Sebi to discuss MF a/c norms

11 Aug, 2007, 0231 hrs IST, TNN

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KOLKATA: The Securities & Exchange Board of India (Sebi) said that it will soon finalise accounting
policies to be adopted for the proposed real estate mutual funds. Sebi will take up the matter with the
Institute of Chartered Accountants of India (ICAI) next week, said Sebi whole-time director TC Nair.

The regulator is contemplating allowing mutual fund houses to offer real estate funds to investors, but
before that, it is trying to resolve the issues involving accounting policies, tax treatment and stamp duty
structures. According to Association of Mutual Funds in India (Amfi) chairman AP Kurian, accounting
issues are primarily stopping the regulator from allowing fund houses to offer real estate MFs. “We are
hopeful that this would be sorted out this year itself,” Mr Kurian said.

“Investments in real estate is normally considered risky. Mutual fund is an ideal instrument for propelling
investments in real estate,” JM Financial Asset Management managing director NP Ghanekar noted.

Amfi has recommended that real estate MFs should be close-ended funds for a minimum period of three
years. The net asset value for this scheme should be calculated on a quarterly basis.

Mutual funds: Everybody's darlings

8 Aug, 2007, 0110 hrs IST,Haresh Soneji, TNN

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 Once upon a time it was Reliance Industries (RIL). Then Infosys Technologies joined the bandwagon. And
now, Bharti Airtel is the latest addition. The darlings of the mutual fund (MF) fraternity seldom change.

In a raging market where valuations may appear stretched, index stocks continue to dominate the ‘buy’ list
of every fund manager. It seems that fund managers seem to hold some portion of their portfolio in index
heavyweights to avoid missing the market rally by a wide margin. So, even when profit-booking takes
place in these counters, mutual funds continue to hold at least some of these shares.

Reliance Industries is a classic example. One can’t say the same for mid caps though. Fund managers’
favourite mid-cap holdings change rapidly. The latest ones that are dominating the holding charts are
Crompton Greaves, United Phosphorous and Cummins India.

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It’s not difficult to figure out why these stocks dominate the list. As the equity market continued to rise,
retail interest in equities surged as well. Many MFs, which were flush with cash raised through their new
fund offerings (NFOs) — had to plough in this cash somewhere.

Hence, companies which already had proven track records appeared to be safe bets. So, more money was
pumped into these darling stocks. This is evident from the fact that the total number of shares of these
companies with mutual funds has surged significantly as market valuations turned ripe. The Sensex was
trading at 20 times historical earnings at the beginning of July ’07, and 21 times historical earnings as in
June ’07.

A sustained rise in corporate earnings aided the surge in the Sensex. However, the Sensex has been trading
above its historical averages. With the India Growth story intact and excess liquidity in the market, the
demand-supply mismatch of quality stocks pushed up premiums.

So, the price of safe counters such as Reliance Industries shot up from around Rs 1,400 to Rs 2,000 levels,
while Bharti Airtel and Crompton Greaves stocks have almost doubled in the past three-to-four months.

Technology and financial services are the most sought-after sectors, with Rs 22,000 crore and Rs 14,500
crore worth of share investments, respectively, as in June ’07. The mutual fund industry has grown rapidly
in the past few years, and this is evident from the rise in the assets under management (AUM).

According to the Association of Mutual Funds in India (Amfi), the AUM of mutual funds has increased
52% in the past one year to Rs 400,842 crore in June ’07 from Rs 263,949 crore in June ’06. To a large
extent, retail money has been invested in equity mutual funds. Equity savings as a percentage of total
financial savings has also moved up significantly.

Though the latest collated data is not yet available with the Reserve Bank of India (RBI) and Central
Statistical Organisation (CSO), this figure is understood to have moved up from around 2% to more than
6% as of ’06.