  | | May 30, 2014 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 24,217.34 | -476.01 | -1.93% | | Re/US$ | 59.04 | -0.58 | -0.99% | | Gold Rs/10g | 27,270.00 | -680 | -2.43% | | Crude ($/barrel) | 110.96 | -0.83 | -0.74% | | FD Rates (1-Yr) | 8.00% - 9.00% | Weekly change as on May 29, 2014
*BSE Sensex as on May 30, 2014 | |
Impact 
Imagine a world where only big things exist. There will be no small lanes, only highways. You go on the road you will find only big cars and no space for the small ones. But is big always good and beautiful? Well, we need to ask this question in times, when everyone's perception is changing dramatically today. People are vying for big things in life, without recognising the utility which even small things of same attributes can offer. And the story on the regulatory side isn't any different today.
The Securities and Exchange Board of India (SEBI) feels small players in the mutual fund industry are not serious, so there is no place for them unless they get big. Does size of a player really speaks about its seriousness?
It would be too harsh to expect a new-born to crawl and walk within a fortnight of his / her birth. But SEBI feels mutual funds that don't satisfy a condition of having minimum net worth of Rs 50 crore are unfit for doing business. PersonalFN has written candidly about this topic in the past. Lately, the regulator has moved one step further. SEBI has stopped clearing applications for any New Fund Offers (NFOs) - both equity and debt - of fund houses with net worth of less than Rs 50 crore, although the deadline for mutual fund houses to comply with the same is May 2017.
PersonalFN has a clear and unambiguous view on NFOs. If a fund house launches a fund to offer something unique from its stable, then there shouldn't be any hazards. If a fund house that launches a fund which is almost identical to some of its current offerings, then there are certainly moral hazards. Is SEBI is ready to turn a blind eye to this? These days, markets are doing extremely good. Riding this wave, many fund houses launched NFOs, a majority of them betting on the mid and smallcap space. It is noteworthy that, despite having similar offering(s) under their current product portfolio, fund houses have managed to add new funds to their basket.
PersonalFN is of the view that SEBI should ensure that NFOs which it clears, are unique and does not replicate the existing products offered by the fund house to lure investors with Rs 10 offer. Mutual fund houses shouldn't be allowed to make hay when the sun shines in their race to garner more Assets Under Management (AUM).
Blocking NFO of fund houses which do not meet the minimum net worth criteria of Rs 50 crore, only means SEBI is endorsing the idea of big is good and beautiful. This implies that the big fish gets bigger, and eventually eats away the smaller ones; as consolidation could happen in the mutual fund industry.
The problems...
There are limited means of increasing net worth. Either the promoter has to pump in cash, borrow or grow profits fast. In worst case, smaller fund house may have to resort to the second option more in the absence of the first and the third one to sustain. Promoters may have to borrow at any cost, to be in businesses if he wishes to. You see, while they may want to increase profits, it is quite possible that they resort hardcore selling or even mis-selling. Now, would that do any good to the industry? Well, in our view, it may not. All it would result in is, shut down or consolidation of small fund houses with the bigger ones. The same old story of big fishes eating the smaller ones. Only too big to fail would exist. These fund houses have been desirous of getting thousands of crore worth retirement fund of employees provident fund under their management. Many of the contributors of provident fund schemes are small investors. Where do they find place in our imaginary world?
PersonalFN is of the view that, if introducing a minimum net worth criterion is rather harsh on smaller fund houses. You see, mutual funds are only pass-through vehicles; and thus given that, this move from SEBI seems to do injustice to smaller players in the industry. It is noteworthy that SEBI only had introduced a concept of seed capital. SEBI could have rejected NFO clearance to those who don't even have money to invest in their own funds as seed capital. But instead of doing something similar to that, SEBI is insisting on satisfying minimum net worth criteria.
Do you feel this move of SEBI is justifiable ? Share your views here.
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Impact
At the very first day in office, the NDA Government under Prime Minster, Mr Narendra Modi took stance on diverse issues and sent out strong signals. The Finance Minister (FM) Mr Arun Jaitley too listed down growth, inflation and fiscal consolidation as the key triumvirates, while promising expeditious decision making in the few months. "We have to restore back the pace of growth, contain inflation and obviously concentrate on fiscal consolidation itself," Jaitley told the media.
In a recently held meeting with Dr Raghuram Rajan, the Governor of Reserve Bank of India (RBI), Mr Jailtley spoke about 'balancing' the fight against inflation with the need to nurture growth.
But can balancing inflation and growth be an easy task?
Well, the Bhartiya Janata Party's (BJP's) affinity with the corporates may lead them to dole out sops which could encourage economic growth. But this poses a conflict in the path of fiscal consolidation and managing inflation. Nevertheless the Government recognises that managing inflation and growth are their most critical challenges and therefore is in sync with RBI.
Amid the official forecast of a below-normal monsoon this year (due to 60-65% chances of an El-Nino phenomenon) - which has danger of doing harm to agriculture produce - the RBI may keep policy rates elevated. In fact if inflation ascends further, the RBI may not shy away from hiking policy rates.
PersonalFN believes that in order to push economic growth upwards, the Government has to expedite the decision making process which was mired during the UPA regime, which saw several scams unveiling. Moreover, it is imperative to take prudent decisions which can build a conducive environment to attract foreign investments. The budget to be presented in July 2014 would also be an interesting event, which will set expectations for growth along with other intermediate measures taken by the NDA during its term.
PersonalFN believes, amid times when challenges remain for the new Government, it would be vital to have a robust investment portfolio. At PersonalFN we've helped several investors in build their investment portfolio recognising their risk appetite, investment objective and time horizon. If you want to ensure that the investment portfolio you hold is robust enough to sail through challenging times, take our portfolio review service and be rest assured. Mind you, we've always put our client interest at fore and provided them with an unbiased and independent advice - and that's what makes us different and respected institution that helps investors achieve their financial goals and aspirations.
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Know the Tax Implication on Your Mutual Fund Investments (Free Video!)
As a prudent measure while making your investment decision, you should also be aware about the tax you need to pay on account of gains from your investments.
So what are the latest tax implications on your investment in mutual funds?
The Session 20 of 'Money Simplified - Your Guide to Money and Mutual Funds' can help you calculate the tax payable on your mutual fund investments.
Click Here to Watch this Video Now. Its Free! | | |
Impact
Extended celebrations of impressive victory of NDA would soon be over. The newly elected Government is expected to boost economic growth. Fast-tracking of big infra projects, revival of manufacturing sector, boost to export oriented industries are some of the priorities of the new Government. Hoping some real action from this government and expecting strong economic revival, investors have raised their exposure to sectors which would benefit from economic recovery. Mutual funds are no exceptions to this.
Over last 4 quarters, it is observed that mutual funds have raised their exposure to cyclical sectors such as construction, engineering, banking and automobiles among others. On the other hand, weightage of consumer non-durable sector is constantly dipping in the portfolios of mutual funds.
Mutual funds turning less defensive by lowering exposure to consumer non-durables
Data as on May 27, 2014
Equity component of schemes launched by all mutual fund houses has been considered
(Source: Ace MF, PersonalFN Research)
As a continuation of the trend, mutual funds have further slashed weightage of the sector in April 2014 to 6.70% from 6.98% in March 2014. You might be thinking, why consumer goods companies are being less favoured, especially considering more job creation and more discretionary income would create more consumption demand.
To read more about this news and the view of PersonalFN over it, please click here.
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Impact
When you buy any financial product, you are expected to read the fine print and disclaimers. While buying mutual funds, you must have read somewhere, "mutual fund investments are subject to market risks, please read all scheme related documents carefully." So, in other words, the onus or responsibility is on the buyer while you invest in mutual funds. This principle of 'let the buyer beware' or 'caveat emptor' has been prevailing since a very long time. But now there is buzz that this principle should shift to 'let the seller beware' or 'caveat venditor', as it is called.
Nachiket Mor committee appointed by the Reserve Bank of India (RBI) on 'Comprehensive Financial Services for Small Businesses and Low Income Households' has found that, the current structure of customer protection has severe restrictions. The committee has noticed that considering vast difference between available information along with that in expertise, the power of seller would be asymmetrically higher than that of the buyer if the current system of 'caveat emptor' continues. Therefore, the committee has suggested that there is a need to shift from the current system to a system where seller will be accountable for the service. The committee feels, the seller should sell products or offer advise after considering, financial situations and financial needs of potential buyers.
To read more about this news and the view of PersonalFN over it, please click here.
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- Last week we wrote to you, how sensing a stunning victory of the BJP led NDA, the Public Sector Undertakings (PSUs) performed on the bourses once the dates for Lok Sabha elections were announced. With a belief that governance of PSU companies would vastly improve under NDA Government and projects would be cleared soon, the S&P BSE PSU index has rallied. And here's a development already on PSUs with the NDA Government formed.
You see, the finance ministry officials are proposing for disinvestment of PSUs through follow-on offers, an open offer for sale to increase the market float of state-run companies, while maintaining a majority stake of 51% in all its enterprises. At present, it is said that presentations on this are made to the newly chosen finance minister, Mr Arun Jaitley.
It is noteworthy that, currently private companies have to maintain a minimum 25% public float while the limit for PSUs is 10%. In 2012, the Securities and Exchange Board of India (SEBI) had announced mandatory 25% public holding for both public as well as private companies but later it altered the minimum public shareholding norms for listed public sector entities and they were to maintain at least 10% public holding.
PersonalFN is of the view that, if such a proposal is accepted one may see several follow-on offers hitting the street, which could attract investors' interest. However, pricing of such follow-on offers at elevated levels of the market remains crucial.
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Disinvestment: The action of an organization or government selling or liquidating an asset or subsidiary. Also known as "divestiture".
(Source: Investopedia)
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Quote : "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well." - Warren Buffett
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