New investor category to encourage fund flow to MFs

Under the proposed norms, foreign individual investors registered with depositories either in India or abroad can invest in mutual funds in India

The government plans to set up a new class of investors, qualified foreign investors (QFIs), to encourage the flow of foreign capital into mutual funds.

Under the proposed norms, foreign individual investors registered with depositories either in India or abroad can invest in mutual funds in India. "We are looking at two routes for allowing foreigners in mutual funds," said a senior finance ministry official. The issue of allowing foreigners into the mutual funds segment was also discussed at a meeting of a sub-committee of the Financial Stability and Development Council (FSDC).

The government is considering allowing QFIs registered with depository participants to invest in mutual funds directly. Investments in mutual funds could also be made through a mechanism-the unit confirmation receipt (UCR) system. Under the proposed UCR system, a foreign investor can approach depositories in his native country and place orders on custodian banks in India. The custodian banks would look into the mutual funds and issue UCRs against the underlying mutual funds. The proposal follows the Budget 2011-12 announcement of allowing foreign individuals to invest directly in mutual funds.

Under the proposal, fund houses would have to ensure know-your-customer (KYC) norms before seeking investment from foreign investors. "To liberalise the portfolio investment route, it has been decided to permit mutual funds registered with the Securities and Exchange Board of India to accept subscriptions from foreign investors who meet the KYC norms for equity schemes," Finance Minister Pranab Mukherjee had said in his Budget speech.

The move would enable the mutual funds sector to have direct access to foreign investors and widen the class of foreign investors in the Indian equity market. "It would help increase foreign investment in the stock market through the indirect route. Also, the average assets of fund houses are likely to see some upswing," said SMC Global Securities Strategist and head (research), Jagannadham Thunuguntla.

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Chief economic advisor pitches for FDI in multi-brand retail to tame inflation

Concerned over high inflation, the government in January had appointed a high-level inter-ministerial group to suggest steps to tame the rate of price rise. The group has suggested opening up multi-brand retail to foreign investors and changes in agriculture marketing laws to check the rate of price rise

New Delhi: Concerned over rising inflation, the inter-ministerial group (IMG) today suggested opening up multi-brand retail to foreign investors and changes in agriculture marketing laws to check the rate of price rise, reports PTI.

“We are taking a clear position on foreign direct investment (FDI) in multi-brand retail. Of course, it is a recommendation, not policy,” chief economic advisor and IMG chairman Kaushik Basu told reporters here.

The IMG, he added, favours formulation of a model Agriculture Produce Marketing Committee (APMC) law, which could be adopted by the states to remove supply bottlenecks at the local level.

“There is a need to revise the AMPC Act to reduce the price gap between farm gate and consumer prices. We need a model act to be adopted by states,” he added.

Concerned over high inflation, the government in January had appointed a high-level inter-ministerial group to suggest steps to tame the rate of price rise.

Headline inflation stood at 8.66% in April, much above the Reserve Bank of India’s comfort level of 5%-6%. Food inflation was 8.55% for the week ended 14th May.

Inflation continues to remain firm despite the host of steps taken by the government as well as the RBI over more than a year.

The RBI recently raised key policy rates for the ninth time since March 2010 to tame inflation. The government, too, had banned the export of some essential commodities to increase their supply in the domestic market.

Both the government and the RBI, Mr Basu said, are acting in tandem to check the rising prices.

The government’s recent decision to raise petrol prices and the possibility of a diesel price hike, according to experts, may put further pressure on headline inflation.

Experts are of the opinion that the RBI, in its mid-quarterly review to be unveiled next month, may further hike key policy rates.

Besides Mr Basu, the other members of the IMG include Planning Commission member secretary Sudha Pillai, agriculture secretary PK Basu, food secretary BC Gupta, finance secretary Sushma Nath, economic affair secretary R Gopalan, commerce secretary Rahul Khullar and chief statistician TCA Anant.

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Morgan Stanley to launch mid-cap equity fund

The objective of this mid-cap fund is to invest mainly in mid-cap and small-cap stocks for generate long-term capital growth. However, mid-cap funds have been known to stray from their objective

Morgan Stanley Mutual Fund has filed an offer document with the Securities and Exchange Board of India (SEBI) seeking approval to launch Morgan Stanley Mid-Cap Equity Fund, an open-ended equity fund. The investment objective of the scheme is to generate long-term capital growth from an actively managed portfolio of medium and small capitalisation equity and equity-related securities, including equity derivatives.

The scheme proposes to invest 65% to 100% of the assets in equities and equity-related instruments of small- and mid-cap companies with a medium- to high-risk profile. Up to 35% of assets would be invested in equity and equity-related instruments of any other company with medium- to high-risk profile and up to 35% of assets in debt and money market instruments with a low- to medium-risk profile.

Medium and small companies are defined as having a capitalisation that is lower than the 100th stock in the BSE 200 or a Rs10,000 crore market capitalisation, whichever is higher. The benchmark index of the scheme shall be the CNX Mid-Cap Index.

The mid-cap stocks and small-cap stocks rise the fastest when the economy is in a growth mode. They are the blue chips of tomorrow. But they are also more volatile. Wrong timing can decimate returns over the short term as Morgan Stanley knows better than others. Its first fund launched in 1994, was stuffed with small- and mid-cap stocks, but suffered severe value erosion of 35% over seven years.

This mid-cap fund will invest a major portion of its assets in mid-cap stocks and the rest may be in larger companies. There are many examples of mid-cap funds that end up investing in large-cap stocks. For example, Axis Midcap Fund has invested in Infosys and TCS, Birla Sun Life MidCap Fund has invested in stocks like Glaxo Smithkline Consumer, Cadila Healthcare and Cummins India and BNP Paribas Mid Cap Fund has Titan Industries, Lupin and Ultratech Cement in its portfolio. Clearly, funds are quick to stray away from the investment objective when its suits them.

The total recurring expense would be 2.50% per annum on the average net daily assets.

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