financial planner is the one who puts investor interests over commissions.

Chola MF has launched new fund
  • 15th December 2004: Chola Mutual Fund has launched an open-ended equity scheme Chola Multi-Cap Fund. It targets to raise Rs 75 crore through the initial public offering. Chola Multi-Cap Fund IPO, which is open for subscription from December 14, 2004 to January 10, 2005, would invest in equity and equity-related instruments across all ranges of market capitalisation, said Chola chief executive Sashi Krishnan. "We had launched Chola Mid-Cap fund in August. The fund was very good but the market sentiment was not. This time we are launching the multi-cap fund when both factors are strong to benefit the investors," added Mr. Krishnan. The exposure to large cap and mid cap stocks would be maintained between 25-75% while exposure to small cap stocks would not exceed 15%, he said.

  • Through the multi-cap fund, the MF will be able to provide investors with added diversification, allowing tactical shifts across market caps depending on the conditions, he added. The scheme would have both cumulative and dividend options. Krishnan said the scheme would target retail and individual investors and expects to gather Rs 75 crore through the public offer. The performance of the diversified funds has been far better with investors getting 14 times return compared to five times return from the Sensex boom, he said. Profits of Indian corporates will be higher in the next few years resulting in superior returns from equities, he said.

Sundaram MF has launched SMILE fund
  • 3rd January 2005: Sundaram MF has launched Sundaram small and medium Indian leading equities (SMILE) fund. The initial public offer (IPO) for the scheme will open on Jan 3 and will end on Jan 24. It is an open-ended equity fund with the BSE 500 as its benchmark. It will deploy from a minimum of 65% to a total of 100% of its total assets to small and medium caps. Small caps have been defined as those companies with a market cap of less than Rs 200 crore.

  • The fund can keep a maximum of 15% of its corpus in cash and money market instruments. Not more than 35% of the corpus can be invested in large caps, according to the prospectus of the fund. The fund's track record, according to sources at Sundaram is as follows: the Sundaram select mid-cap has given annualised returns of 69% since its inception, 87% over the last two years and 35% over the last one year. The fund has yielded 64% over the last six months.

Sebi sticks to mutual fund investor norm
  • 4th January 2005: The market regulator, Securities and Exchange Board of India (Sebi), has taken a firm stand on the single-investor norm. It has now specified that the rule, also called the “20-25 norm”, will not only be implemented at the scheme (portfolio) level but also at the plan level. However, as a relief to mutual fund (MF) players, Sebi has extended the deadline of its implementation to January 31. This effectively means that each MF scheme and plan that does not have a minimum of 20 investors or has a single investor holding more than 25% of its assets will either have to close down or merge with other schemes. The latest data furnished by the MF industry to Sebi shows there are 130 schemes and plans with Rs 15,048 crore assets under management (AUM).
  • A Sebi official said, “We have considered the case thoroughly and have come to the conclusion that the 20-25 norm will only be effective if it is implemented not only at the scheme level but also at the plan level. There is no scope of reconsideration on this issue as Sebi had issued the circular in this regard as early as December 12, 2003.” He said, the idea is to broadbase the industry and increases the retail reach. This will only happen if the 20-25 norm is implemented across the schemes and plans of each mutual fund. In fact, fund houses should make an effort of having a minimum number of 40 investors in each scheme and plan to go truly retail, he said.

    The Association of Mutual Funds in India (Amfi) members had made several representations to Sebi and requested the regulator to implement the aforesaid norms only at the scheme level. Sebi had issued a letter to MF players in the previous week asking them to give details of the unit holders of the schemes and plans and their share of assets in percentage terms. Sebi had said that it would take the final decision with regard to implementation, if convinced that the retail investors of MFs would not be affected adversely. Meanwhile, most of the fund houses, especially the top league players like HDFC MF, Prudential ICICI AMC, Franklin (Templeton) India Pvt Ltd, have closed down certain plans in the last week of December, since those did not comply with the Sebi norms.

Institure of Chartered Accountants of India is organising a Non-Residential Conference on Mutual Fund
  • Non-Residential Conference of Chairmen, Directors and CFOs of Mutual Funds & Asset Management Companies and Chartered Accountants to be held at Windsor Hall, Hotel InterContinental, Marine Drive, Mumbai on 17th January, 2005.



09.30 A.M. - 10.00 A.M.

Technical Session - I

10.00 A.M. - 11.30 A.M.

Theme - An Overview of General Issues in Mutual Funds

§         Review of Report 'Reform of the Mutual Funds Industry - India' by Cadogan Financial

§         The future of ETFs and REITs

§         What the Indian Mutual Funds need to do to increase their presence in the Retail Market

Tea Break

11.30 A.M. - 11.45 A.M.

Technical Session - II

11.45 A.M. - 13.15 P.M.

Theme - Regulatory Issues - The Indian Mutual Fund Scenario

§         Current Regulatory Structure

§         Trends in Regulation

§         Overview of Tax Laws, Securities Laws and Related Legislations - Constraints and Opportunities


13.15 P.M.-14.15 P.M.

Technical Session - III

14.15 P.M.-15.45 P.M.

Theme - Related Issues

§         Accounting and Auditing and Assurance Standards related issues

§         Issues in Transparency

§         Regulatory Issues - Questions before SEBI

Tea Break

15.45 P.M.- 16.00 P.M.

Technical Session - IV

16.00 P.M.- 17.30 P.M.

Theme - Mutual Funds Fees and Expenses

§         Issues in Disclosure of Transaction Expenses

§         Issues in Disclosure of Mutual Fund Fees and Cost

§         Brokerage Allocation Practices and Revenue Sharing

Open House

End of Programme

17.30 P.M.- 18.00 P.M.



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