Mutual Funds - hike in expense ratio

Starting 1st october, mutual funds are charging  service tax on investment management fee. The same is being communicated to mutual fund investors. All mutual funds investors should be receiving similar communication via email or post. Total expense ratio (TER) for equity mutual fund is raised from 2.50% to 2.70% and same for debt funds to 2.45%. AMCs have started charging service tax on investment management fee which is over and above the TER.The maximum scheme expenses could even go more than 3% in equity funds after adding service tax on management fee, 20 basis extra TER (which has to be clawed back to schemes in the event of redemptions), and 30 basis additional expenses on gross new inflows from beyond top 15 cities. However, the expenses would depend on the extent of inflows from smaller towns. “These are just enabling clauses. We will charge based on the market practice and it will change from time to time,” said a sales head of a mid-sized fund house.

Mutual Fund advisors to get a UID

In a bid to curb mis-selling of mutual funds, all mutual fund advisers and relationship managers will get a unique identification number (UID) and the deadline for which, set by SEBI is 1st November. All national distributors and banks who have appointed relationship managers and sales personnel who advise clients will come under this rule. The mutual fund application form will also have a provision for disclosing the Unique Identification Number for sales personal.

“Onus should not be only on the client or AMC. It should be on the distributor as well. It is not to crucify anyone but it is to make sure that people take responsibility and give the right advice. Sometimes clients also take their own call by investing in certain schemes, going against distributor’s advice,” said Y Jawahar, VP & head of distribution, Mata Securities. 

Mutual Funds Myths

To sell their products, marketers come up with half cooked information. To attract investors to their schemes, they try to build false rumors, this leads to confusion in minds of mutual fund investors. I have tried to cover common myths prevailing in mutual fund industry:

• Lower NAV mutual fund is cheaper: Whenever a new mutual fund scheme is launched, agents try to sell the scheme stating that the NAV is only Rs 10 and is cheaper than the existing mutual fund products. Further he would explain that if you invest Rs 5000, you will get 500 units of the new mutual fund but if you buy any existing mutual fund with NAV say Rs20, you will get only 250 units. Poor investor would not understand the gimmick and might fall prey. ~ Always look at the returns a mutual fund is capable to deliver and NOT the NAV.  In above example, even if you hold 250 units @ Rs 20 and in 1 yr the return it gives is 20%, then after one year your value will become Rs 6000. If the cheaper mutual fund with NAV of Rs 10 only gives 10% return during the same period, then your value of investment will be Rs 5500. Which means you are at a loss with cheaper NAV.
• Child Mutual Fund secures child future: Child mutual fund do not have anything special that a normal mutual fund does not have. Normal mutual funds would give all the benefits which child mutual fund gives, as both invest money in the market. ~ Always check the portfolio of mutual fund before investing, that way you will understand which company your money is getting invested into.      

• Mutual Fund with regular dividends are better: Dividends are declared when there is a surplus money mutual fund has generated. Sometimes, when there are no investment opportunities, they declare dividends. Sometimes, when there is a huge corpus of non-invested funds, mutual fund declare dividends to attract investors.

• Funds with large corpus generate more returns: Managing large corpus is not easy. Sometimes, managing large surplus becomes completely unmanageable and the money just stays there without getting invested into good sources of return. Most fund managers are only capable to managing mid size funds.

Gold ETFs reach 52 week high

With gold prices sky rocketing to all time high of Rs 31,029 on MCX, units of gold ETFs traded on the exchanges surged to their 52-week high on Thursday.
Following Gold ETFs surged to their 52 week High on Aug 23 2012:

• Axis MF’s Gold ETF
• Birla Sun Life Gold ETF (Growth)
• Quantum Gold Fund ETF
• Reliance Gold ETF
• Religare Gold ETF
• UTI Gold ETF

There has been a consistent increase in Gold prices over the period of 5 years. In 2008 the price of gold per 10 gm was approx Rs 10,000, now it has risen to Rs 30,000 in span of 4 years. This is phenomenal. I don't remember any mutual fund giving such return during this period.

Gold touches Rs 30,745

Gold is clearly on rising spree. Today, 10 grams of gold reached Rs 30,745 just short of Rs 5 from its all time high. Looks like we are going to see record high pretty soon. Gold stockists are continuously buying gold ahead of marriage season and festivals and on strong global cues. In London, gold gained $5.70 at $1,644.30 an ounce.On the domestic front, gold of 99.9 and 99.5 per cent purity climbed by Rs 235 each to Rs 30,745 and Rs 30,545 per 10 grams, respectively. Gold had gained Rs 70 in last two sessions. Sovereigns rose by Rs 50 to Rs 24,550 per piece of eight grams.