The article discusses calls from the mutual fund industry to rethink the ban on entry loads imposed in 2009. While acknowledging the industry's business difficulties, the author argues that simply restoring entry loads is not the solution. Entry loads prior to the ban led to issues like mis-selling and excessive churning of investments. Other factors like weak markets and restrictions on new fund offers have also impacted the industry. Any changes need to focus on better serving investors rather than just the financial interests of distributors and fund companies.

1. CAPITAL LETTER
LETTER
Volume 5 May 07, 2012 Issue 04
Are entry-loads coming back?
Ever since SEBI banned entry loads for mutual funds in 2009, there have been periodic occasions where voices have been
raised in favour of bringing them back for one reason or another. After a few months of lull in this regard, right now, it appears
we are back in that silly season again.
This time around, the voices are louder and they have been joined by representations from the mutual fund industry - H N
Sinor, the chairman of AMFI, the mutual fund industry body, has expressed an opinion that the ban on entry loads needs to be
rethought. The trigger for this recent clamour is the exit of Fidelity mutual funds business from India and the consequent con-cern
At FundsIndia, we think that laying the blame for the woes of the industry on the singular act in 2009 is misguided, and that
hoping to restore its health by reversing that decision would be a miscalculation. The abolishment of entry loads was widely and correctly perceived
as an investor friendly act that addressed problems of mis-selling and churning. While it is true that the implementation of the move could have
been done using a more deliberated, phased approach, the distribution industry has settled down to the new economics. A reversal, partial or full, at
this point would be regressive and would antagonize the investing community.
The solution to the troubles of the industry lie elsewhere. Easing of KYC norms (by accepting KYC done by banks or insurance companies, for exam-ple)
would be a good start. Enabling fully online enrolment of new customers by online platforms would be a great way to get young, first-time in-vestors
on board. For offline customers, standardization of application and servicing forms across AMCs would alleviate a lot of pain points.
Regarding distribution economics, enhancing trail commissions at the expense of upfront fees would help align interests and cash flows of the
manufacturers and distribution channels. Finally, it is also important for SEBI to provide a regulatory roadmap for the industry. Over the last sev-eral
years, the regulator has unleashed a torrent of minor and major changes in the ways that mutual funds are created, marketed, sold and man-aged
leading to uncertainty in both the distribution and operational segments of the industry. This needs to be reduced for a healthy business cli-mate
where new ideas can be nurtured and developed confidently.
These moves might individually seem minor, but together they will create an environment where funds can be sold using innovative means to a
large number of people who can get on board easily and consume the benefits efficiently and without hassles.
We have always believed that mutual funds are inherently the best long-term investment products for individual investors, and this foundational
belief is what prompted us to start the FundsIndia enterprise and motivates us to continue doing what we do. We believe it is better to struggle and
sell a good product than to sell a bad product easily. The least we expect from the regulator and the industry is to avoid regressive moves that will
diminish the fundamental merits of the product.
In this issue of the newsletter, we are also carrying Dhirendra Kumar's opinion in this regard. I request you to please read that as well.
Happy Investing!
Srikanth Meenakshi
For FundsIndia Team
http://www.meracover.com
regarding the health of the overall industry.
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

2. The week ahead - Equity recommendations
BY B. KRISHNAKUMAR
The S&P CNX Nifty has cracked significant support levels on Friday and this might open up more room to the downside. As we have empha-sized
earlier, until the index moves past 5,400 there is no point in thinking about increasing allocation to equities.
The index now appears headed to the next support at 4,850-4,900 range. Let’s take a look at the two wheeler sector this month. Frontline
stocks from the sector such as Bajaj Auto and Hero MotoCorp have been significant out-performers, in relation to the Nifty, in the past few
years.
The recent chart patterns however suggest that both Bajaj and Hero have run into significant resistance and could get into a significant down-ward
correction. Direct your attention to the daily chart of Bajaj Auto featured below.
It is apparent from the chart that the stock has faced
strong resistance at the Rs.1,775-1,830 range. After
numerous attempts to breakout past this level, price
finally broke down, a sign that the sellers are getting
aggressive.
Unless there is a quick reversal and breakout past the recent swing high of Rs.1,765, there would be a strong case for a slide to the short-term
support at Rs.1,250. Existing holders of the stock may use any recovery to reduce exposures in Bajaj Auto.
The technical picture of Hero MotoCorp is similar to Bajaj. The stock has been pounded after the company announced its quarterly results a
couple of days ago. From the daily chart displayed below, it is evident that the stock has faltered at the crucial resistance of Rs.2,210-2,250.
The stock could slide to the short-term support at
Rs.1,710. A fall below this level could trigger a slide
to the next support at Rs.1,550. Investors may use
any price recovery to take profits and reduce expo-sure.
Mr. B.Krishnakumar is the Head of Equity Research at FundsIndia. With extensive experience in tracking the stock market (over 15 years) he has worked with
companies such as ’The Hindu , Business Line’ and ’Dow Jones Newswires. He will be contributing to our monthly newsletter with his stock market outlook
which shall hold good for a month. Mr.B.Krishnakumar can be reached at b.krishnakumar@fundsindia.com
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

3. Consistent Performers
BY SRIKANTH MEENAKSHI
In this page, we feature mutual fund schemes in popular categories that have stood the test of time and delivered performance consistently. These
schemes have consistently featured in the top quartile of their category in terms of performance over multiple time periods in the past. For equity
funds and income funds, we have chosen three, five and seven year time periods for such ranking. For short term and ultra-short term funds, we
have chosen shorter time frames. Please note that in some cases, we have pruned the list for length - we have removed institutional schemes and
those that have very high initial investment amounts (in the debt side) from this list.
This list will be updated every month, although we do not anticipate significant changes on a month-on-month basis. Rankings data for this report
has been sourced from Value Research Online.
7-Y
Rank Average VRO Rating
Large Cap Funds
Franklin India Bluechip 20.88 6/62 9.59 2/43 19.51 3/38 7.4% YYYYY
DSPBR Top 100 Equity Reg 19.52 11/62 10.73 1/43 21.58 1/38 7.5% YYYYY
SBI Magnum Equity 21.01 5/62 8.42 4/43 20.15 2/38 7.5% YYYYY
HDFC Index Sensex Plus 18.87 12/62 7.88 7/43 18.1 5/38 16.2% YYYY
ICICI Prudential Top 100 18.12 15/62 7.35 9/43 18.48 4/38 18.5% YYYY
7-Y
Rank Average Rating
Large & Mid Cap
HDFC Top 200 22.75 9/57 12.23 3/44 21.83 2/27 10.0% YYYYY
HDFC Growth 23.72 5/57 11.47 6/44 19.61 5/27 13.6% YYYYY
ICICI Prudential Dynamic 22.33 13/57 9.15 11/44 21.91 1/27 17.1% YYYY
7-Y
Rank Average Rating
Mid & Small Cap
Reliance Equity Opportunities 34.78 7/51 11.53 6/37 21.18 1/21 11.5% YYYYY
ICICI Prudential Discovery 34.92 6/51 13.16 5/37 20.32 3/21 13.1% YYYYY
7-Y
Rank Average Rating
Multi Cap
HDFC Equity 26.81 2/35 11.4 4/29 21.75 2/18 10.2% YYYYY
7-Y
Rank Average Rating
Hybrid: Equity-oriented
HDFC Prudence 27.24 2/25 13.35 3/25 19.85 1/22 8.1% YYYYY
HDFC Balanced 25.87 3/25 13.82 1/25 17 4/22 11.3% YYYYY
7-Y
Rank Average Rating
Tax Planning
Canara Robeco Equity Tax Saver 26.42 2/35 13.81 1/28 21.82 1/19 4.8% YYYYY
(Continued on page 4)
Fund Name
3-Y Return
(%)
3-Y
Rank
5-Y Return
(%)
5-Y
Rank
7-Y Return
(%)
Fund Name
3-Y Return
(%)
3-Y
Rank
5-Y Return
(%)
5-Y
Rank
7-Y Return
(%)
Fund Name
3-Y Return
(%)
3-Y
Rank
5-Y Return
(%)
5-Y
Rank
7-Y Return
(%)
Fund Name
3-Y Return
(%)
3-Y
Rank
5-Y Return
(%)
5-Y
Rank
7-Y Return
(%)
Fund Name
3-Y Return
(%)
3-Y
Rank
5-Y Return
(%)
5-Y
Rank
7-Y Return
(%)
Fund Name
3-Y Return
(%)
3-Y
Rank
5-Y Return
(%)
5-Y
Rank
7-Y Return
(%)
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

4. 3-M Return
(%)
3-M
Rank
6-M Re-turn
(%)
Debt Ultra Short Term
HDFC Floating Rate Income LT 2.92 2/179 5.32 8/178 10.39 9/174 3.5% Y
SBI Magnum Floating Rate LT Retail 2.78 5/179 5.31 9/178 10.27 15/174 5.4% YYY
Tata Fixed Income Portfolio Scheme A3 Reg 2.64 14/179 5.43 5/178 10.34 12/174 5.8% YYYYY
JM Money Manager Reg 2.64 13/179 5.18 11/178 10.35 10/174 6.4% YYYYY
Peerless Short Term 2.64 15/179 5.15 14/178 10.49 7/174 6.7% YYYYY
Tata Floating Rate LT 3.07 1/179 5.38 6/178 9.89 40/174 8.9% Unrated
SBI Magnum Floating Rate Savings Plus Bond 2.66 11/179 5.09 19/178 9.98 28/174 10.9% YYYYY
Templeton India Low Duration 2.63 20/179 5.05 23/178 10.21 17/174 11.2% Unrated
Taurus Short Term Income 2.57 34/179 5.1 16/178 10.16 20/174 13.1% YYYYY
JM Money Manager Super 2.56 37/179 5.08 20/178 10.16 19/174 14.2% YYYYY
Tata Fixed Income Portfolio Scheme C2 Reg 2.74 6/179 4.97 34/178 9.93 36/174 14.3% Y
JM Money Manager Super Plus 2.59 26/179 5.07 21/178 9.96 34/174 15.2% YYYY
HDFC Short Term Opportunities 2.65 12/179 4.94 42/178 9.88 41/174 17.9% YYYY
Birla Sun Life Floating Rate LT Ret 2.55 42/179 4.95 41/178 9.86 42/174 23.5% YYYY
3-M Return
(%)
3-M
Rank
6-M Re-turn
(%)
Debt Income
Templeton India Income Builder 2.64 2/91 6.37 9/89 11.15 6/87 6.4% YYYY
Principal Income Long Term 2.33 16/91 6.46 6/89 10.33 12/87 12.7% YYYY
New NPS Benefit
6-M
Rank
6-M
Rank
Research Desk - Value Research Online
Fund Name
1-Y Re-turn
(%) 1-Y Rank
Aver-age
VRO Rat-ing
Fund Name
1-Y Re-turn
(%) 1-Y Rank
Aver-age
Rating
I want to know the benefit of an NPS contribution to the extent of 10 per cent of my salary deductable from taxable income. Is
this applicable only to government employees? Can you elaborate under which sections of the Income Tax Act are such bene-fits
available to non-government employees?
This is a new section – 80CCD(2) – effective 1st April 2012, which gives a benefit to the National Pension System (NPS). This is quite a huge ad-vantage,
under which the employer’s contribution of up to 10 per cent of the employee’s basic salary to the NPS is exempt from tax. There is no
ceiling to this benefit, and it is available over and above the 80C benefit that you already get. This benefit is available to government as well as
non-government employees. Hence, if you are at the liberty of structuring your salary, this could be a huge concession for you.
Syndicated from Value Research Online
http://www.valueresearchonline.com/story/h2_storyview.asp?str=19838
Take advantage of the incredible tax advantage the
National Pension Scheme offers with FundsIndia.com
http://www.fundsindia.com/npsfor
corporates
http://www.fundsindia.com/npsforcorporates
-Keshav Kumar
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.

5. Revisiting the Entry Load Ban
BY DHIRENDRA KUMAR
Back in August 2009, markets regulator SEBI made a wrenching regulatory change to the mutual fund business in
India by banning entry load on fund investments. Now, two years later, the mutual fund industry has started speak-ing
out clearly about the business impact of the change. A few days ago, in an interview in this newspaper, the head
of AMFI (the fund industry’s association) said that the negative impact of the decision should be debated.
AMFI CEO HN Sinor says that without the extra revenue from entry loads, distributors as well as many funds com-panies
are finding business difficult. He points to the exit of Fidelity from India as well as the lack of growth of
other stakeholders in the industry. Since Mr. Sinor’s interview is in his capacity as AMFI’s Chief Executive, one can
assume that what he has given voice to is the collective view of India’s mutual fund industry.
This view is not wrong and there’s no doubt that the end of entry load has played a role in the business distress that the fund industry faces today.
However, that does not mean that there’s a case for simply restoring entry load in the same shape as it existed till July 2009. It must be remem-bered
that at that time there was a valid context for SEBI’s action. Churning of investors’ fund holdings in order to earn commissions out of the
entry load was a widespread abusive practice among some distributors, as was the NFO-and-dump cycle of investments. The heady days of 2004-
2007 were basically one long party of endless NFOs and repeated churning of investments.
Now that the dust has truly settled on those days, I would say that the entry load ban is not the only reason for the current listless state of the in-dustry.
SEBI’s crackdown on frivolous NFOs and the long stagnation in the equity markets have also played strong supporting roles. But of course,
none of this points to a solution.
The epicentre of any business is not the provider’s financial well-being but what is delivered to the customer. It’s logical that the solution must
come from the creation of a business model that explicitly links the economic interests of the distributor with the interest of the investors. Think of
it in a simple manner. For example, the interest of the investor lies in being recommended a good fund, starting an SIP in it and then sticking to it.
How we can align the distributor’s interest with this? Perhaps by giving him a more substantial (and possibly escalating) trail commission if this
outcome is achieved.
I’m not saying that this is the exact solution. Instead this is just an example of how distributor business model and remuneration should be di-rectly
linked to the actual desired outcome. In this regard, SEBI’s abolition of entry load missed a trick. The goal should have been the abolition of
upfront commissions because of the churning-type abuses. What it did instead was to ban entry loads since commissions were paid out of the en-try
loads. However, the commissions are still paid but out of the AMC’s pocket. Basically, the pie has gotten smaller but its structure remains the
same.
From here on, the way forward would probably have to start with making the pie bigger. This could well be necessary for growth and expansion
into new markets. Whether this is paid for by higher expenses or by higher exit loads is the question. However, it would make sense for all changes
to be directly linked to the desired outcomes instead of hoping for the outcomes to be a side-effect. For example, if expansion to smaller cities and
first-time investors is a goal, then the AMC and the distributors must be able to derive a meaningful economic payback for delivering these out-comes.
The fund industry’s starting viewpoint—that the entry load ban may have been counter-productive—is correct. But the solution doesn’t lie in turn-ing
the clock back.
-Syndicated from Value Research Online
Article is available online at: http://www.valueresearchonline.com/story/h2_storyview.asp?str=19810
17, RMG Complex,
TVK Industrial Estate,
Guindy, Chennai 600032
Tamil Nadu, India
Phone: 044-4344 3100
E-mail: contact@fundsindia.com
Disclaimer: Mutual Fund Investments are subject to market risks. Please read all scheme related documents carefully before investing.