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Equity Direct
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Subbu’s Solutions - 18 June 2010 |
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Posted by
subbu's solution on
Friday, June 18, 2010
1. SEBI has recently proposed to increase the Networth requirement for AMCs from Rs 10 Crore to Rs 50 Crore. What impact will it have on Quantum MF and its investors? – Jayesh Shah
Hi Jayesh, a very pertinent question!
So far, that’s all it has been – a recommendation. The recommendation has not yet been finally proposed or passed as a rule. Even if it is, it will have no impact on Quantum MF or its investors.
A recommendation has been given by a subcommittee to SEBI, but it has not yet been accepted or announced by SEBI. The Subcommittee acknowledges that world over there is no such capital requirement. In such light, one might think that the recommendation is not a well thought out one and appears to have been tabled in order to protect the turf of a few large players.
2. Dear Subbu, In addition to some exposure to equity in the stock market & mutual funds (SIPs) I have invested in a few ULIPs. However, now after reading more about the battle between mutual funds & ULIPs, I’m confused whether to surrender or persist with the ULIPs.. Kindly advise. – Nithin
Dear Nithin,
This is a very prevalent question in the minds of most investors, given the ‘battle’ between Mutual Funds and ULIP’s. While the final decision would be deferred to your discretion, we would not recommend surrendering your current ULIPs, as the surrender charges could be deducted from your fund value. In most of the ULIPs there are high initial charges and your investment may take reasonable time to cover the initial deductions from your premium. However the charges in ULIPs reduce substantially as the tenure of the policy increases.
You could either continue to pay your premium up to the mandatory years or evaluate the performance of the plan after few years. After evaluating you can either decide to continue with your investment or stop paying premium and start diverting it into mutual funds.
3. Which is a safer option to invest – SIP or Single investment (lumpsum)?
While each of the options has its own pros and cons, we always recommended investing through the SIP (Systematic investment plan) route, instead of investing one lump sum amount.
Through an SIP your bank balance is not depleted at one go, and you also have the flexibility to increase / decrease your holdings easily in the fund.
Also, SIP inculcates the habit of regular saving along with the advantage of averaging out your investments. Yes, investing at one go, if done at the perfect level can give you great returns. However gauging the perfect level is also a matter of luck and you may not always succeed in this. The flip side is if you invest at the wrong levels, your capital could be seriously eroded. You can avoid this situation if you go the SIP route.
4. Dear Subbu, Can you give me some clarity on maximum Fund Management Charges (FMC) that can be charged by a Mutual Fund ? I understand that on an Avg. Net Assets of 800 crs, the max. FMC can be 15.25 crs or 1.91%. If this is ok, then in many factsheet the 'expense ratio' for funds with Avg. AUM > 800 crs is well over 2%. I am unable to understand this anomaly. – Mayur Jain
Dear Mayur, we’re not very clear how you calculated 1.91%, but as per the structure the fees can be charged as follows:-
| Crores | AUM
(A) | Maximum % that
can be charged | Expense in INR
(B) | Actual Expense
charged
(B/A) | | First 100 | 100 Crores | 2.50% | 2.50 Crores | 2.50% | | Next 300 | 400 Crores | 2.25% | 2.50 + 6.75
=9.25 Crores | 2.31% | | Next 300 | 700 Crores | 2.00% | 9.25 + 6.00
=15.25 Crores | 2.18% | | Above 700 | 800 Crores | 1.75% | 15.25 + 1.75
=17.00 Crores | 2.13% |
For an AUM of Rs 100 crore, the maximum expenses that can be charged is 2.5%, amounting to Rs 2.50 crore.
Now let’s consider an AUM of Rs 800 crore.
A) Here, the first Rs 100 crore can have an expense of maximum 2.5% (Rs 2.50 crore).That leaves you with the remaining Rs 700 crore.
B) On the next Rs 300 crore, the limit of expenses is 2.25%, amounting (here) to Rs 6.75 crore. Hence for an AUM of Rs 400 crore, your total maximum expense limit = Rs 9.25 crore (Rs 2.50 crore + Rs 6.75 crore).
C) Now consider the next level, another Rs 300 crore. Here the maximum that can be charged is 2.00%, amounting to Rs 6.00 crore. Thus, your AUM of Rs 700 can have a maximum expense of Rs 15.25 crore.
D) That leaves you with the last 100 crore of the 800 crore AUM. This would attract a maximum of 1.75%, amounting to Rs 1.75 crore.
E) Hence your AUM of Rs 800 crore would be permitted a maximum of Rs 17.00 crore of expenses.
Also consider the actual expense ratio incurred, which for an AUM of Rs 800 crore amounts to 2.13%.
Hence you may observe mutual funds with AUM of above Rs 800 crores having an expense ratio above 2%.
Disclaimer:
Subbu's Solution is authored by I.V.Subramaniam. I.V.Subramaniam is a director of Quantum Asset Management Company Private Limited and Chief Executive Officer & Chief Investment Officer of Quantum Advisors Private Limited. The responses expressed here are the personal view of the author.
The responses expressed here are strictly for information and explanation purpose only. The responses are meant for general reading purpose and not to be considered as an investment advice / recommendation. This information is not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments. The Sponsor, The Investment Manager, The Trustee, their respective directors, employees, affiliates or representatives shall not be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in the responses.
Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trust Act, 1882. Sponsor: Quantum Advisors Private Limited.(liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited.
Mutual Fund investments are subject to market risks. Please read the Scheme Information Document / Key Information Memorandum / Statement of Additional Information /Addenda carefully before investing.
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