Birla Sun Life Mutual Fund has recently launched a close ended equity scheme which will invest in eligible securities as per Rajiv Gandhi Equity Savings Scheme (RGESS)
Like other Rajiv Gandhi Equity Savings Scheme (RGESS) eligible mutual funds, the new RGESS scheme from Birla Sun Life (BSL) Mutual Fund—BSL Focused Equity Fund—would invest over 95% of its portfolio in equity instruments (mainly companies present on the BSE 100 index or the CNX 100 index) that are specified as eligible securities under the RGESS and would have a term of three years.
RGESSs are similar to ELSS; however, to claim the tax benefit of investing in the schemes under RGESS, investors should meet the requirements of “new retail investor”. A DEMAT account is compulsory for RGESS, however, a DEMAT account is required only if you are eligible and are looking for tax benefits, else one can invest in this scheme like you would in any other mutual fund scheme.
No redemption or repurchase will be permitted prior to maturity of the scheme. The scheme will be listed on BSE, NSE and/or any other recognized stock exchanges as may be decided by fund house from time to time and the unit holders who wish to redeem units may do so through stock exchange at prevailing listed price on such Stock Exchange, subject to lock-in period under RGESS, if any.
Eligible Securities as defined under RGESS guidelines means any of the following:
(a) equity shares, on the day of purchase, falling in the list of equity declared as "BSE-100" or "CNX-100" by the Bombay Stock Exchange and the National Stock Exchange, as the case may be;
(b) equity shares of public sector enterprises which are categorised as Maharatna, Navratna or Miniratna by the Central Government;
(c) Units of Exchange Traded Funds or mutual fund schemes with RGESS eligible securities as underlying, as mentioned in sub-clause (a) or sub-clause (b) above, provided they are listed and traded on a stock exchange and settled through a depository mechanism;
(d) Follow on Public Offer of point (a) and (b) above;
(e) New Fund Offers of point (c) above;
(f) Initial Public Offer of a public sector undertaking wherein the government shareholding is at least fifty-one per cent, which is scheduled for getting listed in the relevant previous year and whose annual turnover is not less than four thousand crore rupees during each of the preceding three years.
BSL Mutual Fund is one of the better performing mutual fund houses. However, as in the case of all close-ended equity schemes, the returns you get from these schemes depend on when you invest (at the time of the new fund offer) and when the scheme matures. A lot would depend on the valuation of the market when you invest in the scheme and the market scenario at the maturity of the scheme. Your returns could vary considerably depending on these factors.
Anil Shah, who has over 20 years of experience in equity research and investments, would be the fund manager of the scheme.
Minimum Application Amount
Minimum of Rs5,000 and in multiples of Rs10 thereafter during the New Fund Offer period
No redemption (repurchase) of units is allowed before the maturity of the scheme. Investors wishing to exit may do so by selling their units through stock exchange
A. Maximum total expense ratio (TER) permissible under Regulation 52(6)(c)(i)## Upto 2.50%
B. Additional expenses under regulation 52(6A)(c) Upto 0.20%
C. Additional expense for gross new inflows from specified cities under Regulation 52(6A)(b) to improve geographical Upto 0.30%
NRI businessman P Mohamad Ali of Galfar Engineering has been convicted to three years in jail and will be deported back
P Mohamed Ali, one of the richest Indian businessmen in the Gulf and managing director of Galfar Engineering, has been arrested and sentenced to three years to prison by an Omani court, for corruption and bribery. His crime was that he bribed an Omani bureaucrat, Juma Al Hinai, an official in the Finance Ministry who also serves as head of the tenders committee at state-owned Petroleum Development Oman (PDO). It is reported that P Mohamad Ali bribed Mr Al Hinai around 200,000 rials (Rs3.2 crore) in order to facilitate Galfar operations and extend one of the contracts awarded by PDO. Another executive of Galfar, Abdul Majeed Nushad, was too convicted, and sentenced to two years in prison. It is believed that over 20 other government officials are standing trial in Oman for oil industry-related corruption.
The Galfar corruption case was one of the most high profile cases in Oman and was followed closely for months. Yet, the same was somehow ignored by the Indian media. Only the Times of India had a passing mention of his stepping down from the post, but stopped short of writing of the arrest (the article is dated January 16th but the court conviction happened on January 11th). The New Indian Express carried a small story of the arrest. The ArabianBusiness.com, a news portal in the Middle East, called the Galfar corruption and graft case a “tip of the iceberg”.
P Mohamad Ali, who hails from Thrissur, Kerala, was reportedly the 9th richest Indian businessman in the Gulf region, with his networth believed to be $725 million. Interestingly, Mr Mohamed Ali was being recommended for a Padma Shri award. He is also the recipient of the Oman Government’s “Civil Order Grade Three”, a civilian award.
P Mohamad Ali was brought to trial in November 2013. According to Gulf News, he was not only sentenced to three years in jail but was also ordered to pay 600,000 rials (Rs9.65 crore) in fines, after which he will be deported to India. In an ironic twist, Mohamad Ali’s own website had a slogan that read: “Truth has the sharpest edge. There is tremendous strength in honesty!”
Morgan Stanley isn’t exactly bullish on the Indian macro economic outlook due to stagflation and has drawn up three distinctive scenarios, none of which are too optimistic
In their new report titled ‘Where Are We in the Boom-Bust-Adjustment (BBA) Cycle?’, Morgan Stanley Asia/Pacific Research (MS) notes out that India is stuck in the threatening stagflation stage, caused due to weak productivity, high inflation and policy inaction. It also believes that the consolidation will take time as India is in the “early stages” of the readjustment cycle, which can only be helped by an “aggressive” actions whoever takes hold of the next government post-elections.
However, MS are also on a look out for external facts such as the US dollar and US 10-year yields. If the latter moves up, it could be trouble for India. The report said, “On the external front, we would be watchful of any sharp upward movement in the US dollar and US 10Y bond yields while we remain concerned about the potential negative effects of a sudden stop in capital flows.”
Reasons for stagflation and decline in GDP
According to Morgan Stanley, there are four reasons to explain for loss of productivity, resulting in stagflation, and weak productivity over the past three years.
Fiscal deficit: Firstly, India’s fiscal deficit remains in grave danger of breaching the double digit mark. If it does, it will put a severe dent to India’s growth prospects. According to MS, “the fiscal deficit was lifted from 4.8% of GDP in F2008 to 9.9% in F2009 and has remained above 7.5% for the past four years.” It is likely that double digit figures could be achieved if the National Food Security Bill is implemented.
Rural wages and NREGA: Secondly, there is a mismatch between rural wages and productivity. While rural wages have shot up, productivity hasn’t, thanks to the NREGA programme which has been beset with poor implementation and misuse. According to MS, “We believe the national rural employment scheme (NREGA) has been one of the key factors pushing rural wages without matching gains in productivity.”
Low capex: Thirdly, an “Unfavourable business environment resulting in deterioration in productivity of corporate sector, as well as, declining private investment to GDP” caused by global factors caused corporate confidence to decline, thereby reducing investments. This chart shows how capex has plummeted.
Negative real rates: Lastly, Morgan Stanley feels that negative real rates are the cause for India’s widening current account deficit which caused funding problems. The report said, “We believe that discouraging financial saving by maintaining negative real rates has only exacerbated the macro stability risks and has been instrumental in widening the current account deficit further, exposing India to external funding risks.”
All the four reasons collectively led to macro-economic stability issues, including persistently high inflation, widening current account deficit and a bad-loans crisis. The three graphs below are self explanatory:
Inflation: Even though inflation remains elevated, MS expects food inflation to worsen even as headline inflation hovers around the 8% levels, till April-May, during election time. The report said, “Even as we expect further deceleration in food prices, we expect CPI inflation to remain elevated around 8.5%-9% over the next 4-5 months.
Non-performing loans: Moneylife had predicted this way back in 2012, with a cover story on how the public sector squandered public resources leading to grave situation of bad debts. The same story can be accessed here: . MS expects bad loans to rise. “As per estimates from our Financials team, impaired loan ratio could rise to 11.1% by March 2014,” according to the MS team.
Current account deficit: Current account deficit widened from 2.7% of GDP in F2011 to 4.2% of GDP in F2012 and an all-time high of 4.8% of GDP in F2013.
Three possible scenarios
MS has drawn up three distinct scenarios: moderate, bad, and worse.
Benign scenario (medium): This would be helped by “strong policy actions” of the next government. MS believes that this could not only reduce fiscal deficit, but also moderate wages and keep headline inflation to 6.5%-7% levels by March 2015.
Sub-optimal (bad): Interestingly, MS thinks that if the government is unable to do anything (i.e. if the government is weak, without a mandate), then the RBI will do something. The report says, “if the outcome of the general election were to produce a weak coalition government, it could hamper the pace of implementing the required policy reforms... the central bank will have to tighten monetary policy further, potentially in an aggressive manner to bring about a more credible and quicker adjustment in inflation expectations.”
Disruptive (worse): The worse case scenario is forced market adjustment. Such a scenario is described as “the persistence of high inflation and inflation expectations keeps real rates in negative territory and brings about a widening in the current account deficit all over again, exacerbating the macro stability risks... the central bank would need to tighten monetary policy in a potentially disruptive manner... and could entail a sharper deceleration in growth rates.”