Mutual Funds
Peerless Child Plan: A me-too product that will deliver disappointing returns

The scheme will invest mainly in debt. Therefore, it will not beat inflation and will not help your child much!

Peerless Funds Management Co Ltd has launched an open-ended scheme called Peerless Child Plan. The Plan, a hybrid scheme of debt, equity and gold, was launched quietly two weeks ago and closes on Friday. Is it worth looking at?

The benefit is that an investor gets a combined investment option in three asset classes. But sadly, it is an exact replica of Fidelity's India Children's Plan. Before this, Taurus Mutual Fund launched an open-ended income scheme called 'Taurus MIP Advantage' fund and Canara Robeco launched a hybrid plan called 'Indigo Fund'.

Religare Mutual Fund was the first fund house to enter this asset allocation product in April 2010, with a scheme called Religare Monthly Income Plan (MIP) Plus that seeks to generate income through a portfolio of fixed income securities, gold and equity-related instruments.

The investment objective of the Peerless Child Plan is to generate long-term capital appreciation through a portfolio of fixed-income securities, gold exchange traded funds (ETFs) of other mutual funds and equity and equity-related instruments. The Plan will invest 60%-80% in debt and money market instruments, 5%-35% in equity and 5%-35% gold ETFs. The scheme carries a 1% exit-load if redeemed before one year. It is benchmarked against the CRISIL MIP Blended Index and the price of gold (neutral allocation: 85:15).

Saving for a child's future is high on every parent's agenda. Since the best long-term investment products are equities and equity funds, it is a valid marketing idea for fund companies to come up with a pure equity fund that secures your child's future. Thus, a simple equity diversified fund held over the long term would be good enough. But Peerless will divide its investment in debt, equity and gold ETFs.

Debt and gold will only drag down the performance. Returns from debt cannot keep up with inflation. And while it is a common belief that gold offers good returns over the long term, this is simply not true. Since 1991, gold is up just 8.9% on a compounded annual basis. That hardly beats a recurring deposit scheme.

Suppose 60% is invested in debt, 35% in equity and 5% in gold. If the debt part gives a maximum return of say 9%, the return from the debt part of the portfolio will be around 5.4%. If equity gives a return of around 15%, the return from the equity part of the portfolio would be 5.25%, and if gold crashes the return from gold will be zero to negative. Thus the overall return from the portfolio would be just 10.65%. Thus for just that extra 1.65% return more than the bank fixed deposits, you would pay 2% fees to the fund manager, with the only advantage that the return from the scheme may fetch a slightly lower tax.

Equity mutual funds are the best financial product to beat inflation in the long run. Certainly there is a huge risk involved in equity investment too, such as entry/exit timing, stock selection and as well as portfolio churning. But in the long run it gives the highest-inflation adjusted return. That apart, it is bit strange to see a long-term objective fund investing a majority of its asset in debt. After all, debt is one of those assets which have no growth factor. The return from debt is completely dependent on the prevailing interest rate.

We think the fund is merely designed to attract safe money. Since gold prices are rallying, the fund house has decided to add it to the fund. But gold has been rising for years now. To extrapolate that trend into the future would be imprudent. With so many flaws, we are simply not sure who the fund is meant for. Asset allocation schemes may claim that through one scheme you are able to invest in three asset classes. But this will always lead to sub-optimal returns. It's always good to invest in specific products based on your expectations from that particular asset class that is in line with your financial goals.


False market news: SEBI to take compliance officers to task

The move comes after growing concerns over some employees indulging in activities like fraud against clients, front-running, circular trading and manipulating share prices through rumour-mongering

Mumbai: Market regulator Securities and Exchange Board of India (SEBI) today sought to give more teeth to its new guidelines on dissemination of news by market intermediaries by holding compliance officers of such firms liable for breach of duty in case of a failure to check contents forwarded by employees, reports PTI.

"Employees should be directed that any market-related news received by them either in their official mail/personal mail/blog or in any other manner should be forwarded only after the same has been seen and approved by the concerned intermediary's compliance officer... The compliance officer shall also be held liable for breach of duty in this regard," SEBI said in an addendum.

This comes a day after SEBI announced a new set of guidelines, including restricting access to Internet forums for employees, for market intermediaries to ensure that unsubstantiated news is not circulated.

Failure by any employee to seek approval from the compliance officers before forwarding such material had already been made liable for action.

The move came after growing concerns over some employees indulging in activities like fraud against clients, front-running, circular trading and manipulating share prices through rumour-mongering.

It was intended to prevent dissemination of unauthenticated news which could distort the normal functioning and prices of stocks.

SEBI had said that such news related to various scrips are circulated in blogs, chat forums and e-mails by employees of broking houses and other intermediaries in violation of rules.

"SEBI-registered market intermediaries are directed that ... proper internal code of conduct and controls should be put in place," the circular issued yesterday had said.

It had further said that staff of broking houses and other intermediaries should be discouraged from circulating information obtained from clients or others without proper verification.

"... In various instances, it has been observed that the intermediaries do not have proper internal controls and do not ensure that proper checks and balances are in place to govern the conduct of their employees," SEBI said, adding that such speculative news and "rumours" can affect the functioning of the markets and distort prices of bourses.

The watchdog had further said that access to blogs, chat forums and other sites should either be restricted under supervision or access should not be allowed.

A SEBI-appointed committee comprising representatives from various market intermediaries in its representations had earlier suggested the need for such a Code of Conduct.


Govt worried about fuel supplies from volatile Middle East: FM

Finance minister Pranab Mukherjee's statement comes at a time when the political turmoil in places like Libya and Bahrain has taken global crude prices to over $100 dollar per barrel. India imports nearly two-third of its oil requirements from the region, he added

New Delhi: Finance minister Pranab Mukherjee today said the country was concerned over the ongoing turmoil in Middle East and North Africa as it imported two-third of its oil imports from the region, reports PTI.

"If you look at our oil requirement...out of 100 million tonnes imported last year, 67 million tonne or two-thirds came from Middle East alone," he said in the Rajya Sabha while replying to a debate on the Finance Bill.

"If the situation remains unstable there, it is quite natural for anyone to express concern and to hope and to try, if possible, to restore normalcy, peace and stability in the region because our vital interests are linked to that."

He also pointed out that there were six million Non-Resident Indians (NRIs) in the Middle East.

Mr Mukherjee's statement comes at a time when the political turmoil in places like Libya and Bahrain has taken global crude prices to over $100 dollar per barrel.

Crude prices had touched a 30-month high of $120 per barrel last month following unrest in Egypt and Tunisia.

In his reply, the finance minister also said that increase in global commodity prices was a reality to be lived with.

"...Why did I refer to the crisis in Middle East or Japan...? Not to find a cover to have some excuse that the prices will go up. It is not that. Today my primary concern is about the availability... it is not an excuse," he said.

Experts are apprehensive about disruption of supplies from Libya, a major oil exporter and OPEC member, on account of fighting between government forces and rebels.

India imports almost two-thirds of it oil requirement and state-run firms have been suffering losses on account of the huge subsidy bill.

While the government deregulated petrol prices last year, diesel continues to be on the regulated list. If the current spurt in oil prices continues, the government may be either forced to pass on the burden to consumers or risk inflating its deficit.

According to experts, the government is expected to take a decision on diesel price deregulation after assembly elections in four states and one Union Territory, scheduled for April-May, are over.


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