The finance ministry has asked market regulator Sebi and insurance watchdog IRDA to deposit their surplus funds with the government, a move that may be resisted by these bodies citing regulatory autonomy. The directive follows repeated suggestions by the Comptroller and Auditor General (CAG) of India, the government’s statutory auditor, which says this will improve the regulators’ accountability to the exchequer.
“It is just a matter of principle,” a senior finance ministry official said.
“Public expenditure needs parliamentary approval. So we have insisted that they deposit their income in the Consolidated Fund,” he said, adding that the regulators are free to use the money anyway after they gets legislative sanction.
Sebi and IRDA had resisted earlier attempts by the government to make them park their income and surplus funds in government accounts. About Rs 1,800 crore of surplus funds generated by financial sector regulators through fees and penalties on companies are parked in their respective accounts at present.
The finance ministry has directed the chief controller of accounts to open a new accounting head to keep the funds from regulators and evolve a method for transferring them into the public accounts.
“To avoid any dispute, we have taken advice from the law ministry, which has supported our stand,” the finance ministry official said, adding that under Article 266 of the Constitution money collected by the regulatory authorities should be submitted towards the government account.
The government’s move assumes significance as this comes at a time when it has floated a discussion paper on the setting up of a Financial Stability Development Council (FSDC), an inter-regulatory agency. Earlier this month, the Parliament had passed the Securities and Insurance Laws (Amendment and Validation) Bill, 2010, which provides for a statutory body under the finance minister to resolve disputes between financial sector regulators.
The Parliamentary standing committee on finance and the CAG have highlighted the issue in their earlier reports.
The issue first surfaced in 2001 when the finance ministry asked Sebi to transfer funds to government accounts and get its expenditure vetted by Parliament. In 2002, the ministry asked asked IRDA to follow the procedure.
In January 2005, the department of economic affairs in the finance ministry directed all ministries and government departments to ensure that funds of regulatory bodies are maintained in the Public Accounts.
The CAG tried to address these concerns in an earlier audit report in 2006-07.
“The apprehensions of the regulatory authorities that there could be compromise of their autonomy, if their receipts are credited to the government account and expenditure met out of the budgetary appropriations, are unfounded in the light of the status obtaining in respect of similarly placed organisations abroad and the practice of maintaining accounts of the constitutional and independent authorities like judiciary, UPSC, CAG, CERC, TRAI and Election Commission as a part of Government accounts,” the report said.
In a 2008 report, the CAG pulled up interim pension fund regulator PFRDA, electricity regulator Central Electricity Regulatory Commission and Petroleum & Natural Gas Regulatory Board for keeping their funds outside public accounts.
“The finance accounts of the Union government, therefore, do not present a correct and complete picture of government finances to the extent of funds of Rs 1,747.37 crore lying outside government accounts,” the CAG said in its report on Union government accounts for 2008-09.
Saturday, August 21, 2010
Friday, August 20, 2010
SEBI ban on MFs' options play upsets AMCs, brokers
20 Aug, 2010, 03.34AM IST, Nishanth Vasudevan,ET Bureau
SEBI ban on MFs' options play upsets AMCs, brokers
MUMBAI: Mutual funds and stock brokers are miffed at capital market regulator Securities and Exchange Board of India’s (Sebi) move to bar asset managers from selling options contracts starting October 1. This is because the step will limit mutual funds’ abilities to maximise returns in their schemes, affect business of stock brokers and impact volumes in the options segment, fund officials and derivative sales persons at broking firms said, requesting anonymity. “This ban amounts to denying investors the opportunity to get the most in their scheme,” said a senior fund manager with a private mutual fund, which is known to be most active in derivatives in the industry. “Even if we were to go by the logic of unlimited risks in selling options, a complete ban was not the solution,” he said. Option sellers enjoy limited profits to the extent of the premium they receive from trade, but face the risk of unlimited losses, if their bets go wrong. Sebi did not offer any reason on why it was banning mutual funds from selling options, but industry officials said Sebi was worried that wrong bets in illiquid options could wreak havoc on the industry. Mutual fund officials said that this concern was misplaced, as schemes’ average exposure to futures and options has not exceeded 10% of their corpus in the past. This claim could not be independently verified. Industry officials grudge that the securities market regulator has not considered any of their feedback to its proposals that included banning mutual funds from selling options. “It looks like the circular that was sent for seeking feedback has been put up as the final circular,” said a top official with a bank-owned mutual fund. Sebi, which is believed to have sent the proposals to mutual funds late March, announced the ban, along with some other restrictions in their use of derivatives, in a circular on Wednesday. “Ironically, retail investors, who have very little skills to use derivatives, can continue to sell options while professional fund managers with their superior access to information will have their hands tied,” said a head of equities with an asset management company. Stock brokers are angry with the Sebi move, as their business will likely be affected with mutual funds increasingly getting comfortable with derivatives. Reliance Mutual Fund, ICICI Prudential Asset Management, Birla Mutual Fund, Kotak Mutual Fund and DSP Blackrock are considered to be most active in derivatives in the local mutual fund industry. “In recent times, mutual funds have been among the dominant drivers of volumes in the options market. They have been comfortable selling options while foreign institutions have been the buyers,” said a head of derivatives with an institutional broking firm. “If a section of the dominant sellers go overnight, it could affect the balance of the options segment,” he said. Not all agree that the move would dry volumes in the options segment. TS Harihar, head-derivatives, ICICI Securities, said, “I don’t think it would have any significant impact, as local funds are not big players. Also, their activity has declined, of late.”
Regards
Valady V Barathwaaj
SEBI ban on MFs' options play upsets AMCs, brokers
MUMBAI: Mutual funds and stock brokers are miffed at capital market regulator Securities and Exchange Board of India’s (Sebi) move to bar asset managers from selling options contracts starting October 1. This is because the step will limit mutual funds’ abilities to maximise returns in their schemes, affect business of stock brokers and impact volumes in the options segment, fund officials and derivative sales persons at broking firms said, requesting anonymity. “This ban amounts to denying investors the opportunity to get the most in their scheme,” said a senior fund manager with a private mutual fund, which is known to be most active in derivatives in the industry. “Even if we were to go by the logic of unlimited risks in selling options, a complete ban was not the solution,” he said. Option sellers enjoy limited profits to the extent of the premium they receive from trade, but face the risk of unlimited losses, if their bets go wrong. Sebi did not offer any reason on why it was banning mutual funds from selling options, but industry officials said Sebi was worried that wrong bets in illiquid options could wreak havoc on the industry. Mutual fund officials said that this concern was misplaced, as schemes’ average exposure to futures and options has not exceeded 10% of their corpus in the past. This claim could not be independently verified. Industry officials grudge that the securities market regulator has not considered any of their feedback to its proposals that included banning mutual funds from selling options. “It looks like the circular that was sent for seeking feedback has been put up as the final circular,” said a top official with a bank-owned mutual fund. Sebi, which is believed to have sent the proposals to mutual funds late March, announced the ban, along with some other restrictions in their use of derivatives, in a circular on Wednesday. “Ironically, retail investors, who have very little skills to use derivatives, can continue to sell options while professional fund managers with their superior access to information will have their hands tied,” said a head of equities with an asset management company. Stock brokers are angry with the Sebi move, as their business will likely be affected with mutual funds increasingly getting comfortable with derivatives. Reliance Mutual Fund, ICICI Prudential Asset Management, Birla Mutual Fund, Kotak Mutual Fund and DSP Blackrock are considered to be most active in derivatives in the local mutual fund industry. “In recent times, mutual funds have been among the dominant drivers of volumes in the options market. They have been comfortable selling options while foreign institutions have been the buyers,” said a head of derivatives with an institutional broking firm. “If a section of the dominant sellers go overnight, it could affect the balance of the options segment,” he said. Not all agree that the move would dry volumes in the options segment. TS Harihar, head-derivatives, ICICI Securities, said, “I don’t think it would have any significant impact, as local funds are not big players. Also, their activity has declined, of late.”
Regards
Valady V Barathwaaj
Thursday, August 19, 2010
CAMS Group CO. - LAKSHMI DIRECT - BE AWARE
Dear all,
Yesterday I had received a call from the above company and a lady was talking to me. She said that they are selling mutual funds and would service me without any charges or fees for my investments. To get more details I asked where she got my database, the answer she gave me was CAMS gave them. Then I told her " you people are living on the works of various distributors who have done the leg work earlier to create such investors.'" Now they want to cash in the opportunity of invading our clients on the pretext of no charges or fees.
Not once I asked her twice about the database she reconfirmed saying that CAMS has given them. Now if you ask CAMS they will lift their hands and say we are the best in the world maintaining secrecy and no leakage of data. Even so, now they themselves are invading on the data right royaly by giving it to their group company and trying to grow business.
Finally, in business they are trying to prove NO ETHICS once more. Kindly take care of your clients at the best possible methods so as to avoid such unhealthy competition.
Regards
Sincerely,
Sathish Kumar C
9840189123 / 9790803751 / 24338788/ 24343674 / 42128243
After the Death of ARN Holder will Nominee Get Trail or Not - Should he/she should be ARN Holder?
Dear All,
In case of sad demise of an ARN holder what will happen with his/her trail commission
i) if the nominee is also an ARN holder
ii) if the nominee is not an ARN holder
I will be highly obliged if any one can clarify.
No local AMC has a clear view in this regard.
Regards
Saikat Sen (MFRT)
ARN 0402
Tuesday, August 17, 2010
KYC Must for Any Investment Amount
Source: http://new.valueresearchonline.com/story/h2_storyview.asp?str=14989
The Association of Mutual Funds in India (AMFI) has asked all asset management companies (AMCs) to make KYC (know-your-customer) norms mandatory for all non-individual and NRI investors irrespective of the amount of investment.
Under the present norm, KYC is mandatory only for investments above Rs 50,000.
In a letter sent to AMCs, AMFI has said that the mutual fund industry should go ahead with making KYC mandatory, irrespective of the amount of investment for all non-individual investors/NRIs/channel investors (high risk category) with effect from October 01, 2010. These categories will include corporate, partnership firms, trusts, HUF (Hindu undivided family), NRI and investors coming through channel distributors.
However for individual investors, a decision would be taken only after feedback from the Securities and Exchange Board of India (SEBI).
The AMFI committee on KYC had made the proposal to lower the current threshold amount from Rs 50,000 to zero in a phased manner for different categories of investors and the proposal is still under consideration of SEBI. However, the AMFI committee has recommended that even as the proposal is pending clearance from SEBI, the mutual fund industry should remove the limit of Rs 50,000 for all non-individual investors and NRIs investors.
KYC norms were implemented from February 1, 2008, for all investors investing in mutual funds schemes amount of Rs 50,000 and above. It was done in order to comply with the Prevention of Money Laundering Act 2002.
For the convenience of investors, all mutual funds have made special arrangements with CDSL Ventures Ltd. (CVL), a wholly owned subsidiary of Central Depository Services (India) Ltd (CDSL).
Sunday, August 15, 2010
Friday, August 13, 2010
Who is winning the Game : Bank or IFAs
| A very interesting article by CAMS-BCG, which explodes several myths about distribution scene in India, a must read. Who is winning the game : banks or IFAs ? | ||
 | Boston Consulting Group (BCG) and CAMS have come up with a wonderful report on the state of play in equity mutual funds. There is a wealth of data in this report - some of which effectively busts some popular notions- with hard data. Analysis and findings are based on CAMS data - which represents some 57% of industry equity fund assets - and can be considered representative of the whole industry. Some major notions that are busted by this report : - That IFA assets are stickier than bank assets - That retail investors always get their hands burned by investing at market highs and redeeming in panic in subsequent corrections - That banks and NDs are squeezing out the IFA segment - That banks and NDs were the major beneficiaries of the AuM transfer mania that the industry witnessed in early 2010 - That MF penetration into smaller towns remains a pipe-dream | |
Notion 1 : IFA assets are stickier and long term, banks have much shorter tenure
Reality 1 : Stickiness of assets is more a function of investor size and not distributor type.
There is not much of a difference between IFAs, banks, NDs and RDs in terms of duration of equity fund assets - as seen from the chart below (Exhibit 2b). The difference is stark when one looks at it from the perspective of type of investor - not type of distributor. Retail investors assets are certainly far stickier and longer term than HNI investors assets.
The authors of the report estimate that ageing of assets in the less than Rs. 1 lakh segment (retail) is about 33 months and in contrast, its around 20 months in the HNI segment (above Rs. 1 crore).
Notion 2 : Retail investors always get their hands burnt by investing at market peaks and panic-selling in subsequent corrections.
Reality 2 : 72% of all redemptions made between Apr 2008 and Mar 2010 were at a profit.
In fact, retail investors (below Rs. 5 lakhs) as a sub-segment seem to have done even better : 80% of redemptions were at a profit. In the HNI segment, (over Rs. 5 lakhs), 63% of redemptions were at a profit.
The story is however a little different if one looks at redemptions from NFOs. Around 50% of redemptions from NFOs were below par and a further 22% were at NAVs less than Rs. 11 - a 10% gain. Investors who redeemed out of NFOs were clearly not a happy lot - unlike those who redeemed out of ongoing schemes.
As the authors of this report say, there is clearly a great story here of investors making money in mutual funds - which must be effectively converted into marketing communication to daw in the more sceptical investors - nothing succeeds like success - and there is no better advertisement than satisfied investors who have made money. The industry can justifiably boast of 80% of retail investors taking home profits even in the most volatile period (Apr 08 - Mar 10). This fact must be leveraged effectively by AMCs, distributors and advisors.
Notion 3 : Banks and NDs are squeezing out IFAs and will soon dominate the distribution landscape
Reality 3 : In the last 6 years, banks and NDs have lost market share. The only segment that has been gaining market share on a year-on-year basis is the IFA segment.
If we dig deeper, the facts are even more interesting. Large IFAs (defined as IFAs who have CAMS equity assets of more than 1 crore) have gained share very rapidly - from 10% to 23% over the last 6 years. Small and medium sized IFAs have lost share.
It is abundantly clear that serious and committed advisors have been winning market share at a rapid pace over the last 6 years - and we see no reason for any change in this trend. Small and marginal IFAs - who have perhaps never been very committed to this business - are exiting this business - which is unfortunate, but perhaps inevitable. But the message for committed IFAs is crystal clear - it is their segment that is winning the market share game - and not the banks and NDs as was the popular notion. There is no need to fear competition - as long as you continue to put your clients interest first, always.
Notion 4 : In early 2010, when AuM transfers were rampant, banks and NDs grossly misused this facility to squeeze out IFAs
Reality 4 : Banks and NDs at a category level lost as much as they gained. RDs gained significantly, at the expense of small IFAs. Large IFAs were largely unaffected.
There was indeed a very sharp jump in transfer requests - which is what prompted AMFI to come up with its rather controversial decision to deny trail altogether to both ARN holders on transferred assets.
A look at who gained and who lost in this AuM transfer mayhem that happened is quite revealing. Small IFAs (less than 1 crore in CAMS equity assets) saw the maximum activity - not just in AuM lost, but in AuM gained as well. As a category, they gained Rs. 417 crores - that's much more than any other category - and also lost the most - Rs. 500 crores. That's quite different from the picture we were told was happening - that large banks and NDs were "acquiring" assets of small IFAs - not always through fair means. The biggest churn happened - it seems - within the small IFA segment itself.
The biggest winner - at a net AuM level - was the regional distributor segment. Banks in fact lost a little more assets than they gained at an overall level. Same was the story in the large IFA segment.
Notion 5 : MF penetration in smaller towns remains a pipe-dream. MFs remain a metro-centric product
Reality 5 : AMCs and distributors have been making steady progress in increasing MF penetration in smaller towns - and the trend is very encouraging
Mumbai's overwhelming dominance is fading. The next 9 cities have more or less held their share over the last 7 years. The encouraging trends are in the cities ranked 11 to 30 and cities ranked 31 to 100 - which are rapidly becoming very meaningful participants in the equity funds industry.
But, while the direction is undoubtedly very encouraging, a sobering reminder about the work yet to be done by the industry can be seen from the next chart - which shows the share of smaller cities in other savings and investment products. Clearly the insurance industry has achieved significantly higher penetration levels. But the real one to take note of is retail stock broking. At the very least, the MF industry must aspire to match the penetration of retail stock broking. If investors in small towns can buy direct equities, why can't advisors and AMCs get them to buy equity funds? That's the immediate challenge for the MF industry.
SEBI cracks whip on online mutual fund distributors
| SEBI cracks whip on online mutual fund distributors August 13, 2010 03:22 PM  Ravi SamaladSource: http://www.moneylife.in/article/72/8211.html |
SEBI circular on Updation of investor related documents
SEBI circular on Updation of investor related documents
Aug 13, 2010 SEBI
Cir / IMD / DF / 9 / 2010 ,August 12, 2010
1. SEBI vide circular No. SEBI/IMD/CIR No.12 /1 86868 /2009 dated December 11, 2009 has inter alia advised mutual funds to confirm whether all the investor related documents are maintained/ available with them. Further in case the investor related documentation was incomplete, the trustees of the mutual funds were advised not to make further payment to such distributors till full compliance/ completion of the steps enumerated in the said circular and to send a status to SEBI as and when process is completed to satisfaction.
2. SEBI has not received any confirmation from the trustees of the mutual funds on the completion of the process as mandated in the said circular. Thus it appears that all the investor related documentation is not available with the AMCs. It has been observed that due to such incomplete documentation investors' rights to approach the AMCs directly are restricted and investors are forced to depend on the distributors for executing any financial or non-financial transactions.
3. In order to ensure that investors have unrestricted access to AMCs and to enable AMCs to provide prompt investor service including execution of investors’ financial or non-financial transactions, all mutual funds/ AMCs are directed that:
All new folios/ accounts shall be opened only after ensuring that all investor related documents including account opening documents, PAN, KYC, PoA (if applicable), specimen signature are available with AMCs/RTAs and not just with the distributor.
For existing folios, AMCs shall be responsible for updation of the investor related documents including account opening documents, PAN, KYC, PoA (if applicable), specimen signature by November 15, 2010.
4. The trustees shall submit a confirmation after they receive certification from an Independent auditor on completion of the said process latest by November 22, 2010.
5. Mutual Funds/Asset Management Companies shall comply with the above requirements in letter and spirit.
6. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
Yours faithfully,
==============================
Regards
Valady V.Barathwaaj
Chennai: +91 98418-25188
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