Volume 4, Issue 7

10—July—2012

The monthly newsletter from FundsIndia

Inside this issue: Interesting times

Srikanth Meenakshi Entry loads set 1 to return? - Sri - kanth Meenakshi Greetings from FundsIndia! The month ahead 2 The mutual fund industry in the country is going through some very interesting times. It has - Equity recom- suddenly become the cynosure of all eyes at the highest levels of the government who are, appar- mendations - ently, considering ways to strengthen the industry and put it on a growth trajectory. B.Krishna Kumar No doubt there are several progressive steps that can be taken by the government and SEBI in terms of further advanc- ing the cause of prudent investing through mutual funds. Common application forms, online enrollment, extending tax Consistent Per- 5 breaks to long term investors, introducing pension funds, rationalizing costs and commission structures are some of f ormers - such steps that can, over time, make mutual funds the deserved choice of more and more investors. FundsIndia Re- sea rch What we do not need, however, are regressive steps such as the bringing back of entry loads (in whatever name or shape). In this regard, it is heartening to note that SEBI and prominent AMCs are not willing to accede to such a move. The Road Ahead 7 By the time the next issue of this newsletter comes out, we will know much more about what steps will be taken in reality f or F un ds and we'll probably hold our comments until then. — Dh iren dra K um ar On the FundsIndia front, we are happy to announce that we have, at long last, launched the open ECS mandate for SIPs. That is, if you setup one ECS mandate for every bank account you have in FundsIndia, you can setup any number of SIPs in the future without the need for further paperwork. This will make SIP setups truely paperless and hassle free.

Existing account holders can login to their account and go the 'Manage account' screen to generate your open ECS man- date (you will need to specify a per-day limit and the number of years that the mandate will be valid for). Once you send it to us, and we register it, you can setup SIP folios and portfolios to your heart's content without further paper work.

All future SIPs in FundsIndia will use this method of mandates.

Also, please note that we have done our quarterly update of our prepackaged portfolios. There aren't many changes (and we didn't expect that there would be) since the funds chosen here are done with a long term perspective and picked because of the consistency of their returns.

However, please note that we have added two new portfolios to the set - all debt portfolios, one for investments done for less than a year, and one for those that will be for a period of 1-3 years. We see a lot of interest in debt fund selection in our advisory calls, and we thought making our recommendations in the form of pre-packaged portfolios will be a good idea. I welcome you to please take a look. Happy Investing!

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. Volume 4, Issue 7 Page 2

The month ahead - Equity recommendations B.Krishna Kumar

The month of June was quite an eventful one for the Indian economy and the Rupee. The economic growth slowed down considerably and the headline inflation does not seem to budge. The Reserve Bank of India decided against lowering policy rates which affected equity market sentiment for a brief while.

The Indian Rupee fell to historic lows in relation to the US Dollar. The greenback rallied beyond the Rs.57-mark and has since cooled off a bit in the recent weeks. The market attention would now shift to the progress of the monsoon and the corporate earnings that will start trickling in shortly.

Despite the not-so-rosy scenario on the fundamental side, the technical picture portrays bullishness for the equity markets. Our target of 5,250 for the Nifty has been hit and we expect the strength to continue and would not be surprised if the index hits the next target of 5,650.

The bullish view would be under threat only if the index falls below the 5,000-mark. As long as the support of 5,000 is intact, we would work on the premise that 5,650 is achievable.

The outlook for the Indian Rupee too is also turning positive against the US Dollar. We expect the US Dollar to depreciate further (Rupee would gain) to the next support at Rs.53.50-54 range. This view strengthens the case for a rally in the equity markets.

A look at the 10-year bond yield chart indicates that the bond market is factoring in a rate cut in the short-term. The yield has dropped from the high of around 9% to the current levels of 8.2% and the technical indicators suggest further cooling off.

Have a look at the daily chart of the Nifty featured below. It is apparent from the chart that the price action is confined to the set of red trendlines. The upper parallel of this trend-channel is likely to be the next hurdle for the Nifty.

A breakout past this line would be a sign of strength and it would be reasonable to anticipate a move thereafter to 5,600. Though we are bullish on the Nifty, we advise investors to concentrate on individual stocks that offer compelling opportunities with an acceptable risk- reward metric.

This month, we recommend two stocks from the mid- cap space that look good to deliver returns of over 10% from a short-term perspective. Investors may use any price weakness to buy Indian Bank and Crompton Greaves.

From the daily chart of Indian Bank featured below, it is evident that the stock has sought support at the cru- cial support zone of Rs.167-170 range. The price action in the past few days suggest that the short-term trend is bullish and a rally to Rs.220 appears likely.

Investors may buy Indian Bank with a stop loss at Rs.165, for a target of Rs.220. A breakout past the ini- tial target-cum-resistance level of Rs.220 would lend momentum to the uptrend and we can then expect a move to Rs.240.

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. Volume 4, Issue 7 Page 3

Continued from page 2 . . .

Crompton Greaves has been battered out of shape in the past few years. The sustained deterioration in performance has prompted investors to shun this stock. A cursory glance at the daily chart of the stock indicates that the worst is over.

The daily chart indicates that the buyers are active and keen to support the level of Rs.100-110. We expect the recent strength in the stock to continue and a rally to Rs.165 appears likely.

Investors may buy the stock with a stop loss at Rs.119, for a target of Rs.153. A move beyond Rs.153 would lend momentum to the up- trend and a further rise to Rs.166 cannot be ruled out.

Mr. B.Krishnakumar is the Head of Equity Research at FundsIndia. With extensive experience in tracking the stock market (over 15 years) he has worked with companies such as ’The Hindu , Business Line’ and ’Dow Jones Newswires. He will be contributing to our monthly newsletter with his stock market outlook which shall hold good for a month. Mr.B.Krishnakumar can be reached at b.krishnakumar@fundsindia.com

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. Volume 4, Issue 7 Page 4

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. Volume 4, Issue 7 Page 5

Consistent Performers FundsIndia Research

In this page, we feature mutual fund schemes in popular categories that have stood the test of time and delivered performance consistently. These schemes have consistently featured in the top quartile of their category in terms of performance over multiple time periods in the past. For equity funds and income funds, we have chosen three, five and seven year time periods for such ranking. For short term and ultra-short term funds, we have chosen shorter time frames. Please note that in some cases, we have pruned the list for length - we have removed institutional schemes and those that have very high initial investment amounts (in the debt side) from this list. This list will be updated every month, although we do not anticipate significant changes on a month-on-month basis. Rankings data for this report has been sourced from Value Research Online. Large Cap Funds

3-Y Return 5-Y Return 7-Y Return Fund Name (%) 3-Y Rank (%) 5-Y Rank (%) 7-Y Rank Average VRO Rating Franklin India Bluechip 10.73 7/64 8.02 3/44 17.69 2/38 7.67% YYYY DSPBR Top 100 Equity Reg 9.7 14/64 8.47 1/44 19.23 1/38 8.93% YYYY SBI Magnum Equity 10.18 10/64 6.84 5/44 17.6 3/38 11.63% YYYY ICICI Prudential Top 100 11.04 6/64 6.5 8/44 16.48 4/38 12.69% YYYY HDFC Index Sensex Plus 9.71 13/64 6.8 6/44 16.14 7/38 17.46% YYYY Large & Mid Cap 3-Y Return 5-Y Return 7-Y Return Fund Name (%) 3-Y Rank (%) 5-Y Rank (%) 7-Y Rank Average VRO Rating UTI Dividend Yield 14.59 5/62 11.77 2/46 17.83 6/29 11.03% YYYYY ICICI Prudential Dynamic 14.26 6/62 8.26 10/46 20.18 1/29 11.62% YYYY HDFC Top 200 10.84 15/62 10.63 4/46 19.67 2/29 13.26% YYYY HDFC Growth 12.99 9/62 8.95 8/46 18.61 3/29 14.08% YYYY Canara Robeco Equity Diversified 14.07 7/62 10.57 5/46 17.67 7/29 15.43% YYYYY Mid & Small Cap 3-Y Return 5-Y Return 7-Y Return Fund Name (%) 3-Y Rank (%) 5-Y Rank (%) 7-Y Rank Average VRO Rating Reliance Equity Opportunities 21.88 4/51 9.73 6/39 19.55 1/23 9.19% YYYY ICICI Prudential Discovery 20.45 8/51 10.98 5/39 18.36 3/23 13.85% YYYYY

Tata Dividend Yield 18.47 13/51 11.5 4/39 16.3 6/23 20.61% YYYYY Multi Cap 3-Y Return 5-Y Return 7-Y Return Fund Name (%) 3-Y Rank (%) 5-Y Rank (%) 7-Y Rank Average VRO Rating HDFC Equity 13.41 5/34 9.28 3/30 19.74 1/19 9.99% YYYYY

Hybrid: Equity-oriented 3-Y Return 5-Y Return 7-Y Return Fund Name (%) 3-Y Rank (%) 5-Y Rank (%) 7-Y Rank Average VRO Rating HDFC Prudence 15.87 3/25 11.37 3/25 18.75 1/23 9.45% YYYY HDFC Balanced 16.93 2/25 12.48 2/25 16.02 4/23 11.13% YYYYY Tata Balanced 12.84 6/25 9.08 6/25 16.05 3/23 20.35% YYYY Tax Planning 3-Y Return 5-Y Return 7-Y Return Fund Name (%) 3-Y Rank (%) 5-Y Rank (%) 7-Y Rank Average VRO Rating Canara Robeco Equity Tax Saver 14.72 3/35 11.7 1/28 21.32 1/19 5.80% YYYYY Franklin India Taxshield 12.87 8/35 8.6 5/28 16.4 4/19 20.59% YYYY Continued on page 5 Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. Volume 4, Issue 7 Page 6

Continued from page 4. . .

Debt Short Term

3-M Return 6-M Re- 1-Y Re- Fund Name (%) 3-M Rank turn (%) 6-M Rank turn (%) 1-Y Rank Average Rating DWS Short Maturity Premium Plus 2.78 3/32 4.87 5/30 9.74 7/29 16.73% Unrated Debt Ultra Short Term

3-M Return 6-M Re- 1-Y Re- Fund Name (%) 3-M Rank turn (%) 6-M Rank turn (%) 1-Y Rank Average Rating Religare Short-term Plan A 2.89 11/181 5.95 1/179 11.66 2/178 2.59% Y HDFC Floating Rate Income LT 2.93 9/181 5.72 3/179 10.58 4/178 2.97% Y Sundaram SD Short-term 2.82 14/181 5.49 6/179 11.73 1/178 3.88% YY Religare Short-term Plan B 2.8 18/181 5.81 2/179 10.92 3/178 4.25% Y IDFC Ultra Short Term 2.92 10/181 5.39 11/179 10.31 17/178 7.07% YYY Tata Fixed Income Portfolio Scheme A3 Reg 2.74 25/181 5.33 16/179 10.46 9/178 9.27% YYYYY Peerless Short Term 2.7 40/181 5.32 18/179 10.51 6/178 11.84% YYYYY JM Money Manager Super 2.71 34/181 5.25 23/179 10.37 13/178 12.98% YYYYY Birla Sun Life Floating Rate LT Ret 2.77 20/181 5.23 28/179 10.1 36/178 15.64% YYYYY Tata Floating Rate LT 3 8/181 5.18 39/179 10 41/178 16.41% Unrated Taurus Short Term Income 2.69 43/181 5.22 33/179 10.32 16/178 17.06% YYYYY JM Money Manager Super Plus 2.69 42/181 5.24 26/179 10.2 24/178 17.07% YYYY JM Short-term Reg 2.7 39/181 5.2 37/179 10.17 28/178 19.32% YYY Canara Robeco Floating Rate ST 2.69 44/181 5.17 40/179 10.13 31/178 21.36% YYYYY DWS Cash Opportunities Reg 2.68 45/181 5.16 43/179 9.97 43/178 24.35% YYY Debt Income

3-M Return 6-M Re- 1-Y Re- Fund Name (%) 3-M Rank turn (%) 6-M Rank turn (%) 1-Y Rank Average Rating Kotak Bond Deposit 4.05 1/94 7.22 1/90 12.58 2/89 1.47% YYY SBI Magnum Income 3.13 4/94 5.7 5/90 10.88 9/89 6.64% YYY Reliance Dynamic Bond 2.89 17/94 5.98 3/90 11.39 7/89 9.76% YYY Birla Sun Life Medium Term Retail 3.04 9/94 5.59 7/90 10.26 21/89 13.65% YYY MIP

6-M Return 1-Y Return 3-Y Re- Fund Name (%) 6-M Rank (%) 1-Y Rank turn (%) 3-Y Rank Average Rating SBI Magnum Children's Benefit Plan 9.91 1/64 8.29 11/62 9.55 5/50 9.77% YYY DSPBR MIP 7.25 12/64 10.07 1/62 7.99 9/50 12.79% YYYY

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing. Volume 4, Issue 7 Page 7

The Road Ahead for Funds Dhirendra Kumar Day zero of Dr. Manmohan Singh’s stint as finance minster brought unexpected but welcome attention to the state of mutual fund investing in India. In his first reported statements on the things that must be done to revive the Indian economy, ‘issues surrounding the mutual fund industry’ was prominently mentioned. If one is to go by the general buzz in the media as well as the fund industry, these ‘issues’ basically boil down to the reintroduction of entry load in mutual funds.

By these accounts, the malady affecting the fund industry is simple: ever since entry loads were removed in August 2009, investment flows into the equity funds have dried up. And once you accept this simple diagno- sis of the disease, then the course of treatment is obvious—the reintroduction of entry loads. However, as Mark Twain has quipped, “For every problem there is always a solution that is simple, obvious, and wrong.”

I’m not disputing that the end of entry load has been a factor in the poor business conditions in the fund industry. However, it doesn’t follow from that the way forward is to simply roll the clock back to July 2009 and reintroduce entry loads. Back in 2009, SEBI’s move was perfectly understandable under the circumstances. Excessive churning of investments for the purpose of generating commissions was common among distributors. There was an endless stream of new fund offers (NFOs) and distributors were basically engaged in getting money into NFOs and then out in time for the next NFO. In fact, when one examines the changes from that time carefully, SEBI’s changing of NFO-related rules and policies have played as much of a role in what has happened since.

Going beyond the obvious for-or-against entry load argument here, there is something more fundamentally wrong in framing the state of the fund industry in terms of the entry load issue. Doing so defines the problem as one of distribution alone. You are basically saying that everything else is fine, it’s just that the no one has enough incentive to sell funds. However, nothing could be further from the truth.

The more fundamental problem is that there is actually no culture of long-term retail equity investment in India yet. The lack of self- generated interest among investors in equity mutual funds is just a special case of the general apathy towards equity investments. At various times, a raging bull market or high commissions or some such externality temporarily overrides this apathy but that doesn’t actually mean anything in the long term.

Only a minuscule number of Indians have personal, first hand experience of the gains that can be had by sustained, long-term invest- ments in equity. And as we have seen over the last two decades, an intermediary ecosystem driven by short-term sales targets or bro- ker commissions will never have any incentive to create such an experience for its customers. You can tinker with commission struc- tures for another two decades if you want to but it won’t happen.

The equity experience could have been provided to a lot of people by the NPS had it gotten off the ground by 2003 or 2004, as it was originally supposed to. One simple thing that the government can do is to enable mutual funds to launch pension plans. Unlike NPS law, this doesn’t require any legislative gymnastics. All it needs is to have a class of funds in which money stays locked in till retirement age. It would have the same incentives as other retirement-oriented savings and could be transferable between different pension funds. A simple product like this would enable large, sustained and long-term inflows into equities in a way that would be deeply bene- ficial for the investors as well as for the markets.

Another, more immediate action the government can take is to allow mutual funds under the Rajiv Gandhi Equity Savings Scheme. The RGESS is intended for first-time investors and funds are a far safer route than buying equities directly.Whatever shape any regula- tory actions on mutual funds take, one just hopes it embodies something that can cause a transformational impact on the investors and the markets rather than be reduced to some tinkering with commission structures.

Syndicated from Value Research Online—Article can be viewed online here—http://www.valueresearchonline.com/story/ h2_storyview.asp?str=20334

Wealth India Financial Services Pvt. Ltd., H.M Center, Second Floor, 29, Nungambakkam High Road, Phone: 044-4344 3100 Nungambakkam, E-mail: [email protected] Chennai - 600 034.

Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.