Equity Mutual Funds Outperform Nifty; AUM Increases Over 60% In 15 Months

Following up on our earlier posts on Mutual Funds (Read “Why AMFI Should Not Ban Upfront Commissions” and “Mutual Funds Hike Exit Loads, Hoping This Time Investors Will Stay”), we take a closer look at the monthly performance of Mutual Funds.

The data that is used in our analysis provides a monthly look at Total Inflows, Redemptions/Repurchases Assets Under Management (AUM) and a few more metrics. The data was obtained from AMFIs database. […]

By |October 15th, 2014|Categories: MutualFunds||1 Comment

Why AMFI Should Not Ban Upfront Commissions

I am all for regulation. As in, I do not think a world without regulation, in the financial space, is worthwhile. But not all regulation is good, and the specific nature of my argument is that while I like the concept of regulation, I think we fail in the implementation.

Latest in my disagreement series is that AMFI is considering banning all upfront commissions to distributors by mutual funds. I think this is a bad step, and I think so even as I find it agreeable that we have no "entry loads" by regulation.

After our earlier post about Mutual Funds Hiking Exit Loads, we received notice that much of this is due to large upfront commissions demanded by distributors has gone up as much as 6% to 8%! This, ostensibly, is the reason why funds want larger and longer exit loads.

If you are a Capital Mind Premium member, you can […]

By |October 13th, 2014|Categories: MutualFunds||4 Comments

Mutual Funds Hike Exit Loads, Hoping This Time Investors Will Stay

In a strange move, Mutual Funds are increasing exit load time frames. This is usually a desperate situation by MFs to retain investors, or they are just using the current interest in equity funds to ensure that these investors stay even if the market gets volatile.

 

(Pic from the Business Standard Article)

Even bond funds haven’t been spared! Sure, the recent budget has made it less lucrative to exit fixed income funds within 3 years (short term capital gains tax applies) but surely, that should be incentive enough for people to stay.

While funds charged a 1% exit load in the past for about a year, it was mostly so after SEBI removed entry loads on funds. Funds used the 1% exit load to reimburse distributors, until a change in SEBI rules in 2012 ensured that the exit loads would be placed in the fund’s balance instead, not to be used for reimbursements.

Given this change, exit loads are […]

By |October 10th, 2014|Categories: MutualFunds||12 Comments

Jaitley Removes Retrospectivity in Debt Mutual Funds, But FMPs Will Still See Tears

NDTV reports that the higher tax on debt mutual funds will apply only from July 10 onwards, and not “retrospectively”, from a statement given by Arun Jailtley (Finance Minister) to Parliament.

Which needs a change in the finance bill, to state that units of non-equity mutual funds that have been sold between April 1 2014 and July 10, 2014 and held for more than one year from purchase will be attract long term capital gains. This means a “proviso” needs to be added stating this intention.

However for investors in FMPs who bought for a year’s holding for the tax exemption, their exit will be classified as a short-term gain, and it’ll be added to their income. For them it’s retrospective by implication, since they had no idea about this when they invested.

Read: The Murder of the Debt Mutual Fund in this budget.

But the concept of retrospective taxation […]

By |July 25th, 2014|Categories: Budget2014, MutualFunds||8 Comments

Mutual Fund Commissions Go Up in FY14, But The Future Is Scary (Freemium)

Each year AMFI releases data on all commissions paid to agents by all mutual funds, to distributors that meet any of:

  • Manage more than 100 cr. Of assets
  • Commissions of Rs. 1 cr. In total (all MFs) or Rs. 50 lakh from a single fund house
  • Presence in 20 locations or more

What we have found after a multi-year analysis of this data is:

  • Commissions go up marginally, AUMs too, but share of total mutual fund assets decline.
  • Banks and financials continue to dominate commissions by a huge margin
  • Many large agents including banks have lower assets under management (AUM) than the previous year
  • Outliers: Axis Bank saw a whopping 698% increase in its AUM this year, while […]
By |July 18th, 2014|Categories: MutualFunds, Premium|Tags: |Comments Off

No Easy Choices for AMCs as They Stop Issuing FMPs

There are no easy choices for Mutual Fund Asset Management Companies. After Budget 2014 raised the tax on debt mutual funds, they have pulled out Fixed Maturity Plans from the market, even returning money collected to investors (before the fund would have actually launched).

FMPs have more than 160,000 cr. invested – most of which will mature in a year. That money will not come back to new FMPs – and assuming a 9% return and an average of 20% tax, the tax collections will be more than Rs. 2800 cr. That’s the stake on the table now.

Some AMCs want SEBI to fight for them. Yet others want SEBI to let them make the FMPs open-ended so that investors get to stick around for 36 months.

FMPs can be moved to open-ended, but there are high operational costs. They’ll have to change the mandate, get investor approval (90% must approve) and […]

By |July 14th, 2014|Categories: Budget2014, MutualFunds||4 Comments

The Murder of the Debt Mutual Fund By Closing a Tax Loophole

 

Invested in an FMP?

Bought a Liquid Fund And Stuck around for a Year?

Bought Debt Funds for the “Inflation Indexation”?

You’re going to hate Arun Jaitley.

 

Let’s start with the basics. You can invest in a fixed deposit with banks. Which pays you interest. The interest is added to your income, and taxed at the highest rate you qualify in. So a 9% fixed deposit falls down to 6.3% if you are in the 30% bracket.

For companies, it was always going to be 30%.

But there was the Great Indian Debt Fund Tax arbitrage. If instead of buying a fixed deposit, you bought a debt mutual fund which bought bank wholesale deposits, a massive tax arbitrage worked in your favour.

If you held units for a year, then the gains were “Long Term Capital Gains”. These gains are taxed at lower rates of 10% of absolute gains, or 20% of “indexed” gains. When […]

By |July 10th, 2014|Categories: Budget2014, MutualFunds||51 Comments

How Much Are You Paying Mutual Funds in Commissions?

A question on Ask Capital Mind goes like this:

Is there any link from which I can get to know the Trailing commission which the AMC pays to the distributor?

The one simple way to find out what it costs you in commissions is to check the mutual funds’ direct plan versus the regular plan. Check only the growth options because dividends distort the NAVs since the payouts could happen at different times.

Here’s a quick comparison of a few funds mentioned in that question:

 

image

Notes:

  • Since Direct plans were introduced on Jan 1, we don’t have a full year to compare. I have taken the values on Jan 15 (some funds took a few days to create such their direct plans) and compared them to the November 5 value. (Approximately 10 days short of 10 months)
  • The first two funds are ultra-short term plans, […]
By |November 6th, 2013|Categories: MutualFunds||18 Comments

Video: Liquid and Ultra Short Term funds, and Fixed Deposits

Some of you have talked about Liquid and Ultra Short Term funds, versus fixed deposits, and how to compare all of them:

Here’s a video that I’d made at MarketVision a long time back which might be relevant:

Certain minor things might have changed – like the Dividend taxes on ultra-short term funds have now been upped to 25% as well, so that advantage over liquid funds has gone away. But the concepts remain useful to investors today.

By |October 18th, 2013|Categories: FixedIncome, MutualFunds, Video||1 Comment

Liquid Funds Recover From the July 15 Damage

Liquid Funds have recovered substantially from their fall on July 16. Remember, on July 15, the RBI took extraordinary measures to cut liquidity and that raised short term interest rates by 300 bps (3%). This caused liquid funds to fall in their NAV, as short term funds were impacted by rising yields (yields move inversely with prices).

At the time there was a fear that these funds have a major problem. However, my view has been that if you don’t need the liquidity, stick around. The NAV will recover, and it has. Here’s the NAVs of all liquid funds since then, and the return from July 15.






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By |August 5th, 2013|Categories: Gilts, MutualFunds||2 Comments

Mutual Funds that Owned Shares of Financial Technologies

Mutual funds owning FT stock are largely from the Reliance and Birla stable, it seems. Going purely from the shareholding on Jun 30 (the last we have) the shares they own are as follows, aggregated by AMC.

FT Shares held by Mutual Funds

Note that all of these are shares held on behalf of mutual fund holders.

In Bulk trades yesterday a few of the top shareholders exited their stake. Remember, anyone trading more than 0.5% of the days volume will get reported as bulk trades. Looking at the NSE and BSE together it seems that Birla and Reliance have exited part of their portfolio. (If the others were to exit, they would be too small to be reported in bulk trades, so it’s likely that they’ve exited as well)

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By |August 2nd, 2013|Categories: FinanTech, MutualFunds||5 Comments

Investing in bond funds : What you actually need to know, by Dheeraj Singh

This is a guest post by Dheeraj Singh. Dheeraj was a fund manager for many years specializing in fixed income. He used to head fixed income at IL&FS Mutual Fund (before it got taken over by UTI) and subsequently worked with Sundaram BNP Paribas Mutual Fund (now Sundaram Mutual Fund) heading the fixed income desk. He runs Finanzlab Advisors, a treasury and risk management consultancy.

(Warning : Slightly long read, but probably worth it)

For the past week and a couple of days more investors in debt funds (of any flavor) have had a tough time.

RBI’s actions to constrain money market liquidity, in it’s attempt to arrest the fall in the value of the rupee in the foreign exchange markets, has led to a blood bath in the bond and money markets with yields rising sharply (equivalent to prices falling).

(Read: RBI has had two moves to constrain liquidity: One, Two)

Price movements have been large enough to ensure that […]

By |July 26th, 2013|Categories: Bonds, MutualFunds||13 Comments

Liquid Funds Move To Break-Even from July 16 Crash Within a Week

Liquid Funds have been getting bashed up recently with strange things happening in the liquidity bazaar. After their NAV fell for the first time in many years, many investors were spooked that these funds have too much risk on them.

However I had written:

As you can see, things have fallen only a little bit – we’re back to about the levels of about 10 days ago. Put another way, it might be prudent to stick around a few days longer and not panic-redeem the fund.

Tracking this, I have a new update on all the bond values as of yesterday. 18 out of the 38 funds have already recovered to their NAV levels of July 15. (the day prior to the big RBI announcement that caused the crash).



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By |July 23rd, 2013|Categories: Debt, MutualFunds||2 Comments

Strange Things are Happening in the Liquidity Bazaar

In the days following the RBI hike in rates, we are seeing interesting movements in the fixed income markets.

Repo Bids Rise Substantially, But No MSF

Repo is what banks borrow overnight from RBI at 7.25%. MSF is the same thing, at 10.25%. Ever since the repo limit was introduced at 75,000 cr. (Previously: no limit) Repo bids have gone up like crazy, but only 75,000 cr. was allocated. However, the higher bids don’t mean that banks are desperate for funds – there was little or no borrowing in the MSF window for these days.





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By |July 19th, 2013|Categories: Banks, MutualFunds, RBI||1 Comment