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Transcript of Project %7b Axis Mutul Fund%7d
A
DISSERTATION REPORT
On
ANALASIS OF
AXIS MUTUAL FUND
Submitted by:BHUPENDRA SINGH ASWAL
ROLL NO. 520810891COURSE MBA-IV
CENTRE CODE NO. : 01713
SIKKIM MANIPAL UNIVERSITY OF HEALTH MEDICAL AND TECHNOLOGICAL SCIENCES
Distance Education Wing
1
ACKNOWLEDGEMENT
The present work is an effort to throw some light on “Axis Mutual Fund”. The work
would not have been possible to come to the present shape without the able guidance,
supervision and help to me by number of people.
With deep sense of gratitude I acknowledge the encouragement and guidance received
by my organizational guide Mr. Sudhir Kumar (Branch Manager) and other staff
members.
I convey my heartful affection to all those people who helped and supported me
during the course, for completion of my Project Report.
BHUPENDRA SINGH ASWAL
2
DECLARATION
I hereby declare that the project work entitled “AXIS Mutual
Fund" is an authentic work carried out by me at “SINO
SECURITIES” under worthy and esteemed guidance of, Managing
Director Mr Piyush Gupta
This work has not been submitted to any other university for
Award of any MBA Programme or any other programme.
BHUPENDRA SINGH ASWAL
MBA
Roll No.: 520810891
3
TABLE OF CONTENT
I INTRODUCTION
II REVIEW OF LITERATURE
III OBJECTIVES OF THE STUDY
IV SCOPE OF THE STUDY
V RESEARCH METHODOLOGY:
VI SEBI GUIDELINE REGARDING AXIS MUTUAL FUND
VI PERFORMANCE EVALUATION OF AXIS MUTUAL FUND
VII CONCLUSION & SUGGESTION
4
INTRODUCTION
AXIS Mutual Fund, the largest private sector Mutual Fund company in India with an
asset base of Rs 25,500 crores, will be the leading Fund Manager for Government of
India's newly created National Investment Fund(NIF).
Announcing this AXIS Asset Management Company Managing Director and Chief
Executive Officer(CEO) U K Sinha told newsmen here this evening that besides the
AXIS Mutual Fund, the other two leading financial institutions which were shortlisted
for the massive job were State Bank of India(SBI) and the Life Insurance
Corporation(LIC) of India.
He said the new fund had been created by the Centre with a view to investing the
entire disinvestment fund into the NIF corpus and reinvest them in health, education
and other social causes through a calculated manner.
Since the scheme was still in its preliminary stage, the government was yet to create a
separate corpus for the fund, which was announced only last month.
Referring to the corporate plan of AXIS Mutual Fund whose ownership had recently
changed hands following the purchase of its 25 per cent stake each by the country's
four leading banks and financial institutions like SBI, Bank of Baroda(BOB), Punjab
National Bank(PNB) and the LIC last month with a total capital infusion of Rs 1236
crores, Mr Sinha said under the new management they were planning to leverage their
own capabilities with a much higher target oriented growth.
AXIS AMC CEO, however, categorically ruled out the possibility of any clash of
interest among the new stake holders of the company in view of their similar business
intereste in terms of Mutual Fund.
Replying to a related query he said though each of these institutions had their own
mutual fund businesses, it would not clash in any manner with that of AXIS mutual
Fund since the agreement among them would prevent them from doing so.
In the wake of over 33 per cent growth in the Indian Mutual Fund industry since April
this year, Mr Sinha said it had enabled the AXIS Mutual Fund to increase its Asset
base by over Rs 5,500 crores during this period from Rs 20,000 crores achieved till
5
March. " We are confident to maintain a similar growth path in the coming years too."
About the huge potential and the actual position, Mr Sinha claimed that AXIS Mutual
Fund had already been enjoying about 67 per cent domestic market share of the
country's around one crore investors in mutural fund products.
" It is only the tip of an ice berg with about five crore more people awaiting to invest
in the country's burgeoing mutual fund industry with full realisation of its risk
factotrs, he said.
About their product portfolios, Mr Sinha said at present a total of 56 products were
running successfully catering to different demands of the people.
"We are now planning to introduce three more products primarily in equity market
area by next week", Mr Sinha said replying to another query.
After becoming a private company last month, AXIS Mutual Fund is mulling
aggressive foray with new products catering to investors across all risk profiles.
“We are going to kick-start the initiative by announcing three new products within a
week. The schemes will be open for subscription in January,” said U.K. Sinha,
managing director and chief executive officer, AXIS Mutual Fund. “We will offer
both pure equity and balanced schemes to cater to investors with various risk
profiles,” he added.
The country’s largest fund house currently manages Rs 25,500 crore worth of assets
and has an investor base of 67.7 lakh across 50 schemes.
“The mutual fund industry has so far been able to tap only a tiny fraction of the
potential investors in the country — the whole industry is serving just one crore
investors,” elaborated Sinha. “Being the pioneer asset management company in the
country, AXIS will take initiatives to increase the reach of mutual funds to more
people,” he added.
AXIS Asset Management Company became a private company last month with the
four sponsors, Life Insurance Corporation of India, State Bank of India, Punjab
National Bank and Bank of Baroda paying back the government its equity worth Rs
1,236.95 crore in the company. Each sponsor now owns a 25 per cent stake in the
6
company and under the terms of the new agreement, the owners will not be allowed to
change their shareholding pattern.
“We are also keen to increase our exposure in the overseas market through the
offshore funds,” said Sinha.
“AXIS Mutual Fund is also exploring investment opportunities in emerging sectors
like the knowledge process outsourcing, textiles and biotech through the private
equity and venture capital arm, AXIS Venture Funds,” said D. S. R. Murthy,
executive director, AXIS Asset Management Company.
And, the move has also started paying off. “IBM has struck a preferred relationship
with us because of our investments in the technology products and companies,” said
Rajakumar, managing director and chief executive officer, AXIS Venture Funds. The
computer giant is also weighing options to pick up a stake in AXIS Venture Funds.
AXIS Venture Funds floated a $150-million fund in April. The fund has received
encouraging responses from top investors across West Asia, Singapore and Europe.
“The fund has mobilised $140 million as soft commitment from the investors and we
are expecting to close it with a total collection of $180 million by March next year,”
Rajakumar added.
The Government of India has shortlisted AXIS, along with LIC and SBI, as the fund
managers for the National Investment Fund — a composite fund constructed with the
proceeds disinvestment of public sector units. The returns generated by this fund will
be used for social sector projects.
IBM is eyeing a stake in AXIS Venture, a 100 percent subsidiary of AXIS Asset
Management Co. According to the highly placed sources, AXIS Mutual Fund ruled
out a strategic deal in the immediate future, they referred to a number of top
international outfits that have shown interest in the venture fund's recent initiatives.
AXIS venture firm’s Managing Director, K E C Rajakumar said, “IBM is indeed
interested in striking a "preferred relationship" with the AXIS MF subsidiary. He,
however, mentioned that no stake sale is on the cards.”
He said, "We intended to raise $150 million, but are now hopeful of mobilizing $180
million or so.” The funds so raised will be allocated to promising companies operating
7
in what are typically called “emerging” businesses, such as, biotechnology,
knowledge process outsourcing and textiles.
A battery of high-power public sector fund managers could take the field in the
proposed New Pension System (NPS), with the Pension Fund Regulatory and
Development Authority (PFRDA) taking a positive view on all the State-owned
entities that have till date expressed interest in handling pension accumulations.
Among the PSUs that have approached the interim PFRDA to express their intent of
seeking a Pension Fund Manager (PFM) licence are SBI, LIC, and Punjab National
Bank.
AXIS Mutual Fund has also expressed its intent to participate as a fund manager in
the NPS, though till recently it had not formally approached the regulator.
Under the PFRDA Bill, the regulator would be mandated to licence "at least one"
public sector fund manager under the NPS.
However, the authority is of the opinion that all the PSU entities that have sought to
play a role have more than adequate credentials to handle the pension contributions.
"Even for PSUs there would be no limit. Why will I restrict the number of PSU fund
mangers? The reach, the manpower, the financial strength of the public sector entities
that have approached us is hard to match," D. Swarup, Chairman of the interim
PFRDA, told Business Line.
The PFRDA's open mind on the number of PSU fund mangers could go a long way in
allaying the lingering concerns of the Left parties that have expressed their fears over
pension accumulations being handed over to private fund managers. The choice of
opting for private or public sector fund managers would be left to the individual
subscribers. |
The Government recently decided to incorporate an amendment to the PFRDA Bill to
include a clause that "at least one of the pension fund managers shall be a
Government company or a wholly-owned Government company or Government
companies."
8
The decision was conveyed to the Left parties at a meeting to iron out differences
over the pension reforms.
Earlier, a Parliamentary Standing Committee had asked the Government to
incorporate a specific clause that would make it mandatory to have at least one PSU
fund manager in the NPS.
The Committee had said that the presence of a PSU entity would be "in the interest of
the subscribers."
Though it had appeared that political consensus had been reached on the PFRDA Bill,
it now seems that certain issues remain to be ironed out before the Bill gets
Parliament's nod.
Besides fears over private fund managers handling pension contributions, the Left
parties have also said that there might be a need to ensure minimum guaranteed
returns to subscribers to ensure income security in old age.
AXIS Mutual Fund has announced a tax-free dividend of 50 per cent under its AXIS
Dynamic Equity Fund, for which the record date is December 27. AXIS Mutual Fund
has announced a tax-free dividend of 50 per cent (Rs 5 per unit on a face value of Rs
10) in its open-end equity Fund - AXIS Dynamic Equity Fund.
This is the second dividend declared by the scheme during this calendar year. The last
dividend declared by the scheme was 25 per cent in February, 2007. With this
dividend pay out, the scheme has distributed a total dividend of 75 per cent (Rs 7.50
per unit on face value of Rs 10) during calendar year 2007.
All unit holders registered under the dividend option of AXIS Dynamic Equity Fund
as on December 27, 2007 will be eligible for this dividend. Also investors who join
the dividend option of the scheme on or before the record date will be eligible for the
dividend.
AXIS Dynamic Equity Fund was launched in September 2006 as an open-ended
equity scheme. The objective of the scheme is to generate capital appreciation by
primarily investing in equity/equity related instruments. As a defensive strategy
arising out of market conditions, the scheme may also invest in debt/money market
instruments. |
9
AXIS Dynamic Equity Fund is positioned as an aggressively managed equity fund
primarily focussed on mid cap/ small cap companies. A number of investment
opportunities have been identified which will generate handsome returns for the unit
holders going forward.
The fund continues to be bullish on the Indian equity markets over a 2-3 year horizon
on the back of strong GDP growth momentum and the resultant corporate earnings
growth numbers. Over the last one year; AXIS Dynamic Equity Fund has yielded
48.96 per cent as against 33.28 per cent given by its benchmark PS&P CNX- Nifty, as
on December 5, 2007.
Earlier, only insurance companies were floating unit-linked plans. Now, mutual funds,
too, have these. Is the line between units and mutual funds blurring? Before
answering this question, one should ask oneself if unit-linked plans offered by
insurance companies are the same as investing in similar plans of mutual funds. Most
people believe unit-linked plans offered by insurance companies are superior products
compared with MFs. This is because insurance companies have positioned this
product as a savings product, which offers the benefit of insurance as well as market-
related returns. Before we get into the nitty-gritty of the issue, let us first understand
what the differences between insurance and mutual funds are.
First, insurance is a transfer technique whereby the insured (investor) transfers his risk
of financial loss to another party, the insurance company or insurer. The insurance
company, in turn, makes good the losses arising due to an uncertain event and
distributes the costs of insuring these loses among all of its policyholders. Therefore,
the primary aim of insurance products is to help in risk management, in the handling
of an uncertain event. Therefore, people who put money in insurance companies for
the purpose of earning good returns are going against the fundamental purpose for
which insurance companies came into existence i.e., risk management.
MFs, on the other hand, refer to a process of pooling of investments that are invested
in the capital market by professional fund managers, to generate market-related
returns for investors. In light of the above, any product which is predominantly
investment-oriented should be a mutual fund product, as these funds are better
equipped and have the skill to manage such products.
10
The core activity of a mutual fund is to invest money on behalf of its investors and
generate market-related returns. The term ‘insurance cover’ that is provided by some
mutual funds is purely a value-added service to investors. It is pertinent to note that
mutual funds are not equipped to provide insurance cover, as it is not their core
business; they buy the insurance cover for their unit-holders from an insurance
company. This is unlike insurance companies, who invest the money themselves,
rather than asking an asset management company to do so.
In our country, insurance products had always been sold with a savings element in
them. Over the past few years, ULIPs of insurance products have become popular
owing to the boom in the equity market. However, the first unit-linked insurance
product i.e., AXIS ULIP, was launched by a mutual fund in 1971. Although the first
ULIP was launched by a mutual fund, it has not been possible for mutual funds to
compete in this market, due to the absence of a level playing field. The limits on
expenses, the rules and regulations, the level of transparency, all are skewed in favour
of insurance companies, making it difficult for mutual funds to compete.
It is immaterial who launches ULIP products, but what are required are uniform rules
and regulations. In the absence of these, insurance companies will continue to poach
in a territory alien to them. And, perhaps, get away, as the mutual funds may not raise
a hue and cry, as their sponsors may also have an insurance company in their stable.
In fact, insurance companies should concentrate more on ‘risk management products’,
which is their core competence, and leave the floor open to mutual fund houses to
manage investment products. There is a lot of scope for launch of such products and it
is ironical that not many insurance companies are focussing on term assurance
products and other risk products without any savings element, which is their core
competence.
On the other hand, with equity schemes of mutual funds also tax exempt — almost on
par with insurance products—mutual funds should launch more ULIPs, with the
insurance companies providing term assurance cover. Investors will be very much
benefited, as they get lower expense ratios, professional fund management, better
transparency and also insurance cover provided by insurance companies. It will be a
win-win situation for all the players. —The writer is vice-
president, AXIS Asset
11
IBM is eyeing a stake in AXIS Venture, a 100 per cent subsidiary of AXIS Asset
Management Co.
While highly placed sources at AXIS Mutual Fund ruled out a strategic deal in the
immediate future, they referred to a number of top international outfits that have
shown interest in the venture fund's recent initiatives.
K.E.C. Rajakumar, Managing Director, AXIS Venture, told Business Line that IBM is
indeed interested in striking a "preferred relationship" with the AXIS MF subsidiary.
He, however, mentioned that no stake sale is on the cards. |
AXIS Venture's latest efforts at mobilising commitments are now expected to cross its
targets, it is pointed out. "We intended to raise $150 million, but are now hopeful of
mobilising $180 million or so," said Rajakumar.
The funds so raised will be allocated to promising companies operating in what are
typically called "emerging" businesses, said D.S.R. Murthy, Executive Director,
AXIS MF, adding that these may include biotechnology, knowledge process
outsourcing and textiles.
An earlier fund, Murthy further informed has seen significant growth (CAGR) of
about 46 per cent, marked by major returns in one or two cases. "These have been
multi-baggers," he remarked.
"A Mutual Fund is an ideal investment vehicle where a number of investors come
together to pool their money with common investment goal. Each Mutual Fund with
different type of schemes is managed by respective Asset Management Company
(AMC). An investor can invest his money in one or more schemes of Mutual Fund
according to his choice and becomes the unit holder of the scheme. The invested
money in a particular scheme of a Mutual Fund is then invested by fund manager in
different types of suitable stock and securities, bonds and money market instruments.
Each Mutual Fund is managed by qualified professional man, who use this money to
create a portfolio which includes stock and shares, bonds, gilt, money-market
instruments or combination of all. Thus Mutual Fund will diversify your portfolio
over a variety of investment vehicles. Mutual Fund offers an investor to invest even a
small amount of money.
12
"Mutual Funds schemes are managed by respective Asset Management Companies
sponsored by financial institutions, banks, private companies or international firms.
The biggest Indian AMC is AXIS while Alliance, Franklin Templeton etc are
international AMC's.
"Mutual Funds offers several benefits to an investor such as potential return, liquidity,
transparency, income growth, good post tax return and reasonable safety. There are
number of options available for an investor offered by a mutual fund.
Source: Website of "eastindiavyapaar.com"
Mutual Funds - Investment Objectives and Valuation Policies
What are Mutual Funds?
A Mutual fund is an organization that invests in a diversified portfolio of financial
securities on behalf of a pool of subscribers to its schemes. These securities can be in
the form of equity, debt instruments, money market instruments etc., or a mix of these
securities, depending on the scheme objectives.
Why is it such a good idea to invest in Mutual Funds?
Diversification : Mutual Funds invest their corpus in diversified portfolio’s which
reduces the risk contained in the investment. This also means that you can invest a
small sum of Rs.5000/- and still be a part of a portfolio where the market value of
single scrip might be much more than the total investment.
Research: These mutual funds perform an extensive research of the company before
making an investment decision giving you the benefit of expert advice.
Liquidity: These funds are extremely liquid, some of them even have features like
across-the-counter redemption. This feature is especially useful at times when the
market is rising or falling.
Professionally Managed: These funds are managed by professionals who have the
required expertise in buying and selling stocks. As a result they make better decisions
on entering and exiting a particular stock, which is very crucial for the overall
13
performance of a portfolio. Moreover, mutual fund investment also rids the investor
of maintaining records, eliminates hassles with the broker for payment, delivery and
other arduous back office tasks.
Savings on transaction costs: As purchases and sales are done in bigger quantities,
the funds also get the advantages of lesser brokerage and other reduced transaction
costs.
Tax Advantages: In India these funds become even more attractive because of the
tax advantages, like indexation benefits , long term capital gains tax , tax free
dividends and much more.
Investment Objective (Regulation: 43)
The moneys collected under any scheme of a mutual fund shall be invested only in
transferable securities in the money market or in the capital market or in privately
placed debentures or securitised debts.
Provided that moneys collected under any money market scheme of a mutual fund
shall be invested only in money market instruments in accordance with directions
issued by the Reserve Bank of India;
Provided further that in case of securitised debts such fund may invest in asset backed
securities and mortgaged backed securities.
Investment, & Borrowing, Restriction (Regulation: 44)
1. Any investments to be made under regulation 43 shall be invested subject to
the investment restriction specified in the Seventh Schedule.
1. A) The mutual fund having an aggregate of securities which are worth Rs.10
crores or more, as on the latest balance sheet date, shall subject to such
instructions as may be issued from time to time by the Board settle their
transactions entered on or after January 15, 1998 only through dematerialised
securities.
14
2. The mutual fund shall not borrow except to meet temporary liquidity needs of
the mutual funds for the purpose of repurchase, redemption of units or
payment of interest or dividend to the unit holders.
Provided that the mutual fund shall not borrow more than 20% of the net asset of the
scheme and the duration of such a borrowing shall not exceed a period of six
months.
3. The mutual fund shall not advance any loans for any purpose.
4. The mutual fund may lend securities in accordance with the Stock Lending
Scheme of the Board.
Option Trading (Regulation: 45)
The funds of a scheme shall not in any manner be used in option trading or in short
selling or carry forward transactions.
Provided that mutual funds shall enter into derivatives transactions in a recognised
stock exchange for the purpose of hedging and portfolio balancing, in accordance
with the guidelines issued by the Board.
Underwriting of Securities (Regulation: 46)
Mutual funds may enter into underwriting agreement after obtaining a certificate of
registration in terms of the Securities and Exchange Board of India (Underwriters)
Rules and Securities and Exchange Board of India (Underwriters) Regulations, 1993
authorising it to carry on activities as underwriters.
1. Explanation: For the purpose of these regulations, the underwriting obligation
will be deemed as if investments are made in such securities.
2. The capital adequacy norms for the purpose of underwriting shall be the net
asset of the scheme.
Provided that the underwriting obligation of a mutual fund shall not at any time
exceed the total net asset value of the scheme.
Method of valuation of investments (Regulation: 47)
15
Every mutual fund shall compute and carry out valuation of its investments in its
portfolio and publish the same in accordance with the valuation norms specified in
Eighth Schedule.
Computation of Net Asset Value (Regulation: 48)
1. Every mutual fund shall compute the Net Asset Value of each scheme by
dividing the net assets of the scheme by the number of units outstanding on the
valuation date.
2. The Net Asset Value of the scheme shall be calculated and published at least
in two daily newspapers at intervals of not exceeding one week:
Provided that the Net Asset Value of any scheme for special target segment or any
monthly income scheme which are not mandatorily required to be listed in any stock
exchange under Regulation 32, may publish the Net Asset Value at monthly or
quarterly intervals as may be permitted by the Board.
Pricing of Units (Regulation: 49)
1. The price at which the units may be subscribed or sold and the price at which
such units may at any time be repurchased by the mutual fund shall be made available
to the investors.
2. The mutual fund, in case of open ended scheme, shall at least once a week
publish in a daily newspaper of all India circulation, the sale and repurchase price of
units.
3. While determining the prices of the units, the mutual fund shall ensure that the
repurchase price is not lower than 93% of the Net Asset Value and the sale price is
not higher than 107% of the Net Asset Value.
Provided that the repurchase price of the units of a close ended scheme shall not be
lower than 95% of the Net Asset Value:
16
Provided further that the difference between the repurchase price and the sale price of
the unit shall not exceed 7% calculated on the sale price.
4. The price of units shall be determined with reference to the last determined
Net Asset Value as mentioned in sub-regulation (3) unless,
a. the scheme announces the Net Asset Value on a daily basis; and
b. the sale price is determined with or without a fixed premium added to the
future net asset value which is declared in advance.
Mutual Funds - Scope for Growth and Development in India
Mutual Fund Industry in its true spirit rooted in a free market and oriented towards
competitive functioning with the dedicated goal of service to the investors can be said
to have settled in India only in 1993. However the industry took its roots much earlier
with the setting up of the Unit Trust In India (AXIS) in 1964 by the Government of
India. During the last 36 years, AXIS has grown to be a dominant player in the
industry with assets of over Rs.72,333.43 Crores as of March 31, 2000. The AXIS is
governed by a special legislation, the Unit Trust of India Act, 1963. In 1987 public
sector banks and insurance companies were permitted to set up mutual funds and
accordingly since 1987, 6 public sector banks have set up mutual funds. Also the two
Insurance companies LIC and GIC established mutual funds. Securities Exchange
Board of India (SEBI) formulated the Mutual Fund (Regulation) 1993, which for the
first time established a comprehensive regulatory framework for the mutual fund
industry. Since then several mutual funds have been set up by the private and joint
sectors.
The Unit Trust of India Chairman M. Damodaran today ruled out the possibility of
dumping equities in its flagship scheme US-64 as it might have an adverse effect on
the market, but threatened to sell non-performing shares to competitor companies at a
higher price.
“AXIS will not dump the shares it is holding just to achieve that objective (increasing
the debt exposure in US-64), but was working out schemes to get maximum returns
from both non-performing and performing assets,” Damodaran told NRI investors
here.
17
“One of the factors holding the market down now may be the feeling that AXIS may
download shares to meet redemptions once it accepts NAV-based listing next month.
But we are not going to sell to meet fund demands,” he said.
The AXIS chief, however, threatened to sell unattractive shares to their competitors at
attractive prices.
AXIS will offer its stake in companies yielding nothing, to their rivals if these
companies themselves did not buy back the shares, he said, adding that “we are
concerned only with investors’ interests.”
Damodaran assured the NRI investors in the Gulf that US-64 was firmly on the road
to recovery and suggested that investors stay with the fund for better returns.
He told reporters that the US-64, which will be traded on the basis of its net asset
value (NAV) from January 1 2002, was being restructured along with other schemes
to reduce the equity exposure and increase debt exposure.
Damodaran also said AXIS will not launch assured-return close-ended schemes
though it may have monthly income schemes with variable returns.
He said the AXIS board will consider the recommendations of the Malegam
Committee on restructuring India’s largest mutual fund at the end of this month or
early next month.
He also clarified that AXIS has not yet approached Infosys Technologies with any
proposal to convert its entire equity holding in the IT company into American
Depository Receipts (ADRs) for offloading them in the international markets.
Damodaran said there is no proposal to convert its 5.6 per cent holding in the it major
to ADRs and market abroad to realise a higher value. PTI
Growth of Mutual Fund Business in India
The Indian Mutual fund business has passed through three phases. The first phase was
between 1964 and 1987, when the only player was the Unit Trust of India, which had
a total asset of Rs. 6,700/- crores at the end of 1988. The second phase is between
18
1987 and 1993 during which period 8 funds were established (6 by banks and one
each by LIC and GIC). The total assets under management had grown to Rs. 61,028/-
crores at the end of 1994 and the number of schemes were 167. The third phase began
with the entry of private and foreign sectors in the Mutual fund industry in 1993.
Kothari Pioneer Mutual fund was the first fund to be established by the private sector
in association with a foreign fund. The share of the private players has risen rapidly
since then.
Within a short period of seven years after 1993 the growth statistics of the business of
Mutual Funds in India is given in the table below:
Net Assets of Mutual Funds as at 3l.03.2000 [Source: Website of SEBI]
The net assets of all domestic schemes of mutual funds were Rs.1,07,946.10 crores as
on March 31, 2000 as against Rs. 68,193.08 crores as on March 31, 1999 . The details
are given below :
Amount
(Rs Crs)
Percentage
(%)
AXIS 72,333.43 67.00
Public Sector 10,444.78 9.68
Private Sector 25,167.89 23.32
Total 1,07,946.10 100.00
During the year 1999-2000, the share of AXIS in the total assets of the mutual funds
industry has declined to 67% from 77.9% in 1998-99. Net assets of other public sector
mutual funds have also shown a decline from 12.09% in 1998-99 to 9.68% in 1999-
2000. However, net assets of private sector mutual funds have increased from 9.97%
in 1998-99 to 23.32% in the year 1999-2000.
19
There are 34 private Mutual Funds in the fray and they have seized about 25% of the
market share in the brief period of 7 years, mobilising above Rs.25000 Crores from
the public
Scope for Development of Mutual Fund Business in India
A Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost. India has a burgeoning population of middle class now estimated
around 300 million. A typical Indian middle class family can have liquid savings
ranging from Rs.2 to Rs.10 Lacs today. Investments in Banks are liquid and safe, but
with the falling rate of interest offered by Banks on Deposits, it is no longer attractive.
At best a part can be saved in bank deposits, but what is the other sources of
investment for the common man? Mutual Fund is the ready answer. Viewed in this
sense globally India is one of the best markets for Mutual Fund Business, so also for
Insurance business. This is the reason that foreign companies compete with one
another in setting up insurance and mutual fund business units in India. The sheer
magnitude of the population of educated white collar employees provides unlimited
scope for development of Mutual Fund Business in India.
The alternative to mutual fund is direct investment by the investor in equities and
bonds or corporate deposits. All investments whether in shares, debentures or deposits
involve risk: share value may go down depending upon the performance of the
company, the industry, state of capital markets and the economy; generally, however,
longer the term, lesser the risk; companies may default in payment of interest/
principal on their debentures/bonds/deposits; the rate of interest on an investment may
fall short of the rate of inflation reducing the purchasing power. While risk cannot be
eliminated, skillful management can minimise risk. Mutual Funds help to reduce risk
through diversification and professional management. The experience and expertise of
Mutual Fund managers in selecting fundamentally sound securities and timing their
purchases and sales, help them to build a diversified portfolio that minimises risk and
maximises returns.
The Advantages of Investing in a Mutual Fund
The advantages of investing in a Mutual Fund are:
20
1. Professional Management
The investor avails of the services of experienced and skilled professionals
who are backed by a dedicated investment research team which analyses the
performance and prospects of companies and selects suitable investments to
achieve the objectives of the scheme.
2. Diversification
Mutual Funds invest in a number of companies across a broad cross-section of
industries and sectors. This diversification reduces the risk because seldom do
all stocks decline at the same time and in the same proportion. You achieve
this diversification through a Mutual Fund with far less money than you can
do on your own.
3. Convenient Administration
Investing in a Mutual Fund reduces paperwork and helps you avoid many
problems such as bad deliveries, delayed payments and unnecessary follow up
with brokers and companies. Mutual Funds save your time and make investing
easy and convenient.
4. Return Potential
Over a medium to long-term, Mutual Funds have the potential to provide a
higher return as they invest in a diversified basket of selected securities.
5. Low Costs
Mutual Funds are a relatively less expensive way to invest compared to
directly investing in the capital markets because the benefits of scale in
brokerage, custodial and other fees translate into lower costs for investors.
6. Liquidity
In open-ended schemes, you can get your money back promptly at net asset
value related prices from the Mutual Fund itself. With close-ended schemes,
you can sell your units on a stock exchange at the prevailing market price or
avail of the facility of direct repurchase at NAV related prices which some
close-ended and interval schemes offer you periodically.
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7. Transparency
You get regular information on the value of your investment in addition to
disclosure on the specific investments made by your scheme, the proportion
invested in each class of assets and the fund manager's investment strategy and
outlook.
8. Flexibility
Through features such as regular investment plans, regular withdrawal plans
and dividend reinvestment plans, you can systematically invest or withdraw
funds according to your needs and convenience.
9. Choice of Schemes
Mutual Funds offer a family of schemes to suit your varying needs over a
lifetime.
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10. Well Regulated
All Mutual Funds are registered with SEBI and they function within the
provisions of strict regulations designed to protect the interests of investors.
The operations of Mutual Funds are regularly monitored by SEBI.
In the following chapters we propose to discuss all relevant information about
Mutual Funds in India, the regulatory and legal structure governing them that
a common investor ought to know. The literature is mostly drawn from the
website of SEB, but suitably tabulated to provide ready information.
The origin of mutual fund industry in India is with the introduction of the
concept of mutual fund by AXIS in the year 1963. Though the growth was
slow, but it accelerated from the year 1987 when non-AXIS players entered
the industry.
In the past decade, Indian mutual fund industry had seen a dramatic
imporvements, both qualitywise as well as quantitywise. Before, the monopoly
of the market had seen an ending phase, the Assets Under Management
(AUM) was Rs. 67bn. The private sector entry to the fund family rose the
AUM to Rs. 470 bn in March 1993 and till April 2007, it reached the height of
1,540 bn.
Putting the AUM of the Indian Mutual Funds Industry into comparison, the
total of it is less than the deposits of SBI alone, constitute less than 11% of the
total deposits held by the Indian banking industry.
The main reason of its poor growth is that the mutual fund industry in India is
new in the country. Large sections of Indian investors are yet to be
intellectuated with the concept. Hence, it is the prime responsibility of all
mutual fund companies, to market the product correctly abreast of selling.
The mutual fund industry can be broadly put into four phases according to the
development of the sector. Each phase is briefly described as under.
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Brief History:
First Phase - 1964-87
Unit Trust of India (AXIS) was established on 1963 by an Act of Parliament. It was
set up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 AXIS was de-linked
from the RBI and the Industrial Development Bank of India (IDBI) took over the
regulatory and administrative control in place of RBI. The first scheme launched by
AXIS was Unit Scheme 1964. At the end of 1988 AXIS had Rs.6,700 crores of assets
under management.
Second Phase - 1987-1993 (Entry of Public Sector Funds)
Entry of non-AXIS mutual funds. SBI Mutual Fund was the first followed by
Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian
Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund
(Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets
under management.
Third Phase - 1993-2006 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993
was the year in which the first Mutual Fund Regulations came into being, under
which all mutual funds, except AXIS were to be registered and governed. The
erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private
sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more
comprehensive and revised Mutual Fund Regulations in 1996. The industry now
functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual
funds setting up funds in India and also the industry has witnessed several mergers
and acquisitions. As at the end of January 2006, there were 33 mutual funds with total
assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets
under management was way ahead of other mutual funds.
Fourth Phase - since February 2006
This phase had bitter experience for AXIS. It was bifurcated into two separate
entities. One is the Specified Undertaking of the Unit Trust of India with AUM of
24
Rs.29,835 crores (as on January 2006). The Specified Undertaking of Unit Trust of
India, functioning under an administrator and under the rules framed by Government
of India and does not come under the purview of the Mutual Fund Regulations.
The second is the AXIS Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It
is registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile AXIS which had in March 2000 more than Rs.76,000
crores of AUM and with the setting up of a AXIS Mutual Fund, conforming to the
SEBI Mutual Fund Regulations, and with recent mergers taking place among different
private sector funds, the mutual fund industry has entered its current phase of
consolidation and growth. As at the end of September, 2007, there were 29 funds,
which manage assets of Rs.153108 crores under 421 schemes
Concept:
There are many entities involved and the diagram below illustrates the
organisational set up of a mutual fund:
Organisation of a Mutal Fund
25
Features:
Unique Features of AXIS their Impact on its Functioning [Extract from the Report of
"Corporate Positioning" Committee]
In the initial stages, AXIS had been performing a hybrid role of both a financial
institution and a mutual fund. However, over the last few years, its role as a financial
institution has significantly diminished and it has positioned itself purely as the largest
mutual fund in the country. There is also a significant trend emerging which suggests
that financial institutions will gradually wither away or merge into universal banks. In
this scenario, commercial banks and mutual funds will emerge as the primary
institutions for the mobilisation of household savings. This reinforces the need for
AXIS to evolve as a pure mutual fund. At the same time, consideration has to be
given to the fact that AXIS has promoted and holds controlling interest in a number of
institutions outside the pure mutual fund industry.
As noted earlier, AXIS's management structure is at variance with the structure
prescribed for mutual funds under SEBI regulations. These regulations provide for
four separate entities, namely a Sponsor, an Independent Trustee, an Asset
Management Company and the Fund. It is necessary that AXIS as the largest player in
the Mutual Fund industry should, as recommended by the Vaghul Committee, lend
itself to SEBI's regulatory jurisdication and conform to the form of structure
prescribed in SEBI regulations. As stated earlier, out of 73 domestic schemes, 67
schemes have already been brought under SEBI regulations and apart from US-64 and
SUS-99, the remaining schemes have finally suspended sales and/or are nearing
termination. It only remains for the structure of AXIS also to be made SEBI
compliant.
While the present structure of AXIS provides for separate Asset Management
Committees for US-64, equity schemes and for income/debt schemes, the degree of
control exercised and direction imparted by these Committees appears to be restricted
and inadequate. The key mandate of the Committees is to review performance of unit
schemes of AXIS and provide guidance. The Committees discharge this role of
independent review of scheme performance through the mechanism of periodic
meetings. Given the limitation of a "review committee" format, the Committees have
not found it possible to resolve "embedded" problems stemming from "historical"
decisions. The Committees, therefore, cannot replace Asset Management Companies.
26
There is therefore need for an independent Trustee and an independent AMC, as
provided under SEBI regulations with wider powers of control and direction.
AXIS has no identified Sponsor but the institutions, which contributed to the initial
capital of Rs.5 crores and, crores in 1999, may be considered as Sponsoring
Institutions. SEBI regulations impose certain responsibilities and obligations on
sponsors and it would be difficult to discharge these responsibilities and obligations
when there are a large number of sponsors. It is therefore necessary that the Sponsor
should be a separate company. It is suggested that this company can be formed with
the initial shareholders being the Sponsoring Institutions who will convert the whole
or part of their present holdings in the initial capital of Rs.5 crores and the additional
contribution of Rs.445.50 crores made in June 1999 into the capital of the Sponsoring
Company. This conversion can be made at the NAV of the units when US-64
becomes NAV based. It is desirable that no single member of the Sponsoring
Institutions ultimately holds more than 25% of the ultimate capital of the Sponsoring
Company, particularly since many of them already own or have participation in
AMCs managing other mutual funds.
With the increase in mutual fund players in India, a need for mutual fund association
in India was generated to function as a non-profit organisation. Association of Mutual
Funds in India (AMFI) was incorporated on 22nd August, 1995.
AMFI is an apex body of all Asset Management Companies (AMC) which has been
registered with SEBI. Till date all the AMCs are that have launched mutual fund
schemes are its members. It functions under the supervision and guidelines of its
Board of Directors.
Association of Mutual Funds India has brought down the Indian Mutual Fund
Industry to a professional and healthy market with ethical lines enhancing and
maintaining standards. It follows the principle of both protecting and promoting the
interests of mutual funds as well as their unit holders.
27
The objectives of Association of Mutual Funds in India
The Association of Mutual Funds of India works with 30 registered AMCs of the
country. It has certain defined objectives which juxtaposes the guidelines of its Board
of Directors. The objectives are as follows:
This mutual fund association of India maintains a high professional and ethical
standards in all areas of operation of the industry.
It also recommends and promotes the top class business practices and code of
conduct which is followed by members and related people engaged in the
activities of mutual fund and asset management. The agencies who are by any
means connected or involved in the field of capital markets and financial
services also involved in this code of conduct of the association.
AMFI interacts with SEBI and works according to SEBIs guidelines in the
mutual fund industry.
Association of Mutual Fund of India do represent the Government of India, the
Reserve Bank of India and other related bodies on matters relating to the Mutual
Fund Industry.
It develops a team of well qualified and trained Agent distributors. It
implements a programme of training and certification for all intermediaries and
other engaged in the mutual fund industry.
AMFI undertakes all India awarness programme for investors inorder to
promote proper understanding of the concept and working of mutual funds.
At last but not the least association of mutual fund of India also disseminate
informations on Mutual Fund Industry and undertakes studies and research
either directly or in association with other bodies.
The sponsorers of Association of Mutual Funds in India
Bank Sponsored
SBI Fund Management Ltd.
BOB Asset Management Co. Ltd.
Canbank Investment Management Services Ltd.
AXIS Asset Management Company Pvt. Ltd.
Institutions
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GIC Asset Management Co. Ltd.
Jeevan Bima Sahayog Asset Management Co. Ltd.
Private Sector
Indian:-
BenchMark Asset Management Co. Pvt. Ltd.
Cholamandalam Asset Management Co. Ltd.
Credit Capital Asset Management Co. Ltd.
Escorts Asset Management Ltd.
JM Financial Mutual Fund
Kotak Mahindra Asset Management Co. Ltd.
Reliance Capital Asset Management Ltd.
Sahara Asset Management Co. Pvt. Ltd
Sundaram Asset Management Company Ltd.
Tata Asset Management Private Ltd.
Predominantly India Joint Ventures:-
Birla Sun Life Asset Management Co. Ltd.
DSP Merrill Lynch Fund Managers Limited
HDFC Asset Management Company Ltd.
Predominantly Foreign Joint Ventures:-
ABN AMRO Asset Management (I) Ltd.
Alliance Capital Asset Management (India) Pvt. Ltd.
Deutsche Asset Management (India) Pvt. Ltd.
Fidelity Fund Management Private Limited
Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.
HSBC Asset Management (India) Private Ltd.
ING Investment Management (India) Pvt. Ltd.
Morgan Stanley Investment Management Pvt. Ltd.
Principal Asset Management Co. Pvt. Ltd.
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Prudential ICICI Asset Management Co. Ltd.
Standard Chartered Asset Mgmt Co. Pvt. Ltd
AXIS Mutual Fund ties up with Dena Bank for distributing its MF schemes
AXIS Mutual Fund (AXIS MF) and Dena Bank today announced a strategic
tie-up for distribution of AXIS MF schemes. Under the agreement, Dena Bank will
offer the entire bouquet of AXIS MF's schemes across the bank's selected branches
September 12, 2007: AXIS Mutual Fund (AXIS MF) and Dena Bank today
announced a strategic tie-up for distribution of AXIS MF schemes. Under the
agreement, Dena Bank will offer the entire bouquet of AXIS MF's schemes across the
bank's selected branches.
Presently AXIS MF (with assets under management of over Rs.25000 crore) reaches
out to its investors through its wide distribution network comprising 65 Financial
Centers (UFCs), 271 Chief Representative offices, 58 Chief Agents, over 19000
AMFI certified Financial Advisors and through tie-ups with several Banks and
Department of Post.
With today's tie-up, AXIS MF is further enhancing its distribution capabilities. AXIS
MF will now also be offering its schemes initially through 80 branches of Dena Bank
including 41 FinMart branches across India .
Announcing the AXIS MF's tie-up with Dena Bank, Dr R H Patil , Chairman, AXIS
AMC said, "This initiative reflects AXIS MF's strategy to rapidly expand in the retail
market and value-add its access network to complement the Mutual Fund's growth
strategy in the Indian mutual fund sector. With this tie-up millions of customers of
Dena Bank will get an opportunity to invest in various schemes of AXIS MF closer to
their doorstep at the branches where they do their banking transactions."
"Dena Bank has got a dominant presence in Gujarat and Maharashtra which happen to
be important retail markets for AXIS MF." he added
On the occasion, Shri M V Nair , Chairman and Managing Director, Dena Bank said,
“The signing of our Agreement today is a very happy occasion for both Dena Bank
and AXIS Mutual Fund. It is a significant milestone for the Bank and it is the first tie
up the Bank has made to offer various Mutual Fund products to its customers. The
Bank will endeavour to cross sell its products also with this tie up.
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Shri M V Nair said, "In a rapidly changing scenario, the lender - borrower
relationship which Banks traditionally had with customers is giving way to a different
kind of business relationship and the Banks are now offering a variety of financial
services to the customers to meet their changing aspirations. The tie up between Dena
Bank and AXIS MF is a step towards converting the bank branch into a financial
supermarket which caters to all the financial needs of the customer by providing
banking, insurance, as well as investment services at one stop."
"There is immense potential for marketing of mutual funds and the tie up
would help to tap this potential. Today's agreement brings together two strong and
vibrant brands in a strategic alliance, which will combine the strengths of both
organisations for mutual benefit. We are looking at the tie up as an opportunity to
bring more customers into our fold and to expand our horizons." he added
About AXIS MF
AXIS Mutual Fund was carved out of Unit Trust of India as a SEBI registered mutual
fund by repealing the Unit Trust of India Act (1963) on 1st February 2006. AXIS
Mutual Fund (AXIS MF) manages the pure Mutual Fund schemes, which are fully
SEBI compliant and in line with the best global practices, while, the Specified
Undertaking of the Unit Trust of India (SUUTI) manages schemes which involve the
commitment of the Government of India.
About Dena Bank
Dena Bank, over a period of more than six and half decades, has successfully
leveraged and integrated the modern technology with traditional values to provide a
range of products and services that strengthen existing relationships with its
customers and seek to build new ones. Founded on the principles of integrity, high
standard of efficiency, a sense of service and a national outlook, the Bank has through
the years nurtured and established enduring relationship with its customers with
exemplary service and professional competence.
Moving proactively with the times and in its efforts for greater customer
convenience, Dena Bank has introduced many technology-based products like Multi-
City Cheque facility, Any Branch Banking, Mobile Banking etc. The Bank has also
opened 41 Dena FinMarts, which are exclusive one-stop shops for all retail loan
31
products of the Bank, across the country. The signing of the Agreement with AXIS
AMC will enable the Bank to market all mutual fund products of AXIS MF through
its branches, in addition to its core banking activities and insurance services. The
Bank has a network of over 1100 branches and satellite offices across the country and
the total volume of business of the Bank is nearly Rs.32000 crore at present
Definition of Important Terms/Concepts in Mutual Fund Industry
Before proceeding to consider the salient provisions of SEBI regulations governing
mutual funds, it is necessary to get familiar with the basic terms and phraseology used
in Mutual Fund literature.
Net Asset Value ("NAV"): The performance of a particular scheme of a mutual fund
is denoted by Net Asset Value (NAV). Mutual funds invest the money collected from
the investors in securities markets. In simple words, Net Asset Value is the market
value of the securities held by the scheme. Since market value of securities changes
every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the
market value of securities of a scheme divided by the total number of units of the
scheme on any particular date. For example, if the market value of securities of a
mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of
Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20. NAV is
required to be disclosed by the mutual funds on a regular basis - daily or weekly -
depending on the type of scheme.
Sale Price: Is the price you pay when you invest in a scheme. Also called Offer Price.
It may include a sales load.
Repurchase Price: Is the price at which a close-ended scheme repurchases its units
and it may include a back-end load. This is also called Bid Price.
Redemption Price: Is the price at which open-ended schemes repurchase their units
and close-ended schemes redeem their units on maturity. Such prices are NAV
related.
Sales Load: Is a charge collected by a scheme when it sells the units. Also called,
'Front-end' load. Schemes that do not charge a load are called 'No Load' schemes.
32
Repurchase or 'Back-end' Load: Is a charge collected by a scheme when it buys back
the units from the unit-holders.
What are the different types of mutual fund schemes?
Schemes according to Maturity Period::
A mutual fund scheme can be classified into open-ended scheme or close-ended
scheme depending on its maturity period.
Open-ended Fund/ Scheme: An open-ended fund or scheme is one that is available for
subscription and repurchase on a continuous basis. These schemes do not have a fixed
maturity period. Investors can conveniently buy and sell units at Net Asset Value
(NAV) related prices which are declared on a daily basis. The key feature of open-end
schemes is liquidity.
CRISIL's composite performance ranking (CPR) measures the performance for each
of the open-ended scheme of Mutual Fund. There are four parameters considered to
measure the performance of a mutual fund such as Risk-adjusted returns of the
scheme's NAV, Diversification of Portfolio, Liquidity and Asset Size.
Close-ended Fund/ Scheme: A close-ended fund or scheme has a stipulated maturity
period e.g. 5-7 years. The fund is open for subscription only during a specified period
at the time of launch of the scheme. Investors can invest in the scheme at the time of
the initial public issue and thereafter they can buy or sell the units of the scheme on
the stock exchanges where the units are listed. In order to provide an exit route to the
investors, some close-ended funds give an option of selling back the units to the
mutual fund through periodic repurchase at NAV related prices. SEBI Regulations
stipulate that at least one of the two exit routes is provided to the investor i.e. either
repurchase facility or through listing on stock exchanges. These mutual funds
schemes disclose NAV generally on weekly basis.
Schemes according to Investment Objective: A scheme can also be classified as
growth scheme, income scheme, or balanced scheme considering its investment
objective. Such schemes may be open-ended or close-ended schemes as described
earlier. Such schemes may be classified mainly as follows:
33
Growth / Equity Oriented Scheme: The aim of growth funds is to provide capital
appreciation over the medium to long- term. Such schemes normally invest a major
part of their corpus in equities. Such funds have comparatively high risks. These
schemes provide different options to the investors like dividend option, capital
appreciation, etc. and the investors may choose an option depending on their
preferences. The investors must indicate the option in the application form. The
mutual funds also allow the investors to change the options at a later date. Growth
schemes are good for investors having a long-term outlook seeking appreciation over
a period of time.
Income / Debt Oriented Scheme: The aim of income funds is to provide regular and
steady income to investors. Such schemes generally invest in fixed income securities
such as bonds, corporate debentures, Government securities and money market
instruments. Such funds are less risky compared to equity schemes. These funds are
not affected because of fluctuations in equity markets. However, opportunities of
capital appreciation are also limited in such funds. The NAVs of such funds are
affected because of change in interest rates in the country. If the interest rates fall,
NAVs of such funds are likely to increase in the short run and vice versa. However,
long term investors may not bother about these fluctuations.
Balanced Fund: The aim of balanced funds is to provide both growth and regular
income as such schemes invest both in equities and fixed income securities in the
proportion indicated in their offer documents. These are appropriate for investors
looking for moderate growth. They generally invest 40-60% in equity and debt
instruments. These funds are also affected because of fluctuations in share prices in
the stock markets. However, NAVs of such funds are likely to be less volatile
compared to pure equity funds.
Money Market or Liquid Fund: These funds are also income funds and their aim is to
provide easy liquidity, preservation of capital and moderate income. These schemes
invest exclusively in safer short-term instruments such as treasury bills, certificates of
deposit, commercial paper and inter-bank call money, government securities, etc.
Returns on these schemes fluctuate much less compared to other funds. These funds
are appropriate for corporate and individual investors as a means to park their surplus
funds for short periods.
34
Gilt Fund: These funds invest exclusively in government securities. Government
securities have no default risk. NAVs of these schemes also fluctuate due to change in
interest rates and other economic factors as is the case with income or debt oriented
schemes.
Index Funds: Index Funds replicate the portfolio of a particular index such as the BSE
Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities
in the same weightage comprising of an index. NAVs of such schemes would rise or
fall in accordance with the rise or fall in the index, though not exactly by the same
percentage due to some factors known as "tracking error" in technical terms.
Necessary disclosures in this regard are made in the offer document of the mutual
fund scheme.
There are also exchange traded index funds launched by the mutual funds which are
traded on the stock exchanges.
What are sector specific funds/schemes? - These are the funds/schemes which invest
in the securities of only those sectors or industries as specified in the offer documents.
e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum
stocks, etc. The returns in these funds are dependent on the performance of the
respective sectors/industries. While these funds may give higher returns, they are
more risky compared to diversified funds. Investors need to keep a watch on the
performance of those sectors/industries and must exit at an appropriate time. They
may also seek advice of an expert.
What are Tax Saving Schemes? - These schemes offer tax rebates to the investors
under specific provisions of the Income Tax Act, 1961 as the Government offers tax
incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes
(ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These
schemes are growth oriented and invest pre-dominantly in equities. Their growth
opportunities and risks associated are like any equity-oriented scheme
What is a Load or no-load Fund? - A Load Fund is one that charges a percentage of
NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge
will be payable. This charge is used by the mutual fund for marketing and distribution
expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged
is 1%, then the investors who buy would be required to pay Rs.10.10 and those who
35
offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The
investors should take the loads into consideration while making investment as these
affect their yields/returns. However, the investors should also consider the
performance track record and service standards of the mutual fund which are more
important. Efficient funds may give higher returns in spite of loads.
A no-load fund is one that does not charge for entry or exit. It means the investors can
enter the fund/scheme at NAV and no additional charges are payable on purchase or
sale of units.
Can a mutual fund impose fresh load or increase the load beyond the level mentioned
in the offer documents?
utual funds cannot increase the load beyond the level mentioned in the offer
document. Any change in the load will be applicable only to prospective investments
and not to the original investments. In case of imposition of fresh loads or increase in
existing loads, the mutual funds are required to amend their offer documents so that
the new investors are aware of loads at the time of investments.
What is a sales or repurchase/redemption price?
The price or NAV a unitholder is charged while investing in an open-ended scheme is
called sales price. It may include sales load, if applicable.
Repurchase or redemption price is the price or NAV at which an open-ended scheme
purchases or redeems its units from the unitholders. It may include exit load, if
applicable.
What is an assured return scheme?
Assured return schemes are those schemes that assure a specific return to the
unitholders irrespective of performance of the scheme. A scheme cannot promise
returns unless such returns are fully guaranteed by the sponsor or AMC and this is
required to be disclosed in the offer document.
Investors should carefully read the offer document whether return is assured for the
entire period of the scheme or only for a certain period. Some schemes assure returns
one year at a time and they review and change it at the beginning of the next year.
36
Can a mutual fund change the asset allocation while deploying funds of investors?
Considering the market trends, any prudent fund managers can change the asset
allocation i.e. he can invest higher or lower percentage of the fund in equity or debt
instruments compared to what is disclosed in the offer document. It can be done on a
short term basis on defensive considerations i.e. to protect the NAV. Hence the fund
managers are allowed certain flexibility in altering the asset allocation considering the
interest of the investors. In case the mutual fund wants to change the asset allocation
on a permanent basis, they are required to inform the unitholders and giving them
option to exit the scheme at prevailing NAV without any load.
How to invest in a scheme of a mutual fund?
Mutual funds normally come out with an advertisement in newspapers publishing the
date of launch of the new schemes. Investors can also contact the agents and
distributors of mutual funds who are spread all over the country for necessary
information and application forms. Forms can be deposited with mutual funds through
the agents and distributors who provide such services. Now a days, the post offices
and banks also distribute the units of mutual funds. However, the investors may
please note that the mutual funds schemes being marketed by banks and post offices
should not be taken as their own schemes and no assurance of returns is given by
them. The only role of banks and post offices is to help in distribution of mutual funds
schemes to the investors.
Investors should not be carried away by commission/gifts given by agents/distributors
for investing in a particular scheme. On the other hand they must consider the track
record of the mutual fund and should take objective decisions.
Can non-resident Indians (NRIs) invest in mutual funds?
Yes, non-resident Indians can also invest in mutual funds. Necessary details in this
respect are given in the offer documents of the schemes.
How much should one invest in debt or equity oriented schemes?
37
An investor should take into account his risk taking capacity, age factor, financial
position, etc. As already mentioned, the schemes invest in different type of securities
as disclosed in the offer documents and offer different returns and risks. Investors
may also consult financial experts before taking decisions. Agents and distributors
may also help in this regard.
How to fill up the application form of a mutual fund scheme?
An investor must mention clearly his name, address, number of units applied for and
such other information as required in the application form. He must give his bank
account number so as to avoid any fraudulent encashment of any cheque/draft issued
by the mutual fund at a later date for the purpose of dividend or repurchase. Any
changes in the address, bank account number, etc at a later date should be informed to
the mutual fund immediately.
What should an investor look into an offer document?
An abridged offer document, which contains very useful information, is required to be
given to the prospective investor by the mutual fund. The application form for
subscription to a scheme is an integral part of the offer document. SEBI has
prescribed minimum disclosures in the offer document. An investor, before investing
in a scheme, should carefully read the offer document. Due care must be given to
portions relating to main features of the scheme, risk factors, initial issue expenses
and recurring expenses to be charged to the scheme, entry or exit loads, sponsor's
track record, educational qualification and work experience of key personnel
including fund managers, performance of other schemes launched by the mutual fund
in the past, pending litigations and penalties imposed, etc.
When will the investor get certificate or statement of account after investing in a
mutual fund?
Mutual funds are required to despatch certificates or statements of accounts within six
weeks from the date of closure of the initial subscription of the scheme. In case of
close-ended schemes, the investors would get either a demat account statement or unit
certificates as these are traded in the stock exchanges. In case of open-ended schemes,
a statement of account is issued by the mutual fund within 30 days from the date of
38
closure of initial public offer of the scheme. The procedure of repurchase is
mentioned in the offer document.
How long will it take for transfer of units after purchase from stock markets in case of
close-ended schemes?
According to SEBI Regulations, transfer of units is required to be done within thirty
days from the date of lodgment of certificates with the mutual fund.
As a unit-holder, how much time will it take to receive dividends/repurchase
proceeds?
A mutual fund is required to despatch to the unit-holders the dividend warrants within
30 days of the declaration of the dividend and the redemption or repurchase proceeds
within 10 working days from the date of redemption or repurchase request made by
the unitholder.
In case of failures to despatch the redemption/repurchase proceeds within the
stipulated time period, Asset Management Company is liable to pay interest as
specified by SEBI from time to time (15% at present).
Can a mutual fund change the nature of the scheme from the one specified in the offer
document?
Yes. However, no change in the nature or terms of the scheme, known as fundamental
attributes of the scheme e.g. structure, investment pattern, etc. can be carried out
unless a written communication is sent to each unit-holder and an advertisement is
given in one English daily having nationwide circulation and in a newspaper
published in the language of the region where the head office of the mutual fund is
situated. The unit-holders have the right to exit the scheme at the prevailing NAV
without any exit load if they do not want to continue with the scheme. The mutual
funds are also required to follow similar procedure while converting the scheme form
close-ended to open-ended scheme and in case of change in sponsor.
39
How will an investor come to know about the changes, if any, which may occur in the
mutual fund?
There may be changes from time to time in a mutual fund. The mutual funds are
required to inform any material changes to their unit-holders. Apart from it, many
mutual funds send quarterly newsletters to their investors.
At present, offer documents are required to be revised and updated at least once in
two years. In the meantime, new investors are informed about the material changes by
way of addendum to the offer document till the time offer document is revised and
reprinted.
It is for consideration whether AXIS should be wholly owned and managed by the
Government through participation in the Sponsoring Company. Although AXIS is not
directly owned by the Government, the majority of the Sponsoring Institutions who
contributed to the capital and the additional contribution and who elect the trustees are
institutions which are owned or controlled by the Government. The Chairman of the
Board of Trustees is also appointed by the Government. There is therefore a public
perception of a Government umbrella which gives a measure of safety, security and
implied guarantee to the unit-holders which is largely responsible for AXIS's success
as a savings institution.
At the same time, this perception imposes an implied responsibility on the
Government for a possible bail-out of AXIS in the event of its failure to meet specific
or implied commitments. Government did this by contributing to the SUS Scheme to
the extent of Rs.3,300 crores following the recommendations of the Deepak Parekh
Committee and there is a public perception that Government will need to do likewise
to ensure that AXIS will meet its commitments to US-64 unit holders atleast to the
extent of 3,000 units out of their aggregate holdings.
Participation by Government in the sponsoring company may strengthen the
perception of implied responsibility of the Government for the due fulfillment of
obligations by AXIS but this responsibility may be open-ended and Government may
not wish to accept such a responsibility. However, non-participation by Government
in the sponsoring company may not by itself remove the perceived link between the
40
Government and AXIS so long as Government continues to exercise powers such as
the power to appoint the Chairman of the Board of Trustees under the AXIS Act.
At the same time, it is necessary to recognise that if the perceived link with the
Government is suddenly removed, - and certainly if it is removed before US-64
becomes NAV based - without providing an adequate substitute, public confidence in
AXIS would be severely affected and can even lead to a flood of redemptions which
could create a crisis both in AXIS and in the capital market. It is therefore necessary
that if the Government does not participate in the Sponsoring Company, the
participation of the Sponsoring Institutions should remain "locked-in" atleast for the
initial period.
An option for consideration is whether in place of the Government a strategic partner
cannot be introduced. If this partner is an established player in the market who enjoys
confidence of unitholders because of his reputation and competence, the risk of loss of
public confidence through the removal of the perceived Government link would be
largely mitigated. At the same time, having regard to the large amount of funds
involved, the field for the identification of a strategic partner cannot be restricted only
to Indian entities.
If such a strategic partner is introduced, then it is necessary that Government should
completely withdraw and leave it to the strategic partner to manage the fund subject to
the supervision and regulation of SEBI as in the case of other mutual funds. To do
otherwise would create the danger that Government may be perceived to be
accountable for the proper functioning of AXIS without having any effective control.
If on the contrary, Government attempts to effectively control the operations of AXIS,
it will get unnecessarily involved in running a commercial operation for which it may
not be able to impart the necessary skill and flexibility. A complete withdrawal of the
Government would also achieve the objective of de-risking the Government from the
operations of AXIS.
A question for consideration is the size of the capital of the Sponsoring Company.
This depends upon two major factors namely, the contribution which the Sponsoring
Company is required to make to the Capital of the Asset Management Company and
the amount of funds the Sponsoring Institutions are prepared to provide for this
purpose. Taking into account both these factors, it is suggested that the initial capital
41
of the Sponsoring Company to be contributed by the Sponsoring Institutions could be
in the order of Rs.220 crores. The strategic partner could be required to introduce into
the capital a sum of Rs.330 crores whereby of the total capital of Rs.550 crores, 40%
would be held by the Sponsoring Institutions and 60% would be held by the strategic
partner. The holding of the Sponsoring Institutions could be subject to a 'lock-in' of
three years, though transfers between themselves would be possible.
SEBI regulations require the formation of a Board of Trustees or a Trustee Company.
The usual practice is to form a Trustee Company which is owned by the Sponsor but
the composition of whose Board of Directors conforms to SEBI regulations. It is
suggested that a Trustee Company be formed as a wholly-owned subsidiary of the
Sponsoring Company. SEBI regulations do not prescribe any minimum capital for the
Trustee Company but having regard to the onerous responsibilities prescribed under
the regulations for a Trustee Company, it is suggested that it has a capital of Rs.5
crores which will enable it to build up the necessary infrastructure to discharge those
responsibilities.
AXIS Mutual Fund today announces the launch of AXIS-Thematic Fund with effect
from 9th March 2007. The initial offer period is from 9th March 2007 to 25th March
2007. The scheme will re-open for sales and repurchase not later than 30 days from
the closure of the initial offer.
At any given point of time, there are certain sectors in the economy that perform
better than others. An early identification of these sectors for investments will reap
rewards for the investors. To capitalize on diverse investment opportunities across
various sectors, AXIS Mutual Fund is launching AXIS-Thematic Fund as an open-end
growth oriented equity scheme. The scheme will comprise of six funds, each
concentrating on a distinct theme – AXIS - Large Cap Fund, AXIS - Mid Cap Fund,
AXIS-Basic Industries Fund, AXIS-Auto Sector Fund, AXIS-Banking Sector Fund
and AXIS-PSU Fund. The investment focus of each of the six funds is as follows:
AXIS -Large Cap Fund: The portfolio of the fund will consist of the universe of top
50 companies in terms of market capitalisation.
AXIS -Mid Cap Fund: This fund will invest primarily in mid cap stocks.
42
AXIS- Basic Industries Fund: The portfolio of this fund will consist predominantly of
companies engaged in the sectors like Metals, Building Material, Oil & Gas, Power,
Chemicals, Engineering etc. The fund will invest in stocks of the companies, which
form the part of Basic Industries.
AXIS- Auto Sector Fund: The fund will invest in the stocks of companies engaged in
the automobile and auto ancillary industry.
AXIS -Banking Sector Fund: The fund will invest in the stocks of the companies /
institutions engaged in the banking and financial services activities.
AXIS PSU Fund: The fund will invest in the stocks of companies where the State /
Central Government of India owns the majority of the holding or management control
is vested with State/Central Government of India.
Salient Features of the AXIS- Thematic Fund
The scheme is open to resident individuals, institutions as well as to NRIs and
FIIs.
Face value of units is Rs.10/-
Minimum amount of investment under each thematic fund is Rs.5000/- and
thereafter subsequent minimum investment under a folio is Rs.1000/- per
thematic fund.
Sale of units under each fund will be at face value during the initial offer
period. On re-opening of the scheme, Sale of units will be at 102% of NAV.
Repurchase will be at NAV.
The primary objective of the scheme is capital appreciation. However the
scheme may also distribute income to the unitholders. Unitholders will have
an option to reinvest income distribution, if any, at ex-dividend NAV. The
benchmark of AXIS-Large Cap Fund is BSE Sensex, AXIS-Mid Cap Fund is
CNX Midcap 200 Index, AXIS-Basic Industries Fund is BSE 100 Index,
AXIS- Auto Sector Fund is BSE Sensex, AXIS Banking Sector Fund is BSE
BANKEX and AXIS- PSU Fund is BSE PSU Index. Automatic Trigger
Option and Switchover facility from one fund to another are available.
The Fund Managers of the six thematic funds are :
43
AXIS- Large Cap Fund - Shri Manish Kumar
AXIS-Mid Cap Fund - Shri Vinay Kulkarni
AXIS-Banking Sector Fund - Shri Sanjay Dongre
AXIS-Basic Industries Fund - Shri Sanjay Sinha
AXIS- Auto Sector Fund - Shri Sanjay Sinha
AXIS-PSU Fund - Shri Sanjay Sinha
Why should one invest in Mutual Funds through AXIS Bank?
We meet your needs: We believe that every one has specific needs and priorities.
Your needs could vary from buying a house, getting your daughter married to
providing for your child’s education. You might even want to travel the world. All
your needs are very important for us. We can help to fulfill your needs to reality by
helping you select schemes, which would be consonance with your needs.
We work towards building an ‘Investment Culture’: It would be our constant
endeavor to inculcate saving and organized investing habits in you. We will help you
plan your investments and build a healthy mutual fund portfolio, which would be an
optimal solution for your needs. Cultivating an investment culture will not only help
you but also your family.
We will keep you updated: A newsletter, which will keep you informed of the latest
happenings in the stock markets, economy and important events, apart from giving
you the NAV and other relevant information about your schemes will be sent you
every month. Latest NAV of the schemes can also be found out from our various
branches.
We can be your ‘One Stop Financial Solution’: Apart from subscribing to Mutual
fund schemes through us, you can also take advantage of our banking services and a
whole range of financial products. Like - ATM card , credit card, personal loan
products, depository services, loan against units/shares etc. and see your financial
needs satisfied under one roof.
44
With AXIS Bank- Mutual Fund services, you can consult with your own Investment
Advisor and invest in a Mutual Fund Scheme that is right for you. A great
opportunity, to get organized and make your investment more in line with your real
needs.
Risk Factors: All the investments in the securities market are subject to market risks
and the NAV of schemes/plans may go up or down depending upon the factors and
forces affecting securities market. Past performance is not necessarily indicative of
the future.
Please read the offer document before investing
Types
Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial
position, risk tolerance and return expectations etc. The table below gives an overview
into the existing types of schemes in the Industry.
TYPES OF MUTUAL FUND SCHEMES
By Structure
o Open - Ended Schemes
o Close - Ended Schemes
o Interval Schemes
By Investment Objective
o Growth Schemes
o Income Schemes
o Balanced Schemes
o Money Market Schemes
Other Schemes
o Tax Saving Schemes
o Special Schemes
Index Schemes
Sector Specfic Schemes
45
46
Importance of study
Scope of study
AXIS Crisis & After The Road Map for Restructure of AXIS
Recommendations of the Corporate Positioning Committee
The structure of AXIS should be in line with SEBI regulations as applicable to mutual
funds. Accordingly there should be a
i. Sponsor,
ii. A Trustee Company and
iii. An Asset Management Company (AMC).
The Sponsor should be a Sponsoring Company in which 40% of the share capital
should be held by the institutions which hold the initial capital of AXIS of Rs.5 crores
and which have made in 1999, the additional contribution of Rs.445.5 crores pursuant
to the Deepak Parekh Committee recommendations.(the Sponsoring Institutions).
60% of the share capital of the Sponsoring Company should be held by a Strategic
Partner who is a recognised player in the market and whose reputation and
competence are expected to give the required degree of confidence to the unitholders.
The field for the selection of the Strategic Partner need not be restricted to Indian
entities.
The suggested share capital of the Sponsoring Company should be Rs.550 crores of
which Rs.220 crores will be subscribed by the Sponsoring Institutions and Rs.330
crores by the Strategic Partner. To make the desired contributions, each of the
Sponsoring Institutions should convert part or whole of their existing holdings in
Unit-64 forming part of the initial capital of Rs.5 crores and the additional
contribution of Rs.445.5. crores into shares of the Sponsoring Company.
As some of the Sponsoring Institutions also own AMCs which manage mutual funds
competing with AXIS, no single Sponsoring Institution should hold more than 25% of
the share capital of the Sponsoring Company.
47
To ensure that the confidence of the unit-holders should not be adversely affected by a
sudden withdrawal of the Government umbrella, there should be a 'lock-in' period of
three years during which the Sponsoring Institutions may transfer their shareholding
in the Sponsoring Company amongst themselves but not to the Strategic Partner or to
third parties.
A Trustee Company should be incorporated as a wholly-owned subsidiary of the
Sponsoring Company. It is suggested that the Trustee Company should have a capital
of Rs.5 crores.
AXIS should convert itself into an AMC and consequently the existing infrastructure
and organisation of AXIS which presently form part of US-64 will become the
infrastructure and organisation of the AMC.
The AMC will compensate US-64 for the infrastructure taken over by the issue of
bonds carrying a market rate of return and with appropriate redemption terms to be
determined taking into account the AMC's expected cash flows. For this purpose,
AXIS's fixed assets which currently have a book value of around Rs.850 crores will
be valued at their fair market value and bonds will be issued for that amount.
The capital of the AMC should be adequate not merely to finance the investment
needed in the future infrastructure but also to provide a cushion as a source of comfort
to the investors and when needed, an ability to infuse liquidity into the fund in the
event of a crisis. It is therefore suggested that the AMC should have a capital of Rs.
1000 crores considering that AXIS has investible funds of over Rs.50,OOO crores.
It is necessary that control over the large funds held by AXIS (and particularly having
regard to the large block of shares held by AXIS in individual companies) should not
rest with a single individual or group. It is also necessary that there should be an
element of public accountability of AXIS. It is therefore suggested that the
shareholding of the Sponsoring Company in the capital of the AMC should be
restricted to 40% and the balance 60% should be offered to the public.
In accordance with SEBI regulations, the AMC would be entitled to charge
management fees to the different schemes. This income, after payment of expenses
48
and interest on the bonds to be issued to US-64 and transfer to the Development
Reserve Fund at the current rate should be sufficient to service the share capital.
There should be a single AMC to manage all the schemes of AXIS.
It is necessary that US-64 is made NAV based before the restructuring of AXIS is
attempted.
It is also necessary that before US-64 is made NAV based, provision is made for the
contingent liability arising out of the gap, if any, between the available assets in US-
64 and guaranteed price to individual unitholders' holdings upto 3000 units announced
in July 2001.
It is equally necessary that provision is made for the contingent liability arising as a
result of the gap between the present value of the future liability
To reduce the size of this gap, the following steps should be taken
The portfolios of these schemes should be recast as soon as it is practically
possible, to ensure that the portfolio consists only of Government securities and
debt instruments and all investments in equity are disposed off.
In respect of schemes where only one year's return is assured, the returns assured
should be strictly in line with the earning capacity of the schemes.
The Income Tax Act should be amended to provide that dividends received on
assured return schemes floated before 1st June 1999 would not be entitled to
exemption of tax under Section 10(33) and correspondingly, no tax would be
levied on the fund under Section 115R on dividends distributed to unitholders.
The Development Reserve Fund should be transferred to the AMC free of
consideration after valuing the investments of the fund at their fair market value.
sub-number omitted
The prospective Strategic Partner should be invited to quote the value at which
AXIS's infrastructure and organisation should be converted into the AMC. If this
49
value exceeds the value of the assets of the schemes, the excess should be credited
to the various schemes in an appropriate manner. If however the value falls short
of the value of the assets of the schemes, the shortfall, if not met by the holders of
initial capital of AXIS and/or Government, will need a reduction of the benefits
under the assured return schemes in an appropriate manner.
The AXIS Act should be repealed and replaced by a new enactment. In enacting
this Act, it should be ensured that the Government is totally distanced from AXIS
and transaction costs (e.g. stamp duties, taxes etc.) are minimised, if not
eliminated and the 5wnership of the assets vests in the AMC at the lowest possible
cost.
If the AXIS Act were not to be repealed but merely amended, there is a danger
that the Government may be left with residual responsibilities under the Act,
which would result in a public perception of continued Government
accountability. In such a situation, it may become necessary to give AXIS a fully
Government character with senior-most positions in AXIS being manned by
Government officers. Clearly this is not a preferred outcome but it is mentioned
only to emphasise the fact that accountability cannot be divorced from day to day
management responsibility.
Review of Literature & Research Methodology
BY ALL accounts, 2007 has been a wonderful year for investors in and managers of
mutual funds. There has been a considerable increase in the assets under management
of equity funds and profitability has thus increased for fund houses. Investors, too,
have never had it so good.
Many of the new mutual funds schemes in which investors poured substantial sums
have performed reasonably well. And the new schemes have not been stark under-
performers, as in earlier years. They have categorically reinforced the fact that mutual
funds remain the most suitable avenue for retail investors to build wealth.
Yet the mutual funds industry remains driven by the kind of marketing initiatives
where the interest of the brokers is paramount. There are no debates on what could be
50
done to save investors from the clutches of the brokers or on product development.
Visibly, there are no attempts to link product development to feedback from investors
and market performance of funds. Inefficient products are left unaddressed,
suggesting a lack of research into product performance. Notably, communication
about assessment of fund performance is simplistic and consequently, in many cases,
misleading.
These may be a consequence of the small size of the industry as of now. As its size
improves, investor interests may regain their rightful place. There is, however, reason
to believe that the industry structure does not provide scope for developments. The
mutual fund industry may be forced to focus on doing simple things, mainly
managing index funds better. Innovations that matter may be driven into the fold of
private equity unless the incentive structure is re-worked.
Inefficient products: A sore point about mutual funds is that inefficient products are
just left to languish. Substantial sums invested in sector funds, index funds, bond
funds, balanced funds and monthly income plans are under-performing. We are,
however, yet to see the kind of restructuring necessary to make them more suitable to
an investor's portfolio.
For instance, indices such as BSE-100 and BSE-200 have consistently outperformed
the Sensex and the Nifty by about four percentage points per annum over the past
three years. There is, however, no attempt to introduce index funds at least on BSE-
100.
The introduction of a BSE-100 Index fund would at least provide investors with the
option to switch from under-performing Sensex and Nifty funds. There is no talk of
such an index fund now. But there may be when the market is in a bearish phase and
investors' risk aversion has increased. It may not make sense then, though.
Another case is Monthly Income Plans. They have been perennial under-performers.
Monthly Income Plans have, on average, recorded returns of 9 per cent over the past
12 months. This is below the 10 per cent returns for Crisil MIP Blended Index. The
actual under-performance is higher as the Crisil Index is based on Nifty returns.
51
If you replace Nifty returns with average performance of diversified equity funds, the
extent of under-performance would increase substantially. Has anything ever been
done to address this issue?
Communication relating to the performing class — diversified equity funds — too is
highly simplistic. The answers to questions on what is behind performance — stock
selection or higher risk taken by the fund — are unavailable. A dispassionate enquiry
into equity fund performance may be beyond fund-houses. They could, however,
indicate to investors how much additional risk is taken by the fund-houses, such as
that increased investments in mid-cap and small-cap stocks contributed to
performance.
Fund of funds is a practically stillborn concept. There is also no attempt to improve
the efficiency of balanced funds or market them better. Balanced funds and Fund of
Funds should occupy pride of place in a retail investor's portfolio. But that is not the
case.
Incentive structure: This is how it looks when you take a snapshot of the mutual
fund industry now. But it could change for the better. After all, the mutual fund
industry even now controls less than 2 per cent of household assets. The incentive
structure for managers could militate against such developments.
Mutual funds take home a flat fee based on volume of assets under management and
not on performance. If size of assets increases because of performance, then indirectly
fees will also rise. However, if assets desert after performance, the loss to fund
managers is heavy. There is nothing in the incentive structure to drive a fund manager
to do the best for retail investors.
There is definitely a case for working out a fee structure that pays fund managers a
flat fee plus additional compensation for performance over a three or five-year period.
Many talented fund managers have already left for the harsh performance-based but
lucrative world of private equity investing. It may not take much to retain or regain
talented fund managers. Maybe even a mere ten per cent of excess gains over a
benchmark would be enough.
Without sharing at least a small part of the gains, mutual fund investors can neither
hope for better research nor can they hope to retain the best performing managers. As
52
talent flees, in just 10 years, investors will be forced to seek the safe havens of low-
cost index funds. Performing diversified equity funds or balanced funds would
become a thing of the past. Enthusiasm of fund-houses would then be sustained only
until product launches and only until that product category registers returns. As
seasons change, the focus of marketing initiatives will change. Inefficient products
will continue to languish as they do now.
The mutual fund industry has been on a good run and, at least as of now, can boast of
extremely talented people in its ranks. The status quo is, however, not the recipe for
continuing the good show. SEBI, AMFI, fund-houses and investors need to usher in
changes that help the Indian mutual fund industry achieve a unique position in the
world of investing.
The Government in order to protect the interests of 20-million-odd investors of Unit
Trust of India (AXIS) announced a structural reform package, covering a Rs 14,561-
crore bail-out for the US-64 and all assured return schemes and eventual privatisation
of AXIS's schemes.
To start with, AXIS would be split into two entities - - AXIS-I and AXIS-II. AXIS-I
would cover the US-64 and the Monthly Income Plan (MIP) schemes, while the
various net asset value-based schemes will be hived off to AXIS-II. The latter would
also include the units of US-64 issued after January 2002, when the scheme became
NAV-based.
Further, while AXIS-I will managed by a Government-appointed administrator and
team of officially-nominated advisors, AXIS-II will be headed by a professional
chairman and board of trustees. The brand equity of AXIS, too, will go with AXIS-II,
which will eventually be disinvested or privatised.
The bifurcation will be done through The Unit Trust of India (Transfer of
Undertaking and Repeal) Bill, 2002, to repeal the AXIS Act, the Finance Minister, Mr
Jaswant Singh, told newspersons here after the Cabinet Committee on Economic
Affairs cleared the AXIS package.
Investors who redeem US-64 units even after May 2006 will continue to get the
administered repurchase price of Rs 12 per unit up to 5,000 units and Rs 10 per unit
beyond 5,000 units, following the Government's decision to provide open ended-
53
support to old investors of the scheme. The move is expected to ease the redemption
pressure in April and May 2006.
Tax concessions will be extended for the US-64 scheme - - on dividend income and
capital gains - - to make it attractive for unit holders to remain within the scheme.
The Government will also reset the interest at a lower level in five MIP schemes,
where only the principal amount is assured and the dividend can be reset. Foreclosure
of some of the MIP schemes is also being considered, subject to this being permitted
under SEBI regulations.
Both AXIS-I and AXIS-II would be structured as per SEBI regulations. The total
asset value of all AXIS-run schemes aggregates to Rs 42,000 crore as on June 30 - -
Rs 17,784 crore for the NAV-based schemes and about Rs 25,000 crore for the US-64
and other assured return schemes.
"The decision to spilt the fund into two entities forms the crux of the structural reform
package for AXIS. The objective is to have a working, healthy mutual fund run by a
professionally-managed team," the Finance Secretary, Dr S. Narayan, said.
According to him, the Government has now moved two steps forward after the
decision taken by the CCEA last year to provide full assistance to the US-64 scheme.
The first is the move to allow open-ended redemption for investors in US-64 and the
second is the commitment to bridge the shortfall in the assured return schemes.
The current shortfall in US-64 is estimated at Rs 6,000 crore, of which the AXIS has
already been provided cash support of Rs 800 crore and another Rs 500 crore is in the
pipeline. The projected liability of the balance Rs 5000 crore will be met through the
issuance of bonds tradable in the market.
A similar mechanism will be worked out for assured return scheme where the
estimated liability is around Rs 8,561 crore.
"The Government is fencing out the liabilities in the US-64 scheme and other assured
return schemes. An investor who holds on to the US-64 unit beyond May 2006 can
only sell it back to the AXIS and it cannot be re-circulated in the market. We may,
however, consider allowing these units to be recirculated at NAV," said Dr Narayan.
54
AXIS-I would effectively cease to exist once all investors move out of the US-64 and
the assured return schemes. The basket of assets and liabilities of AXIS will be
transferred to the two entities after the repeal of the AXIS Act.
Commenting on the decision of the Government Dr.Kurian, Chairman, Association of
Mutual Funds in India (AMFI) and former trustee of AXIS. in an interview to
Business Line Correspondent on 08.09.2002 has stated as under:
The AXIS development is a welcome one and gives a positive signal to the industry,
investors and market because the uncertainty with regard to solving the problem of
the institution is over. Since 1998, AXIS has been passing through a difficult
situation. Than came the 2001 problem. Now, various committees and
recommendations later, the problem has been solved. I think it is to the credit of the
Government even though it has taken a pretty long time to do so.
PARLIAMENT has given its nod for the bifurcation of Unit Trust of India into two
companies -AXIS-I and AXIS-II - with the Rajya Sabha on Tuesday giving its assent
on 03.12.2002 to the AXIS (Transfer of Undertakings) Bill, 2002 by a voice vote. The
Bill has already been passed by the Lok Sabha.
Addressing the Rajya Sabha, the Finance Minister, Mr Jaswant Singh, assured that the
Government would meet its commitments to the investors.
The Finance Minister said that AXIS-I will not float any new scheme and all existing
commitments would be met by the Government, while AXIS-II would be started as a
SEBI regulated, asset managed and market competing scheme.
He assured the House that there would be no retrenchment of AXIS employees. "All
of them would be put on the AXIS-II attendance register with an option that they
could take six months to decide if they wanted to take voluntary retirement."
AXIS Mutual Fund has come into existence with effect from 1st February 2006.
AXIS Asset Management Company presently manages 42 NAV based domestic SEBI
compliant schemes and 4 Offshore funds having a corpus Rs.15,243 crore from about
10 million investor accounts.
The Important Follow-ups for AXIS Mutual Funds are
55
Adherence to best practices: Status and Future Agenda
1. Introduction
The IOSCO has set out three objectives--protection of investors, ensuring fair,
transparent and efficient market and reduction of systemic risk--which securities
regulations need to address.6 Further, to enhance the ability of the regulatory system
to attain these objectives, the IOSCO has also laid down a set of guiding principles.
(see Annexure II). As we have discussed in the last section, the reform initiatives
taken in the past decade have addressed these objectives in varying degrees, which
have resulted in the emergence of a more modern and competitive securities market.
In this section, we attempt to evaluate the existing regulatory framework broadly
using the IOSCO principles as criteria and to identify problem areas, which call for
future reform initiatives to strengthen the current system. This chapter is divided into
five sections. The second section deals with regulatory issues: the regulators' mandate,
their autonomy, powers and capacity to enforce regulation and their coordination to
make regulations effective. Self-regulation as well as prudential issues are also
discussed under this section. The third section outlines the legal issues concerning the
securities market. The fourth section deals with crosscutting themes relating to the
regulated market, namely, market infrastructure, and issues relating to primary market
and transparency. The challenges facing the mutual fund industry are discussed in the
fifth section. The discussion in this chapter provides some examples of current
practices, recognizing that these practices will and should change as the markets
change and as technology and improved coordination among regulators make other
strategies available.
2. Regulatory Issues
2.1 The Regulator
The regulatory responsibility of the securities market is vested in the SEBI, the RBI,
and two government departments--Department of Company Affairs and Department
of Economic Affairs. Investigative agencies such as Economic Offences Wing of the
government and consumer grievance redressal forums also play a role. The SEBI,
established under the SEBI Act, is the apex regulatory body for the securities market.
Besides regulation, the SEBI's mandate includes responsibilities for ensuring investor
protection and promoting orderly growth of the securities market. The RBI, on the
56
other hand, is responsible for regulation of a certain well-defined segment of the
securities market. As the manager of public debt, the RBI is responsible for primary
issues of Government Securities. The RBI's mandate also includes the regulation of
all contracts in government securities, gold related securities, money market securities
and in securities derived from these securities. To foster consistency of the regulatory
processes, the SEBI is mandated to regulate the trading of these securities on
recognized stock exchanges in line with the guidelines issued by RBI. Although there
is a clear division of regulatory responsibilities between RBI and SEBI, and efforts
have been made to make the regulatory process consistent, the distribution of
regulatory responsibilities among a number of institutions can potentially create
confusion among the regulated as to which body is responsible for a particular area of
regulation.
To ensure operational independence and accountability in the exercise of functions
and powers by the regulators, SEBI and RBI have been constituted as autonomous
bodies and are established under separate acts of the Parliament. Both regulators are
accountable to the Parliament through Central Government and the regulations framed
by them are required to be laid before Parliament by the Central Government.7 There
is also a system of independent judicial review of the decisions of SEBI and RBI.
Although the SEBI and the RBI are operationally independent, the government can
issue directions to both in policy matters.
2.2 Enforcement of Securities Regulation
The SEBI has powers to carry out routine inspections of market intermediaries to
ensure compliance with prescribed standards. It also has investigation powers similar
to that of a civil court in terms of summoning persons and obtaining information
relevant to its enquiry. Action is taken on the basis of investigation. The enforcement
powers of SEBI include issuance of directions, imposition of monetary penalties,
cancellation of registration and even prosecution of market intermediaries. To ensure
effective and credible use of enforcement powers, the SEBI has adopted measures
such as development of a stock watch system, uniform price bands and establishment
of a Market Surveillance Division.8
While SEBI has powers of direct surveillance of the stock exchanges, members of
stock exchanges and other market intermediaries registered with it, SEBI has no
57
powers over listed companies. Further, the present penalty levels in many cases are
not high enough to effectively deter market players from regulatory violations. In
particular, the amount of monetary penalty for non-compliance with respect to
disclosure, information requirements, insider trading and market manipulation is very
inadequate. To cite an example, a maximum monetary penalty of only Rs.1, 000/- can
be imposed in case of failure to comply with the provisions of listing agreement.
Similarly, under the SEBI Act the penalty for insider trading and non-disclosure of
acquisition of shares and takeovers is only Rs.5 lakh. The Group believes that there is
a need to allow SEBI enhanced authority * and powers to impose penalty
commensurate with the gravity of the violation (i.e., disgorgement powers). 9
An additional problem relates to delays in taking action against those who commit
frauds. A number of companies, which had collected funds in the past through public
issues, cannot even be traced. To take action against such companies and bring their
Directors to book, a number of initiatives have been taken including the establishment
of Central Coordination and Monitoring Committee (CCMC), with Secretary, DCA
and Chairman, SEBI as its co-chairmen. However, only limited success has been
achieved. Clearly, the enforcement procedures are cumbersome, time-consuming and
involve too many agencies. There is a need to streamline the procedures to quickly
detect frauds and take appropriate remedial measures.
In addition to the problem stated above, the slow response in case of frauds results
from long delays arising from the obligation to follow due process. As a regulatory
body has to be accountable for its action, by implication, it gives the alleged
institution an opportunity to show cause why action should not be taken. There is a
need to streamline the procedures relating to due process. Also, dealing with cases of
suspected fraud often requires freezing the situation, while the legal process is being
pursued. This happens in India, but the decision to freeze the situation often takes
time.
2.3 Cooperation in Regulation
Various segments of the domestic financial market are getting increasingly integrated.
There have also been progressive linkages between the domestic and international
capital markets. As a result, the regulatory interventions or their absence in one
58
market tend to have repercussions in other markets that are more serious and more
widespread than in
the past. Further, with the emergence of more and more financial supermarkets and
growing complexity of financial transactions, there are increasing instances of the
same market intermediary coming under the purview of multiple regulatory bodies.
These factors have raised the potential for regulatory gaps as well as overlaps, thereby
underlining the need for greater cooperation among various regulators.
Currently, coordination among domestic regulators is occurring through the High
Level Group on Capital Markets (HLGCM) comprising the RBI, SEBI, the IRDA and
Finance Ministry. The HLGCM has set up two Standing Committees: one for
regulatory coordination and the other for coordination in matters relating to the
development of debt markets. The Committee meets periodically to exchange
information and views. Besides, to address specific issues such as DvP system or
asset securitization, the RBI and SEBI have been coordinating through the institution
of working groups. The Group observes that there is scope to further strengthen the
coordination efforts. There may be merit in formalizing the HLGCM by giving it a
legal status. Besides, the HLGCM needs to meet more frequently and its functioning
needs to be made more transparent. Also, a system needs to be devised to allow
designated functionaries (not necessarily only at the top level) to share specified
market information on a routine and automatic basis.
As regards coordination with regulators in other countries, the RBI has put in place a
system of exchange of need-based information in respect of international operations.
However, the powers of SEBI to assist foreign regulators or to enter into MOUs or
other cooperation arrangements are not explicitly provided by legislation, although
SEBI has signed a MoU with the Securities Exchange Commission of the USA.
Hence, the Group is of view that necessary legislative changes need to be made to
enhance SEBI's scope in this regard.
2.4 Self-Regulation
The SEBI Act provides for promotion and regulation of SROs (i.e., stock exchanges).
The stock exchanges are empowered to make rules and regulations for their members
and for regulating the conduct of respective members. However, self-regulation is not
59
always effective, because the current ownership and governance structures of many
stock exchanges allow scope for conflict of interest.10 These exchanges are owned and
managed by members who enjoy exclusive trading rights. In the broker-owned
exchanges, brokers elect their representatives to regulate activities of the exchange,
including those of the brokers themselves. This raises fairness issues, because the
members of stock exchange governing boards have access to valuable information
about market participants. Elimination of such conflict of interest through
demutualization, which implies separation of ownership of exchange from the right to
trade on it, can promote fairness and reinforce investor protection.
Further, the slow evolution of the Association of Mutual Funds of India (AMFI) as a
SRO has meant continuation of substantial regulatory burden on SEBI. In this regard,
the Group suggests that SEBI assist the AMFI to develop into a full-fledged SRO.
Similarly, in money and government securities markets, Fixed Income Money Market
and Derivatives Association of India (FIMMDA) and Primary Dealers Association of
India (PDAI) are operating as industry level associations, who are gradually taking on
the role of SROs. There is as yet no regulatory oversight of the RBI over these
emerging SROs. However, to facilitate these associations to emerge as full-fledged
SROs, the RBI is engaging them in a consultative process, which needs to be further
intensified. On their part, to promote integrity of the markets, FIMMDA and PDAI
need to establish a comprehensive code of conduct and best practices in securities
transactions and also have a mechanism to enforce such codes. The RBI can play a
supportive role here.
2.5 Prudential issues
With a view to contain risk, secure market integrity and protect the interest of
investors, the regulators have prescribed elaborate margining and capital adequacy
standards. In addition, intra-day trading limit and exposure limits have been
prescribed. Brokers are subject to various types of margins, viz., daily margins,
marked-to-market margin, ad hoc margin and volatility margin. In case of excessive
volatility or perceived higher risk, exchanges have been given the flexibility of
imposing higher margins.11 However, one lacuna that continues relates to the absence
of margin requirement for institutional trades. The Group recommends that this lacuna
be addressed.
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3. Legal Issues
3.1 Institution-specific regulations
The legal framework constrains the RBI from exercising uniform powers vis-a-vis
different groups of players, even though the activity regulated is the same because of
a peculiar legal arrangement. The amended Securities Contract Regulation Act
(SCRA) has conferred on the RBI the responsibility of regulation of Government
securities and money markets, but not the necessary enforcement powers to regulate
these markets. To regulate these markets, the RBI therefore resorts to its regulatory
authority over the major participants in these markets such as banks, financial
institutions and primary dealers through separate institution-specific legislation. With
respect to banks, the RBI has statutory powers of inspection, investigation,
surveillance and enforcement under Banking Regulation Act, 1949. As regards
financial institutions, the regulatory powers are available to the RBI under the RBI
Act 1934. The RBI's regulatory powers over FIs are not as comprehensive as over
banks. With regard to Primary Dealers, the RBI exercises regulatory powers on the
basis of guidelines issued by RBI and MOUs signed between PDs and RBI on a
contractual basis. This underlines the need for (a) the same legislation to include both
regulatory responsibilities and the authority to carry them out and (b) the focus to shift
from institution-specific regulation to market-specific regulation.
3.2 Multiplicity of Acts
The problem of multiplicity of regulators, as referred to earlier, emerges from the
existence of multiplicity of Acts governing securities market regulation. The legal
framework comprises inter alia the SEBI Act, Securities Contract Regulation Act
(SCRA), Indian Contracts Act, Companies Act, Public Debt Act, the RBI Act and the
Banking Regulation Act. Some acts came into being to create regulatory institutions
(SEBI Act and RBI Act), some to regulate contracts (SCRA and Indian Contracts Act)
and yet others to regulate issue of government securities (Public Debt Act). Although
the scope of the Acts is well defined, problems of interpretation have led to confusion.
There is therefore a need to simplify and streamline the legal framework. In this
context, the Group believes that consolidating the SCRA and the SEBI Act in line
with the recommendations of the Dhanuka Committee, will be very helpful.
4. Market issues
61
It is important to recognize the trade-off between over-regulation and high cost of
compliance. Over-regulation may minimize market friction, but can potentially kill a
market. To dilute this tradeoff, it is important to modernize the microstructure.
(Microstructure relates to the manner in which a market is organized and the trading
and post-trading technology the market adopts.) As regulations become more and
more complex, certain regulatory objectives can be more easily attained through
changes in microstructure rather than further addition to regulatory law.
4.1 Market Infrastructure
4.1.1 Screen-Based Trading System
As enunciated in Chapter II, the equities market has witnessed a quantum
improvement in trading technology during the 1990s as it moved away from the open-
outcry system of trading to a computer screen-based trading. The new technology has
not only increased transparency in trading, but also facilitated the integration of
different trading centers into a single trading platform. Permitting of internet trading
has enabled investors across the globe to route orders through the internet for
execution on the Indian stock exchanges. In contrast to the equities market, the
government securities market and the market for money market instruments are
largely negotiated markets. Although the NSE established a wholesale debt market
segment for exchange trading, members generally use this segment only for reporting
trades undertaken by them in the negotiated market, rather than trading on the
exchange.
4.1.2 Rolling Settlement
The stock exchanges in India have traditionally followed account period settlement
system, which tends to distort the price discovery process since it combines the
features of cash as well as futures markets. In contrast, the current international
practice is predominantly rolling settlement12 on a T+3 basis, which introduces
certainty of trades and reduces risk and delay in settlement. Beginning last year,
compulsory rolling settlement has been introduced in a limited number of scrips on a
T+5 basis. The slow progress toward the introduction of rolling settlement is on
account of (a) lack of availability of electronic funds transfer across the country and
(b) a general apprehension that such a move will reduce liquidity in the market. Even
though a more effective payment and clearing system through a wider availability of
62
EFT is important for switch-over to rolling settlement , the Group is of the view that
even the current payment infrastructure can support a faster phasing-in. Further, the
view that rolling settlement per se will drain liquidity from the market is not borne out
by international experience. The Group also suggests that RBI and SEBI expedite
their scrutiny of the recent recommendations made by the joint task force of IOSCO
and BIS on securities settlement systems, for early implementation.
4.1.3 Depositories and dematerialization
To ensure transferability of securities with speed, accuracy and security, the
Depositories Act was passed in 1996, which provided for the establishment of
securities depositories and allowed securities to be dematerialized. Following the
legislation, two depositories (NSDL and CDSL) have so far been established. Further,
the compulsory dematerialization of shares for trading purpose has been introduced in
a phased manner with the aim of synchronizing the settlement of trade and transfer of
securities irrespective of geographical locations, and eliminating the ills associated
with paper-based securities system such as delay in transfer, bad delivery, theft and
forgery. Although the process of compulsory dematerialization is nearing completion,
its full benefits have not been reaped because of slow progress in introduction of
rolling settlement.
With the appropriate infrastructure in place, there is now scope for taking further
advantage of depositories to promote retailing of government securities. The RBI has
taken a step in the right direction by allowing NSDL and CDSL to have a second SGL
account for depository participants who in turn can hold in custody government
securities on behalf of the final investors. This will facilitate holding of government
securities in demat form.
4.1.4 Clearing Corporations
The stock exchanges supervise the buying and selling activities of brokers, but
financial settlements are guaranteed by a clearing corporation, which creates a
settlement guarantee fund to ensure settlement of trades irrespective of default by
trading members. This arrangement, by nearly eliminating counterparty risk, has
given a tremendous boost to investor confidence in India.
63
Further, in contrast to the current Indian system of each stock exchange having its
own clearing corporation or clearing bank, it may be appropriate to have perhaps only
two clearing corporations in line with international practice, which would support
many stock exchanges. Such an arrangement would allow the clearing agency to have
an overall view of gross exposures of traders across the stock exchanges and would be
much better geared to manage risks.
4.1.5 Delivery vs. Payment
In the government securities market, DvP was introduced in 1994 for transactions put
through the SGL accounts maintained in RBI’s Public Debt Office (PDO), which has
greatly helped in reducing the principal risk. The Special Fund Facility introduced last
year has to a certain extent reduced risk of non-settlement due to gridlock. The
Advisory Group on Payments and Settlement Systems (Headed by Shri M.G. Bhide)
has made some suggestions for improving the payments and settlement systems and
this Group would concur with these suggestions.
In the equity market there is currently no DvP. The Group notes that SEBI and RBI
are jointly trying to evolve a mechanism, which would seamlessly link the
depositories with the payment system through the clearing corporation/ clearing
agency to ensure DvP. The Group recommends that establishment of such a
mechanism is expedited.
4.1.6 Straight-through Processing:
Straight-through Processing (STP) involves verification through Internet of (i) the
selling client's DP account for security balances following a sell order; and (ii) the
buying clients' bank accounts for cash balances following a buy order. This system
can eliminate nearly all settlement and payment risk. The significant changes taking
place in technological and trading environment worldwide are driving the global
securities industry towards STP. However, at present, all the pre-requisites for STP
are not yet available in India. While automated trading and dematerialization have
been largely achieved, the limited availability of EFT and absence of RTGS have
constrained the introduction of STP. These constraints are likely to be eliminated in
the near future.
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4.2 Primary Issues and Transparency
4.2.1 Private Placement Market
High costs of regulatory compliance associated with public issues of debt have made
issuers prefer the private placement market. The private placement market has
registered tremendous growth in the last few years. In 1999/2000, private placements
accounted for 84 percent of total resources mobilized by the corporate sector.
Preponderance of private placement can potentially strip the market of its ability to
discipline issuers and thereby enhance systemic risk. Once investors have used the
private placement route, they cannot signal their changing evaluation of the business
prospects of the issuers, because there is no market in which they can sell. The
dominance of private placement in primary issue market possibly reflects an absence
of regulatory level playing field in the sense that public issues may be over-regulated
while private placements could be under-regulated. Some recent initiatives such as the
amendment to the Companies Act, making it mandatory for companies issuing
debentures through private placement route to set up debenture redemption reserves
as in the case of public issues, can partially restore the balance.13 These initiatives
need to be complemented by simultaneous efforts to ease some of the regulations
governing public issues.
4.2.2 Corporate disclosure
With a view to enabling investors to take informed decisions as well as to promote
transparency, regulations have over the years become more stringent by requiring
disclosure to be more frequent and wider in scope. Currently, disclosure in India
extends to material having a bearing on the price of a security, and entities who either
have significant interest in a company or seek management control. A company
offering securities is required to make a public disclosure of all relevant information
through its offer documents. After a security is issued to the public and subsequently
listed on a stock exchange, the issuing company is required to make continuous
disclosures, including through publication of yearly audited balance sheets and
quarterly un-audited financial results. Moreover, the disclosure of material
information, which could have a bearing on the performance of the company, has to
be made available to the public immediately.
65
Among the drawbacks, the ‘timing’ and ‘contents’ of disclosure of material events
that impact prices are not unambiguously specified and followed. Recently, it has
been decided that companies would be required to make decisions regarding dividend
bonus and rights announcements or any other material event within 15 minutes of the
conclusion of the board meeting where the decisions are taken. In terms of contents of
disclosure, the following initiatives are necessary: (i) group company disclosures may
be limited to top 5 companies by market capitalization or turnover, to avoid
cumbersome exercise of gathering information from all companies falling under the
definition of promoter group; and (ii) risk factors need to be given in greater detail as
per international practices, although management perceptions of risks need not be
given.
4.2.3 Transparency in the debt market
As regards transparency in trading, the debt market is lagging behind the equity
market. The cash market in debt securities throughout the world prefers to operate
through negotiated deals either through telephone or an electronic dealing system like
Bloomberg. This is because unlike the equity market, the bond market participants are
generally wholesale institutional investors who put in large deals at a time, which may
not always be possible through the screen based order driven system. It is only in the
futures market that the principles of anonymity, price time priority, nationwide market
and settlement guarantee are known to work. As stated earlier, wholesale institutional
investors have yet to show adequate inclination to use the anonymous order matching
system for executing their debt securities transactions. Under the circumstances, SEBI
has taken initiatives to foster transparency through regulatory fiat by prohibiting
negotiated deals on the exchanges in respect of listed corporate debt securities and
prescribing that all such trades would be executed on the basis of price and order
matching mechanism of stock exchanges as in the case of equities. However,
negotiated deals are still continuing, albeit outside the exchange, and there is no
market dissemination of information on such transactions.
Since almost all deals in the government securities market are settled through the
Subsidiary General Ledger (SGL), the daily dissemination of such information (albeit
with a one day lag) has proved to be important in the price discovery process.) This,
66
together with the data available from the NSE's Wholesale Debt Market (WDM)
segment has contributed to greater transparency in the secondary market for
government securities. Transparency will be further boosted by the current initiative
to put in place an electronic negotiated dealing system for the SGL participants, which
will disseminate information on a near real time basis.
5. Mutual Funds
SEBI is the principal regulator of the mutual fund industry. Mutual funds in India are
constituted in the form of trusts. The fund’s sponsor executes the trust deed, which
outlines the liabilities and obligations of the trustees in relation to the unitholders. The
day-to-day operations of the fund are carried out by the asset management company
(AMC). 14 The board of trustees oversees the fund’s activities and enters into a
management agreement with the AMC.
SEBI has put in place standards for the eligibility and the regulation of those who
wish to market or operate a collective investment scheme. Eligibility criteria have
been set in terms of net worth, track record and internal management procedure. The
regulations lay down disclosure requirements, procedures for calculating and
declaring net asset values (NAV) of mutual fund schemes, accounting standards and a
code for advertisements. Regulations are also prescribed to ensure arms-length
relationship between the trustees and the AMC. SEBI is responsible not only for
registration and authorization of schemes, but also for inspection of registered mutual
funds and remedial action against any regulatory infraction.
Disclosure standards of mutual funds have been under regulatory focus. SEBI requires
disclosure to evaluate the suitability of a collective investment scheme for a particular
investor and the value of the investor’s interest in the scheme. Regulations have
prescribed specified format for offer documents as well as a disclosed basis for asset
valuation and the pricing and the redemption of units in a mutual fund. With a view to
make unitholders aware of the securities in which the funds have been invested by the
mutual fund, it has been made mandatory for mutual funds to send to all unitholders a
complete statement of the scheme portfolio on a half-yearly basis.
The mutual fund industry has played a significant role in mobilization of domestic
savings. Substantial progress has been made in strengthening regulation and
improving transparency in the mutual fund industry through the Mutual Funds
67
Regulations of 1996 and subsequent amendments. However, a number of challenges
still remain, which are outlined below.
The AXIS is the largest mutual fund in India, which was set up by an Act of the
Parliament (the AXIS Act, 1963). As such it is bound by the AXIS Act and not by
mutual funds regulations, although under a voluntary arrangement, SEBI oversees all
the investment schemes launched by AXIS since 1994. The organizational structure of
the AXIS differs from other mutual funds in two additional ways. First, there is no
separate AMC with an independent Board of Directors. Second, there has been no
separation of management groups managing schemes launched prior to 1994;
regulations apply only to schemes established after 1994. Currently, there are four
AXIS schemes--US-64, ULIP-71, CRTS-81 and CCCF-93--which do not comply
with SEBI regulations. The US-64, the flagship scheme of the AXIS and the largest
scheme in India, does not have a disclosed basis for asset valuation or pricing of units
although it has plans to move towards this. 15 Bringing the AXIS under SEBI's
purview as well as the introduction and implementation of international accounting
principles across the mutual fund industry will help promote fairness and stability of
the sector.
Currently, regulations appropriately require that the sale and redemption of funds
should be based on their NAVs, which have to be computed according to specified
rules. However, there is scope for further improvement in one significant area: AMCs
still have considerable room for discretion in adopting valuation of thinly traded or
non-traded securities, as regulations specify only broad guidelines. There is a need to
reduce the AMCs' discretion in this regard.
Finally, a couple of issues relating to prudential norms and corporate governance need
to be examined. Regulations provide that a fund's ownership in any single company
should not exceed 10 percent of a company's voting shares, although there is no upper
limit on the total holdings of voting and non-voting shares of any single company.
Further, there appears to be no restriction on corporate investment in a mutual fund's
units.
IOSCO Guiding Principles
68
This annexure sets out 30 principles of securities regulation, which are based upon
three objectives of securities regulation. These are:
o The protection of investors;16
o Ensuring that markets are fair, efficient and transparent;
o The reduction of systemic risk.
The 30 principles need to be practically implemented under the relevant legal
framework to achieve the objectives of regulation described above. The principles are
grouped into eight categories.
A. Principles Relating to the Regulator
The responsibilities of the regulator should be clear and objectively stated.
The regulator should be operationally independent and accountable in the exercise
of its functions and powers
The regulator should have adequate powers, proper resources and the capacity to
perform its functions and exercise its powers.
The regulator should adopt clear and consistent regulatory processes.
The staff of the regulator should observe the highest professional standards
including appropriate standards of confidentiality.
B. Principles for SelfRegulation
6 The regulatory regime should make appropriate use of SelfRegulatory
Organizations (SROs) that exercise some direct oversight responsibility for their
respective areas of competence, to the extent appropriate to the size and
complexity of the markets.
SROs should be subject to the oversight of the regulator and should observe
standards of fairness and confidentiality when exercising powers and delegated
responsibilities.
C. Principles for the Enforcement of Securities Regulation
69
The regulator should have comprehensive inspection, investigation and
surveillance powers.
The regulator should have comprehensive enforcement powers.
The regulatory system should ensure an effective and credible use of inspection,
investigation, surveillance and enforcement powers and implementation of an
effective compliance program.
D. Principles for Cooperation in Regulation
The regulator should have authority to share both public and nonpublic
information with domestic and foreign counterparts.
Regulators should establish information sharing mechanisms that set out when and
how they will share both public and non-public information with their domestic
and foreign counterparts.
The regulatory system should allow for assistance to be provided to foreign
regulators who need to make inquiries in the discharge of their functions and
exercise of their powers.
E. Principles for Issuers
There should be full, timely and accurate disclosure of financial results and other
information that is material to investors' decisions.
Holders of securities in a company should be treated in a fair and equitable
manner.
Accounting and auditing standards should be of a high and internationally
acceptable quality.
F. Principles for Collective Investment Schemes
The regulatory system should set standards for the licensing and the regulation of
those who wish to market or operate a collective investment scheme.
70
The regulatory system should provide for rules governing the legal form and
structure of collective investment schemes and the segregation and protection of
client assets.
Regulation should require disclosure, as set forth under the principles for issuers,
which is necessary to evaluate the suitability of a collective investment scheme for
a particular investor and the value of the investor's interest in the scheme.
Regulation should ensure that there is a proper and disclosed basis for asset
valuation and the pricing and the redemption of units in a collective investment
scheme.
G. Principles for Market Intermediaries
Regulation should provide for minimum entry standards for market
intermediaries.
There should be initial and ongoing capital and other prudential requirements for
market intermediaries.
23 Market intermediaries should be required to comply with standards for internal
organization and operational conduct that aim to protect the interests of clients
and under which management of the intermediary accepts primary
responsibility for these matters.
There should be procedures for dealing with the failure of a market intermediary
in order to minimize damage and loss to investors and to contain systemic risk.
H. Principles for the Secondary Market
The establishment of trading systems including securities exchanges should be
subject to regulatory authorization and oversight.
There should be ongoing regulatory supervision of exchanges and trading systems
which should aim to ensure that the integrity of trading is maintained through fair
and equitable rules that strike an appropriate balance between the demands of
different market participants.
Regulation should promote transparency of trading.
71
Regulation should be designed to detect and deter manipulation and other unfair
trading practices.
Regulation should aim to ensure the proper management of large exposures,
default risk and market disruption.
The system for clearing and settlement of securities transactions should be subject
to regulatory oversight, and designed to ensure that it is fair, effective and
efficient and that it reduces systemic risk.
The Report is subject to comments from SEBI.
1 The Bombay Stock Exchange is over a hundred years old.
2 During the 1990s, this meant that public sector mutual funds and other financial
entities supported the government's divestment program.
3 A member places an order on the computer stating the quantities of securities and
the price at which he wants to transact and the order is executed when it finds a
matching sale or buy order from a counter-party. It is possible for market participants
to see the full market, which has made the market more transparent.
4 Earlier, brokers routinely inflated (deflated) the prices at which they bought (sold)
shares for their clients, thus earning a hidden margin.
5 Government debt constitutes about three-fourth of the total outstanding debt.
6 International Organization of Securities Commissions, 1998, Objectives and
Principles of Securities Regulation, September.
7 For example, the regulations framed by the SEBI under the SEBI Act are required to
be laid before each house of the Parliament, and consequently published in the
Gazette of India, thereby facilitating a clear and consistent regulatory process.
8 This division oversees the surveillance activities of the stock exchanges.* Under implementation: The Finance Minister has announced on March 13, 2001 in
the Parliament that the Government intends to propose legislative changes to "further
strengthen the provisions in the SEBI Act, 1992 to ensure investor protection".
9 To give an example of powers of disgorgement, the US Securities Exchange
Commission can penalize the guilty by up to three times its profit made or loss
72
avoided through a regulatory violation. Incidentally, the RBI has disgorgement
powers.
10 Most of the exchanges are incorporated as "Association of Persons", possibly
because of the tax benefits and ease of compliance that such a form entails. * Under implementation: On March 13, 2001 the Finance Minister announced in the
Parliament that administrative steps would be taken, and legislative changes would be
proposed, if required, in order to corporatize stock exchanges by which ownership,
management and trading membership would be segregated from each other. The
process is currently under way.
11 In case of primary and satellite dealers in government securities, the RBI has
prescribed detailed prudential guidelines.
12 Unless the funds move quickly--that is on the same day or at best the next day--
traders will face liquidity problem. Hence electronic funds transfer is critical to the
introduction of rolling settlement. Currently, EFT facility is available in 14 centers.
The RBI is mandated to facilitate electronic movement of funds through the entire
banking system within a year.
* Under implementation: SEBI has since decided to extend rolling settlement to more
than 200 stocks with relatively high liquidity on a nationwide basis from July 2, 2001.
These shares, which account for over 95 percent of daily market transactions, are to
be traded only in rolling settlement mode. Meanwhile, on April 26, 2001 a Sebi group
on rolling settlement has recommended that from July 2, 2001 the approved deferral
products including Automated Lending and Borrowing Mechanism, Borrowing and
Lending of Securities System and Continuous Net Settlement cease to be available for
all the scrips and that Sebi and the exchanges should work towards introduction of
individual stock derivatives--such as options and futures of selected stocks--which
would substitute the hedging functions currently being performed by the above
deferral products.
13 Further, issuance to more than 50 individuals will now deemed to be a public issue.
With this, it has become more difficult to disguise public issues as private placement.
14 The fund's sponsor must contribute at least 40 percent of the net worth of the AMC.
15 The US-64 has a corpus of about Rs.20, 000 crore, about a fifth of the total assets
under management of all mutual funds. Following financial trouble in the scheme, the
73
AXIS constituted a committee (the Deepak Parekh Committee). The
recommendations of the committee are being implemented to restructure the US-64.
Research Methodology
Research Hypothesis:
The concept of mutual funds in India dates back to the year 1963. The era between
1963 and 1987 marked the existance of only one mutual fund company in India with
Rs. 67bn assets under management (AUM), by the end of its monopoly era, the Unit
Trust of India (AXIS). By the end of the 80s decade, few other mutual fund
companies in India took their position in mutual fund market.
The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank
Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of
India Mutual Fund.
The succeeding decade showed a new horizon in indian mutual fund industry. By the
end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector
funds started penetrating the fund families. In the same year the first Mutual Fund
Regulations came into existance with re-registering all mutual funds except AXIS.
The regulations were further given a revised shape in 1996.
Kothari Pioneer was the first private sector mutual fund company in India which has
now merged with Franklin Templeton. Just after ten years with private sector players
penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund
companies in India.
Major Mutual Fund Companies in India
ABN AMRO Mutual Fund
ABN AMRO Mutual Fund was setup on April 15, 2007 with ABN AMRO Trustee
(India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset
Management (India) Ltd. was incorporated on November 4, 2006. Deutsche Bank A
G is the custodian of ABN AMRO Mutual Fund.
Birla Sun Life Mutual Fund
Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life
Financial. Sun Life Financial is a golbal organisation evolved in 1871 and is being
represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart
74
from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to
investment. Recently it crossed AUM of Rs. 10,000 crores.
Bank of Baroda Mutual Fund (BOB Mutual Fund)
Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992
under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited
is the AMC of BOB Mutual Fund and was incorporated on November 5, 1992.
Deutsche Bank AG is the custodian.
HDFC Mutual Fund
HDFC Mutual Fund was setup on June 30, 2000 with two sponsorers nemely Housing
Development Finance Corporation Limited and Standard Life Investments Limited.
HSBC Mutual Fund
HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital
Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual
Fund acts as the Trustee Company of HSBC Mutual Fund.
ING Vysya Mutual Fund
ING Vysya Mutual Fund was setup on February 11, 1999 with the same named
Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment
Management (India) Pvt. Ltd. was incorporated on April 6, 1998.
Prudential ICICI Mutual Fund
The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of
the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund
was setup on 13th of October, 1993 with two sponsorers, Prudential Plc. and ICICI
Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and the AMC is
Prudential ICICI Asset Management Company Limited incorporated on 22nd of June,
1993.
Sahara Mutual Fund
Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial
Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited
incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The
paid-up capital of the AMC stands at Rs 25.8 crore.
State Bank of India Mutual Fund
75
State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch
offshor fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately.
Today it is the largest Bank sponsored Mutual Fund in India. They have already
launched 35 Schemes out of which 15 have already yielded handsome returns to
investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM.
Now it has an investor base of over 8 Lakhs spread over 18 schemes.
Tata Mutual Fund
Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers
for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The
investment manager is Tata Asset Management Limited and its Tata Trustee
Company Pvt. Limited. Tata Asset Management Limited's is one of the fastest in the
country with more than Rs. 7,703 crores (as on April 30, 2007) of AUM.
Kotak Mahindra Mutual Fund
Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL.
It is presently having more than 1,99,818 investors in its various schemes. KMAMC
started its operations in December 1998. Kotak Mahindra Mutual Fund offers
schemes catering to investors with varying risk - return profiles. It was the first
company to launch dedicated gilt scheme investing only in government securities.
Unit Trust of India Mutual Fund
AXIS Asset Management Company Private Limited, established in Jan 14, 2006,
manages the AXIS Mutual Fund with the support of AXIS Trustee Company Privete
Limited. AXIS Asset Management Company presently manages a corpus of over
Rs.20000 Crore. The sponsorers of AXIS Mutual Fund are Bank of Baroda (BOB),
Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance
Corporation of India (LIC). The schemes of AXIS Mutual Fund are Liquid Funds,
Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance
Funds.
Reliance Mutual Fund
Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882.
The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co.
Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual
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Fund which was changed on March 11, 2007. Reliance Mutual Fund was formed for
launching of various schemes under which units are issued to the Public with a view
to contribute to the capital market and to provide investors the opportunities to make
investments in diversified securities.
Standard Chartered Mutual Fund
Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by
Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt.
Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which
was incorporated with SEBI on December 20,1999.
Franklin Templeton India Mutual Fund
The group, Frnaklin Templeton Investments is a California (USA) based company
with a global AUM of US$ 409.2 bn. (as of April 30, 2007). It is one of the largest
financial services groups in the world. Investors can buy or sell the Mutual Fund
through their financial advisor or through mail or through their website. They have
Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end
Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid
schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.
Morgan Stanley Mutual Fund India
Morgan Stanley is a worldwide financial services company and its leading in the
market in securities, investmenty management and credit services. Morgan Stanley
Investment Management (MISM) was established in the year 1975. It provides
customized asset management services and products to governments, corporations,
pension funds and non-profit organisations. Its services are also extended to high net
worth individuals and retail investors. In India it is known as Morgan Stanley
Investment Management Private Limited (MSIM India) and its AMC is Morgan
Stanley Mutual Fund (MSMF). This is the first close end diversified equity scheme
serving the needs of Indian retail investors focussing on a long-term capital
appreciation.
Escorts Mutual Fund
Escorts Mutual Fund was setup on April 15, 1996 with Excorts Finance Limited as its
sponsor. The Trustee Company is Escorts Investment Trust Limited. Its AMC was
incorporated on December 1, 1995 with the name Escorts Asset Management
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Limited.
Alliance Capital Mutual Fund
Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital
Management Corp. of Delaware (USA) as sponsorer. The Trustee is ACAM Trust
Company Pvt. Ltd. and AMC, the Alliance Capital Asset Management India (Pvt)
Ltd. with the corporate office in Mumbai.
Benchmark Mutual Fund
Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services
Pvt. Ltd. as the sponsorer and Benchmark Trustee Company Pvt. Ltd. as the Trustee
Company. Incorporated on October 16, 2000 and headquartered in Mumbai,
Benchmark Asset Management Company Pvt. Ltd. is the AMC.
Canbank Mutual Fund
Canbank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as
the sponsor. Canbank Investment Management Services Ltd. incorporated on March
2, 1993 is the AMC. The Corporate Office of the AMC is in Mumbai.
Chola Mutual Fund
Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance
Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the
Trustee Company and AMC is Cholamandalam AMC Limited.
LIC Mutual Fund
Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It
contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was
constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882.
The Company started its business on 29th April 1994. The Trustees of LIC Mutual
Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the
Investment Managers for LIC Mutual Fund.
GIC Mutual Fund
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GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a
Government of India undertaking and the four Public Sector General Insurance
Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co.
Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co.
Ltd. (UII) and is constituted as a Trust in accordance with the provisions of the Indian
Trusts Act, 1882.
Analysis of Data:
AXIS Mutual Fund has come into existence with effect from 1st February 2006.
AXIS Asset Management Company presently manages 42 NAV based domestic SEBI
compliant schemes and 4 Offshore funds having a corpus Rs.15,243 crore from about
10 million investor accounts. AXIS Mutual Fund has a track record of managing a
variety of schemes catering to the needs of every class of citizenry over a period of 39
years. It has a nationwide network consisting 54 branch offices, 3 AXIS Financial
Centres (UFCs) and representative offices in Dubai and London.
Ms. Anita Madan, Fund Manager, has over 17 years experience in the MF industry.
Her qualifications include CIIA from London, CFA, CAIIB and Msc (Maths). From
October 2001, she has been managing the DFM Income schemes.
Speaking with Anil Mascarenhas and Sanket D Padhye of India Infoline, Ms Anita
Madan says profits may be booked at regular intervals and investors can look to re-
enter at lower levels again depending on their investment needs and investment
horizon.
Could you briefly tell us about the funds you manage?
The funds managed include AXIS Unit Linked Insurance Plan (ULIP) which has a
corpus over Rs4,100 crores. This is an insurance cum tax benefit cum savings plan.
The second is the Charitable and Religious Trust Societies (CRTS-81) with a corpus
of over Rs380 crores. Both are balanced funds. ULIP has an equity exposure of cap of
40% while CRTS has an equity cap of 30%. ULIP is the largest balanced fund in the
industry and is the third largest fund in the industry. In terms of returns it is one of the
top performing funds. It is benchmarked against CRISIL MIP Blended index.
What are your views on the ongoing rally in the stock markets?
79
The foundation for the current rally, which we are witnessing, was laid a number of
years ago. Corporates have undertaken various prudential measures such as cost
reduction, debt restructuring, backward integration, exploration of new markets and
exiting from non-synergistic diversification, all of which are now being reflected in
their re-rating in the stock markets. Outsourcing by companies is another important
factor, which was initially limited to the IT sector. With India becoming a competitive
hub, outsourcing is witnessed across other sectors such as auto and pharma sectors.
Therefore, the rally should continue as there is still more value in the markets today,
of course baring unforeseen events. There is still lot of value across sectors as is seen
by the depth and breadth in the markets.
Do you see any cause for concern in this ‘sustained’ rally?
Yes. As in any rally, penny stocks have also been moving up, which is a cause of
concern. The retail investors should avoid taking exposure in such stocks without
being fully aware of the fundamentals and the nature of business of these stocks. The
risks in the stock markets are best handled by professionally managed mutual funds.
Although investors are getting more savvy and systematic investment is advisable for
all classes of investors, which will give adequate returns. Investors should go in for
investment over regular periods of time depending on their investment horizon and
investment needs.
What is your view on the investigations being carried out by SEBI?
The rally, which we are witnessing today, started almost 12 months ago. The rally
was mainly in small cap and mid cap stocks but now it has moved to large cap stocks.
In any rally there may be a few stocks in which unwarranted activity may be
witnessed and these could come under the lens and rightly so as the intention is
protection of the investors. As far as we are concerned, the fund invests only based on
values and fundamentals. The fund is very firm on following ethics and we do not
adopt any unethical practice in fund management.
What is your investment philosophy?
Our investment philosophy is guided by our investors. Both ULIP and CRTS
investors are long term investors who look for long term growth and not short-term
momentum. We follow dynamic asset allocation approach. The fund follows both top-
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down as well as bottom-up approach. Top-down is for the long term while the
bottom-up approach is for the short-term investments and trading profits.
Which are the sectors you are bullish and bearish about?
We are bullish about all sectors and not bearish on any, as almost all sectors are
looking good. Given the improving sentiment and re-rating of Indian stocks coupled
with the agriculture driven growth expected during the year we expect most sectors to
perform well. The concerns lurking on the tech front are expected to get resolved
sooner than later and we will see it back in action soon. The toppers of today become
laggards of tomorrow and vice-versa.
What are your views on the steel and pharmaceutical sectors?
Steel sector as such should be doing well although some stocks have run too much too
soon. So there is some worry there. But there is still a lot of value in many of the steel
stocks. There is demand from the export market. China is a big market and domestic
consumption has been going up. On the pharmaceutical sector we are bullish on the
Indian pharmaceutical sectors and MNC pharma companies could get re-rated in the
near future.
What risk control measures does the scheme follow? How do they apply to the
stock and stock exposures?
AXISMF has a full-fledged risk management and control department which monitor
risks on a continuous basis across asset classed o fall schemes. SEBI has already laid
down prudential guidelines for containing exposures. The SEBI guidelines are
monitored by a full-fledged compliance department, which alert schemes even before
violations can occur requiring remedial action. In addition to all of the above the front
office dealing system has been parameterised for all quantifiable risk controls. Each
fund management team has their own internal risk assessment systems by which the
sectoral and stock risks are monitored. Each investment is therefore monitored
periodically at the scheme level for appropriate action the emphasis being on pro-
active management of perceived risks.
What are your forecasts on the interest 6-months down the line?
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There has been a lot of talk about hardening of interest rates but looking at the
fundamentals and data, we feel that softening of interest rates would continue.
AXIS has so many schemes. So how do you go about selling your schemes?
Each scheme has a unique selling proposition and are niche kind of products like
ULIP and CRTS. The fund has no problems selling these products. Possibly, there is a
conflict in a diversified equity fund and the fund has been working towards
positioning each of these equity schemes. All the others are distinct products catering
to almost every member of the family and at every stage of life.
What impact would RBI OMO amounting to Rs120bn and state government
bond auction of Rs80bn have on liquidity?
There is ample liquidity in the system today and RBI is expected to continue with its
soft rate bias. Concerns have been expressed over the flattening of yield curves which
would probably see the yields structure change slightly but it would be very short
term. We expect the soft bias to continue.
What are the factors that would affect returns from debt funds in the future?
It would depend upon the interest rate movements. If the interest rates go down, we
would see capital appreciation and the returns are safeguarded. In case of adverse
movements, we have options like interest rate futures so that we can safeguard our
returns.
With the equities markets doing well is there any option of increasing your
exposure to equity?
We are comfortable with the current position and we are outperforming the Sensex.
What impact would the resurgent India bonds (RIB) repayment of 4.1 bn $ have
on liquidity and exchange rate?
The exchange rate would not be affected much as we are comfortable on the reserve
position and in fact there has been a gain as rupee has been appreciating. So there
won’t be a major impact either on the liquidity or the exchange rate as the repayment
has been well planned. Moreover we expect 30-50% of the money to stay on.
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Any message for the retail investors who would want to enter mutual funds as
investment option?
I recommend systematic investment through select mutual fund products based on the
investment needs and investment horizons. Profits may be booked at regular intervals
and investors can look at re-entering at lower levels again depending on their
investment needs and investment horizon. Schemes like AXIS ULIP and AXIS CRTS
meet the needs of the investors through growth over the long term and regular income
respectively.
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SEBI guidelines regarding AXIS Mutual fund
SEBI has done an analysis of the unit holding pattern of mutual funds industry as on March 31,
2006. The details are given below:-
A] MUTUAL FUNDS INDUSTRY UNITHOLING PATTERN
From the data collected from the mutual funds, the following has been observed
i) As on March 31, 2006 there are a total number of 1.6 crore investors accounts (it is
likely that there may be more than one folio of an investor which might have been counted
more than once and actual number of investors would be less) holding units of Rs. 79,601
crore. Out of this total number of investors accounts, 1.56 crore are individual investors
accounts, accounting for 97.42% of the total number of investors accounts and contribute
Rs.32,691 crore which is 41.07% of the total net assets. The total number of investors account
is lower in comparison with the total number of investors accounts as on March 31, 2002 as the
above data includes information only of AXIS Mutual Fund (which is registered with SEBI on
January 14, 2006). The data of the Specified Undertaking of AXIS (not registered with SEBI) is
not available with us.
ii) Corporates and institutions who form only 2.04% of the total number of investors
accounts in the mutual funds industry, contribute a sizeable amount of Rs.45,470 crore which is
57.12% of the total net assets in the mutual funds industry.
iii) The NRIs/OCBs and FIIs constitute a very small percentage of investors accounts
(0.54%) and contribute Rs.1440.18crore (1.81%) of net assets.
The details of unitholding pattern are given in the following table:
UNITHOLDING PATTERN OF MUTUAL FUNDS INDUSTRY
CATEGORY NUMBER OF
INVESTORS
ACCOUNTS
% TO TOTAL
INVESTORS
ACCOUNTS
NET ASSET
VALUE
(RS.CRORE)
% TO
TOTAL NET
ASSET
VALUE
Individuals 15,557,506 97.42 32,691.12 41.07
NRIs/OCBs 84,311 0.53 878.51 1.10
84
FIIs 2,058 0.01 561.67 0.71
Corporates/
Institutions/ Others 324,979 2.04 45,469.53 57.12
TOTAL 15,968,854 100.00 79,600.83 100.00
* Note: Erstwhile AXIS has been divided into AXIS Mutual Fund (registered with SEBI) and
the Specified Undertaking of AXIS (not registered with SEBI). Above data contains
information only of AXIS Mutual Fund.
B] UNITHOLDING PATTERN – PRIVATE/PUBLIC SECTOR MUTUAL FUNDS
From the analysis of data on unitholding pattern of Private Sector Mutual Funds and Public
Sector Mutual Funds, the following observations are made:-
1. Out of a total of 1.6 crore investors accounts in the mutual funds industry, (it is likely that
there may be more than one folio of an investor which might have been counted more than once
and therefore actual number of investors may be less) 42.93 lakh investors accounts i.e 27% of
the total investors accounts are in private sector mutual funds whereas the 1.17 crore investors
accounts ie.73% are with the public sector mutual funds which includes AXIS Mutual Fund.
However, the private sector mutual funds manage 71.2% of the net assets whereas the public
sector mutual funds own only 28.8% of the assets
2. AXIS Mutual Fund has 97. 12 lakh investors accounts which is 60.82% of the total
investors accounts in the mutual funds industry.
Details of unitholding pattern of private sector and public sector mutual funds are given in the
following tables:
UNITHOLDING PATTERN OF PRIVATE SECTOR MFS
CATEGORY NUMBER OF
INVESTORS
ACCOUNTS
% TO TOTAL
INVESTORS
ACCOUNTS
NET ASSET
VALUE
(RS.CRORE)
% TO
TOTAL NET
ASSET
VALUE
Individuals 4001841 93.23 17956.48 31.68
85
NRIs/OCBs 38416 0.89 723.02 1.28
FIIs 1317 0.03 528.51 0.93
Corporates/
Institutions/ Others 250972 5.85 37465.91 66.11
TOTAL 4292546 100.00 56673.92 100.00
UNITHOLDING PATTERN OF PUBLIC SECTOR MFS (INCLUDING AXIS MF *)
CATEGORY NUMBER OF
INVESTORS
ACCOUNTS
% TO TOTAL
INVESTORS
ACCOUNTS
NET ASSET
VALUE
(RS.CRORE)
% TO
TOTAL NET
ASSET
VALUE
Individuals 11,555,665 98.97 14734.64 64.27
NRIs/OCBs 45895 0.39 155.49 0.68
FIIs 741 0.01 33.16 0.14
Corporates/
Institutions/ Others 74007 0.63 8003.62 34.91
TOTAL 11676308 100.00 22926.91 100.00
* Note: Erstwhile AXIS has been divided into AXIS Mutual Fund (registered with SEBI) and
the Specified Undertaking of AXIS (not registered with SEBI). Above data contains
information only of AXIS Mutual Fund.
Risk Factors
Mutual Funds and securities investments are subject to market risks and there can be
no assurance or guarantee that the Schemes objectives will be achieved. As with any
investment in securities, the Net Asset Value of Units issued under the Schemes may
86
go up or down depending on the various factors and forces affecting the capital
market. Past performance of the Sponsors/ AMC/ Mutual Fund/ Schemes and its
affiliates do not indicate the future performance of the Schemes of the Mutual Fund.
The Sponsors are not responsible or liable for any loss or shortfall resulting from the
operations of the Schemes beyond their contribution of Rs.10,000/- each made by
them towards setting of the Mutual Fund The Names of the Schemes do not in any
manner indicate either the quality of the Schemes or their future prospects and returns.
Investors in the Schemes are not being offered any guarantee / assured returns. Please
read the Offer Documents carefully before investing.
Statutory Details
In terms of The Unit Trust of India (Transfer of Undertaking and Repeal) Act 2002
(“Act”), the assets and liabilities of the erstwhile Unit Trust of India have been
bifurcated into two parts the specified undertaking and the specified company. The
Administrator of the Specified Undertaking of The Unit Trust of India comprises of
US 64 and the assured return schemes (most of which have since been converted into
tax free bonds, the present investment is guaranteed by the Govt. of India) . The
Specified Company has been set up as a mutual fund viz. AXIS MF, comprising of all
net asset value based schemes. AXIS MF has been structured in accordance with
SEBI (Mutual Funds) Regulations, 1996 The mutual fund was registered with SEBI
on January 14, 2006 under Registration Code MF/048/03/01.
SEBI okays Fidelity plans
Fidelity Investments has received permission from SEBI to launch equity funds in
India. Fidelity has already filed a draft prospectus with SEBI for its maiden equity
fund, Fidelity Equity. The proposed fund will invest across sectors. The portfolio will
comprise 60-80 stocks. The fund will ordinarily invest up to 95 per cent of its assets
in equities, but may invest up to 20 per cent in money market instruments.
SBI Mutual Fund has launched a mid-cap fund, Magnum MidCap Fund. It will
invest in stocks with a market capitalisation of Rs 200-2,000 crore. The minimum
investment amount is Rs 5,000. The fund offers dividend and growth options. The
offer closes on March 17.
Principal Mutual has declared dividend of 100 per cent on Principal Resurgent
India Equity Fund. The record date is February 24.
87
Sundaram Mutual has declared dividends of 20 per cent each on Sundaram Select
Focus and Sundaram Growth. The record dates are March 4 and March 11
respectively.
AXIS Mutual Fund has declared a maiden dividend of 12 per cent for AXIS Basic
Industries Fund and a dividend of 25 per cent for AXIS Growth and Value Fund. The
record date for both the dividend payments is March 10. The fund house has also
declared a dividend of 18 per cent for AXIS Balanced Fund. The record date is March
17.
Franklin Templeton Mutual Fund has proposed a dividend for Franklin India
Taxshield. The record date is March 18.
HDFC Mutual proposes to declare dividend on HDFC Prudence and HDFC
Balanced Fund. The record date for the dividend will be March 18.
Franklin Templeton Mutual has mopped up Rs 1,950 crore from the initial offering
of Franklin Flexicap. This is the largest amount mobilised by any open-end fund IPO.
The fund will be open for an ongoing basis from March 7.
SEBI's new checks and balances
S. Vaidya Nathan
GILT Funds, or G-Sec Funds, which invest in Government of India securities, have
steadily gained in popularity in the last two years. The Securities and Exchange Board
of India has now issued new guidelines they should follow to provide for better
checks and balances. The following are the salient features of the new requirements:
Public debt offices of the RBI will issue monthly statements to mutual funds
maintaining SGL/CSGL accounts.
Mutual funds have to reconcile their balances with the monthly RBI reports.
Internal audit, continuous checks by auditors and reports to audit committees form
part of the requirements.
The same report must also be placed before the boards of the asset management
company and trustee company/
88
Mutual funds will have to submit a compliance certificate to the RBI on a quarterly
basis, indicating adherence to these prescribed norms.
Alliance Capital Advisor: Alliance Capital Management Holding LLP has appointed
Blackstone Group LP to advise it on its Indian operations. The latter will look at
strategic options for the mutual fund business. There have been indications that
Alliance may want to wind up its mutual fund operations in India.
Franklin Templeton International Fund: Templeton Mutual Fund is to launch
Franklin India International Fund. This open-end fund will invest in foreign securities.
The scheme will invest in Franklin US Government Fund, which has a track record of
more than 10 years and an asset base of $2.5 billion. The initial offering period is
between December 2 and 20. The minimum investment amount is Rs 25,000 and
multiples of Rs 1,000 thereafter. There is no entry load during this period.
Templeton MIP dividend: Templeton Mutual Fund has declared a dividend of 0.75
per cent for the Monthly Dividend Option of the Templeton Monthly Income Plan.
The dividend is for 31 days and the record date is November 11.
Dundee dividend: Dundee Mutual Fund has announced monthly dividend of 1 per
cent for Dundee Sovereign Trust and 0.35 per cent each for Dundee Corporate Bond
Fund and Dundee Public Sector Fund.
DSP Tech Fund: DSP Merrill Lynch Mutual Fund has altered the investment strategy
of the DSP Merrill Lynch Technology Fund by deciding on the BSE TEXK Index as
the benchmark index. It will invest in stocks outside the index too. Since this is a
89
fundamental change, investors have an option to exit the scheme at NAV before
December 13. If they do not do so, they will be deemed to have accepted the change.
New BoB schemes: BoB Mutual Fund, sponsored by Bank of Baroda, plans to launch
a Growth Fund and a Balanced Fund with growth, dividend and dividend re-
investment options. The fund has filed with SEBI for this purpose.
Deutsche MF schemes: Deutsche Bank has launched its mutual fund with four
products set to be launched.
The four schemes planned are Deutsche Alpha Equity Fund, Deutsche Insta Cash
Fund, Deutsche Premier Bond Fund and Deutsche Short Maturity Fund. All the
income products will be managed by Mr Suresh Soni, while the equity fund will be
managed by Mr B. P. Singh.
AXIS split: The Government has provided for more tax concessions in the process of
splitting Unit Trust of India (AXIS) into two parts
AXIS-I, which will administer US-64 and other assured returns schemes of the
AXIS for which government support is needed, will be exempt from tax for five
years.
Tax exemption will cover any income, profits and gains received by AXIS-I.
Capital gains tax has also been waived on all units issued and the unit schemes of
AXIS- I.
Stamp duty exemption on transfer of net asset value of NAV-based schemes to
AXIS-II and assured returns schemes to AXIS-I has been provided.
AXIS-I will reset interest rates and foreclose some assured return schemes with the
approval of SEBI.
AXIS employees transferred to AXIS-II will enjoy the same benefits as before.
These have been provided for in the Unit Trust of India (Transfer of Undertaking and
Repeal) Bill tabled in Parliament.
AXIS-I and AXIS-II CEO: Mr M Damodaran, the present Chairman of AXIS, will
head both AXIS-I and AXIS-II for now.
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AMFI demand: Dividends declared by mutual funds should be exempt from tax is
the core demand made by the Association of Mutual Funds of India (AMFI) to the
Finance Minister as one more Budget nears. The AMFI has based its position on the
Kelkar panel recommendation to exempt dividend on equity shares from tax.
Unique Features of AXIS their Impact on its Functioning [Extract from the Report of
"Corporate Positioning" Committee]
In the initial stages, AXIS had been performing a hybrid role of both a financial
institution and a mutual fund. However, over the last few years, its role as a financial
institution has significantly diminished and it has positioned itself purely as the largest
mutual fund in the country. There is also a significant trend emerging which suggests
that financial institutions will gradually wither away or merge into universal banks. In
this scenario, commercial banks and mutual funds will emerge as the primary
institutions for the mobilisation of household savings. This reinforces the need for
AXIS to evolve as a pure mutual fund. At the same time, consideration has to be
given to the fact that AXIS has promoted and holds controlling interest in a number of
institutions outside the pure mutual fund industry.
As noted earlier, AXIS's management structure is at variance with the structure
prescribed for mutual funds under SEBI regulations. These regulations provide for
four separate entities, namely a Sponsor, an Independent Trustee, an Asset
Management Company and the Fund. It is necessary that AXIS as the largest player in
the Mutual Fund industry should, as recommended by the Vaghul Committee, lend
itself to SEBI's regulatory jurisdication and conform to the form of structure
prescribed in SEBI regulations. As stated earlier, out of 73 domestic schemes, 67
schemes have already been brought under SEBI regulations and apart from US-64 and
SUS-99, the remaining schemes have finally suspended sales and/or are nearing
termination. It only remains for the structure of AXIS also to be made SEBI
compliant.
While the present structure of AXIS provides for separate Asset Management
Committees for US-64, equity schemes and for income/debt schemes, the degree of
control exercised and direction imparted by these Committees appears to be restricted
and inadequate. The key mandate of the Committees is to review performance of unit
schemes of AXIS and provide guidance. The Committees discharge this role of
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independent review of scheme performance through the mechanism of periodic
meetings. Given the limitation of a "review committee" format, the Committees have
not found it possible to resolve "embedded" problems stemming from "historical"
decisions. The Committees, therefore, cannot replace Asset Management Companies.
There is therefore need for an independent Trustee and an independent AMC, as
provided under SEBI regulations with wider powers of control and direction.
AXIS has no identified Sponsor but the institutions which contributed to the initial
capital of Rs.5 crores and the additional amount of Rs.445.5 crores in 1999 may be
considered as Sponsoring Institutions. SEBI regulations impose certain
responsibilities and obligations on sponsors and it would be difficult to discharge
these responsibilities and obligations when there are a large number of sponsors. It is
therefore necessary that the Sponsor should be a separate company. It is suggested
that this company can be formed with the initial shareholders being the Sponsoring
Institutions who will convert the whole or part of their present holdings in the initial
capital of Rs.5 crores and the additional contribution of Rs.445.50 crores made in
June 1999 into the capital of the Sponsoring Company. This conversion can be made
at the NAV of the units when US-64 becomes NAV based. It is desirable that no
single member of the Sponsoring Institutions ultimately holds more than 25% of the
ultimate capital of the Sponsoring Company, particularly since many of them already
own or have participation in AMCs managing other mutual funds.
It is for consideration whether AXIS should be wholly-owned and managed by the
Government through participation in the Sponsoring Company. Although AXIS is not
directly owned by the Government, the majority of the Sponsoring Institutions who
contributed to the capital and the additional contribution and who elect the trustees are
institutions which are owned or controlled by the Government. The Chairman of the
Board of Trustees is also appointed by the Government. There is therefore a public
perception of a Government umbrella which gives a measure of safety, security and
implied guarantee to the unit-holders which is largely responsible for AXIS's success
as a savings institution.
At the same time, this perception imposes an implied responsibility on the
Government for a possible bail-out of AXIS in the event of its failure to meet specific
or implied commitments. Government did this by contributing to the SUS Scheme to
the extent of Rs.3,300 crores following the recommendations of the Deepak Parekh
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Committee and there is a public perception that Government will need to do likewise
to ensure that AXIS will meet its commitments to US-64 unit holders atleast to the
extent of 3,000 units out of their aggregate holdings.
Participation by Government in the sponsoring company may strengthen the
perception of implied responsibility of the Government for the due fulfillment of
obligations by AXIS but this responsibility may be open-ended and Government may
not wish to accept such a responsibility. However, non-participation by Government
in the sponsoring company may not by itself remove the perceived link between the
Government and AXIS so long as Government continues to exercise powers such as
the power to appoint the Chairman of the Board of Trustees under the AXIS Act.
At the same time, it is necessary to recognise that if the perceived link with the
Government is suddenly removed, - and certainly if it is removed before US-64
becomes NAV based - without providing an adequate substitute, public confidence in
AXIS would be severely affected and can even lead to a flood of redemptions which
could create a crisis both in AXIS and in the capital market. It is therefore necessary
that if the Government does not participate in the Sponsoring Company, the
participation of the Sponsoring Institutions should remain "locked-in" atleast for the
initial period.
An option for consideration is whether in place of the Government a strategic partner
cannot be introduced. If this partner is an established player in the market who enjoys
confidence of unitholders because of his reputation and competence, the risk of loss of
public confidence through the removal of the perceived Government link would be
largely mitigated. At the same time, having regard to the large amount of funds
involved, the field for the identification of a strategic partner cannot be restricted only
to Indian entities.
If such a strategic partner is introduced, then it is necessary that Government should
completely withdraw and leave it to the strategic partner to manage the fund subject to
the supervision and regulation of SEBI as in the case of other mutual funds. To do
otherwise would create the danger that Government may be perceived to be
accountable for the proper functioning of AXIS without having any effective control.
If on the contrary, Government attempts to effectively control the operations of AXIS,
it will get unnecessarily involved in running a commercial operation for which it may
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not be able to impart the necessary skill and flexibility. A complete withdrawal of the
Government would also achieve the objective of de-risking the Government from the
operations of AXIS.
A question for consideration is the size of the capital of the Sponsoring Company.
This depends upon two major factors namely, the contribution which the Sponsoring
Company is required to make to the Capital of the Asset Management Company and
the amount of funds the Sponsoring Institutions are prepared to provide for this
purpose. Taking into account both these factors, it is suggested that the initial capital
of the Sponsoring Company to be contributed by the Sponsoring Institutions could be
in the order of Rs.220 crores. The strategic partner could be required to introduce into
the capital a sum of Rs.330 crores whereby of the total capital of Rs.550 crores, 40%
would be held by the Sponsoring Institutions and 60% would be held by the strategic
partner. The holding of the Sponsoring Institutions could be subject to a 'lock-in' of
three years, though transfers between themselves would be possible.
SEBI regulations require the formation of a Board of Trustees or a Trustee Company.
The usual practice is to form a Trustee Company which is owned by the Sponsor but
the composition of whose Board of Directors conforms to SEBI regulations. It is
suggested that a Trustee Company be formed as a wholly-owned subsidiary of the
Sponsoring Company. SEBI regulations do not prescribe any minimum capital for the
Trustee Company but having regard to the onerous responsibilities prescribed under
the regulations for a Trustee Company, it is suggested that it has a capital of Rs.5
crores which will enable it to build up the necessary infrastructure to discharge those
responsibilities.
Performance evaluation of AXIS Mutual Fund
AXIS Master Value Fund declares second consecutive tax-free (Jan 13, 2007)
AXIS Mutual Fund declares second consecutive dividend of 100% (Rs 10.00 per unit
on face value of Rs.10/-) under AXIS-Master Value Fund (AXIS-Value Fund).
The record date for the dividend is February 7, 2007. The dividend is tax-free for the
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investors, so the post-tax return for the investors works out to be much higher.
Investors who will join the scheme on or before February 7, 2007 will also be eligible
for the dividend.
The NAV of the scheme as on January 12, 2007 was Rs.27.82 (Post dividend
distribution, NAV will fall to the extent of the pay out).
During the calendar year 2006, AXIS Master Value Fund had declared a total
dividend of 140% (Rs 14.00 per unit on face value of Rs.10/-).
The performance of the scheme is given in the table below:
Scheme Performance as on December 31, 2007 (NAV- Rs.29.59)
Performance Comparison with benchmark index
Compounded Annualised Return NAV CNX Mid Cap 200
Over last one year 25.38% 44.61%
Over last three years 60.72% 61.14%
Over last five years 17.82% 17.96%
Since Inception 28.52% 28.92%
Assuming that all pay outs during the period have been reinvested in the units of the scheme at the immediate ex-dividend NAV
Past Performance may nor may not be sustained in the future
AXIS Master Value Fund is an open-ended equity oriented value fund, which was
launched in June 1998 as the close-ended fund and made open-ended from 17th
February 2006. The investment objective of the scheme is to provide investors the
benefits of capital appreciation and income distribution through investment in stocks
that are relatively undervalued to their expected long-term earnings growth.
The scheme will invest upto 80% of the net assets in the scrips having anyone or more
of the following characteristics at the time of acquisition:
a) Low P/E ratio (PE ratio lower than the market PE or the sector PE) OR
b) Attractive dividend yield OR
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c) Low price to book value ratio OR
d) Companies with positive Economic Value Added (EVA)
Up to 20% of net assets is invested in equity / equity related instruments issued by
blue chip companies with a potential for consistent growth and with management of
high quality and track record.
Shri Vinay Kulkarni, the Fund Manager of the scheme said “AXIS-Master Value
Fund is positioned as a pure value scheme with clearly defined investment criteria for
investing in value stocks. The scheme invests in stocks that are relatively undervalued
to their intrinsic value and which will create wealth for the various stakeholders in the
medium to long term.”
“Going forward also the scheme will attempt to identify value stocks across the
sectors, which are best placed to report strong earning momentum and are available at
attractive valuation.”
About AXIS MF AXIS Mutual Fund was carved out of Unit Trust of India as a SEBI
registered mutual fund by repealing the Unit Trust of India Act (1963) on 1st
February 2006. AXIS Mutual Fund (AXIS MF) manages the pure Mutual Fund
schemes, which are fully SEBI compliant and in line with the best global practices,
while, Specified Undertaking of the Unit Trust of India (SUAXIS) manages schemes
which involve the commitment of the Government of India.
Let us start the discussion of the performance of mutual funds in India from the day
the concept of mutual fund took birth in India. The year was 1963. Unit Trust of India
invited investors or rather to those who believed in savings, to park their money in
AXIS Mutual Fund.
For 30 years it goaled without a single second player. Though the 1988 year saw some
new mutual fund companies, but AXIS remained in a monopoly position.
The performance of mutual funds in India in the initial phase was not even closer to
satisfactory level. People rarely understood, and of course investing was out of
question. But yes, some 24 million shareholders was accustomed with guaranteed
high returns by the begining of liberalization of the industry in 1992. This good record
of AXIS became marketing tool for new entrants. The expectations of investors
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touched the sky in profitability factor. However, people were miles away from the
praparedness of risks factor after the liberalization.
The Assets Under Management of AXIS was Rs. 67bn. by the end of 1987. Let me
concentrate about the performance of mutual funds in India through figures. From Rs.
67bn. the Assets Under Management rose to Rs. 470 bn. in March 1993 and the figure
had a three times higher performance by April 2007. It rose as high as Rs. 1,540bn.
The net asset value (NAV) of mutual funds in India declined when stock prices started
falling in the year 1992. Those days, the market regulations did not allow portfolio
shifts into alternative investments. There were rather no choice apart from holding the
cash or to further continue investing in shares. One more thing to be noted, since only
closed-end funds were floated in the market, the investors disinvested by selling at a
loss in the secondary market.
The performance of mutual funds in India suffered qualitatively. The 1992 stock
market scandal, the losses by disinvestments and of course the lack of transparent
rules in the whereabout rocked confidence among the investors. Partly owing to a
relatively weak stock market performance, mutual funds have not yet recovered, with
funds trading at an average discount of 1020 percent of their net asset value.
The supervisory authority adopted a set of measures to create a transparent and
competitve environment in mutual funds. Some of them were like relaxing investment
restrictions into the market, introduction of open-ended funds, and paving the gateway
for mutual funds to launch pension schemes.
The measure was taken to make mutual funds the key instrument for long-term
saving. The more the variety offered, the quantitative will be investors.
At last to mention, as long as mutual fund companies are performing with lower risks
and higher profitability within a short span of time, more and more people will be
inclined to invest until and unless they are fully educated with the dos and donts of
mutual funds.
SCOPE OF THE STUDY
AXIS Crisis & After How the Crisis Originated
What was the Crisis that Overtook AXIS during 1999 to 2002
Mr.Yogi Aggarwal, columnist of "india-syndicate.com/" further points out in his
illuminating articles published online-
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"The figure of Rs 5.81 for the net asset value (NAV) of Unit-64 marked a nadir for
AXIS and revealed to a shocked public just how deep the rot had set in the
government run financial sector.
"The facts as revealed by the government appointed Tarapore Committee and the
other committees which preceded it show a trail of bungling, structural flaws and
AXIS officials using public money in an "imprudent" manner to help various
controversial and powerful companies in stock exchange dealings that cost the AXIS
several thousands of crores and severely eroded investor wealth. What they reveal is
not just incompetence but a flouting of all prudential norms to favour certain
individuals and companies.
"While the Tarapore Committee saw no reason to believe in any "breach of
confidentiality" leading to the large scale redemptions in Unit-64 during April and
May 2001 when around Rs 5,000 crore was taken out by big corporates and banks
from Unit-64, it severely criticized the way the scheme worked. A fundamental flaw
was that Unit-64 lived beyond its means, rewarding unitholders with dividends
beyond its capabilities and propping up the price of Units well beyond their real
worth.
"AXIS could keep going because new people were always willing to put their money
in Unit-64, thus paying for the dividends and helping hide the real state of affairs. The
classic case which comes to mind is that of the Ponzi scam in the west in the early
part of the last century, in which investors were promised and paid huge returns by the
simple expedient of having new investors come in so that the kitty was always full. so
long as the inflow from fresh investors was large enough to pay for the hefty returns
promised.
"The Tarapore Committee commented, "The pricing mechanism was clearly faulty
and had all the ingredients of a ponzi scheme under which new entrants and those
continuing in the scheme had to bear the burden of redemption at relatively high
prices." The government run financial sector had clearly failed in its responsibilities
by trying to meet up to unrealistic expectations which it had created in the middle
class constituency.
"At the same time the government's constant instructions to the AXIS to prop up or
help this or that business house led to bad investment decisions to the detriment of
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unitholders. It is noteworthy that matters seem to have worsened from mid-1998
onwards, when the present government took office and when P S Subramanayam was
appointed chairman. Inter scheme transfers between different AXIS funds were one
reason for the drain on Unit-64s resources. These jumped ten times from around Rs
1,000 to Rs 2,000 crore per year in the period preceding to Rs 10,000 to Rs 20,000
crore a year thereafter.
"These transfers were used to prop up other AXIS schemes at the cost of the Unit-64.
To illustrate consider the following: In December 2000 Unit-64 got Rs 3,333 crore
from other AXIS schemes for 230 sale transfers. These were reversed the next month
but for this the Unit-64 had to shell out Rs 3,447 crore. This paper exercise meant a
loss of Rs 116 crore for Unit-64 which went to boost the revenues of other AXIS
schemes.
"The AXISs decision to offer unitholders of upto 5,000 units the option of reselling
their unit back to AXIS at a price of Rs 10 in January 2002 rising by 10 paise each
month till May 2006 only involves a postponement of a difficult choice. Unless the
sensex rises to an unrealistic level of around 7,000 (from the present of approximately
3,400) the NAV of Unit 64 cannot be above Rs 10. Since the government is
committed to buying back all units at Rs 10 in May 2006 there would be sharp
redemptions at that time. Depending on how the stockmarket behaves estimates of the
government's liability to bail out AXIS at that time range from Rs 6,000 crore to Rs
8,000 crore.
"What is perhaps most scandalous is the manner in which AXIS was used to prop up
share prices of certain companies in a dubious manner. The top management
consistently ignored the advice of its equity research cell. The Tarapore Committee
found that in all 19 cases it picked for examination there were signs of "imprudence".
These companies included such as Himachal Futuristic, DSQ Software, Pentamedia
Graphics, Ispat Industries, Jindal Vijayanagar, Essar Oil and Essar Steel, and Reliance
and Reliance Petro.
"A majority of these deals were through private placement and off-market deals
making them less transparent and the value of these deals in the three years to June
2001 was around Rs 18,000 crore. The committee noted, "there are a number of cases
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where the chairman's powers have been exceeded," and "investments have been made
in one company of a group while there was default in another company of the group."
"Further, the AXIS invested around Rs 2,500 in the equity of thinly traded or unlisted
companies from which it will be very difficult for the AXIS to exit. Many of these
investments (it's perhaps more accurate to call them "gifts") were made at the behest
of the political masters though the Committee does not go into this. In one famous
case AXIS was used to bail out brokers involved inthe Calcutta Stock Exchange crisis
of March 2001 by purchasing
1.3 million shares of DSQ Software for Rs 25.1crore.
In the next article we give the recommendations as made by the Deepak Parekh
Committee
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Strength and weakness of AXIS Mutual Fund
AXIS is a statutory corporation established under the Unit Trust of India, Act 1963
with a view to encouraging saving and investment and participation in the income,
profits and gains accruing to the Corporation from the acquisition, holding,
management and disposal of securities. The Act came into force on 1st February
1964.
The initial capital of AXIS was Rs.5 crores which has been contributed as under:
Reserve Bank of India (RBI) Rs.2.50 crores
Life Insurance Corporation of India (LIC) Rs.0.75 crores
State Bank of India (SBI) and its subsidiary banks Rs.0.75 crores
Scheduled banks (other than SBI and its subsidiary banks) and notified financial
institutions Rs.1.00 crore
The initial capital forms part of US-64 and the subscribers hold units in that Scheme.
In 1975, the AXIS Act was amended and by virtue of the amendment, the Industrial
Development Bank of India (IDBI) took over the rights and responsibilities of RBI
under the Act and the share of the initial capital held by RBI was transferred to and
vested in IDBI.
he general superintendence, direction and management of the affairs and business of
AXIS rests in a Board of Trustees which exercises all powers and does all acts and
things which may be exercised or done by AXIS. The composition of the Board of
Trustees is as under :
The Chairman to be appointed by the Central Government in consultation with
IDBI.
One trustee to be nominated by RBI.
Four trustees to be nominated by IDBI of whom not less than three shall be
persons having special knowledge of, or experience in commerce, industry,
banking, finance or investment.
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One trustee to be nominated by LIC.
One trustee to be nominated by SBI.
Two trustees to be elected by other contributing institutions viz scheduled banks
(other than SBI and its subsidiary banks) and notified financial institutions.
An executive trustee to be appointed by IDBI, provided that such an appointment
may not be necessary if the Chairman is whole-time.
The Board meets not less than six times a year and atleast once in two months.
The Act provides that where the whole of the initial capital has been refunded to the
contributory institutions, the Central Government may, after consultation with IDBI,
by order, provide for reconstitution of the Board. The Act also provides that
regulations made by the Board have to be with the prior approval of IDBI.
There is an Executive Committee which, subject to such general or special directions
as the Board may, from time to time, give, has the power to deal with any matter
within the competence of AXIS. The Executive Committee consists of :-
The Chairman of the Board.
The Executive Trustee where such trustee has been appointed and
Two other trustees nominated in this behalf by IDBI.
The Executive Committee usually meets once in a month.
The day-to-day business operations of AXIS are looked after by a full time Chairman.
A team of Executive Directors and Chief General Managers assists him. Presently the
Board has created posts of eight Executive Directors and twelve Chief General
Managers though all posts have not been filled. The post of Executive Trustee has
remained vacant from 1st January 2000.
AXIS has a three-tier organisational set up with a Corporate Office, four zonal offices
and fifty four branch offices. It has about 4.1 crores unitholding accounts (with more
than one account held by a single person) under 73 domestic schemes having
investible funds at market value as on 30th June 2001 of Rs.56,057 crores. In
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addition, it has six off shore funds and four venture capital funds. Its management
expenses amount to about 1% of the investible funds.
The Board has powers to constitute such other committees whether consisting wholly
of trustees or wholly of other persons or partly of trustees and partly of other persons
as it thinks fit and for such purpose as it may decide.
In May 1997, at the instance of SEBI, the Board constituted three Asset Management
Committees for AXIS's domestic schemes, one each for
US-64
equity schemes and
income/debt schemes.
Each Asset Management Committee consists of seven members of whom not less
than five are independent outside experts. No person is a member of more than one
committee. The Committees' scope of activity includes :-
Overseeing and ensuring that each scheme addresses to/complies with the stated
objectives of the scheme, AXIS General Regulations, SEBI (Mutual Fund)
Guidelines and the prudential investment norms laid down by the Board of
Trustees from time to time;
Reviewing scheme performance regularly and guiding fund managers on the
future course of action to be adopted;
Considering other key issues such as product designing, marketing, investor
servicing, compliance, taxation and accounting policy.
There is also an Audit Committee consisting of five trustees which reviews the
systems and controls and interacts with the internal and external auditors. In addition
to Board Committees, there are a number of Committees constituted of the executives
of which the most important are :-
A First-Tier Audit Committee which reviews the reports of all
sections/departments of AXIS and initiates necessary corrective action.
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An Investment Valuation Committee which reviews the system and practice of
valuation of securities.
A Primary Market Investment Committee for considering primary market
proposals.
A Property Management Committee to appraise proposals approved by the
Building Committee.
An Internal Committee for settlement of dues.
While the power to take decisions related to investment of the funds has been
delegated by the Board of Trustees to the Executive Committee and to a lesser extent
to the Chairman, exposure limits have been laid down in AXIS General Regulations,
1964 and further restrictive limits have been specified by the Board. The broad
investment policy of each scheme is laid down under the provisions of each scheme
approved by the Board of Trustees or the Executive Committee. The Board reviews
the delegation of powers from time to time.
For investments in the primary market, there is a Primary Market Investment
Committee consisting of 4 Senior Executives which vets all proposals and submits the
same to the Chairman with their recommendations. The secondary market
transactions in equity as well as debt are decentralised to individual fund managers
who decide on buy and sell strategy after consultation with research analysts. All
stock market transactions are reported to the Executive Committee which gives
overall direction in respect of secondary market transactions. Report of secondary
market transactions is also placed before the Board.
AXIS has promoted a number of associated companies and institutions. The details of
its investment in those companies/institutions are as under :-
Company/Institution Book Value
of
Investment as
at
30/6/2001
%
Holding
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(Rs. lakhs)
AXIS Bank Ltd 8,912 61
AXIS Securities Exchange Ltd. 3,174 100
AXIS Investor Services Ltd 1000 100
AXIS Investment Advisory
Services Ltd.247 78
AXIS International Ltd. 146 100
In addition, it has participated with other institutions in promoting a number of capital
market intermediaries like The Stock Holding Corporation of India Ltd.,
Infrastructure Leasing and Financial Services Co. Ltd., National Securities Depository
Ltd. etc.
The investments in associated companies and institutions has been financed out of the
Development Reserve Fund. As on June 30, 2001, the Fund amounted to Rs.1,535
crores.
The Act provides that in the discharge of its functions under the Act, AXIS shall be
guided by such directions in matters of policy involving public interest as IDBI may
give to it in writing and if any question arises whether the direction relates to a matter
of policy involving public interest, IDBI's decision is final.
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Unique Strength & Weakness of AXIS
AXIS is the largest player in the mutual fund industry with total investible funds of
domestic schemes (at Market Value) as at 30th June, 2001 of Rs.56,057 crores
constituting about 57% of the total investible funds of the industry. US 64 with a total
unit capital as at 30th June 2001 of Rs.12,786 crores had a substantial share of these
investible funds. It has certain unique strengths notable amongst them being :-
Its large size with consequential economies of scale;
Its nation-wide well entrenched distribution network and consequently its wide
reach and capacity to mobilise large resources;
Its brand image arising out of a public perception that the safety of funds is
assured by its pseudo Government character, which may not be entirely
unjustified.
The fact that it does not have an AMC to whom management fees would have to
be paid which results in higher returns available to unitholders.
It also has certain pronounced weaknesses:
Being the largest player in the mutual fund industry, it also has large investments
in individual companies. Its ability to turnaround its portfolio quickly is therefore
somewhat limited.
The fact that it combines within itself the roles of an AMC and the Trustee results
in the absence of a degree of accountability which an AMC normally owes to the
Trustee and the control which the latter enforces upon the former.
There is a lack of transparency, particularly with regard to US-64 where the sale
and repurchase price are not linked to the NAV and the NAV is not disclosed to
the unitholder.
The fact that AXIS is perceived as having a pseudo Government character is as
much its weakness as it is its strength, particularly in respect of US-64. While it
enchances its ability to sell the units, it also gives a false sense of comfort which
may not be true or even desirable. Moreover, in a highly competitive market,
106
public perception of AXIS as a pseudo - Government institution may affect its
ability to attract and retain the best professional talent or to adequately motivate it.
Govt. Role on Mutual Funds:
Mutual funds to be more transparent
Finance Minister Yashwant Sinha called upon the mutual funds to focus on product
innovation, equity research, risk management and market reach, and endeavour to
instil greater confidence among investors.
He was addressing the sixth annual seminar of the mutual fund industry in Bombay on
Thursday.
Citing RBI data and the SEBI NCAER survey, Sinha said out that less than 8 per cent
of households channelise their savings into capital markets and that just 1 per cent of
household investment is in equity markets.
Sinha felt that higher transparency and good corporate governance by mutual funds
could attract greater quantity of household savings, which they could cost effectively
deploy in the capital markets.
Sinha said that inadequate institutional mechanisms may be the reason for households
shying away from the market. He said all that the retail investor looked for was to
maximise return on investments, while the market volatility had placed some
constraints. He opined that mutual funds should spread their findings of equity
research, educate the investors and raise their level of awareness. This would have an
impact and then capital market investment can become a reasonable proposition for
retail investors.
Referring to the stock market, Sinha said that the popular perception of bulls and
bears impacting the market has undergone a sea change. He felt that a better way to
correct short-term volatility is to place more emphasis on investments that could be
governed by medium- and long-term views based on scientific research. He asserted
these developments will enable mutual funds to create greater confidence in the mind
of investors.
107
The finance minister stressed that market manipulation can be ended and excess
volatility arrested if there is more market depth. Mutual funds have to increase their
market reach to rural areas as Life Insurance Corporation has done and bring such
money into the market and create that depth.
Sinha looked forward to receiving specific proposals from RBI and SEBI on the need
to create a level-playing field for the mutual funds vis-à-vis foreign institutional
investors.
This would not only strengthen the mutual fund industry but also help the domestic
savings to be channelled into the capital markets through mutual funds. Mutual funds
have a primary responsibility of creating investor awareness and offer a sustainable
return over a medium to long-term period.
Finally, the finance minister recalled that the prime minister had set forth an objective
to double the per capita income which would translate into achieving a growth rate of
9 per cent. On this basis, the savings rate of 25 per cent of GDP is inadequate as seen
against the stiff GDP growth target of 9 per cent.
The only way to meet the growth target is to broadbase the investor segment by taking
it retail and by bringing more household savings into capital markets, Sinha indicated.
Bimal Jalan, RBI Governor, pointed out that mutual funds can provide financial and
macro-economic stability. Towards this end, he urged mutual funds to offer products
which cover the entire spectrum of risk-return profile in order to meet wide-ranging
saving habits among Indians.
Expressing unease with assured return schemes, he said: "We have to build risk-
management systems which are able to create a good asset-liability match in portfolio
taking into account the time profile of the scheme."
D R Mehta, chairman, SEBI, while sketching the growth of the mutual fund industry,
pointed out that the participation of the households in the mutual fund industry is still
low, considering the size of savings flow and offers scope for growth.
He said that the competition, regulatory initiatives and product choice in the mutual
fund industry should result in greater amounts of investor funds being intermediated
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through the mutual fund industry, rather than being directly invested in the capital
markets.
He indicated that investor confidence in the industry will go up only when operational
freedom of mutual funds and levels of compliance of the players go up.
He also outlined the initiatives SEBI is taking, through the various committees.
Among the issues under active consideration are:
Reduction in the processing of investor applications in the initial offer period
to 42 days from 90 days;
Use of unclaimed funds lying with mutual funds for investor education;
Creation of level playing field between mutual funds and FIIs in the context of
international investing
Formulation a code of conduct and development of best practices in the
industry;
Standardisation of portfolio disclosures;
Modification in the structure of mutual funds to company form of
organisation; and
Publication of the annual reports of asset management companies.
He said that the Indian markets are very safe, despite the growing volatility that has
been seen in the recent period.
AXIS chairman, P S Subramanyam said that the quality of investor services in the
industry has grown over the years. He said there is a scope to increase the penetration
and volumes in the mutual fund industry by reaching out to more investors. He noted
that technology has significantly altered the manner in which mutual funds conduct
their business.
In the context of globalisation of capital markets, he pointed out that risk management
has become critical for mutual funds. He also indicated that corporations will have to
adopt best practices in information disclosure and dissemination.
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He said that as stakeholders in companies in which they invest, mutual funds have the
responsibility to ensure acceptable standards of disclosures. They have a constructive
role to play in creating an environment that help in adoption of best practices and
good governance. This will go a long way in enhancing shareholder value leading to
enhancement of unit-holder value.
A P Kurien, chairman, Association of Mutual Funds of India, mentioned that it is for
the first time that the finance minister, the RBI governor and the SEBI chairman came
together on a common platform to address mutual funds. This is indicative of high
growth prospects, he opined. He suggested that the pension fund segment be opened
to the mutual fund industry.
The mutual fund industry gets together every year to take stock of the past and future
strategies, keeping the investor's preferences in sharp focus. AXIS, the industry
leader, the AXIS Institute of Capital Markets and AMFI have taken the initiative to
create the right forum for meaningful discussions on the issue.
IN a report that is not distinguished by particularly sharp insights, the Joint
Parliamentary Committee (JPC) which conducted a prolonged inquiry into the stock
market meltdown of March 2001, provides one useful nugget. The scandal that rocked
the markets in 1992, it observes, was one of great depth and intensity, in which a
relatively small number of people were involved. The March 2001 episode, in
comparison, was one of great width and expanse. It involved a large cast of
characters, though none was as deeply implicated as the key players of 1992.
The observation comes exactly nine years after a predecessor body submitted a
voluminous report on the 1992 scam and recommended a number of remedial
measures. When Harshad Mehta, Bhupen Dalal and various others fought their epic
battles on the bourses in 1992, liberally dipping into bank treasuries for ammunition,
the government had a number of alibis available: the Reserve Bank of India (RBI)
was burdened by an outmoded system of overseeing the integrity of funds
management by banks, the Securities and Exchange Board of India (SEBI), though in
existence for four years, was not armed with statutory powers to check abuses in the
stock markets, and the government for its part had mistakenly been looking at the
options available in controlling the financial sector rather than in governing it.
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The institutional lacunae were bridged within months. The RBI had a fully automated
audit system in place before 1992 had run its course and SEBI was invested with the
requisite statutory powers by an act of Parliament. The philosophical problem of
altering the outlook of the government was also addressed in substance over the
decade, with the respect for the free play of market forces becoming entrenched
within official circles.
How then did 2001 bring a virtual replay of the 1992 scam, with perhaps more
damaging long-term consequences? This is a question the more recent JPC fails to
address seriously, rendering its report an exercise in evasion. The JPC observes, rather
portentously, that all its findings and recommendations would be futile if the
implementation process were to falter. And to ensure that its recommendations are put
into practice, the JPC chose to examine what was the fate of the recommendations of
its predecessor body in 1993. And the record here is fairly dismal.
The JPC found that inspections by the RBI, when they were conducted, were cursory.
There was "a lack of concern" and "strict action" was taken only when matters "went
out of hand". SEBI for its part seemed absent without leave when its presence was
most required. The JPC's inquiries revealed that SEBI's nominee directors on the
Calcutta Stock Exchange (CSE) Board established a record of sorts in absenting
themselves from supervisory meetings. In the period preceding the payments crisis
that paralysed the CSE in March 2001, one of the SEBI nominees had not attended
even one of the 26 meetings held during his tenure; another attended a mere three out
of 13, though the third nominee had a more respectable record of attending 25 of 62
meetings.
SEBI's record of absence is considered crucial by the JPC, since, in its narrow
reading, the CSE crisis was a direct outcome of the failure to enforce margin money
requirements on share transactions. SEBI's negligence was compounded by the
deliberate design of a cabal of brokers on the CSE. But this is an aspect that the JPC
chooses not to probe too deeply.
What could possibly account for the impunity with which brokers operate, and where
could they be obtaining the funds and the guidance for their periodic speculative
rampages through the bourses? There are several junctures at which the JPC points
towards the nexus between big business houses and the broker community. But
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having broached the subject, it retreats into extreme diffidence, unwilling to get
tangled up in the issue.
The JPC reveals that following the recommendations of its predecessor body, a
"special cell" was set up in Mumbai, headed by the Director-General of Income Tax,
Mumbai, and comprising representatives from the RBI, the Department of Company
Affairs (DCA) and the Central Bureau of Investigation (CBI), to examine and monitor
the role of big business houses in the stock markets. The cell died an early death. The
SEBI Chairman was the first to spurn it, arguing that no useful purpose would be
served by nominating a SEBI representative to serve on it. In May 1995, after the cell
had met precisely five times in a life of 17 months, it sent a representation to the
Central Board of Direct Taxes (CBDT), seeking the deployment of adequate
manpower to fulfil its mission. The CBDT replied that given its limited mandate, the
cell could function with the available manpower. There was no further meeting of the
cell until March 2001, when a newly minted broker coterie unfurled its own re-
enactment of 1992 on the nation's bourses. Ketan Parekh.
As it went about its inquiries, the JPC asked the Director-General of Income Tax,
Mumbai, to examine afresh the possibility of collusion between the broker lobby and
big business houses. The reply was perfunctory: there was no reason in the prevalent
circumstances, said the official concerned, to believe that there was any such nexus.
"No cases were found," the JPC records, "where funds were placed by industrial
houses directly with the brokers enabling them to play... (the market) with a view to
create artificial booms or depressions so as to book abnormal profits to the detriment
of the common investor."
As a body with wide-ranging powers of summoning evidence, the JPC could not
obviously remain content with this evasion of reality. But its own inquiries were, by
all accounts, clouded by a wilful desire to mystify rather than illuminate. After
identifying no fewer than 727 scrips which witnessed rapid and unexplained rises in
values in the months preceding March 2001, and 199 which witnessed a rapid fall in
prices following the discovery of the scam, the JPC asked SEBI for detailed
explanations. The outcome was inconclusive: the JPC has identified no fewer than 15
companies where there is evidence to believe that the collusive nexus between brokers
and promoters could have had a serious impact on market behaviour. These include
well-known companies like Zee Telefilms, Ranbaxy and Lupin Laboratories, as well
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as companies that have deservedly entered the annals of infamy, like Cyberspace
Infosys, Himachal Futuristic and DSQ Software.
MOST revealingly, the JPC has virtually disowned its responsibility to ascertain the
true picture, offering an alibi that must seem rather lame. As the JPC explains in the
rather tortured syntax that its report is suffused with: "SEBI furnished four sets of
interim reports inclusive of its investigation regarding scrips of certain corporate
bodies. The Committee's insistence for SEBI's final findings regarding the role of
promoters/corporate bodies in the price manipulation of the scrips yielded yet another
set of reports, most of which were again of interim nature and were received as late as
November 2002. Due to non-availability of final report from SEBI, the Committee
could not have the opportunity to take oral evidence of these corporate bodies. The
Committee urge SEBI, the Department of Company Affairs and other investigative
agencies to expedite and complete their investigations..."
This must seem a rather disappointing abdication of responsibility by the JPC,
especially since it is followed by the definitive finding that "there are valid reasons to
believe that the corporate house-broker-bank-FIIs (foreign institutional investor)
nexus played havoc in the Indian capital market quite sometime (sic) now through
fraudulent manipulations of prices at the cost of the small investors". But there is also
a telling admission thrown in that the abdication of responsibility is a direct
consequence of the JPC's failure to exercise its powers appropriately: "This
Committee were severely handicapped in the matter of making any purposeful
recommendations because of non-availability of required support from concerned
regulatory and other bodies with necessary material."
By any criterion, this admission of helplessness by a committee of Parliament, which
has endowed the regulatory authorities with all their powers, must seem
extraordinary. And by any reasonable evaluation, the material that the JPC had to
draw its inferences from was nowhere near as meagre as it has made out. SEBI had
submitted a series of voluminous reports early in 2002, which went into a microscopic
examination of the many dubious transactions that culminated in the short-lived bull
run in the markets after the Union Budget was presented in February 2001. The
picture it drew was fairly clear: though the Budget in itself provided rather a scant
basis for a broad-based investment fervour, a small cartel of bull operators sought to
utilise the momentary euphoria it had engendered to drive up prices and liquidate the
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long exposures they had taken. It was a self-defeating exercise since a rival cartel of
bear operators knew from prolonged observation, just where the vulnerabilities of the
bulls lay. Shrewd short-selling in the expectation of profits to be made on the
downside of the markets, rapidly pushed prices down.
But the bulls had by then gone too far out on a limb. In a climactic contest between
bulls and bears, stock markets nationwide plunged into an acute payments crisis,
necessitating their closure for an extended period. The JPC concludes that Ketan
Parekh, "big bull" reincarnate and the acknowledged kingpin of the buying frenzy,
"was a key person involved in all dimensions of the stockmarket scam... as also in
payments problem in the CSE and the crash of Madhavpura Mercantile Cooperative
Bank".
Parekh created "various layers" in his transactions, making it "difficult to link the
source of fund (sic) with the actual user of fund". He admitted during testimony
before the JPC, "that his entities did build huge positions in the market in select scrips
(and) grossly over committed themselves to the market".
The estimated loss suffered by Parekh was underwritten entirely by banks and the
corporate bodies that he had mulcted for funds. And even if the corporate bodies were
party to his wrongdoing and have no entitlement to compensation on this account, the
JPC urged that "expeditious action" be taken to recover the money owed to the banks.
The task will not be easy by any reckoning. Inquiries by the CBI have revealed the
wide dispersal of Parekh's illicitly earned monies, from Switzerland to the Bahamas.
The whole process of issuing letters rogatory through the Indian judiciary has only
just begun.
Putting the entire burden of blame on one person would obviously do little for the
credibility of the JPC. Yet its understanding of the role of the regulatory authorities
and the Finance Ministry is almost laughably naive. SEBI for instance has been
faulted for being blind to rampant price-rigging in the markets, but this is an offence
of little else than negligence in the JPC's estimation. The figures here are revealing.
Resource mobilisation in domestic capital markets through public issues of shares
peaked in 1994-95 at Rs.30,800 crores. The figure has since been falling rapidly,
registering no more than Rs.7,111 crores in 2001-02. In the same period, the funds
raised through private placement of shares in the primary market have surged, from a
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modest Rs.11,174 crores in 1994-95, to Rs.64,950 crores in 2001-02. Secondary
market turnover however, has been the real growth area, from Rs.162,905 crores in
1994-95 to an astounding Rs.2,880,990 crores in 2000-01. Once the scam was
discovered the figure plummeted rapidly, to Rs.895,826 crores in 2001-02.
In this context, SEBI's actions have been perfunctory or worse. The number of cases it
has taken up for investigation in any one year has remained broadly the same — 60 in
1995-96 and 68 in 2000-01, though there was an unexplained increase in 1996-97 to
122. The number of cases it has completed investigations in, has fluctuated between
18 and 60 in these years. And the number of cases in which it has imposed sanctions
has cumulatively been 181, with a mere 18 being registered in 2000-01, when the
abuses were rising to a crescendo.
The JPC passes over this record of default or even possible complicity with a
formulaic stricture: "The track record of SEBI in punishing the wrongdoers in stock
market (sic) has been unsatisfactory. During the last ten years, SEBI could initiate
prosecution proceedings on insider trading in only one case and on fradulent and
unfair trade practices in just seven cases. Its record of taking action against violators
has been equally unimpressive.... Though SEBI's plea for more powers to strengthen
its effectiveness cannot be faulted, the Committee got an impression that SEBI was
not fully enforcing the powers already vested with it."
ALL this, in the context of the magnitude of the crisis that the stock markets went
through, must seem rather ritualistic. There has obviously been a strong urge at work
to protect the regulators whose actions presumably are conditioned by signals sent by
the political establishment. When the country's largest mutual fund, the Unit Trust of
India, has abused its trusteeship function for public savings and partaken in an
unwholesome fashion in the stock market scam, the costs of this political evasion
would inevitably be a loss of credibility and legitimacy.
Since July 2001, when the AXIS suspended redemptions under its flagship US 64
scheme, the Finance Ministry has announced a major overhaul of the mutual fund and
infused fresh funds in an effort to restore its financial health. But these schemes,
which are essentially being enforced with tax-payers' money, remain partial in their
scope and halting in their effect. And the stakes involved here are substantial. As the
Deepak Parekh committee, which went into the AXIS's functioning in less turbulent
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times, observed: "With over two crore unit holders, public confidence in US 64 is a
virtual proxy of public confidence in the Indian financial system."
After over a year of mulling over the findings of the S.S. Tarapore committee, which
went into the US 64 debacle in fair detail, the JPC has managed to come out with
conclusions that must seem ludicrous. M.P. Subramanian and M.M. Kapur,
respectively the Chairman and Executive Director of the fund during the troubles,
have been severely indicted. And even though criminal proceedings have been
launched against them, the JPC has also recommended departmental action against
others within the organisation.
THESE apart, the JPC has managed little else than a mild reprimand, couched in
ambivalent and circumlocutory language, of the Finance Ministry, only naming the
then Finance Secretary Ajit Kumar. The main burden of negligence is placed on
AXIS's principal promoter, the Industrial Development Bank of India. Although the
JPC urges the institution of criminal proceedings against the predatory operators who
managed to strip AXIS of its funds for short-term speculative gain, it glosses over the
fact that many of them have put themselves at a safe distance from the reach of the
Indian judicial process. The small investor and the senior citizen whose entire
sustenance was dependent on AXIS schemes, could well ask what the purpose of the
entire JPC exercise was. It has not enforced accountability, it has failed to evolve new
norms for those charged with the custody of public funds, and quietly acquiesced in
placing the burden for the revival of AXIS on the tax-payer. An exercise to safeguard
public funds against future depredators has ended up as another waste of public
money.
Money Market Developments
Mutual Funds
42. Resource mobilisation by Mutual Funds improved during 1997-98. The number of
offer documents of mutual funds filed with SEBI increased substantially from 32 in
1996-97 to 60 in 1997-98. The amount mobilised through new schemes and
subscriptions to open ended schemes including Unit 64 of AXIS also increased.
Indeed the gross mobilisation of resources by all mutual fund schemes during the year
was around Rs. 13,000 crores which was for the first time higher than the resources
mobilised by the primary market. Even net of redemptions in open ended schemes the
resources mobilised by the mutual funds during the year was higher than the resources
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raised through primary market. These improvements were partly in response to the
regulatory changes brought about by SEBI following the publication of the Mutual
Funds 2000 Report and the notification of new regulations. The emphasis of these
new regulations is on empowerment of investors, greater compliance of regulations by
mutual funds, obligations of trustees as frontline regulators, improved disclosure
standards in offer documents through the introduction of standard offer document,
standardisation of valuation norms for investments and computation of NVA. The
regulations also sought to address the areas of misuse of funds by introducing
prohibitions and restrictions on affiliate transactions and investment exposures to
companies belonging to the group of sponsors of mutual funds.
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CONCLUSION & SUGGESTION
CONCLUSION REGARDING STUDY:
By December 2007, Indian mutual fund industry reached Rs 1,50,537 crore. It is
estimated that by 2010 March-end, the total assets of all scheduled commercial banks
should be Rs 40,90,000 crore.
The annual composite rate of growth is expected 13.4% during the rest of the decade.
In the last 5 years we have seen annual growth rate of 9%. According to the current
growth rate, by year 2010, mutual fund assets will be double.
Let us discuss with the following table:
Aggregate deposits of Scheduled Com Banks in India (Rs.Crore)
Month/Year Mar-98 Mar-00 Mar-01 Mar-02 Mar-03Mar-
04Sep-04 4-Dec
Deposits 605410 851593 989141 1131188 1280853 - 1567251 1622579
Change in %
over last yr 15 14 13 12 - 18 3
Source - RBI
Mutual Fund AUM’s Growth
Month/YearMar-
98
Mar-
00
Mar-
01
Mar-
02
Mar-
03Mar-04 Sep-04 4-Dec
MF AUM's 68984 93717 83131 94017 75306 137626 151141 149300
Change in %
over last yr 26 13 12 25 45 9 1
Source – AMFI
Some facts for the growth of mutual funds in India
100% growth in the last 6 years.
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Number of foreign AMC's are in the que to enter the Indian markets like
Fidelity Investments, US based, with over US$1trillion assets under
management worldwide.
Our saving rate is over 23%, highest in the world. Only channelizing these
savings in mutual funds sector is required.
We have approximately 29 mutual funds which is much less than US having
more than 800. There is a big scope for expansion.
'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are
concentrating on the 'A' class cities. Soon they will find scope in the growing
cities.
Mutual fund can penetrate rurals like the Indian insurance industry with
simple and limited products.
SEBI allowing the MF's to launch commodity mutual funds.
Emphasis on better corporate governance.
Trying to curb the late trading practices.
Introduction of Financial Planners who can provide need based advice.
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The advantages of investing in a Mutual Fund are:
Diversification: The best mutual funds design their portfolios so individual
investments will react differently to the same economic conditions. For example,
economic conditions like a rise in interest rates may cause certain securities in a
diversified portfolio to decrease in value. Other securities in the portfolio will respond
to the same economic conditions by increasing in value. When a portfolio is balanced
in this way, the value of the overall portfolio should gradually increase over time,
even if some securities lose value.
Professional Management:Most mutual funds pay topflight professionals to
manage their investments. These managers decide what securities the fund will buy
and sell.
Regulatory oversight: Mutual funds are subject to many government
regulations that protect investors from fraud.
Liquidity: It's easy to get your money out of a mutual fund. Write a check,
make a call, and you've got the cash.
Convenience: You can usually buy mutual fund shares by mail, phone, or
over the Internet.
Low cost: Mutual fund expenses are often no more than 1.5 percent of your
investment. Expenses for Index Funds are less than that, because index funds are not
actively managed. Instead, they automatically buy stock in companies that are listed
on a specific index
Transparency
Flexibility
Choice of schemes
Tax benefits
Well regulated
Regulation: getting better
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Through trial and error, Sebi has steadily improved its regulation of the mutual fund
industry. Corporate governance is better than before, but the last mile has still to be
negotiated before investor confidence can be taken for granted
How well is the Indian mutual funds industry regulated? If you were to look at media
headlines over the last couple of years, the regulator’s report card might well have
carried this comment: Needs improvement.
Till recently, the industry played host to several questionable practices – late trading
(where big corporate investors got to invest at favourable prices of the previous day),
scheme switching (shifting investments between schemes within the same fund) and
excessive incentivisation for selling mutual fund schemes, among others.
Add the peccadilloes of Alliance Mutual Fund’s star CIO Samir Arora, which got
Sebi quite worked up, and the picture doesn’t look too good.
But if you were to ask Sebi chairman G.N.Bajpai, he is certain that things are not as
bad as the media paints them. “Whenever instances of malpractice have come to our
notice, we take action,” he says.
And to be fair to the regulator, the mutual fund business has not seen any major
upheaval of the kind where investors have actually ended up losing money. The only
case which came close to this is that of the Unit Trust of India (AXIS), but the fact is
that the government stepped in to prevent investors from losing too much.
A majority of private sector mutual funds have managed to outperform their
benchmarks, drawing little ire from investors. Some of them do, in fact, charge fairly
high fees, but good market performance has made the case for lower fees not as
compelling as in America.
Even in the case of late trading – which has been more or less the norm in an industry
where big corporates and distributors negotiate terms with mutual funds on a regular
basis – malpractices have not been as rampant as in America.
The conclusion: While the mutual fund industry, thanks to its relatively small size till
recently, has a bias towards large corporate investors, governance standards overall
have improved, aided undoubtedly by significant regulatory changes over the last few
years.
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The only thing to complain about is that Sebi plugged the holes in the system by
following a trial-and-error approach, and not necessarily proactively. The regulatory
regime was tightened bit by bit, aided by Sebi’s experiences and market forces. The
pace of regulation has actually accelerated in the last few years.
During 2002-03, for example, the regulator put out detailed guidelines on corporate
governance practices for asset management companies (AMCs). One of these was the
introduction of compulsory benchmarking of a fund’s performance against any chosen
index.
Further, the trustees of funds were also entrusted with the responsibility of reviewing
the performance of various schemes against the benchmark index.
Besides, everyone, including the trustees, have been brought under the insider trading
regulations. Trustees now have to hold meetings at least once in two months as
against four times a year previously.
This year, Sebi has also made it mandatory for the board of trustees to have two-thirds
of its strength as independent directors – that is, those who are not associates of the
sponsors. Consultants have also been brought under this definition.
At the operational level, AMCs have been asked to put in place risk management
systems for fund management, operations, and so on – with detailed guidelines being
issued.
Most importantly, Sebi has issued clear-cut guidelines for valuing bond instruments –
traditionally a grey area – non-performing assets, and illiquid and unlisted securities.
The Association of Mutual Funds of India (AMFI) has also helped in making product
comparisons easy for investors by mandating funds to follow uniform sector
classifications, as established by AMFI. Disclosure standards have also been
improved substantially – though by no means perfect.
“There will always be loopholes in any system and it will be difficult for any
regulator to plug all the holes,” admits Bajpai. Just as a chain is only as good as its
weakest link, a system is only as good as the quality of people who man it. The weak
links, close observers of the industry say, may be more outside the immediate control
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of AMCs – in the largely unsupervised distribution chain. Sebi has, of course,
prescribed a code of conduct for mutual fund distributors.
All of them have to be registered with the Association of Mutual Funds of India.
Distributors also have to mandatorily pass a certification exam before they are
allowed to sell any mutual fund products. But then, the onus is on the fund
managements to ensure that their agents and distributors do indeed follow the
practices laid down in the code of conduct.
Another issue that Sebi and the industry association have dealt with some amount of
success is the practice of rebating commissions back to investors. To hardsell a fund
scheme, distributors often share a part of their distribution commission with brokers
and retail investors as an incentive.
This amounts to promoting/selling schemes for the wrong reasons and may end up
misleading the investor. Sebi has put the onus on the fund houses to monitor their
distributors and stop incentivising investors. Despite all the laws that are on paper,
given the extended area of operations of distributors, Sebi’s writ may not run beyond
a point.
The only way the issue can really be tackled is to give professional intermediaries
larger space in investment decisions.
Says Ranjit Mudholkar of the Association of Financial Planners: “Financial planners
can make a significant difference to the entire value chain. First, they would have a
fiduciary responsibility towards their clients and would service them accordingly.
Secondly, investing in the right product would be part of the financial planning
process rather than the result of mere pushing by the broker.”
But, quite clearly, there is a case for Sebi to take a second look at the role of the
distribution segment. In the absence of financial planners – investors are still to use
them in sufficient numbers – distributors are vital intermediaries between AMCs and
investors.
In some other areas, Sebi could have done better, faster. Take late trading. Under this
practice, mutual funds oblige their big investors by allowing them to purchase units at
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the previous day’s NAV, enabling them to take advantage of any appreciation in
market prices since then.
While late trading has been rampant for several years now, Sebi took corrective action
only a few months ago by introducing uniform cut-off timings for equity and debt
funds.
It also asked AMCs to set up time-stamping machines that would keep track of the
date and time when applications and cheques were received to curb late trading.
Better late than never.
Sebi could also have taken a closer look at the actual operations of funds. While there
have presumably been no flagrant violations of rules, some funds have been
exploiting loopholes. Fixed maturity plans are a case in point. Investments under such
schemes are usually made in the debt instruments of banks and corporates.
Fund houses have taken the easy way out and are investing a large portion of the
funds mobilised through such schemes in bank fixed deposits. When asked about this
practice, one Sebi director wondered what was wrong with investing in bank deposits.
While there is nothing in the mutual fund regulations to prohibit investments in bank
instruments, the moot point is whether the fund is doing investors any great service.
When investors entrust their money to experts and apparently knowledgeable fund
managers, you would expect them to do more than just rush to the nearest bank
counter to make a deposit. Bajpai, however, agrees that there should be some limit on
how much money can be parked in bank fixed deposits.
Another area of long-term concern is share switching. Sebi has not, so far, found a
foolproof way to prevent mutual funds from switching securities between schemes.
Prudential-ICICI Mutual Fund made switching famous, but few people probably
know that switching securities between schemes without their investors knowing it is
more widespread than one is led to believe.
Since funds declare their scheme-wise assets only at the end of the month, there is a
lot of scope for switching around investments from one scheme to another –
depending on which scheme the fund wants to show a higher NAV.
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According to industry circles, such movements need not always leave an audit trail.
Bajpai says that all decisions pertaining to the industry are taken in consultation with
the participants.
“We regularly hold talks with AMFI and, in addition to that, we have a mutual fund
advisory committee consisting of people who are not drawn from the mutual fund
sector,” he says.
With barely two per cent of household savings going into mutual funds, the segment
has a lot of catching up to do. With post-office administered schemes and bank
deposits offering competition, more investors can be enticed to the mutual fund
industry only if it is steadily seen as very investor-friendly.
Sebi’s initiatives have set the industry in the right direction, but the final destination is
still some distance away.
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Suggestion:
AXIS Crisis - Recommendations
1. Initial contributors to AXIS should infuse permanent funds of atleast Rs.500
crores.
2. The PSU portfolio should be transferred at book value to a Special Unit Scheme
(SUS 99) to be subscribed for by GOI by the issue of dated GOI securities.
3. US-64 should make a strategic sale of its significant equity holdings by
negotiation to the highest bidder to ensure fetching the best value for the unit
holder.
4.
a. The investment sub-limit of Rs.10,000 for tax benefit on Equity Linked Savings
Schemes should be removed and benefit should be extended to US-64 and all
schemes investing more than 50% in equity.
b. Income distributed by US-64 and schemes investing more than 50% in equity
should be exempt from tax.
5. New schemes for investing in growth stocks in IT, Pharma and FMCG sectors
should be launched, to be subscribed for by banks.
6. The size of the AXIS Board should be increased to 15, with additional five
members being co-opted by the Board.
7.
a. Trustees should assume higher degree of responsibility and exercise greater
authority.
b. The remuneration of Trustees should be increased and their attendance record be
published in the Annual Report.
8. There should be a separate Asset Management Company for US-64 with an
independent Board of Directors.
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9.
a. Chinese walls should be created by appointing separate and independent fund
managers for each scheme.
b. Inter-scheme transfers must be based on independent decisions and requirements
of concerned fund managers and at market determined prices.
10.
a. There should be an independent fund manager for US-64 with full responsibility
and accountability.
b. The fund manager should be helped by a strong research team and the research
capability should be strengthened.
11.
a. Investment/dis-investment decisions should be based on research analysts'
recommendations who should have the authority and responsibility of making the
recommendations.
b. The fund manager should have the final authority and responsibility in decision
making based on his perception of the market and research inputs
12. The focus on small investors should be strengthened and the lilt towards corporate
investors reduced.
13.
a. US-64 should be NAV driven within three years.
b. If at the end of the three year period, the re-purchase price and the NAV are not in
line, the Trust will be left with no alternative but to seek GOI support once again
the provide the difference between the NAV and the repurchase price. Only a
clear commitment from the GOI to stand by US-64 till it finally assumes the
character of a NAV driven scheme will instill the required confidence in the US-
64 investors.
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14. The spread between sale and repurchase prices should be gradually increased to
deter short term investors.
15.
a. The dividend distribution policy needs to follow a more conservative approach to
build up sufficient reserves during periods of good performances.
b. As a rule, dividends need to be curtailed when there is inadequate income.
16. The rate of return offered to investors needs to be reviewed on a periodic basis.
The yield offered on US-64 is excessively high as compared to other comparable
instruments.
17. The composition of the portfolio needs to be changed to provide for more
weightage to debt consistent with the objectives of the Scheme.
18. The operations of US-64 should be brought under SEBI purview at the earliest.
19. An independent professional firm should be commissioned for a detailed review
of asset management processes including back office, inter scheme transfer and
investor servicing.
Mutual funds have their drawbacks and may not be for everyone:
No Guarantees: No investment is risk free. If the entire stock market declines
in value, the value of mutual fund shares will go down as well, no matter how
balanced the portfolio. Investors encounter fewer risks when they invest in mutual
funds than when they buy and sell stocks on their own. However, anyone who invests
through a mutual fund runs the risk of losing money.
Fees and commissions: All funds charge administrative fees to cover their
day-to-day expenses. Some funds also charge sales commissions or "loads" to
compensate brokers, financial consultants, or financial planners. Even if you don't use
a broker or other financial adviser, you will pay a sales commission if you buy shares
in a Load Fund.
Taxes: During a typical year, most actively managed mutual funds sell
anywhere from 20 to 70 percent of the securities in their portfolios. If your fund
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makes a profit on its sales, you will pay taxes on the income you receive, even if you
reinvest the money you made.
Management risk: When you invest in a mutual fund, you depend on the
fund's manager to make the right decisions regarding the fund's portfolio. If the
manager does not perform as well as you had hoped, you might not make as much
money on your investment as you expected. Of course, if you invest in Index Funds,
you forego management risk, because these funds do not employ managers
AXIS should list five ways in which one can buy the fund units.
Have I invested in the right funds?
1. Get in touch with the Asset Management Company
The first step is to track the AMC -- as fund houses are known -- online.
Once you get onto their Web site, you will get their office addresses, phone numbers
and a contact e-mail address. You will even be able to transact online with some of
them.
mutual fund Web sites allow you to invest online. However, you must check if you
have an account with the banks they have partnered with.
For example, Prudential ICICI Mutual Fund allows you to buy funds online if you
have a banking account with any of the following banks: Centurion Bank, HDFC
Bank, ICICI Bank, IDBI Bank and AXIS Bank.
You can buy units of SBI Mutual Fund's schemes only if you have an account with
the State Bank of India or HDFC Bank.
Under the heading Investors Zone, you will find another one called ARN Search. This
refers to the AMFI Registration Number.
Click on it and you will arrive at a search page. You can locate an agent in your
vicinity by just putting in your PIN code or name of your city.
Do you have an online trading account? Then you could check if they also sell mutual
funds online.
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If you do not have an online trading account and are considering opening one, you
could look for a player that offers both.
Some like ICICI Direct sell funds online. But you must have a trading account with
them. Others, like India Bulls and Motilal Oswal, do not have this facility online but if
you call and leave your contact details, they will send an agent over.
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BIBLIOGRAPHY
BOOKS
PHILIP KOTLER, MARKETING MANAGEMENT, Volume -6th, ACCESS IN 10TH
JULY 2007
MONEY, BANKING AND FINANCE – RC SHARMA, BSC PUBLICATION,
ACCESS IN 15TH JUNE 2007
JOURNALS
ICFAI UNIVERSITY PRESS JOURNALS
WEB SITES
www.axisbank.com
www.mutualfundsindia.com
www.google.com
www.gemoney.in
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