India has excellent fund managers. Their performance would have been even better if they paid some attention to the governance of companies they invest in.
Over the last few years stocks such as DLF, Kingfisher Airlines, Deccan Chronicle Holdings and Housing Development & Infrastructure (HDIL) have taken a huge beating as these companies turned out to been mis-governed. Even if you had not invested in these stocks directly, you would have been exposed to these stocks through mutual funds. Which funds had bet on these stocks at different points? We analysed the portfolio of mutual fund houses to see which fund houses have invested in these stocks and when.
Shares of DLF tumbled by over 33% over the last two years. And just recently it went down even further amid allegations by social activists Arvind Kejriwal and Prashant Bhushan that Robert Vadra bought property worth crores of rupees between 2008 and 2010 with an “unsecured interest-free loan” of Rs 65 crore given by DLF. Over the last week the stock slid further by nearly 10% from Rs240 per share to Rs217 per share as on 15 October. DLF has been a controversial company for years, given how it tried to short-change minority shareholders when it got delisted; how it over-expanded with public money into ambitious projects in the real estate and hospitality sectors.
Which funds were betting on DLF? Out of the mutual fund that have disclosed their portfolios for September 2012, DSP BlackRock Mutual Fund led the list with over 4 lakh shares followed by Sundaram Mutual Fund having nearly 2.03 lakh shares of DLF in its portfolio. Franklin Templeton had a much lower holding with 52,704 shares. DSP BlackRock Top 100 Equity and Sundaram Select Focus had over 3.5 lakh shares and 1.5 lakh shares in their portfolio respectively i.e. a market value of Rs8 crore (2.5% of assets) and Rs4 crore (0.73% of assets) approximately.
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The shareholders of Housing Development and Infrastructure (HDIL), a real estate company, which has major operations in the Mumbai Metropolitan Region, have suffered a value erosion of 70% over the past two years. Over the last two months, except for Motilal Oswal Mutual Fund, there have been no other takers of this stock. However, in 2010, Principal Mutual Fund held nearly 3 lakh shares of the company for more than a year before finally exiting the stock. But in June 2012, Principal Mutual Fund again picked up, this time nearly seven lakh shares and SBI Mutual fund picked up five lakh shares when the price was around Rs70 per share. Both the fund houses disposed of the shares in the following month when the price was around Rs80 per share. There were no fundamentals supporting this move. The net profit of the company fell by 51.01% to Rs96.67 crore for the quarter ended 31 March 2012 as compared to Rs197.31 crore for the quarter ended 31 March 2011. The total income decreased by 61.87% to Rs208.81 crore for the quarter ended 31 March 2012 from Rs547.62 crore for the corresponding previous quarter. Not surprisingly, HDIL posted a fall of 44% in its net profit in the first quarter of the current fiscal ended 30 June 2012.
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The Deccan Chronicle stock came under renewed pressure this week, as it lost its franchise battle. The Board of Control for Cricket in India has terminated the Deccan Chargers franchise from the Indian Premier League for failing to provide a bank guarantee. Earlier Deccan Chronicle Holdings, the team’s owner, announced that it had sold the franchise to Kamla Landmarc Real Estate Holdings. The deal fell through after Deccan Chronicle Holdings failed to provide a Rs100 crore bank guarantee to the BCCI within the stipulated time. The Bombay High Court had declined to grant more time to Deccan Chronicle Holdings to provide the guarantee to the cricket body. Over the last two years the stock of has eroded by nearly 95% of its value. Trading at nearly Rs164 per share at the beginning of 2010, the stock is now trading at around Rs10 per share.
Over the last quarter there have been no fund houses which have bought this company. However, Sundaram Mutual Fund bought 11 lakh shares of the company in July 2010 and increased its holding to 17.5 lakh shares in the coming months when the stock peaked to around Rs145 per share. By the time the fund house exited its holding in January 2011, the stock price had dipped to Rs100, nearly 31% down from its peak. UTI Mutual Fund had been holding shares of the company prior to 2010 and was a shareholder until June 2012, when it sold all the shares of the company.
You have funds available for short-term and want to get the best returns. Do you go for flexi FD with your savings account or open a short-term FD?
You may have funds ready for investing in upcoming IPO (initial public offering) or tax-free bond issues that will come out over the next six months or in chosen stocks when the market declines. You can park your short-term fund outside banks like liquid funds with no entry and exit load, but what to do if you want to stay within the banking system? Opening a savings account paying 6% to 7% per annum (p.a.) interest for balances below and above Rs1 lakh respectively is a possible solution, but you can earn better returns if you are willing to lock your money in seven-day fixed deposits (FD) or have a flexi FD account with your savings. Chasing high interest savings account is easy, but having multiple saving accounts may not always be desirable. So, what are the choices?
Rates vary widely among banks from 4% to 7% p.a.; State Bank of India (SBI) is a good bet. Ideally, look for short-term FD with no penalty clause as you may not be really sure when you need your money. SBI offers the same interest rate (6.5% p.a.) for a period of seven days to less than one year. It offers ‘unfixed’ FD of 180 days @6.5% p.a. interest without any penalty clause on premature withdrawal; FDs of less than one year @7.5% p.a. interest without any penalty clause (for minimum amount of Rs15 lakh).
If you feel that interest rates are likely to come down, instead of opening seven-day FD for short-term needs, go for SBI ‘unfixed’ 180 days (FD amount less than Rs15 lakh) or less than one year (FD amount more than Rs15 lakh) to get interest of 6.5%p.a. and 7.5% p.a. respectively. Premature withdrawal will not mean any penalty and falling interest rates will not impact you till the term of the FD. You will earn better than a high-interest savings account; you just have to take trouble to open the FD!
Indian Overseas bank (IOB) is another option which offers 7% to 8.5% for FDs for period seven days to less than one year; 7.75%to 8.5% for amounts greater than Rs25 lakh for same period. Bank of Maharashtra has no penalty for premature withdrawal for FD term up to one year.
Among private banks, Karur Vysya offers an interest rate of 7.8% to 8% for FDs for period 31 days to less than one year. Flexi term deposit of 300 days for FD amount Rs15 lakh and above offering 8.25% without penalty for premature withdrawal after just 15 days of deposit is a good scheme for short-term parking of funds for HNIs (high networth individuals).
Savings with flexi FD:
The main advantage of this product is that the depositor is able to enjoy both the liquidity of savings or current accounts as well as the high returns of a FD. These products have two common features.
Sweep-in: Balance in excess of a stipulated amount is automatically transferred to a FD for a default term.
Sweep-out: In case of shortfalls in the savings account to honour any debit instruction (e.g. when the customer wants to withdraw money through cheque or ATM), the balance in the FD account to the extent needed for meeting the shortfall is automatically withdrawn usually in multiples of Rs 1,000 often by in LIFO method (Last Flexi FD created is the first to be broken). The remaining balance in the FD continues to earn higher interest at the original rate applicable to FDs. Hence, effectively, this scheme is linking of savings or current account with a FD.
Here are main disadvantages of a Flexi FD
Read this space regularly for more articles on long-term FD, RD, debit cards, Know-Your-Customer (KYC) requirements, lockers, RTGS, NEFT, online access and transfers, etc.
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