What's hot, what's not with Mutual Funds

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What's hot, what's not with Mutual Funds

Domestic Mutual Funds might have emerged as a scared lot during a sharp three-day slide and a broadly volatile market this month, but they had put out a balanced show in the previous month.

The fund houses purchased stocks from sectors such as FMCG, construction, auto and IT sectors in November, while offloading shares from telecom, cement, oil and gas, sugar and tea sectors last month -- resulting in a net sale of Rs 24 crore during the period.

However, they have failed to take the recent downslide as a buying opportunity, when the market plunged by nearly 100 points in three straight days, and have sold shares worth about Rs 900 crore so far in December.

Still, MFs have been seen buying heavily the shares of newly listed companies. Among companies listed in November, MFs purchased large chunks in real estate companies like Lanco Infratech and Parsvnath Developers and dotcom firm Info Edge, data complied by domestic brokerage house Sharekhan shows.

In terms of market value, Tata Motors, L&T and Punj Lloyd ranked among the top picks by domestic fund houses while Reliance Industries, State Bank of India and Siemens were stocks which topped the sell list.

Other stocks which gripped the MF fancy were Subhash Markets and projects, Geojit Financial Services, IT company R System International and Great Offshore.

An analysis of the equity portfolio of top ten Mutual Funds, including UTI, Prudential ICICI, Reliance MF and HDFC, reveals that five out of the ten top MFs added to their investments in KEC Infrastructures.

A total of 6.76 crore shares of KEC International valuing over Rs 2,500 crore were added to the equity portfolios. FMCG major ITC continued to hold MF attention and shares valued at Rs 103.25 crore were picked up by the funds in November.

About 149 lakh shares of ITC were bought by UTI MF , while Reliance MF, Kotak and Templeton MF diluted their holdings in the stock.

The top valued stock of Tata Motors was bought by five of the top ten Mutual Funds, with over 29.5 lakh shares being purchased by Reliance MF. On the other hand, HDFC MF and UTI MF reduced their holdings in the stock.

According to brokerage firm Sharekhan's analysis of cash rich funds, LIC index fund - Sensex plan is sitting on a huge pile of cash equivalent to 32.22 per cent of the total scheme, followed by Sahara Wealth Plus Fund with 29 per cent of cash and Birla Long Term Advantage Fund with 27 per cent.

Sundaram BNP Paribas Select Midcap, DBS Chola Opportunities Fund, Cangrowth Plus and UTI Contra fund are among the cash rich equity diversifies funds waiting for right valuations to invest.

KEC International has also been the top grosser for the mid-cap funds as well.

The most popular stocks in mid-cap funds include Aditya Birla Nuvo, Bank of Baroda, Bharat Earth movers, Jindal Saw, State Bank of India, Reliance Industries.

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Mutual funds bought FMCG, construction, auto, and IT stocks in November. Selling was seen in telecom, cement, oil and gas, sugar, and tea stocks, while stocks were re-aligned in the engineering, and banking sectors. Funds continued to buy huge chunks of engineering stock KEC Infrastructures, while diluted exposure to aluminium major Hindalco.

Among the equity IPOs that listed in November, Lanco Infratech, Parsvnath Developers, and Info Edge India attracted mutual funds. In terms of value, Tata Motors, L&T, and Punj Lloyd were the top purchases by MFs, while SBI, Siemens, and Reliance Industries topped the sell list.

Top shares traded by MFs(based on volume)
Top 5 shares bought ----- No. of Shares
KEC Infrastructures 15,430,455
ITC 5,867,383
Simplex Infrastructures 3,459,043
Andhra Bank 3,447,455
Deccan Aviation 3,442,551
Top 5 shares sold No. of Shares
Hindalco Industries 14,316,337
Ashok Leyland 6,635,814
State Bank of India 3,776,307
Siemens 3,028,121
Cummins India 3,023,319


A study of the top ten mutual funds' equity portfolios as on November 30, which are UTI, Prudential ICICI, Reliance, HDFC, Templeton, SBI, Birla SunLife, Tata, Kotak, and DSP ML MF reveals that five out of the ten MFs added to their investments in KEC Infrastructures. SBI MF was the top buyers of the stock with over 53 lakh shares bought.

Among other engineering stocks, Punj LLoyd, and L&T were bought, while Siemens, Cummins India, Crompton Greaves, HEG, and Thermax were among the top sells.

FMCG heavyweight ITC continued to be the second top buy in terms of volume. It was bought by six MFs with UTI MF being the top buyer with over 49 lakh shares bought, while Reliance, Kotak, and Templeton MF pared exposure to the stock. Among other FMCG pivotals, over 31 lakh shares of Hindustan Lever were bought.

Hindalco - the top sell was sold by seven MFs. Templeton MF with over 77 lakh shares sold was the top seller of the stock. Among other metal stocks, Tata Steel, and Hindustan Zinc were sold, while Welspun Gujarat, Maharashtra Seamless, and Jindal Saw were among the top buys.

Tata Motors - the top value buy was bought by five of the top 10 MFs. Reliance MF was the top buyer of the stock with 29.5 lakh shares bought, while HDFC, UTI, and DSP ML slashed exposure to it.

Among other auto stocks, TVS Motor, Escorts, Hero Honda, Rico Auto, Exide,, M&M, and Apollo Tyres were bought, while Ashok Leyland, and Maruti were sold.

Top shares traded by MFs(based on value)
Top 5 shares bought Value (Rs in cr)
Tata Motors 222.43
Larsen and Toubro 196.36
Punj Lloyd 193.71
Dr Reddys Laboratories 166.63
Wipro 143.92
Top 5 shares sold Value (Rs in cr)
State Bank of India 496.21
Siemens 341.62
Reliance Industries 300.85
Hindalco Industries 248.17
ACC 168.34


SBI - the sell in terms of value was dumped by eight MF. HDFC MF was the top seller with over 16 lakh shares sold. However, Templeton MF added to their investments in the stock.

Among other banking stocks, PNB, UTI Bank, and Canara Bank were among the top sells, while Andhra Bank, IDFC, and Indian Overseas Bank were the top buys.

Among the IPOs that listed in November, Lanco Infratech was the most popular one with a total of over 20 lakh shares bought by four of the top 10 MFs, followed by Parsvnath Developers with 10.6 lakh bought by seven MFs and Info Edge India with 1.5 lakh shares bought by five MFs.

DSP ML MF was the top investor in Lanco Infratech with over 12.6 lakh shares purchased. Pru ICICI MF was the top investor in the Parsvnath Developers IPO with 2.8 lakh shares purchased, while Templeton MF was the top investor in Info Edge with 73,533 shares bought.

Among other sectors, construction and IT witnessed buying. Construction stocks Simplex Infrastructures, Nagarjuna Construction, Subhash Projects, and Hindustan Sanitaryware were among the top purchases. IT stocks Wipro, HCL Technologies, R Systems, Rolta, and Infotech Enterprises were bought extensively.

Meanwhile, telecom, cement, oil and gas, sugar, and tea stocks weighed heavy on the sell list. Telecom majors Sterlite Industries, MTNL, and Bharti Airtel witnessed selling. Cement pivotals ACC, GAC, Mysore Cements, OCL India, and Jaiprakash Associates too were sold. Among oil and gas stocks, Reliance, BPCL, and IOC were sold extensively. Tea stocks Assam Company, McLeod Russel, Tata Tea, and sugar stocks Bajaj Hindustan, Balrampur Chini, Ugar Sugar too were sold.

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JM Sector Funds debut at Rs. 9.53 and 10.25 each


JM Financial Services Sector Fund and JM Telecom Sector Fund debuted yesterday at Rs 9.53 and 10.25 per unit as against a face value of Rs 10 per unit respectively. The schemes, whose new fund offer closed on November 20, re-opened for fresh investments and sales yesterday. (Check out - Mutual Fund NFOs open now)

JM Financial Services Sector Fund is benchmarked against the BSE Finance Index and JM Telecom Sector Fund is benchmarked against BSE Telecom Index. The schemes will invest 80-100% of its assets in medium to high risk profile Equity & Equity related Instruments, up to 20% of its assets in low to medium risk profile debt securities, money market Instruments, while investing up to 20% of its assets in low risk profile securities debt.

JM Financial Services Sector Fund and JM Telecom Sector Fund are open-ended sector equity funds and were launched on November 2, 2006. The primary investment objective of the schemes is to invest predominantly in equity & equity related instruments in the Banking/Financial institution/NBFC and housing finance sectors and Telecom Sectors in India.

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Cash-rich funds may go for the kill

Small- and mid-cap mutual funds will be looking at the meltdown on the Street as an opportunity to invest at lower prices as they have yet to deploy the over Rs 3,500 crore raised in the last two months. Also, they do not expect too much redemption from unitholders.

Top fund houses DSP Merrill Lynch, Reliance Mutual Fund, SBI Mutual Fund, CanBank Mutual Fund and LIC Mutual Fund have recently launched schemes, most of which are close-ended and aimed at investing in small- and mid-cap equities for a long period.

However, these funds do not see the market fall to result into early redemption, as mutual fund investments into close-ended funds are seen as less volatile in initial phases of a fund. The BSE Mid-Cap Index fell by 4.13 per cent, while the Small Cap index shed 4.12 per cent on Tuesday.

“I do not expect the fall to create panic among investors of these funds. But, it could definitely affect their asset values to an extent,” a fund manager with SBI Mutual Fund said.

During the May-June market fall, open-ended funds witnessed redemption worth Rs 5,500 crore, which was less that 5 per cent of then total equity corpus. The closed-ended funds virtually did not witness any big redemption as investors redeemed only investments worth Rs 5 crore during the crash.

“Mutual fund investments are normally aimed at long term capital appreciation. Given the rising number of close-ended funds, we do not think there would be more redemption pressure on old and new funds belonging to both categories,” he added.

However, according to Dhirendra Kumar of fund tracker firm Value Research, the situation is tough for fund managers who have already established their portfolios, if the correction brings down the market similar to the May fall.

“In two days of fall, we have already reached the mid-October levels. Even though there may not be redemption, the funds could see a fall in their NAVs. Taking cue from this, the managers will have to maintain enough liquidity in their portfolios, which is very crucial,” said Kumar.

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`Gold, realty funds still away`


The mutual fund industry is still not ready for innovative products such as commodity, gold exchange traded, and real estate funds and is yet to sort out various operational issues, U K Sinha, chairman and managing director of UTI Mutual Fund, said today.

In June, the Securities and Exchange Board of India had allowed fund houses to float real estate funds as close-ended schemes, which can invest in real estate properties, shares/bonds of real estate companies, and mortgage-backed securities.

However, the market regulator had said these schemes need to declare net asset values on a daily basis.

Fund managers had voiced their concerns on daily valuation, taking into consideration the illiquid nature of real estate as an asset class compared with other asset classes.

Funds were also concerned over issues such as meeting redemption pressures and custodian aspects.

In case of gold exchange traded funds, fund houses still need to sort out custodian aspects and way of storing the physical gold.

Speaking at the Mutual Fund Convention 2006, Sinha stressed on creating greater investor awareness so as to popularise these innovative schemes.

Also, Sinha emphasised on retirement plans and schemes that will address the needs of children.Sinha also said there is a need for more innovative schemes such as inflation-linked funds and target maturity funds.

Target maturity funds are enhanced version of capital protection funds, which implement proper asset allocation strategies to address various needs of investors including education, retirement, etc.

He further said that financial planning is a major area to be addressed.

The country’s largest fund house manages assets worth Rs 41,600 crore.

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Telecom, FMCG key participants in India's growth: Birla Sun

CIO of Birla Sunlife Mutual Fund, A Balasubramanium says that the long-term outlook continues to remain positive on the companies that are driven by the local consumption as well as local investment. He feels that telecom and FMCG are two sectors that are participating in the India growth story.

exclusive interview with A Balasubramanium:

Q: For Birla Sunlife MF, how much is the cash that you are sitting on and have you been shopping over the last couple of days?


A: I think one philosophy we have is to have about 7-8% kind of cash, which has been in most of our equity schemes.

There are funds where the mandate invest gradually into companies, investing from medium to long-term point of view. We are still sitting on 20% kind of cash. Our job is not to time the market, I think our job is to find values in stocks and keep investing in them.

Q: Give us an idea on the sectors that you would be looking at? What is the size of companies that would find favour with you?

A: As far as the size goes we as a fund house generally look at companies more seriously from medium to long-term investing point of view with minimum market cap of Rs 500 crore plus and then keep looking at companies within that. The long-term outlook continues to remain positive on the companies that are driven by the local consumption as well as local investment especially in infrastructure segment.

Telecom is a one sector, which has been participating in Indian growth story. Another sector where we have been reasonably confident is the the FMCG sector. These are some things where we as a fund house feel that the long-term outlook continues to remain positive and mainly driven by the strong economic growth numbers while the IIP numbers could have dampened the sentiment in the short-term.

But the long-term outlook does not really change just on one number. The recent corrections could be of temporary nature but otherwise long-term outlook is the one what we keep looking at actually for investing in equity.

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Closed-end funds under watch
Calcutta, The benefit of cost amortisation that closed-end mutual fund schemes enjoy while coming out with new fund offers may soon be taken away. Cost amortisation is the process through which a fund house spreads the expenses incurred on new issues.

The open-ended funds also enjoyed this benefit, which was subsequently withdrawn by the Securities and Exchange Board of India. The market regulator has taken note of the fact that after this benefit was withdrawn, mutual funds have been going slow on open-ended schemes.

Fund houses have found a smarter way out in closed-end schemes where they can amortise (or spread) the initial issue expense over a period of five years. As a result, there has been a spate of closed-end schemes in the recent past.

“Mutual funds were asked to charge their initial issue expenses in open-ended schemes during the new fund offer period itself to put a cap on churning by large investors in such schemes,” said G. Sethu, officer on special duty, National Institute of Capital Markets.

“As of October this year, the total asset under management of the mutual funds was Rs 3,10,170 crore. But during that period, total redemption of units was Rs 10,45,370 crore while mutual funds sold units worth Rs 10,98,149 crore. These figures indicate that there has been huge churning of funds,” he explained.

“Sebi has taken note of the trend that mutual funds are now launching closed-end schemes to take advantage of the cost amortisation benefit and some actions are being contemplated,” said Sebi whole time director T.C. Nair.

He, however, declined to elaborate on whether the market regulator would make similar restrictions for closed-end schemes on initial cost amortisation as it had done for open-ended schemes.

Self-regulation

Sebi is in favour of promoting a combined self-regulatory organisation (SRO) rather than multiple smaller SROs to regulate the distributors of mutual funds.

“We want an SRO in place by 2007,” chairman M. Damodaran said.

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MFs mop up Rs 1400 cr in market crash

The 800-point dip in the Bombay Stock Exchange Sensex early this week turned out to be a 'flight to safety' for the mutual fund industry.

Led by a leading asset management company, the mutual funds garnered nearly Rs 1,400 crore by reducing their equity exposure.

Fund houses sold off banking stocks heavily. As per the data available with the Securities and Exchange Board of India, between Monday and Wednesday, the funds were net sellers of equities worth Rs 1,439.17 crore, purchasing stocks worth Rs 1,751.48 crore and selling Rs 3,103.04 crore worth of stocks in the three days.

"The mutual funds movement in the first three to four days of the week was influenced by the selling by a specific fund house, which ended its new fund offer for an equity fund a few days ago. There was not much redemption pressure on other funds," an industry source said.

Earlier, analysts had expected that fund houses would buy stocks after the fall, which was said to be a result of stiff valuations in the market.

Recently, four to six closed-ended funds of top mutual fund houses had collected more than Rs 3,500 crore through equity-oriented as well as tax-saver schemes.

However, contrary to their perception of funds buying in the declining market, the Sebi figures show that they preferred shedding the unattractive or volatile investments and generated cash.

"This has been a flight to safety for the mutual funds. With the ongoing bull run at the markets, the funds had deployed nearly 95 to 97 per cent of their equity corpus into the markets. Normally, during market corrections, buying activity contracts, as there are less sellers in the market. The funds sold at this period to swell their cash balances, which will help them in future investments," said Sameer Kamdar, national head (mutual funds) of Mata Securities.

The Sensex, which saw a sharp fall of nearly 800 points on the first two days of the week, rebounded with a 180-point gain on Wednesday, while the index continued its northward run the next day too, surging by 300 points.

The 30-share index rose by another 127.36 points on Friday to end the week at 13,614.52 points. The index is now only 180 points behind the last week's close of 13,799.49 points.

"The banking equities lost nearly 6 to 6.5 per cent during the fall. However, with the bounce of the market, they have recovered nearly 5 per cent. There has been redemption pressure this week. But, we observe that the pressure is more on the old funds than on the recently launched funds," said Subhash Bagaria, research associate with Angel Broking.

The mutual funds industry, with a total of more than Rs 3 trillion worth assets under management (AUM), is expected to see more than 30 NFOs in the next few months. The AUM of equity schemes is currently around Rs 1 trillion.

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MFs mobilisation in CY06 crosses Rs 1 lakh crore

The Mutual Fund (MF) industry is growing exponentially. The investors' changing preference to participate in the financial market through the MF route instead of investing directly, tax sops provided by the centre and attractive returns offered by the fund houses on the back of sustained bull run in the stock prices are the main reasons for the MFs mopping up huge resources through the new schemes. According to Association of Mutual Funds in India (Amfi), the MFs have mobilised around Rs 93,000 crore through the new schemes between January to October this year.

According to the market sources, fund houses have mopped another Rs 7,000 crore through NFOs in November leading to the total mobilisation of MFs to Rs 1 lakh crore.

Commenting on this trend, AP Kurian, chairman, Amfi said, “Growing awareness among investors about the MFs as a suitable investment vehicle, and more and more investors channelising their funds through MFs instead of participating directly in the financial market, is the main reason for the higher mobilisation by the fund houses through the new schemes.”

Secondly, Amfi chairman said that the government supporting the MF industry in terms of tax concessions has also helped the industry to take new initiatives. Third, the MF schemes have given good returns in the recent past. Some of the schemes have given better returns than other saving schemes available in the market, he said.

It may be mentioned here that the new schemes include equity and debt oriented New Fund Offerings (NFOs), Fixed Maturity Plans (FMPs), arbitrage funds and capital protection funds. Taking a cue from Kurian, Jaideep Bhattacharya, chief marketing officer (CMO), UTI MF said that the India's investor's base was very small. But, as the equity and debt schemes offered by MFs have yielded handsome returns, it has helped in enhancing the investor's base.

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Fidelity Short Term Income Fund Assigned ICRA’s Highest Credit Risk Rating

Mumbai (Business Wire India)
The Fidelity Short Term Income Fund has been assigned a credit risk rating mfAAA (pronounced m f triple A) by ICRA. The rating indicates highest-credit-quality rating assigned by ICRA to debt funds. The mfAAA rating means that the Fund carries the lowest credit risk, similar to that associated with long-term debt obligations rated in the highest-credit-quality category. The Fidelity Short Term Income Fund is an open ended income scheme that aims to generate reasonable returns through a diversified portfolio of fixed income securities. The benchmark index for the Fund is the Crisil Short Term Bond Index. The Fund is managed by Sameer Kulkarni.

The Fidelity Short Term Income Fund has an Institutional and Non-Institutional Plan and each Plan offers Growth and Dividend options. The minimum initial investment for the Institutional Plan is Rs. 5 crores and for investors under the non-Institutional Plan, it is Rs. 5000 and investors can invest through the SIP route. The Fund has no entry or exit loads.

An attractive feature of the Fidelity Short Term Income Fund is the dividend payout and reinvestment option which follows a monthly cycle. Both institutional and non institutional investors have the choice to receive monthly dividends where the dividends will be declared on the 25th of each calendar month subject to distributable surplus being available.

Fidelity Fund Management Private Limited is the Indian arm of Fidelity International Limited. Fidelity International Limited has offices in over 20 countries across Europe and Asia-Pacific. Fidelity International along with its US affiliate, Fidelity Management and Research Co., actively covers 95% of world market capitalization. Central to Fidelity’s success is a pioneering spirit, a commitment to innovation that sets new industry standards and an unmatched investment in research, talent and technology. Driven by an entrepreneurial culture, Fidelity is known to actively pursue investor education and distributor training.