Mutual Funds

Capitalstars Investment Advisor

In a rare case of interoperability between regulators, the PFRDA has allowed NPS intermediaries to use mutual fund or equity KYC for NPS. Through a circular dated 23rd September, the regulator allowed NPS Points of Presence (PoPs) to use KYC done for stocks or mutual funds for NPS registration. PoPs can fetch the KYC details from the relevant KRA (KYC Registration Agency).

Note however that investing in the NPS through a PoP is more expensive than investing directly in the NPS. PoPs charge a fee of 0.25% of every contribution. For example an NPS contribution of ₹50,000 per year will attract a fee of ₹125. Most banks in India have registered has PoPs. You can check if your local bank is a PoP here. In addition, entities such as Computer Age Management Services and Stock Holding Corporation of India are also PoPs. In addition, some fintech players like Paytm and Mywaywealth (earlier Fisdom) have also secured an online PoP license. They will be able to leverage their existing mutual fund clients for onboarding customers into NPS.

Alternatively you can directly sign up for NPS through a Central Recordkeeping Agency (CRA) such as NSDL or Karvy. This will save you the fees charged by PoPs for contributions. However in this case, the benefit of existing KYC for mutual funds will not be available. Nonetheless, the KYC for this type of online registration is relatively smooth and can be completed in a single sitting using your ID, address proof and PAN number. In a recently held Workshop on NPS for Corporates by PFRDA-FICCI in Mumbai, Mono Phukon, General Manager at PFRDA clarified that the regulator was in discussions with the Department of Revenue, Ministry of Finance for reviving Aadhar OTP KYC for NPS. Recently this procedure was revived by SEBI for mutual fund investors, which you can read about here

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 The services include empanelment with multiple AMCs, a client portfolio management software and a distributor commission calculation software

In a bid to push up its market share of mutual fund transactions, the BSE has unveiled a set of add on services for mutual fund distributors using its BSE Star MF platform, free of cost. The services include empanelment with multiple Asset Management Companies (AMCs), a client portfolio management software and a distributor commission calculation software. The portfolio management software, launched in association with with Vijya iPrism, will have features like a dashboard for client holdings and data on fund returns.

“The client portfolio software will be useful for Independent Financial Advisors (IFAs) who don’t do goal planning and need a basic version," said Vinyak Sapre, a Mumbai-based IFA. “The brokerage calculation will also help if it is fully automated. Multiple products listing on the BSE platform will prove very handy for IFAs," he added. BSE recently announced that it had received IRDA approval for insurance distribution.

BSE competes with rival National Stock Exchange (NSE), multi-AMC owned MF Utility, Registrar and Transfer Agents (RTAs) like CAMS and Karvy and directly with Asset Management Companies (AMCs) in the market for mutual fund transactions. BSE Star MF has around 55,000 mutual fund distributors registered on its platform and processes 7.84 lakh transactions per day. In terms of market share of mutual fund transaction volume, BSE Star MF commands a roughly 20% market share said Ganesh Ram, Business Head, Mutual Funds, BSE. Apart from the new add-on services, BSE also launched the iOS version of its Star MF app.
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Mutual fund investments in stock markets halved to Rs 55,700 crore in the first 10 months of the year because of lower participation from retail investors.

Fund managers had bought shares worth Rs 1.12 lakh crore during January-October 2018, according to the data provided by the Sebi.

“Inflows from retail investors into mutual funds have slowed compared with a year ago. As a result, mutual funds deployment into stock markets has lowered,” said Vidya Bala, co-founder of Primeinvestor.in.

“Despite markets moving to new highs, since the rally is restricted to select stocks, retail investors have not seen any positive impact on their wealth. Unless retail appetite increases this trend may continue,” she added.


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Tata Focused Equity Fund, an open-ended equity scheme is currently open for subscription and will close on November 29.
Investors could avoid the new fund offering (NFO) of Tata Focused Equity Fund and opt for funds in this category with a track record, according to financial planners.

“Focused funds run concentrated portfolios where stock picking is most crucial. One needs a demonstrated track record before allocating money,” says Harshvardhan Roongta, chief financial planner, Roongta Securities, a Mumbai-based financial planner. Roongta believes there is no compulsion for an investor to invest in an NFO and he should wait to see how the portfolio is constructed before putting in his money.
Frequent churn in the top management as well as fund management team at Tata Mutual Fund have been a cause of worry for investors in the past. Financial planners feel a stable fund management team is a prerequisite before recommending an actively managed equity mutual fund (MF) scheme.

“In the past there have been frequent management changes at the fund house. Investors should wait for the management team to stabilise,” says Amol Joshi, founder, Plan Rupee. Tata Mutual Fund appointed Prathit Bhobe as the CEO in early 2018 and Rahul Singh as the CIO in October. Performance of Tata Mutual Fund's schemes have picked up in the last one year.

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Most of the funds in the small cap category are in negative territory over this period
Going by one year's track record, the fund's outperformance looks impressive, but investors shouldn't lose sight of the fact that equities are long term vehicle of investments

Axis Small Cap fund
In a market where small cap stocks are being thrashed badly (S&P BSE Smallcap is down nine per cent), Axis Small Cap fund has delivered a return of around 22% over the past one year ended November 13, 2019 as per the data available on Valueresearchonline.com.

Most of the funds in the small cap category are in negative territory over this period. The average return of the funds in this category is around minus two per cent over the past one year.

The fund manager of Axis Small Cap fund, Anupam Tiwari, who has been managing the fund since October 2016 says that the outperformance of the fund can be attributed to the stock selection strategy.

Our allocation in sectors such as IT, Chemicals and Financial has worked well for the fund, added Mr Tiwari.

Expanding more on the stock selection strategy, Mr Tiwari said, “We select stocks looking at four parameters — good corporate governance, quality of business, business cycle (favourable business cycle) and valuation."

We completely avoid companies with bad corporate governance and those which don’t show the ability or intent to scale up the business, he added.

Mr Tiwari said, “We look for good scalable and niche businesses and prefer debt free balance sheets. According to us, in case of small caps valuations are least important factor when compared to other mentioned above. But we do try to buy stocks at reasonable price and generally hold them for long term, he added.

With 37 stocks, the portfolio of the fund looks a bit concentrated when compared to some of its peers. This may show high conviction of the fund manager but such strategy can hit the performance of a fund during a market downturn especially in case of small cap stocks.

The fund manager said we do have stock allocation limit to manage the liquidity risk that a small cap fund may face.

What should investors do?

Going by one year's track record, the fund's outperformance looks impressive, but investors shouldn't lose sight of the fact that equities are long term vehicle of investments and therefore it's important investors don't choose their equity funds based on one year performance alone. If you are investing for many years in the future, it's important to look at returns many years in the past as well. Look at historical returns and ideally analyse the returns of the fund over longer period of at least five years to see the performance of the fund across market cycles. Also, returns should also not be the only criteria while choosing funds to invests in. Portfolio attributes such as the concentration risk as well as valuations should also be looked at say experts.

Vishal Dhawan, founder and CEO of Plan Ahead Wealth Advisors, said, "If an investor is choosing to invest in a fund, he or she should not look at the returns in isolation and should also look at the portfolio of the fund. The current portfolio valuations of Axis Small Cap fund is higher than its peers. If this is going to be the only small cap fund in an investor's Portfolio, it is better to add one more fund with relatively lower valuations to balance the risk."



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