Tag: mutual fund

White Oak Capital completes acquisition of YES Bank’s MF business, BFSI News, ET BFSI

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NEW DELHI: Clearing the way for entering the mutual fund industry, White Oak Capital on Tuesday said it has completed the acquisition of YES Asset Management, which was previously owned by YES Bank.

The company, founded by renowned money manager Prashant Khemka, had received Sebi’s nod for registration of GPL Finance as a sponsor and change in control of YES Asset Management and YES Trustee Limited to GPL Finance back in September.

“We welcome the YES Asset Management team and their investors as well as channel partners into the White Oak family. Together with them, we are excited to further build upon the foundation laid by all of us till date,” said Khemka.

We are excited about offering our investment expertise to retail investors across the country and we aim to launch a range of funds post necessary regulatory approvals and subsequent launch through the first half of CY2022, he added.

Prashant Kumar, Managing Director & CEO, YES Bank, said, the move, aligned with the bank’s sustained efforts to enhance value creation for all our stakeholders, will lead to significant gains for both companies and, more importantly, our customers.

“With this transaction, the bank remains committed to re-channelizing resources as part of our overall strategy to drive growth and innovation in our offerings.”

YES Securities acted as an exclusive advisor to the transaction. Samvad Partners acted as legal advisor to YES BANK, while Khaitan & Co, IC Universal Legal and Regstreet Law Advisors were legal advisors to White Oak Capital on the transaction.



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Franklin Templeton strengthens Emerging Markets Equity-India team with new hires

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Franklin Templeton on Monday said it has appointed Ajay Argal and Venkatesh Sanjeevi as portfolio managers in a bid to strengthen its Emerging Markets Equity – India team.

Effective October 12, 2021, Argal and Sanjeevi have joined the firm as portfolio managers and both are based at the Franklin Templeton offices in Chennai, reporting to Anand Radhakrishnan who heads up the Emerging Markets Equity – India team, the fund house said in a statement.

Argal will be the designated portfolio manager for Franklin India Focused Equity Fund and Franklin Build India Fund. He has worked with asset management firms such as Barings in Hong Kong, Aditya Birla Mutual Fund and UTI Mutual Fund. Sanjeevi will manage Franklin India Bluechip Fund & Franklin India Equity Advantage Fund in his role.

Also read: Franklin Templeton gets ₹693 cr for 6 debt funds

He was previously a senior investment manager at Pictet Asset Management in London, where he was the co-lead portfolio manager for the Pictet Indian Equities Fund. He has also worked as portfolio manager at ICICI Prudential AMC and Edelweiss Asset Management, Mumbai.

“Investing in our equity capabilities has been a strategic priority for us and over time we have built a deep bench of talent,” Anand Radhakrishnan, MD and CIO – Emerging Markets Equity – India, Franklin Templeton, said.

“We are delighted to welcome Ajay and Venkatesh to our team and believe their extensive experience in India and abroad will be valuable in identifying investment opportunities and managing our flagship offerings for our investors,” he added.

In addition, after more than 16 years with the firm, Roshi Jain, Portfolio Manager, will be leaving the company effective October 31, 2021, for personal reasons. Going forward, Jain’s portfolio responsibilities will be managed by Argal and Sanjeevi, supported by other investment managers and experienced analysts of Franklin Templeton Emerging Markets Equity – India.

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Tata Capital launches LAMF scheme

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Tata Capital has launched ‘Loan Against Mutual Funds’ (LAMF), whereby customers can digitally avail loans ranging from ₹5 lakh and ₹2 crore.

The non-banking finance company, in a statement, said the end-to-end (onboarding to disbursement) digital loan offering, which is quick and hassle free, is provided against a wide range of equity and debt schemes across mutual funds.

Customers can avail the loan as an overdraft facility or as a term loan by marking a line on the mutual fund units, which are managed by various asset management companies, it added.

“Auto renewal facility available for tenure exceeding one year (subject to review of the mutual fund portfolio)…Service portal comprises features for disbursement, drawdown, additional pledging and de-pledging,” Tata Capital said.

Backed by technology and analytics, LAMF is a personalised product to meet the personal or business funding requirements of the customer, according to the statement.

The loan amount is customised based on the value of the units in the mutual fund folio and tenure.

Referring to the more than two-fold increase of the mutual fund industry’s assets under management (AUM) in a span of five years, the NBFC emphasised that the customer continues to hold the mutual funds portfolio and can enjoy its benefits (of growth and dividend received from the MF portfolio).

Abonty Banerjee, Chief Digital Officer, Tata Capital said, “…Our latest digital product gives customers an opportunity to easily meet their fund needs in a seamless manner, even while retaining control over their portfolio.”

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SBI to float At-1 bonds in domestic market, will mufual funds buy?, BFSI News, ET BFSI

Banking & Finance

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After HDFC Bank and Axis Bank successfully raised Additional Tier 1 (AT1) bonds from overseas investors, the State Bank of India is set to test the local market this week with such bonds.

State Bank of India plans to raise up to Rs 4,000 crore selling AT-1 in the local market, first by a lender in this fiscal.

The At-1 market was almost dead after the Securities and Exchange Board of India earlier this year changed the valuation rules, which were partially rolled back later.

If the issue is successful, other lenders may tap the local market rather than the overseas market.

HDFC Bank and Axis Bank have eschewed the local market this year raising funds via the AT1 route in the overseas market.

SBI bonds

SBI bonds are expected to be up for bidding on Wednesday on the electronic debt bidding platform of stock exchanges. The bonds may offer between 7.90% and 8.10% with a five-year call option, which allows investors an exit route.

AT1, or perpetual bonds, do not have any fixed maturity.

The bonds are compliant with Basel-III, an international capital standard.

SBI Capital Markets is helping the bank raise the money. It has reached out to several local investors including private banks, corporate treasuries, bond houses, retirement bodies, wealth managers and insurers.

AT1 bonds are billed as quasi-equity securities that bear a higher risk of capital losses. These are generally rated three-to-four notches lower than an issuer’s corporate credit rating.

Local rating firms Crisil and India Ratings have graded the SBI’s paper AAplus with a stable outlook.

The mutual fund position

Mutual funds, which once used to buy heavily in AT1 bonds, are lukewarm about this asset class after the banking regulator last year ordered that these instruments be written off in Yes Bank’s state-sponsored bailout. Also, on March 10, Sebi had ordered mutual funds to cap ownership of bonds with special features at 10% of the assets of a scheme and value them as 100-year instruments from next month, potentially triggering a redemption wave. Later, the capital markets regulator eased valuation rules but with some riders after the finance ministry asked it to withdraw the directive to mutual funds.

The muted response by MFs had prompted the lenders to tap the overseas market

Perpetual bond sales by banks have nearly halved to Rs 18,772 crore in FY21 from Rs 34,860 crore three years earlier.



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Tax Query: TDS on capital gains for NRI investing in MFs with power of attorney

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My son Prabaharan is an NRI. I am investing in mutual funds for him basis a power of attorney. The payment is made from the joint savings account of Prabaharan and myself (Indian resident account). In the circumstances stated above, is it necessary to deduct TDS from the capital gains?

K. Ramachandran

As per the provisions of section 196A of the Income-tax Act, 1961 (‘Act’), every person responsible for paying to Non-Resident any income in respect of prescribed mutual funds, shall deduct taxes at source (‘TDS’) at 20 per cent on such income, at the time of credit or payment whichever is earlier. I understand that your son is the legal owner of the mutual funds and qualifies to be a non-resident in India and is receiving income in the nature of Capital Gains on transfer of mutual funds. As per the above-mentioned provisions, TDS would be deducted by the payer at 20 per cent of such Capital Gains at the time of credit or payment, whichever is earlier. Please note that for your query, I have not analysed and commented on any exchange control regulations / legal aspect.

My father (aged 61 years) retired in March 2020 and invested ₹15 lakh in senior citizen savings scheme in post office in May 2020. Is the amount invested eligible for 80C for all the five years, or it is only for the first year? Is the amount enough to fulfil the entire ₹1.5 lakh limit under 80C for all the 5 years?

Gokulanathan K

As per the provisions of Section 80C of the Income-tax Act, 1961 (‘Act’), the deduction is available in respect of any sum paid or deposited (as specified in the said section) during the concerned Financial Year (‘FY’), subject to a maximum eligible deduction of ₹150,000. Accordingly, for the amount contributed in May 2020, the deduction available to be claimed in your father’s hands would be for FY 2020-21, which shall be restricted to ₹150,000 (i.e. only for the year in which the amount is deposited in an account under Senior Citizen Saving Scheme). The amount invested during FY 2020-21 would not be eligible for deductions in future years.

The writer is a practising chartered accountant

Send your queries to taxtalk@thehindu.co.in

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‘We must seek good investing behaviour’: Kalpen Parekh of DSP MF

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Investor behaviour is one of the most crucial aspects to a good investment experience, believes Kalpen Parekh who is the President at DSP Mutual Fund that manages an AUM of more than one lakh crore. So, BL Portfolio caught up with him to understand his financial journey and for his advice on the mutual fund investments in the ongoing phase of Indian stockmarkets.

What does money mean to you?

Money to me is comfort and responsibility to my family. It allows me the freedom to take the right decisions and confidence. It means gratitude and blessings to be able to have enough money to lead a good life. It also means responsibility to help others with money.

How does your portfolio look like now?

I invest all my money in DSP Mutual Fund schemes. The split looks something like this – 43 per cent in Indian funds , 17 per cent oin international equity funds, 16 per cent in dynamic asset allocation fund, and 21 per cent in short term debt fund. Apart from this, 5 per cent is in sovereign Gold bonds.

Everyone should decide their asset allocation with their own personalization, and not assume that this is the most optimal or ideal asset allocation.

I have recently shifted a bit of equity into debt under an asset allocation fund, which is conservative. I’m likely to buy a house in the next month and will require a certain amount of lumpy cash requirement, which is why 40 per cent component is in fixed income or asset allocation fund and not in an equity portfolio.

What is your most successful investment?

I haven’t invested in stocks since the last 13 years. My best investments are the ones that I made in 2008 -2010 phase of low or no returns and held on since then. They have compounded very well. These are simple flexi cap equity funds. Another investment that did well in hindsight is an equity fund which invests in US stocks.

What is your biggest money mistake and what did it teach you?

I used to invest in best performing funds of last year and when they would see reversal in their returns I would get out. It was a classic case of buy high and sell low and destroy your hard earned capital. It took me many years to realise this mistake. It taught me that performance has cycles and cycles mean what rises fast comes down too.

What’s your view on the market?

I have always been for the last few years, generally feeling a bit of anxiety that stock prices are running ahead of reality and fundamentals. Economic growth, world over or in India has been slower than what we tend to speak about. Some points in time, markets will be ahead of economy, some points in time they will behind the economy. Currently, they are ahead. Trying to make any prediction of the market has rarely worked for me.

Also, focusing on market is an external variable outside my control. With time and experience, I have learnt to focus more on what’s in my control – how much do I invest across asset classes, that is asset allocation.

Are investors better off pausing SIPs in the heated markets and instead investing in safer avenues?

By pausing SIPs now, you attempt to optimise the last drop of market cycles, but we’re also making a big assumption that we know that markets are going to come down, but we don’t really know. I think if we start with this belief that we know, then your choice of action will be very different versus if you start with the assumption that probably we don’t know, as much as we think we know. I come from the second camp.

Your concern is valid that what if the next one your markets go nowhere. It’s okay, who says that you have to make money every month? The reality of the markets is 1/3rd of the times they go down, one third of the time, they go nowhere – for long periods of time, it means zero returns for three, four or five years – and 1/3 of the times they go up violently in a very large quantum. The challenge is we don’t know which 1/3rd of the time you are going to encounter it in the next five years.

Typically, what happens is when prices fall, we find 10 more reasons to say why they should fall further. So it is very easy to stop an SIP. Will you be confident that you will start back at the right time? If you’re confident go ahead and do it. But if you’re not confident, avoid.

If you are concerned about volatility, or probably lower returns, I would say take one step lower. So instead of stopping SIP from an equity fund, do SIP in the next category – dynamic asset allocation fund, which has a slightly lower risk profile.

It is important to ask this question, “How we can become good investors?” rather than only saying that markets should be good. We always seek good markets, we seek good funds, we seek good returns, we should also add one more layer here, which is seeking good investing behaviour ourselves, what are the characteristics of good investing, being more disciplined being more long term and not getting afraid of volatility.

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

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What to make of new MF skin in the game rules

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Should one take financial advice seriously if the advisor won’t face any consequences from his wrong calls? Would fishermen catch turtles instead of fish if they also had to eat them? Nassim Nicholas Taleb raised these questions in 2018 book, Skin in the Game: Hidden Asymmetries in Life. He argued that for success in any profession, the seller needs to share in the risks of the buyer. SEBI has taken Taleb’s ideas to heart. To ensure that top officials of mutual funds don’t take out-sized risks and unleash losses on investors, it has now directed that top employees of mutual funds need to eat their own cooking.

New rules

· Key employees of asset management companies should be paid a minimum 20 per cent of their annual CTC (cost to company) after provident fund contributions and taxes, in mutual fund units in schemes in which they have a role. ‘Key employee’ here means not just the fund managers but also the mutual fund CEO, CIO, COO and many others. .

· If an employee has a role in multiple schemes, he or she should be paid units in proportion to their assets.

· If an employee or fund manager is involved with only one scheme, 50 per cent of his payout will be through units in that scheme and 50 per cent in others that he chooses, of similar or higher risk profile.

· These units will be locked in for 3 years.

· This won’t apply to employees handling ETFs, index funds, overnight funds and close end schemes.

· The compensation paid to each key employee in units should be disclosed on the mutual fund’s website.

These new rules are unlikely to transform a mediocre fund manager into a great selector of stocks or bonds, or transform him into a better navigator of market ups and downs. Therefore, factors such as the ability to beat benchmarks, track record across market cycles and downside containment matter far more than skin in the game (SITG) while choosing a fund.

To ensure that a fund manager’s interests are truly aligned with yours, he has to have a significant portion of his portfolio invested in the scheme he manages.

SEBI’s new SITG rules do not guarantee this. For a fund manager who has been in the profession for several years, 20 per cent of a single year’s net income will work out to a small component of his or her net worth.

. If they have no investments in a particular scheme to start with, the incremental investment from this rule is unlikely to be large enough to constitute significant SITG. Therefore, pay attention to the value of investments.

Is it voluntary?

In signalling preferences, voluntary actions by MF insiders count more than actions that are forced by regulations. Even before SEBI’s new rules kicked in, some AMCs had voluntary opted for SITG. Parag Parikh AMC has its promoters as well as key employees holding a ₹220 crore across its three schemes. Motilal Oswal AMC’s promoters are among the largest investors in its equity schemes while fund managers at HDFC Mutual Fund and DSP Mutual Fund feature very significant holdings by their directors and fund managers in some of their equity schemes. ICICI Prudential AMC has for a while now, been paying bonuses of its senior employees in the form of fund units.

When using SITG as an indication of where to park your money, therefore, run a check on the total quantum of employee investments in a scheme before this SEBI rule came into effect. Given that SEBI has allowed fund managers to allocate 50 per cent of their payout to funds other than their own, look out for fund managers investing in schemes that they don’t manage, as this is a strong indicator of schemes that they think highly of.

As SITG is not compulsory in index funds, ETFs and close end funds, these contributions are likely to be wholly voluntary.Watch out for trends that show insiders selling their SITG positions (which they can do after 3 years).

Don’t mirror allocations

Don’t try to copy the asset allocation patterns of MF insiders based on SITG information. Most mutual fund honchos are quite well-paid and may have a far higher risk appetite than yours. Therefore, SITG bets on risky categories such as small-cap thematic or credit risk should not be a reason for you to go whole hog on such schemes.

Two, by requiring non fund managers to spread out their SITG investments across schemes in proportion to their assets, SEBI’s rules automatically ensure large SITG investments for big schemes.

If an AMC’s largest scheme is their liquid fund or their arbitrage fund, this doesn’t mean you should fancy it too. How much of your own portfolio should be allocated between equity and debt and risky and safe scheme categories, should to be a function of your personal risk appetite and financial goals, and not anyone else’s.

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Yield to maturity – The Hindu BusinessLine

Personal Finance

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A coffee time chat between two colleagues leads to an interesting explainer on bond market jargons.

Vina: Do you think I should try my luck with the bond markets?

Tina: While stock and bond market prices are unpredictable, don’t leave your investment decisions entirely to a game of luck.

Vina: Agreed! Today while bank deposit rates are at all-time lows, I came across a bond that promises a yield to maturity of around 8.8 per cent. Interest of ₹88 on a bond with a face value of ₹1000, sounds like a great deal. Doesn’t it?

Tina: No, that’s not how it works, Vina. You are mistaking the yield to maturity for the coupon rate. The two are not the same.

Vina: Jargons again! What is the interest I will earn?

Tina: The coupon rate when multiplied by the face value of a bond, gives you the the interest income that you will earn. Yield to maturity is a totally different concept.

Vina: Enlighten me with your wisdom, will you?

Tina: When you buy a bond in the secondary market, its yield will matter more to you than the coupon rate or the interest rate that it offers on face value. Because the yield on a bond is calculated with respect to current market price – which is now the purchase price for you.

The current yield is the return you get (interest income) by purchasing a bond at its current market price. Say, a bond trades at ₹900 (face value of ₹1,000) and pays a coupon of 7 per cent per annum. Your current yield then is 7.8 per cent.

Vina: What is the YTM then?

Tina: The yield to maturity (YTM) captures the effective return that you are likely to earn on a bond if you hold it until maturity. That is, the return you get over the life of the bond after accounting for —interest payments and the maturity price of the bond versus its purchase price.

The YTM for a bond purchased at face value and held till maturity will hence be the same as its coupon rate.

Vina: Hold until maturity? The bond I was referring to has 8 years left until maturity. Too long a tenure, right?

Tina: Yes! The bond whose YTM is 8.8 per cent and has a residual maturity of eight years must be paying you a coupon of 7 per cent annually. That isn’t too high when compared to what other corporates have to offer.

Vina: So, should I now look for bonds that offer even higher YTMs?

Tina: Don’t fall prey to high yields, Vina. A high deviation from the market rate often signifies a higher level of risk. Higher YTMs are a result of a sharp drop in the current bond market price, which is most likely factoring in perceived risk of default or rating downgrades.

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How to analyse rolling returns

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When adding a new financial product or asset to your portfolio, how do you weigh up its potential returns against risks? A mistake many novice investors make is to rely entirely on its point-to-point returns to gauge its risk-reward profile. But decisions based on the recent record of an asset can backfire badly.

Looking at the trailing-return record today, you would probably pick equity funds with a five-year CAGR of 16 per cent over gold ETFs with less than 10 per cent. Long duration debt funds (five-year CAGR 9.6 per cent) would look superior to low short duration ones (6 per cent). But these returns can change if there’s a correction in the bull market or if rates begin to rise after falling for six years.

How they work

Rolling return analysis helps remove the distortions created by fixed-date comparisons and to understand the true risk-reward profile of an asset.

Unlike trailing returns which rely on a specific start and end date, rolling returns capture the returns on an asset between multiple starts and end-dates. A 10-year rolling return analysis of the Nifty50 today on a monthly basis would calculate Nifty returns from January 2010 to January 2020, December 2009 to December 2019, November 2009 to November 2019 and so on.

The many rolling returns are then averaged to gauge the usual return experience for investors who held the Nifty for ten years.

Interpreting them

Here’s a live illustration using five-year rolling returns on month-end data for the Nifty50 from December 1995 to December 2020.

The analysis will give you 240 different rolling five-year returns spread out over 20 years. If you average the 240 data points, you get a CAGR of about 12 per cent. Therefore, for investors who didn’t bother about timing and held the index for five years, the Nifty usually returned about 12 per cent.

Comparing the current trailing return on the Nifty to this long-term average gives you added insights. The trailing five-year return on the Nifty at 17 per cent tells you that recent years have been unusually bullish for stocks and their returns could revert to mean. If you plan to buy the Nifty with a five-year horizon now, set your CAGR expectation at less than 12 per cent.

The best five-year CAGR over the 20-year period was 44 per cent and the worst a minus 5 per cent. This tells you that if you plan on holding the Nifty for five years, the risk you must budget for is losing 5 per cent a year. If you’re very lucky, there’s a chance of making 44 per cent.

The distribution of rolling returns shows that the Nifty made losses about 5 per cent of the time and below 6 per cent return about 28 per cent of the time. So, while the risk of losses was about one in twenty, there’s a 28 per cent chance of you earning a poor return from the Nifty over five years. But it also earned over 25 per cent CAGR about 11 per cent of the time, a roughly one in ten shot at trebling your money in five years. Rolling-return analyses, if not done right, can be misused and misinterpreted too. Note the following.

One, to truly reflect the risk-reward profile of an asset, a rolling return analysis should be based on sufficient history. For any asset,get data for at least two complete market cycles comprising a bull and a bear phase. If you don’t have data going back that far, at least try for one complete cycle. In Indian stocks, a typical bull-bear cycle lasts seven years, so a rolling analysis run over 14-15 years is ideal. In bond markets, the last six years have seen a breathless bull phase, so your analysis needs to stretch to at least 10 years.

Two, the time frame for which you run your rolling returns should match your planned holding period. If you plan to invest in equities for five years, there’s no point looking at one-year rolling returns. On a one-year rolling return basis, the Nifty has suffered losses about 30 per cent of the time, but on a five-year basis the proportion was only five per cent.

Finally, though rolling returns from the past are often used to extrapolate an asset’s risk-reward profile, past performance may not always be a sound indicator of the future. By using long periods of historical data that smooth out timing effects, rolling returns certainly offer a better guidepost to investors than point-to-point or trailing returns. But if market cycles remain distorted for long periods, there’s every chance that the next ten years may not be the same as the last ten.

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