The fund house says this step will improve economies of scale and better management. But what are the implications for investors in these funds?
JM Financial Mutual Fund has decided to merge JM Nifty Plus Fund into JM Equity Fund (the surviving scheme) and JM Emerging Leaders Fund into JM Multi Strategy Fund (the surviving scheme), in the interest of all unit holders in the respective schemes and to benefit from better economies of scale that will allow for more efficient management. The merged schemes will continue according to their respective dividend and growth options.
Of late, fund houses have started clubbing some of their non-performing, or smaller schemes, into one plan. The market regulator, SEBI, has also supported the move by revising the norms for such mergers.
It is important to monitor your investment closely, and we are not talking only about its market value. Many investors let their investments run on auto pilot, not bothering to check how they are faring. For instance, a merger of two schemes may also mean a capital gains tax liability for you.
When a scheme gets merged into another, the first scheme ceases to exist. In such a case, units of the first scheme are redeemed, but not returned to unit holders. They are then reinvested in the scheme in which the first scheme is to be merged. So even if you choose to stay invested, it is still deemed as a withdrawal from one scheme (the one that will be merged) to another.
In this case, the investor needs to mention his income in his tax returns and pay the capital gains tax (if any). If your investment tenor in the merged scheme has already completed a year at the time of merger, you don't need to pay tax as the long-term capital gains in equity funds is nil.
In case the investor is not in agreement with the merger, he has the option to exit without payment of any exit load. The option to exit can be with or without payment of exit load, according to the choice of individual fund houses.
In the case of JM, unit holders who do not redeem/switch out, the current value of their holding in respective merging schemes as on 29 July 2011 will be converted into units of the respective surviving scheme, through allotment of units at the applicable NAV as on 29 July 2011.
The return of JM Nifty Plus and JM Emerging Leaders since inception till 30 July 2011, is 10% and -13% respectively. (Based on raw NAV.)
Are emerging markets immune from the issues affecting the US or will they be caught in another epidemic—or will the infection perhaps come from another source?
In 2008, when the US stock market crashed, the markets in emerging market countries went down as well. The US stock market has been crushed; first, because of the irresponsible attitudes of its legislators and now because of the possibility of the feared double dip. In contrast, the economies of many emerging markets seem very healthy. In the past the expression was that when the American economy sneezed, the world caught a cold. Are the emerging markets immune from the issues affecting the US or will they be caught in another epidemic or will the infection perhaps come from another source?
The problem with the question is that it makes many assumptions that are incorrect. One of the first assumptions is that the US economy will have an impact on the economies in emerging markets. If we exclude the European Union, the US is still the largest economy in the world. Obviously if the US goes into recession, global demand will decline. But the question is who does that affect and how much?
It would definitely affect the US's main trading partners, but those trading partners are generally not emerging markets. The US's largest trading partner is not Brazil, Russia, India or China. It is Canada. China is the second largest partner as is Mexico, but most of America's trade goes to G7 countries including Germany, Japan, France and the UK. Brazil is a large trading partner, but its total trade with the United States is slightly more than the US's trade with the Netherlands.
China's largest trading partners with the exception of the US and Germany are in Asia. India has a similar profile. The main difference is that some of India's largest trading partners are Middle Eastern oil exporters. The trade that is most important to the emerging markets is not with the US, but with other developing countries. This is especially true for the inter-Asian trade.
We also tend to assume that the world is so connected that problems in the US will carry over to other countries. This also depends on a few factors. Germany and South Korea are major exporters. Over 40% of their GDPs are dependent on trade. Again, both are large trading partners with the US, so a slowdown in America would definitely affect these countries. But others like India and Brazil are not. Only 15% of their GDP is related to trade. The US is even less. It averages about 10% of its GDP. China, the workshop of the world, is heavily dependent on global trade. Just under 30% of its economy is based on trade. So although the US economy is large, it trades mainly within North America.
There is a big difference between the economies in emerging markets and the equity markets in emerging markets. Equity markets in emerging markets are not necessarily accurate reflections of the underlying economies. Often these markets are quite small. Large parts of these markets by capitalisation may be represented by a single sector and often by a few companies. These markets are also heavily dominated by state-owned companies. Added to these issues are problems with liquidity, market manipulation and poor quality of information.
The recent rise of many of these markets has been due in part to the loose monetary conditions across developing countries as much as the growth of the local economies. The huge tide of 'risk on' foreign capital chasing yields may be more important. A 'risk off' trade could devastate emerging markets regardless of the state of their economies.
So if the growth of the US economy stalls, the effect in emerging markets would be felt, but it would not have the impact of 2008. This does not mean that these markets are safe. The difference is that the problems are within the emerging markets themselves. All of these markets are overheating. According the The Economist's emerging markets overheating index, the economies of Argentina, Brazil, India, Indonesia, Turkey and Vietnam have real problems. Almost all emerging markets have raised interest rates some many times. Brazil has raised them five times. India has raised interest rates 11 times. China has raised them 5 times. Many emerging markets are desperately struggling with inflation. Besides all emerging market economies tend to be unstable due to corruption, weak infrastructure, legal uncertainty and political infighting.
Credit bubbles are starting to appear particularly in Brazil and Turkey. The Chinese real estate bubble has been much discussed, but real estate prices are also at new highs in India and Brazil. Some equity markets have pulled back, but Indonesia recently hit a new high. If one BRIC falls, the panic could easily spread to all of the other emerging markets. The American economy is certainly not healthy, but unlike the emerging markets, it does not have a long way to fall.
(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected].)
Much of this apparently unaccounted expenditure has been incurred on visits of parliamentary committee members, who are in fact forbidden by protocol from receiving gifts
At a time when Hindustan Petroleum is said to have a lot of money blocked in dues from airlines and other big businesses, it looks like the oil distributor is spending a lot on some inexplicable items.
Ledger entries for Hindustan Petroleum's Delhi coordination office account reveal that the Navratna company has spent substantial amounts on hotel bills, gifts, flowers and jewellery. Since 2006, about Rs19 crore has been spent on such items. In 2010-11 alone, the company's Delhi office spent some Rs1.28 crore on this account.
Repeated phone calls and an email message to the HPCL spokesperson did not yield any response.
A major part of the expenses are attributed to visits by member of parliamentary committees. According to parliament rules, such committee members are entitled to stay at government guest houses and they are paid travel and other allowances, so it is unclear why HPCL, a public sector unit, is bearing the expenses of these members.
Apart from travel and accommodation expenses, the HPCL office also lists expenses on gifts, shawls, mementoes and lunch for these committee members.
In 2010-11, expenses on such gifts totalled Rs51,510 and some shawls were bought at a cost of Rs7,396, as per entries on 17 and 27 January 2011.
There are also other entries like Rs93,000 worth of mementoes for parliamentary members on 12 January 2011 and Rs12,040 for "parliamentary committee expenses" on 11 Februray 2011. In fact, protocol forbids giving or receiving of such gifts by parliamentarians.
Another large amount has been paid for taxi bills and the money is debited against the names of various individuals. More than Rs1 lakh was paid towards the stay of some executive at Mumbai's Trident Hotel in 2009.
Ravi Srivastava, former sales manager, HPCL, who lost his job after blowing the whistle on the adulterant marker case (read, "Hindustan Petroleum whistleblowers not reinstated even a year after HC order), has alleged that it is likely the expenses shown have been appropriated by some HPCL staff.
"Some of the names against which expenses are mentioned are employees of HPCL. Why do you want to pay money to your own employees outside their salary," Mr Srivastava asked.
He said this was an indication that money was being swindled after showing some bogus expenditure entries on paper. "And why should a PSU gift shawls and mementoes to members of expert committees, when they are subsidised by the government itself," he said.
Mr Srivastava believed that such swindling was possible at the Delhi office as there are no checks on expenses there. "In HPCL's other offices, accounts have to be audited, and there is strict surveillance. So the people who want to make some additional money do it through the Delhi office where such expenditure is not checked."