Mutual Funds
Fidelity Investors: Now is the chance to exit

Investors of Fidelity Mutual Fund will be given a 30-day window from 15 October to redeem their holding without any exit load. With a relatively new fund management team of L&T Mutual Fund and the lack of a consistent performance track record, investors of Fidelity Mutual Fund schemes should use this opportunity to exit

In March this year, L&T Mutual fund bought Fidelity Mutual Fund and as per the Securities and Exchange Board of India guidelines (SEBI), the acquired fund house would have to give investors a month’s period to redeem their investments without any fee if they do not wish to continue with the new fund management. Unfortunately for the investors of Fidelity, the buyout of Fidelity's assets did not include the transfer of its experienced fund management team. Though critical segments like risk management and processes will be manned by the Fidelity team, the lack of an experienced fund management team may affect the future performance of the schemes.


L&T Mutual Fund which entered the mutual fund industry after the acquisition of DBS Cholamandalam in 2010 had a naïve fund management team. It has been on the lookout for hiring experienced mutual fund managers to handle the large asset base and just recently it ahs been able to strengthen its fund management team. The fund house recently hired Soumendra Nath Lahiri and Shriram Ramanathan as heads of equities and fixed income, respectively.


Before the acquisition, L&T MF had hired Venugopal Manghat as vice-president & co head-equity investments. He has worked for more than 16 years with Tata Asset Management. As head of equities, he was the fund manager of Tata Pure Equity and Tata Equity Opportunities—two equity funds of Tata MF which have done well in the past.


Soumendra Nath Lahiri joined as head of equities, with effect from 24 September 2012. With 17 years of experience in equity investments and research. Mr Lahri was the head of equities at Canara Robeco Asset Management Company and had a prior stint at DSP BlackRock, as well. Mr Ramanathan joined as the head of investment for fixed income, with effect from 7 August 2012. Mr Ramanathan was portfolio manager- fixed income at Fidelity Worldwide Investments India.


How has been the performance of L&T mutual fund schemes?


We took the average of the quarterly returns of the schemes from 1 March 2010 to 30 September 2012. Compared to their benchmarks the schemes of Fidelity have performed much better. All the schemes of Fidelity MF outperformed their respective benchmarks over the period. The only schemes of L&T that did better than the benchmark were L&T Growth and L&T Midcap.  L&T MF has a contra scheme which has failed to perform. Another scheme L&T Hedged Equity which aims to minimise risk by using hedging instruments such as index and stock derivative instruments to generate returns with lower volatility, however, failed to deliver returns sufficient to outperform the benchmark. L&T Opportunities, a multi-cap scheme, has failed to deliver as well. Even over the last quarter (June-Sept 2012) only L&T Midcap was able to outperform the benchmark. Fidelity MF kept up with its performance with three of its four schemes outperforming the benchmark over the same period.


The new fund management has still not got enough time to settle in. Therefore whether the performance of the existing Fidelity schemes will continue their outperformance, it is hard to judge. Handling a huge fund corpus is not an easy job. Given the opportunity to exit without any cost, investors can use this opportunity to invest in other better performing schemes with a stable fund management.


Effective from 16 November 2012 they will be many changes to the fundamental attributes of a few of Fidelity schemes and there will be some schemes that will be merged with other L&T schemes. We have mentioned the changes below scheme-wise. There could be some good reasons why you should consider redeeming your investments while you have the chance.

Proposed merger of schemes
-L&T Contra Fund and Fidelity India Value Fund will be merged to form L&T India Value Fund. 
-L&T Hedged Equity Fund, L&T Opportunities Fund and L&T Growth Fund will be merged with Fidelity India Growth Fund to form L&T India Large Cap Fund. 
- Fidelity India Children’s Plan–Savings Fund will be merged into L&T Short Term Income Fund.
In the past we have mentioned that many fund houses merge schemes mainly to hide the underperformance of another scheme. Here again, L&T Contra Fund—one of the worst performing scheme of the fund house—will be merged with Fidelity India Value Fund.
Similarly for the other merger, L&T Hedged Equity and L&T Opportunities Fund do not have much of a performance track record as well. The new scheme that would form L&T India Large Cap Fund will have a changed investment objective. The scheme would keep the asset allocation of the Fidelity India Growth Fund but instead of an objective to “invest largely in growth-oriented companies in Indian and international markets”, it would “invest predominantly in large cap stocks which would comprise the top 100 companies by market capitalisation”. The benchmark would change from BSE 200 to BSE 100.  
Change in fundamental attributes
Increase in expense ratio of Fidelity Global Real Assets
The total expense ratio of Fidelity Global Real Assets would increase by as much as 175 basis points from 0.75% to 2.50%. This is apart from the additional expense ratio that can be charged as per SEBI’s new mutual fund reforms. 
Unbundling of Fidelity India Children’s Plan and change in asset allocation
Fidelity India Children’s Plan (FICP) comprising three funds—Education Fund, Marriage Fund and Savings Fund—will be unbundled and form three different plans with a changed asset allocation strategy. As mentioned earlier the FICP-Saving Fund will be merged with L&T Short Term Income Fund.
FICP- Education Fund will be named as L&T India Prudence Fund. The equity component would change from 65%-100% to 65%-75%. The debt component will now be a minimum 25%.
FICP Marriage Fund will be named as L&T India Equity and Gold. The equity component would change from 65%-100%  to 65%-90%. The minimum allocation to gold will increase from nil to 10%, thus increasing the risk of the scheme further. The exit load norms have been changed for both the above schemes to 1% if exited within one year.
Investors of Fidelity Tax Advantage Fund (ELSS)
Unfortunately for those who have invested in Fidelity Tax Advantage Fund (ELSS) and who are still under the statutory lock-in period of three years as under Section 80C of the Income tax Act, 1961, the exit option is not available for them.




Manoj Verma

4 years ago

I had invested in Fidelity Tax Advantage Fund, while working in Fidelity itself. The only proof I have is the portfolio no and I have confirmed that with my PAN card, it is able to show my investment.
How and Where can I redeem my this investment?


5 years ago

When such sell off / exit is announced, in most cases it is better to redeem immediately by paying the exit load. Because during such times, fresh inflows invariably stop as investors / advisers are not keen on allocating fresh investments (even if the fund happens to be FIDELITY) in a fund which is being sold. The situation worsens when redemptions gather momentum with no inflows happening. When such a large and reputed international Mutual Fund decides to quit, It is better to be safe than sorry.

Why even wait till the no exit load window? When a mutual fund like FIDELITY chooses to sell its business, what’s the rationale for the investors to wait for a few months and save on the exit load of a few percentage points?

FDI in Insurance - II: Will the customer be treated fairly?

With the mushrooming of insurance companies and growing competition there is a pressing need to protect the interest of the consumer, and this should take precedence over raising the FDI cap

The government is hell-bent on attracting FDI. While this may be important, of far greater importance is preventing the insurers from taking the customers for a ride. This is all too common given the mushrooming of insurance companies and growing competition among them, as also poor financial literacy. What needs to be done?

The first sentence in the mission statement of IRDA reads as under: “To protect the interest of and secure fair treatment of policy holders...” In deference to this objective, IRDA should take the following steps to protect the interest of insured and ensure fair treatment of all policy holders.

1. Spread financial literacy

The foremost job of IRDA is to spread financial literacy in the varied forms of insurance among the people of our country. Insurance is a tricky business and people can be easily conned by false promises and vague statements, which can only be countered by educating the people in the intricacies of insurance. This is no doubt a tall order, but the way in which Moneylife Foundation has been continuously holding seminars on the subject of insurance without any entry fees, shows that where there is a will there is a way. This selfless service rendered by Moneylife Foundation without any expectation of reward is a shining example as this is the only NGO in the country which has been doing yeoman service in the area of spreading financial literacy in a manner that deserves to be replicated in all parts of our country in a big way. Though education is not the only panacea for all the ills of the industry, IRDA should take up this issue of education as a challenge by mandating a compulsory involvement of insurance companies in this unenviable task of educating the masses, which will not only serve the interest of investors, but also serve the cause of insurance industry admirably.

2. Introduce stringent penalties for mis-selling

Mere education is not going to solve the problem of our people because of intricacies inherent in the insurance business. The biggest bane of this industry has been mis-selling. In the good old days we had insurance agents, who understood the delicate balance between human emotions and material gain and gave correct advice to the potential customer, unmindful of any discomfiture to themselves. They were like family physicians, and took care of the needs of their customers with utmost care and sympathy, guiding them all through their life from issuing the policy till its maturity. But their breed is totally extinct today. The agents of today are totally oblivious to others’ pain as they are short-sighted and seek instant gain, instead of developing long term relationship with their clients. 

In view of this changed attitude, IRDA should introduce stringent penalties for mis-selling, and impose exemplary punishment which serves as a deterrent against repetition of such wrong doing in the future. IRDA should ensure highest standards of corporate governance by all the players in the industry, and should not hesitate to levy hefty penalties on the recalcitrant players, on the lines of what Competition Commission of India did recently in the case of cement companies. The insurance ombudsmen should be armed with more powers to penalize companies against genuine public complaints and provide the much needed support to the innocent and helpless public in times of need.

3.  Interest from date of happening of the event covered by the policy

One of the most reprehensible actions of insurance companies is the delay in settlement of claims on flimsy grounds which creates uncertainty in the minds of the insured. Though there are certain guidelines by IRDA that undue delay attracts payment of interest, none of the insurance companies pay any interest on their own, knowing fully well that people rarely fight for non-payment of interest. The delaying tactics are practiced by every insurer and more so by the health insurance companies, whose agents, namely “Third Party Administrators” are the major culprits in this game. 

If you strictly go by the principles of insurance, the insured amount becomes due on the happening of the event covered by insurance, like death, accident, etc.  In order to totally eliminate this tendency to delay payment of claims, IRDA should make it mandatory for all insurance companies to pay interest on all claims from the date of happening of the event covered by the policy, without any demand by the claimant, in the routine course of settlement of all claims. The interest rate should be high enough to discourage delayed settlement of claims and IRDA should come out with rating of companies on the basis of prompt settlement of claims. This will be the biggest reform in the insurance industry and will be a great source of comfort for the insuring public, as they can rest in peace even when they leave this world for good.


4. Set up a policy holders’ protection fund

Investing up to 49% equity by a foreign insurance company is no guarantee that the joint venture company will be able to meet all its obligations when the policies fall due for payment. Insurance is a business that lasts for a long time, and nobody will be able to judge whether the insurance company will continue to be financially sound to honour its commitments on the maturity date of the policy. Despite all the regulations, the biggest insurance company in the world, the US insurance giant AIG would have gone bankrupt, putting millions of policy holders in distress, if it was not bailed out by the US government during the financial turmoil of 2008 and this can happen anytime anywhere in the world.

In order to protect the policy holders in the event of bankruptcy of any insurance company in India, there is a need to promote an independent “Policy Holders’ Protection Fund”, and this should be set up on the model of Deposit Insurance Corporation of India which has been constituted by RBI to meet the eventuality of banks going bankrupt in the country. IRDA should take the lead in setting up this fund from the contributions to be made by every insurance company as a percentage of the premium collected by them, and this should serve as a fall back to meet the claims of policy of holders against any company in default any time in the future. The need for such a fund is now more than anytime before, as all type of insurance companies, big and small will be vying for a share of this growing market by resorting to all sorts of gimmicks and it is the primary responsibility of IRDA to protect the interest of the policy holders as enshrined in their mission statement.

It is needless to emphasize that whatever be the percentage of FDI that will be allowed in the insurance sector, the need for reforms as aforesaid are a desideratum and there is no gainsaying the fact that the government and the IRDA should not delay taking these vital steps necessary to protect our people from the clutches of those insurers waiting in large numbers to pounce on the illiterate masses of our country when India extends a red carpet to welcome them with (49%) folded hands.

(The author is a financial analyst and writes for Moneylife under the pen-name ‘Gurpur’)



nagesh kini

5 years ago

The biggest bane of Mediclaim has been the induction of the so-called Third Party Administrators who apparently are not answerable to anyone incl.the IRDA.
They act like they are the Kings of all they survey. Their phone lines are never accessible to record the initial information. Reject claims on frivilous grounds incl. not informing in time and alleged delays in submissions.
TPAs don't have qualified staff to process claims - under qualified BAMS,DASF and Homeos not aware of anything handle.
TPAs collect hefty 'on-account' advances from Insurance companies, play along with this money as their float, part with only a small portion to the service providing hospitals and insureds.
TPAs, in effect, get money to reject claims - a great incentive.
A couple of years back the New India in a RTI response said that they had paid TPAs Rs.28 crores! For what - harassing the insured?

Baldev Raj Khanna

5 years ago

I am an insurance consultant having 35 years experience in the insurance sector with 27 years active service in the PSU as an officer in the senior position. After a long gap I read the impressive and accurate comments. I fully agree with the views expressed by you.

Stephen Rosling

5 years ago

This is a great opportunity to learn from the mistakes of the UK. Only now is the "oil tanker" of financial services greed and mis-selling starting to slow down.

DLF says Kejriwal making allegations 'out of hat' for publicity

According to DLF, Kejriwal has become like any other politician just going on throwing mud without even realising whether it is adding value or not 

Mumbai: Rejecting Arvind Kejriwal's allegations that DLF favoured Robert Vadra, the real estate company said that the social activist-turned politician was making these charges "out of hat" to gain publicity, reports PTI.
Kejriwal has alleged that DLF gave interest free unsecured loan of Rs65 crore to Robert Vadra's companies and also sold properties to him at throw-away price. He has charged that the Haryana government favoured DLF by allotment of land.
"These are some of the allegations coming out of the hat. Everyone wants to be popular so how to become popular. He (Kejriwal) is a politician today. He has become like any other politician just going on throwing mud without even realising whether it is adding value or not," DLF Commercial Developers Managing Director Ramesh Sanka told PTI when asked about the allegations by activist.
Sanka, who was earlier group Chief Financial Officer, noted that in the realty business it was a normal practice to give advances to land owners for buying the land.
"He (Kejriwal) is talking about Rs65 crore. He is even questioning that will you give advances and keep it for two years, so the answer is yes," the DLF official said.
Sanka said the company had disclosed in its IPO document about the thousand of crores advances that the company has given for buying land.
Refuting the charges by Kejriwal, Sanka said: "I was the group CFO and I was filing the compliance certificate. Come anything under the world nobody can get me signed a non-compliance deal. Once I have signed it, let 10 Kejriwals come they cannot find fault that much confidence I have".
Last week, DLF had issued a statement refuting allegations that it had given unsecured loans to Vadra as a 'quid pro quo' for favours and said it had transparent dealing with him as an individual entrepreneur.
The company had said it gave Rs65 crore as "business advances" out of which Rs15 crore was fully refunded and Rs50 crore was used for purchase of land. It had also dismissed the charge that the company sold properties to Vadra and his companies at a throwaway price.


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