Thursday, March 26, 2009
The Vagina Monologues
Sunday, March 22, 2009
A Dose of Parsipanu
Friday, March 13, 2009
Freedom of Choice
Variable loads will give MF investors more say, but it might be too much too soon
There’s a perennial joke I share with my neighbours, the Batliwalas, that whenever I advise them on mutual fund (MF) schemes, I don’t get any commission. Their agent gets it, the entire 2.25 per cent entry load that MFs pass on to agents as commission. And all for just providing them with the forms, or, at best, giving some advice that may not always be in their best interest. I may not get any commission, but thanks to a new proposal by the markets regulator, investors like the Batliwalas will now be able to decide how much commission their agent should get.
After abolishing entry loads on direct investments in MFs in January 2008, the Securities and Exchange Board of India (Sebi) now wants to introduce variable entry loads. This means that investors will now decide the how much fees (0-6 per cent) they want to pay to their agents. Sebi aims to shift the pricing power from the MFs to the investor. Prima facie, this is good news. But with freedom comes responsibility. Are investors ready for this?
The modus operandi.
Sebi has given two options in its proposal. The first proposal says that the investor has to indicate the quantum of the load in the application form that he wishes to pay the agent, and the investor and the agent have to sign on the application form. The MF would then pay the commission to the agent out of the amount invested and issue units from the remaining balance. The other option is that the investor writes out two separate cheques; one for the investment amount and the other for the agent’s commission that will go directly to the will give the agent’s cheque directly to the agent.
Variable entry loads also seems to be the legalised version of rebating. Although Sebi had put a stop to this practice in 2001, it still continued. Now, instead of you paying 2.5 per cent commission to the agent and then getting him to give you a rebate, say, of 1 per cent, you will pay your agent that much less to start with.
Which option is better?
Of the two, the first option, in which the investor indicates the amount of load, makes sense. Already, filling out long application forms (more, if you are investing in multiple schemes) is a cumbersome exercise. Giving out two separate cheques will only add to the process.
Lurking danger.
Empowering the investor also comes with risks. For instance, in option two where the investor pays the agent and the fund house separately, there is a possibility of an agent misguiding the investor to give a commission that’s more than 7 per cent, the maximum entry load MFs can charge. Even 7 per cent is much higher than the present standards. Even in the first option, those investors who merely sign the application forms and leave the rest of the details to their agents to fill, will now have to ensure that the commission agreed upon jointly, is what actually goes on the form.
What about insurance agents?
Ultimately, no matter how many proactive steps Sebi takes to make MFs more consumer-friendly, unless similar discipline is enforced on the insurance industry, they will yield precious little. The commission of around 2.25 per cent that MFs pay brokers is dwarfed in front of the 20 per cent-plus commission that insurance agents get in the first three years of selling unit-linked insurance plans (Ulip). The insurance regulator seems to be in a coma and has taken baby steps to curb the evil. It’s not fair that of the two segments that are directly in competition for more assets, one is made to toe the line, while the other gets away with almost anything.
ARE STAR FUND MANAGERS A MYTH?
A recent exit of a star fund manager rekindles the old debate:to trust the fund managers or the pedigreed fund houses?
Just when we thought that it could be a good idea to follow fund managers instead of fund houses, on the back of the stupendous market rise that saw some fund managers outshine their peers, comes the news of star fund manager Sandip Sabharwal and JM Financial Mutual Fund (MF) parting ways. Although both denied the presence of any significant rift, markets are abuzz with rumours that JM Financial—the fund house’s sponsor—had serious differences with the star fund manager’s aggressive style and the severe underperformance of the fund’s equity schemes.
When Sabharwal joined JM MF in November 2006, the fund house’s equity funds were in the dumps. But after his entry, things changed for the better. For instance, in 2007, out of 241 equity schemes, only four schemes gave more than 100 per cent returns; JM Basic Fund (JBF; 110.6 per cent returns), an infrastructure fund, was one of them. Two of its other schemes, JM Financial Services Sector Fund (a financial services sector fund) and JM Emerging Leaders Fund (JELF; a mid-cap fund) gave 94.5 per cent and 93.8 per cent returns, respectively.
MF agents and investors poured in. Within a year, JBF crossed Rs 1,000 crore in assets under management (AUM), up from Rs 9 crore. By the end of 2007, the MF’s total AUM had reached Rs 12,613 crore, up from a mere Rs 3,851 crore during December 2006.
...CAME CRASHING DOWN
Trouble started in 2008 when Indian equity markets followed the global market crash. Any memories of phenomenal performance were soon erased when JM’s equity funds began to fall too. Though Sabharwal may not have been directly responsible for all the equity funds, the buck stopped at his desk as he headed the equities team. Five of the ten worst-performing equity funds in 2008 belonged to JM MF. JBF, JM Small & Mid Cap and JELF were the three worst performers of 2008 with returns of -75.6 per cent, -79.1 per cent and -80.3 per cent, respectively.
Apart from his expertise of picking small-sized companies ahead of the market, Sabharwal also relished the freedom the MF gave. With the MF being a non-starter on equity side, the two were a perfect fit. Freedom came at a cost. When equity markets crashed by more than 50 per cent, small- and medium-sized companies were hit badly.
Funds with highly concentrated portfolios and low cash levels, such as JM’s, were the worst hit. Even though the period of underperformance was just one year, its severity across the board caused heartburn at the MF. JM’s AUM saw a fall of Rs 6,756 crore, or 54 per cent, in 2008. Sources also add that two private equity funds have taken an 8 per cent stake and invested close to Rs 64 crore in the asset management company a month or so back and will also now have their representatives on the MF’s investment committee. Sources say the tighter control and monitoring may not have gone down well with Sabharwal. Both Sabharwal and JM MF declined to give specific reasons though both confirmed they have parted ways.
WHAT SHOULD YOU DO?
Our past recommendations of JM MF schemes were based on Sabharwal’s track record and the belief that he is going to stick around. Since that has changed, avoid fresh investments in JM MF’s equity funds. Here’s what you should do if you were invested in scheme’s from the fund that we had recommended—JBF investors should switch to DSP BR Tiger and JELF investors to Birla Sun Life Mid Cap Fund.
This brings us back to the age-old question: should you opt for fund managers or MFs? While rising markets may bring the former into spotlight, just one year of market turmoil brings the focus back to well-pedigreed MFs that strike a balance between fund management freedom and systems and processes
Thursday, March 12, 2009
The Reader
Sunday, March 8, 2009
Pay Credit Card Bills Through ATMs
But ICICI Bank credit cards have disappointed me. I have been their customer for over seven years (for a larger time in this, I have used ONLY my ICICI bank card and no other card) and my spending limit has always been pathetic. My friend who works in the bank's credit card division told me that they increase spending limits of only those customers with high to very high usage. Since my average monthly spending was way below this so-called threshold limit, I wasn't eligible for a raise. A year or so back I had to send an email to no less than Mr K.V.Kamath (then-managing director) for an increase of limit because I was handicapped by the low spending limit I had on my card especially during an emergency in 2007. Also, while some fellow gold card customers I know who have been upgraded to platinum card, I still haven't been upgraded. All this, despite being a loyal customer and paying my bills for the past seven years (give or take a few) on time.
The one good thing that came out of this is my complaint was heard by Mr Kamath and he quickly deputed his staff to talk to me and address my grievances. My problem was solved and I was impressed that a large bank's CEO was so approachable and quick to address the customer's complaint. Kamath's response time was amazingly quick and left me impressed. But I find it a little sad that for a problem of this stature, I had to knock the managing director's doors. I still have this card as I also have an ICICI Bank account and it's easier to pay the credit card bills online through the bank's website (internet banking).
Anyways, I am quite happy to start using my HDFC Bank card. HDFC Bank credit cards allow a great way to pay its bills. My friend Soumik Kar told me that if we have an account with HDFC Bank, we could pay HDFC Bank credit card's bills through its ATM machines. This is important for me, as I am still not an HDFC Bank internet banking customer and I feel very lazy in writing cheque books. Internet's the way to go for me, else I need something that's very convenient. Writing cheques is not, and with my house getting painted, everything is topsy-turvey.
So I walked in a nearby HDFC Bank ATM and slipped the card in the ATM machine. I selected 'Pay your credit card bills', entered the amount and the credit card number and it was done. As simple as that. I am told HDFC Bank is the only bank that has this facility, but I am not sure. It's a great facility and perhaps the next best way to pay your credit card bills, after internet banking.
Friday, March 6, 2009
Faulty meters of the New-age (black & yellow) taxis
Tuesday, March 3, 2009
Eating out at Nariman Point
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