With the launch of an online platform dedicated exclusively for IFAs, ICICIdirect is preparing to take rival platforms head-on
One of India’s largest mutual fund distributors, ICICIdirect, on Wednesday announced the launch of an online platform for the exclusive benefit of independent financial advisors (IFAs), in a bid to bring down its costs associated with servicing customers. This could be an ambitious move to give rival platforms a run for their money.
iFAST Financial was the first company to come out with an online transacting platform for IFAs. Recently, Computer Age Management Services (CAMS) and Karvy Computershare (KCPL), the two largest service providers of the mutual fund industry, joined hands to launch ‘FINNET’, which facilitates transacting, execution and customer service on an integrated system. As these are essentially similar product offerings, ICICIdirect will have to play catch-up with its competitors.
After recent regulatory changes in the mutual fund industry, IFAs have been largely left fending for themselves. Post the ban on entry loads, they are struggling to ensure a steady stream of income, with customers expecting better quality advice in return for upfront commissions. Also, with costs not coming down in line with business volumes, IFAs are in dire need of a revamped business model.
An interesting factor is ICICIdirect getting IFAs to eventually fall in line and come into their business fold, taking advantage of their reach in the market. ICICIdirect, with close to two million customers, is itself a big player in the financial product distribution space. Given the fact that IFAs have their own client database, their involvement with ICICIdirect could pose a conflict of interest. However, the company officials claim otherwise.
According to them, IFAs will have complete ownership of their clients. Vineet Arora, head, product and distribution of ICICIdirect, said, “We have a large online equity broking system as also a large sub-broker network. Our systems are very clear that a customer of one channel cannot get into another channel. IFAs can be rest assured that the customers they bring in will remain as their customers and will not be touched by other channels.”
Anup Bagchi, executive director of ICICIdirect confirmed, “One of the things we have done is not to incentivise one channel over the other. The end cost to the customer remains the same whether he goes through the IFA or comes directly to us. It is a completely different customer segment. We are not charging IFA customers differently. In the end, the customer will choose what he wants, not what we offer.”
ICICIdirect claims that this platform will create a ‘win-win-win situation’ for all the parties concerned, namely, the advisors, customers and ICICIdirect itself. Deeper penetration, reduced costs and the ICICI brand association will benefit the advisors while customers will get access to quality advice. ICICIdirect would also stand to benefit from the increased revenues as they steadily go about bringing thousands of IFAs into their fold.
For this service, ICICIdirect proposes to adopt a revenue-sharing model with nominal fees for IFAs to get themselves enrolled in the ICICIdirect platform. ICICIdirect will pass on the upfront commissions to the IFAs as per the terms of the agreement. However, IFAs would have to follow the charge structure as proposed by ICICIdirect.
Tata Motors DVR shares are trading at a discount of 40%. If this is a case of market imperfection, it is a huge arbitrage opportunity waiting to be exploited
The differential voting rights (DVR) shares of Tata Motors are quoting at a substantial discount to the normal Tata Motors shares. Currently, the stock price of Tata Motors is Rs812 while the Tata Motors DVR shares are trading at Rs510. The discount is as high as 40% and market analysts are at a loss to explain this phenomenon. If this indeed is a case of simple market imperfection, it is a huge arbitrage opportunity waiting to be exploited.
In 2008, Tata Motors had issued 6.41 crore shares as a part of its plan to raise Rs4,145 crore through a rights issue for repaying the loan taken for funding the acquisition of luxury brands Jaguar and Land Rover. The DVR shares were listed on the stock exchanges in November 2008. The ordinary rights issue was priced at Rs340 a share, while the DVR shares were priced at Rs305 a share.
The Tata Motors DVR shares carry 1/10th of voting rights. But shareholders are entitled to a 5% higher dividend than ordinary shares in lieu of surrendering voting rights. Explaining the reason for such a huge difference in the stock and DVR prices, an analyst said that the DVR shares were given as a rights issue when the market was in a downturn and most of the shares were subscribed to by the promoter, Tata Sons.
The analyst added that liquidity was a major concern because more than 80%-85% of the DVR shares were with the promoters. He said that promoters have now started liquidating their holdings. In the last quarter, their shareholding came down by 4% and even in November they continued to sell, he said.
This move has depressed the prices. According to the analyst, currently the market concern is that if the promoter keeps on selling, then the discount will be maintained, since it has a lot of shares to sell. He also said that DVRs are generally quoted at a discount of 5% to 10% in foreign markets.
He said that fundamentally, there is an arbitrage opportunity but liquidity was a problem, which has now started to improve. But promoter’s dilution remains an issue.
However, a market participant has a different information and view. According to him, the Tatas are actually mopping up the DVR shares. He said that recently when IFCI sold off a part of its DVR holding, JM Financial bought the shares.
Since JM is extremely close to the Tatas, the speculation is that they are actually warehousing the DVR shares for the Tatas. One reason the Tatas could be buying the DVR shares is that they see this as a way of increasing their holding subsequently. However, it is not clear how this can be done legally. In any case, this makes for an even stronger case for the arbitrage opportunity.
“DVR (shares) should trade at 10% discount. The discount was higher over the last few months and ideally these shares should not trade at a 20% discount to the Tata Motors’ share price,” said Vaishali Jajoo, auto analyst, Angel Broking. She believes that the discount between the Tata Motors and Tata Motors DVR share price should come down. “Liquidity is the main reason for such a difference. For sophisticated investors, this is a good arbitrage opportunity which needs to be executed carefully,” said Jagannadham Thunuguntla from SMC Capital.
Neville Tuli, chief advisor of the Osian Art Fund, believes that the Fund would have performed better given a longer lock-in period and better market conditions. The fund disappointed investors with poor returns in July 2009
Investors admit that the Osian Art Fund was a genuine case of disappointment in comparison to the opportunity cost in other type of investments available. However, Neville Tuli, chief advisor of the Fund, believes that the Fund would have performed better given a longer lock-in period and better market conditions.
The Fund was a close-ended fund for a period of three years. The fund successfully closed in 2006 with a corpus of Rs102.40 crore. However, three years later in July 2009, the fund made a poor exit with very low returns.
Moneylife had earlier reported that the Fund’s investors were facing delays in the redemption of the investment made. A main reason being cited for this delay was the problem being faced in selling the Fund’s art inventories. Mr Tuli said that the historical significance of both the artwork and the artist is critical in evaluation of a painting for sale. He emphasised on holding power being critical is trading artworks. However, he also said that not every artwork that is ‘old’ would turn ‘gold’ in the trade.
The Fund was also a clear example of how the Securities and Exchange Board of India (SEBI) had failed to regulate art funds under the Collective Investment Schemes (CIS). SEBI had earlier sent a show-cause notice to Osian regarding the unregulated fund. Followed by SEBI’s new advisory on art funds, Osian also had a hearing with the regulator in 2008. However, in both instances, SEBI failed to revert to Osian with further communication.
Thus, the Fund continued to remain unregulated by any authority. Mr Tuli also insisted on the need for a well-managed ‘regulated’ art fund to monetise and bring to the white economy the vast cultural artefacts, most of which still exist in the cash underground economy in India.
Mr Tuli continues to be confident about art markets in India. He stressed on the need for a strong institutional framework in India for funds based on illiquid assets like art to succeed.
Speaking on plans for another art fund, Mr Tuli said, “At present, let me complete all my obligations and the rebuilding process will naturally follow.” Investors of the Osian Art Fund have received part-payments on their total investment in the Fund. However, they still await final payment of the entire amount.