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Mutual fund AUM rises 4% to Rs 25.47 lakh crore in August

In the first five months of FY20, the industry's asset base increased by Rs 1.68 lakh crore, Care Ratings said in its report.
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The country's mutual fund industry's asset under management (AUM) grew by nearly 4 per cent to Rs 25.47 lakh crore in August 2019 from Rs 24.53 lakh crore in July, a report said.

In the first five months of FY20, the industry's asset base increased by Rs 1.68 lakh crore, Care Ratings NSE 0.27 % said in its report.

The asset under management of debt, equity and hybrid schemes at the end of August 2019 stood at Rs 13.22 lakh crore, Rs 7.16 lakh crore and Rs 3.38 lakh crore, respectively The report said the overall exposure of mutual funds to NBFCs stood at Rs 2 lakh crore in August 2019, a drop of Rs 0.66 lakh crore since July 2018, when the NBFC crisis began.

Long-term investors should stay focused on asset allocation

Nifty and the Sensex saw the biggest single day gain in 10 years
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  • Don’t focus on the missed 5% return if you had invested yesterday and instead focus on the long- term.
  • Invest according to the asset allocation that suits you the best and stick with a regular investment schedule

The Nifty and the Sensex saw the biggest single day gain in 10 years in absolute terms as stock markets celebrated the corporate tax cuts announced by the finance minister with over 5% rise in across large cap, mid cap and small cap segments of the markets. Apart from the straight boost to earnings of companies from the savings on tax, the move is also expected to kickstart the investment cycle that will have sustained benefits for the economy. While equity markets scored, the benchmark 10-year Gsec saw bond prices fall as yields rose 23 bps during intra-day trade and settled 15 bps up at close as bond markets factored in the likely revenue loss of ₹1.45 lakh crore a year for the government. Experts however agree that the fiscal measures announced today will not change the expected reduction in policy repo rates expected from the Reserve Bank of India in October, 2019. “The decision will depend upon the expected impact on inflation. The expected reduction in rates will materialize, if not in this MPC meeting then in the next", said Joydeep Sen of Wise Investor. For long-term investors does this surge and expected benefits change the way they manage their portfolio?

An investment plan that is linked to the goals and needs and the risk profile of the investor should not see any change in allocation just on account of the expected revival in equity returns. The equity allocation should continue to reflect the investment horizon and ability to take risks and not the stock market movements. Similarly, moving out of debt investments in a kneejerk reaction to the expected strain on fiscal deficit resulting in increase in yields and a fall in bond prices will again lead to a mismatch between the portfolio and the investor’s ability to meet immediate needs. Systematic Investment Plan investors who kept faith and stayed invested will see their investments benefit when equity markets continue their upward move. “I discourage my client’s from tracking the markets daily, let alone make allocation decisions based on market movements", said Melvin Joseph, Certified Financial Planner. Volatility is a way with equity markets and investors should be willing to stay invested for at least 7 years to reap the benefits of equity investing", he added.

If you have been sitting on the sideline waiting for the cue to invest then you are probably not feeling very happy at the moment. Don’t focus on the missed 5% return if you had invested yesterday and instead focus on the long- term. Invest according to the asset allocation that suits you the best and stick with a regular investment schedule. Timing entry and exit into markets cannot be a sustainable investment strategy.

Investor flows shift to 'safer' corporate bond funds, say experts

Industry experts say that this trend is likely to continue

The fears around credit risk funds have prompted mutual fund (MF) investors to shift their allocation towards corporate bond and banking and PSU funds, which tend to invest in relatively less-risky papers. Both categories have seen steady flows in recent months.

In the current financial year (from April to August), banking and PSU funds have garnered over Rs 15,000 crore of net investor flows, while corporate bonds funds have received about Rs 11,000 crore of flows. In the same period, credit risk funds have seen outflows to the tune of Rs 13,782 crore.

Should mutual fund investors consider investing in arbitrage funds?

An arbitrage fund is a category of equity mutual fund that leverages the price differential in the cash and derivatives market to generate returns

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Financial planners recommend this class of equity funds to investors who are looking for tax-efficient returns and have a time frame of atleast one month

What is an arbitrage fund?

An arbitrage fund is a category of equity mutual fund that leverages the price differential in the cash and derivatives market to generate returns. The fund manager simultaneously buys shares in the cash segment and sells futures in the derivatives segment of the same company as long as the futures are trading at a reasonable premium. The scheme does not take a naked exposure to any individual company or an index as each buy transaction in the cash market has a corresponding sell transaction in the futures market.

Why is there investor interest in this category?

Investors like arbitrage funds because they are treated as equity funds from a taxation perspective. Investor interest has shifted to this category after the long-term holding period for debt funds was increased from one to three years. Since arbitrage funds maintain an average exposure of more than 65 per cent to equity, they are treated as equity funds, their holding period for long-term capital gain is one year. From April 2018, long-term capital gain from equity is taxed at 10 per cent.

Are arbitrage funds safe for investors?

Investors who are waiting for a correction in the markets before committing long-term money to equity can use arbitrage funds to earn some returns in the interim period. Though they are relatively low risk, the payoff can be unpredictable and could depend on the arbitrage opportunities in the market. This category ranks high in the pecking order when it comes to safety because the fund manager creates a market neutral position by buying in cash market and selling in futures. Higher the volatility, more are the opportunities for an arbitrager. With corporate earnings yet to pick up and valuations in broader market high, there could be increased volatility and hence they are a good bet.

What returns can an investor expect from this category of funds?

Returns from arbitrage funds depend on arbitrage opportunities available between the spot market and the futures market. Such opportunities are high in bull markets. As the assets under management in this segment increase, all this money will be chasing similar arbitrage opportunities and hence returns could be lower. Over the last one year, this category of funds has earned an average return of 6.07 per cent. Over a three-year period investors have earned a return of 5.78 per cent.

Short term debt funds good bet, say fund managers

The central bank on Friday changed the repo rate to 5.15% from 5.40% with immediate effect.
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The prices of fixed income securities are governed by interest rates prevailing in the markets.

Debt fund managers, following Friday’s rate cut by the Reserve Bank of India, are of the opinion that investors should look at investing in short duration debt funds, given that there’s ample liquidity in the system and market expects more rate cuts going forward.

The central bank on Friday changed the repo rate to 5.15% from 5.40% with immediate effect. Kumaresh Ramakrishanan, chief investment officer-fixed income at PGIM India Asset Management Private, said, “It’s very clear if investors wants to invest in fixed income side, they should allocate money to short and medium term segment, which have a maturities of three years as they offer better rates than a lower tenure paper.”

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Market participants believe that currently a good quality three-year ‘AAA’-rated paper is yielding close to 7.10-7.20%, which is higher than one year certificate of deposits (CD) which is yielding 6.15-6.20%. Short duration funds invests in debt and money market instruments where duration of portfolio is between one to three years. On the other hand, liquid funds, ultra short duration funds and money market funds have instruments maturity between 91 days to one year. In the past one year, short duration category and medium duration funds category have given returns of 5.82% and 5.97%, shows data from Value Research. While other category such as liquid funds and ultra short term funds have given returns of 6.90% and 7.18%, respectively, in the last one year.

The prices of fixed income securities are governed by interest rates prevailing in the markets. Interest rates and price of fixed income securities are inversely proportional. When interest rates decline, the prices of fixed income securities increase. Similarly, when there is hike in interest rates, the prices of fixed income securities come down. On Friday, 10 year benchmark government securities (G-Sec) closed at 6.68%. Market participants are expecting one more rate cut in this financial year, new 10-year G-Sec yields might go to 6.75% by end of this financial year.

Devang Shah, deputy head-fixed income at Axis AMC, said, “RBI is very positive on liquidity front and they want transmission of rates to happen, which has not happened yet. Rate cuts have been delivered, and for transmission to happen, they need to keep banking liquidity quite positive and get the deposits rates lower. All these factors make short-term and ultra short-term and low duration funds space very attractive.”

Mutual funds' asset base rises marginally to Rs 25.68 lakh crore in Sep quarter

According to Amfi, the AUM of the industry, comprising 44 players, stood at Rs 25.50 lakh crore at the end of June quarter.
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The mutual fund industry asset base saw a marginal one per cent increase in the July-September quarter to Rs 25.68 lakh crore against the preceding three months, mainly on account of increase in valuation of stocks due to corporate tax cut. According to Association of Mutual Funds in India (Amfi), the asset under management (AUM) of the industry, comprising 44 players, stood at Rs 25.50 lakh crore at the end of June quarter.

The total asset base of all the fund houses put together was at Rs 24.31 lakh crore in July-September quarter of 2018-19.

In recent months, the mutual fund industry has been grappling with redemption pressures in the wake of debt crises at various groups, including IL&FS, Essel and DHFL.

Fund managers said that the industry assets have remained stable in the July-September period of 2019-20 and slight rise in quarterly AUM could be attributed to rise in valuation of stocks due reduction in corporate tax by the government. "The increase in quarterly AUM is mainly due to increase in valuation of stocks due to corporate tax cut," said Omkeshwar Singh, head of mutual fund distribution business at Samco. Kaustubh Belapurkar, Director-Manager Research at Morningstar said, "Overall industry assets have remained stable. But we have witnessed that many of the smaller asset management companies (AMCs) have lost assets which have migrated to the larger AMCs.

"Additionally, AMCs which had investments in some of the stressed credits have also witnessed outflows from these funds," he said.

This is largely in line with the current risk off trade by investors moving away from funds that invest into lower rated credits like credit risk funds to funds that typically invest into higher rated credits like banking and PSU funds as well as corporate bond funds. Some AMCs have also benefitted from strong equity inflows into their funds, he added. Of the 44 fund houses, as many as 27 have witnessed a decline in their asset base.

Some of the large fund houses such as Nippon India MF, Axis MF, UTI MF and Franklin Templeton witnessed a decline in their AUMs.

In addition, DSP MF, Sahara MF, Essel MF, YES MF, IL&FS MF, PGIM India MF and Indiabulls MF, among others, also saw drop in asset base.

In terms of asset size, HDFC MF continued to lead the pack with an AUM of Rs 3,76,597 crore (excluding fund of funds) at the end of the September quarter, followed by ICICI Prudential MF (Rs 3,48,068 crore) and SBI MF (Rs 3,20,663 crore).

The overall share of assets managed by the top 10 AMCs (by AUM) is marginally up from 82.83 per cent to 83.66 per cent.

Net inflows in equity MFs surge 54.4% month-on-month in June

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Political stability, lower inflation coupled with the Reserve Bank's stance to lower interest rates is driving the enhanced retail inflows towards equity-oriented schemes, says Amfi CEO
  • Political stability, lower inflation, hopes of earnings growth fuel inflows into equity funds, says Amfi
  • Equity markets rose more than 1% in May after the victory of the Narendra Modi-led National Democratic Alliance

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Mutual Funds

Mumbai: Mutual fund investors pumped ₹7,675.36 crore into equity schemes in June, up 54.5% from the previous month, the Association of Mutual Funds in India (Amfi) said. However, the amount was still 20% lower than June 2018’s inflows of ₹9,660 crore.

Political stability, lower inflation and hopes of earnings growth thanks to the central bank’s stance on lower interest rates fuelled retail inflows, Amfi said in a statement on Monday..

“Stellar jump in the inflows into equity schemes over the last two months, especially after the decisive electoral verdict has helped repose retail investor trust. On the fixed income side, although there have been outflows from liquid schemes, the flows into Gilt schemes and Long duration schemes have stood positive, owing RBI’sa dovish stance on interest rates," said N.S. Venkatesh, chief executive, Amfi.

Equity markets rose more than 1% in May after the victory of the Narendra Modi-led National Democratic Alliance (NDA) in the Lok Sabha elections. However, the rally fizzled out in June..

“There has been a surge in net inflows after the election, due to the political certainty that has now come in. We have also seen flows from institutional investors like exempted provident fund trusts which can invest up to 5% of their corpus in diversified mutual funds," said A. Balasubramanian, chief executive of Aditya Birla Sun Life Asset Management Co.

Domestic institutional investors including mutual funds and insurance companies who were net sellers of Indian equities consecutively for three months till April saw a pick-up starting May.

They bought Indian equities worth ₹5316.34 crore in May, followed by inflow of ₹3643.31 crore in June.

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Foreign institutional investors bought Indian shares worth $148.91 million in June.

Inflows from systematic investment plans (SIPs) were little changed. The total amount collected through SIPs in June was₹8,122.13 crore against ₹8,183.09 crore in May. SIPs allow people to invest a fixed amount in a mutual fund scheme periodically at fixed intervals.

Amfi data also showed that inflows into large-cap funds grew over 28 times to ₹1,509.52 crore in June from ₹52.88 crore in May.

Most debt fund categories saw outflows. Liquid funds saw an outflow of ₹1.52 trillion.

However, experts attributed this to seasonal factors and institutional money. “The outflow from debt funds is due to quarter-end accounting and payment needs of institutions," said Swarup Mohanty, CEO, Mirae Asset Mutual Fund. “However, going forward, we expect stabilization in debt following the new Sebi regulations. The overnight funds category in particular will be a major beneficiary."

Vijai Mantri, chief investment strategist at JRL Money, added that the ongoing liquidity crisis has made investors jittery.

“This is keeping high networth Individuals (HNIs) away from debt funds," he added.

Several debt mutual funds were impacted in June by downgrades or defaults in companies like Dewan Housing Finance Corp. Ltd and Sintex Industries.

Hybrid funds, excluding arbitrage funds, saw a net outflow of₹2,302 crore.

Arbitrage funds use derivatives to give a return akin to debt funds and are hence not hybrid funds in the strictest sense.

Mahesh Mirpuri, founder of Invest Mutual, a mutual fund distribution firm based in Chennai, attributed the continued outflows to mis-selling of hybrid funds. These funds are sold on the promise of regular income and they do not subsequently live up to the claims made, he said.

Why arbitrage mutual funds are becoming attractive

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They are an alternative to short-term debt funds offering better tax efficiency.

Arbitrage mutual funds, which are considered an alternative to short-term investment options such as liquid and ultra-short-duration funds, have been attracting investors’ attention of late.

Data compiled from the Association of Mutual Funds in India show that assets under management (AUM) of arbitrage funds have surged about 22 per cent to ₹63,310 crore as on July 26, from ₹52,062 crore on March 31, 2019.

The surge may be attributed to the recent instances of credit downgrades and defaults impacting the sentiment towards some debt mutual funds, including liquid funds.

The liquidity problems and the NPA issues might be partially behind the sector but mutual fund managers believe that it might continue to haunt the sector in the coming months. The Reserve Bank of India (RBI) on Friday proposed introducing a liquidity coverage ratio (LCR) for large NBFCs to help tackle liquidity problems in the NBFC sector.

“We have seen exceptional performance by the sector but we have to think about the issues that are lying under the carpet. The NPA issue is still not completely over for many banks, the PSU banks are struggling, there are investments in housing finance companies, NBFCs etc. which will hit the banks when the lending process from the banks starts again,” says Jimmy Patel.

Arbitrage MFs try to capitalise on the price differential of the same asset (stock or index) between two markets such as cash and futures markets. The risk in these funds is therefore relatively lower, similar to liquid funds.

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Change in tax structure

The tweak introduced in Budget 2014-15, which increased the holding period to qualify for long-term capital gains (LTCG) tax in debt funds from 12 months to 36 months, made liquid funds less attractive. On the other hand, the taxation in equity funds was left unchanged and they continued enjoying tax exemption on LTCG (if the units were sold after 12 months) and dividend declared

Since arbitrage funds are treated as equity funds for taxation purposes, investors turned to these funds to park their short-term money after 2014. Also, investors seeking regular incomes parked their money in the dividend plans of arbitrage funds.

However, the introduction of 10 per cent tax on LTCG and the dividend declared by equity funds in Budget 2018-19 made many investors move away from arbitrage funds. The dividend plans of such funds witnessed a huge outflow after March 2018 (see graph).

But recent instances of default by some debt funds seem to have made investors turn to arbitrage funds once again.

Volatile returns

The returns generated by arbitrage funds depend on the volatility in the equity market and the prevailing short-term rates in the money market.

“When there is a bullish sentiment and an upward trending equity market, arbitrage funds typically give good returns,” said Anil Ghelani, Head of Passive Investments & Products, DSP Investment Managers. The returns are lower when there is a bearish sentiment in the equity market.

Anand Gupta, Fund Manager, Reliance Nippon Life Asset Management Ltd, said: “The spread (difference between the price in the cash market and futures market) is determined by the interest-rate levels in the system and the level of activity in the cash and futures market. If the interest rates are low, arbitrage spreads also will be low, and vice-versa.”

The recent performance of arbitrage funds has been noteworthy. Over the past year, they have delivered an annualised return of 7.5 per cent while liquid and overnight funds have generated 6.6 and 6 per cent, respectively.

Tax advantage

It is tax-efficiency that makes arbitrage funds a superior option to liquid and other short-term debt funds. Arbitrage funds are well-suited for investors in the 20 per cent or 30 per cent tax bracket looking for a safe six-months-to-one-year parking ground for their money. Reliance Arbitrage, DSP Arbitrage, IDFC Arbitrage and ICICI Pru Equity-Arbitrage are some of the top performing funds.

However, arbitrage funds can generate negative returns in the very short term. Our back-of-the-envelope calculation based on their NAVs over the past five years shows these funds generated negative returns for a holding period of up to 45 days.

Large cap, multi cap schemes drive net inflows in equity mutual funds up

Arbitrage schemes continue to witness positive net inflows, albeit lower as compared to May 2019

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Net inflows for the open-ended equity schemes have been consistently rising for the last three months since April 2019, from Rs 4,608.74 crores at the start of the fiscal to Rs 7,663.14 crores for June 2019, largely driven by multi Cap and large cap fund categories, Amfi data reveals.


According to the data released by the Association of Mutual Funds in India, the net inflows in the equity-oriented schemes have grown three times faster in the last one month at Rs 2,256.37 crores from May 2019 to June 2019, compared to the rise in the earlier month at Rs 797 crores from April 2019 to May 2019.

"Stellar jump in the inflows into equity schemes over the last two months, especially after the decisive electoral verdict has helped repose retail investor's trust. Political stability, lower inflation coupled with RBI stance to lower interest rates leading to possible robust growth in the corporate earnings is leading enhanced retail flows towards equity oriented schemes. On the fixed income side, although there has been outflows from liquid schemes, the flows into gilt schemes and long duration on schemes have stood positive, owing to RBI’s dovish stance on interest rates," NS Venkatesh, Chief Executive, Amfi said.

Arbitrage schemes continue to witness positive net inflows, albeit lower as compared to May 2019, which has stood in favour of overall net inflows for hybrid schemes at Rs 862.61 crores.

Net outflows from income and debt oriented schemes to the tune of Rs 1,71,349.32 crores during June 2019 has led to overall decline in the June month-end AUM at Rs 24,25,04 0.37 crores from Rs 25,93,559.63 crores as on May 31, 2019. The overall AUM for June 2019, however, stood higher at Rs 25, 81,397.21 crores, as compared to Rs 25, 43,248.91 crores for May 2019 and Rs 25, 27,632.75 crores for April 2019.

Budget 2019: Income tax benefits for Bharat 22, CPSE ETF will boost retail investor participation

Budget 2019: After the Union Budget presented by FM Nirmala Sitharaman extended the benefit of Section 80C for investments into Central Public Sector Enterprise (CPSE) exchange traded fund (ETF), experts say that the move will boost retail investor participation.

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Budget 2019 After the Union Budget presented by FM Nirmala Sitharaman extended the benefit of Section 80C for investments into Central Public Sector Enterprise (CPSE) exchange traded fund (ETF), experts say that the move will boost retail investor participation. FM Nirmala Sitharaman noted that ETFs have proved to be an important investment opportunity for retail investors and has turned out to be a good instrument for Government of India’s divestment programme. “To expand this further, Government will offer an investment option in ETFs on the lines of Equity Linked Savings Scheme (ELSS). This would also encourage long term investment in CPSEs,” she said in her Budget speech.

Income Tax Calculator: Know post-Budget 2019 Income Tax out go here>

According to Rahul Jain, Head – Personal Wealth Advisory at Edelweiss, the proposal to extend Equity Linked Savings Scheme or ELSS-like income tax benefits to CPSE and Bharat-22 ETFs, will boost more retail participation in capital markets and increase tax saving options under section 80C. However, investors are advised to make careful choices, he added. Experts say that while CPSE ETF has been successful in garnering income for the government, the disinvestment target is rather ambitious. Notably, FM Sitharaman announced that the government is setting an enhanced target of Rs 1, 05,000 crore of disinvestment receipts for the financial year 2019-20. In a bid to achieve this, the Government will undertake strategic stake sale in PSUs. The Government will also continue to do consolidation of PSUs in the non-financial space as well, she said.

The government has laid steep revenue target on disinvestment. CPSE ETF have been successful to a large extent and government is looking for a greater participation from general public on this account,” Akhil Mittal, Senior Fund Manager, Tata Mutual Fund said. According to the expert, government’s move to offer an investment option on lines of ELSS (tax breaks) for ETF investing in CPSE’s should encourage long term investments in CPSE’s and also provide an alternate investment option to retail investor which is tax efficient. Radhika Gupta, CEO, Edelweiss Asset Management said that disinvestment is a stated priority, and extending tax incentives to retail investors in CPSEs oriented ETFs will provide a big push to this category, hopefully both for equity and debt ETFs. Further, the government also emphasized the need to deepen the corporate bond market, and encourage retail participation in debt, which has been limited so far, she added.

Mutual funds' AUM rises to Rs 25.49 lakh crore in June quarter

the total asset base of the industry was Rs 23.04 lakh crore in the same period a year ago.

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Mutual funds' asset base increased to Rs 25.49 lakh crore in April-June 2019, a rise of 4.14 per cent over the previous quarter, on the back of increased retail participation. The asset base of the industry, comprising 44 players, stood at Rs 24.48 lakh crore in the preceding three months, according to data by the Association of Mutual Funds in India (Amfi).

In recent months, the mutual fund industry has been grappling with redemption pressures in the wake of debt crises at various groups, including IL&FS, Essel and DHFLNSE 1.44 %.

Fund managers said apart from more retail participation, rise in equity markets as well as inflows in money market funds led to the rise in assets under management (AUM). The total asset base of the industry was Rs 23.04 lakh crore in the same period a year ago.

Of the 44 fund houses, as many as 24 witnessed growth in their asset base during the period under review as compared to the January-March quarter.

Best corporate bond mutual funds to invest in 2019

Mutual fund managers and advisors have been asking debt mutual fund investors to stick to corporate bond funds.
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Here's the monthly update on our recommended corporate bond schemes. The good news is that there is no change in our recommendations this month. Corporate bond funds are less volatile than credit-risk funds, long-term debt schemes and gilt schemes, say mutual fund advisors. Corporate bond funds category has offered 8.16 per cent returns in the last one year.

These advisors believe that if you are looking for a debt mutual fund scheme to invest for a medium term of three to five years and don't want to take too much risk on your investment, you may think of investing in corporate bond funds.
As per new Sebi categorisation, corporate bond funds must invest at least 80 per cent of their corpus in the highest-rated corporate bonds. That means these schemes would invest most of their corpus in corporate bonds that is rated AAA. That makes them a relatively less riskier than credit risk funds. However, since we are dealing with companies, there is always a bit of risk.

Sure, highest-rated companies are much more reliable than their counterparts rated lower. However, a higher rating doesn't mean that their ratings won't come down in future or they may not default on their payment. IL&FS saga is a clear example of how a so-called reliable bet can go wrong. But the chances of them defaulting or suddenly becoming junk-rated are remote.

If you have a moderate risk profile and you want invest for a medium term without thinking about the market forces like interest rates, you may invest in corporate bond funds. The ideal investment horizon for these schemes in three to five years. The corporate bond mutual fund category has offered around 6.09 per cent in the last one year, 7.16 per cent in the last three years and 7.86 per cent in the last five years.

Investor wealth rises by Rs 3.86 lakh crore in 2 days of rally

The Sensex had hit its all-time high of 40,124.96 during the trade on May 23.
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New Delhi: Investors' wealth has gone up by Rs 3.86 lakh crore in two days of market rise where the Sensex has gained 872 points after the decisive mandate for the BJP in the general election.

The 30-share BSE key index has gained 871.9 points in two days. The Sensex Monday closed 248.57 points higher at 39,683.29.

Led by the rally in the equity market, the market capitalisation (m-cap) of BSE-listed companies rose by Rs 3, 86,220.41 crore to Rs 1, 54, 11,395.90 crore on the BSE.

At the close of trade on Thursday, the market valuation of BSE-listed firms was Rs 1, 50, 25,175.49 crore.

The Sensex had hit its all-time high of 40,124.96 during the trade on May 23, the day election results were announced.

Hemang Jani, Head (Advisory), Sharekhan by BNP ParibasNSE 0.64 % said, "Indian markets end the day on a positive note. The markets continue their upward trend supported by FII (foreign institutional investor) buying in the past two consecutive trading days. The current government wining the general elections by a two-thirds of majority will clam the political environment in the country."
He said slowdown in global growth, US-China trade war along with rise in oil prices pose an immediate threat to domestic markets

"However, post the elections, we now expect the market to revert to fundamental issues such as earnings growth," Jani added.

From the 30-share pack, 17 scrips gained led by Tata Steel, YES BankNSE 2.18 %, NTPC, Larsen and Toubro, Axis BankNSE 0.35 % and State Bank of India.

Among sectoral indices, the BSE capital goods, power, industrials, utilities, metal and realty indices rallied up to 3.06 per cent.

In the broader market, the S&P BSE Midcap index gained 1.13 per cent and BSE Smallcap 1.77 per cent.

On the BSE, 1,793 scrips advanced, while 785 declined and 188 remained unchanged.

Net inflow in small-cap MFs in April soars despite weak show

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  • Investors see opportunity amid sharp corrections in mid-cap and small-cap stocks
  • Valuations in mid- and small-cap cooled off due to sharp corrections, which has drawn investors

MUMBAI: Mutual funds are significantly investing in mid-caps and small-caps despite their weak performance, and the risks associated with volatility of smaller companies. According to data released by the Association of Mutual Funds in India (Amfi), while net inflow into large-cap funds in April stood at Rs 48.27 crore, for mid-cap funds it was at Rs 491.04 crore, and for small-cap funds it stood at Rs 955.83 crore. For the first time, Amfi has released granular monthly data for investments by mutual fund houses.

Mutual funds’ preference for mid- and small-caps over large-caps comes at a time when the BSE MidCap and BSE SmallCap indices have been under pressure. BSE MidCap fell 8.56%, while BSE SmallCap lost 6.29% so far in 2019, after slipping 13.38% and 23.53%, respectively, in 2018.

In 2019, the benchmark index, Sensex, has gained 2.9% and the BSE LargeCap index has jumped 1.58%, while both indices gained 2-6% in 2018.

In April 2019, too, the BSE LargeCap index and the Sensex were up nearly 1%, while BSE MidCap and BSE SmallCap were down 3-4%.

Analysts said steep valuations in mid- and small-cap stocks have cooled off due to sharp corrections, providing an opportunity for investors.

“Valuations have come off considerably in mid- and small-caps after corrections, and we believe there is a significant opportunity here to generate alpha. These levels of inflows may not be suitable for small-cap funds that are already too large. However, they can be handled by funds of a small to medium size," said Radhika Gupta, chief executive officer (CEO), Edelweiss Asset Management Ltd.

Valuations of mid-caps, which were considered frothy and had a premium over large-caps till last year, have cooled off significantly. According to Bloomberg data, the BSE MidCap is currently trading at 17.48 one-year forward price to earnings (PE), which is much lower than three-year average of 19.66. The BSE MidCap is trading at 14.78 times PE, while the Sensex is at 17.60.

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According to Swarup Mohanty, CEO, Mirae Asset Global Investments (India) Pvt. Ltd, the large gap between small- and large-cap inflows seems to be the result of trend-buying on the part of investors. “Small-caps, as a category, are down 17% over the past year, hence, investors could be blindly contrarian."

Meanwhile, the share of both the BSE MidCap and the BSE SmallCap indices in overall market capitalization has decreased, while that of the Sensex has grown since January. At current levels, the BSE MidCap index contributes 12.77% to India’s total market capitalization, down from 13.72% in January.

In contrast, the contribution of the Sensex to the country’s total market capitalization has grown from 44.87% in January 2019 to 46.18% at current levels.

Typically, domestic institutional investors’ (DIIs) investment is skewed towards the mid and small stocks segment, while foreign institutional investors’ (FII) money largely goes into large-caps. So far in 2019, FIIs were net buyers of Indian shares worth $9.92 billion (approximately Rs 6.99 trillion), while DIIs have sold shares worth Rs 13,368.4 crore.

Mid, small-cap funds ride on Modi wave, post up to 5.4% gains in a week

According to data from Amfi, small- and mid-cap funds posted gains of 5.4 per cent and 4.6 per cent, respectively, over the past week 51

Mid- and small-cap schemes, which had given tepid returns in recent years, have bounced back sharply in the last week following the euphoria surrounding election results. After the Bharatiya Janata Party’s stunning victory, market players now see scope for a broad-based market rally.

Further, they expect quality mid- and small-cap companies to do well. According to data from the Association of Mutual Funds in India (Amfi), small- and mid-cap funds posted gains of 5.4 per cent and 4.6 per cent, respectively, over the past week. Both categories bettered the gains.

New debt disclosure norms to improve transparency, say fund managers

Legal experts said the move to specify penalties for default in payment or delay in listing in the term-sheet will bring in more legal sanctity
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The new disclosure framework for listed debt securities will help improve transparency and could potentially reduce the information asymmetry among different sets of debenture holders, said fund managers.

The market regulator Securities and Exchange Board of India (Sebi) on Monday introduced a couple of critical changes to the disclosure regime directing the so-called debenture trustees (DTs) to disclose their compensation structure, maintain a calendar of interest payments and redemptions and introduce additional covenants in case of privately placed debts.

"The intention of Sebi seems to be to plug information gaps between different set of debenture holders. However, more clarity is needed. It would help if all set of investors come to know when there is a default," said a debt fund manager, requesting anonymity.

The Sebi, in its circular, said that issuer of the debt securities will have to share details of debenture holders with the DT at the time of allotment and by seventh working day of every following month, "so that DTs keep their records updated and communicate effectively with debenture holders, especially in situations where events of default are triggered".

"The disclosure norms will help give more visibility to the new investor on track-record of the issuer in making timely payments. Also, the investor will have some clarity on the upcoming redemptions for the borrower," added Dwijendra Srivastava, chief investment officer (debt) at Sundaram Mutual Fund (MF).

Further, Sebi has given directions that would require DTs to update status of payment (security wise) against issuers not later than one day from the due date. "In case the payment is made with a delay by the issuer, DTs shall update the calendar specifying the date of such payment, with a remark ‘delayed payment’."

Legal experts said the move to specify penalties for default in payment or delay in listing in the term-sheet will bring in more legal sanctity.

“The clause pertaining to additional interest payments for default or delay in listing have been there from the start. However, mentioning them in the term sheet will bring in more transparency and set a floor coupon rate,” said a lawyer.

Sebi has said the issue details in the summary term-sheet for an agreement between the issuer and investor will have to include additional covenants that state “in case of default in payment of interest and/or principal redemption on the due dates, additional interest of at least at the rate of 2 per cent per annum over the coupon rate shall be payable by the company for the defaulting period.”

19% returns in three months; is it time to bet on banking sector mutual funds?

The toppers in the category have offered around 23 per cent returns in both three months and one-year horizon.
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Banking sector mutual funds are the talk of the town these days. These sector schemes have been offering exceptional returns in the short term: 6.09 per cent in one month, 19.17 per cent in three months, and 15.43 per cent returns in one year. The toppers in the category have offered around 23 per cent returns in both three months and one-year horizon. Investors are asking whether the performance is going to last or will it be short lived?

Fund managers believe that the outlook for the banking sector has definitely improved in the last one year. “In the near term, for the private banking space, competition landscape has become better. NBFCs have become weaker and PSU banks are struggling. The woes of asset quality are behind the large private sector banks. They don’t have a dearth of capital and this has helped the run up in the banking segment,” says Sonam Udasi, fund manager, Tata Banking and Financial Services Fund.

The return of Modi government has improved the sentiment in the market and it has given an extra push to these funds in the last one week. The BSE Bankex Index has jumped 1,360 points since the election results showed the return of the BJP government at the centre. However, fund managers believe that the momentum is unlikely to continue. “Definitely a strong government has pushed the indices up but the NAVs of the banking sector funds were already very strong. This push has just been additional,” says Jimmy Patel, CEO, and Quantum Mutual Fund.

The liquidity problems and the NPA issues might be partially behind the sector but mutual fund managers believe that it might continue to haunt the sector in the coming months. The Reserve Bank of India (RBI) on Friday proposed introducing a liquidity coverage ratio (LCR) for large NBFCs to help tackle liquidity problems in the NBFC sector.

“We have seen exceptional performance by the sector but we have to think about the issues that are lying under the carpet. The NPA issue is still not completely over for many banks, the PSU banks are struggling, there are investments in housing finance companies, NBFCs etc. which will hit the banks when the lending process from the banks starts again,” says Jimmy Patel.

With all these issues on the table, the fund managers still believe that the sector has the potential and these funds might reward investors who can take risk. “We believe that the large private sector banks will have a good run up in the next two to three years because of the weak competition. Even if the credit growth were to remain lower, they will take an incrementally higher market share. It may be volatile but the sector will remain positive for the coming years,” says Sonam Udasi. However, for retail investors, the advice remains the same- do not go for sector funds if you can’t take extra risk. “We have always advised retail investors to take exposure to the sectors via their multi cap or regular equity schemes. You should think of investing in sector funds only if you are aware of the sector and want to take positions,” says Jimmy Patel.

Small and mid caps revival on cards; should mutual fund investors join the party?

Many stock market pundits believe that mid cap and small cap stocks are likely to bounce bank in the current rally in the market.
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Many stock market pundits believe that mid cap and small cap stocks are likely to bounce bank in the current rally in the market. The short term performance of small cap and mid cap mutual fund schemes underscore the trend: the small cap mutual fund category has returned 5.26 per cent and the mid cap category has offered 4.61 per cent returns in the last one week. Though the pundits attributed the impressive performance to improved sentiment in the market following the election mandate to NaMo government, they believe small cap and mid cap mutual funds may continue to gain in the coming days.

“We are expecting mid cap and small cap segments to do well, but that doesn’t mean they will outperform the market like 2017. The two segments have seen correction and we are expecting the valuation to become better. We can’t say that small and mid cap mutual funds will start giving great returns. However, as a segment, we can see revival in mid cap and small caps, but it will not happen overnight,” says Gopal Agrawal, senior fund manager and head of macro strategy, DSP Mutual Fund.

Fund managers believe that the easing interest rate scenario is ideal for the small and mid cap segments. However, the rate cuts earlier this year did not translate into a good show by both these segments, probably because lack of transmission of rates by banks. “Due to the liquidity issues, which have been more or less resolved by RBI’s OMOs, and a narrow market rally, the small and mid cap segments did not perform in the last couple of months. These segments will go up but we shouldn’t expect them to outperform the rest of the segments,” says Vinay Paharia, CIO, Union AMC.

Small and mid cap mutual funds have been beaten down in the last one year but there are signs of revival in the short term. However, fund managers believe that investors shouldn’t expect too much from these schemes. “In the last couple of years, we have seen the valuations of small and mid cap companies running much ahead of fundamentals. To some extent, the valuations have corrected but real outperformance in mutual fund schemes will take time,” says Vinay Paharia.

Mutual fund managers say that investors shouldn't make the mistake of seeing the entire small and mid cap segment as one. They point out that only quality mid and small cap stocks would outperform in the current market. “Sure, there will be select quality companies which will do well, but for the entire segment we will have to wait for the government to fix liquidity, GST compliance issues and tighten macros for smooth revival in mid and small cap segments,” says Gopal Agrawal.

According to these fund managers it is always a good time to invest in small and mid cap schemes If you have the risk appetite and a long investment horizon. Investors can invest in small and mid caps at any point, they add.


How to use mutual funds for life-stage financial planning

The first stage of wealth accumulation starts from the time you start earning.

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There is a hard-pressed need for financial awareness among people of different age groups, as the needs, requirements and aspirations of people tend to differ with age and so does the risk-bearing capacity of individuals. Life-stage planning generally encapsulates three important phases of your financial life: wealth accumulation, wealth creation and wealth distribution.

The first stage of wealth accumulation starts from the time you start earning and are able to invest money to build a secure financial future. While this phase runs through your entire working life, it assumes more importance at the very beginning of your career. Once you have taken a step towards wealth accumulation, the wealth creation phase takes over, focusing on growing your wealth on the back of returns from the investments made over time.

Wealth creation tends to happen over long term, as investments need their own time to consolidate and grow. Wealth creation focuses more on ‘time in the market’ instead of ‘timing the market’.

Wealth distribution, the last phase, tends to start post your retirement. The post-retirement life is the period when one aims to enjoy the second innings of life to the fullest, but this is possible only if you have planned through the earlier two phases sincerely and seriously.

Mutual funds, as an investment vehicle, provide a wide range of investment options and schemes to investors with varying risk-taking abilities and financial goals. If you want to invest in equity funds with relative stability, you can invest in large cap funds. At the same time, balanced funds and monthly income plans provide you with choices to invest in equity and debt asset classes simultaneously.

Conservative investors can opt for short-term duration funds for an investment exposure into fixed income securities with lower interest rate risk.

Mutual funds also provide an option to invest regularly at periodic intervals through systematic investment plans (SIPs). With the help of SIPs, the amount gets deducted from your bank account and invested in the mutual fund scheme of your choice. As such, it takes care of your wealth accumulation needs, while the earlier investments continue to grow as well.

Further, pre-mandated investments help you stay clear of human and emotional bias, since investments continue to be made irrespective of market movements and, thus, helping in rupee-cost averaging of investments.

Similarly, when it comes to reaping benefits of the wealth accumulated and created over time in the wealth distribution phase, one can opt for a systematic withdrawal plan (SWP), which allows the investor to redeem existing investments partially over time. As such, prespecified units/ amount are redeemed as per the investor preference and the amount is credited into the bank account.

Considering their utility across different phases of life, one must treat mutual funds as partners in the financial journey of life.

Mutual funds collect Rs 8,055 crore via SIP in March

Retail investors continue to invest in mutual funds through Systematic Investment Plan or SIP.

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Retail investors continue to invest in mutual funds through Systematic Investment Plan or SIP. Mutual funds witnessed inflows worth Rs 8,055.35 crore via SIP in March, 13 per cent higher on year-on-year basis. February saw SIP collections worth Rs 8,094 crore. Month-on month, the SIP collections have fallen marginally by 0.5 per cent.

We have always seen an uptrend in SIP numbers. Though a month-on-month basis the collections have fallen but that is very marginal. We do not see any slowdown in opening of SIP accounts. Three lakh fresh SIP accounts have been opened in the month,” said N.S. Venkatesh, Chief Executive, Amfi.

SIP accounts for March stood at 2.62 crore vis-a-vis 2.11 crore for the same month last year.

Data released by Amfi shows that month-end assets under management (AUM) for March were Rs 23.80 lakh crore. Average AUM or AAUM stood at Rs 24.58 lakh crore.

“Overall AUM has grown by 11 per cent and the retail AUM has also shown growth of 16 per cent Y-o-Y. Given the market volatility has come down a little bit, market has shown uptrend and easing of border tensions have helped mutual fund inflows. Mutual Funds are mirroring the trend,” said Venkatesh.

Retail AUM for March stood at Rs 10.73 lakh crore, higher than February AUM of Rs 10.01 lakh crore.

ELSS or tax-saving funds saw inflows of Rs 2,742 crore.

Income funds have shown a reversal in trend. Income funds received net inflows of Rs 13,856 crore in March compared to outflows of Rs 4,200 crore in February.

Amfi chief attributed the exceptional growth to MPC’s dovish stand and rate cuts scenario.

“Monetary Policy Committee’s stand moving towards dovishness and rate cuts happenings is better for investors if they invest in gilt funds and income funds so that you get a better capital gains. The trend can be slowly observed where people have started slowly moving their money from other funds to income funds.

Liquid funds saw net outflows of Rs 51,343 crore. Amfi’s chief believes it is a normal phenomenon for March. March 2018 saw outflows worth Rs 55,000 crore.

Net inflows into equity mutual funds more than doubles in March: Amfi

  • Net inflows into domestic equity MFs more than doubled to ₹11,756 crore in March from the previous month
  • Year-on-year, net inflows into MFs registered a sharp rise of 76.59%, compared with the ₹6,657 crore in March 2018
  • Mumbai: Net inflows into domestic equity mutual funds more than doubled month-on-month from ₹5,122 crore in February to ₹11,756 crore in March, the highest since October 2018, according to data released by the Association of Mutual Funds of India (Amfi) on Monday.
  • Year-on-year, net inflows into equity MFs registered a sharp rise of 76.59%, compared to ₹6,657 crore in March 2018.
  • The month also witnessed the Indian markets rising nearly 8% to outperform its global peers, on expectations of a stable government at the centre after the April-May general elections.
  • According to N.S. Venkatesh, chief executive, Amfi, the spike in equity inflows is possibly due to the positive sentiments in the markets. “Volatility has come off a little and markets have shown a bit of an uptrend. This has rubbed off on mutual fund flows in March," said Venkatesh in a conference call.
  • Kaustubh Belapurkar, director, fund research, Morningstar Investment Adviser (India), said the latest Amfi data suggests investors are favouring equities. He expects equity inflows to stabilize in the coming months despite the rise in volatility as India goes to polls.
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Industry adds over 1 crore folios last fiscal

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Equity folios stood at 6.93 crore.

The MF industry has added 1.04 crore folios last fiscal taking the total folio count to 8.18 crore folios as of March 2019, shows SEBI data. Nearly 85% of these folios were in equity funds. Equity folios grew by a healthy 17% from 5.94 crore in March 18 to 6.93 crore in March 19.

Equity category includes pure equity, ELSS and balanced funds.

Compared to FY17-18 when close to 1.6 crore folios were created during the year, there has been some slowdown in folio creation because of volatility in both debt and equity markets. Even then, the year FY 18-19 saw a healthy growth of 15% in total folios largely due to increasing awareness about mutual funds among investors through AMFI’s ‘Mutual Funds Sahi Hai’ campaign.

Liquid (51%), other ETF (42%) and fund of funds investing overseas (OFoFs) (33%) saw strong growth last fiscal. While the ETF category benefitted from strong investor interest in PSU divestment offerings by the government through CPSE ETF, liquid funds saw increased participation due to volatility in debt markets. On the other hand, though the growth in overseas FoFs folios is high in percentage terms, the industry saw addition of 31,358 new folios last fiscal.

Overall, barring gilt funds and gold ETFs, all categories saw growth last fiscal.

Overall, barring gilt funds and gold ETFs, all categories saw growth last fiscal.

Experts attribute slowdown in gold ETFs to introduction of sovereign gold bond fund and relative stagnancy in gold prices.

On gilt funds, they said that the expectations of tighter monetary policy and QE tightening by developed economies led to lower interest in gilt category. However, AMFI CEO NS Venkatesh believes that with the monetary policy being dovish, gilt funds will offer investors good opportunity to earn capital gains.

Folio Data

Category
No. of folios as on March 2018
No. of folios as on March 2019
Change
Change (%)
Equity
43120298
50960402
7840104
18%
ELSS
10414687
11914094
1499407
14%
Balanced
5889085
6395013
505928
9%
ETFs
751947
1071015
319068
42%
Gold ETFs
329343
320620
-8723
-3%
Income Funds
9577218
9872745
295527
3%
Gilts
75,553
70,742
-4811
-6%
Liquid
1095226
1649410
554184
51%
Overseas FOFs
93,859
125217
31358
33%
Total
71347301
81792764
10,445,463.00
15%
Source: SEBI
 

Will mutual fund agents, advisers have separate self-regulators?

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Equity folios stood at 6.93 crore.

  • Sebi has asked if there should be multiple SROs for mutual fund agents and registered investment advisers (RIAs)
  • Sebi seems to have missed out the issue of self-regulation for robo advisers and fintech companies

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SebiMutual FundsPersonal Finance

Mumbai: The Securities and Exchange Board of India (Sebi) wants to put in place a self regulation organization (SRO) for mutual fund distributors and registered investment advisers (RIAs) since they have now become a large part of the mutual fund industry. SRO is a structure used by most regulators globally to form a first line of regulation. Sebi has invited public comments on a consultation paper for the amendment of the Sebi (Self Regulatory Organizations) Regulations 2004.

We explain the key functions of the SRO.

What will the SRO do?

Sebi has divided SRO’s functions into four broad categories. First, the SRO will have a development role covering training and education of its members and investor awareness. Second, it will have a regulatory role, granting membership and laying down a code of conduct for its members. Third, it will have a grievance redressal role, resolving disputes between members and investors and between members themselves.

Finally, it will have a disciplinary role, wherein it can take action against members for violation of the code of conduct or regulations. The SRO will have the power to suspend individuals and entities from their membership or remove them altogether but not to impose monetary penalties. It would have the power to resolve disputes between members and between investors and members. However, the SRO for mutual fund distributors will not have the power to handle disputes between its members and mutual funds.

Sebi’s earlier attempts to set up an SRO ran into rough weather when the Financial Planning Standards Board (FPSB) India challenged its decision to appoint the Association of Mutual Funds in India (AMFI)-promoted body, Institution for Mutual Fund Intermediaries (IMFI), as the SRO.

FPSB India moved the Securities Appellate Tribunal (SAT) against Sebi’s decision. From SAT, the case went all the way to the Supreme Court, which ruled that Sebi can call for applications for SRO again

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Sebi has neatly side-stepped the problem of appointing the SRO by handing over the job to a nomination committee that will be led by a retired high court or Supreme Court judge. “A nomination committee headed by a retired high court or Supreme Court judge is likely to be impartial and select an SRO on its merits," said Dhruv Mehta, president, Foundation of Independent Financial Advisors (FIFA).

Single or multiple SROs

A key question Sebi has asked in the SRO proposals is whether there should be one SRO or multiple SROs for the two different types of intermediaries—mutual fund distributors and RIAs.

Experts have different opinions on the issue. “There should be a single SRO since both types of intermediaries serve the same customers," said Mehta.

Vishal Dhawan, founder and CEO, Plan Ahead Advisors Pvt. Ltd, a financial planning firm, said distributors and advisers have different regulatory needs. “There is also a need to differentiate the two in the minds of investors.


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