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Don’t confuse the ‘monsoon dhamaka’ with any special
offer on consumer durables like television sets or refrigerators. While
consumer durable companies may or may not celebrate the monsoon season,
fund houses certainly do. Interesting, isn’t it? We are referring to a
promotional offer introduced by one of the leading fund houses in the
country.
Now investors shouldn’t get all excited; expectedly,
the offer doesn’t have anything for them. As always, it is meant for
mutual fund distributors. The promotional offer provides distributors the
opportunity to make an extra buck. Here’s what distributors are required
to do. Between a stipulated period, they must mobilise a given minimum sum
of money. The fund house will reward distributors for the same, by
offering an additional brokerage on the sum mobilised.
Now the trouble is that apart from fresh applications
(fresh monies being invested in the schemes), switches (monies being
transferred from one scheme in the fund house to another) are also
eligible for the additional brokerage earnings. Furthermore, the offer
states that switches from debt funds into equity funds are eligible as
well. So if a distributor gets an investor who is presently invested in a
long-term debt fund or a monthly income plan (MIP) to switch his
investments into an equity fund, he will be eligible to benefit from the
offer i.e. earn additional brokerage.
No prizes for guessing how a “monsoon dhamaka” offer
like this one, is likely to impact distributors. There’s a fair chance
that in the zeal to earn the extra income, many distributors are likely to
get their investors invested in equity funds. And in many cases,
risk-averse investors are likely to see their monies being switched from
debt-oriented funds to equity funds (which are unsuitable for them). Of
course, the rising equity markets, which are trading at record highs, will
form an integral part of the sales pitch to convince investors.
We have nothing against distributors being compensated
for their honest efforts. However, our grouse is against promotional
offers that can induce distributors to act in a manner, which is
detrimental to investors’ interests. We aren’t even suggesting that blame
lies with distributors; in fact, we hold the fund house in question
primarily responsible for the situation.
At Personalfn we have always maintained that the
investor should be put where he deserves to be, at the centre stage and
the rest will follow. Any practice that can prove detrimental to the
investor’s interests should be discouraged, including promotional offers
of the “monsoon dhamaka” variety. We urge the Securities and Exchange
Board of India to scrutinise the phenomenon of mutual fund offers and
their impact on the mutual fund industry.
It was another good week for investors as equity
markets surged northwards and touched record highs. The BSE Sensex posted
a gain of 1.92% to close at 15,566 points; the S&P CNX Nifty closed at
4,566 points (up by 1.35%). The CNX Midcap rose by 1.03%, before settling
at 6,269 points.
Leading open-ended equity funds
| Equity Funds |
NAV (Rs) |
1-Wk |
1-Mth |
6-Mth |
1-Yr |
SD |
SR |
| Reliance Media &
Ent. |
30.92 |
3.12% |
7.59% |
26.41% |
103.70% |
7.57% |
0.36% |
| Reliance Banking
|
49.22 |
2.97% |
10.63% |
24.42% |
100.41% |
9.00% |
0.20% |
| JM Auto Sector
|
22.25 |
2.32% |
7.70% |
-4.05% |
44.87% |
7.66% |
0.17% |
| StanChart Classic
|
18.59 |
2.31% |
9.55% |
13.59% |
57.43% |
7.24% |
0.29% |
| LIC Index Sensex
|
32.08 |
2.05% |
7.73% |
7.06% |
38.11% |
6.02% |
0.37% |
(Source: Credence Analytics. NAV data as on July 20, 2007.)
(Standard Deviation highlights the element of risk associated with
the fund. Sharpe Ratio is a measure of the returns offered by the
fund vis-à-vis those offered by a risk-free instrument) |
It was a good week for Reliance Mutual Fund as two of
its funds i.e. Reliance Media & Entertainment (3.12%) and Reliance Banking
(2.97%) occupied the top two slots in the equity funds segment. JM Auto
Sector (2.32%) also featured among the top performers.
Leading open-ended long-term debt funds
| Debt Funds |
NAV (Rs) |
1-Wk |
1-Mth |
6-Mth |
1-Yr |
SD |
SR |
| Birla Income Plus
|
32.15 |
1.56% |
4.14% |
6.28% |
9.33% |
0.75% |
-0.04% |
| ICICI Pru. Income |
22.46 |
1.48% |
3.89% |
4.77% |
9.07% |
0.82% |
-0.09% |
| Templeton Income |
26.93 |
1.33% |
3.54% |
5.12% |
8.13% |
0.69% |
-0.18% |
| Grindlays Dynamic
Bond |
14.18 |
1.28% |
2.50% |
5.62% |
10.06% |
0.38% |
-0.09% |
| Birla Sun Life
Income |
27.38 |
1.23% |
2.99% |
7.02% |
11.89% |
0.59% |
0.13% |
|
(Source: Credence Analytics. NAV data as on July 20, 2007.)
|
The 10-Yr benchmark 8.07% GOI yield closed at 7.88%
(July 20, 2007, source: Reserve Bank of India website), 20 basis points
below the previous weekly close. Bond yields and prices are inversely
related, with falling yields translating into higher bond prices and net
asset value (NAV) for debt fund investors.
Birla Income Plus (1.56%) emerged as the top performer
in the long-term debt funds segment. ICICI Prudential Income (1.48%) and
Templeton Income (1.33%) came in at second and third positions
respectively.
Leading open-ended balanced funds
| Balanced Funds |
NAV (Rs) |
1-Wk |
1-Mth |
6-Mth |
1-Yr |
SD |
SR |
| LIC MF Balanced
|
48.38 |
1.96% |
9.30% |
4.60% |
32.75% |
5.85% |
0.26% |
| Birla Balance |
31.57 |
1.87% |
8.23% |
11.75% |
40.87% |
4.41% |
0.37% |
| FT Balanced |
37.58 |
1.31% |
6.81% |
11.51% |
46.96% |
4.83% |
0.40% |
| Birla Sun Life 95 |
207.32 |
1.30% |
5.27% |
15.56% |
51.12% |
4.71% |
0.41% |
| HDFC Prudence |
129.63 |
1.16% |
5.39% |
10.85% |
48.68% |
4.44% |
0.47% |
|
(Source: Credence Analytics. NAV data as on July 20,
2007.) |
LIC MF Balanced (1.96%) led from the front in the
balanced funds segment. Birla Balance (1.87%) and FT Balanced (1.31%) also
featured in the top performers’ list.
Planning for children’s future is one of the most
important priorities for parents. However, simply having your heart in the
right place isn’t good enough any more. In the good old days, attractive
returns offered by assured return schemes like PPF (Public Provident
Fund), NSC (National Savings Certificate) and fixed deposits (FDs) could
make ends meet as far as planning for children’s future needs was
concerned. To be sure, the ‘good old days’ are well behind us. Now parents
need to proactively work towards achieving the desired objectives.
Providing for a child’s future is a task that is best
left to experts like financial planners. The same would entail monetising
the desired objectives i.e. determining how much monies would be required
to meet the objectives, drawing up investment plans to achieve the
objectives, getting invested in line with the plans and ensuring that the
investments stay on course.
In our view, parents would do well to engage the
services of a competent and experienced financial planner to ensure that
their child’s future is not compromised with. |
