Edelweiss attracting investors by offering passbacks. Is SEBI watching?

Edelweiss Broking is offering gift vouchers to invest in ELSS. This amounts to offering passbacks, a practice barred by SEBI.

Edelweiss Broking Ltd is offering its clients a waiver of transaction charges for investing in equity linked savings schemes (ELSSs) through its online platform and along with this, if the lumpsum order value is above Rs40,000, the clients would receive a Flipkart gift voucher worth Rs500. “This special offer is valid for all ELSS transactions carried out upto the 31st of Dec, 2013,” mentions a promotional mailer sent out to its clients. The mailer goes on to mention the benefits of investing in ELSS offers with its top four ELSS recommendations. The ‘Code of Conduct for Intermediaries of Mutual Funds’ laid down by the Securities and Exchange Board of India (SEBI circulars: MFD/CIR/06/210/2002 dated June 26, 2002 and SEBI / IMD / CIR No. 8 / 174648 / 2009 dated August 27, 2009) clearly states that “Intermediaries will not rebate commission back to investors and avoid attracting clients through temptation of rebate/gifts etc.”

 

“This is an innovative idea of Edelweiss to offer a “pass back”, according an independent financial advisor Chilukuri KRL Rao. Mr Rao from Hyderabad has drawn our attention to the ground-level practices that hurt investors and smaller distributors. He says, “The lack of transparency in payment of commissions is the root cause of all the ills associated with the industry including upfront commissions.”

 

We had earlier reported on how fund houses were paying upfront commissions for ELSS (Equity Linked Saving Schemes) and other schemes to garner assets. (Read: Upfront commission being granted for ELSS schemes and MIPs become attractive for distributors due to upfront commissions) Upfront commission as high as 3% were being paid for ELSSs and as much as 1%-1.5% was being paid in the case of MIPs (Monthly Income Plans).

 

“High upfront commissions lead to the practice of excessive churning by unscrupulous mutual fund distributors in order to earn themselves a higher commission. This practice of fund houses offering a higher upfront commission and lower trail commission is detrimental to many honest distributors who promote investing in mutual funds for the long-term,” says Rao.

 

The regulator once again fails to take strict action. We have seen this in the case of portfolio management schemes as well, where many PMS companies, including the big ones, are not complying with SEBI’s directives on disclosure of performance data. Portfolio management services (PMS) companies are to “ensure that the clients have access to updated information about the portfolio manager, portfolio managers shall place the latest disclosure document on their website, wherever possible.” But still a large number of asset managers are not following these instructions. (Read: PMS firms misinterpret SEBI rule and avoid disclosure and Investors kept in the dark and hard-sold poor PMS schemes, due to bad disclosure practices)

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    COMMENTS

    mAYANK

    7 years ago

    The Industry is digging its own grave.In the RGESS schemes the Industry gave a huge upfront commission of around 6-8% and this was within knowledge of AMFI. Industry was aggressively pushing RGESS because it was Mr. Chidambram's baby.

    Saraswati

    7 years ago

    Wow...i don't understand the regulations. But it's good to get something while you save!!!

    Manmadha

    7 years ago

    Boooooo....

    REPLY

    Debashis Basu

    In Reply to Manmadha 7 years ago

    Very intelligent comment ;)

    Krishna

    7 years ago

    Chilukuri...KRL....Rao....who? Do his comments and quotes matter? Edelweiss is a wonderful company and has wonderful website. With this offer I would invest it through them than investing through icicidirect! They are not recommending any fund. If I invest in ELSS, I am happy investing through them.....Moneylife - pls get your analysis right!!!

    REPLY

    INDLA SREEDHAR REDDY

    In Reply to Krishna 7 years ago

    Hi Krishna, first understand one thing. Mr. Chilukuri KRL Rao brought one unethical promotion by Edelweiss into limelight.we have to applause him for that. When SEBI issued clear instructions not to give/payback any inecntives/gifts to customers in returns to the investments. How Edelweiss is offering flipkart voucher.Even if it is Edelweiss or some other big brand company also, everybody has to follow SEBI's rules and regulations. I request Money life to take this matter with SEBI.

    Raghu

    In Reply to Krishna 7 years ago

    Dear Mr Krishna , Please do appreciate that some one comes out in the open only with details.The analysis part ,why only money life , even SEBI will do and actions will follow.Money life had published this article , only after the initial scrutiny.Even I have great respect for Edelweis, probably , in this case they might have done it by oversight( even then they are guilty, there is no doubt). But this is un ethical practice.Just see the other coment , one investor wants to buy this for an a small ice cream!The gift is taking over the financial objective!Financial decissions should not be entered because of temptations. One should understand the product first. Unfortunately , when there is a free bee , there are so many who get duck out.

    Vikas Gupta

    In Reply to Krishna 7 years ago

    Mr Krishna! His comments matter a lot for the system. If somebody dares to bring the illegal activity of such a giant to the general public, one should applaud for him.

    Is there a light at the end of the tunnel for Sesa Sterlite?

    According to Sesa Sterlite, it has lost Rs100 crore in revenues due to delay in commencing its mining operation, and the forest department should be held responsible for this lapse

    Recently, on 1st November, more than 5,000 strong mining engineers met at the National Mining Day convention to discuss the problems faced by the mining industry in India and how best it can contribute to the national development.

     

    Their conclusion was that the industry is suffering due to lack of a sound policy, poorly administered land acquisition procedures, issues relating to mining leases, environmental clearances, varying interpretations of tax and duty applications and the protection of mineral-bearing lands from non-mining activities.

     

    Each of the mine owners had to surmount one or more of these problems in a continuous manner, thus diverting the attention, energy and resources from mine developments, which would facilitate exports, feed domestic industry and create employment!

     

    In the case of iron ore, according to Ministry of Mines, Indian reserves are estimated at 23 billion tonnes, accounting for 6% of the world's known reserves. And, we have hardly cleared the surface!

     

    Due to large scale illegal mining activity in Karnataka and Goa, it may be recalled that the Supreme Court had banned this two years ago. After investigation, the Supreme Court permitted recommencement of mining operations in Category A (45 mines) and Category B (49 mines), subject to their compliance of formalities and regulations that may be applicable in states of their location.

     

    In 2009-10, iron ore exports, mostly to China, amounted to 117 million tonnes but after the ban and its revival, during 2012-13, exports reached only 18 million tonnes. In the last six months, covering April to September 2013, exports have amounted to 6.8 million tonnes.

     

    The revival order enabled 15 mines to commence their operations, mining about five million tonnes, in addition to NMDC (National Mineral Development Corporation). By January 2014, the combined effort will enable them to reach only 12-14 million tonnes! While Indian mines are struggling to revive in the tough international market, Australia, Indian's main competitor, has been able to ship 570 million tonnes so far with the prospect of supplying about 669 million tonnes in 2014!

     

    To support the Indian mine owners and to encourage exports, a proposal was made both by Ministry of Commerce and by Ministry of Mines, that the export duty of 30% on iron ore, presently charged, be reduced, if not eliminated altogether. Ministry of Finance declined to do so on the grounds that the rupee depreciation of more than 15% had already benefitted the exporter!

     

    China has now begun to import iron ore. After a lull for a few months and it is felt that in the international market, the Chinese government move to make "affordable housing" a priority, may actually increase their purchases from now onwards.

     

    According to the Steel Index Ltd, iron ore with a 62% content delivered to the

    Chinese port of Tinjin fetched a price of $135.80 per dry tonne early this month. Pricing situation, therefore, looks favourable for exports, provided

    Indian mine owners are able to get the required "clearances" and book orders.

     

    With all this data in the background, we come to our main story on Sesa

    Sterlite, one of the Category A mine owners. It must be noted that five months after Supreme Court gave the clearance to commence the mining operations,

    Ministry of Environment and Forests (MoEF) gave Sterlite "clearance" for one year!

     

    Why it is for one year only and not for three years (or more), subject to yearly inspection and periodic verification of the work compliance, are separately

    debateable issues.

     

    Sesa Sterlite mining capacity is presently estimated at 2.3 million tonnes, and it is the largest in Karnataka State. However, the first stumbling block has come from the forest department. It had claimed development tax "on gross value of domestic and export sales". Sesa Sterlite had paid Rs52.6 crore in cash, and to overcome the demands raised by the department, it gave a bank guarantee for Rs44.10 crore "under protest" because Sesa Sterlite had paid the development tax on invoice value at the time of vacating the forest area. Earlier, the forest department had stated that the company would be given permission to mine once the tax was paid. Yet, after receiving both, as mentioned above, they have not done so!

     

    This only means that it is imperative that there should be a clear-cut ruling in regard to the development tax payable. It is common sense that the tax should be collected on the invoice value of the goods supplied. This should be simple procedure in collecting the development tax, with the bank being automatically authorised to credit the department with the tax on negotiation of export or domestic sale documents!

     

    Either the development tax should be on a percentage basis of the invoiced value, or a flat rate fixed by the government. Besides, it is not clear as to whether there is a uniform tax leviable by the forest department, or if it varies from state to state. This kind of ambiguity should not prevent mining operations to commence or to do anything that would hamper our exports. In this particular case, according to Sesa Sterlite, it has lost Rs100 crore in revenue due to delay in commencing its mining operation and the Forest department should be held responsible for this lapse.

     

    As if this is not enough, the forest department has sought clarification from Sesa Sterlite whether it has merged with Sesa Goa to form this company! Such flimsy questions are indicative of delaying tactics adopted by government departments, as Sesa Sterlite, according to their spokesman, had given all the relevant information.

     

    The country is already reeling under the strain of current account deficit, and it is essential that every effort is made to revive our exports in the case of iron ore also. Besides, the Industry hopes that clearances for commencing operations in Goa may also be given by the Supreme Court, so that we can do our best to obtain business again from China and reduce our balance of payments with them.

     

    Moneylife has covered these issues before and it is rather sad that we find we have too many headless chickens running all over the place because of lack of clear-cut laid down policy which leaves nothing to chance and interpretations to one's own conveniences! Because of such attitude and non-cooperative behaviour of government offices, exporters like Sesa Sterlite are forced to look for outside sources, such as Liberia, to obtain iron ore. Such hurdles affect our exports as much as our own domestic industry which also employs thousands of wage earners.

     

    (AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)

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    COMMENTS

    Sajjan Isaac

    7 years ago

    For the sake of immediate forex, we should not sacrifice our long-term interests. We ought to conserve our finite non-renewable resources for internal use and to produce and export value-added goods. See how the USA operates - they give green paper ($) to import precious non-renewable resources, keeping their own resources intact for tomorrow!

    DHFL gets $85 million loan from IFC for affordable housing

    Dewan Housing Finance received a loan of $85 million from the member of World Bank to offer housing finance to low and middle income customers

    Dewan Housing Finance Corp Ltd (DHFL) said it received a loan of $85 million loan from IFC, a member of the World Bank Group to expand the company's lending for affordable and energy-efficient housing in India.

     

    The loan is being given with the support of the government of Canada, DHFL said in a release.

     

    “While housing finance is one of the lowest risk asset classes in India, financial institutions have so far shown limited interest in the low income segment. IFC’s investment will demonstrate the viability of offering housing finance to low and middle income clients,” said Kapil Wadhawan, chairman and managing director, DHFL.

     

    Of the total loan, IFC will provide $70 million through external commercial borrowing (ECB). IFC has committed an additional $15 million to finance green mortgages under the IFC-Canada Climate Change Program.

     

    The terms of the loan include tenure of eight years on both tranches of the loan. DHFL has obtained a moratorium of two and three years, respectively on the two tranches of $70 million & $15 million, following which repayments will commence.

     

    The loan to DHFL, to be used for green mortgages, will reduce 6,200 tons of carbon emissions per year.

     

    The housing finance market in India has a huge gap to fill. According to India’s Twelfth Five Year Plan (2012-2017), the housing shortage in the country is estimated at 58.8 million units. Over 90 percent of this demand is from low-income households, especially the under-served segments.

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