Kotak Mahindra MF floats 370 days fixed maturity plan

Kotak Mahindra Mutual Fund new issue closes on 20th July

Kotak Mahindra Mutual Fund has launched Kotak FMP Series 54 (370 Days), a close-ended income scheme.

The investment objective of the scheme is to generate returns through investments in debt and money market instruments with a view to significantly reduce the interest rate risk. The scheme will invest in debt and money market securities, maturing on or before maturity of the scheme. The tenure of the scheme is 370 days days.

The new issue closes on 20th July. The minimum investment amount is Rs5,000.

CRISIL Short Term Bond Index is the benchmark index. Deepak Agarwal and Abhishek Bisen are fund managers.

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Despite rebound, asset managers face challenges to building on growth, says BCG

“Investors are becoming ever more demanding. The question of how to achieve further growth in both mature and emerging markets is a daunting one. Asset managers will need to forge strategies to build on the successes we have seen,” says Kai Kramer, a BCG partner

Asset managers had a better year in 2010 than in 2009, confirming the rebound from the global financial crisis. But building on the recovery and achieving growth trajectory will remain a challenge, according to the report- Building on Success: Global Asset Management 2011-released by the Boston Consulting Group (BCG).

According to the report, the global value of professionally managed assets rose by 8% to $56.4 trillion in 2010. The increase-which followed a gain of 13% in 2009 and a decline of 17% in 2008-was driven by the recovery of equity markets, with net new inflows remaining marginally positive.

There was wide regional variation in AuM expansion in 2010, the report says. Latin America, with an increase of 18%, posted the strongest growth. In North America, AuM rose by 8%. AuM in Europe rose by 7. Japan and Australia posted a combined AuM increase of 2% (1% and 4%, respectively), while AuM rose by 11% in the rest of Asia. Kai Kramer, a BCG partner, says, "Investors are becoming ever more demanding. The question of how to achieve further growth in both mature and emerging markets is a daunting one. Asset managers will need to forge strategies to build on the successes we have seen."

The post-crisis evolution of the global asset-management market is reflected by the following trends: Investor demands keep toughening. Although markets have improved, the pressure from investors-both institutional and retail-for performance and transparency has not let up. Product dynamics continue to shift. Many product shifts observed before the crisis began have continued through 2009 and 2010 and into 2011. One key ongoing trend is the faster growth of passively managed and alternative products, compared with actively managed products.

The role of regulation is increasing. Governments and regulatory bodies have pledged to keep a sterner eye on banks, insurers, asset managers, and other providers of financial services. Financial regulation aimed at asset management clients-which forces asset managers to adjust and upgrade their services, often raising costs-may have a bigger impact on the industry than regulation aimed at asset managers.

Mature markets such as North America, Europe, Australia and Japan-where penetration of some asset-management products is stagnating-will likely grow at a modest pace overall. Developing markets such as Latin America and many parts of Asia will likely grow at a faster pace.

To pursue growth in home markets, asset managers need to take concrete steps. These include developing crystal-clear value propositions; focusing more on the end customer, and streamlining the product portfolio. To pursue growth across borders, asset managers must develop a clear view about which markets they would like to enter given their current capabilities and resources. Finally, they must decide where they do not want to be in terms of regions, products and client segments.

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Have mutual funds missed one of the biggest and obvious trends?

FMCG stocks have recorded a huge rally not just over the past six months but over a whole decade. And yet, there are just three FMCG schemes while there are 23 infrastructure sector schemes (which have delivered ‘average’ to ‘poor’ returns) and 11 gold ETF schemes!

The recent strong performance of fast-moving consumer goods (FMCG) stocks has shone the spotlight on this sector. While the Sensex has fallen by 11% between its peak of 21,005 in November 2010, today, the FMCG index has risen by a healthy 9%. Indeed, one of the most powerful and consistent rises in the past decade has happened in the stocks of FMCG companies.

Over the past decade (between 20 June 2001 and 30 June 2011) the BSE FMCG Index was up 16% (compounded yearly). And yet despite such a strong record of performance of FMCG sector stocks, it is a surprise that only three fund houses have FMCG schemes—Franklin FMCG, ICICI Prudential FMCG (both launched in March 1999) and SBI Magnum Sector Funds Umbrella-FMCG (launched in July 1999).

These schemes have given returns of 22%, 24% and 20% compounded respectively, which is significantly better than the both the FMCG index and the Sensex—and yet there have been no new FMCG schemes. However, in striking contrast, we already have 11 gold ETF (exchange-traded fund) schemes and 23 infrastructure schemes.

FMCG companies have delivered great returns because they enjoy strong demand from an increasingly prosperous Indian middle- and lower-middle class and are able to service that demand with low capital employed. That is why stocks like Nestle, ITC, Marico, Pidilite Industries and VST Industries have performed quite well over the past 10 years. In June 2001, ITC was at Rs25.16. Currently it is trading at Rs202.95, a rise of 23%, compounded yearly. Marico was trading at Rs5.15 and now finds itself at Rs155.75 (a compounded rise of 41%). VST is up 21% over the last decade and Pidilite Industries is up 36% per annum.

For long-term investors, these stocks promise a very attractive return with strong earnings predictability. And yet, for some reason, fund companies have been enamoured by cash-guzzling and value-destroying businesses in the infrastructure sector. They launched a flurry of infrastructure schemes in 2006 and 2007, which have destroyed investors' wealth. We wonder whether this same thing would happen to gold ETFs. Investors would be lucky if gold prices keep rising.

Long considered as 'defensive' stocks meant to be held only as a cushion during a market collapse, FMCG companies are charting phenomenal growth and their stock prices are keeping pace. But they are obvious picks and so fund companies possibly overlook them in favour of more fancied and hyped growth stocks like software, infrastructure or media. Internationally, FMCG stocks are called 'defensive' bets. When the broader market is down, these stocks hold their ground well, offering stability to the portfolio while other stocks take a beating. FMCG products, by their very nature, are essential for the daily requirements of all households-be it detergents, soap or toothpaste. Demand for such essentials remains steady even during economic downturns. That is why these companies witness steady growth even when other industries are slowing down.

But, for years now, the performance of FMCG stocks has been far from defensive. It is time that FMCG stocks are stripped off this oft-repeated and generalised 'defensive' tag. Like their products, the stocks are fast-moving as well. Many of the stocks have surged to new all-time highs, outperforming the broader market indices handsomely.

It is hard to believe that fund companies, who usually do not leave any opportunity to launch a new fund, have not been keen on cashing in on this sector so far. The same fund managers never miss an opportunity to talk about the Indian growth story and the consumption-led boom. Intriguingly, Mirae Asset Global Investments (India) launched Mirae Asset India-China Consumption Fund, an open-ended, equity-oriented scheme. The first-of-its-kind in India, the fund will focus on sectors and companies benefiting from the consumption-led demand that is driving the world's fastest-growing economies, India and China. The risk of investing through an unknown Korean fund manager into unpronounceable Chinese names is something we could have done without. Rather, Mirae could have simply concentrated on Indian consumption demand and launched an Indian FMCG fund.

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COMMENTS

Pradeep N

5 years ago

Debashish,

In the latest ML mag you say, not to pile into FMCG stocks as a Contrarian call and yet here, you are advocating to buy this sector by saying "r long-term investors, these stocks promise a very attractive return with strong earnings predictability "?

Just confused with these two different views from the same source.

Roopsingh

5 years ago

This article very clearly pin points about lapses at AMC level and "MISTAKES"done by so called "expert"fund managers.If these experts cannot analyse market situation and cannot find under valued sectors,the fund performance suffers and this leads to allegations on distributor of misselling.this is totally wrong to blame distributors for losses to investors.SEBI should tighten its grip on AMC's and fund managers for lapses and under-performance.with huge fund management fees collected fund managers must be made ACCOUNTABLE to investors.then only lost confidence of investors will return and retail participation will increase.

Srini

5 years ago

Any Sector has its inherent risks. Most of the Diversified funds too have the FMCG stocks in their portfolio. Normally Sector specific funds have higher risk component and only those who have an appetite for higher risk should invest. No one will be able to time the market so a long term investment into a diversified portfolio will be the best bet.

REPLY

Pradeep N

In Reply to Srini 5 years ago

Agreed! If you see the last 10 years returns of a top performing Multi-Cap fund or diversified fund, it has beaten all Sectoral funds, including FMCG

GOVIND GOPAL SHANBHAG

5 years ago

MD TEAM = U r absolutely correct. On getting advice from my adviser i shifted maturity proceeds of ULIP-UTI for Rs.57,415/- into their infra bond. After four full years it has grown (sic) from 57,415/- to less than Rs.50,000/- and it is still growing negatively. But the staff continue to have posh office, fat salary and other perks, when the market value goes down why their perks etc. also does not come down??

REPLY

NARENDRA DOSHI

In Reply to GOVIND GOPAL SHANBHAG 5 years ago

Dear Gopal,
Would you NOT mind at all when the cycle reverses wrt the perks etc??
You are in the market with your money and there are the risk return parameters.Also you have several other AMC funds including Infra funds. One MUST NOT loose sight of one's investments done and be careful while making investments and be aware that you are entering the market BOTH for the upsides and the downsides. I still ADVICE that one MUST be in the MARKET place (Irrespective of age, sex, caste , creed etc) - only the choice of asset allocation will differ at any point of time. One CANNOT get a SUBSTITUTE TO the GAINS possible in equity/debt.But do probe as much as possible before taking the dip in these "holy" waters AND a PERIODIC review of these investments is also a MUST. Good luck to growth of your sensible investments.

Jagadees

5 years ago

So moneylife wants AMCs to launch FMCG funds after most of the FMCG stocks hit an all time high??? currently the index PE is around 35!! Indeed a strange article from ML

Regards

REPLY

Rakesh

In Reply to Jagadees 5 years ago

"So moneylife wants AMCs to launch FMCG funds after most of the FMCG stocks hit an all time high???"
How did you arrive at this stupid conclusion? Maybe you should read the articled without a jaundiced eye

Jagadees

In Reply to Rakesh 5 years ago

"For long-term investors, these stocks promise a very attractive return with strong earnings predictability. And yet, for some reason, fund companies have been enamoured by cash-guzzling and value-destroying businesses in the infrastructure sector. "
"Mirae could have simply concentrated on Indian consumption demand and launched an Indian FMCG fund"
so what is your conclusion???

Rakesh

In Reply to Jagadees 5 years ago

Conclusions are are simple if you could see it:
1. Fund companies SHOULD HAVE launched FMCG funds in 2006-07 when they were fallin over each other in launching infrastructure fund
2. Since Mirae HAS ACTUALLY LAUNCHED a consumption theme fund either it could have launched it earlier (it came into Indian 4 years ago) or could have launched a India-focused fund.
3. This discussion is too peripheral to the main theme of the story. Moneylife's main business is not to advice mutual funds. It is not advising anything here. It is pointing out that there are 23 infra funds 11 funds and just 3 FMCG funds. Do you dispute that? Does that say anything? Or would you simply like to pick holes ignoring the main theme? Your choice.

Narendra Doshi

5 years ago

The Mirae India China Consumption fund has SO FAR (over 3 months) performed relatively the best. It might have wanted to capture BOTH India & China Consumption stories and become a sort of multibagger over next 2-5 years. Let time prove this & hope it does.
By not being able to pronounce the Foreign words / company names, has little to do with the positive performance they MIGHT give, by the way. Also, Korean fund manager again does not matter so much if in return one gets the consistent positive returns, as I feel it. All new experiments are funny when started but once they prove better over time, they do look so good.
By the way, I vouch that above is NOT biased in any sense, but definitely hope, wish that it turns out correct over time in the future.

Pradeep N

5 years ago

Indeed! Yet another brilliant and contrarian article by ML.

However, i just want to check if there is no 'end point' bias here? [1]

I have seen the long term chart and it is in a clean uptrend, a good buying opportunity will come around 3800 on BSE FMCG Index.

Anybody who read Intelligent Investor will know that todays performer will be tomorrows underperformer.

May be the time for FMCG has arrived and time for Infra will be 5 years away from now.

[1]: End Point Bias: http://www.styleadvisor.com/resources/co...

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