Ever since the Securities and Exchange Board of India (SEBI) banned the entry load for mutual fund schemes, fund companies have been suffering from a steady haemorrhage of cash from their equity schemes. The carnage continues
The mutual fund (MF) industry continues to bleed after the Securities and Exchange Board of India (SEBI) withdrew entry loads in August 2009.
As per data released by the Association of Mutual Funds in India (AMFI) on Wednesday, Rs7,281 crore was pulled out of equity schemes, including equity-linked tax schemes, in September 2010, taking the total redemption over the past 14 months to Rs21,731 crore.
This is all the more galling for the fund industry, because mutual funds normally benefit from inflow of funds when the market is rising. The Sensex has risen 31% from 15,666.64 in August 2009 to 20,543.08 as of 6 October 2010.
Moneylife has been constantly reporting on how the ban on entry load announced by the market regulator last year has made MF distributors stop selling funds.
The truth is that the ban on entry loads has dried up the distributors' revenues and they are now asking investors to consider Unit-linked Insurance Plans (ULIPs) and company fixed deposits (FDs) as the next best investment opportunity.
This is unfortunate because ULIPs are no better than equity funds unless they are held for a longer period while FDs are unsecured investments. But the commissions on ULIPs and FDs are extremely attractive, which is why distributors are pushing them.
Fund companies privately curse the changes SEBI has brought about in the last one year in reducing sales incentives while many distributors have gone out of the fund-selling business altogether, suddenly finding the business unviable.
The scenario has been continuously dismal for the MF industry.
In June, investors pulled out Rs1,446 crore from equity schemes. In July alone, Rs3,400 crore flowed out of the industry. Equity schemes witnessed Rs2,890 crore net outflow in August 2010, continuing the trend from the past several months.
The continuous outflow of cash can only be attributed to SEBI's order of banning entry loads and forcing fund distributors to make money by 'advising' investors.
Some say that as the markets reached new highs, equity mutual fund investors have been quick to cash in. A majority of the investors who had put their money at the peak of the markets have started pulling out money from equity schemes, say some sources in the fund industry. But this does not explain why there has been continuous outflow of funds over the past 14 months. Coincidentally, SEBI had banned entry loads on new fund sales and then followed it up with a host of measures to 'tone up' the fund industry. Obviously, none of these 'measures' are working.
But now, a clearer picture is emerging. Fund companies are staring at a bleak future. Will a sharp correction in the Sensex, which has been on a roll thanks to the influx of overseas hot money over the past few months, sound the death knell for the industry?
Reliance Life Insurance launches health insurance plan; IDFC launches infrastructure bonds; Bank of India hikes base rate to 8.5%; Honda launches new variant of City
Reliance Life Insurance launches health insurance plan
Reliance Life Insurance has entered health insurance market with the launch of a product for individuals and family members.
The company has launched its first pure reimbursement health insurance plan-Reliance Life Care for You Plan-for individuals and family members.
The policy term under this Plan is three years with the premium fixed for the entire period, irrespective of the claims. The plan offers sum insured of up to Rs10 lakh.
The company along with its third party administrators has created a preferred network of over 6,000 hospitals, among the largest hospital network offered by any insurer, across the country to provide cashless hospitalisation benefit to the customers.
The Plan covers the individual along with his/her spouse, children, parents and parents-in-laws. One is eligible for the Plan if he/she is above 18 years and within 60 years of age. In the case of the family members anyone from three months to 66 years is eligible to enter this Plan.
IDFC launches infrastructure bonds
IDFC Ltd has launched its first infrastructure bonds to the public. The company plans to raise Rs3,400 crore through these infrastructure bonds in one or more tranches during financial year 2011. These infrastructure bonds offer four investment options. The face value of each bond is Rs5,000 and one can apply for a minimum of two bonds and in multiples of one bond thereafter. All the four options have a maturity of 10 years and a lock-in of five years. At the end of five years, one can sell Series 1 and 2 on the stock exchanges. IDFC offers a buy-back facility for Series 3 and 4 at the end of five years. While Series 1 and 2 offer an annual interest rate of 8%, Series 3 and 4 offer a interest rate of 7.5%.
Series 1 and 3, give interest on an annualised basis, while Series 2 and 4 give interest on a cumulative basis. The bonds shall be issued in the demat form only. Hence it is necessary to have a demat account to apply for the same. The issue closes on 18 October 2010. The maximum amount of income not chargeable to tax in case of individuals (other than women assesses and senior citizens) and HUFs is Rs1.6 lakh. In the case of women assesses the limit is Rs1.9 lakh and in the case of senior citizens it is Rs2.4 lakh for financial year 2010. This limit of Rs20,000 per annum is in addition to Sections 80C, 80CCC and 80CCD.
Bank of India hikes base rate to 8.5%
Bank of India (BoI) has increased its base rate by 50 basis points. The revised base rate now stands at 8.5% per annum from the existing 8% per annum.
With effect from 1st July, interest rates on new loans and advances, including consumer loans, are determined with reference to base rate. The base rate is the minimum rate at which banks can lend loans.
Honda launches new variant of City
Car-maker Honda Siel Cars India has launched a new variant of its flagship model, City, price between Rs9.53 lakh and Rs10.25 lakh (ex-showroom Delhi).
The new variant - Exclusive - of the Honda City will have many additional features vis-a-vis the regular one, such as leather seats and leather steering.
Prime minister Manmohan Singh, as is well known, is not a media-natural. He avoids interaction...