Mutual Funds
Misleading ‘equity’ category, arbitrage schemes, attract Rs3,500 crore in July
Equity mutual funds seem to attract huge inflows, but half of the net inflows in July 2015 have come into arbitrage schemes
 
Equity mutual fund schemes have been recording net inflows in each consecutive month since May 2014. With net inflows of over Rs10,000 crore in each month of the June 2015 quarter, the net inflow in July 2015 dropped to Rs6,133 crore. It is also to be noted that the data includes inflows from arbitrage schemes as well. We had highlighted here that arbitrage schemes accounted for nearly 25% of the equity mutual fund inflows for the six months ended June 2015. According to data from ICRA Online, approximately Rs3,500 crore flowed in to arbitrage schemes in July 2015. This means that over half of the net inflows in July 2015 were contributed by arbitrage schemes. 
 
Arbitrage schemes are labelled equity schemes by the Association of Mutual Funds of India (AMFI), but they should be classified separately as they only take advantage of the arbitrage opportunities available in the equity market. Hence, arbitrage schemes are considered an alternative to low-risk liquid schemes. Grouping these schemes along with other equity diversified schemes is incorrect.
 
Redemptions of equity schemes in July 2015 increased substantially to Rs7,794 crore according to AMFI data. Sales too, fell to its lowest since March 2015. Equity schemes (including arbitrage schemes) reported sales of Rs13,927 crore in July 2015.
 
Among the funds that got major inflows in July were ICICI Prudential Balanced Advantage and Reliance Arbitrage Advantage (Rs 700 crore each) while Motilal Oswal MOSt Focused Multicap 35 attracted an inflow of over Rs500 crore. About Rs200 crore flowed out of IDFC Premier Equity, probably, on concerns of the future performance of the schemes. About Rs180 crore each flowed out of HDFC Equity and HDFC Top 200.
 
Two new fund offers brought in Rs148 crore in July 2015. Mutual fund folios increased to 3.55 million as on 31 July 2015 from 3.31 million an on 30 June 2015. While the CNX Nifty index was up 1.96% in July, equity assets under management increased by 5.72% to Rs3.93 lakh crore from Rs3.72 lakh crore. 
 
Gold exchange traded fund (ETFs) have lost their sheen due to the continuous decline in gold price. The ETF reported a net outflow in each of that past 12 months. In July as much as Rs50 crore flowed out from gold ETFs. As, much as, Rs826 crore was redeemed from gold ETFs over the past year. Gold ETF AUM declined by 23% to Rs5,957 crore from Rs7,773 crore a year ago. The number of folios too fell by 5% to 460,850 folios from 485,394 folios a year ago.
 
 

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COMMENTS

S.K

2 years ago

Nothing misleading about the equity-oriented nature of Arbitrage Funds since its investments are entirely in equities - both cash & derivatives. What is misleading is only the title of your article!

REPLY

Nilesh KAMERKAR

In Reply to S.K 2 years ago

When you invest in equity, you become a part owner to the extent of your holding. You are entitled to vote. You are also entitled to receive dividends.

None of the above benefits accrue to you as holder of derivatives

You find nothing misleading? Really?

S.K

In Reply to Nilesh KAMERKAR 2 years ago

We are talking about mutual funds, not direct equity. I think you are confused.

Nilesh KAMERKAR

In Reply to S.K 2 years ago

Is their no difference between

1)Owning an asset (part /fractional ownership) for long periods of time so as to create lasting wealth

&

2)Simultaneous buying & selling of securities in cash or derivatives, in order to take advantage of differing prices for the same asset

Point no.2 above goes against the very spirit of mutual funds. Because the single most important objective of mutual funds is to pool household savings as 'long term' capital.

Will composite cap help boost foreign investment in India?
Introduction of composite FDI caps will not only increase FDI inflows into India, but will promote ease of doing business
 
During the past one year, we have seen number of initiatives taken by Indian Government to boost the economy. Over time, the foreign investment limit in several sectors has been relaxed but still the inflows from overseas have not reached its helm. Currently, our foreign direct investment (FDI) policy prescribes different caps and sub-limits under those caps for investment in several sectors. These sub-limits distinguish foreign investments as those made under foreign portfolio investment (FPI) route and FDI route and specify a maximum cap for these.
 
The Finance Minister in his Union Budget Speech 2015 (http://indiabudget.nic.in/ub2015-16/bs/bs.pdf) also expressed these concerns, while proposing to do away with the distinction between different types of foreign investments, especially between foreign portfolio investments and foreign direct investments and replace them with composite caps. On 16 July 2015, the Union Cabinet has approved the introduction of composite cap as proposed in the Budget and on 30 July 2015 the Department Of Industrial Policy & Promotion (DIPP) released a press note no.8 through which amendments have been made in Consolidated FDI policy 2015 (FDI policy), which are effective from 12 May 2015. These amendments will be effective with immediate effect.
 

Composite Cap

 
Till now, in several sectors there were sub-limits for FPI/ foreign Institutional Investors (FIIs) and FDI within the overall cap of foreign investment permitted. For example, in the commodity exchange, where overall FDI cap allowed was 49%, investment permitted by FPI was up to 23% and rest 26% through FDI. Subsequent to the issuance of press note 8 of 2015, FPIs/FIIs can also invest up to the maximum permissible cap allowed in the relevant sector. All other conditions as stipulated under Consolidated FDI policy 2015 for each sector to remain effective.
 
In the following sectors composite cap has been allowed:
 
 
Exceptions
 
The sub-limits for FPI, FIIs, non-resident Indians (NRIs) and qualified foreign investor (QFI) have been merged with the composite caps in all sectors except banking and defense, which are kept outside the purview of the composite caps. In the banking sector, foreign investment is allowed up to 74%, but portfolio investment by FII, FPI and QFI is allowed only up to 49%. While in the defense sector, where foreign investment is allowed up to 49%, portfolio investment by FPI, FIIs, NRIs, QFI and foreign venture capital investors (FVCIs) is allowed only up to 24%.
 

Existing Modes of Foreign Investment:

 

Impact of Composite Cap

 
Needless to say, the introduction of composite FDI caps will not only increase FDI inflows into the country but will promote ease of doing business. Companies in such sectors will now have the flexibility to raise equity from overseas in any form up to the sectoral cap. Further, where the government is inching its way to boost manufacturing within the country through its Make in India initiative, simplification and liberalisation in the Foreign Investment Policy was the need of the hour. In essence, introduction of composite caps are a much welcomed move for increasing the flow of FDI into the country. 
 
(Aman Nijhawan is practicing Company Secretary at Vinod Kothari & Co)

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How safe is your building? Would you like to find out?
Buying your precious home is not enough. One needs to be constantly alert to the need for regular maintenance, watch out for illegal alterations by other members and deterioration due to salt and moisture. Find out all about this and more on 22nd August at a seminar organised by Moneylife Foundation in Mumbai
 
A home or apartment is the most expensive and precious investment for most Indians. However, while choosing your apartment building and after moving into it, do you ever think about safety and maintenance?
 
Remember the five-storey Altaf Manzil from Mahim? In June 2013, the entire building collapsed killing 10 people and injuring several others. The reason? According to reports, car showroom owner on the ground floor allegedly carried out some alterations that caused the collapse.
 
A small error in the fire safety instructions by a watchman, who shut down a lift without bringing it to the ground floor killed several people few years ago. In May this year, a young girl died in a Malad housing society, when the doors of the lift closed and it started moving upwards. The Bombay Lift Act, 1939, specifies that the public works department (PWD) must inspect elevators twice a year. However, the PWD faces severe crunch of manpower and people living in high rise are left to face mishaps.  
 
Buildings near the sea shore needs to be regularly inspected for damages caused by water and salty air or salt deterioration. Water, dust and salty air also cause huge damage to structures - are you aware what you need to do on a regular basis to maintain your home? The salt deterioration can extend through the brickwork and may even cause the wall to collapse in extreme cases.  
 
Are you one of those who is too diffident to protest when other members block up fire exits with cupboards and furniture? Or convert refuge floors that are to be used for fire safety into gyms? 
 
You may want to remember that one 90-meter snorkel acquired by the BrihanMumbai Municipal Corporation (BMC)’s Fire Brigade will not even be able to negotiate our crowed streets in time to help your super luxury apartment 40 floors above the ground. All over the world, you need to speak up and take care of your protection and learn some basics of construction safety. 
 

To understand this and more, Moneylife Foundation is conducting a FREE and non-partisan seminar titled 'How Safe Is Your Building?' on 22 August 2015.  Moneylife Foundation is a not-for-profit organisation and the seminar will not promote any company or its products. This is meant as a learning experience for homeowners, especially office bearers of cooperative societies who share a legal responsibility for ensuring proper maintenance.  It is also a learning experience for ALMs leaders to help understand critical issues. 
 
A stellar line up of speakers with vast experience in the building and construction industry is also an opportunity for students of architecture to learn and benefit from it at a time when the media is overflowing with tragic reports about unsafe buildings and the sad plight of victims. 
 
The speakers include Umesh Joshi and Achut Watve, Designated Partners of JW Consultants LLP, which is a highly regarded name in structural consultancy that works with reputed construction companies in India and abroad. Prakash Deshmukh, Director of Associated Space Designers Pvt Ltd and the immediate past President of Indian Institute of Architects (IIA) is the other speaker.
 
The speakers have consented to make time to look at the safety issue from the user perspective to flag warning signs and highlight issues on which there should be no compromise. 
 
If you are interested in attending this seminar in Mumbai, please register by visiting the link: https://www.moneylife.in/events/safe_building/index.html  
 
Don't miss the opportunity to attend this free, non-partisan seminar made possible with support from Tata Housing Ltd.

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ROSHAN SHAHANI

2 years ago

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