Mutual Funds
Equity mutual funds witness net inflows in August despite volatile markets, but AUMs drop

In a volatile equity market in August, mutual funds attract net inflows of Rs1,986 crore, performing as well as in February 2011, when the markets were relatively stable

Equity mutual funds have done well in August 2011, attracting net inflows of Rs1,986 crore, as compared with an outflow of Rs869 crore in the previous month. This compares with the February 2011 figure of a net inflow of Rs 2,800 crore in equity mutual funds, according to a report by Crisil.

Jiju Vidyadharan, head-funds and fixed income, Crisil Research, says, "Equity funds witnessed net inflows of about Rs2,000 crore in August despite the volatile market conditions. These were the second highest monthly inflows in 2011 following the Rs2,800 crore net inflows seen in February 2011, when the markets were relatively stable."

However, assets under management (AUM) of equity funds fell by 7% month-on-month to Rs1,78,000 crore in August 2011, the lowest since July 2009. This followed the sharp decline in equity markets. The benchmark S&P CNX Nifty fell by 9% during the month, on fears of a slowdown in the global and domestic economies coupled with the impact of sovereign debt issues in the US and Europe. (The benchmark has slipped by over 16% since the beginning of 2011.)

The overall mutual fund industry's AUM fell by over 4% or Rs31,400 crore to Rs6,97,000 crore in August 2011 due to net outflows of Rs14,600 crore from income funds (including ultra short-term debt funds) and liquid funds, as well as mark-to-market losses in equity funds.

The benchmark Sensex of the Bombay Stock Exchange has fallen 9.27% in August, from 18,352 points 16,585.

The huge positive inflow in equity mutual funds belies the mood prevailing among investors and in the marketplace. In spite of the market outlook being bearish, the equity mutual funds have attracted inflows, as everybody has been looking for bargain buys and the long-term market expectation has been positive.

The breakup for various funds for August 2011, available from the Association of Mutual Funds of India, indicates that there was an outflow of Rs6,925 crore from income funds, balanced funds saw a net inflow of Rs210 crore, liquid/ money market funds had an outflow of Rs10,066 crore, gilt funds also had an outflow of Rs86 crore, gold ETF funds received a net inflow of Rs494 crore, whereas other ETFs saw an outflow of Rs147 crore, and fund of funds investing overseas had an outflow of Rs 63 crore. The aggregate for August 2011 for all categories of mutual funds has been a net outflow of Rs14,597 crore. The aggregate for equity funds for 2011-12 has been an inflow of Rs1,170 crore till now.

In spite of the favourable outlook observed from these figures, one would have to keep a watch on the buying behaviour of FIIs (Foreign Institutional Investors) in equities. If the global pressures signal a tendency to withdraw from emerging markets like India on a percentage basis, the positive figures of August 2011 could decline in the coming months of 2011-12.


We can regulate unlisted companies if they raise public funds: SEBI

"If OFCD is a security under the Securities Act, then it comes under the SEBI Act. And if it comes under the SEBI Act, then SEBI has jurisdiction," SEBI counsel Arvind P Datar claimed before SAT

Mumbai: Market watchdog Securities and Exchange Board of India (SEBI) on Thursday claimed before the Securities Appellate tribunal (SAT) that the Companies Act gives it enough powers to regulate unlisted companies if such entities have raised funds from the public, reports PTI.

"Does SEBI have powers under Section 55A (of the Companies Act? My answer is yes. If OFCD (optional fully convertible debenture) is a security under the Securities Act, then it comes under the SEBI Act. And if it comes under the SEBI Act, then SEBI has jurisdiction. SEBI can (therefore) pass a special order to regulate unlisted companies," SEBI counsel Arvind P Datar claimed before SAT.

Mr Datar was contesting Sahara Group's claim that its OFCD were not a public issue and therefore cannot be regulated by SEBI.

Sahara had been ordered by SEBI to refund the money its two group companies had raised from the public through an OFCD issue The company has challenged the SEBI order at the SAT.

Mr Datar further argued that Sahara companies' OFCDs were issued to the public and that it was actually "a public offer dressed up as a private placement".

Pointing out that even the legal provisions which Sahara took recourse to were meant for a public issue, Mr Datar said, Sahara has taken recourse to Section 60B of the Companies Act, a provision meant for a public issue. Once it is a public issue then listing becomes mandatory under Section 73 (1) of the Companies Act.

Mr Datar further said if an OFCD can indeed be defined as a security, then under the SEBI Act, the market regulator has jurisdiction.

"They can only come under Section 55 A, Clause B. If one goes by a literal interpretation of this provision, then that would be very absurd, and the appellant may argue that this does not cover them," Mr Datar said.

"We must understand why this provision was introduced in the first place. It was introduced, because Parliament wanted to give SEBI all powers," Mr Datar said.

"Intention does not matter because under this provision, listing becomes mandatory. Merely because the appellant gives it the tag of a private issue does not make it one. After all, Section 73 (1) of the Companies Act makes it mandatory for the appellant (Sahara) to seek the approval of the stock exchange," he said.

"A literal interpretation of Section 55 A would defeat the intention of Parliament.... Intention of a company is not a decision itself, but the three-fold test of conduct, circumstances of the case as well as terms of the contract, is. If the company knew it would cross the limit of 50 investors, then it ought to have listed," the SEBI counsel said.

SAT's presiding officer NK Sodhi observed, "If it is a public issue, they should have gone to the stock exchange, and so Section 73 (2) of the Companies Act follows. The necessary consequence is a refund of the money under Section 73 (2). But who will give such a direction to refund? Should it be SEBI?"
The SEBI counsel replied that Section 55 A of the Companies Act will have the answer as to who can issue such a direction.

Mr Sodhi then observed that consequence could be that Sahara's public issue will go out of listing and 66 lakh investors will not be able to trade their securities.

Arguing that Section 73 (1) of the Companies Act ought to be read in consonance with Section 55 A Clause B, which deals with intention of the company, Mr Datar said under Section 245 AA of the Companies Act, securities include 'hybrid' financial instruments. According to Section 55 A, the word 'securities' also includes future financial instruments which are yet to evolve, Mr Datar added.

To this, Mr Sodhi asked Mr Datar what is the consequence of calling OFCD a security. He pointed out that Sahara had submitted to the Allahabad High Court that SEBI could not regulate it because the instrument was a 'hybrid' and that under the Securities Contract Regulation Act, an OFCD is not a security.

SAT will resume hearing next Monday. Incidentally, the Supreme Court's deadline for the case is 5th October.

SAT has directed Sahara to file an affidavit by Monday, specifying from which date it began mobilising funds from investors. Further, it also asked the appellant to specify the total amount of funds mobilised till date, the number of investors involved, as well as the mode of fund mobilisation.


SEBI asks MFs to send annual reports to unit holders via email

The regulator has also directed the MFs to ensure that a consolidated account statement for each month is issued to the investors who have undertaken any transactions in their accounts during that month

Mumbai: As part of green initiative, market regulator Securities and Exchange Board of India (SEBI) today directed mutual funds (MFs) to send copies of annual reports to unit holders through e-mail, reports PTI.

"In order to bring cost effectiveness in printing and dispatching the annual reports or abridged summary and as a green initiative measure... the asset management companies (AMCs) shall communicate to them stating that henceforth, the scheme annual reports or abridged summary would only be sent by email," SEBI said in a circular.

"The communication ... shall clearly mention that the scheme annual accounts or abridged summary would henceforth be sent to these e-mail addresses and not as physical copies and the communication shall also have an option for the investors stating that those who still wish to receive the reports as physical copies may indicate as such," it said.

However, in case if any shareholder asks specifically for physical copies, the MFs have been told to provide the documents in such a form.

"For the rest of the investors, i.e. whose email addresses are not available with the mutual fund, the AMCs shall continue to send physical copies of scheme annual reports or abridged summary," SEBI said.

Meanwhile, the regulator has also directed the MFs to ensure that a consolidated account statement for each month is issued to the investors who have undertaken any transactions in their accounts during that month.

"AMCs shall ensure that consolidated account statement for each calendar month is issued to the investors in whose folios transactions have taken place during that month," the circular said.


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