Mutual Funds
Axis Life Plan: Fund of all Funds

Can you do a systematic investment in just one mutual fund scheme and be done with? Axis Mutual Fund is coming out with this idea which also happens to be low cost. Unfortunately, its not tax efficient and asset allocation is conservative

Axis Mutual Fund plans to launch an open ended fund-of-funds scheme (FOF)—Axis Life Plan according to the offer document filed with the Securities and Exchange Board of India (SEBI). The scheme will offer four different plans—Plan 2020, Plan 2025, Plan 2030 and Plan 2035. Each plan will have a different portfolio. The name of the plan mentions the target date (31st December of the respective year) based on which the asset allocation will be run as per the investment strategy. The assets of the scheme will be allocated in a range of mutual fund schemes including equity funds, debt funds, gold ETFs (exchange-traded funds) and offshore funds. The scheme will also invest in debt and money market securities for liquidity.

The target asset allocation of the plan(s) changes over time which is decided by the number of years between the current date and the target date of a particular plan. After the target date is reached, the fund will maintain its asset allocation on an ongoing basis. The target asset allocation becomes more conservative as its approaches its target date by reducing its equity exposure.

The indicative allocation that the scheme will follow is mentioned below: 


The investment in equity funds includes investments of up to 10% of the net assets of the scheme in domestic gold ETFs, balanced/hybrid funds and up to 10% of the net assets will be invested in offshore funds consisting of both the equity funds and debt funds. Up to 10% would be invested in debt and money market securities. The scheme will primarily invest in schemes of Axis Mutual Fund but can invest in schemes of other mutual funds based on the view of the fund manager.

The cost of the scheme is low compared to other equity diversified schemes. Here the recurring expense is 0.75% compared to 1.75%-2.25% which is charged by most equity-oriented schemes. However, investors will not benefit when it comes to paying taxes compared to other equity-oriented schemes. As this is a FOF scheme, long term capital gain tax would be 10% (20% with indexation) and short-term capital gain would be taxed according to the income slab of the investor to the scheme.

Axis Mutual fund was set up in September 2009. Most of its schemes are just over a year old. Though in the last one year the Axis Equity Fund and Axis Long Term Equity Fund have beaten the benchmark, the question arises on the long-term performance of these funds. Another area of dispute is that what kind of equity schemes would the fund be investing in? This has been left to the fund manager to decide. The fund manager for the scheme, R Sivakumar has about 12 years of experience and manages mainly debt funds of Axis MF.

Too Conservative
Would this be a safe and smart scheme to invest in? Assuming the fund manager does his research well and invests in the best schemes available; investing in such a scheme would definitely be safe over the long term. But would it be smart? If you enter the Plan 2030 with a view to invest for a 15+ year term, just 50%-55% of your assets would be invested in equity and that too for a period of just three years (2012-2015). Therefore if you would be investing far less in equities than what you should ideally do for a term of 15+ years. A better option would be if you would invest around 75% of your asset in a good equity diversified mutual fund and the rest in a bank FD. Most importantly, all fixed formula-driven approach that is not flexible enough would give sub-optimal result. For instance, towards the end of 2008, the markets were at a low—the Sensex was around 10,000-but picked up significantly in the following years. Had this been a time for a change in allocation, the scheme would sell around 5% of its assets invested in equity which it may have purchased at a time when the Sensex was around 15,000-18,000. If we face a similar phase in the years to come, at the point of change in allocation of the scheme, one would end up selling low instead of increasing allocation in equity which ideally should be done.

Also, as happens with all hybrid or asset-allocated schemes, it would be hard for investors to figure out how much to invest in such schemes without the help of a planner.





5 years ago

It is wrong to say that cost of the scheme is low compared to other equity diversified schemes. Since it will invest in another fund and that fund will charge normal recurring expense charges upto 2.25% so total charge is 3% and not 0.75%.

Equity mutual funds in December register highest inflow in three months

Net inflow for December was the highest in the last three months. But sales of equity funds have been on a decline in the recent few months

Last month saw a net inflow of Rs472 crore, compared to a net outflow of Rs52 crore in November, thanks to lower redemptions. In fact, the total sales of equity funds have been declining steadily since August 2011 despite a decline in the market for same period. Sales have fallen 47% from Rs5,820 crore in August to Rs3,061 crore in December. The sales have fallen by 42% year-on-year, as well.

Except for one equity linked savings scheme (ELSS) scheme which was launched last month there was no other New Fund Offer (NFO). In the last five months there were just four NFOs launched. The volatility and uncertainty in the market is probably keeping retail investors away and hence fund companies are in a wait-and-watch mode in planning to launch any more new schemes.

The year ended on a positive note with a total net inflow of Rs7,661 crore compared to last year which saw and enormous amount of net outflow amounting to Rs15,838 crore. However, total equity mutual fund sales for the year 2011 just totalled Rs57,398 crore and was significantly less than the year 2010 which totalled Rs68,984 crore.

Redemptions were much less as well in 2011, too. Total redemptions for the year amounted to Rs49,770 crore compared to a huge redemption in 2010 amounting to Rs84,822 crore. The highest redemptions in a month for the last 12 years was seen in the month of September 2010—a total redemption of Rs13,250 crore, just before the market reached its peak in the next few months.

Moneylife has been highlighting the declining retail participation in equity markets. The drop in equity mutual fund sales is another indicator. The regulator has been constantly tweaking the norms for the mutual fund industry, but this has clearly done more harm than good, a point highlighted by us for two years which both the mainstream media and the fund industry are now beginning to echo, as well. Distributors have found fund-selling unviable and have been moving out of the business. Brokers have little incentive to sell mutual funds. The only option for intermediaries to earn some income has been to make investors churn their portfolios but this leads to a loss for investors. Along with this, the low incentive to sell mutual funds has led many distributors to sell insurance, which is a bad deal for investors.

The first quarter of this year (January-March) should see a pick up in equity fund inflow, as many invest in ELSS which gives them a tax break. There is usually a burst in ELSS sales in this period.


IPO Crackdown-1: Bharatiya Global Infomedia

How exactly did the seven IPOs that were the subject of SEBI’s regulatory action dupe investors? Aditya Govindaraj explains what they did and how...

(This is the first part of a series of articles on SEBI’s regulatory action)

The Securities & Exchange Board of India (SEBI) recently barred several directors and officials of Bharatiya Global Infomedia (BGIL) from the capital market as part of its crackdown on fraud and irregularities in the initial public offerings (IPOs) of seven companies. It also prohibited Almondz Global Securities, the lead manger from taking up any new assignment. What exactly did they do?  

In July 2011 BGIL raised Rs55 crore, at Rs82 per share with the stated objective of purchasing offices (Rs9.89 crore), investment in a digital post-production studio (Rs22 crore), expanding its R&D centre (Rs6.56 crore), repayment of bank borrowings (Rs2.69 crore) and for long term working capital (Rs5 crore).
It was the brazen manipulation of the BGIL shares on the listing day that caught the regulator’s eye. The shares, which were listed on 28 July 2011 at Rs81.90, on the Bombay Stock Exchange (BSE), rose to Rs83 and soon began to slide, plunging to Rs29.90 at close.

A SEBI investigation revealed that rigging its share price was just one of its many acts of mischief. Wrong disclosures in its prospectus (which is a legal document), misutilisation of IPO proceeds and other violations soon tumbled out.

* What is most shocking is the track record of the chairman & managing director (CMD) Rakesh Bhatia, who was involved in various questionable entities in the past. Mr Bhatia was, earlier a promoter and managing director of SRG (Infotech), a loss-making entity which had an IPO in 1994 and whose shares are currently trading below Re1. He was also the promoter and chairman of SRG Financial & Management when it came out with its IPO in 1996. The company doesn’t seem to exist today. Subsequently, he became the managing director of Visesh Infosystems, currently known as Visesh Infotechnics, which came up with an IPO in 1999, and quit in 2004. The pattern at which he was associating and disassociating himself with various entities involved in IPOs never caught the eye of the merchant bank and regulators.  This has raised questions about the efficacy and purpose of identification documents such as Know Your Customer (KYC) details and PAN cards details required by the Income Tax department. How did Mr Bhatia’s past record escape the regulator’s attention?

* BGIL claimed to have spent Rs2.50 crore to purchase offices at Mumbai and Noida. Documents revealed that the money was advanced to Dhanmangal Developers of Kolkata, which found no mention in the prospectus. Worse, there was no move to set up offices in Mumbai or Noida.

* SEBI rules require promoters to disclose a list of relatives of the promoters for the purpose of insider trading rules. BGIL conveniently omitted to disclose several of these, so that property deals could be done through them to siphon off IPO funds. For instance, the company signed up to acquire property from Gadeo Electronics owned by Richa Mittal (95% stake in the partnership firm) and R K Mittal (5%). The latter is the father of BGIL’s director Sanjeev Kumar Mittal. But the prospectus said: “Mrs Richa Mittal is wife of Mr Rajeev Mittal and a resident of A-147-148, Sector 55, Noida, Uttar Pradesh, and not related to our Company, our Promoters/Directors or Promoter Group Companies.”  Rajeev Mittal, the husband, is the brother of Mr Sanjeev Mittal but the relationship was falsely concealed.  

* A bigger problem, from the investors’ perspective is the concealment of significant borrowings.  BGIL’s borrowing through inter-corporate deposits (ICDs) amounted to around 60% to its total liabilities—of this, Rs7 crore was not revealed in the prospectus and amounted to a 100% jump on current liabilities. Instead, the prospectus brazenly lied and said: “Our company has not raised any bridge loan against the proceeds of the present issue”.

* During investigation, CMD Rakesh Bhatia claimed that money was paid to two vendors, but their names did not figure in the prospectus.

The regulator has asked BGIL to recall funds paid out of IPO proceeds to directors, relatives and dubious vendors. The amounts will have to be deposited in an interest-bearing escrow account with a scheduled commercial bank, till further orders.



K B Patil

5 years ago

Banks and brokers follow double standards as the IPO scam shows. For a small investor, since they do not benefit much, banks, brokers etc. implement KYC norms strictly, even though KYC as stipulated today has made it difficult if not impossible for young students, employees transferred frequently etc., to open bank and trading accounts. However, for scamsters, KYC norms seem to have been thrown to the winds. The investigations by SEBI should be taken to their logical conclusion i.e lock up fraudsters for a long, long time.

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