Authored article in Business Finance and Markets, an IIPM Think Tank & Planman Financial Publication
Showing posts with label ETFs. Show all posts
Showing posts with label ETFs. Show all posts
October 1, 2011
May 12, 2011
Outflows in Equity continued; Total MF AUM up by 32.61% to Rs. 7.85 lakh crore
The equity outflows continued in April 2011, following the market negative sentiments and the ongoing geopolitical tensions in MENA region which have skyrocketed the crude oil prices affecting the domestic inflation. In April 11, there has been an outflow of Rs. 1,076 crore for second month successively. In last one year, the equity category lost Rs. 13,348 crore. However, the total AUM in Equity grew to Rs. 1,70,406 crore, up marginally by 0.38 per cent. In other equity related categories – ELSS, Balanced and other ETFs, there were mixed signals. While ELSS showed an outflow of Rs. 289 crore, the other ETFs category showed an inflow of Rs. 510 crore. The Balance category also showed a marginal inflow of Rs. 17 crore.
Slowly and steadily, ETFs have been becoming the mass product as shown by large accumulation of assets in it. While Gold ETFs continue to grow by leap and bounds, other ETFs also grew drawing interests from retail investors. In last one year, the Gold ETFs saw an inflow of Rs. 2,319 crore while the AUM grew more than double. Its current AUM grew to Rs. 4,800 crore in Apr 2011 from Rs. 1,711 corre, up by 180.54 per cent. To some extent, the uptick in gold prices is also responsible for the growth in AUM. The gold prices rose 29 per cent in last one year.
Net Inflows in April 2011
On the comfort side, the Mutual Fund Industry AUM rose to Rs. 7.85 lakh crore, up by 32.61 per cent or Rs. 1.93 lakh crore mainly contributed by Liquid/Money Market and Income Fund Categories. In Mar 2011, the industry lost Rs. 1.15 lakh crore. The Liquid/Money Market AUM grew to Rs. 2.22 lakh crore in April 2011 from Rs. 73,666 crore in Mar 2011, up by 201.9 per cent. There has been a net inflow of Rs. 1.47 lakh crore in this category. Similarly, the Income category also showed upward movement in net AUM including net inflow in April. The category AUM grew to Rs. 3.35 lakh crore, up by 14.63 per cent and the net inflows were Rs. 37,891 crore.
In a significant ruling to Mutual Funds in the recent monetary review, the RBI has mandated that banks should restrict their exposure to 10 per cent of their net worth as on last year in Liquid Mutual Funds. So, eventually, the investments around Rs. 50,000 crore will outflow in next 6 months.
FMPs still rule the inflows
The burgeoning interest rates on account of high inflation have made the FMP category conducive for the market. Moreover, the uncertainly in equity market which is expected to remain in near future have also led to demand from investors. In April 2011, there has been 22 FMPs collecting a total of Rs. 3,065 crore.
New Funds enter into industry; some exited
Apart from FMPs, there were three open ended Income Funds named as Axis Dynamic Bond Fund, Canara Robeco Yield Advantage Fund and Peerless Child Plan Fund which collected a total sum of Rs. 41 crore. In gilt category, Daiwa Govt. Securities Fund – Short Term Plan collected Rs. 57 crore. There were no other NFOs.
However, the number of total equity funds reduced with some AMCs merging the schemes with the other existing schemes. As against earlier of 328, the total equity funds stand at 318. JM Mutual Fund and ICICI Prudential Mutual Funds merged their schemes with other existing schemes.
October 13, 2010
Liquid, income and equity led to total outflows of Rs. 71,838 crore
Sensex at its 33-month peak; a cycle from 20,000 to 20,000. Investors are anxious, markets are overheated. Mutual fund industry has been bleeding and it remains continuous, in fact certain. Equity funds have been witnessing redemptions; in Sept 2010, equity funds saw its maximum ever redemption amount of Rs. 7,011 crore. In the last 14 months, since the ban of entry load on mutual funds, the outflows have been for 11 times while inflows have been for 3 times. In totality, the redemptions till date since Aug 2009 are Rs. 21,461 crore. Not only equity funds, Balanced Funds too witnessed an outflow of Rs. 414 crore. It is the maximum outflow in Balanced Category in recent years.
Earlier, the fund houses were complaining of low incentives to boost distributors to sell products; now the investors have been redeeming the funds as many fear that there could be a correction in Equity Markets. With many funds reaching new NAV highs, investors preferred trimming their holdings. However, the gross inflows in Equity Funds during the month were the highest since April this year. It was Rs. 5,793 crore in Sept 2010 compared with Rs. 4,928 crore in Aug 2010. Also, the total assets as in Sept 2010 in Equity Category grew to Rs. 1,85,484 crore from Rs. 1,79,200 crore in Aug 2010 mainly on account of rising of equity.
Except Gilt Funds and ETFs, all other categories witnessed net outflows triggering systematic outflows. Liquid/Money Market Funds witnessed the maximum outflow to the tune of (-) Rs. 36,108 crore. Similarly, Income Funds witnessed outflow by Rs. 28,637 crore. Both categories which cater mainly to institutional investors witnessed heavy redemptions due to liquidity deficit in the financial system. Banks, major investors in these funds have also redeemed their investments in Sept 2010. In totality, the total exposure of banks to Mutual Funds as per the RBI estimates have declined from Rs. 59,984 crore as on Aug 27, 2010 to Rs. 33,534 crore as on Sept 24, 2010.
Overall the industry witnessed net outflows of Rs. 71,838 crore due to large redemptions in debt funds.
ELSS, Equity Linked Saving Schemes where investors get benefits for investments up to Rs. 1 lakh under Sec 80C also saw redemptions to the tune of Rs. 270 crore for the sixth consecutive times since April 2010.
Earlier, the fund houses were complaining of low incentives to boost distributors to sell products; now the investors have been redeeming the funds as many fear that there could be a correction in Equity Markets. With many funds reaching new NAV highs, investors preferred trimming their holdings. However, the gross inflows in Equity Funds during the month were the highest since April this year. It was Rs. 5,793 crore in Sept 2010 compared with Rs. 4,928 crore in Aug 2010. Also, the total assets as in Sept 2010 in Equity Category grew to Rs. 1,85,484 crore from Rs. 1,79,200 crore in Aug 2010 mainly on account of rising of equity.
Except Gilt Funds and ETFs, all other categories witnessed net outflows triggering systematic outflows. Liquid/Money Market Funds witnessed the maximum outflow to the tune of (-) Rs. 36,108 crore. Similarly, Income Funds witnessed outflow by Rs. 28,637 crore. Both categories which cater mainly to institutional investors witnessed heavy redemptions due to liquidity deficit in the financial system. Banks, major investors in these funds have also redeemed their investments in Sept 2010. In totality, the total exposure of banks to Mutual Funds as per the RBI estimates have declined from Rs. 59,984 crore as on Aug 27, 2010 to Rs. 33,534 crore as on Sept 24, 2010.
Overall the industry witnessed net outflows of Rs. 71,838 crore due to large redemptions in debt funds.
ELSS, Equity Linked Saving Schemes where investors get benefits for investments up to Rs. 1 lakh under Sec 80C also saw redemptions to the tune of Rs. 270 crore for the sixth consecutive times since April 2010.
On a positive note, Gilt Funds witnessed a net inflow to its kitty. It witnessed a net inflow of Rs. 521 crore. The G-Sec yields have been trading at their high levels mainly on account of RBI’s aggressive monetary policies and high inflationary pressures. Headline Inflation as measured by WPI is set to moderate by the end of this fiscal year. Moreover, liquidity may also improve by Jan-Feb next year. All these factors may bring down G-Sec yields which will benefit these Gilt Funds to the maximum.
In Equity Category, there were 3 NFOs – IDBI Nifty Junior Index Fund; Reliance Small Cap Fund, Reliance Index Fund – Nifty Plan and Sensex Plan which collected a total amount of Rs. 677 crore. Two Ultra Short Term Funds – IDBI Ultra Short Term Fund and Pramerica Ultra Short Term Bond Fund were launched which collected Rs. 597 crore in combine. FMPs continue to rule the industry with a total of 37 new NFOs which collected a total amount of Rs. 7,454 crore. The high short term yields can be attributed to these launches which have caught the attraction of investors.
July 9, 2010
Exchange Traded Funds (ETFs) Innovations – MOSt Shares M50 ETF
Global Journey
ETFs have travelled a long distance since its inception in 1993 in USA. It took 7 years (from 1993 – 2000) to get it widely accepted among investors. Once it drew attention from investors, it grew leap and bound; the global ETF assets has reached an all time high of US $ 1.03 trillion as on March 2010 from an estimated US $ 463 million in 1993, clocking a CAGR of 56 per cent. On US Exchanges, 11 out of top 25 volume leaders/stocks are ETFs. Some of the top volume leader ETFs is SPDRs, iShares MSCI Brazil Index, Ultra Short Russel2000 ProShares, etc. These ETFs account for 78 per cent of total volume out of top 25 traded stocks on US Stock Exchanges. It was less than 25 per cent 10 years back.
Indian Journey
Not very old in India, ETFs started its journey in 2001 after Benchmark AMC forayed into this unique proposition. Since then, the ETFs grew by leap and bound. The domestic ETF assets grew from Rs. 7 crore in 2001 to Rs. 3,203 crore as on May 31, 2010. However, the main course of action in ETFs got intensified in the recent bull period. Indian equities component of Global Emerging Markets ETFs account for US $ 5.5 billion of AUM while the domestic equity ETFs now account for US $ 0.5 billion. Overall, over the past year, around 20 per cent of the net inflows into the Indian market have come from ETFs, thereby, ETFs a very significant component of Indian fund flows.
Is ETFs good for investors?
The global historical data suggests that the fund managers have not been able to beat the benchmarks constantly over a longer period. In efficient market scenario, the active funds find difficulty in beating their benchmarks. So, it is always preferable for investors to look for a product which provide a decent return, at least comparable to its benchmark with bounty of other benefits such as tax efficiency, low expense ratios.
ETFs are pools of stocks, bonds or in a few instances other types of investments such as Gold that you can trade like stocks. ETFs tend to have very low annual expenses – much lower than the actively managed funds. Moreover, ETFs are high tax efficient i.e. they tend to minimize distributions, which will drive down your post-tax returns. ETFs are listed on stock exchanges and can be bought and sold like any other company share.
Product Innovations
Innovation is the key to success. For now, at least, all ETFs are an index fund which mirrors an index or a benchmark, unlike actively managed funds whose managers try to beat the market. There have been talk of companies bringing out actively managed ETFs, but so at least in India, it has not been manufactured. Currently, in India, the underlying for ETFs are Index, Sector, Money Market Instruments, Arbitrage etc. One more type to add in the basket of innovated products is actively managed ETF – MOSt Shares M50 ETF, the first of its kind in India, launched by Motilal Oswal Mutual Fund.
Passively-managed ETFs follows its index and invest in the same proportion as of its index while actively-managed ETFs follow their own fundamentally defined rules.
ETFs have travelled a long distance since its inception in 1993 in USA. It took 7 years (from 1993 – 2000) to get it widely accepted among investors. Once it drew attention from investors, it grew leap and bound; the global ETF assets has reached an all time high of US $ 1.03 trillion as on March 2010 from an estimated US $ 463 million in 1993, clocking a CAGR of 56 per cent. On US Exchanges, 11 out of top 25 volume leaders/stocks are ETFs. Some of the top volume leader ETFs is SPDRs, iShares MSCI Brazil Index, Ultra Short Russel2000 ProShares, etc. These ETFs account for 78 per cent of total volume out of top 25 traded stocks on US Stock Exchanges. It was less than 25 per cent 10 years back.
Indian Journey
Not very old in India, ETFs started its journey in 2001 after Benchmark AMC forayed into this unique proposition. Since then, the ETFs grew by leap and bound. The domestic ETF assets grew from Rs. 7 crore in 2001 to Rs. 3,203 crore as on May 31, 2010. However, the main course of action in ETFs got intensified in the recent bull period. Indian equities component of Global Emerging Markets ETFs account for US $ 5.5 billion of AUM while the domestic equity ETFs now account for US $ 0.5 billion. Overall, over the past year, around 20 per cent of the net inflows into the Indian market have come from ETFs, thereby, ETFs a very significant component of Indian fund flows.
Is ETFs good for investors?
The global historical data suggests that the fund managers have not been able to beat the benchmarks constantly over a longer period. In efficient market scenario, the active funds find difficulty in beating their benchmarks. So, it is always preferable for investors to look for a product which provide a decent return, at least comparable to its benchmark with bounty of other benefits such as tax efficiency, low expense ratios.
ETFs are pools of stocks, bonds or in a few instances other types of investments such as Gold that you can trade like stocks. ETFs tend to have very low annual expenses – much lower than the actively managed funds. Moreover, ETFs are high tax efficient i.e. they tend to minimize distributions, which will drive down your post-tax returns. ETFs are listed on stock exchanges and can be bought and sold like any other company share.
Product Innovations
Innovation is the key to success. For now, at least, all ETFs are an index fund which mirrors an index or a benchmark, unlike actively managed funds whose managers try to beat the market. There have been talk of companies bringing out actively managed ETFs, but so at least in India, it has not been manufactured. Currently, in India, the underlying for ETFs are Index, Sector, Money Market Instruments, Arbitrage etc. One more type to add in the basket of innovated products is actively managed ETF – MOSt Shares M50 ETF, the first of its kind in India, launched by Motilal Oswal Mutual Fund.
Passively-managed ETFs follows its index and invest in the same proportion as of its index while actively-managed ETFs follow their own fundamentally defined rules.
November 2, 2009
Is the time ripe for Indians to invest globally? What are the most attractive options for Indians to build a more global portfolio?
The global financial markets saw a series of events in the last two years with the abruption of subprime crisis followed by fall of investment banking behemoth Lehman Brothers in US. The whole process disrupted the world financial markets including India too, thus, giving a silent killing to the concept of ‘Decoupling’. The central banks in mutual relationship with their central governments declared a series of relief programs/packages. The combined global measures along with increased consumer consumption improved the global sentiments and markets performed comparatively better in 2009 YTD. India emerged as the 2nd best performer with a return of 73 per cent – its third best domestic performance in a year in its history-- in YTD 2009 followed by Brazil, Thailand, Taiwan, China etc. Russia remained at the top slot with an overall return of 90-plus per cent in YTD 2009. Nevertheless, other developed markets such as Japan’s index, S&P 500 etc gave returns in the range of 20 per cent.
Table 1- Performance of MSCI Indices
Indices YTD 1 Yr
MSCI EM Asia 59.88% 92.20%
MSCI BRIC 76.02% 105.63%
MSCI Europe 26.53% 39.73%
MSCI The World Index 20.51% 24.30%
MSCI G7 Index 17.36% 19.33%
A look on table 1 depicts a very clear picture that emerging markets have outperformed the world index and Europe and G7 index by a huge margin. The world index has given return of 20.51 per cent in YTD 2009 as compared to MSCI BRIC which gave 76.02%in YTD 2009. In terms of valuations, India is trading at 15x PE FY2011, near to its historical average of 14.2x while China and Hongkong is trading at 17.3x and 14.5x FY 2011. US’s S&P 500 is trading at 14.5x PE while Russia and Korea is trading in single digits. So, in terms of valuations, India has reached a stage comparable to world markets but the opportunities are endless in India in terms of returns.
The developed markets are still to experience a handsome improvement in various economic parameters. The treasury rates are still quoting at their all time lows prompting the global investors to invest in emerging markets like India. So, logically at this point, the time is not ripe for Indians to invest in global markets as the domestic market provides a better opportunity in terms of valuations and earnings.
Let us understand the need of global portfolio: Investors, by and large, build global portfolio primarily because of diversification opportunities they offer. However, global funds are subject to currency risk and country risk. The retail investors in India are still not financially educated to build a global portfolio on their own- the reason being the small tick size and lack of known avenues. The investors are still inclined towards bank deposits and other traditional investment products. In India, mutual funds have travelled a long path in building AUMs, currently hovering at Rs 7.5 trillion crore where global dedicated funds’ share stands at Rs 7.5 k crore as on Sept 2009 despite being allowed an exposure limit of $ 7 billion for overseas investments by Indian mutual funds.
Table 2- Performance of Global Funds (India)
_____________________ 1 Yr 3 Yr
Frankling Asia Equity Fund 60.79% 9.82%
Tata Growing Eco Infra Fund 83.28% -
ICICI Pru Indo Asia Equity Fund 89.19% -
Fidelity International Opportunites 71.63% -
Principal Global Opportunities Fund 68.75% 4.69%
The table 2 depicts the performance of global mutual funds operating out of India. Most of the funds are dedicated to Asia and emerging economies. They have given returns in the range of 60.79% to 89.19% in one-year category, much lesser than the diversified fund category of around 100 plus per cent. Some of the funds invest in global assets directly while others invest in overseas mutual funds, also known as feeder funds such as DSP BR World Energy Fund, Franklin India International Fund etc. In the current market rally, the domestic diversified funds have performed better than the global funds and there have been no clear trend for performance in global funds. However, the mutual fund route seems to be right option to build a global portfolio rightly through India’s dedicated global funds and foreign-based funds. Investors need to take into account of the volatile currency risk and country risk. In the near term, dollar has reached to its 14 month low value against Rupee. So, the concept of dollar carry trade is widely practiced in the investment circles. Global investors take the PN (participatory notes) and PE (private equity) route to invest in India while Indians mainly high-worth investors follow the PE and buy-out route. Some of the well defined ways to diversify internationally and build global portfolios are given below:
1. Index investments- If investors hope are a return close to average market return; it is advisable to go for passive funds such as ETFs.
2. Invest in global funds with low expenses.
3. Go for offshore funds as they offer tax advantages over onshore funds on profit accumulated.
4. Avoid funds with frequent turnover i.e. with high turnover ratio.
5. One can also invest in international shares directly. During the economic downturn, some of well known stocks such as Citi, JP Morgan, AIG etc were trading at excellent valuations.
Table 1- Performance of MSCI Indices
Indices YTD 1 Yr
MSCI EM Asia 59.88% 92.20%
MSCI BRIC 76.02% 105.63%
MSCI Europe 26.53% 39.73%
MSCI The World Index 20.51% 24.30%
MSCI G7 Index 17.36% 19.33%
A look on table 1 depicts a very clear picture that emerging markets have outperformed the world index and Europe and G7 index by a huge margin. The world index has given return of 20.51 per cent in YTD 2009 as compared to MSCI BRIC which gave 76.02%in YTD 2009. In terms of valuations, India is trading at 15x PE FY2011, near to its historical average of 14.2x while China and Hongkong is trading at 17.3x and 14.5x FY 2011. US’s S&P 500 is trading at 14.5x PE while Russia and Korea is trading in single digits. So, in terms of valuations, India has reached a stage comparable to world markets but the opportunities are endless in India in terms of returns.
The developed markets are still to experience a handsome improvement in various economic parameters. The treasury rates are still quoting at their all time lows prompting the global investors to invest in emerging markets like India. So, logically at this point, the time is not ripe for Indians to invest in global markets as the domestic market provides a better opportunity in terms of valuations and earnings.
Let us understand the need of global portfolio: Investors, by and large, build global portfolio primarily because of diversification opportunities they offer. However, global funds are subject to currency risk and country risk. The retail investors in India are still not financially educated to build a global portfolio on their own- the reason being the small tick size and lack of known avenues. The investors are still inclined towards bank deposits and other traditional investment products. In India, mutual funds have travelled a long path in building AUMs, currently hovering at Rs 7.5 trillion crore where global dedicated funds’ share stands at Rs 7.5 k crore as on Sept 2009 despite being allowed an exposure limit of $ 7 billion for overseas investments by Indian mutual funds.
Table 2- Performance of Global Funds (India)
_____________________ 1 Yr 3 Yr
Frankling Asia Equity Fund 60.79% 9.82%
Tata Growing Eco Infra Fund 83.28% -
ICICI Pru Indo Asia Equity Fund 89.19% -
Fidelity International Opportunites 71.63% -
Principal Global Opportunities Fund 68.75% 4.69%
The table 2 depicts the performance of global mutual funds operating out of India. Most of the funds are dedicated to Asia and emerging economies. They have given returns in the range of 60.79% to 89.19% in one-year category, much lesser than the diversified fund category of around 100 plus per cent. Some of the funds invest in global assets directly while others invest in overseas mutual funds, also known as feeder funds such as DSP BR World Energy Fund, Franklin India International Fund etc. In the current market rally, the domestic diversified funds have performed better than the global funds and there have been no clear trend for performance in global funds. However, the mutual fund route seems to be right option to build a global portfolio rightly through India’s dedicated global funds and foreign-based funds. Investors need to take into account of the volatile currency risk and country risk. In the near term, dollar has reached to its 14 month low value against Rupee. So, the concept of dollar carry trade is widely practiced in the investment circles. Global investors take the PN (participatory notes) and PE (private equity) route to invest in India while Indians mainly high-worth investors follow the PE and buy-out route. Some of the well defined ways to diversify internationally and build global portfolios are given below:
1. Index investments- If investors hope are a return close to average market return; it is advisable to go for passive funds such as ETFs.
2. Invest in global funds with low expenses.
3. Go for offshore funds as they offer tax advantages over onshore funds on profit accumulated.
4. Avoid funds with frequent turnover i.e. with high turnover ratio.
5. One can also invest in international shares directly. During the economic downturn, some of well known stocks such as Citi, JP Morgan, AIG etc were trading at excellent valuations.
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