Mutual Funds
Equity funds do well under bear attack of January

Among the best-performing fund houses was Reliance, JM continues to be the laggard in the pack

In January, the Indian markets came under a bear attack, when the Sensex and the S&P CNX Nifty fell by 11% each.

However, equity mutual funds on the whole did better than their respective benchmarks.

Out of the 228 equity growth schemes, 118 have outperformed; 82 schemes have underperformed and 26 schemes have just about managed to equal their benchmark returns.

The top-performing three schemes for January 2011 were-JM Core 11, Reliance Natural Resources and Reliance Small Cap. JM Core 11 fetched a return of -4%, while its benchmark was down 11%. Reliance Natural Resources and Reliance Small Cap fetched returns of -5% and -8% ((benchmark return of -10% and -12% respectively).

Among the top performers of January 2011 were nine funds from Reliance Mutual Fund-Equity Advantage, Equity, Reliance Growth, Natural Resources, NRI Equity, Quant Plus, RSF, Small Cap and Reliance Vision. They suffered an average loss of -8% and have beaten their benchmarks by 3%, on an average.  

If Reliance was the best fund house, JM's funds continued to destroy investors' wealth, barring one fund, the JM Core 11, which was a top performer for January, in our current analysis. This is not a surprise.

As we pointed out in our article in Moneylife (1 July 2010), JM is indeed the worst fund house by any parameter.

Among the 20 worst-performing schemes over past one month, JM has as many as ten. These include Agri & Infra (-13%), Basic (-15%), Contra (-14%), Emerging Leaders (-16%), Equity (-12%), Hi-Fi (-13%), Large Cap (-11%), Mid Cap (12%), Multi Strategy (-13%), Small & Mid-Cap (-13%).

The others in the bottom 20 were ICICI Prudential Emerging STAR (-13%), Taurus Discovery (-12%), Birla Sun Life India Reforms (-12%), SBI Magnum Multiplier Plus 93 (-12%), Birla Sun Life Mid Cap (-12%), Kotak Midcap (-13%), Principal PNB Long Term Equity (-13%), ICICI Prudential Equity Opportunities (-12%), Sahara Star Value (-13%), HSBC Midcap (-15%), Sundaram Rural India (-14%), HSBC Progressive Themes (-14%), SBI Magnum Sector Umbrella-Emerging Businesses (-14%).

Out of the various schemes in this category from the Tata stable, the only underperformer of the lot was Tata Equity Opportunities Fund (-12% underperformance with respect to its benchmark).


How is BSE using its investor protection fund?

It has found a novel way—wining and dining in a five-star hotel! It is sponsoring the Morning Star mutual fund awards, as if this benefits the (dwindling) investor population in any way

This week, the Bombay Stock Exchange (BSE) sent out an invite in which BSE's Investor Protection Fund was claimed to be sponsoring an award function with a foreign entity at a local five-star hotel.

How is it in the investors' interest that funds that are specifically earmarked for investor protection are being used to sponsor expensive, five-star award functions?

And who has a say in deciding the use of these funds?

Trying to get an answer to this simple question launched us on an interesting journey. We first discovered that the entire "new professional management team" at the BSE, starting with Madhu Kannan, the CEO, would not answer any questions about this blatant misuse of money that rightfully belongs to investors.

Secondly, although the investor fund has apparently swollen to a fat Rs510 crore (a fact that came out after going back and forth on text messages with Mr Ashish Chauhan, the deputy CEO of the BSE), the use of the fund is not part of the annual report (because it is a separate trust), nor is any activity easily available in the public domain.

The last available number about the corpus of the Investor Protection Fund is a huge Rs370 crore.

Technically, the Securities and Exchange Board of India (SEBI) specifies the utilisation of the Investor Protection Fund. And in the past, both stock exchanges have claimed their inability to utilise this money for investor-related activities because of SEBI restrictions on end-use.

So we asked SEBI about this new found use of the fund-five-star wining and dining. All we got from Mr J N Gupta, Executive Director in charge of secondary markets, was that the regulator had called for information on use of funds from both exchanges.

However, the moot question is, why isn't there already a transparent system of accounting for and reporting the use of such large sums of money? While the BSE has over Rs500 crore in the kitty, the NSE too has over Rs100 crore.

On further digging for information, one BSE director told us that under its former CEO, Mr Rajnikant Patel's leadership, there was a proposal to invest a massive Rs120 crore of investor protection fund money into a building to conduct investor protection programmes. Fortunately, this was rejected by the board.

Another director tells us that payments from the fund are supposed to be made to investors who suffer losses-for no fault of theirs-during defaults by brokers.

However, a group of investors, who should legitimately been paid out of the IPF, have been denied payment and made to run around even after winning arbitration proceedings on the issue.

Since India's investor population has been dwindling steadily, the question is, why isn't this money being correctly used for investor protection? And if stock exchanges are incapable of putting it to good use on behalf of investors, why isn't the money being transferred to government coffers, i.e., the Consolidated Fund of India?

After all, the Investor Education & Protection Fund (IEPF) set up under Sec (370) of the Companies Act is also forced to transfer funds to the Consolidated Fund of India and can only draw as much of the money as it hopes to spend in a given year on investor activities.

When this writer was a part of SEBI's Primary Market Advisory Committee (four years ago), many investor activists had pressed for IPO (Initial Public Offerings) gradings to be paid out of investor protection funds of bourses, in order to ensure that companies would not shop for gradings and the process would be fair, bold and neutral.

Given the size of funds available with both bourses (BSE has Rs510 crore and NSE would have well over Rs200 crore now, but we are unaware how even the interest on this money is utilised) it is clear that paying for IPO gradings would have been possible merely from the interest earned on this large corpus.

However, the SEBI board in its wisdom chose to ask companies to pay for the ratings. We strongly believe that this decision was influenced by companies and their  intermediaries, who have been against IPO gradings and continue to lobby against it.

Yet, a Moneylife online survey reveals that over 60% of investors do look at gradings before deciding to invest in IPOs.

Clearly, neither SEBI nor the bourses are capable of utilising this enormous corpus of investor protection money to strengthen protection for investors.

In this situation, it seems best that investors' money should at least help bridge the fiscal deficit. Maybe investors can collectively wangle some tax concessions from the government in lieu of this money. That will at least ensure that the benefit accrues to every secondary market investor.




6 years ago

BSE exists for the investors and hence the expenses on security of the BSE building should be met out of the Investor Protection Fund.



6 years ago

BSE exists for the investors and hence the expenses on security of the BSE building should be met out of the Investor Protection Fund.



6 years ago


sunil hemnani

6 years ago

Well the professionals at the helm of affairsmust be searching for ideas.The best place to do this is an awards function .This is obviously the American style of research (fundamental research ) have a good time which doesnt need to be accounted .Time well spent having a good time is important for people who cant bear to be told that your mkt share is dwindling o a daily basis. the Americans have a nice way of saying you are getting your b**t kicked . Well these guys are waiting for a monsoon and the indian summer is just setting in .One thing is sure the reason most BROKERS &INVESTORS left the BSE in the first place ,is because there trust issues .This sort of professionalism will go a long way in ensuring the BSE will only host parties ,award functions and give WORLD CLASS salaries for NON performers . The monsoon should wake up the BOARD OF BSE sure after the have a wonderful summer vacation . Wonder why RETAIL investors would want to come to this exchange ??

Rajan Manchanda

6 years ago

The fund can be better used instead of transferring to ' Consolidated Fund of India'

Why not build a War Memorial at Mumbai / New Mumbai or at Pune to commemorate those who lay down their lives protecting the country in times of war or fighting terrorists.

With redevelopment of land in Mumbai it should not be difficult to purchase the land required from the funds that are available with the exchanges. Every big corporate would chip in the funds required.

On every Republic Day this issue crops up on every tv channels during the parade but is forgotten on 27 th. January. Why wait for Govt to build a memorial which it has failed to do so for so many decades.

The politicians are honoured by making Ghats,statues being built , towns named after them , roads, bridges, airports ,streets, chowks etc etc named after them ......Why not a Memorial for the Martyrs ?

The Govt's are busy saving themselves from the scams , inflating food prices and then trying to control them , pulling down each other ,would they have the inclinaction to build a memorial ?. And again do we need A war memorial scam there after ?

Why not Money Life take up the issue. Saving Investors or honouring the Martyrs are both honourable tasks.
Honest citizens like Mr.C.B.Bhave , and Mr. Deepak Pareikh could spear head the project.

Nagesh KiniFCA

6 years ago

The Investor Protection Fund ought to open itself for public scrutiny. If it is Trust surely it must be be audited. Why are the audited Income & Expenditure Account and Balance Sheet not on the public domain.We have every right to be informed of the application of its corpus and interest. Why is it not audited by the CAG?

Cautious opening on the cards: Friday Market Preview

Asian markets were mixed in morning trade on the last day of the week while Wall Street closed mixed with the Dow ending marginally lower, snapping its eight-day winning streak, on concerns about the political situation in the Middle East

The local market is expected to open on a cautious note as its Asian counterparts were mixed in morning trade on the last day of the week. Wall Street closed mixed with the Dow ending marginally lower, snapping its eight-day winning streak, on concerns about the political situation in the Middle East. The SGX Nifty was down five points at 5,220 compared to its previous close of 5,225.

On the domestic front, the government is expected to announce the Index of Industrial Production (IIP) for the month of December 2010. IIP for November 2010 was 2.7% from 11.3% in the year-go period.

We expected the market to bounce back yesterday but the Sensex fell 130 points to 17,463, while the Nifty fell 28 points to 5,226. The Sensex opened with a small gap up of 11 points at 17,603, while the Nifty opened with a negative gap of eight points at 5,246. Within half an hour, the indices slipped below Wednesday’s close and made a new short-term low. It traded within a range for most of the day, never getting anywhere near yesterday's high and the bears prevailed at the end. Thursday’s high-low range was narrower than the previous day’s, exhibiting indecisiveness about the next move. 

Remember, the monthly picture is weak and the weekly trend is firmly bearish. The daily trend is yet to show any sign of revival. However, there is a slight hope on the intra-day movement. If Thursday’s lows hold, we may see a weak rally tomorrow, provided there is no further negative news.

The US markets ended mixed with the Dow snapping its eight-day winning streak on concerns about the political situation in Egypt. Stocks traded lower but perked up in late trade on a statement from Egyptian president Hosni Mubarak that he would delegate powers to his deputy. However, the news was not accepted by Egyptians who stated that they would continue their agitation till the president stepped down.

Meanwhile, initial claims for unemployment benefits fell more-than-expected last week to touch their lowest point in two-and-half years, offering a sign that the labour market was strengthening despite Januarys poor jobs numbers. Initial claims for unemployment benefits fell 36,000 to a seasonally adjusted 383,000, the lowest since early July 2008, the Labor Department said.

In other US news, disappointing earnings report from Cisco Systems was the biggest drag on stocks through most of the day, and pulled down the Dow 24 points. PepsiCo dropped 1.7%, after the company said it faces headwinds from high unemployment, cost inflation and a potentially tough competitive pricing environment.

The Dow shed 10.60 points (0.09%) at 12,229.29. The S&P 500 gained 0.99 points (0.07%) at 1,321.87 and the Nasdaq added 1.38 points (0.05%) to end at 2,790.45.

Markets in Asia were mixed in early trade on Friday as protesters in Egypt threatened to continue their agitation till president Hosni Mubarak stepped down. Yesterday the president made a statement that he would delegate powers to his deputy but that was not agreeable to the protestors. Investors were worried that the turmoil would spur oil prices putting pressure on inflation. 

Meanwhile, the South Korean central bank kept interest rates unchanged, surprising analysts who had expected the Bank of Korea to raise rates for the second time in as many months in its battle to curb inflation.

The Shanghai Composite gained 0.36%, the Hang Seng rose 0.44% and the Seoul Composite advanced 0.39%. On the other hand, the Jakarta Composite declined 0.92%, the KLSE Composite fell 0.32%, the Nikkei 225 slipped 0.11%, the Straits Times declined 0.31% and the Taiwan Weighted lost 0.60%.

Back home, the government on Thursday said it will soon unveil a national manufacturing policy which will help in attracting overseas investments besides increasing the share of the sector in the Indian economy.

India aims at increasing the share of manufacturing sector, which contributes over 80% in the country’s overall industrial production, from 16-17% to 25-26% of the GDP by 2020. Under the upcoming policy, the government has proposed to set up integrated greenfield mega investment zones to attract global investment and latest technologies.


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