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Government Betting On The Wrong Horse?

Monday, October 03, 2011
By Anand Birai

RBI allows NBFCs to float infra debt funds, but the pre-requisites to exclude many NBFCs will limit fund collection from low-income groups and as such the exercise is futile...

The Reserve Bank of India (RBI) has allowed banks and Non-Banking Financial Companies (NBFCs) to float infrastructure debt funds in the form of NBFCs or mutual funds. The objective behind this move is to tap the funds for much-needed infrastructure sector in the country through vast reach of banks and NBFCs.
The announcement of this measure was made during the Union Budget 2011-12 to enhance the flow of long-term money into infrastructure projects. The Securities & Exchange Board of India (SEBI), the market regulator of mutual funds in India, has already allowed the mutual funds to set up such funds. The foray of banks and NBFCs is expected to heat up the debt market further.

It is estimated that India will need $500 billion investment in the infrastructure sector within two years. However, the Planning Commissions is not very hopeful of meeting these targets and anticipates a shortfall of up to 12%.

The investors get tax rebate upto an investment of Rs. 20,000 over and above the permissible limit of investments of Rs. 1 lakh.

It is yet to be seen how many NBFCs would be able to take the advantage of this measure, as capital required to set up such a fund is huge. An NBFC sponsoring an infrastructure debt fund in the form of a mutual fund should have a minimum net-owned fund (NOF), or paid up equity and free reserves, of Rs. 300 crore and a capital adequacy ratio of 15%. The net non-performing assets (NPAs), or the bad debt after provisioning, should be less than 3% of advances.

The NBFC should have been in existence for at least five years and profitable in the last three years, “and its performance should be satisfactory”, RBI said in its notification.

“The NBFC should continue to maintain the required level of NOF after accounting for investment in the proposed fund,” RBI said. If the debt fund is in the form of an NBFC, the bank or the NBFC floating the fund will have to contribute a minimum equity of 30% and a maximum of 49%.

The debt fund should have a minimum credit rating of ‘A’ or an equivalent rating from any rating agency. Triple-A is the highest rating. The debt fund should only invest in public-private partnership plans with at least one year of “satisfactory” commercial operation.

The maximum exposure such a debt fund can have to a borrower or a group of borrowers will be 50% of its total capital funds. Additional exposure up to 10% will be allowed at the discretion of the board of the fund.

These pre-conditions would certainly limit the scope. Most of the NBFCs are very small. Besides, NBFCs have penetrated to large number of masses but with small ticket sizes.

They cater the unorganized sector which is less or not exposed to the banking practices. In such a scenario, the incentive of tax benefit does not look attractive for this segment as many might be falling outside the income tax bracket. Therefore, the generation of funds through NBFCs from infrastructure debt funds does not look like a winning card for the government.

MF UPDATE
Escorts changes exit load under Escorts Income Plan  

Escorts has announced change in exit load structure under Escorts Income Plan, an open ended income scheme from October 1, 2011. An exit load of 1% will be charged if units are redeemed or switch out less than or 1 year from the date of allotment. The investment objective of the scheme is to generate current income by investing predominantly in a well diversified portfolio of Fixed Income Securities and Money Market Instruments with moderate risk levels.
 
IDFC announces change in exit load under of IDFC Liquid Fund  

IDFC has changed exit load structure under IDFC Liquid Fund from September 26, 2011, an open ended liquid scheme. As per revised structure no exit load will be charged. The scheme aims to generate optimal returns with high liquidity by investing in high quality money market and debt instruments. However there is no assurance that the investment objective of the scheme will be realized.

Birla Sun Life unveils Birla Sun Life Fixed Term Plan - Series DQ  

Birla Sun Life has unveiled Birla Sun Life Fixed Term Plan - Series DQ, a close ended income scheme. The issue opens on 3rd October and closes on 11th October 2011, at an offer price of Rs 10 per unit with the objective generating income by investing in a portfolio of fixed income securities maturing on or before the duration of the scheme. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against CRISIL Short Term Bond Fund Index and will be managed by Kaustubh Gupta.

Axis unveils Axis Gold Fund  
Axis has launched Axis Gold Fund, an open ended fund scheme. The issue opens on 30th September and closes on 14th October 2011, at an offer price of Rs. 10 per unit. The scheme aims to generate returns corresponding to returns generated by Axis Gold ETF. Exit load of 1% will be charged if units are redeemed or switched out within 1 year from the date of allotment. The performance of the scheme will be benchmarked against Domestic Price of Gold Fund Index and will be managed by Anurag Mittal.

ICICI Prudential announces change under ICICI Prudential Long Term Plan  

ICICI Prudential has announced that ICICI Prudential Long Term Plan would be available as a source scheme under the existing daily Systematic Transfer Plan (STP) facility, with effect from 27th September 2011. The minimum STP amount will be Rs. 250 and in multiples of Rs. 50, thereafter. The target scheme where STP can be made will be ICICI Prudential Top 200 Fund, Infra Fund, Dynamic Plan, Discovery Fund, MidCap Fund and Focused Bluechip Fund.
 
HSBC changes fund manager

HSBC has appointed Tushar Pradhan, currently the Chief Investment Officer, as the fund manager for certain schemes. Accordingly, HSBC Equity Fund, HSBC Unique Opportunities Fund, HSBC India Opportunities Fund and HSBC Dynamic Fund (Equity portion) will be jointly managed by Tushar Pradhan and Jitendra Sriram. Further, Niren Parekh will cease to act as the fund manager of the HSBC Emerging Markets and HSBC Brazil Fund.
 
IDFC announces change in maximum subscription amount
IDFC has announced that to revise the maximum subscription amount under IDFC Ultra Short Term Fund, with effect from 29th September 2011. The revised amount will be Rs. 10000 per application. IDFC Ultra Short Term Fund is an open ended liquid scheme with an investment objective to offer an investment avenue for short term savings by looking to generate stable returns with a low risk strategy. The scheme will have a portfolio that is invested in good quality debt and money market instruments such that the fund will offer a blend of liquidity with stability of returns.

Fidelity announces dividend under Fidelity Fixed Maturity Plan Series III-Plan F 
Fidelity has announced dividend under Fidelity Fixed Maturity Plan Series III-Plan F. The quantum of dividend will be entire distributable surplus as on the record date on the face value of Rs. 10 per unit. The investment objective is to generate reasonable returns and reduce interest rate volatility primarily through investment in money market and short to mid-term debt instruments having maturity, on or before the date of maturity of a plan. The record date for dividend distribution is 4th October 2011. 

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