Birla Sun Life Fixed Term Plan - Series DD

A Close ended Income Scheme

We at Birla Sun Life Mutual Fund are proud to present Birla Sun Life Fixed Term Plan - Series DD.

Salient points of Birla Sun Life Fixed Term Plan – Series DD:

The duration of the scheme is 367 days from and including the date of allotment.

The new fund offer price is at Rs. 10 / unit.

The applicable load for Entry and Exit load is NIL. No redemption/repurchase of units shall be allowed prior to the maturity of the scheme. Investors wishing to exit may do so through stock exchange mode.

The scheme has Dividend (Payout) and Growth Option and the minimum application amount of Rs. 5,000/- and in multiples of Rs. 10/- thereafter during the NFO period.

The New Fund Offer opens on May 26, 2011 and closes on June 06, 2011.

Religare Nifty Exchange Traded Fund

NFO Period: May 23 to June 6, 2011.

Why ETFs?:
An ETF is an open-ended Mutual Fund which trades like a stock, the underlying composition is a basket of securities. Most ETFs are like an index fund that track a particular index, viz. S&P CNX Nifty. Globally, ETFs have grown in size, with a current size of $1542 bn (as on Feb 2011).

Benefits for investors:

Over a 5-year period, 64% of large cap funds have underperformed the S&P CNX Nifty. Investors can benefit by directly investing into the benchmark index.
Index ETFs present a low-cost option. (Average Expense Ratio of 0.63% p.a. for ETFs as compared to 2.12% for Large Cap Funds)
More Transparency – ETFs track the underlying index, so the investor is aware where his money is being invested
More Trading Flexibility – ETFs are priced throughout the day and can be bought and sold on the exchange, where they are listed
ETFs can be bought or sold in as little as 1 unit multiples

Why Nifty?:

The S&P CNX Nifty represents 50 of India’s premier blue-chip companies, which are well-diversified across sectors – it is a direct play on the India Growth Story. Companies part of the index are the most liquid Indian equity securities traded on the National Stock Exchange, comprising 64.38% of the free float market capitalization.
Religare Nifty ETF is an Exchange-Traded Fund that will invest in securities which are constituents of S&P CNX Nifty Index in the same weight as in the underlying index. The Fund is designed to generate returns that closely correspond to the returns generated by the securities represented by the S&P Nifty Index, subject to tracking error, if any. The fund will follow a passive investment strategy - endeavour to track the benchmark index with as low tracking error as possible. It is a low cost option to invest in the Index, which trades like a share.

Religare Nifty ETF – Key Features

Easily Accessible
- During NFO – Investors can directly buy from the Fund House.
- Post NFO – Units will be listed on National Stock Exchange. Investors can buy, sell through their normal brokerage accounts.

Cost Effective
- Low on cost compared to index funds.

Liquidity
- Not limited to Secondary Market Trading at NSE.
- Large Investors and Authorised Participants can create and redeem in lots of 10,000 units directly with the Fund House.

Transparent
- Holdings and NAV of Religare Nifty ETF available on a real time basis and can be tracked at www.religaremf.com.

Who should invest?

Investors who want to keep investments simple, buy the market (invest in the top 50 quality companies) and keep the costs low.
Investors who believe in passive investment strategy and are looking for selective diversification.

Speak of Investing in Indian Equities

When we speak of investing in Indian equities, do we exactly understand what we are doing? This assumes importance, as a sector-wise analysis of different parts of the cap curve points to major shifts over the past decade.

Investing in Indian equities is effectively investing in four different markets.The accompanying table highlights the sector profile of the NSE-listed stocks in four buckets as of December 2010.

The profile of the top 100 stocks by market cap (#1 - #100 NSE stocks sorted on the basis of market cap) gives you an idea of the large-cap category.This is familiar territory as it drives trends in S&P CNX Nifty and the BSE Sensitive Index.

In a healthy development, which also reflects the underlying robustness in the economy, six of 10 major sectors have a share that is double digits. This means a high degree of diversification and enhances the appeal of the large-cap space. This has not been the case always and is only a development of the past two years.

The group of second 100 (# 101 - # 200 by market cap) is vintage mid-cap terrain.There is higher degree of concentration, as financials have a prominent share. Industrials slip into the top 3 sectors while telecom becomes a marginal presence. This is also most aggressive of any of the buckets with financials, industrials and materials driving the trends.

The third group (# 201 - # 300 by market cap) is small-cap territory. In a sign of breadth of the financial sector, it stays as a major presence while materials take centre-stage. Energy becomes a marginal presence while the consumer basket become a more pronounced part.

The fourth group (stocks ranked beyond # 300 by market cap) is small- and micro-cap spaces and is inherently riskier.What adds to the risk is the concentrated nature of this category as the top three sectors account for almost two-thirds of the market cap; this is in contrast to a share of about 44% for the top three sectors in the large-cap and overall market.

The inherent divergences and the growing size of the mid- and small-caps mean the overall market profile presents us with a fifth dimension.The message for investment is to onsider these trends and what they mean for risk-return while allocating funds for different parts of the market.

Indian investors prefer capital protection over growth as per the KPMG-CII survey

Birla Sun Life Capital Protection Oriented Fund - Series 6 761 Days

• For every thirty citizens in India, only one invests in equity market
• For every ` 100 saved in India, only 3 is invested in equity market

Internal estimates based on data sourced from: AMFI, World Bank, RBI, IRDA, NSDL & CDSL

“I want protective products with guaranteed income and good absolute returns”. That’s what Indian investors are looking for as per a survey done by KPMG-CII in 2009 on Indian mutual fund industry.

As visible in the graphs below, conventional savers in India prefer security and certainty of return. The certainty though comes at a cost...cost in terms of lower return that, on post inflation, post tax basis, could make savers poorer, rather than richer. On the other hand, equity has historically provided much higher real return (inflation and tax adjusted) over long investment horizons. But this return also has a cost… cost in terms of uncertainty of return, market risks and longer holding period.

Some mutual fund products offer a viable product blend that has capital protection orientation of debt and growth of equity!

For traditional savers who have never experienced mutual funds, this product could be a gateway to market linked investment-avenue. To offer investors an opportunity to participate in equity market along with the focus on capital protection, Birla Sun Life Mutual Fund launches the Birla Sun Life Capital Protection Oriented Fund – Series 6, close ended capital protection oriented scheme.

Highlights

• Indian Investors prefer protective conventional debt investments over riskier ones such as equity
• In the long run however, equity as an asset class has historically given superior inflation adjusted returns
• Key question: Is it possible to offer high growth potential of equity while aiming for capital protection?
• Presenting Birla Sun Life Capital Protection Oriented Fund Series 6 (BSLCPOF- Series 6)
o Oriented towards protection of capital
o Seeks to participate in the upside of equity market through Call Options

What is this scheme’s Investment Strategy? How is it different from conventional capital protection oriented funds?

This scheme seeks to provide capital appreciation linked to equity market with downside protection at the end of tenure:
• Scheme expects to achieve down side protection by investing in debt securities with tenure comparable with the tenure of the Plan, subject to the credit risk.

• Scheme expects to achieve the market-linked appreciation (upside) by investing in premium of exchange traded Index options.

The scheme proposes to restrict its derivative exposure only to the extent of buying of call options of the Nifty Index. Hence the maximum loss would be restricted to the extent of premium paid, not any more. Moreover, the premium paid will be equal to or lower than the expected coupon receivable from fixed income securities after providing for fund expenses.

How do we orient the portfolio to provide Capital Protection?

The scheme expects to achieve capital protection by investing in AAA or equivalent rated debt securities with tenor comparable with the tenure of the Scheme. The selection of debt securities and investment norms are elaborated in the “Asset Allocation and Investment
Pattern” section of the SID.

Illustration: Assume an initial investment of ` 100 for 761 days. Assuming interest rate of similar tenure AAA rated papers as 9.40%, one would need to deploy about ` 94 in AAA rated instruments so that it grows to ` 100 at the end of 761 days, assuming no tenor mismatch between investments and the tenure of the scheme.

The remaining ` 2.70 (after providing ` 3.30 for expense for 761 days) can be used to buy call options which could provide market linked returns.

Equity funds record Rs 1,365 crore redemptions in April

The assets under management increased 33 percent to Rs 7.85 lakh crore from Rs 5.92 lakh crore in March 2011 largely due to liquid and income funds inflows

Redemption from equity funds continued in April 2011 recording net outflows of Rs 1,076 crore. In March 2011, Rs 124 crore had gone out of equity schemes.

ELSS saw net outflows of Rs 289 crore as some investors were looking to exit after the 3-year lock-in period.

The assets under management of the industry climbed 33 percent to Rs 7.85 lakh crore from Rs 5.92 lakh crore in March 2011. The boost in AUM was helped by combined inflows of Rs 1.85 lakh crore from liquid and income funds. Liquid funds mopped up Rs 1.47 lakh crore while income funds collected Rs. 37,891 crore. This is unlikely to be repeated as RBI has put a cap on banks’ exposure to mutual funds.

Among the categories that did well were equity ETFs (net inflow Rs. 510 crore), Gold ETFs (Rs 121 crore) and Overseas fund of funds (Rs. 25 crore).

FMPs collected Rs. 3065 crore while in the open end category, Daiwa Govt. Securities Fund - Short Term Plan collected Rs 57 crore in its NFO.

U K Sinha says Bhave’s policy on entry load will continue

Mumbai: U K Sinha, the new chairman of SEBI told Economic Times in an interview that Bhave’s policy on regulating mutual funds will continue. “U-turn is not on the cards. But what we will do is facilitate the widening of the geographical spread of MF industry, improve disclosures and focus on making MFs more investor friendly,” Sinha has reportedly told ET.

Sinha has reportedly said that though he was mindful of the net outflow in fiscal 2010-11 and the decline in the number of accounts of MF investor accounts, investors have gained as all their money was been completely invested in the market. SEBI has quantified such gain to be over Rs1, 300 crore.

Among the other priorities outlined by the SEBI chief is reviewing and plugging regulatory loopholes regarding rules for wealth managers as a number of fraudulent cases of misleading or duping investors by wealth managers have come into limelight.

GROWTH ON A LARGE SCALE

If you're looking to access India's large growth potential, the Fidelity India Growth Fund could give your portfolio a boost. The fund invests in Indian companies listed here and abroad as well as in international companies that benefit from doing business in India. Fidelity's time-tested 'bottom-up' stock picking approach backed by comprehensive, first-hand research helps us to identify the best investment prospects. As a result, the fund has outperformed its benchmark, and it's also been judged the winner of the CNBC TV18-CRISIL Mutual Fund Awards, 2011 in the large cap oriented funds category

Return as on April 29, 2011

Fidelity India
Growth Fund (Growth)
1 year 12.98%
3 Years 11.83%
Since Inception* 6.50%

BSE 200 RETURN
1 Year 6.00%
3 Years 3.09%
Since Inception 1.40%

Inception Date: October 23, 2007. Returns for greater than or equal to 1-year period are compounded annualised. Past performance may or may not be sustained in the future.


To invest a lump sum or start a SIP now, call your adviser or contact us. And you could set your investments free for growth.

Huge mutual fund outflow points to a much deeper malaise

As we had expected, mutual funds have witnessed a massive outflow of Rs1,365 crore in April. But the problem is not just with the fund industry, or investor behaviour, but with the so-called equity cult itself

Just a week back, we had a CEO of a fund house who estimated that the outflow from equity mutual funds for April would be close to Rs1,500 crore. ‘Equity funds may have suffered large-scale erosion in April’. The official figure we now know is Rs1,365 crore. This huge exit from equity schemes is normally blamed by the regulators and the market players completely on investor behaviour. In fact, this is very likely an excuse they are using for not coming up with a well-thought policy to sustain fund inflows.

Equity mutual funds enjoyed rising inflows from December 2010 to February 2011, with collections peaking at Rs2,495 crore in February. It was after this that the decline started. In March, net inflows were just Rs454 crore, which was mainly due to ELSS schemes which collected Rs578 crore, whereas pure equity saw redemptions amounting to Rs124 crore. April has seen the highest outflow since October 2010. But, whether we can expect to see money return to equity schemes anytime soon is still in doubt.

The real problem is that fund mobilisation by mutual funds from the investing public is weak. Investors still prefer bank fixed deposits and categories other than the stock market in spite of the fact that the market has gone up by more than 20 times. Ever since the Securities and Exchange Board of India (SEBI) put a ban on entry load, equity funds have suffered redemptions.

Distributors have found fund-selling unviable and have been moving out of the business. The penetration of mutual funds is so poor that brokers have little incentive to sell mutual funds. The only option for them, to earn some income, has been to make investors churn their portfolios. This earns them a 1% exit load and while it has been an incentive for brokers to make investors churn more frequently, it is a loss for investors. Along with this, the low incentive to sell mutual funds has led many distributors to sell ULIPs, which is terrible for investors. As it turns out, the regulation by SEBI has done more harm than good.

The regulator needs to address the issue of distributor fees, to make AMCs adopt a better pricing system where the commissions are clear and no other payments to distributors allowed. For such a course correction, SEBI and the mutual fund industry, through the Association of Mutual Funds India (AMFI), have to sit together. So far, AMFI has done a lousy job of putting across the industry’s views, which is one of the main reasons that SEBI took the decision without consulting it.

Recently, SEBI created an alternative: fund sales through stockbrokers. But this hasn’t really got going. The cost of running a large countrywide brokerage business is exorbitant, and fixed. Broking companies have to bear the cost of a large back-office staff, compliance, technology and high capital cost of property (or rent). Then there are costs to acquire new clients. All this eats up into the profits they can muster. Research is another item for which they pay heavily. Unfortunately these reports are guided by companies and investment banks and are rarely based on fundamental calculations.

The other serious issue is that of poor retail participation. Volumes in the cash market have declined to historic lows. In April, the daily average cash market turnover dropped to 11% of the overall volume, compared to 18% in the month a year ago. Official studies have shown a decline in the investor population, during a decade which has been the best period for the markets. This is also because of the fundamental problem with the way the market functions.

So, investors are happy to put their money in bank fixed deposits. Data from the Reserve Bank of India (RBI) shows that 50% of the household savings goes into bank deposits. In 1990, the percentage of savings in shares, debentures and investment in UTI was 14%, and this went down to 13% in 2007-08, even while the market has climbed by 20 times in this period.

There has been no shortage of products and manpower to sell these products either. As we have mentioned in previous articles, there is a multitude of investment products to choose from—over 3,000 actively-traded stocks and 230 diversified equity mutual funds, apart from insurance products, pension schemes, PMS and other financial products. To take these to investors, there are over 20,000 independent financial advisors, not to forget the banks, financial planners and a sea of insurance agents.

The issue here is that financial products have been sold like consumer durables. But consumer products are standardised, while financial products are not. The way they are being sold is equally important. This is why financial products are tightly regulated the world over. Had financial institutions and intermediaries sold these products like they should have, and the regulators had done their duty, the last decade would have brought in larger investor participation. Due to the poor performance of financial products and the hidden costs, and scores of complaints regarding mis-selling, investors have developed an aversion to the stock market and any other equity-linked product or investment product. Even the minor rules and amendments introduced by the regulators from time to time have not benefited investors.

Financial products need to be closely regulated. When it comes to protecting investors and eradicating mis-selling, regulators have fallen short. There has, so far, not been any strict punishment for such serious offences. They’ve taken half-thought out steps, hoping these will work wonders, but have in fact ended up choking the business. They have not seriously pursued investor protection, promoting fair business practices and punishment that would force a fundamental change across the industry.

If the regulators don’t act quickly, it would be a long wait before mutual funds see a sustainable trend of inflows.

SIP Benefit in Mutual Fund

• Rupee Cost Averaging – Capitalize on periodic dips in the stock market
and get more units at lower NAV thus lowering your average unit cost
resulting in higher returns.

• Disciplined Investing Approach –Invest small amounts regularly to build a
sizable amount. For as little as Rs 500/- pm a sizable amount can be build

• Compounding benefits - The amounts invested early and regularly, helps
not only in creating a substantial amount of wealth but also returns
compounded over the years.