In your interest.
Online Personal Finance Magazine
No beating about the bush.
In 2008, the government had banned smoking at public places and put a curb on tobacco advertisements
Taking its anti-smoking drive forward, the government today banned foreign direct investment (FDI) in cigarette manufacturing in the country.
Home minister P Chidambaram said that FDI will be prohibited in cigarette manufacturing, whether it is for domestic consumption or for exports.
“The approval is expected to enhance public accountability by way of the government’s commitment towards proliferation of (the) anti-smoking regime in the country,” he told reporters after the CCEA meeting.
The decision to ban FDI is the latest in the government’s long-standing drive against smoking. In 2008, the government had banned smoking at public places and put a curb on tobacco advertisements.
The proposal for banning FDI in cigarette manufacturing was mooted by the Department of Industrial Policy and Promotion and approved by the Cabinet Committee on Economic Affairs (CCEA) in its meeting.
“Prohibit FDI in manufacturing of cigarettes and to include the activity in the list of activities prohibited for FDI,” the official release said.
When asked about the existing foreign investment in the tobacco sector, Mr Chidambaram said the matter did not come up for discussion in the CCEA.
Under the existing norms, 100% FDI is permitted in cigarette manufacturing, but an industrial licence is required and the proposals need to be approved by the Foreign Investment Promotion Board (FIPB).
With the CCEA banning foreign inflows, Mr Chidambaram said, “This would bring the policy in line with the administrative decision not to grant industrial licence for cigarette manufacturing.”
The move would also align FDI policy with the existing legislation on tobacco control to a greater extent, the minister said.
The industry body has issued warning notices to HSBC, NJ India Invest, HDFC Bank and Kotak Mahindra Bank for not complying with NOC norms and luring investors to change distributors to garner trail commission
The Association of Mutual Funds in India (AMFI) has finally woken up to the messy game of assets under management (AUM) transfer and rampant mis-selling of mutual funds by banks and national distributors.
The industry body has sent warning notices to HDFC Bank, HSBC Bank, Kotak Mahindra Bank and NJ India Invest to stop this practice, reports CNBC TV18. AMFI has also sent a stern signal that if they don’t comply with the guidelines, AMFI will consider withdrawing their licenses.
Interestingly, Moneylife had first reported this practice on 2 February 2009. Post the implementation of the trail commission norms, AUM transfer by unethical means was gaining traction, and distributors and investors were being duped into signing dubious letters. (See here and here).
In the first article, we had identified HDFC Bank and NJ India Invest as among those distributors who were indulging in this practice. Now AMFI has acted against these two entities. AMFI is also in the process of issuing notices to other such entities.
Ironically, according to some smaller distributors, KN Vaidyanathan, executive director, SEBI, had addressed a gathering of distributors at the Bombay Stock Exchange (BSE) earlier this year where he had said that they should follow the practices of NJ India Invest and openly lauded the “ethical services” provided by NJ India Invest.
According to sources, NJ India Invest has a dedicated team for encouraging switchover of assets. In some cases involving national distributors, investors are duped into signing letters which eventually leads to a change of distributor, without the knowledge of the investor. The ban on no-objection certificates (NOCs) was supposed to ease investor woes while changing a distributor, but some players continued to demand an NOC from investors.
The entry of bank distributors in the MF distribution game is unlikely to end mis-selling of MFs. (See here). Recently, the State Bank of India has trained 18,000 employees to sell MFs through its banking channel. After SEBI allowed MF units to be traded through the exchanges in December 2009, brokerage houses have started providing free demat accounts to earn trail commission. Sources reveal that while converting physical MFs into demat forms, investors are made to sign a change of distributor. (Read here).
A Pune based certified financial planner K V Balaji recounts his experience with ICICIdirect: “I have received an SMS from ICICIdirect, offering a 'free service of converting offline mutual fund investments to online investments'. On calling the number, the person spoke about ICICIdirect offering a free service. When I asked how will ICICIdirect garner any revenue from this 'free' service, he didn’t talk of the trail. Instead, he stated that ICICIdirect would manage yearly maintenance fee of Rs500 per account holder from its demat accounts.”
However ICICIdirect denied having any such scheme which provides a free or even a discounted demat account based on mutual fund conversion.
Our email queries sent to HDFC Bank, Kotak Mahindra Bank, NJ India Invest and ICICIdirect remained unanswered till the time of publishing this piece.
According to latest data obtained by Moneylife, new SIP registrations have been overshadowed by cancellations and ceased accounts in March, which is supposed to be a boom month for investments
While stock markets are charting an upward course for several weeks now, mutual fund investments have exhibited a contrarian trend. The latest exhibit in this grim scenario is the rapidly declining investor interest in systematic investment plans (SIPs) of mutual fund schemes.
Here are the bare facts. Since December 2009, new SIP registrations have witnessed a steady downhill trend. New registrations in SIPs have gone down from about 280,000 in December 2009 to around 225,000 in March 2010.
Meanwhile, the number of SIP cancellations has increased from around 67,000 in January this year to around 83,000 for March. Between February and March, the number of ceased SIP transactions has gone up to around 108,000. Most alarmingly, cancellations and ceased transactions are more than the new SIP registrations for the month of March, a month when people make a lot of investments.
A SIP allows an investor to invest in a mutual fund by making smaller periodic investments (either monthly or quarterly) instead of a large one-time investment. This makes a SIP the preferred route for investing in funds for most investors.
All this while, the Sensex has been rising steadily and even touched 18,000, a 25-month high. Moneylife has previously written about how recent mutual fund outflows have defied stock market trends. (see here).
Recently, we also revealed how redemptions from mutual funds have consistently outpaced subscriptions from August last year, when the Securities and Exchange Board of India (SEBI) introduced the no-entry load ban. (see here).
Market players suspect that most of the current woes being experienced by this industry stem from the whirlwind initiatives taken up by SEBI to ‘fine-tune’ the industry practices. However, industry leaders have defended the new system by arguing that the industry would adjust to paying commissions, sooner than later. Their contention is that investors are pulling out money from MF schemes to book profits.
But, as pointed out by Moneylife, this is nothing but a veiled attempt to hide the fact that SEBI’s new rules regarding entry load and trail commissions do not help anybody, least of all investors because of the uneven playing field of the investment landscape. With commissions vaporising into thin air, distributors have lost incentive to sell mutual funds and are instead pushing heavy commission-earning products like unit-linked insurance plans (ULIPs) and corporate fixed deposits which are against investors’ interests in some cases.
An independent financial advisor (IFA) pointed out that apart from the lack of incentive to sell, distributors also face other hurdles in promoting SIPs. “Even banks and national distributors are not interested in selling SIPs as it is a very slow-earning option. Also, even if a distributor promotes a SIP, he is not assured of regular income anymore as some national distributor may poach his running SIP any time. Uncertainty of future trail (commission) and transfer of assets under management (AUM) is the main hurdle for brokers to promote SIPs.”
The IFA also pointed out that filling the SIP application form is very cumbersome and technical. There is no standard format across asset management companies (AMCs). Every AMC asks for data in different formats.