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

Carnage in Liquid Funds Explained

Posted by: Amit Trivedi and Uma Shashikant on Fri, Jul 19th, 2013

The RBI's measures to halt rupee depreciation led to a steep rise in short term market rates. NAVs of liquid funds fell sharply. This was a shock as it is generally presumed that liquid funds are free from market risk. This article attempts to explain this event. 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

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

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

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

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

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

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