• November 2018


    Personal financial prudence is the cornerstone for the better and secure future of an individual. It aids in tackling personal and social obligations. One of the most effective methods to reduce the income tax outflow, while garnering decent returns is to invest in the Equity Linked Saving Scheme (ELSS) under Sec 80C of the IT Act.

    The consistent performance of all five funds in the November 2017 GEMGAZE is reflected in all the funds holding on to their esteemed position of GEM in the November 2018 GEMGAZE.

    Birla Sun Life Tax Plan Gem

    Quality on a platter

    Launched in February 1999, the Rs. 636 crore Birla Sun Life Tax Plan, is one of the oldest ELSS funds in the industry. Currently, large caps account for 42.49% of the portfolio. Portfolio allocations show the fund to be small and mid-cap oriented when compared to its peers, with a 57.51% allocation to small and mid-cap stocks. With 49 stocks and the top 5 holdings accounting for 33.78%, the fund looks well-diversified. The fund invests 50.23% in the top three sectors, i.e. healthcare, finance and FMCG. The fund’s investment strategy focuses on a diversified and high-quality portfolio, with parameters such as capital ratios and balance-sheet strength used to judge quality. It uses a combination of top-down and bottom-up approaches to take sector/stock positions. The fund avoids highly leveraged plays and offers superior growth opportunities.  After a bad patch from 2008 to 2010, Birla Sun Life Tax Plan has made a big comeback in the last five years, with a particularly good run since 2014. In spite of getting hit in the bear market situations a few years ago, it maintained a consistent growth. Since inception, this mutual fund has managed to give a very impressive return of 19.54% along with displaying a very consistent performance. In the past one year, 5 years and 10 years, the fund has earned returns of -2.21%, 19.08% and 17.41% respectively as against the category average of -4.29%, 16.43% and 16.23% respectively.  The expense ratio is 2.38% and turnover ratio is 10%.

    Franklin India Taxshield Fund Gem

    Good long-term bet

    Launched in April 1999, the Rs. 3,553 crore Franklin India Taxshield Fund is one of the oldest ELSS funds in the industry with a proven track record in bull and bear phases. An established fund in the ELSS category, known for its consistency of returns and an ability to contain downside, it has religiously maintained a large-cap bias amid different market phases. This ELSS fund’s strategy has been to buy quality large caps or emerging large caps at a reasonable price, even in a category crowded with multi-cap funds. Currently, large caps account for 82.69% of the portfolio. A large-cap oriented fund with a bottom-up investment strategy, this fund always stays fully-invested. The most distinctive feature of the fund’s performance history is its ability to do better than its peers when markets crash. It fell only 15.19% as compared to the category average of 23.82% in 2011. But in the next year it slightly lagged behind its peers in terms of performance. The fund’s long term returns are attractive, with a trailing five year return of 21.48% and it is ahead of its benchmark. Globally, Franklin Templeton is known for its stock selection. The Franklin India Taxshield Fund adopts the value investment philosophy. The fund waits for attractive price before investing in a share. The fund focuses on big companies which have potential to grow the business. The fund is backed by a strong research team. Anand Radhakrishan’s disciplined investment approach and a strategy that thrived well with his skill-sets has yielded desired results for this fund under his watch from April 2007 to April 2016. However, the fund went through some fundamental changes in May 2016 such as change in the manager and investment strategy. Lakshmikanth Reddy, who joined the fund in May 2016, has been at the helm of affairs of this fund since then. Although R. Janakiraman is the named comanager here, Reddy is the primary manager. The change in the fund’s strategy is significant, too. While earlier it had a more definite mandate of investing around 70% in large-cap stocks and 30% in small/mid-cap stocks, it is now managed with a flexicap approach, which enables the manager to invest without paying heed to the benchmark index, market cap, or any specific style of investing. The change in the strategy is largely to align it with Reddy’s skill-sets and to capture wider range of investment opportunities in the fund. Although the investment team has a reasonably good track record in running flexicap strategies, which is positive, it should be noted that it will also change the fund’s risk/reward profile going ahead. Further, the changes here have made the fund’s past track record less relevant. With 58 stocks and the top 5 holdings accounting for 30.62%, the fund looks well diversified. The fund invests 55.30% in the top three sectors, i.e. finance, energy, and metals. Since inception the fund has given returns of around 22.51%. In the past one year, five years and ten years the fund has earned returns of -2.14%, 16.85% and 18.01% respectively as against the category average of -4.29%, 16.43% and 16.23% respectively. The fund’s returns in the last one year show a slowdown relative to the category and benchmark. The fund’s year-to-year returns do not always beat its more aggressive peers, but its performance adds up to very handsome returns over the long term. The expense ratio is 2.04% and turnover ratio is 21%.

    ICICI Prudential Long-term Equity Fund Gem

    Consistency is the name of the game

    At Rs. 5,308 crore, ICICI Prudential Long-term Equity Fund is one of the largest ELSS funds in the industry. Currently, large caps account for 71.64% of the portfolio. With 39 stocks and the top 5 holdings accounting for 27.68%, the fund looks well diversified. The fund invests 52.08% in the top three sectors, i.e. finance, healthcare and automobile. The fund is valuation-focused and the portfolio is constructed around stocks across sectors and market-capitalisation ranges, based on cheaper valuation and reasonable growth expectations. Expensive stocks which cannot be explained by valuation tools are avoided. A fund which has outpaced its benchmark over not one but three different market cycles, it has beaten its benchmark in 13 of the last 15 years. This is a rare ELSS fund that has managed to stay one step ahead of the benchmark on a trailing one-, three-, five- and ten-year basis, while also beating the category over these periods. The fund’s investment strategy typically delivers outsized returns in the beginning stages of a bull market when sector rotation is in vogue. It trails when markets are overheated. It also works well in containing losses when bears are in control. The value style of stock-picking has suffered setbacks in the last five years but seems to be back on the saddle in the last one year or so. The fund has earned a return of 20.39% since the fund’s inception. In the past one year, five years and ten years, the fund has earned returns of 3.39%, 16.75% and 19.93% respectively as against the category average of -4.29%, 16.43% and 16.23% respectively. The expense ratio is 2.25% and turnover ratio is 138%.

    Invesco India Tax Plan Gem

    Packs in quite a punch

    With a corpus size of Rs. 621crore, Invesco India Tax Plan is one of the smallest schemes in its category, but it packs in quite a punch. The fund invests across market capitalisation and sectors and spreads its assets over 39 stocks without being overly diversified and the top 5 holdings constitute 33.95%. 59.76% of the assets are invested in the top three sectors, finance, energy and technology. Even though the fund currently has a large cap bias with 71.04% allocation, it has not been hesitant about being heavily invested in smaller companies. In the past too, the mid-cap and small-cap allocation have been high. Its relatively small size makes an effective mid-cap strategy viable. Designed to own some of the best large-cap and mid-cap ideas of the fund house, the fund prefers quality businesses with healthy growth. But it is careful about not going overboard on valuations. It does not take tactical cash or sector calls. After remaining overweight on mid-caps until late 2015, the fund has drastically shifted gears since 2016. It managed to contain downside to levels much lower than its benchmark during 2008 and 2011 and has outpaced it by big margins both in 2010 and 2014. The fund’s recent large-cap tilt may help contain downside in the event of a market correction. The fund has delivered 14.05% returns since inception. The one-year, five year and ten year returns are 0.72%, 18.46% and 19.39% respectively as against the category average of -4.29%, 16.43% and 16.23% respectively. The year-to-year returns of this fund show it to be equally good at navigating both bull and bear markets, which is a hallmark of this fund. It managed to contain downside to levels much lower than its benchmark during 2008 and 2011 and has outpaced it by big margins both in 2010 and 2014. The last one year has seen the fund outpace its benchmark, but it slightly lagged behind its category. This could be due to its higher large-cap tilt in a category that is largely multi-cap-focused. This fund is a good choice for investors who are looking for a conservative approach to tax planning. Despite its relatively short history, the fund has consistently delivered returns for the investors. A fund that has managed to beat its benchmark through markets ups and downs in seven out of the eight years since launch, the fund prefers quality businesses with healthy growth prospects. But it is careful about not going overboard on valuations. It does not take tactical cash or sector calls. Stock picking has been the key for success of this fund. The expense ratio is 2.63% and the portfolio turnover ratio is 41%.

    DSPBR Tax Saver Fund Gem

    Tactically navigating bull and bear runs

    Launched in January 2007, DSPBR Tax Saver Fund has a fund corpus of around Rs 4329 crore. The fund is not wedded to any particular style and follows a blended growth-at-a-reasonable-price approach to select stocks. Though multi-cap by mandate, the fund has been quite large-cap oriented in the last five years. Typically, 65 to 75% of the portfolio has been in large-caps and 20 to 25% in mid-caps. The fund also takes tactical calls to capitalise on market trends and opportunities. It has a growth-oriented multi cap portfolio with 70.6% of the corpus in large cap stocks at present. There are 68 stocks in the portfolio. The top 5 holdings constitute 27.2%. 60.23% of the assets are invested in the top three sectors, finance, technology and construction. This fund has outperformed its benchmark in eight out of nine years since launch and its peers in seven of those years. The fund’s margin of outperformance relative to the category and benchmark has widened in the last one year to over 6 percentage points. On a three- and five-year basis, its annualised returns are over 7 percentage points and 3 percentage points ahead of the benchmark and category, respectively. It is creditable that this has been managed with a distinct large-cap tilt relative to the category. The track record suggests that the fund has proved better at navigating bull runs and volatile phases in the market than bear phases. In 2008 and 2011, the fund lost slightly more than the category. It has delivered sizeable outperformance in 2012 and 2016. However, as the fund has seen a change in manager in 2015 and also adopted a higher allocation to large-cap stocks, past performance may not be a great guide to the future. DSP BR Tax Saver fund has offered 13.29% returns since inception. In the last one year, five years, and ten years, the fund has earned returns of -5.45%, 17.74% and 18.12% respectively as against the category average of -4.29%, 16.43% and 16.23% respectively. The expense ratio is 2.1% and the portfolio turnover ratio is 82%.


  • November 2018

    Equity Linked Savings Schemes…Special Status

    ELSS (Equity Linked Savings Scheme) or Tax Saving Mutual Funds, as the name suggests, are equity-based mutual funds which invest a majority of the corpus in equity markets. These are the only set of mutual funds that help you avail tax deductions. ELSS Funds are special funds which are meant for tax saving purpose under Sec. 80C of IT Act. These mutual funds come in with a lock-in period of 3 years from the date of purchase. The investment route can be either lump sum investment or an SIP. The monthly investment could be as low as Rs. 500 and there is no maximum limit.

    ELSS – The Modus Operandi

    The amount invested up to a maximum of Rs. 1.5 Lakh in a year will qualify for tax deduction under Section 80C along with other instruments like Life Insurance Premium, PPF, etc. The ELSS Mutual Funds come with a 3-year lock-in period – you cannot sell the units within 3 years from the date of investment. If you are opting for an SIP in ELSS Mutual Funds, then each SIP installment will have the mandatory 3-year lock-in period. However, each investment (monthly SIP) is considered as a fresh investment. Hence, each such investment or monthly SIP must complete 3 years for liquidating. Let us say, you started the monthly SIP on 1st January 2017, then the first SIP will be eligible for withdrawal after the completion of 3 years, i.e., after 1st January 2020. Same way 1st February 2017 SIP will be eligible for withdrawal after 1st February 2020. It will continue like that. One year SIP in ELSS funds means you have to wait for the completion of the fourth-year to completely withdraw the amount. You can also invest a lump sum amount in ELSS tax saving funds. One option for investment in ELSS is the Growth Option where the holder will not get any benefits in the form of dividends. The investor shall only receive the gains at the end of the tenure. This will help appreciate the total NAV and thus multiply the gains. The only caveat being since these returns would be subject to market conditions, it may work in the investor’s favour or maybe completely bad but it is possible that the profits might be great. In Dividend Option, the holder gets timely benefits in the form of dividends which are completely tax-free. Dividend Reinvestment option is an option wherein the investor gets the option of giving back the dividends received in order to add to the NAV. It is a good option if the market has been performing well and is likely to continue the same way.

    ELSS – The Pros…

    Equity Linked Savings Schemes are equity mutual funds which will not only help you to save tax but also provide a better opportunity to grow your wealth. Though there are many tax savings options available for investors who want to make use of the exemption limits provided under Income Tax section 80(C), ELSS funds serves as best tax saving mutual funds.

    1. Tax Savings under 80C– You can save up to ₹1,50,000 under section 80C in ELSS. This means savings of up to ₹7,500, ₹30,000 & ₹45,000 for investors in tax bracket of (5%, 20% and 30% respectively).
    2. Lowest Lock in– Amongst all the tax savings investment options under section 80C, ELSS has the lowest lock-in period of only 3 Years. To compare, Tax Saving FDs and ULIPs have 5 year Lock-in and PPF has a lock-in of 15 years (with option of partial withdrawal from the 6th year).
    3. Equity Exposure– For beating inflation and wealth creation Equities are the best option available; through ELSS funds you get the Equity Exposure with considerably less risk than direct equity investing due to the diversification provided by mutual funds. The returns from Equity are considerably higher than other asset classes over long term.
    • ELSS funds fall under the EEE (exempt-exempt-exempt) category same as that of PPF. Under this, funds investment amount get a tax deduction, withdrawal amount is tax-free and no tax will be charged for capital gain also.
    • The realised gains on ELSS are exempt up to Rs 1 lakh in a financial year. Gains exceeding Rs 1 lakh are taxed at 10 per cent. On FDs, the returns are added to the income and TDS is deducted yearly. The yearly deduction of TDS further reduces returns by making less money available for long-term compounding.Dividends obtained from ELSS funds are also tax-free.
    • ELSS fund also offers SIP investment option, which brings discipline in regular investing.
    • ELSS is the best tax saving instrument in terms of expected return, lock-in period and periodicity of investment.

    …and the Cons

    • ELSS invests money in the equity market only. This makes ELSS a risky investment option.
    • The return offered by ELSS funds is variable in nature. In case of a stock market crash, you may end up earning a negative return.
    • ELSS Funds have a 3 year lock-in period for lump sum and for each and every SIP.

     ELSS evaluation…

    Fund Returns

    You need to look at fund’s recent performance for a minimum of 5 years before investing in that particular fund. Choose funds which perform better than the benchmark and other similar funds in the same time period.

    Fund History

    Choose fund houses which have performed consistently over a long period of time say 5-10 years.

    Expense ratio

    It shows how much of your invested amount is being used to manage expenses of the fund. A lower expense ratio means higher take-home returns. Choose a fund with a lower expense ratio which can give you superior performance.

    Financial parameters

    Consider various parameters like Standard Deviation, Sharpe ratio, Sortino ratio, Alpha and Beta to analyze the performance of a fund. A fund having a higher Standard deviation and beta is riskier than a fund having lower deviation and beta. Choose funds having a higher Sharpe ratio as they give you more returns for each additional risk undertaken.

    The Asset under management is also taken into account while selecting best ELSS for investment. Higher AUM means higher the confidence of investor to that fund.

    …and performance

    Tax-saving mutual funds, popularly known as equity-linked saving schemes (ELSS), had a good run over the past one year. Their average performance was heartening, and returns rose to an average 26% during the period compared to 16% delivered by the BSE Sensex and 21% by the large cap category. In fact, a large number of funds under the tax-saving category have returned more than 30% in the past one year. The outstanding performance of the tax-saving funds is not an aberration, though. For one, they have beaten their peers over long periods, as long as 10 years. For the past five years, these funds returned 20% compared to the broader market’s 13%, which means if you had invested Rs 1 lakh during this period, your corpus would have grown to Rs 2.48 lakh while the broader market would have given you Rs 1.84 lakh.

    ELSS Funds for long-term wealth creation

    To sum it up, carefully analyse your own risk appetite before selecting the ELSS funds. Although past performance of ELSS funds cannot guarantee their future performance, they can at least give you an idea of how a particular ELSS fund has dealt with past bear and bull market phases. Make sure to compare the performance of your chosen ELSS fund with its benchmark index and its peer ELSS mutual funds over the last 3 and 5 year period before finally investing in that fund. You may even choose to invest large amounts, above your tax deduction limit, but be mindful that your investment will not be accessible, and to that extent unchangeable, for the first 3 years of lock-in. Also, keep in mind, allocation to equity is most efficient over a period of more than 5-7 years. By keeping a long-term investment horizon, you can benefit from compounding and multiply your wealth. The performance of ELSS funds can vary wildly over the years. A top ELSS fund in one period may not necessarily be the best ELSS fund for the next period. Thus, you need to pick the right ELSS fund, one that has performed consistently and one that has generated a superior risk-adjusted performance. Because equity is highly risky, you will be better off investing systematically – putting in a small amount every month for a long period rather than paying a lump sum at one go. A monthly SIP will not only help you save money regularly but will also help you ride through the market volatility. Set aside a small part of your salary for the ELSS-SIP and watch your wealth grow. Overall, while ELSS funds are a great instrument for the combination of tax saving plus capital appreciation, two important aspects should always be considered before investing into them- (a) They all have a 3-year lock-in; and (b) They are, in the end, equity-oriented funds. To take maximum benefit from them it is advisable to not redeem the investments after 3 years but to give them a much larger horizon before considering redemption. This way you can truly combine tax planning with long-term wealth creation.

  • FUND FULCRUM (Contd.)

  • October 2018

    The latest S&P Indices Versus Active (SPIVA) India Scorecard suggests that 88% of Indian equity large-cap funds underperformed their benchmark in the one-year period ending June 2018. Beating benchmark post introduction of total return index (TRI), a benchmark that captures dividend income, has become difficult. Asia Index, a joint-venture between BSE and S&P Dow Jones Indices, runs the SPIVA scorecard. The large-cap equity funds witnessed a low survivorship rate (68%) and a low style consistency (13%) over the 10-year period ending in June 2018. Over the 10-year period, the return spread for actively managed large-cap equity funds between the first and the third quartile break points of the fund performance, stood at 3.6%, pointing to a relatively large spread in fund returns. In line with the historically volatile nature of the mid-/small-cap segment of the Indian equity market, the return spread for actively managed mid-/small-cap equity funds was even higher at 5.1% over the same period. Simply put, the spread in fund returns shows the difference in fund performance. The asset-weighted return for large-cap equity funds was 51 bps higher than the equal-weighted return over the 10-year period. In contrast, the margin between asset- and equal- weighted returns for ELSS funds was only 40 bps. (Asset weighted returns factors in the AUM size of the schemes whereas equal-weighted returns is the arithmetic mean of the returns of the schemes). Over the three-year period ending in June 2018, the asset-weighted return of large-cap funds was 1.3% lower than their benchmark, the S&P BSE 100. During the same period, the asset-weighted return of Indian Equity Mid-/Small-Cap funds was 3.1% lower than their benchmark, the S&P BSE 400 Mid Small Cap Index.

    Regulatory Rigmarole

    In a recent letter to all public sector banks (PSBs), the Department of Financial Services, Ministry of Finance has asked these banks not to incentivise their employees with commission for cross selling of financial products such as insurance and mutual fund products. In fact, the ministry said that there is no need to incentivise the employees as they work for a fixed salary. Any income accrued of third party product sales is the income of banks. A few years back, Central Vigilance Commission (CVC) had recommended the finance ministry that PSBs should stop the practice of incentivizing their employees with cash benefits. The commission for the cross selling is received by the bank and booked as an Income. The bank in turn runs reward and recognition programme for its employees. The parameters for such schemes involve performance in bank’s core business and cross sell.

    The GST council is likely to defer the implementation of reverse charge mechanism (RCM) until March, 2019. Distributors earning less than Rs.20 lakh a year are likely to avail RCM benefits until the government issues a notification to withdraw these benefits. The expected deferment will benefit distributors earning less than Rs.20 lakh who do not have GST registration. In case they are earning less than Rs.20 lakh, but have GST registration, they can cancel their GST registration by visiting this link For distributors with GST registration, AMCs continue to follow forward charge mechanism, i.e., AMCs will pay the gross commission to them. These distributors can avail of the benefits of input credit. Earlier in October 2017, the GST council had first introduced RCM to benefit small businesses until March 2018. Later, the Central Board of Indirect Tax and Custom (CBIC) had extended RCM benefits until June 2018 and then September 2018.

    In a major setback for online distributors relying on Aadhaar based eKYC to onboard new clients, the Unique Identification Authority of India (UIDAI) has asked KYC registration agencies (KRAs) to immediately stop doing Aadhaar based authentication for eKYC. In fact, the UIDAI has asked KRAs to give them in writing that they have stopped using Aadhaar based authentication for eKYC. Ever since the Supreme Court has come out with its verdict on Aadhaar, there has been lack of clarity among fund houses, R&T agents and distributors on using Aadhaar based eKYC for onboarding new clients. In fact, a few distributors and fund houses continued withAadhaar based eKYC to onboard new clients. With this, new age distributors would be affected the most as they completely rely on Aadhaar based eKYC to onboard a new client. UIDAI has been reportedly exploring ways to help companies relying on Aadhaarbased eKYC to onboard new customers. eKYC may become operational once again. UIDAI is said to have been exploring ways to help companies relying on Aadhaar based eKYC to onboard new customers, which includes fund houses and online distributors. One approach being considered is to use a live picture of customer with time stamp and photo of a government-issued ID card. Customers can upload their live photograph along with the valid ID proof to complete the KYC process.

    Following the Supreme Court’s verdict on Aadhaar, AMFI has discontinued online registration and renewal of ARN for mutual fund distributors with immediate effect. This has come after the UIDAI has asked AMFI, R&T agents and KRAs to give them in writing that they have stopped using Aadhaar based authentication. So far, distributors used to furnish Aadhaar number to register and renew their ARN number through online process. AMFI has assured that they will start the online process soon. Currently, even for online renewal of ARN and EUIN, Aadhaar was required for fetching the photograph of the ARN/ EUIN holder from Aadhaar database. However, since Aadhaar based authentication is no longer permissible, AMFI is in the process of modifying the online ARN/ EUIN renewal facility to facilitate uploading of the photograph by the ARN/ EUIN holder (in lieu of fetching the same from Aadhaardatabase). Till then, distributors can continue to register or renew their ARN through physical process. Currently, distributors have to undergo a mandatory six hours of classroom training in order to renew their ARN. To ease the registration renewal process, NISM has already introduced an online CPE training for distributors. Once distributors take this training, NISM issues a certificate. Distributors have to send their certificates to CAMS along with a DD of Rs.1,500 in favour of AMFI as renewal fee. Typically, the entire physical process of ARN renewal takes around two months. Earlier in June 2017, AMFI had introduced an online ARN registration and renewal facility for distributors.

    SEBI has banned upfront commission in mutual funds with immediate effect. In fact, the market regulator has directed fund houses to follow all-trail model to compensate their distributors. In line with its earlier proposals, the market regulator has clarified that fund houses will have to pay such commissions from scheme and not from AMC book. In addition, SEBI has asked fund houses not to do upfronting of any trail commission. However, fund houses can do upfronting of trail commission on SIPs subject to fulfilment of the following pre-defined conditions.


    • ·         Upfronting of trail commission is allowed only for first time investor based on Pan
    • ·         Fund houses can pay 1% upfronting on SIP of up to Rs.5000 for a maximum period of 3 years For instance, if a first time investor starts SIP of Rs.5000 for three years, distributors will get close to Rs.1800 as upfronting of trail commission
    • ·         Fund houses can claw back such a commission on a pro-rata basis from distributors if investors discontinue SIP for which the commission is paid
    • ·         SEBI will take appropriate action if it finds irregularity in this practice

    SEBI believes that shifting to all trail model can bring transparency in expenses, reduce portfolio churning and reduce mis-selling in mutual funds.

    In a bid to increase transparency in mutual funds, SEBI has asked fund houses to disclose investment and advisory fees and other expenses along with the gross commission of distributors with immediate effect. Simply put, the half yearly consolidated account statement (CAS) will now have two more columns for the disclosure of management fees and other expenses along with the gross commission paid to distributors. However, the market regulator has not clarified if such disclosures will be in percentage terms or absolute terms. In a press release SEBI said, “The scheme’s average total expense ratio (in percentage terms) along with  the  break  up  between investment  and  advisory  fees,  commission  paid  to  the distributor and other  expenses  for  the  period  for  each  scheme’s  applicable plan  (regular  or  direct  or  both)  where  the  concerned  investor  has  actually  invested in.” This commission figure includes all direct monetary payments and other payments made in the form of gifts/rewards, trips, event sponsorships etc. by AMCs to distributors. Also, this disclosure comes with a footnote that reads, “The commission in Col 9 above indicates gross commission received by the distributor against the respective investment and does not exclude costs incurred by distributors such as service tax (wherever applicable, as per existing rates), operating costs, etc.”

    SEBI has asked fund houses to publish daily performance report of their schemes on AMFI website. In a recent circular, SEBI has asked fund houses to upload their daily scheme performance data on AMFI website. Currently, AMCs update their scheme performance reports on monthly basis on their own website. However, this data is of no use in volatile markets. Having daily performance data will help an investor make a more informed decision. On the flip side, daily tracking may end up scaring jittery investors further during volatile markets. While investors could access daily performance on mutual fund tracking websites, the AMFI website will make scheme comparison easy for investors and assure investors about authenticity of data. SEBI said that CAGR returns of all plans of a scheme and their corresponding (TRI) benchmark will be available on the AMFI portal. The returns will for the 1-year, 3-year, 5-year, 10-year and since inception time periods. In addition, AMCs will also have to upload 7 days, 15 days, 1 month, 3 months and 6 months performance of overnight funds, liquid funds, ultra-short duration funds, low duration funds, and money market funds on the portal. The returns will be calculated based on previous day’s NAV. Other relevant data such as scheme AUM and previous day NAV will be included in the disclosure. To increase the ease of understanding, the data will have filtering options based on scheme-type, plan-type as well as sorting feature based on return period. SEBI has given a month’s time to fund houses to comply with these regulations.

    The regulator has clarified that it would make changes to the MF regulations before introducing new TER slabs. The SEBI circular says, “All other decisions of the Board with respect to ‘Review of Total Expense Ratio (TER)  of  Mutual  Fund  Schemes’ as  mentioned  in  the  press  release  dated September  18,  2018  issued  by  SEBI  would be implemented pursuant  to amendment to SEBI (Mutual Funds) Regulations, 1996. Earlier in September, SEBI has announced fresh AUM slabs and given a roadmap to fund houses on how they can make changes to their TER based on asset size of the scheme. While the market regulator has capped TER at 2.25% in equity funds and 2% in other than equity funds, SEBI has followed economies of scale to reduce TER systematically. Similarly, fund houses cannot charge more than 1.25% in close end equity funds and 1% in close end debt funds. SEBI has also asked fund houses to charge a maximum TER of 1% on passive funds such as index funds and ETFs. On fund of funds (FOFs), SEBI has said that FOFs investing in liquid, index and ETFs cannot charge over 1%. On the other hand, FOFs investing primarily in actively managed funds can charge up to 2.25% in equity funds and 2% in other than equity funds.

    Most of you must be aware of UTI Mastershare Unit Scheme. It is the first market linked equity scheme, which did not guarantee returns. Earlier, funds like UTI Unit Scheme 64 either offered assured returns or indicated returns. However, it was the industry’s first market linked product but was a close end scheme listed on stock exchanges. In those days, there was no concept of open ended, daily NAV and trail commission. Fund houses used to launch close end funds or interval funds to collect fresh money. However, the course of Indian mutual fund industry has changed with private players. Kothari Pioneer was the first private mutual fund that many believe has laid the foundation stone of the modern mutual fund industry. Be it an open end fund or SIP, this fund house has brought numerous innovations in the industry that we are today proud of. Fund management too came with its unique set of challenges. The prospect of meeting large scale redemption in open end structure was a daunting one. To mitigate these risks, Mutual Funds used to maintain cash levels of 10% then. However, the biggest challenge was doing research on companies. There were no quarterly reports then. They used to wait for annual reports of the companies. A few companies were more generous as they came out with half yearly report. There was no concept of analyst meetings in companies. They used to approach company secretaries with their stock holding proof seeking appointment with the senior management of the companies. Also, they used to attend AGM just to ask questions to management. At that time, it was rare for brokers to share their reports with them. In fact, there was a misconception in many minds about stocks with some equating stock market with gambling. A lot of innovations that we are witnessing today have come from private mutual funds. Private mutual funds were the ones to start the practice of sharing rationale for stock selection and holdings through monthly factsheets. Right from open end funds and daily NAVs to sectoral funds, debt funds or even SIPs, private mutual funds have strengthened the foundation built by the public sector players.



  • October 2018

    The average assets under management of the 41-player mutual fund industry rose 14% to Rs 24.29 lakh crore in July-September 2018, according to the Association of Mutual Funds in India (AMFI) data. In comparison, the total AUM of the industry in April-June 2018 stood at Rs 23.4 lakh crore. Mutual fund managers attributed the rise in quarterly AUM to strong participation from retail investors. In addition, continuous flows from systematic investment plans helped the industry to register growth in the AUM. Joint efforts of investor awareness campaigns by AMFI and fund houses have driven growth in the industry. Among top 10 asset management companies, ICICI Prudential Mutual Fund with a marginal rise in assets continued to remain the top fund house in the industry with AUM of Rs 3.10 lakh crore. While average AUM of HDFC Mutual Fund fell 0.16%, it managed to maintain the second position and Aditya Birla Sun Life Mutual Fund continued to remain at the third slot. SBI Mutual Fund with nearly 9% rise in its average AUM took the fourth position relegating Reliance Mutual Fund to fifth spot. The total AUM of top 10 asset management companies rose 3.68% to Rs 19.63 lakh crore of the total 24 lakh crore. Of the 41 fund houses, as many as 33 mutual funds witnessed growth in their asset base in the July-September quarter of 2017-18, while eight saw a decline in their AUMs. The profit before tax as a percentage of revenue of large mutual funds has also stood at a very healthy rate of 40-50%. In the last 12 years, a growth of 6.5% has been seen in the mutual fund industry from Rs 3.53 lakh crore of AUM in March 2007 to Rs 23.05 lakh crore in March 2018. The number of players in the mutual fund industry has grown from 34 in March 2007 to 46 in March 2013. However, it reduced to 42 by March 2016 and to 41 at present.

    Despite the volatile equity markets, the industry witnessed positive equity inflows in September 2018. HDFC Mutual Fund continues to hold the top position in terms of equity AUM. An analysis of quarterly AUM disclosed on the AMC website shows that HDFC MF has the highest equity AUM at Rs.1.57 lakh crore as on September 2018. Despite the fall in key equity indices, the company has witnessed a growth of 2% in its equity AUM i.e. from Rs.1.55 lakh crore in June 2018. ICICI Prudential MF and Reliance MF followed HDFC MF for the second and third position with equity AUM of Rs.1.46 lakh crore and Rs.91800 crore respectively. In absolute terms, SBI Mutual Fund recorded an impressive growth of 8% by adding Rs.6,155 crore in assets in July-September 2018. Axis Mutual Fund and ICICI Prudential Mutual Fund followed SBI Mutual Fund by collecting Rs.5,348 crore and Rs.3,411 crore respectively in July-September 2018. Whereas HDFC MF’s AUM increased by Rs. 2,384 crore. In percentage terms, Invesco Mutual Fund, Tata Mutual Fund and Axis Mutual Fund recorded double digit in their equity assets last quarter. However, three fund houses – Edelweiss Mutual Fund, DSP BlackRock Mutual Fund and DHFL Pramerica Mutual Fund recorded a marginal decline in their quarterly AUM. Overall, the total equity AUM of the top 20 fund houses grew 4% from Rs. 9.27 lakh crore in June 2018 to Rs. 9.64 lakh crore in September 2018.

    Fears of a liquidity crunch following the IL&FS crisis hit the mutual fund industry in September 2018. Cash plans or liquid funds were the worst hit. Liquid funds registered massive outflows in liquid funds and left the mutual fund industry short of Rs. 2.3 lakh crore in September 2018. Going by the AMFI data, outflows from liquid funds alone totalled Rs 2.11 lakh crore. Liquid funds invest in cash assets such as treasury bills, certificates of deposit and commercial paper for a shorter horizon.

    Equity fund folio addition has boosted domestic mutual fund industry helping it register over 13.20 lakh more investor accounts in September 2018, according to SEBI data. Total investor accounts stand at 7.78 crore in September 2018. Equity funds added 10.90 lakh accounts last month, taking the total equity fund folios to 4.81 crore. Fund managers attributed the addition in equity fund folios to the matured behaviour of retail investors who were seeing the market fall as an opportunity to invest their surplus money. Folios are numbers designated for individual investor accounts, though one investor can have multiple accounts. The addition comes even though the AUM of the 41-member-strong MF industry has seen a sharp drop to Rs 22.06 lakh crore in September 2018 against record Rs 25.20 lakh crore in August 2018. Despite steep fall in equity markets, equity and equity-linked saving schemes (ELSS) saw an infusion of Rs 11,250 crore. Besides, balanced funds witnessed an inflow of Rs 731 crore. About 1.25 lakh folios were added in the ELSS segment. The S&P BSE Sensex lost more than 2,400 points, or 6.2% in September 2018 — the worst fall in the month of September since 2008. The Sensex had fallen by about 10% in September 2008.

    The latest AMFI data shows that the mutual fund industry has been receiving an average monthly inflow of Rs.7,650 crore through SIPs. This is the average monthly inflow of three months for the period July to September 2018. In the preceding quarter, i.e., between April and June 2018, the average monthly SIP inflow was Rs.7,182 crore. In September 2018 alone, the monthly inflows in mutual funds through SIP reached an all-time high of Rs.7,727 crore. Overall, the data shows that the industry mopped up close to Rs.44,500 in the last six months through SIPs, which is much higher than the first six months of SIP inflows in FY 2017-18 and the entire year SIP inflows of FY 2016-17. Moreover, mutual fund SIP accounts stood at 2.44 crore in September 2018. AMFI data shows that the mutual fund industry had added about 10 lakh SIP accounts each month on an average during the FY 2018-19, with an average SIP size of about Rs.3,200 per SIP account. In terms of average AUM (AAUM), the mutual fund industry crossed Rs.24 lakh crore in September 2018. AMFI’s latest data shows that AAUM of the mutual fund industry has reached Rs.24.31 lakh crore in September 2018, which is slightly lower than the AAUM of August 2018 at 24.70 lakh crore. However, the monthly AUM of the industry stood at Rs.22.04 lakh crore in September 2018 due to large-scale redemption from corporates and institutional investors from the debt funds to pay advance tax. While AAUM is the average assets of the entire month, which is calculated by factoring in all working days of the month, month end AUM is the assets of the industry as of the last working day of the month. Growth has come largely because of higher inflows in balanced funds, arbitrage funds and equity funds through SIPs.

    Piquant Parade

    AMFI has elected Nimesh Shah, Managing Director and CEO, ICICI Prudential Mutual Fund as its Chairman. Shah has replaced A Balasubramanian, CEO, Aditya Birla Mutual Fund who was appointed as the AMFI Chairman in 2016. Kailash Kulkarni, CEO, L&T MF will continue to be the Vice Chairman of AMFI for the second consecutive year. There has been only one change in the AMFI committees. Radhika Gupta, CEO, Edelweiss Mutual Fund will now head registration of distributors committee. Last month, AMFI had inducted three new faces – G Pradeep Kumar, Prathit Bhobe and Vishal Kapoor as directors on its board. Currently, there are 15 members in AMFI board of which seven are from the top ten fund houses and four each from mid and small sized AMCs.

    Non-banking finance company, Muthoot Finance, has received an in-principle approval from the Securities and Exchange Board of India to commence asset management operations, according to the latest data on ‘Status of Mutual Fund Applications’. The company had approached the market regulator for an AMC licence in March 2017. At present, it has a mutual fund distribution arm: Muthoot Securities. Muthoot Finance is listed on BSE and NSE as gold financing NBFC. In July 2018, SEBI had given an in-principle approval to Yes Bank and it is expected to start operations this year. SEBI has also given consent to Fortune Financial Services and Fortune Credit Capital this year to start their MF business. Fortune Financial Services has already filed draft offer documents with SEBI to launch its schemes under the name of ITI Mutual Fund. Data on the SEBI website shows that Trust Investment Advisors, Karvy Stock Broking, Samco Securities, and Equity Intelligence are awaiting approval from SEBI to launch their mutual fund business in India. As per the SEBI norms, a sponsor applying for a mutual fund licence is required to be in the financial services business for five years and must have a positive net worth for five years. Also, the sponsor should have earned profits in three of the previous five years, including the latest year. SEBI conducts an on-site due diligence of sponsors before granting approval.

    After Flipkart and Paytm, Mobikwik has forayed into online distribution business by acquiring online direct plan platform Clearfunds. Bajaj will now be the CEO of MobiKwik’s wealth management business. Mobikwik would invest $15 million (approximately Rs.112 crore) over the next one year to expand its wealth management business. The 107 million plus customers will soon be able to start saving in mutual funds seamlessly from their MobiKwik app in just a few clicks. The company would continue to look at strategic investments through acquisitions. Currently, Clearfunds charges Rs.99 a month from investors as wealth management fees.

    MF Utility or MFU – an online platform – is in the process of joining hands with more fund houses. Launched in 2015, MF Utility is fast gaining acceptance among distributors and investors. With over 3.50 lakh transactions being executed every month, close to 90% of these transactions are paperless. MF Utility has tied up with 30 fund houses which handle almost 97% of the industry’s AUM. Currently, the 41-player mutual fund industry manages a little over 24 lakh crore AUM. Since MF Utility is a not for profit organisation, fund houses will have to come forward and help MF Utility sustain business. AMFI can consider selling it to the existing players. In fact, BSE had shown its interest in acquiring MF Utility. In 2016, AMFI had constituted a group to discuss the possibility of selling stake in MF Utility to BSE. It would be worthwhile to examine the proposal received from BSE. Seeking a mutually beneficial alliance between MF Utility and strategic parties like BSE Star MF platform with shared governance can enhance the value and business volume for MF Utility. The merger can help bring down cost per transaction for participating AMCs. Currently, the participating AMCs have to cough up Rs.2.50 lakh every month. Due to this flat fee structure, the cost per transaction depends on the volume of transaction and hence varies every month. Higher the volume, lower the transaction cost.

    AMFI has postponed its proposed campaign highlighting debt investments, amid scepticism triggered by default in repayment by IL&FS. The new campaign focusing on the fixed income category was a sequel to the ‘Mutual Funds Sahi Hai’ drive, and slated for launch in September 2018. AMFI’s first promo was focused on equity. During the current fiscal, AMFI is planning to spend Rs 150-175 crore to promote mutual fund investments. In 2017-18, it had spent Rs 200 crore for the purpose.

    ET Money has announced that the company aims to help 17 million investors who have invested in mutual funds through regular plans to switch to direct plans for free. The company said that it would allow an estimated 1.7 crore existing mutual fund investors to convert their regular mutual fund investments into zero-commission, direct mutual funds and start saving lakhs in commissions. The company claims that this is one of the biggest initiative by any company in the space to simplify investing. By shifting to direct plans, users can save up to 1.5% in commissions every year compared to regular plans. In recent scenario of volatile stock markets, if investors believe in holding back new investments, then converting one’s regular mutual funds to direct mutual funds can be a great option. The process to switch to direct funds is simple. Investors just need to upload their mutual fund statement on the app and within 30 seconds they will be shown the option to shift their regular funds to direct plans. It also shows possible savings in commissions, applicable exit loads and taxes, so that they can take an informed decision. The app also assists them in getting the transaction statement by providing a step by step guide. Once converted to direct mutual funds, the investors will also be able to continue investing in them from the app at no additional cost.

    In a major setback for online distributors relying on Aadhaar based eKYC to onboard new clients, UIDAI has asked KYC registration agencies (KRAs) to stop immediately doing Aadhaar based authentication for eKYC. In fact, the UIDAI has asked KRAs to give them in writing that they have stopped using Aadhaar based authentication for eKYC. Ever since the Supreme Court has come out with its verdict on Aadhaar, there has been lack of clarity among fund houses, R&T agents and distributors on using Aadhaar based eKYC for onboarding new clients. In fact, a few distributors and fund houses continued with Aadhaar based eKYC to onboard new clients. With this, new age distributors would be affected the most as they completely rely on Aadhaar based eKYC to onboard a new client.

    …to be continued


  • October 2018
    The capital market regulator laid down specific terms and conditions for launching New Fund Offers (NFOs), while it even nudged fund houses to merge similar schemes. Following this, mutual fund houses in India performed a massive exercise of re-categorising and repositioning their scheme offerings. These actions had a common objective to achieve – to do away with scheme duplication which can help investors in scheme selection. But as they say, old habits die hard. Mutual fund houses have launched NFOs again. And many of them are launching the closed-ended ones, since the latest SEBI rules are not applicable to them. Are these fund houses not concerned about the consequences of scheme duplication? And launching NFOs particularly when valuations appear stretched exposes investors to very-high risk.

    NFOs of various hues adorn the October 2018 NFONEST.

    Axis Growth Opportunities Fund
    Opens: October 1, 2018
    Closes: October 15, 2018

    Axis Mutual Fund will launch Axis Growth Opportunities Fund, an open-ended equity scheme that will invest in domestic equities as well as foreign securities. The scheme will invest 30 to 35% of its assets in domestic large caps and up to 35% in foreign securities, which would be predominantly large caps, making a total of 35 to 65%. The company can also deploy up to 35-40% in midcap stocks. The overseas allocation will be made by directly investing in foreign securities advised by Schroder Investment Management. Overseas investment philosophy is aligned with domestic Axis philosophy of bottom-up investing in high-quality stocks with high growth prospects. The target of the high-quality portfolio construct is to generate sustainable long-term performance while keeping risk contained. The fund uses S&P BSE 200 Total Return Index as the base index. Jinesh Gopani and Hitesh Das are the fund managers for the firm.

    Invesco India Small Cap Fund
    Opens: October 10, 2018
    Closes: October 24, 2018

    Invesco Mutual Fund has launched a new fund named as Invesco India Small Cap Fund, an open ended equity scheme predominantly investing in small cap stocks. The investment objective of the scheme is to generate capital appreciation by investing predominantly in stocks of Smallcap companies. The scheme will invest 65-100% assets in equity and equity related instruments of small cap companies with high risk profile and invest up to 35% of assets in equity and equity related instruments of companies other than smallcap companies with high risk profile and up to 35% assets in debt and money market securities with low to medium risk profile. The scheme’s performance will be benchmarked against S&P BSE 250 Smallcap Index. The fund managers of the scheme are Taher Badshah and Neelesh Dhamnaskar.

    Sundaram Long Term Tax Advantage Fund – Series VI
    Opens: September 25, 2018
    Closes: December 24, 2018

    Sundaram Mutual Fund has launched a new fund named as Sundaram Long Term Tax Advantage Fund – Series VI, a closed-end equity linked saving scheme with a statutory lock in of 3 years and tax benefit. The tenure of the scheme is 10 years from the date of allotment of units. The investment objective of the scheme is to generate capital appreciation over a period of ten years by investing predominantly in equity and equity-related instruments of companies along with income tax benefit. The scheme will invest 80%-100% in equity and equity related securities with high risk profile and invest up to 20% of assets in fixed income and money market securities with low to medium risk profile. The scheme’s performance will be benchmarked against S&P BSE 500 Index. The fund managers of the scheme are S Krishnakumar and Dwijendra Srivastava.

    ABSL Bal Bhavishya Yojna, Essel Focused Equity Fund, UTI S&P BSE Sensex Next 50 Exchange Traded Fund, ICICI Prudential Retirement Fund, Invesco India Equity Savings Fund, Indiabulls Nifty 50 Exchange Traded Fund, Aditya Birla Sunlife Overnight Fund and Reliance Capital Protection Oriented Fund I are expected to be launched in the coming months.