Posts Tagged ‘MF schemes’

Rights Given to MF holders By SEBI :)

MF-Investor-Rights

The recent move by SEBI, banning entry load and capping exit load, among other things, has turned the spotlight on the possible improvement in rights of mutual fund (MF) holders in the country.

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Sure, we already have regulations in place. But the recent Sebi move points to improvement in investor rights.

The important rights that are available to MF holders are as below as per Sebi Regulations on MFs:

A) An investor is entitled to receive statements of accounts in 6 weeks from the date of request for unit certificates.

Every unit holder has the right to receive a copy of the annual statement and periodic statement regarding his transactions.

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B) He also has a right to receive information about investment policies, objectives, financial position and general affairs of the scheme.

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C) Trustees are bound disclose to unit holders any information that could adversely impact investments. Investors have the right to information regarding any adverse happening.

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D) With prior Sebi approval, AMC can be terminate by 75% of the unit holders of the scheme present and voting at a special meeting.

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E) He is eligible to receive dividend within 42 days of declaration, and the proceeds within 10 days from the date of redemption or repurchase.

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F) They can also pass a resolution to wind-up the scheme.

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G) An investor can also send complaints to Sebi, who will take up= the matter with the concerned MFs and follow them up till the issue is solved.

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H) With the consent of 75% of the unit holders they have the right to approve any changes in the close ended scheme.

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However in present world, usually no fund house takes an investor for granted, as nobody wants bad publicity.

Also, fund houses know that the Sebi is extremely serious about investor protection.

Still there is scope for more improvement.

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When it comes to quantitative rights like receiving dividend or redemption cheque on time, things are very much in place.

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However, when it comes to transparency or frequency of portfolio disclosure, things can still improve.

Transparency is a big issue in mutual fund industry.

Still there are schemes in market with strange and funny names, or the repackaged schemes where the investment objective and investment portfolio are not close to each other etc;
These can confuse investors.

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Another area which could improve is frequency of portfolio disclosure. Many Fund houses are lacking in the disclosure of portfolio twice a year, a choice given to them.

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So moral of the story is that before investing everybody should take necessary action to familiar with the scheme and at the same time should be aware of their rights and obligations.

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Sebi’s Another Jolt to the Fund Houses – MF Exit Load for 1st Year !!

MF Exit Load Charges


Within weeks of shaking up the mutual fund industry by abolishing entry load in all schemes and moving to a uniform exit load regime, Sebi has given another jolt to the fund houses.

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The Securities and Exchange Board of India (Sebi), in a meeting with mutual fund heads, has recommended that the tenure for charging of exit loads be made uniform at one year.

This move is seen as Beneficial for Investors.

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Sebi suggested fund houses to move to a regime of charging exit loads only for the first year of investments.

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After Sebi mandated that all entry loads should go and exit loads should be uniform across-the-board, fund houses had gone into a rejig mode with their finances so that they could compensate MF distributors.

The change in the compensation structure was done with the assumption that exit loads could be there for perpetuity.

But โ€œthe recent Sebi suggestion on exit load has sent all those changes to the compensation structure for a toss,โ€™โ€™ said a top official at a fund house.

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The Sebi chairman C B Bhave advised that increasing the exit tenure beyond a year would not be in keeping with investor interest.

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MF industry officials said that limiting exit load to a year could lead to increased inclination among investors to move out of a scheme if the returns over one year are good.

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Earlier, as part of the rejig exercise to change the compensation structure, a host of fund houses had increased exit load period.

Now if Sebiโ€™s advice becomes a rule, all those will have to be reversed, industry players said.

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However, as the CEO of a fund house pointed out that so far Sebi has not come out with any formal letter. โ€œItโ€™s still evolving. I believe a lot of things can happen before it is formally notified,โ€™โ€™ said the fund house CEO.

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Within weeks of shaking up the mutual fund industry by abolishing entry load in all schemes and moving to a uniform exit load regime, Sebi has given another jolt to the fund houses.

The Securities and Exchange Board of India (Sebi), in a meeting with mutual fund heads held on Tuesday, has recommended that the tenure for charging of exit loads be made uniform at one year.

In a late evening meeting on Tuesday, Sebi suggested fund houses to move to a regime of charging exit loads only for the first year of investments.

After Sebi mandated that all entry loads should go and exit loads should be uniform across-the-board, fund houses had gone into a rejig mode with their finances so that they could compensate MF distributors.

The change in the compensation structure was done with the assumption that exit loads could be there for perpetuity.

But โ€œthe recent Sebi suggestion on exit load has sent all those changes to the compensation structure for a toss,โ€™โ€™ said a top official at a fund house.

โ€œOur capacity to pay to the distributors will reduce substantially,โ€™โ€™ said the head of a local fund house.

“The Sebi chairman C B Bhave advised that increasing the exit tenure beyond a year would not be in keeping with investor interest,”

MF industry officials said that limiting exit load to a year could lead to increased inclination among investors to move out of a scheme if the returns over one year are good.

Earlier, as part of the rejig exercise to change the compensation structure, a host of fund houses had increased exit load period.

Now if Sebiโ€™s advice becomes a rule, all those will have to be reversed, industry players said.

However, as the CEO of a fund house pointed out that so far Sebi has not come out with any formal letter. โ€œItโ€™s still evolving. I believe a lot of things can happen before it is formally notified,โ€™โ€™ said the fund house CEO.

How to choose a Mutual Fund?

mutualfunds

Mutual funds are the best investment tool for the retail investor as it offers the twin benefits of good returns and safety as compared with other avenues such as bank deposits or stock investing.

Choose the wrong fund and you would have been better off keeping money in a bank fixed deposit. Keep in mind the points listed below and you could at least marginalise your investment risk:

1) Past performance –

While past performance is not an indicator of the future it does throw some light on the investment philosophies of the fund, how it has performed in the past and the kind of returns it is offering to the investor over a period of time.

Also check out the two-year and one-year returns for consistency.

How did these funds perform in the bull and bear markets of the immediate past?

Tracking the performance in the bear market is particularly important because the true test of a portfolio is often revealed in how little it falls in a bad market.

2) Know your fund manager

The success of a fund to a great extent depends on the fund manager.

The same fund managers manage most successful funds. Ask before investing, has the fund manager or strategy changed recently?

For instance, the portfolio manager who generated the fundโ€™s successful performance may no longer be managing the fund.

3) Does it suit your risk profile?

Certain sector-specific schemes come with a high-risk high-return tag. Such plans are suspect to crashes in case the industry loses the marketmenโ€™s fancy.

If the investor is totally risk averse he can opt for pure debt schemes with little or no risk. Most prefer the balanced schemes which invest in the equity and debt markets. Growth and pure equity plans give greater returns than pure debt plans but their risk is higher.

4) Read the prospectus

The prospectus says a lot about the fund. A reading of the fundโ€™s prospectus is a must to learn about its investment strategy and the risk that it will expose you to.
Funds with higher rates of return may take risks that are beyond your comfort level and are inconsistent with your financial goals.

But remember that all funds carry some level of risk. Just because a fund invests in does not mean it does not have significant risk.

Thinking about your long-term investment strategies and tolerance for risk can help you decide what type of fund is
best suited for you.

5) How will the fund affect the diversification of your portfolio?

When choosing a mutual fund, you should consider how your interest in that fund affects the overall diversification of your investment portfolio. Maintaining a diversified and balanced portfolio is key to maintaining an acceptable level of risk.

6) What it costs you?

A fund with high costs must perform better than a low-cost fund to generate the same returns for you.

Even small differences in fees can translate into large differences in returns over time.

Finally, donโ€™t pick a fund simply because it has shown a spurt in value in the current rally.

Ferret out information of a fund for atleast three years. The one thing to remember while investing in equity funds
is that it makes no sense to get in and out of a fund with each turn of the market.

Like stocks, the right equity mutual fund will pay off big โ€” if you have the patience.Similarly, it makes little sense to hold on to a fund that lags behind the total market year after year.

Sebiโ€™s MF ruling may lead to service tax loss !

Mutual funds

Sebiโ€™s decision to abolish entry loads in all mutual fund (MF) schemes can have certain implications as discussed below :

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While there could be huge slippages of service tax paid by the fund industry, it could also lead to proliferation of bogus independent financial advisors (IFAs) without proper certification, and in turn mis-selling of MF schemes, industry officials said.

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They also believe that in the long run, the decision could lead to cartelisation in the MF industry with just a handful of large funds houses and distributors ruling the market.

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Currently, when an investor opts for a scheme, the fund house directly deducts service tax from the commission it pays to the distributor or IFA.
In turn, the fund house deposits this with the government.

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But very soon, fund houses will not have anything to do with the service tax over distribution commission, since under the new structure, investors will pay the commission directly to the distributor/IFA.
So the onus of paying service tax will now be on the distributor/IFA.

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Chances are that there will be substantial leakage of revenue for government through under-reporting or non-reporting of advisory commission,โ€™โ€™ said a top fund industry official at an AMC.

Industry estimates that in the last financial year total service tax paid by the fund houses was about Rs 160 crore. โ€˜โ€˜A large chunk of this could remain with advisors nowโ€™โ€™ the official pointed out.

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Another fallout of the changed fee structure could be proliferation of advisors without proper training and registration in the fund industry.

After this ruling and change, anyone can become an advisor and charge the investor for advice,โ€™โ€™ a top official at a local fund house said.

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Another fallout could be squeezing out of AMCs and distributors with limited financial resources and growth of larger players.
In the changed scenario of no entry load, AMCs will have lesser funds at their disposal for marketing and business expansion.

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The fund industry is on way to suggests a way to get out of this situation.

Stay tuned ! ๐Ÿ™‚

Brokerages plan revised cost structure for MF distribution

Brokerages plan revised cost structure for MF distribution

Distributors of mutual funds are planning to revise their transaction cost structure to attract investors as the charge for buying units in a mutual fund goes from tomorrow, something they believe will increase sales.

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Distributors are now waiting to see whether asset management companies (AMCs) announce distribution commission for various MF schemes and on that basis they would charge advisory commission from customers.


On June 18, market watchdog Securities and Exchange Board of India asked mutual funds not to deduct marketing and distribution charges from the investment made by subscribers.


“Days of easy and guaranteed money for distributors are gone.

AMCs need to sacrifice their margins now and pay the distributors or they can mop up advisory commissions from investors linked to certain schemes.


However, the business of big distributors is unlikely to be hurt,” SMC Capitals Equity Head Jagannadham Thunuguntla said.


Distributors believe that although in the short term their revenue might be affected, in the medium to long term it would pick up as more investors come in. ๐Ÿ™‚