Regulatory Revisions

Investor Friendly Regulatory Revisions - SEBI

• SEBI has regularly been taking various regulatory decisions to empower the investors. In 2008, SEBI had earlier abolished initial issue expenses and sales & distribution expenses were required to be recovered through entry load only. Further, investors making direct applications to the mutual funds were exempted from entry load.
• Recently, SEBI's new regulation states that there shall be no entry load for all mutual fund schemes and investor shall be the commission directly to the distributor based on various factors such as services rendered by distributor.
• Further, out of the exit load charged by the AMC, maximum 1% of such redemption proceeds can be maintained in a separate account that can be used to pay commission to the distributor and meeting the sales & distribution expenses
• SEBI has also made it mandatory for the distributors to disclose all the commissions payable to them by the investor

MUTUAL FUND INDUSTRY TRENDS

Entry of Japanese Based Asset Management Company - Shinsei Mutual Fund

• Shinsei Bank holds 75%, Rakesh Jhunjhunwala 15% and Sanjay Sachdev & family promoted Freedom Financial 10 % in Shinsei AMC.
• After the stock market downside last year, Shinsei Mutual Fund is the 1st foreign mutual fund to start its operations in India. In the coming months, approx 5 other companies are planning to start operations in India.
• Shinsei Mutual Fund has already launched Shinsei Liquid Fund and Shinsei PSU Bond Fund. The company has also got the permission from SEBI to lauch an equity fund.

Impact of No Entry Load Structure to be Followed by Mutual Fund Houses

• AMCs used to meet their marketing expenses through the entry load. Eradication of entry load will make it difficult for the small and medium sized AMCs to plan their business expansion and marketing strategies.
• Till date, the commissions were paid by the AMCs to the distributors from the entry load. This commission was paid net of service tax to the distributor. With the no entry load structure declared by SEBI, the distributor shall get the commission directly from the investor. This may lead to non reporting of such commissions to avoid the payment of service tax to the government
• Secondly, AMCs pay commissions to the AMFI certified distributors only. With the new regulation, anyone who is not AMFI certified can charge the investor for advice

Increasing Mutual Fund Asset Under Management (AUM) in June 2009

• The AUM of the Indian mutual fund industry has increased by 5% in June 09 to reach Rs 6.7 lac crore mainly due to the surging stock market and inflows in debt mutual funds.
• Out of 35 existing Asset Management Companies, 26 AMCs have seen increase in their AUM in June 09. Reliance continues to be the market leader with AUM of Rs 1,08,332 crore (approx) followed by HDFC and ICICI Prudential AMC
• However, Birla Sun Life MF, , Taurus MF, Canara Robeco MF, HSBC MF, Bharti AXA, ING MF etc are few of the fund houses whose AUM has been declining on a month-on-month basis

Expectations of Mutual Fund Houses from the Budget 2009-10

• The wish list of Asset Management Companies from the budget includes reduction in the securities transaction tax (STT), short term capital gain tax (STCG) and dividend distribution tax (DDT)
• Such changes may enhance the retail participation in mutual funds and therefore, boost the sentiments in the equity market

Sectoral Picks of Fund Managers

• Banking & Financial Services, Oil & Gas, Engineering, Cement and IT sector are the top 5 sectors where approx 56.3% of total net assets of the various fund houses are invested
• The Fund manager has taken minimum exposure in Tobacco, Real Estate and Consumer Durable sector this quarter
• Reliance, HDFC and UTI have taken the maximum exposure in Banking & Financial Services totalling to approx Rs 11,790 cr and top 3 contributors to the engineering sector are Reliance, SBI and UTI totaling Rs 7,390 cr