Moneylife Events
The truth about mutual funds and how to select right scheme

Moneylife Foundation conducted its 94th seminar – this time on mutual funds.

In an interactive and lively session on mutual funds (MFs), Debashis Basu, Founder-Trustee of Moneylife Foundation and Editor & Publisher of Moneylife provided a perspective on how one should invest money in equity mutual funds, apart from explaining the different types of mutual funds and how to choose the best schemes.

Mr Basu conducted the workshop, revealing several hidden aspects about mutual funds. This was the 94th workshop organised by the Foundation over the past 21 months that drew and engaged the audience.

Mr Basu also analysed on the benefits and personal risks associated with different types of mutual funds available in the market and investment strategies for each individual. He said that concepts like asking a person to aim at his/her risk-taking ability through a set of questions unrelated to finance were misleading. In reality, everybody invest for returns and nobody wants to lose money. So where to invest is important but how to and how much to invest is even more critical, he added.

He explained that capital protection fund or monthly income plans are a misnomer. They invest 80% in fixed income securities and 20% in equity; how would capital be protected when the equities market crash or bond prices don’t go up? It would make more sense for the investor to put his money in a fixed deposit if he seeks no risk and wishes to protect his capital. "Avoid unit linked insurance plans (ULIPs). Fixed maturity plans (FMPs) are not so attractive. Therefore for individual investors, fixed deposits (FDs) in bank are better at present," Mr Basu said.

Replying to a question on investment in gold funds as safe bet, Mr Basu said, these days gold funds are attractive, as prices have gone up each year for over past 10 years. "For investing in gold fund, it is not necessary to have a broking or demat account. Most gold exchange traded funds (ETFs), available at present are identical in features. The only risk in these funds is liquidity. In case the price of gold begins to fall one day there could be more sellers than buyers," he added.

Mr Basu also said that commodities are good only for trading in futures. He said, "Commodities is a margin based trading. It is not desirable for taking delivery or holding for the long term. It is not the correct option in comparison with equity mutual funds, which are long-term investments with growth."



Madhur Kotharay

5 years ago

One big problem we face with thematic mutual fund schemes is that fund managers take an omnibus mandate and change their allocation to suit themselves to protect the NAV.

For example, most infra mutual funds invest (by mandate!) in anything from infra, construction, cement, banking (financial infrastructure?), agri, and even IT (computer infrastructure?). HDFC Infra fund has 35% of its holdings in banking!

And someone as sensible as Dhirendra Kumar extols Canara Robeco Infra Fund saying "their infra fund rightly judged that infrastructure companies will do badly in this market and so wisely moved to other sectors".

When I buy an infra fund, I don't need good NAV. I want a full exposure to infra. Period. I may be having 90% of my portfolio in other things and for the kicker, I would want 10% into infra. If it tanks, I would take a hit on 10% of my portfolio. But if the fund manager starts buying ICICI bank in my infra fund, what is the use of my 10% allocation to infra?

Such fraudulent fund management destroy our portfolio balancing. If one is going for any thematic fund, the fund manager must stay with the theme.


Moneylife Team

In Reply to Madhur Kotharay 5 years ago

That is why we say avoid sector/thematic funds

Oil ministry yet to decide on allowing oil PSUs to buy ADB stake

Gas utility GAIL, refiners IOC and BPCL and exploration firm ONGC have already informed ADB of their decision to exercise their Right of First Purchase/Refusal on the multilateral lending agency’s stake

New Delhi: The oil ministry is yet to decide on allowing GAIL India, Indian Oil Corporation, Bharat Petroleum Corporation and Oil and Natural Gas Corporation (ONGC) to acquire the Asian Development Bank’s (ADB) stake in Petronet LNG (PLL), reports PTI.

“We have received requests from all the four companies (who are promoters of Petronet) for buying ADB’s (5.2%) stake. We are yet to decide on it,” oil secretary GC Chaturvedi told reporters here.

The ADB had on 23rd August offered to sell its 5.2% stake in PLL, in which the four state-owned oil and gas companies hold a 12.5% stake each.

Gas utility GAIL, refiners IOC and BPCL and exploration firm ONGC have already informed ADB of their decision to exercise their Right of First Purchase/Refusal on the multilateral lending agency’s stake.

“We are debating on the issue. If allowed, the stake of the four PSUs will rise above 50% in PLL, which will some implications like the company coming under purview of CAG audit,” he said.

However, he hastened to add that PLL coming under the CAG was “after all, not a bad thing”.

The oil secretary is also the chairman of Petronet.

Gaz de France International (GDFI) holds a 10% in PLL and also has the right of first refusal over ADB’s stake.

In case the French energy giant also decides to exercise its right, ADB’s 5.2% stake will split between the five partners in proportion to their current shareholding.

While the state-run Indian firms would get 1.08%, or 81.25 lakh shares each, GDFI would be eligible for a 0.867% stake.

Sources said GDFI is unlikely to exercise its right and if that happens, ADB’s 5.2% stake will be split equally among the four PSU promoters.

The price payable to ADB would be the lower of either the average of the weekly high and low of the closing price of PLL during the six months preceding the date of purchase, or the average of the weekly high and low of the closing price of PLL during the last two weeks preceding the date of purchase.

For 81.25 lakh shares, the consideration works out to about Rs120 crore, sources said, adding that the promoters, as per the new Takeover Code, would have to make an open offer for acquiring a further 26% stake from minority shareholders if they buy the shares in one transaction.

PLL’s constitution states that participation of PSUs would be to the extent of 50% and the joint venture company would not be a government company.

Sources said the legal opinion taken by the promoters states that PLL would not be considered a government company following an acquisition of additional equity by the PSUs from ADB.

Sources said PLL would not turn into a PSU following the acquisition of stake by the PSUs because neither of the conditions specified in Section 617 of the Companies Act would be met.

The conditions are that at least 50% of the paid-up capital of PLL should be held by the central government or by one or more state governments, or PLL should be a subsidiary of a government company.

The immediate fallout of the acquisition would be that PLL would come under the purview of government agencies like the CAG, they said.

The state-run firms have argued that the acquisition of shares offered by ADB will result in securing controlling interests in PLL.

As PLL has got long-term plans to increase its capacity in more locations, additional investments in PLL will help the promoters grow their gas business, they said.

Also, on their initial investment of Rs99.37 crore, the promoters have been rewarded by a dividend of Rs77.3 crore till date. Besides, the investment has appreciated manifold from Rs99.37 crore to Rs1,500 crore at current market prices.

There was a possibility that in case the promoters decide to waive their right of first purchase, the entire equity stake being divested by ADB may be acquired by GDFI, thereby increasing its equity stake to 15.20% and making GDFI the single largest shareholder in PLL.

The ADB had in fact first proposed to exit PLL in 2008, but then company CEO Prosad Dasgupta was in favour of a third party like Chevron or steel baron Lakshmi Mittal’s group buying the stake instead of the four promoters.

Sources said Mr Dasgupta had on 29 February 2008, written to then GAIL chairman UD Choubey to say that sale of ‘even one share’ held by ADB to the four promoters or Gaz de France (GdF) would trigger the Takeover Code, turn the joint venture into a state-run firm and may result in delisting from the bourses.

The ADB and German Development Bank KfW had in 2008 approved a loan of $169 million to Petronet for its expansion projects at Dahej and new terminal at Kochi, but the multilateral lending agency’s internal norms prohibit it from having both debt and equity exposure in a company.

“In 2004, ADB had sanctioned a $75 million loan to Petronet. But once it took a 5.2% stake for less than $8 million, ADB could not disburse the balance due to its internal regulations,” a source said.

ADB norms also stipulate that it divest its equity holding in a company three years from the date of the company going public. Petronet’s IPO came out in 2004 and the ADB was supposed to exit Petronet in 2007, but was persuaded to stay on.


Hindi TV channels triumph over regional counterparts

TAM’s 2010 study finding contrasts with growth of regional print industry

According to television viewership survey agency TAM’s study titled 'The Impatient Generation'~ TV Consumption Behaviour Study 2010, Hindi general entertainment channels (GEC) share has gone up, while regional GECs have taken a beating.

“Elderly women, housewives and kids with higher engagement time are showing more loyalty in terms of less switches or switches only within preferred genre(s). Chief-wage earners and youth are increasingly becoming more unpredictable by either watching less or switching across genres in an attempt to settle down on their content choice. This has proved beneficial for GECs, kids and big sports events or movies genre to grow while news, infotainment and music have come under some pressure,” said LV Krishnan, chief executive officer, TAM Media Research in the introduction to the report.

During 2009, Hindi channels comprised 42% of the total number of channels, and its share increased to 44% in 2010. Regional channels, on the other hand, observed a 2% drop to 34% from 36%. Hindi GECs were commanding 26.9% of viewers in 2009, but in 2010, it increased to 29.6%. In the Hindi speaking market, the share rose from 38.4% to 41.5%; while in the southern markets, Hindi GEC viewership increased to 4.7% from 4.4% the year before. Viewership of regional GECs, however, declined from 24.2% to 22.9%.

Overall, it is at odds with the print news readership trends, which have seen more regional players, emerge with increasing popularity. India Readership Survey shows that regional editions and magazines are becoming more popular, yet there seems to be no new entrants in news channels section.

There have been some 13 new entrants in the television world, with most of them belonging to the GEC, music or movies segment. Lifestyle had three new entrants.

However, the survey hints at increasing fragmentation. Apart from Tamil Nadu and Kerala, which have a most focused viewership of 13 channels, which account for 80% of viewership, all other states are witnessing fragmentation. However, over all, across India and the Hindi speaking market, viewership fragmentation remains unchanged.

“While expectedly with increasing number of channels (530+ in India, last count), the choice of content for the audience is also on increase but the much awaited hype of even more fragmented audience has not necessarily come true. This is because of two reasons: the analog distribution networks are running brim to capacity and hence are adding new channels only at the expense of old ones. So new channels are adding audiences only on the digital platforms, where we will see growing fragmentation. However, given analog’s 75% market share, fragmentation in decelerating. Secondly, market leaders in broadcasting with deep pockets are bringing high quality content. This has enabled them to skew audiences to few of the programs, bringing in higher returns. Thus we see two polarities in audience aggregation: few programs engaging large set of audiences on one side and a large set of programs engaging few audience on the other,” the report quoted Mr Krishnan.


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