This MLM openly flouts SEBI norms and offers 120% returns in a year through stock market investment!

This MLM openly flouts SEBI norms and offers 120% returns in a year through stock market investment!
December 27, 2010 04:47 PM
Moneylife Digital Team
Source: http://www.moneylife.in/article/78/12686.html

Stockguru.India and its group companies are self-styled investment advisors, offering Rs22,000 on an investment of Rs10,000 in one year

As if there were not enough potholes on the stock market route, here is a multi-level marketing (MLM) company that is promising 20% returns per month! The company Stockguru.India describes itself as the country's 'Premier Financial Consultancy', offering trading solutions in equity, derivatives, currency futures, commodities trading, initial public offerings (IPOs), insurance (life/non-life), general insurance, mutual funds, portfolio management services, terminal handling all under one roof. 

Stockguruindia.com (the company's portal) has only one standard line of advice in all market situations-whether it is a bull market or a bear market, range-bound market or volatile market. It says, "We advise our clients to buy shares at a low price and sell them at a higher price. Selecting the right share at the right price and entering the capital market at the right time is an art. We help all our clients to make huge profits by investing in good shares for very short/short/medium/long term depending upon the client's requirements. Trading/investment for minimum intraday to T+5 days may give you a handsome return of 5% to 25% on your capital investment." 

This MLM company's investment (!) plan is simple. You pay a minimum Rs10,000 as investment and Rs1,000 as registration fees. There is no limit on the maximum amount one can invest. Stockguruindia.com offers a return of 20% per month for up to six months and the principal amount invested is returned in the next six months. It also gives post-dated cheques of the principal and a promissory note as security. In short, on an investment of Rs11,000, the company offers to pay you Rs12,000 in six months and the rest Rs10,000 over the next six months, a total of Rs22,000 or a 120% return in a year. 

So how does Stockguruindia.com offer such a high return where even leading investors like Rakesh Jhunjhunwala found it very hard to earn even 20% return from the stock markets? Here is the company's logic..."If you have gained Rs1,000 somebody has lost Rs1,000. If you have lost Rs1,000 somebody has gained Rs1,000. Most of the people you meet say (around 90%) that we have lost a lot of money in the financial markets. But that means around 90% people you do not know have made huge profits. For every seller there is a buyer." 

If this sounds to be too good to be true, it lures investors with an additional 3% per month income through a binary plan of 27 levels. Binary plans of MLM companies are the new clients you bring in, who are placed below you in rank in a right and left combination. It's nothing but a trap. All MLM companies promise say you rewards if you complete the left leg-right leg cycle. But in practice this does not happen. There are very few people who manage to do this in a proper way. A majority of those participating fall in the category where they lack a single member in one leg, or a member becomes inactive thus freezing the spread of that leg and the business. 

How do MLM companies operate without a trading license from the regulators, the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI)? Why has there been no action against Stockguru.India, Stockguruindia.com and its subsidiaries? Market regulator SEBI had, on its part, issued SEBI (Investment Advisers) Regulations, 2007 (the 'Draft Regulations') to regulate the advisory activities of investment advisers in India. But till date it has remained a draft only. 

According to R Balakrishnan, a columnist for Moneylife, India probably is the only market in the world where a distributor needs to pass an exam, but absolutely no qualifications are required for someone to become a fund manager. The same is applicable for investment advisors as well. As a result, there are a number of 'self-styled investment advisors', including wealth managers, private bankers, chartered accountants and even some MLM companies like Stockguru.India.  

According to the SEBI Act 1992, "No stock-broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with the securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act." 
 
In addition, the Act says, "No person shall sponsor or cause to be sponsored or carry on or caused to be carried on any venture capital funds or collective investment scheme (CIS) including mutual funds, unless he obtains a certificate of registration from the Board in accordance with the regulations." 

Stockguru.India and all its group companies are openly flouting the norms and rules. It is not registered with SEBI as investment adviser and still offers to trade on behalf of its clients. According to information available over the internet, Stockguru.India and its chairman and managing director Lokeshwar Dev, will help anyone to open a demat account with Sharekhan so that they can manage the investor's money. We checked with Sharekhan and the brokerage said, neither Stockguru.India nor Lokeshwar Dev have any relations with or any demat account with them. 

In addition, neither Stockguru.India nor any of its group companies possess a certificate of registration from SEBI for CIS, but they are still collecting huge amounts from clients under the pretext of stock market investment. 
Are the regulators sleeping on this one?

Shaky financial advisors look for stronger ground

Shaky financial advisors look for stronger ground

HT Correspondent, Hindustan Times
Email Author
Mumbai, December 26, 2010  

  

                                                                                                                                                         Source: http://www.hindustantimes.com/Shaky-financial-advisors-look-for-stronger-ground/Article1-643146.aspx   

Independent financial advisors have gained ground in the investment business after a year of tumult that saw a regulator-enforced shift from commission-based earnings to fee-based earnings but the industry is still shaky. Advisors have courageously bid good-bye to the old regime, but are grumbling about the poor earnings potential in the new world after the Securities and Exchange Board of India (SEBI) backed measures that barred entry loads in mutual funds.

A survey of 373 independent advisors across the country conducted by Cafemutual reveals that as many as 95% want regulation that would help raise the standard of financial advisory firms.

The survey revealed that in a clear shift of focus, as many as 42% of independent financial advisors have started charging fees from their clients.

However, commissions have always been influencing the funds sold and the survey results confirm this. Almost 57% of the independent financial advisors in the survey said that commission structure was influential in pushing investment products.

Almost 70% of those surveyed said the stance of the mutual fund industry on entry load ban has not been supportive of independent financial advisors.

Most of the independent financial advisors (74%) feel that the decision on no entry loads would not be reversed even with a new SEBI chief coming on board in February after the end of incumbent chairman CB Bhave’s term.

"I think we will come out with a progressive solution rather than going back on entry load as it is a good decision in the long run," said the head of private banking at a leading private sector bank in India.

Equity Investments vs. Mutual Fund

Analyze the market conditions carefully with the help of a broker who can guide you towards investing in right stocks.

Prajakta Ambre | Fri Sep 3, 2010 TAGS: diversified funds, equity vs mutual fund, investing in equities, investing in mutual fund, investing in right stocks,investing in stock market, investment plans, MIP, mutual fund manager, SIP, Stock market news

Source: http://www.stockmarketdigital.com/blogs/editor/equity-investments-vs-mutual-fund

Stock markets have been in a highly volatile mood since the beginning of the year. Investors are playing safe as far as equity investments are concerned. Many investors believe that investing in a stock market is all about investing in equity shares at low prices and selling them at high prices at the right time to achieve the expected returns.

This popular belief doesn’t always work because markets keep fluctuating and have tremendous impact on the way trading is done. Regardless of the investment options you have, choosing right stocks is the first step you should take while investing in the stock market.

If you are a new investor, and are uncertain about the kind of stocks you should pick, then you should start with investing money in Mutual Funds or SIPs (Systematic Investment Plans). Mutual Fund Investment is a subject to lower risk as they are tradable securities and can be bought and sold freely, at the current value of the securities invested in.

The money invested in a Mutual Fund Company belongs to you as an individual investor and you can withdraw from the fund at any point of time. This again depends on the kind of Mutual Fund you select. Nonetheless, make sure that you check the track record of the Mutual Fund Company before your start investing.

As far as investing in SIPs or MIPs (Monthly Investment Plans) is concerned, there is nothing like good timing or bad timing. The longer you wait to invest in SIPs, the more complicated it may get for you.

Analyze the market conditions carefully with the help of a broker who can guide you towards opening an account and recommend you the kind of stocks you should select. The broker handles your major transactions; however, you should remain cautious and make the right decision while buying stocks.

Full time investors with a very good risk appetite can take negotiable risks with equity investments. Equity investments include various types of equities that have diverse impacts. One of which is private equity that contains equity securities which cannot be publicly traded. There are many other investment strategies that can be considered and the amount of risk each investor incurs depends on that type of investment.

Mature investors prefer to diversify their investment strategies to be on the safer side. As you can buy multiple shares with a single trading account, you can opt for both short term and long term equity shares.

Start with slow and steady investments and be a safe player. Support your instinct with correct facts by watching the stock market carefully and expect the desired returns on your investment. Thus, it makes more sense for investors to stick to mutual funds at this point of time and have an indirect exposure to the stock market to stay invested for a long term and incur benefits.

What makes you richer? ULIPs or Mutual Funds?

Both ULIPs and Mutual Funds help you maximize your monetary prospects. But we tell you which is better!

Gaurav Sharma | Sun Dec 26, 2010 TAGS: equity investments, investment options, MFs, mutual fund, mutual fund vs ulip, ulip vs mutual fund, ULIPs, Ulips vs mutual funds, Unit Linked Insurance Plans

Source: http://www.stockmarketdigital.com/blogs/finance/what-makes-you-richer-ulips-or-mutual-funds

ULIPs (Unit Linked Insurance Plans) and MFs (Mutual Funds) are some of the best financial instruments that help you earn well and maximize your wealth prospects within a stipulated time. When it comes to diversifying your wealth, you should considering investing in both.

However, if you have to choose between the two investment options, then you should refer to the following comparison in order to make the best choice.

• Longevity

- ULIP is a long-term investment product with a term of ten years and more than that.
- Mutual Fund is a relatively short-term product with a timeline of three to five years.

• Expenses

- Expenses incurred in ULIPs are bigger and are decided by the respective insurance company.
- Expenses incurred in Mutual Funds are lesser as they are set in pre-established investment system.

• Tax Benefit - ULIPs give better advantages as tax benefits qualified under Section 80C of Indian Income Tax Act help saving tax worth Rs. 10,000.
• Under Mutual Funds, Equity linked tax saving scheme (ELSS) is the only investment option that provides the tax benefits.

• Return on Investment (ROI)

- In ULIP investments, charges get spread over a prolonged period of time and thus, the return on investment is good yet deferred.
- In case of a Mutual Fund, return on investment is quicker and higher than expected, depending on the skill of the fund manager.

• Net asset value (NAV)

- In ULIPs, the insurance company allots units to the ULIP investors and the NAV is calculated and declared on a daily basis.
- In Mutual Fund, the respective company allots units to the Mutual Fund investors and though the NAV, the current value of the investment is calculated on a daily basis.
 

Conclusion
Thus, from the investment point of view, Mutual Fund is definitely a better option. However, if you need insurance cover along with investments for a longer period of time, go for ULIPs.

UK Sinha is new SEBI chairman

Source: http://www.rediff.com/business/report/uk-sinha-is-new-sebi-chairman/20101213.htm

U K Sinha, chairman of the Association of Mutual Funds in India, has been named the new chairman of the Securities and Exchange Board of India.

Sinha will take over on February 17 next year when incumbent C B Bhave's term ends.

Bhave took charge as Sebi chairman on February 18, 2008 on a three-year term. However, the terms of chairman and whole-time directors at Sebi have been increased to five years since then. Similarly, the terms of RBI and insurance watchdog IRDA's chiefs have also been increased to five years.

Sinha, a former IAS officer of Bihar cadre (1976 batch), had lost out in the race the last time when the Prime Minister's Office preferred Bhave over him.

According to media reports, Sinha quit IAS when he was holding the rank of an Additional Secretary to the Government of India and continuing on deputation with UTI.

But after quitting civil service, he was given another five-year term as CMD, not as a government nominee, but as the choice of the stakeholders of UTI AMC. State Bank of India (SBI), Bank of Baroda (BOB), Life Insurance Corporation Corpn. and Punjab National Bank (PNB) are the promoters of UTI AMC.

Sinha earlier held key positions in the Government of India, notably in the Ministry of Finance, where he was the Joint Secretary, looking after capital markets, external commercial borrowings, banking and currency and coins.

During his tenure at the ministry, he spearheaded several initiatives, such as banking and capital market reforms.

Source: http://www.livemint.com/2010/11/23192555/Four-indicators-to-selling-you.html?atype=tp

Four indicators to selling your scheme

Performance is crucial to any investment. Change in fund management or investment objective is a good reason to exit. Also, change the asset allocation when you are close to a financial goal

Kayezad E. Adajania, kayezad.a@livemint.com

Though we have told you to buy mutual funds (MF) throughout the year, it doesn’t mean that your investments are for keeps, especially those that are linked to—and move with—the markets. There are times when selling your MF scheme makes for a compelling case. We tell you four key events when you should clean your MF closet and weed out the ones you don’t need.

When you invest in an MF, you would ultimately want to make money. But what do you do when your fund doesn’t perform? “Consistency of performance is important even though your MF schemes may not always be on top of the list,” says Rupesh Nagda, head (investments and products), Alchemy Capital Management Co. Ltd, a Mumbai-based wealth advisory firm.

As per data provided by Value Research, an MF tracking firm, schemes such as L&T Multi Cap have underperformed their category averages in all of the past four calendar years, beginning 2006 till date, that include rising as well as falling equity markets. JM Equity Fund underperformed the category average in the rising markets of 2007 (46.7% against a category average of 58.2%) and also in falling markets of 2008 (loss of 61.5% as against 54.3% category average).

Before you dump your fund though, try and get to know why your fund is underperforming. At times, your fund underperforms not because of the fund manager, but because a particular theme or a bunch sectors where your scheme is mandated to invest in are not doing well.

Franklin Templeton Dynamic PE Ratio Fund of Funds switches between equity and debt depending on the Nifty’s price-earnings (P-E) multiple. Higher the Nifty’s P-E, lower will be the fund’s allocation to equities and vice-versa. Typically, in rising equity markets, this fund underperforms equity-oriented balanced funds because it is mandated to automatically reduce its equity exposure and shift to debt. In falling markets, it invests in equity. So while in 2007, it underperformed balanced funds (27.42% as against 39.65% by balanced funds), it fell lesser (-25.53%) as compared with balanced funds (-37.14%) when markets fell in 2008. Moreover, the fund’s strategy seems to have paid in the long run; over the past five-year period, it returned 17.72% as against 14.9% category average of balanced funds).

Fund houses would have you believe that it’s the internal processes that matter the most when it comes to performing well and not individual fund managers. While that is true to a large extent in India— as against in the developed countries where fund managers can really make a big difference—fund managers in India, too, could make a sizeable difference at times.

Take the case of HSBC Equity Fund (HEF). Between December 2002 (when the MF launched itself in India) till December 2005 when star fund manager Sanjiv Duggal used to manage it, HEF returned 72% as against the large-cap funds’ category average of 60%. Duggal’s successors weren’t able to replicate his success; between 2007 (typically, we give a year to the new fund manager to settle in; hence a year’s gap) and November 2010, HEF underperformed large-cap funds on an average (11.13% as against the category average of 12.57%).

In some cases, new fund managers bring back a flagging scheme to life. After years of lying at the sidelines, Canara Robeco Asset Management Co. Ltd entered the top quartiles after Robeco, a Netherlands-based asset management company, picked up a stake in 2007. In 2009, Canara Robeco Equity Diversified Fund, under the aegis of Anand Shah and a revamped equity team, returned 93% compared with 78% average returns by large- and mid-cap equity funds.

However, cases like these are few and far between. Says Prem Khatri, chief executive officer, Cafemutual, a website offering MF news and information to distributors: “Ascertain how much of the performance of your fund is due to individual brilliance and how much due to an institutionalized investment process.” Khatri adds that if certain fund managers in a team are outstanding while others are average performers, it’s a bad sign. We suggest you give a year-and-a-half to your fund if there’s been a change of guard. A consistent slip in performance must trigger an exit.

Several Mint readers wrote to us asking should they book profits as markets hit their all-time high last month. Many financial planners advocate investments even at these levels. “Long-term investors should continue; there are some very strong stories which continue to remain available at reasonable valuations. We believe we are at the cusp of a sharp rally as economies across the world realign and that economic data would strengthen from here,” says Sandip Raichura, business head (wealth management), Pinc Money, Pioneer Investcorp Ltd’s wealth management arm. In other words, continue with your systematic investment plans (SIPs).

The other way to look at it is from your asset allocation standpoint. If your asset allocation—depending on your risk and objective profile—is 60% in equities and the rest in debt and cash, and if your equities allocation has gone up to, say, 70% on the back of rising markets, book profits and bring down your equity exposure to 60% to your overall portfolio.

Keep an eye on your financial goals, too. Financial planner Gaurav Mashruwala says: “If you’re close to your financial goals, your asset allocation should change in favour of debt. Also if you have reached your targets, rebalance your portfolio. Change the portfolio based on your conditions and not on market conditions.”

For instance, assume you started an SIP in HDFC Equity Fund on 1 January 2000, investing Rs.1,000 every month, say, to fund your child’s education that was to start in 2009. Satisfied with the growth the equity markets you would have enjoyed effective 2003, if you withdrew by the end of 2006, you would have gotRs.4.02 lakh or 44.43%. If you had stayed invested till the end of 2008—and endured the market crash—you would have madeRs.3.23 lakh or just 23.35%. Think of what a couple of years here or there could do to your funds.

Last, but not the least, when your scheme’s objective undergoes a change, you may want to consider a switch. Typically, this happens when your schemes gets merged into another one.

As per rules laid down by capital market regulator, the Securities and Exchange Board of India, unitholders of the acquired scheme are given a time frame of 30 days to exit without paying an exit load, if any. “Study the change of objective as if you’re investing afresh, for the first time. Understand the implications of the change on the fund’s management and the change in risk profile,” says Harshendu Bindal, president, Franklin Templeton Asset Management (India) Pvt. Ltd.

Change in objective may also come when fund management styles change. Sandip Sabharwal, former fund manager of JM Financial Asset Management Pvt. Ltd’s equity schemes, aggressively managed them. He liked to invest— early on—in small and mid-sized companies and hold tight portfolios of about 20 to 25 scrips. His strategy worked well in rising markets of 2007, but backfired when markets crashed in 2008. Sabharwal and JM parted ways in early 2009. Ever since JM has revamped its equity portfolios and now run their schemes much less aggressively than before. If you had invested in schemes going by a fund manager’s style, any change would usually warrant an exit.

SEBI wants MFs to spend money on investors, not distributors

Source: http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/SEBI-wants-MFs-to-spend-money-on-investors-not-distributors/articleshow/6883860.cms

NEW DELHI: Concerned over large-scale outflow from mutual fund schemes , market regulator SEBI wants fund houses to invest part of their profit on cementing ties with investors and curtail commissions and freebies to agents. 

Market watchdog SEBI, which also oversees mutual funds, is of the view that fund houses can improve their commission bargaining power by working on consolidation in the distribution network and bringing down the number of agents and distributors. 

In its last meeting, the SEBI board discussed the impact on mutual fund industry from regulatory steps such as abolition of entry load taken in the past one year and was of the view that there has been a positive impact on the profits from the actions taken by the regulator, an official said. 

"A part of the additional profits earned in FY'10 could be invested in 'investor connect' to cement relationship with investors and for training the distributors to adapt to the new environment," K N Vaidyanathan, SEBI's Executive Director responsible for the mutual fund segment, told the board. 

The board was also informed that some fund houses have initiated steps in this direction and this (spending on investors) needs to be encouraged, the official added. 

SEBI has been reacting strongly to large commissions and freebies offered to MF distributors, although some industry players contend that agents need to be entertained to contain the outflows and improve inflows from the investors. 

The abolition of entry loads, the additional payments charged to new investors that mostly go to distributors, has led to fund houses cutting down on agent commissions. 

"The AMCs have done well to adapt to the new environment and are having a more even relationship with distributors, though concentration of distributors needs to be addressed to improve bargaining power for commission negotiation," the official said. 

While some industry players have cried foul against the move saying their business has been hurt, SEBI is of the view that "abolition of entry load has not made any significant dent in inflows into existing schemes." 

However, coupled with more rigorous requirement for new scheme, it has resulted in drastic reduction in NFOs. AMCs continue to be challenged by outflows and need to analyze factors influencing outflows." 

The board observed that the abolition of entry load has led to fewer number of NFOs (new fund offers) and it would help the industry by way of consolidation of products. 

SEBI abolished entry loads with effect from August 2009 and says that there have been savings worth Rs 1,260 crore for retail investors in the one-year period since then. Besides, there has been a near 4-fold increase in profit in FY'10 over the previous fiscal and more fund houses made profits during the year.

Photos of IFA Galaxy Knowledge Summit 2010 held on 22/10/2010 at Chennai

IFA Galaxy Knowledge Summit 2010 - Held at Chennai on 22nd October 2010

My Dear IFAs,


Thanks for the excellent response for IFA Galaxy Knowledge Summit 2010. People from Tamil Nadu, Kerala, Andhra Pradesh, West Bengal  and Karnataka attended this Summit. Totaling to 245 officially registered attendees apart from speakers.  


Sorry we were forced to say sorry to few members who came late to register them self as the entire hall was full with attendees.


I request all the attendees to register their views so that the others who had not attended can read it and know what they had missed it.


Ramesh Bhat
IFA Galaxy

HDFC Top 200 Fund: The steady horse

http://economictimes.indiatimes.com/tv/personal-finance/HDFC-Top-200-Fund-The-steady-horse/videoshow/6719693.cms

IFA Galaxy Knowledge Summit 2010 - 22nd October 2010 at Chennai

Where is Mutual Fund Industry going ahead?

1. The regulator wants MFs to be traded more via exchanges and demat account and less ivia physical forms and cheques as in today

2. The regulator wants the trades to be done via broking terminals and not through AMC, or R&T offices as in today.

3. They investor has to cut a cheque favoring the broker and the broker will allot units post realisation of cheque as is done in case of equity shares today, the R&Ts will based on the order of the broker, credit daily units to broker account which would be pooled and then transferred to the clients demat account on T+3 basis

4. This means an advisor has to become a sub broker and route his trades that way and most probably lose his identity forever

5. In all this hopefully, the regulator may come out with a simple mechanism by which an ARN Holder can also participate directly 

without going through a stock broker. It remains to be seen whether the IFAs are even a point of botheration for the regulator even.

The regulator messed up big time with the entry load ban, which was a knee jerk reaction, and now is trying to desperately try to revive business, since MF trading via terminals did not take off either, they are now forcing funds to offer units in demat form. 

What they seem not to realise ( or do not want to realise ) is that MFs attract a different species of investors compared to stock investors, and also even the claim of stock brokers having so many points of presence via MFs presence is also circumspect because i frankly do not think stock brokers open terminal across towns to educate investors or to make them invest in fundamentally good stocks for long term but to simply speculate using the low cost brokerage/free first year demat as a lure for speculation.

The theory was that entry load ban would make the MFs more cheaper (true) and hence more people would rush to buy it( false), If there is no one to tell the investor about a product you might as well not have the product ( Remember NPS?, they are going to make it costlier and empanel distributors and pay some brokerage for it so that it can be sold ! The new PFRDA chairman has gone as far as saying that the idea that a good product will sell itself is wrong and that PFRDA made a mistake)

Economist J.M Keynes said "When the facts change, I change my mind. What do you do, sir?" The fact is that MF sales are dipping, fact is that no one is interested in selling for charity, whether the regulator would change its mind or stick to its opinion is what we need to see.

- Shankar,    shankar.yes@gmail.com

Now, transfer demat MF units freely

By Kayezad E. Adajania on Sep 08, 2010 with Comments

Source: http://mintmoney.livemint.com/mutual-funds/2010/09/now-transfer-demat-mf-units-freely/

On 6 September, the Association of Mutual Funds of India (Amfi), the mutual fund (MF) industry body, wrote to the capital market regulator, the Securities and Exchange Board of India (Sebi), requesting the regulator to postpone the date of implementation for a recent Sebi ruling that mandates all asset management companies (AMCs) to allow investors to freely transfer their dematerialized MF units.

In a circular that Sebi issued a couple of weeks back, it had made it mandatory for all AMCs to implement the rule by 1 October. As per the new ruling, you will be able to transfer your MF units, held in demat form, to your spouse, parents, children or even near and dear ones directly from one demat account to another.

Boosting MFs’ stock exchange platform

It’s been nine months since Sebi allowed MF units to be traded on the stock exchanges, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), but the move hasn’t yet taken off. Less than 0.01% of the total inflows into MF schemes come through stock exchanges. Apart from getting stock brokers to sell MFs—in the absence of entry loads against equity shares that fetch them upfront brokerage—experts cite lack of awareness and the risks that brokers carry as the key reasons why the stock exchange platforms haven’t yet taken off.

Click to see the larger image

Time and again, Sebi has been taking steps to popularize the stock exchange platform. Some months back, Sebi allowed National Securities Depository Ltd (NSDL) and Central Depository Services (India) Ltd (CDSL) to convert existing physical MF units into dematerialized form so that they are transacted on the stock exchange. Now, Sebi has allowed these units to be transferrable. Some news reports say that Sebi also intends to make listing of all MF schemes on stock exchanges compulsory soon.

Sebi is expected to bring trading on MF units on a par with share trading. At present, MF units directly reach the investor’s account; the second phase will see units reaching the broker’s pool account first. Only when the client’s cheque gets cleared will the broker release the units from his pool account. As of now, since the units reach the client’s account directly, (but the broker initially pays out of his own pocket since the MF has to receive money on the day after punching the buy order), the broker stands to lose money if the client’s cheque (that takes about a couple of days to clear) bounces.

“Once the second phase kicks in, brokers will get units in their pool account. They will, therefore, transfer it to the unit holder’s account only after the money is realized. This should be a major boost to the MF trading platform on the stock exchanges,” says Rakesh Goyal, senior vice-president, Bonanza Portfolio Ltd, a Mumbai-based financial services company. Cyrus Khambata, senior vice-president, CDSL, said that the second phase will start in about two months.

What this means?

If you hold shares in demat form, you can transfer them to whosoever you want, provided the receiver, too, has a demat account. You can either sell the shares on the stock exchange during market hours or can transfer to someone during off-market hours as part of an off-market transaction (a buy-sell transaction done outside of market hours).

Transfer of MF units has been a grey area until now. Though the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, permit MFs to allow investors to transfer their existing MF units, fund houses have not allowed all unit holders to transfer their units, en masse. Since fresh units are continuously created, a transfer facility is not really merited. Only in select cases, for instance a unit holder’s death, have they allowed units to get transferred. In this case, the MF units get transferred to the second holder or the nominee. Or, say, you pledged your MF units to a bank for a loan and you default on the loan, the units get transferred to the bank.

How to transfer MF units?

When you buy and sell MFs, you essentially transact with the fund house. If you wish to give your MF units to somebody else, the easiest—and the only—way to do it is to redeem your units and gift the money.

After 1 October, you won’t have to redeem your MF units and will instead be able to enter into an off-market transaction directly with the person you wish to transfer your units to. On the other hand, when you sell your shares or MF units on the stock exchange, you don’t know who buys them.

An off-market transfer gets done through a special procedure. However, these are early days and it’s unclear as to how transfer of MF units will take place in an off-market transaction. For instance, most brokerages mandate customers to fill up a power of attorney (PoA) at the time of opening an account. A PoA restricts transfer of shares through off-market transactions; you can only transfer shares to a demat account in which the sequence of account holders is exactly the same as the account from which you are transferring your shares. In other words, you can only transfer to your own account, elsewhere.

Market experts say that to effect an off-market transfer, you will need to revoke the PoA, fill up the delivery instruction slip and submit it to your depository participant. There’s a cost attached—about 0.04% or about `15-25.

Who pays the exit load?

Among a few key issues is how would the MF industry charge exit loads. Many equity funds levy an exit load for premature withdrawal. Debt funds, too, levy exit loads to discourage premature withdrawals.

First, off-market transfer need not happen at the market price, though experts say that in many cases it happens close to the market price. Second, when unit holders redeem their units, the fund house deducts the load amount from the redemption value and returns the rest to the unit holders. However, when you transfer MF units (off-market transfer), MFs do not have a way to find out whether or not you pay the exit load.

“At present, the fund house deducts exit loads, which are used to meet costs incurred by the fund house. Once investors start transferring their units directly to other investors, who will remind the buyer to deduct exit load from the purchase price,” says a chief executive officer of an AMC who did not want to be named.

Some fund houses have a different view. The head of operations of a Mumbai-based fund house said that perhaps the industry may take a view to exempt transfer of units from exit loads. “Exit loads are levied on the units redeemed. In case of off-market transfers, MF units are not getting redeemed. They are in perpetual existence. Hence, the MF industry may come to a consensus to waive off exit loads in such cases.”

While this may ease operational issues, it could create a disparity between different classes of investors—those who hold physical units and those who hold demat units. In an industry that is still reeling under the removal of entry loads, this may only add to the present worries. That apart, the rationale of exit loads—to deter premature withdrawals—might get lost.

Can costs rise?

When off-market transfers start, MFs would need to track them as and when they happen; practically, every day. This is mainly to distribute dividends, if any, to the correct unit holder. This could be a problem if too many investors change hands and the fund house declares dividends in the interim.

At present, for units that get traded on the stock exchange MF platforms, the two main depositories, NSDL and CDSL, send regular information to all MFs’ registrars and transfer agents (such as Computer Age Management Systems and Karvy Computershare Pvt. Ltd). Called benpos, or beneficiary position, this gives information about the unit balance as on that day and the name of the unit holders who hold these units. While CDSL gives benpos on a daily basis—only to MFs—NSDL gives it once a week. Anything extra comes at a cost.

“If MFs were to take benpos daily, it could incur huge costs to the MFs. As the total expenses that we charge to investors on an annual basis are capped, the AMC will have to bear the cost,” said a chief of another fund house, who also did not want to be identified as the matter involves the regulator. Added work at the registrar’s end may also lead to an increase in their charges, which would further burden the fund houses, he added.

Who’ll deduct tax at source?

When non-resident Indians sell MF schemes, they pay tax deducted at source (TDS). For equity funds sold before a year, you pay 15% short-term gains tax. On other MFs, you pay 30% TDS if you sell before a year. You pay 20% TDS if you sell after a year. Since this is TDS, the MF deducts it and redeems the balance to a non-resident Indian (NRI) who submits a redemption request.

Once units get freely transferable, it’s unclear as to how the MF will recover this TDS from the NRI. As of now, there seems to be no mechanism that ensures this.

Sebi’s latest move, though, seems to have caught the MF industry off-guard. Although some fund houses privately admit there’s a lot of work to be done, many fund houses are hopeful of finding a solution. “Clearly, not doing anything is not the answer,” said an MF official, who heads operations in a bank-sponsored MF. He expressed confidence that a reasonable solution will be found. Hoshang N. Sinor, chief executive, Amfi says: “It is a good idea, but there are operational challenges in implementing this. We find that it will not be possible to implement this by 1 October. The matter doesn’t just involve MFs and their agents, but also depositories like NSDL and CDSL, and stock exchanges. All will get impacted and it bodes well for the system if all players concerned get elevated and benefit from this move.”

Personal finance - 8th Sept 2010

Personal finance today
September 08, 2010 03:20 PM


Moneylife Digital Team
Source: http://www.moneylife.in/article/8/8963.html

HDFC Mutual Fund launches HDFC FMP 100D September 2010 (1); SBI Mutual Fund introduces SBI Debt Fund Series-90 Days-34; DSP BlackRock MF announces dividend under DSP BlackRock India Tiger Fund; Birla Sun Life MF announces dividend under two equity schemes; IndiaBulls Housing Finance launches new home loan scheme at 8.5%

HDFC Mutual Fund launches HDFC FMP 100D September 2010 (1)

HDFC Mutual Fund has launched HDFC FMP 100D September 2010 (1), a close-ended debt scheme. The investment objective of the plans under the scheme is to generate income through investments in debt/money market instruments and government securities maturing on or before the maturity date of the respective plan(s). The exit load for the scheme is nil. The scheme offers two options - growth and dividend (payout). The new fund offer (NFO) price is Rs10 per unit. The issue opens on 8 September 2010 and closes on 13 September 2010. Minimum investment amount is Rs5,000. The benchmark index for the scheme is Crisil Liquid Fund Index.  

SBI Mutual Fund introduces SBI Debt Fund Series-90 Days-34

SBI Mutual Fund has introduced SBI Debt Fund Series-90 Days-34, a close-ended debt scheme. The investment objective of the scheme is to provide regular income, liquidity and returns to the investors through investments in a portfolio comprising debt instruments such as government securities, corporate bonds and money market instruments maturing on or before the maturity of the scheme. The new fund offer (NFO) price is Rs10 per unit. The new issue opens on 8 September 2010 and closes on 14 September 2010. Minimum investment amount is Rs5,000. The benchmark index for the scheme is Crisil Liquid Fund Index. The exit load for the scheme is nil. The scheme offers two options - growth and dividend (payout).

DSP BlackRock MF announces dividend under DSP BlackRock India Tiger Fund

DSP BlackRock Mutual Fund has declared dividend under its scheme - DSP BlackRock India Tiger Fund. The quantum of dividend decided for distribution under the scheme is Rs1.25 per unit. The record date for distribution of dividend is 9 September 2010. DSP BlackRock India Tiger Fund is an open-ended diversified equity scheme. The investment objective of the scheme is to generate capital appreciation, from a portfolio that is substantially constituted of equity securities and equity related securities of corporate, which could benefit from structural changes brought about by continuing liberalisation in economic policies by the government and/or from continuing investments in infrastructure, both by the public and private sector.

Birla Sun Life MF announces dividend under two equity schemes  
Birla Sun Life Mutual Fund has declared dividend under two of its schemes, namely Birla Sun Life Buy India Fund and Birla Sun Life New Millennium Fund. The quantum of dividend decided for distribution is Rs1.75 per unit and Rs0.85 per unit respectively on the face value of Rs10 per unit. The record date decided for distribution of dividend is 9 September 2010. Birla Sun Life Buy India Fund and Birla Sun Life New Millennium Fund are open ended equity sector schemes and are benchmarked against BSE 200 and BSE Teck respectively. 
 
 IndiaBulls Housing Finance launches new home loan scheme at 8.5%

IndiaBulls Financial Services Ltd has launched a new home loan scheme for salaried people under which it will offer home loans at 8.5% up to March 2011, followed by 9.5% till 2012. After that, the rates will be floating in nature. The offer is available across 140 cities.