NTH :: 6 ways new classification of mutual fund schemes will impact the investor

By Sanket Dhanorkar, ET Bureau|Updated: Oct 16, 2017, 11.20 AM IST

NTH

The Securities and Exchange Board of India (Sebi) has asked fund houses to classify their schemes into clearly defined categories. For long, there were no clear guidelines to categorise mutual funds. Fund houses even launched multiple schemes under each category, making scheme selection a confusing exercise for investors. To introduce clarity, Sebi has now asked fund houses to have just one scheme per category, with the exception of index funds, fund of funds and sector or thematic schemes.Mutual funds which have multiple products in a category will have to merge, wind up, or change the fundamental attributes of their products.

Simplification of choice, fewer options
At the broadest level, mutual funds will now be classified as equity, debt, hybrid, solution-oriented, and ‘other’. Equity schemes will have 10 sub-categories, including multicap, large-cap, mid-cap, large- and mid-cap, and small-cap, among others. The stocks of the top 100 companies by market value will be classified as large-caps. Those of companies ranked between 101 and 250 will be termed mid-caps, and stocks of firms beyond the top 250 by market cap will be categorised as small-caps. Debt and hybrid schemes will similarly be grouped into 16 and six sub-categories respectively.

In particular, people interested in debt and hybrid schemes will now be better placed to identify the right schemes. For instance, duration funds have been segregated into four sub-categories, based on the maturity profile of the instruments they invest in. Debt funds belonging to the broader ‘income funds’ category will now be identified as dynamic bond fund, credit risk fund, corporate bond fund, and banking and PSU fund, based on their unique characteristics. Similarly, segregation of hybrid funds—based on their equity exposure—as aggressive hybrid, conservative hybrid and balanced hybrid, will allow investors to better identify the type of hybrid fund they want to invest in.

“Now that scheme labelling is clearly linked to a fund’s strategy, the investor will clearly know what he is getting into. The fund category will define the scheme, and not its name,” says Kunal Bajaj, CEO, Clearfunds. Fund houses will also not be allowed to name schemes in a way that only highlights the return aspect of the schemes— credit opportunities, high yield, income advantage, etc.

Adherence to fund mandate
With strict classification of schemes, fund houses may not be able to alter the investing style or focus of their schemes, as they did earlier. For instance, mid-cap funds stray into the large-cap territory or across market caps, in response to market conditions, which dramatically alters their risk profile. Now, funds will be forced to maintain their investing focus. Any drastic change in style will constitute a change in the fundamentalattributes of the scheme, which would have to be communicated to the investors. For investors, this means they won’t have to worry about their chosen schemes altering mandates to something which doesn’t suit their needs or risk profile.

Better comparison with peers
Distinct categorisation of schemes will also enable a better comparison of funds within the same category. While the earlier largecap funds category had schemes with pure large-cap focus as well those with a sizeable mid-cap exposure, now such distinctly varied schemes won’t be clubbed together. This will further help investors identify the right schemes by facilitating a like-for-like comparison of funds. “All schemes of different AMCs within a similar category will have similar characteristics, which will enable customers to make a better ‘apples to apples’ comparison,” says Stephan Groening, Director, Investment Solutions, Sharekhan, BNP Paribas.

These schemes may be reclassified or merged
The new Sebi norms require funds to have only one scheme per category.
6 ways new classification of mutual fund schemes will impact the investor
Note: This is only an indicative list. All schemes mentioned may be retained by the respective fund house. There may be other duplicate schemes from other fund houses also. Source: Value Research.

Sharp rise in fund corpus
Since fund houses will now be forced to merge duplicate schemes within the same categories, it may sharply increase the size of certain funds. This could hurt the scheme’s performance. “Some larger fund houses with multiple schemes will have to opt for mergers. This may lead to a sudden, sharp rise in the corpus of schemes, which could dent the fund’s returns,” says Vidya Bala, Head, Mutual Fund Research, FundsIndia. “There could also be an impact cost on the investor, as fund may rebalance or churn the portfolio to ensure the fund aligns with the category norms,” adds Bala. For instance, both HDFC Balanced and HDFC Prudence are aggressive hybrid funds, with a corpus of Rs 14,767 and Rs 30,304 crore. Merging the two will create a Rs 45,000 crore fund. However, it is more likely that the fund house may instead reposition one of the schemes in another category.

Possible fall in outperformance
While the new norms are likely to lead to better adherence to the fund style and mandate, it may result in reduction in alpha—outperformance compared to the index—for some schemes. Funds often tend to stray away from their chosen mandate in the pursuit of generating excess return over the benchmark index. Now, with limited flexibility to stray into another segment, some funds may find alpha generation more difficult than before, reckons Bala.

Need for portfolio review
Since fund houses will now have to align their product suite with these norms, there is likely to be a flurry of activity related to recategorisation of funds. In order to avoid merging certain duplicate schemes, these are likely to be renamed or reclassified into another fund category. Some funds may witness a change in scheme attributes to facilitate its repositioning. As such, over the next 5-6 months, several schemes may change colours. Investors would then have to undertake a thorough portfolio review to ensure their funds continue to meet their requirements, insists Bajaj.

Source: https://goo.gl/kEwrFg

 

 

 

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ATM :: 5 things NRI buyers must know about home loan

Shaveta Dua and Sonam Lalhotra | Magicbricks | Oct 16, 2017, 14:14 IST

ATM

An NRI or a non-resident Indian can easily take a loan from any of the lenders in India for buying a property in the country. Magicbricks tells you how you can avail of a home loan without physically being present in India.

Pre-requisites
1) A resident Indian as a co-applicant or a co-borrower or a co-owner of the property should be a part of the application that is to be submitted
2) The minimum age of the borrower should be 24 years
3) The borrower needs to submit last three months’ salary slips and bank statement of the salaried account to the lender

Procedure
1)There are a lot of online platforms available wherein you submit an online application with all the details
2) Such platforms help shortlist the right lender. They also give an option of uploading all the requisite documents online and then manage the entire process on your behalf
3) You will have to issue a power of attorney in the name of your co-applicant, maybe your family member or whoever is going to be the joint owner of your property or co-applicant to the loan in India
4) Additionally, you’ll have to go to the Indian embassy in your country and take the power of attorney format from the lender to whom you’re applying. There is a definitive format which has to be signed in favor of your Indian co-applicant in the application, after which the Indian Embassy will put a seal of approval on it

Switching banks: If you wish to transfer your home loan from one bank to another in the wake of lower interest rates, first check if there is a switching cost with the lender from whom he has taken the loan. If there is no cost of switching then there could be other costs involved such as fee which the new lender will charge. Stamp duty may also be applicable if you are creating a mortgage deed in favour of the new lender.

Be flexible: Taking a loan on fluctuating rate of interest is recommended because fixed rate of interest is generally 50 – 100 basis points more than the flexible rate of interest. They also attract a foreclosure charge whenever you want to switch. Thirdly, the Indian market rates may go down. If you are going to take 9.4 per cent floating rate right now, it is quite likely that in the next 12 months you might be at 8.75 per cent. Instead, if you go for a 10 per cent fixed rate of interest, you will be stuck at 10 per cent even if the market comes down to 8.5 or 8.75 per cent

Pre-payment: If you wish to make a pre-payment then you should tot up the numbers diligently. How much interest cost is getting saved by reduction in tenure? If you feel that is more as compared to the tax benefit which you would have availed by investing this money somewhere else, then you should go for it

What you must know
1) For a salaried customer, the maximum tenure possible is 30 years. For a self-employed person, it is 20 years
2) First get a loan approval for yourself and then decide on the value of the property you want to buy. Your savings should give you enough financial buffer
3) The age of the property does not matter much. If the property is well-maintained and the residual age of the property is at least 12 years, then the bank will definitely fund it
4) The home loan interest rates remain the same for Indian residents as well as NRIs
5) As in the case of Indian residents, if a female is the joint owner of a property, a five basis points reduction in the rate of interest is available under home loan
6) Two NRIs can also opt for a joint home loan in India but only if they are blood relatives and they stay in the same house

Source: https://goo.gl/UKoj4d

ATM :: 5 reasons why this festive season is the right time to buy property

Deepak Singh | Magicbricks | Updated: Oct 17, 2017, 15:25 IST

ATM

If you have been protracting your decision to buy a house then this festive season is the right time to loosen your purse strings. Although the festive season is considered an auspicious time to buy new things, including real estate, here’s a list of five reasons why prospective home buyers should buy a property now.

Unsold inventory
Post the real estate slowdown, most developers had been waiting for the re-emergence of positivity back into the market. Buyers’ renewed enthusiasm in the real estate has brought cheers for developers who are now trying to liquidate their existing inventory and recover costs. To make the most of this development, builders are offering a number of discounts and freebies to attract end-users.

Low property prices
Property prices have decreased in the last couple of years. Although prices have remained stagnant for a while now, this is the ideal time to indulge in a hard bargain with the seller to extract the best deal for yourself.

Discounts and freebies galore
Developers are trying to encash the market sentiment and attract buyers by offering them freebies to make the deal look attractive. Munish Mishra, Sales Head, Wave City, says, “There is no better time than the festive season to avail attractive offers. We have tied-up with LG to offer various products such as AC, refrigerator, LED TV, washing machine, oven, etc. to our customers.” But a word of caution, don’t fall for the freebies instantly. Judicially analyse the freebies and try to monetise them as well. You may ask your builder to give you the value of the freebies as discount on the property and if the offered price is reasonable then go ahead and accept the offer. If festive offers from developers include important amenities such as free car parking, then go for them but make sure to bargain hard on the final property price.

Lower home loan rates
Lowering of repo rate by the Reserve Bank of India has led to a decline in the home loan interest rates. In September 2017, banks were providing home loans at an interest rate of 8.35% which is attracting home buyers. Renu S Karnad, Managing Director, HDFC, says “low interest rates help buyers in reducing their borrowed costs. Interest rate is one of the important factors that a home buyer looks at while buying a home. Lower interest rates not only helps in reducing the borrowing costs but also improves their loan eligibility.” She further added, “CLSS under PMAY for interest subsidy of 6.5% for EWS and LIG categories and the extension of the scheme for MIG category (interest subsidy of 4% on Rs 9 lakh loan and 3% on Rs 12 lakh loan) by another 15 months till March 2019 is in itself much more than a festive offer.”

RERA-compliant projects
A RERA-compliant project means that the developer can’t take you for a ride anymore. Policies like RERA and GST have instilled a sense of compliance in developers and thus, they are most likely to fulfil their promises now. Sanjay Shenoy, Joint Managing Director, Legacy Global Projects, also expects such policies to bring cheer to the market. He says, “We expect a marked upswing as buyers are now more confident that their interests are being taken care of, with a strong policy in place.” Adding that there are attractive options for buyers this festive season, he explains, “There is a plethora of attractive options for a home buyer today. Differed payment schemes, EMI free investment options and other flexible payment options which reduce the cash flow burden of clients continue to be a big hit.”

Source: https://goo.gl/YH249K

NTH :: How your ID can be misused

Ahmedabad Mirror | Updated: Oct 17, 2017, 02.00 AM IST

NTH

This is something every Amdavadi would dread — misuse of your IT return, Aadhar card and PAN card. The email account of an officer in a private company was hacked and his IT return, Aadhar and PAN cards were recovered. Using copies of the documents, impostors tried to secure car loans from various banks in the city. The cheating came to light after an alert banker called up the officer to verify the documents.

Rajesh Panchal (33) filed an FIR at Navrangpura police station against three persons under IT Act and for misusing his documents. Panchal who resides at Sagar Apartment, near Bhavsar Hostel in New Vadaj, has been working as a team leader at a private company in Chandkheda for the past seven years. On October 7, Panchal received a call from Cosmos bank trying to verify his role as guarantor for someone seeking a car loan. A shocked Panchal said he had not stood as guarantor for anyone. Bank manager Sandeep Shah called Panchal to the bank and showed him copies of his Aadhar card, PAN card and two years’ IT returns.

The documents belonged to Rajesh but the photo and signatures on it were of another person. A person named Kaushik Shukla had applied for a car loan and had provided Panchal’s documents as his guarantor. From the bank, Panchal called up the police control room. At the time Kaushik’s friend Mahendra Chopra was also present at the bank. The bank manager, Panchal and Chopra were taken to the Navrangpura police station, where Chopra promised to produce the person named Rajesh who provided the documents.

Thereafter Panchal checked his online CIBIL score and came to know that his documents were used to secure loans from seven other banks. Panchal also found Shukla had used his name to acquire possession and allotment letter of a house, besides opening a bank account. Panchal filed an FIR with Navrangpura police against the unknown person named Rajeshkumar (resident of Amardeep Residency in Nana Chiloda), Mahendra Chopra (resident of Sayona City in Ghatlodia) and Kaushik Shukla (resident of Kulin tenament in Vasna).

Navrangpura PI R V Desai said, “On the basis of Rajesh Panchal’s complaint we have filed the offence and begun probe. Mahendra Chopra has been arrested in the past in Navrangpura and Rajasthan in a case of cheating.” Panchal said, “As my sister is a bank employee she had advised me to check my CIBIL. From there I got to know that loans under my name had been sought from seven banks. The documents had reached the bank manager which had the accused’s name and phone number on it. But the con came to light as the bank manager called on the number mentioned on the IT return documents. I believe this is the work of a gang. My documents were obtained by hacking my email id and password.”

Source: https://goo.gl/sPJdAe

ATM :: Why active funds beat the markets in India

On an average, the gross returns by active funds exceed returns from Nifty by more than 11%. This outperformance is after accounting for the costs of managing an active fund
Nilesh Gupta & G. Sethu | First Published: Mon, Oct 02 2017. 01 59 AM IST | Live Mint

ATM

In 1975, John Bogle launched the first ever passive fund, Vanguard 500 Index Fund, and heralded an era of passive investing. Bogle was influenced by Eugene Fama’s view that the capital market was informationally efficient and that sustained success in stock picking was impossible. Since then, trading has increased; more and better investment research is being undertaken; high-speed communication networks have taken away the advantages to a privileged few; and most importantly, institutional investors dominate the markets. In this environment, it is not easy to pick stocks or enter and exit the market successfully and consistently. The torchbearer for passive investing today is the exchange-traded fund (ETF).

In the US, during FY 2003-16, total net assets of equity index funds increased by 3.5 times (from $0.39 trillion to $1.77 trillion), while that of active equity funds increased by just 0.7 times (from $2.73 trillion to $4.65 trillion). More importantly, during this period, a net amount of $1.29 trillion moved out of active equity funds while $0.46 trillion moved into index equity funds. Why is passive investing gaining over active investing? It’s because active investing has not been able to deliver returns (net of costs) that are more than from passive investing. Passive funds posted an expense ratio of 0.09% in 2016 while active equity funds were seven times more expensive with an expense ratio of 0.63%.

The FT reports that over a period of 10 years, 83% of active funds in the US underperform their benchmark, with 40% funds terminating before 10 years.

This global trend prompted us to examine the India story. Since 1992, Indian stock markets have seen many developments. Trading has increased; there are more institutional investors; regulations have improved; transactions have become faster; settlements have become shorter; number of analysts covering the market has increased; communication networks are good. We should expect active funds to struggle to beat the market, right? You could not be more mistaken.

We examined the returns and expense ratios of 448 actively managed mutual fund schemes from the period of FY 1996 till FY 2017, a total period of 21 years. We used their net asset values (NAVs) to compute the returns from holding these schemes for each financial year. Remember that the NAVs of mutual fund are published after deducting all the costs incurred in running the scheme.

In most of the years, when the market booms the active funds beat the index (such as Nifty) by a wide margin. When the market is bearish, their performance is mixed. In some bearish years, they beat the index, but often they lose much more than the index.

On an average, the gross returns by active funds exceed returns from Nifty total returns index by more than 11%. Remember that this outperformance is after accounting for the costs of managing an active fund. What about the costs of managing a mutual fund? The expense ratio for active funds from FY 2008 to FY 2017 averaged 2.32% per annum and for ETFs it was 0.61%, leading to a difference just greater than 1.7%. On an average, in India the extra returns provided by actively managed mutual funds have been much higher than the extra cost charged for delivering the return.

This is in contrast to the data from the US. Even in the halcyon 1960s, active funds in the US beat the market only by about 3%. What are the possible reasons for this outperformance? Some market experts argue that several quality stocks are not part of the index and hence index funds or ETFs cannot invest in them. Some note that the evolving nature of the market is not reflected in the index.

It may also be possible that the relatively smaller size of the mutual fund industry in India could be helping active fund managers get such high returns. In India, the mutual fund industry has only 13% of market capitalization as compared to 95% in the US. It is possible that in the past, mutual fund managers had better information available. If either of the reasons turn out to be true, we might find that, in the future, the actively managed mutual funds do not outperform the market by such large margins.

So, should Indian investors invest their savings in actively managed mutual funds? Irrespective of what the data says, the answer is not so simple. Here we have only considered the average returns of all actively managed mutual funds. A retail investor who is likely to invest only in a limited set of schemes would be concerned about choosing those schemes that give better returns in the future.

This analysis has not considered the risks taken by the mutual funds to get returns. A fund can easily beat the market by taking more risks. We need to compute the risk-adjusted returns to answer this question. On doing that, we may understand how the active funds in India generate such high returns compared to the market index. Is it a story of great fund management skills? Or is it inefficiency of the market? Or is it a case of taking high risks? Investors and the regulator have a responsibility to understand this.

Nilesh Gupta is assistant professor and G. Sethu is professor at the Indian Institute of Management, Tiruchirappalli

Source: https://goo.gl/1BK5FJ

NTH :: Have accounts with these banks? Your cheque book, IFSC code will become invalid from 1 October

Bindisha Sarang | Sep, 29 2017 21:22:01 IST | First Post

NTH
For the customers who hold accounts in six state-run banks, here’s a reminder. Sunday, or 1 October is an important date for you because that is the day their cheque books and India Financial System (IFS) codes of their branches would become invalid. These banks are — State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Raipur, State Bank of Travancore, State Bank of Hyderabad and Bhartiya Mahila Bank (BMB).

The government had in February approved the merger of these five associate banks with SBI. Later in March, BMB too got the approval to join the group. With these six banks merging, SBI now becomes a bank with total assets worth Rs 29 lakh crore.

The bank has been asking customers of all these banks to apply for SBI cheque books via net banking, mobile banking, ATM, or by visiting the home branch. Which means if you still haven’t applied for the new cheque books, you have to do it at the earliest.

This is because the cheque books issued by these six banks cannot be used. Also if you have issued any post-dated cheques, you need to take care of them. It’s better you iron out these issues beforehand, if possible today itself. This means you will have to recall the post-dated cheques and issue new ones.

In the past, most acquiring banks let the fixed deposits run their course. Which means old terms continue.

As far as mobile banking goes, you will have to make sure that you make the necessary changes there as well. Since the old IFSC code is no longer valid you will have to start using the new IFS code.

However, SBI hasn’t said a word about ECS issued by the customers of these half a dozen banks. It is safe to deduce that they SBI will take care of things at the back-end, and you need not worry about it. That’s how it has been whenever bank mergers happened. For instance, a few years ago when United Western Bank merged with IDBI Bank, the latter used an account mapping technique for ECS, without discomforting the customers.

Source: https://goo.gl/7zvjJx

NTH :: No credit or debit card of any bank restricted for payment: IRCTC

No credit or debit card of any bank restricted for payment: IRCTC Debit and credit cards of any Indian bank powered by Master or Visa, can be accepted in any of the seven gateways on the site

Press Trust of India |  New Delhi | Last Updated at September 23, 2017 10:51 IST | Business Standard

NTH
Amidst reports of IRCTC barring certain banks from using its payment gateway for debit card transactions, the railways’ tourism and catering arm issued a statement denying the reports.

The IRCTC has said options to pay through payment gateway using debit/credit card and internet banking are open for all banks.

“No debit or credit card of any bank has been restricted by the IRCTC for acceptance on any of the gateway,” it said.

Debit and credit cards of any Indian bank powered by Master or Visa, can be accepted in any of the seven gateways on the site, the statement clarified.

However, it said the IRCTC has provides a value-added service of direct integration to some banks which would allow speedy transactions and reconciliations.

“Since direct integration comes at an added cost to the IRCTC, these banks were asked to share a part of their transaction charges with IRCTC,” it said.

A senior official of the IRCTC said that it was not possible for it to bear cost of individual linkage to bank websites.

“IRCTC had asked banks to share the revenue earned from online tickets because of these value-added services but some banks refused,” he said.

The IRCTC has said that if banks are willing to give the facility of zero transaction charges on their debit cards to rail ticket customers then it will give them the facility of direct debit card integration also.

The statement has further said that banks should abide by the RBI guidelines regarding transaction charges on debit cards by charging only 0.25 per cent on transactions of up to Rs 1,000 and a maximum of 0.5 per cent on transactions of values between Rs 1,000 and Rs 2,000.

Source: https://goo.gl/eKftFZ