Debt Funds and FMPs- What Now? Part 2- Why Tax Can't be Avoided

Posted by: Uma Shashikant on Sun, Aug 3rd, 2014

This is the full story. There is no real tax arbitrage in a debt fund any more.  SWP or STP, the tax is all the same as long as holding period is less than 36 months.  Read more

Debt Funds and FMPs - What Happens Now?

Posted by: Uma Shashikant on Mon, Jul 28th, 2014

After the amendment to the Finance Bill, debt funds redeemed after July 10 will be subject to new tax rules. What are the choices for investors in FMPs and debt funds?  Read more

Regulatory Arbitrage

Posted by: Uma Shashikant on Mon, May 20th, 2013

Regulatory arbitrage occurs when two sets of rules of regulations create a loophole that can be exploited without violating either law. Market players cleverly use such arbitrage in product design and features until these gaps are reduced or removed. Read more

NPS Returns

Posted by: Uma Shashikant on Thu, May 16th, 2013

PFRDA released a press note showing the returns of the various NPS options for the year 2012-13.  The numbers look better than the PF and PPF returns. However, the methodology used to compute returns and the accounting practices are different, making it tough to compare NPS with these traditional products. Read more

SEBI (Investment Advisors) Regulations, 2012 - A Review

Posted by: Uma Shashikant on Mon, Aug 20th, 2012

SEBI (Investment Advisors) Regulations 2012 have been approved by its Board on August 16, 2012. The SEBI press release on Board meeting decisions provides some highlights of these regulations. What are the likely implications for distributors of mutual fund products? Read more

Nurturing Financial Advisors - Part 3 - Don't oversimplify "Investors can and will pay for advice"

Posted by: Uma Shashikant on Sat, May 5th, 2012

The onus of recommending the right product should be on the advisor who should earn the trail commission, while the agent earns a small token commission for his limited role.  As an extension of this principle, the exit load currently charged to the investor can also be collected from the advisor.  Read more

Nurturing Financial Advisors - Part 2 - Why Variable Asset-based Fee is Needed

Posted by: Uma Shashikant on Fri, May 4th, 2012

Reputational capital in advisory business can be built only when assets under advice are evaluated by investors for performance.  This can be fostered only if advisors are able to earn a variable fee for their services. Such variable fees currently go to the distributor. Read more

Nurturing Financial Advisors - Part 1 - Defining their Role and Revenue Model

Posted by: Uma Shashikant on Thu, May 3rd, 2012

A financial advisor  provides strategic and tactical advice to a household to manage its balance sheet efficiently. This function cannot be oversimplified to mean distribution of financial products, financial planning or risk profiling. The distinction between the advisor and the distributing agent is critical to avoid malpractices in the mutual fund distribution space.  Read more

MFs Focus on Retailing ST Debt Funds

Posted by: Uma Shashikant on Mon, Mar 14th, 2011

The mutual fund industry is currently aggressively offering open-ended short term debt funds to retail investors  -  a belated but welcome development.  The default choice of most investors is a short term debt product. RBI data shows that 75% to 80% of all bank deposits are held in the 1-3 year horizon. Debt funds have mostly been offered to corporate investors with retail participation somewhat restricted to fixed maturity plans (FMPs).  FMPs from 91-day to 730-day maturities are being routinely offered, but a sharply increasing short term interest rate makes a later product more attractive than the current one, leading to missed investment opportunities for investors.  What funds are doing is to reposition existing products or offer new ones to offer a short term retail debt product to investors. IDFC MF has a Super Saver fund in this space, ICICI Prudential MF and Reliance MF have Regular Saving Funds, DSP Blackrock has re-positioned its monthly income plan as the Savings Manager Fund in this space, and Templeton Income Opportunities operates in the same space.  Read more

Why Short Term Debt Funds Now?

Posted by: Uma Shashikant on Wed, Jan 5th, 2011

The heightened levels of short term interest rates, leading to an inverted corporate bond yield curve has made decisions tough for investors in short term debt funds. It was expected that the liquidity crunch in June, triggered primarily by the 3G auctions, would ease soon.  The persistent shortage of liquidity extending into the last quarter of the financial year has been a surprise to many. Borrowings from the LAF window of the RBI persist, though the volume has reduced from Rs.1 lakh crore plus seen last month. The key factors contributing to the liquidity crunch are: Read more

Ensuring Liquidity in the Portfolio

Posted by: Uma Shashikant on Fri, Oct 1st, 2010

I have begun to write a column in Business Standard from today called "Capital Account" that addresses wealth management issues for the investors. The first column is on liquidity and the flexibility it provides to a portfolio. Many investors focus on return and risk in an investment and fail to understand the liquidity constraints that a product choice can impose.  Read more

Worries at 20,000

Posted by: Uma Shashikant on Wed, Sep 22nd, 2010

Amidst the celebration of the new high at the equity markets, I am somewhat worried. For an inveterate optimist who believes there are always good stocks to be found in the Indian markets, the worry is strange but strong.  Here are the four reasons why I have pared down my equity exposure and am unwilling to participate in the "rally". Read more

MF Returns: May 2010 CA Exam Question

Posted by: Uma Shashikant on Tue, Sep 21st, 2010

The following question had been asked in the CA examination in May 2010 (Management Accounting and Financial Analysis [old syllabus] - question 2[b] on mutual funds). Read more

Mutual Funds: Fee-based Selling Alone Won't Do

Posted by: Uma Shashikant on Mon, Sep 20th, 2010

Many seem to think that fee-based advisory is the only way to do financial product distribution. I argue the need to allow a range of services, in the interest of growth and expansion of the business.  Allowing only fee-based advisory may shrink the markets and may leave out the small investor. Read more

Distribution of Financial Products - Push vs Pull

Posted by: Uma Shashikant on Mon, Sep 6th, 2010

Even as we continue to debate the lack of incentives for selling mutual funds and the mis-selling nightmares in insurance products, the space I was watching was the National Pension Scheme (NPS).  Here was the product that was perfectly designed, after years of research and filled with the good intention of taking pension products to the population that needed it most. The product was a good one, offered choices, was available at low costs and should have taken off, if the belief, especially among regulators, that a good product would sell from “pull” rather than “push.” Read more

Traded Prices for CPs and CDs

Posted by: Uma Shashikant on Wed, Aug 18th, 2010

Sebi has made it mandatory w.e.f  16 August 2010 for all registered market participants (includes brokers and mutual funds) to report all trades in CPs and CDs within 15 minutes of completion, on FIMMDA’s reporting platform. The availability of a weighted average traded price for CPs and CDs will now bring them into the ambit of mark-to-market rules that apply to short term debt market funds. Read more

RBI Circular on HTM Categorisation

Posted by: Uma Shashikant on Wed, Aug 18th, 2010

RBI recently issued a circular clarifying the treatment of transactions in government securities in the 'held to maturity'(HTM) category.   Read more

NFO and MF Expenses - Gazette Notification of 29 July 2010

Posted by: Uma Shashikant on Thu, Jul 29th, 2010

The Gazette Notification bringing about amendments to the SEBI (Mutual funds) Regulation was notified on July 29, 2010 and re-issued in a circular on August 6, 2010. The notification brings to effect two major changes that have earlier been proposed by Sebi. Read more

Securities and Insurance Laws (Amendment) and Validation Bill, 2010

Posted by: Uma Shashikant on Mon, Aug 2nd, 2010

It is sad day for financial market regulation as the Lok Sabha passed the Securities and Insurance Laws (Amendment) and Validation Bill, 2010.  The ordinance validates the ruling the government made in the Ulip row between Sebi and Irda, even as Sebi's has petitioned the Supreme court. to have decided the case in favour of Irda, without as much as a hearing, and to have validated it as an ordinance, is a shame.  The backdrop to the formation of the new committee set up by the same Ordinance to resolve disputes between financial sector regulators could not have been worse. Read more

Inflation - Answers Still are on the Supply Side

Posted by: Uma Shashikant on Mon, Aug 2nd, 2010

A late evening flight from any city to Mumbai provides ample thinking time. Laptops have to be turned off for landing and about an hour of hovering above the city is to be expected. Perhaps there are clues to the inflation number in this mess, I thought.  The passenger rush has increased significantly and airports are like yesteryear state bus-stands, despite the expansions. Airlines announce new flights and destinations everyday as there is an increase in demand. But they are unable to convert the increased demand to increased profits, since they lose money in costs of providing the services, including the fuel wasted hovering over major cities. Read more

Deposit Rates

Posted by: Uma Shashikant on Wed, Jul 28th, 2010

The quarterly review of monetary policy released on July 27th is likely to have an immediate impact on the pricing of bank deposits.  There are three reasons why this could be so. First, deposits have been growing at about 14% and credit at around 20% and the gap is expected to persist even after adjusting for credit demand from the telecom sector for spectrum payments. Read more

Investor Insights

Posted by: Uma Shashikant on Tue, Jul 27th, 2010

Franklin Templeton Asset Management (India) has commissioned CIEL to write the content for their quarterly investor magazine called "Investor Insights". We wrote the lead story, a section on key happenings, concepts, the Q&A section in the magazine. Read more

CIEL's Booklet for the India Invest Karo Campaign

Posted by: Uma Shashikant on Mon, Jul 26th, 2010

The Finance Minister flagged off the "India Invest Karo" campaign of UTI AMC which commenced from Gujarat, Assam and Kashmir simultaneously, reaching Kanyakumari in 100 days, covering over 100 locations en route. Read more

Train the Trainer Workshop

Posted by: Uma Shashikant on Sat, Jul 17th, 2010

We called 12 of our all-India trainers who have been associated with us for a workshop at Mumbai on July 6, 2010. The objective was to take them through the training content for the new NISM-MFD examination and the NISM- CPE training programme. Read more

MTM Impact on Short Term Debt Funds - Part 2

Posted by: Uma Shashikant on Thu, Jul 8th, 2010

The imposition of the new MTM regime on debt securities is expected to commence on August 1, 2010. The more-than-91-day tenor segment (i.e excluding liquid funds) is where the industry's AUM for this segment lies and therefore the concerns there are higher. Read more

The coming 91-day FMP boom

Posted by: Uma Shashikant on Fri, Jul 2nd, 2010

The base rate regime has kicked in with some surprises.  Banks have chosen to announce rates that are lower than those of SBI, sign of a bolder pricing regime in short-term markets. Most base rates that have been announced, subject to revision in a quarter, are still higher than prevailing short term rates. Read more

Credit for Content

Posted by: Uma Shashikant on Thu, Jul 1st, 2010

It is a strange world that content writers inhabit. While authors are placed on the cover of books and journalists given bylines for their writing, content writers seldom get the credit for what they do. Printing and production costs are seen as variable, while content is mostly treated as a fixed cost, measured in man-hours and 'bought' from the authors.  Royalties are tough to get and acknowledgements if any, are lost inside the inside pages. In the e-learning business, the claimants to content are so many, that the SMEs and IDs are mostly anonymous. At CIEL, we strongly protest this regime and have refused 'prestigious' assignments that asked us to write anonymous content.  In several instances, these pieces of writing have been branded by the buyer, sold at a profit, or distributed widely without the authors being mentioned.  Read more

New MTM Rules for Liquid and Debt Funds

Posted by: Uma Shashikant on Thu, Jul 1st, 2010

The Sebi circular changing the mark-to-market (MTM) rules for liquid and debt funds comes into effect today.  The summary provisions are: Read more

SEBI Circular on Time-frame for CPE Completion

Posted by: Uma Shashikant on Thu, Jul 1st, 2010

SEBI has clarified in a circular dated June 24, 2010 that all those who have to undergo the mandatory certification for mutual fund distribution should complete the NISM's CPE program before the expiry date of the certificate Read more