In your interest.
Online Personal Finance Magazine
No beating about the bush.
SEBI's move to scrap entry loads on mutual funds may have been well intentioned, but it tripped badly in failing to assess the ground realities and the consequences of its actions
Five months after the Securities and Exchange Board of India (SEBI) scrapped entry loads on mutual fund (MF) schemes, the industry continues to be on the decline with further ill-conceived band-aid like trading through stock exchanges failing to attract investors. In the five months after the SEBI move, Rs7,200 crore of funds have moved out of equity schemes and flown, almost entirely, to Unit Linked Insurance Plans (ULIPs).
SEBI's move may have been well intentioned, but it tripped badly in failing to assess the ground realities and the consequences of its actions. It failed to visualise that sharply higher commissions paid by the insurance industry will suck money out of MFs. It also failed to ensure the availability of inexpensive alternative distribution channels. Consequently, investors continue to pay commissions, but only to other intermediaries such as banks or others in the exchange traded system. The question is, when will the regulator admit its mistake and initiate corrective action?
If SEBI had attempted to seek feedback before bringing in the regulation, it would have highlighted the impact of a hasty scrapping of entry loads on the fund industry and cautioned it against blundering ahead. A report by McKinsey & Co, the leading global consultancy firm, had enumerated some key issues even in August 2009, when the SEBI order came into effect. Even then, the fund industry was in turmoil and assets under management (AUM), which had been growing at 50% on a year-on-year basis, had declined by a sharp 17%.
McKinsey had pointed out that bank and national distributors who have control over the "customer's wallet" would be in a position to charge. That is exactly what is happening today. Banks were blamed for extorting huge paybacks from Asset Management Companies (AMCs), they have smoothly switched to debiting customer accounts for advisory fees.
McKinsey had also said that AMCs would have to continue compensating distributors (mainly banks) from their reduced fees. They may also increase exit loads for customers across holding periods—but this would be restricted to 100 bps. Here is what else McKinsey had predicted for the industry.
• Higher exit loads and transparent commissions would reduce the propensity to churn investments.
• Portfolio management services and alternate products will grow faster. AMCs and distributors will push higher margin products, especially debt products. This has indeed played out as predicted.
• The industry will undergo consolidation since smaller AMCs would find it difficult to manage the stress on their finances. Entry barriers will increase and it may even be difficult for new schemes to find distribution partners. However, the fact that SEBI has over 12 to 14 pending applications seems to suggest that the financial sector is not giving up on the mutual fund industry as yet.
• Most pertinently, the report had pointed out that it is IFAs (independent financial advisors) who help in geographic penetration of financial products. With IFAs, especially the smaller ones losing the incentive to sell mutual funds, the geographic penetration of the industry was bound to slow down. McKinsey's data shows that beyond the top eight cities, IFAs are the dominant distribution channel accounting for just under 50% of the market.
Besides these 17,500 towers, Aircel has also committed additional 20,000 tower sites to GTL Infrastructure over the next three years
Telecom tower company GTL Infrastructure Ltd said on Thursday that it will acquire 17,500 telecom towers of mobile service provider Aircel Ltd for about Rs8,400 crore.
GTL's group company GTL Infrastructure's board of directors at their meeting held today approved the purchase of tower assets from Aircel and its group subsidiaries through a special purpose vehicle (SPV), GTL said in a filing to the Bombay Stock Exchange.
"The SPV has entered into a business transfer agreement with Aircel for acquiring the said tower portfolio," the company said.
Aircel has committed an additional 20,000 tower sites to GTL Infrastructure over the next three years, it added. The transaction is likely to result in a significantly higher revenue opportunity for GTL Infrastructure in the range of Rs8,500-Rs17,000 crore over the next five years.
Of the total equity funding of Rs3,400 crore for the buyout, GTL Infrastructure would contribute up to Rs1,750 crore, while GTL would invest Rs1,500 crore in the SPV.
Commenting on the deal, Maulik Patel, head-research, Kisan Ratilal (KR) Choksey Shares and Securities Pvt Ltd, said, "For 100% stake GTL Infra will be required to pay about Rs8,500 crore and it will stretch its balance sheet. We expect GTL to dilute their equity base by about 40%-50% and acquisition to be funded (at a) debt/equity ratio of 2.5x."
With this acquisition, GTL will have more than 31,000 towers and will become one of the largest independent telecom tower providers in the country.
GTL offers its expertise in wireless communications from 2G networks to 3G and 4G, from WiMAX to IPTV.
It has a network of over 23,700 towers and with this acquisition, it is slated to be one of the largest telecom infrastructure providers in the country.
GTL had earlier said that it was planning to erect, engineer and manage 1,00,000 cell sites across 150 networks, enabling mobile connectivity to over 100 million subscribers in 50 countries.
Aircel, a unit of Malaysia's Maxis Communication, has about 38,000 towers, of which nearly 17,000 are owned by the company. Maxis Communications holds 74% stake in Chennai-based Aircel.
With the acquisition, GTL Infrastructure would reap more benefit as mobile operators are leasing out tower infrastructure instead of setting them up themselves to control costs.
The small car being developed by Bajaj Auto and marketed by the Renault-Nissan alliance in India will be smaller than Maruti Suzuki's Alto
The small car being developed by Bajaj Auto Ltd, that will be marketed by the Renault-Nissan alliance in India, will be smaller than Maruti Suzuki's Alto, according to the French car maker.
"The car that we are discussing with Bajaj is smaller than the small car. A small car like Maruti Suzuki's Alto or a 1.2-litre car is not on the table for discussion of Renault Bajaj. We are discussing a smaller car than the small car," Renault Asia Africa management committee executive vice president Katsumi Nakamura told PTI.
Last year, Renault chairman and chief executive Carlos Ghosn had announced that the Renault-Nissan combine along with Bajaj Auto have finalised an ultra low-cost product that will be launched by 2012, a year behind schedule than originally planned.
Mr Ghosn had stated that design, engineering, sourcing and manufacturing will be handled by Bajaj Auto, while marketing and selling will be looked after by the Renault-Nissan alliance. More importantly, the car will have no Bajaj brand on it.
Subsequently, Bajaj Auto managing director Rajiv Bajaj had made it public that the small car will have 70%-80% of the parts common with its two- and three-wheelers.
The small car, initially supposed to hit the market by 2011, was delayed by a year due to differences between the partners over pricing and design.
Initially, when the project was announced in 2007, Renault wanted the car to compete with Tata's Nano but Bajaj wanted to focus on delivering fuel economy.
In 2008, Nissan joined the project and a tripartite joint venture was formed with Bajaj holding 50% stake and Renault and Nissan having 25% each and envisaging to produce 400,000 units of the small car annually.