THE uncertainty in equities has prompted wealthy investors to reduce exposure to shares and invest in short-term debt schemes that invest in instruments with a maturity of less than one year. Wealth managers said that drying up of money supply in recent weeks has pushed up yields of short-term instruments, boosting return prospects from funds that invest in such paper.
“The portfolio yield on these funds are 6.5-7%, which is very attractive in the current scenario,” said Om Ahuja, head-wealth management, Emkay Global Financial Services. “Investors are attracted to these investments as they provide a cushion to their portfolio while giving them steady returns,” he said.
Short-term debt funds, which constitute over half of the mutual fund industry’s assets of roughly Rs 8-lakh crore, invest in commercial paper, bank certificate of deposits and money market instruments. Returns from these instruments have gone up, as withdrawal of money by telecom companies and banks has made funds scarce. Wealth managers said that yields on one-month paper have risen to 6.5% from about 4% recently.
Mr Ahuja recommends investing in Kotak Short-Term Debt Fund which gave an annualised return of 8.15% and Birla Dynamic Bond, which returned 7.2% annually. But some warn that Sebi’s recent move directing mutual funds to mark their short-term debt paper to daily closing prices from July 1 will increase volatility in short-term bond funds.
Some investors are putting money in gilt funds, which invest in government paper. While some are investing as part of their longterm plan, a section of investors expects short spikes in government bond prices. “The current rally in the bond market seems to have caught the imagination of many market participants where the benchmark 10-year government securities rallied from 8.1% to almost 7.5%. So, debt funds were able to give a return of more than 12% while large-cap funds gave a negative return of 0.36% in the past two months,” he said.
Equity mutual funds are yet to see a huge redemption yet, but flows into these schemes have fallen significantly in recent months. “Incremental flows in equities have dried up over the past three months, suggesting many investors have shifted a part of their portfolio to short-term corporate bonds as the interest rates have spiked up,” said Shuja Siddiqui, V-P, wealth management, Motilal Oswal Financial Services.
Sunday, June 13, 2010
Nifty expected to get support at 5020 level
THE creation of positions in Nifty options indicates traders are expecting limited upside, but are not ruling out a sharper downside. Open interest in Nifty call options was 1.25 lakh shares while that in put options was 37.75 lakh shares on Friday, analysts said. This shows the pessimistic bias of traders towards the market. But analysts point out there is a strong support for the index at 5020, which is the 200-day simple moving average. Among stocks, SAIL has seen some call writing at higher levels. Though this means stock upsides could be capped, analysts are not ruling out the possibility of a sharp move before the June series expiry. Harish Rao suggests an options strategy that captures a rangebound Nifty and one that captures a volatile SAIL.
NIFTY
CMP: 5,119.35 Strategy: Long call butterfly Buy 1 June 5000 call @ 157 Rs 7,850 Sell 2 June 5100 calls @ 86.40 Rs 8,640 Buy 1 June 5200 call @ 35.35 Rs 1,767.50 Net premium paid (50* 19.55) Rs 977.50
This strategy involves limited risks, but will fetch only commensurate returns. The maximum profit is when the Nifty expires at 5100. This will be Rs 4,022.50 (50 * (100-19.55). The maximum loss will be limited to the extent of the net premium paid (Rs 977.50), which will occur when the Nifty goes below 5000 or above 5200 at expiration. At 5000 levels, all the options will expire worthless. Above 5200, the gain from two long calls will be neutralised by the selling of two 5100 calls.
SAIL
CMP: 196.30 Strategy: Long straddle Buy 1 June 200 call @ 4 Rs 5,400 Buy 1 June 200 put @ 6 Rs 8,100 Net premium paid (1350 * 10) Rs 13,500 This options strategy involves simultaneous purchase of at-the-money call & put options of the same strike price and expiration date. This is a limited-risk strategy as the maximum loss will be to the extent of the net premium paid (Rs 13,500). This will occur if the stock expires at the strike price (Rs 200). To profit from the strategy, the stock should move beyond 210 (200+(6+4)) on the upside or 190 (200-(6+4)) on the downside.
WHAT TO WATCH OUT FOR
INDIA
Results: Bimetal Bearings, Gokul Refoils, Lancor Holdings and Responsive Industries will declare quarterly & annual earnings on Monday.
WORLD
London: Office for Budget Responsibility (OBR) economic forecast. The newly-formed OBR will publish its first pre-budget forecasts for the economy and public finances on Monday.
NIFTY
CMP: 5,119.35 Strategy: Long call butterfly Buy 1 June 5000 call @ 157 Rs 7,850 Sell 2 June 5100 calls @ 86.40 Rs 8,640 Buy 1 June 5200 call @ 35.35 Rs 1,767.50 Net premium paid (50* 19.55) Rs 977.50
This strategy involves limited risks, but will fetch only commensurate returns. The maximum profit is when the Nifty expires at 5100. This will be Rs 4,022.50 (50 * (100-19.55). The maximum loss will be limited to the extent of the net premium paid (Rs 977.50), which will occur when the Nifty goes below 5000 or above 5200 at expiration. At 5000 levels, all the options will expire worthless. Above 5200, the gain from two long calls will be neutralised by the selling of two 5100 calls.
SAIL
CMP: 196.30 Strategy: Long straddle Buy 1 June 200 call @ 4 Rs 5,400 Buy 1 June 200 put @ 6 Rs 8,100 Net premium paid (1350 * 10) Rs 13,500 This options strategy involves simultaneous purchase of at-the-money call & put options of the same strike price and expiration date. This is a limited-risk strategy as the maximum loss will be to the extent of the net premium paid (Rs 13,500). This will occur if the stock expires at the strike price (Rs 200). To profit from the strategy, the stock should move beyond 210 (200+(6+4)) on the upside or 190 (200-(6+4)) on the downside.
WHAT TO WATCH OUT FOR
INDIA
Results: Bimetal Bearings, Gokul Refoils, Lancor Holdings and Responsive Industries will declare quarterly & annual earnings on Monday.
WORLD
London: Office for Budget Responsibility (OBR) economic forecast. The newly-formed OBR will publish its first pre-budget forecasts for the economy and public finances on Monday.
‘We continue to be bullish on pharma’
With ongoing Euro crisis, overseas fund managers will be compelled to raise exposure to India, says Reliance MF’s Madhusudan Kela
HIS rise within the organisation as well as in the fund management industry has been dramatic. But for the past few months, there has been speculation that Madhusudan Kela, head-equities, Reliance Mutual Fund, is quitting. Untrue, insists Mr Kela. In an interview with Santosh Nair, he says that he is still bullish on the big picture India story. However, in the short term, global sentiment will prevail, he cautions.
How do you see the market playing out near term in light of global developments?
In the next 6-12 months, the market will still be ruled by global sentiment. The ongoing debt crisis in Europe can have a meaningful impact on markets globally as in India, if the situation worsens. If one or two Eurozone countries were to default or the euro as a currency breaks down, there will be chaos. Similarly, if there is slowdown in China, the Indian market will be impacted. Currently, the Indian market is trading at a 25% premium to China. If China’s earnings multiple contracts, there could be a valuation challenge for India as well. However, we have seen over the past six years that the market has produced significantly better returns than most countries in the world. The India story is getting stronger. For instance, this year, you will see a significant fiscal consolidation, which was a major worry for the market. Over the next 2-3 years, the gas and oil reserves will materialise and this will further improve our fiscal position. And the real dark horse could be the UID project which can significantly prune the subsidies and improve tax collection. And hopefully, the pilferage will reduce. I believe a 8-9% growth with more reforms from the government looks real in the next five years.
How steep do you expect the correction, if it does come through, to be?
If the situation in global markets worsens, we could even see a 15-20% correction in Indian shares. But since India’s fundamentals are only getting better, and viewed in the global context, overseas fund managers will be compelled to increase their exposure to India. Any meaningful correction will be a great buying opportunity for retail investors with a long-term view on equities.
Which are the sectors that interest you?
We continue to remain overweight on the pharma sector. We are bullish on companies which will benefit from the domestic consumption story in India. We like public sector banks. They have underperformed the market for a while due to concerns over rising bond yields and hence marked-to-market losses on the bond portfolio. Our view is that PSU banks can grow their loan books 25% for each of the next three years, and they have the capital adequacy to meet the loan demand. The stocks are available at 1.2-1.5 times their book value, and you can’t go wrong if you have a 2-3-year perspective.
There is a lot of pessimism about the telecom sector, more so after the recent 3G bids. Would you take a contrarian view?
Much of the bad news in the sector is behind us. If these stocks see any sharp correction, we would definitely buy them. The stock prices may have underperformed over the past couple of years, but the customer base has more than doubled during the same period.
What about mid-cap stocks in general? Would you still go for them in current market conditions?
Yes, if there are opportunities, we will continue to invest in companies with scalable business models, with earnings growth faster than large-caps, and available relatively cheaper to large-caps.
Your strategy of betting on mid-caps in a big way has been criticised by your peers. They accuse you of boosting portfolio returns by buying into firms with low-floating stock.
Companies like Siemens and Jindal Steel & Power were mid-caps when we first bought them. Not only have they delivered better returns, but are now ranked among the large caps. But I must admit that there have been some wrong bets as well. We have tweaked our mid-cap strategy a bit. We will not buy into very small companies, and would focus on companies with a minimum m-cap of Rs 1,000-1,500 crore.
Locally, what are the factors that could dampen sentiment for stocks?
Below average monsoon would rank high on that list. The reforms process needs to be accelerated. The government has shown resolve, but it needs to build on it, especially in terms of attracting more FDI flows. Rising instances of Maoist and Naxalite attacks could make foreign fund managers nervous. We are highly dependent on inflows at this stage, because there is not much money coming in locally.
How much cash on an average would you be keeping in your portfolio? Your strategy of aggressive cash positions last year was criticised in industry circles.
We will use it more as a tool to improve the portfolio mix. We will not shy away from keeping a higher cash level than our peers if market conditions warrant. But it will not be as high (25%) as was the case last year.
Global cues, tax code draft to chart course
INDIAN stocks may continue to look overseas for direction in the week ahead. But analysts see limited upsides from these levels, as investors are expected to book profits since uncertainty about Europe’s health is yet to recede. Investors will closely watch the contents of the revised direct tax code draft, which is likely to be published by the finance ministry this week for public opinion.
“The market (Nifty) has 5000-5050 acting as a strong support zone and will have to look for positive cues from global markets to build on recent gains,” said Dipan Mehta of Dipan Mehta Shares and Stock Brokers. Last week, the Nifty shed 0.3% to 5119.35.
With local economic data, including last week’s industrial production reading for April, which is at a 20-year high, remaining robust, investors have little doubts about the recovery in the Indian economy. But they fear India’s economic growth would be affected, if problems in Europe are not solved.
“A mood of depression pervades global equity markets. Most investors we speak to believe that the global economy faces a double dip and that structural issues, such as sovereign debt, will keep global growth sub-trend for a prolonged period,” said Garry Evans, global head of equity strategy at HSBC.
But the bank thinks such fears are stretched. “We are happy to stick to our view that this is a normal correction, not a new bear market, and that some countries’ equities, especially in emerging markets, now offer interesting opportunities,” said Mr Evans.
Barclays Capital, in a report, said, “We believe that markets have overreacted assuming that the recovery is losing strength. But we do underestimate the existing difficulties from the European sovereign issues to the risks of a Chinese bubble.”
Analysts expect shares of Reliance Industries (RIL) to surge further this week on news of its Infotel Broadband acquisition. The stock rose 3% to close at Rs 1,046.25.
“This could be a good diversification strategy, as RIL was looking for opportunities to deploy free cash, but it will also intensify competition as existing players will have to deal with a large player with deeper pockets,” said Gaurav Dua, headresearch, Sharekhan.
“The market (Nifty) has 5000-5050 acting as a strong support zone and will have to look for positive cues from global markets to build on recent gains,” said Dipan Mehta of Dipan Mehta Shares and Stock Brokers. Last week, the Nifty shed 0.3% to 5119.35.
With local economic data, including last week’s industrial production reading for April, which is at a 20-year high, remaining robust, investors have little doubts about the recovery in the Indian economy. But they fear India’s economic growth would be affected, if problems in Europe are not solved.
“A mood of depression pervades global equity markets. Most investors we speak to believe that the global economy faces a double dip and that structural issues, such as sovereign debt, will keep global growth sub-trend for a prolonged period,” said Garry Evans, global head of equity strategy at HSBC.
But the bank thinks such fears are stretched. “We are happy to stick to our view that this is a normal correction, not a new bear market, and that some countries’ equities, especially in emerging markets, now offer interesting opportunities,” said Mr Evans.
Barclays Capital, in a report, said, “We believe that markets have overreacted assuming that the recovery is losing strength. But we do underestimate the existing difficulties from the European sovereign issues to the risks of a Chinese bubble.”
Analysts expect shares of Reliance Industries (RIL) to surge further this week on news of its Infotel Broadband acquisition. The stock rose 3% to close at Rs 1,046.25.
“This could be a good diversification strategy, as RIL was looking for opportunities to deploy free cash, but it will also intensify competition as existing players will have to deal with a large player with deeper pockets,” said Gaurav Dua, headresearch, Sharekhan.
QIPs fizzle out as market turns volatile
FUND-RAISING through qualified institutional placements (QIPs) has slowed down sharply in the past couple of months due to uncertain market conditions. Stock markets around the world, including India, have been volatile since late April, as nervous investors reacted to news flows from European countries reeling under a sovereign debt crisis.
Fund managers have turned risk averse, while companies feel they may not get a good enough price in the present market.
Shares of many companies that recently made placements to institutional investors, are trading below the issue price. This, according to investment bankers, may be a blessing in disguise for investors who can take advantage of the discount to buy more shares and increase their holdings. The possibility looks stronger particularly in fundamentally sound, highgrowth companies where returns expectations are quite high, they feel.
Reflecting the lacklustre trend in the QIP market, three companies raised only Rs 948 crore between May and mid-June. This is less than half of Rs 2,107 crore that five companies raised in April. The month before, four companies raised Rs 1,600 crore.
Abhay Bhalerao, director of Mumbai-based investment banking firm Equirus Capital, attributes the lull in fund-raising to adverse market conditions.
He, however, feels institutional investors are unlikely to take a bearish view on their investments in existing companies. “They, in fact, will take advantage of cheaper valuations to raise their holdings in fundamentally strong companies with better prospects,” said Mr Bhalerao.
Even though funds are available, investors are not very keen on deploying them in riskier assets, said Fortune Financial Services joint managing director and Group CEO Devesh Kumar. “Risk aversion has risen due to negative news flows from developed economies and the resultant uncertainty in the stock market. We expect the market to be volatile in the near term,” Mr Kumar said.
While many companies, particularly in realty and infrastructure sectors successfully mopped up large funds in the past, most of them are now quoting substantially below the QIP prices. Out of the 15 offers since January this year, as many as 10 are quoting at a discount ranging from 4% to 23%.
For example, 3i Infotech mobilised Rs 180 crore through placement of shares to qualified institutional buyers at Rs 78.6 a share while the stock closed at Rs 62.5 on Friday. Welspun India is another company which made a Rs 156-crore placement at Rs 100 per share in April this year. Since then, the share price has been on a decline and it closed at Rs 77.3 on Friday.
Fund managers have turned risk averse, while companies feel they may not get a good enough price in the present market.
Shares of many companies that recently made placements to institutional investors, are trading below the issue price. This, according to investment bankers, may be a blessing in disguise for investors who can take advantage of the discount to buy more shares and increase their holdings. The possibility looks stronger particularly in fundamentally sound, highgrowth companies where returns expectations are quite high, they feel.
Reflecting the lacklustre trend in the QIP market, three companies raised only Rs 948 crore between May and mid-June. This is less than half of Rs 2,107 crore that five companies raised in April. The month before, four companies raised Rs 1,600 crore.
Abhay Bhalerao, director of Mumbai-based investment banking firm Equirus Capital, attributes the lull in fund-raising to adverse market conditions.
He, however, feels institutional investors are unlikely to take a bearish view on their investments in existing companies. “They, in fact, will take advantage of cheaper valuations to raise their holdings in fundamentally strong companies with better prospects,” said Mr Bhalerao.
Even though funds are available, investors are not very keen on deploying them in riskier assets, said Fortune Financial Services joint managing director and Group CEO Devesh Kumar. “Risk aversion has risen due to negative news flows from developed economies and the resultant uncertainty in the stock market. We expect the market to be volatile in the near term,” Mr Kumar said.
While many companies, particularly in realty and infrastructure sectors successfully mopped up large funds in the past, most of them are now quoting substantially below the QIP prices. Out of the 15 offers since January this year, as many as 10 are quoting at a discount ranging from 4% to 23%.
For example, 3i Infotech mobilised Rs 180 crore through placement of shares to qualified institutional buyers at Rs 78.6 a share while the stock closed at Rs 62.5 on Friday. Welspun India is another company which made a Rs 156-crore placement at Rs 100 per share in April this year. Since then, the share price has been on a decline and it closed at Rs 77.3 on Friday.
Monday, June 7, 2010
Europe’s debt woes push down commodity prices
THE biggest slump in commodities since Lehman Brothers collapsed is undermining Wall Street forecasts for accelerating economic growth and higher prices for everything from copper to crude oil.
The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of steel, cattle hides, tallow and burlap plunged 57% in May, two years after a decline that foreshadowed the worst recession in half a century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth.
“As risk-taking falls, expected growth is reduced,” said Colin P Fenton, the chief executive officer of Curium Capital Advisors LLC in Boston, who was a commodity analyst at Goldman Sachs Group and Stanley Druckenmiller’s Duquesne Capital Management LLC hedge fund. “Demand for commodities is going to be softer than it might otherwise have been.”
While the Organization for Economic Cooperation and Development raised its growth forecasts for this year and next on May 26, investors are dumping holdings at the fastest pace since February.
The Journal of Commerce Industrial Price Commodity Smoothed Price Index reflects clearer signs of supply and demand than futures markets because half the items it tracks don’t trade on exchanges used by speculators, said Lakshman Achuthan, the managing director at the New York-based Economic Cycle Research Institute. The gauge dropped to 25.97 on May 28 from 60.56 on April 30. In June 2008, a month after the index reached its peak, the Paris-based OECD said the US would grow at a 1.1% rate the following year. Commodities continued to drop, and in October 2008, the index fell at a 56% annual rate, which was then the lowest level since 1949.
Almost two months later, the National Bureau of Economic Research, the panel that dates American business cycles, said the US was in a recession. The world’s largest economy shrank 2.4%, the worst contraction since 1946. Now, “the collapse in the commodity index is telling us that the peak in global industrial growth is imminent, it’s here right now,” Achuthan said. “Markets are going to have to deal with the reality of a slowdown.”
China’s Purchasing Managers’ Index slid to 53.9 from 55.7 in April, the Federation of Logistics and Purchasing said last week. That was less than the median 54.5 estimate in a Bloomberg survey of 18 economists. A monthly gauge of manufacturing in the euro region fell to 55.8 from 57.6, Markit Economics said. The Institute for Supply Management said its US factory index dropped to 59.7 in May from 60.4 in April. Europe’s debt crisis is only starting to weigh on global growth, said Michael Aronstein, a strategist at Oscar Gruss & Son who predicted the 2008 commodity plunge and is betting against a rally this year.
Raw materials may drop another 10% because the economy is on the ‘cusp’ of deflation, said Philip Gotthelf, the president of Equidex Brokerage Group in Closter, New Jersey. That would drive the CRB Index of 19 commodity futures down 22% from a January 6 peak.
DOWN IN THE DUMPS
DIPPING DEMAND
The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of steel, cattle hides, tallow and burlap plunges 57% in May
The index of 18 industrial materials dropped the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth
The index reflects clearer signs of supply and demand than futures markets because half the items it tracks don’t trade on exchanges used by speculators
While the OECD has raised its growth forecasts for this year, investors are dumping holdings at the fastest pace since February NEW NADIR 53.9
The new low for China’s Purchasing Managers’ Index in May from 55.7 in April 55.8
Fall in a monthly gauge
of manufacturing in the
euro region from 57.6 59.7
Drop in United States
factory index in May
from 60.4 in April
The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of steel, cattle hides, tallow and burlap plunged 57% in May, two years after a decline that foreshadowed the worst recession in half a century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth.
“As risk-taking falls, expected growth is reduced,” said Colin P Fenton, the chief executive officer of Curium Capital Advisors LLC in Boston, who was a commodity analyst at Goldman Sachs Group and Stanley Druckenmiller’s Duquesne Capital Management LLC hedge fund. “Demand for commodities is going to be softer than it might otherwise have been.”
While the Organization for Economic Cooperation and Development raised its growth forecasts for this year and next on May 26, investors are dumping holdings at the fastest pace since February.
The Journal of Commerce Industrial Price Commodity Smoothed Price Index reflects clearer signs of supply and demand than futures markets because half the items it tracks don’t trade on exchanges used by speculators, said Lakshman Achuthan, the managing director at the New York-based Economic Cycle Research Institute. The gauge dropped to 25.97 on May 28 from 60.56 on April 30. In June 2008, a month after the index reached its peak, the Paris-based OECD said the US would grow at a 1.1% rate the following year. Commodities continued to drop, and in October 2008, the index fell at a 56% annual rate, which was then the lowest level since 1949.
Almost two months later, the National Bureau of Economic Research, the panel that dates American business cycles, said the US was in a recession. The world’s largest economy shrank 2.4%, the worst contraction since 1946. Now, “the collapse in the commodity index is telling us that the peak in global industrial growth is imminent, it’s here right now,” Achuthan said. “Markets are going to have to deal with the reality of a slowdown.”
China’s Purchasing Managers’ Index slid to 53.9 from 55.7 in April, the Federation of Logistics and Purchasing said last week. That was less than the median 54.5 estimate in a Bloomberg survey of 18 economists. A monthly gauge of manufacturing in the euro region fell to 55.8 from 57.6, Markit Economics said. The Institute for Supply Management said its US factory index dropped to 59.7 in May from 60.4 in April. Europe’s debt crisis is only starting to weigh on global growth, said Michael Aronstein, a strategist at Oscar Gruss & Son who predicted the 2008 commodity plunge and is betting against a rally this year.
Raw materials may drop another 10% because the economy is on the ‘cusp’ of deflation, said Philip Gotthelf, the president of Equidex Brokerage Group in Closter, New Jersey. That would drive the CRB Index of 19 commodity futures down 22% from a January 6 peak.
DOWN IN THE DUMPS
DIPPING DEMAND
The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of steel, cattle hides, tallow and burlap plunges 57% in May
The index of 18 industrial materials dropped the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth
The index reflects clearer signs of supply and demand than futures markets because half the items it tracks don’t trade on exchanges used by speculators
While the OECD has raised its growth forecasts for this year, investors are dumping holdings at the fastest pace since February NEW NADIR 53.9
The new low for China’s Purchasing Managers’ Index in May from 55.7 in April 55.8
Fall in a monthly gauge
of manufacturing in the
euro region from 57.6 59.7
Drop in United States
factory index in May
from 60.4 in April
MF sellers watch out, Sebi’s listening
TELEMARKETING agents soliciting customers by promising huge returns on mutual fund investments may do well to think twice before making tall claims. For, market watchdog the Securities and Exchange Board of India (Sebi) may be listening.
Capital market regulator Sebi, which administers mutual funds, is said to be contemplating various ways to weed out any kind of mis-selling by distributors, agents and relationship managers of the fund houses.
The possible guidelines for the same are being drawn by Sebi, along with the National Institute of Securities Markets, an institution entrusted with the tasks of educating investors and market players.
The suggestions currently being deliberated include recording of sale or promotional calls that the executives, including those at fund houses and distributors, make to new or existing customers, a top official said. The fund houses would also need to audit these recordings periodically and report compliance to mutual fund industry body Amfi and Sebi on a periodic basis, the official said, adding that such compliance reports would be needed to be filed along with the remedial actions for all the mis-selling activities noticed in these recordings.
The distributors, although they agree that the mis-selling of products can be checked with these measures, are not very keen to adopt the practice, given the fact that their payouts have already gone down with the recent volatility in the market and scrapping of entry-loads on mutual funds.
But, Sebi seems to be firm on its position and the new guidelines, if implemented, would be part of its various investor protection measures taken in the mutual fund space. Recently, Sebi also asked fund houses to disclose all complaints received by them on their websites and also in their annual reports. Besides, it has cracked down on the expensive gifts and payouts by fund houses to distributors.
Capital market regulator Sebi, which administers mutual funds, is said to be contemplating various ways to weed out any kind of mis-selling by distributors, agents and relationship managers of the fund houses.
The possible guidelines for the same are being drawn by Sebi, along with the National Institute of Securities Markets, an institution entrusted with the tasks of educating investors and market players.
The suggestions currently being deliberated include recording of sale or promotional calls that the executives, including those at fund houses and distributors, make to new or existing customers, a top official said. The fund houses would also need to audit these recordings periodically and report compliance to mutual fund industry body Amfi and Sebi on a periodic basis, the official said, adding that such compliance reports would be needed to be filed along with the remedial actions for all the mis-selling activities noticed in these recordings.
The distributors, although they agree that the mis-selling of products can be checked with these measures, are not very keen to adopt the practice, given the fact that their payouts have already gone down with the recent volatility in the market and scrapping of entry-loads on mutual funds.
But, Sebi seems to be firm on its position and the new guidelines, if implemented, would be part of its various investor protection measures taken in the mutual fund space. Recently, Sebi also asked fund houses to disclose all complaints received by them on their websites and also in their annual reports. Besides, it has cracked down on the expensive gifts and payouts by fund houses to distributors.
Subscribe to:
Posts (Atom)