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Sebi set to overhaul mutual funds expense structure

by Tavaga Invest

Markets this week 📊

This financial year was quite somber for the most part but ended on a spectacular note, logging the biggest one day rise in over 4 months. The fact that this last year was challenging would be, to say the least. Global markets continued to dictate the movement of local indices. RBI’s policy meet to take centre stage next week. 

While US banking stocks remained subdued after government announced stringent norms for regulation of mid-sized banks, Nasdaq (tech heavy) has officially entered the bull market after rising more than 20% in last 6 months. 

But US dollar is losing friends after China and Brazil and several other countries announced trade deals in their local currencies, ditching the $$. Talking of friends, our good old feature phones are making a comeback in US. Gen Z is swapping smartphones for the old handsets in a bid to reduce screen time. HMD global which produced Nokia phones saw sales rising last year. Life does come a full circle!

Let’s now give you a heads-up on some of the important news that made headlines this week. 

Mutual funds get another punch 👊

SEBI steps in: The Finance bill amendment removed long-term capital gains benefits for debt funds and brought them at par with bank FDs. With indexation benefit gone, the future of debt MFs now looks dark. SEBI now strikes another blow to the AMCs after it announced plans of reviewing the total expense ratio (TER) of MFs. 

Proposal: Currently, AMCs can charge a max TER of 2.25% for equity schemes and 2% for debt funds, with a total AUM of up to Rs. 500 cr. This TER reduces with an increase in the AUM size of a fund house. Like for eg. for AUM over Rs 50,000 crore, the TER cap stands at 1.05% and 0.8%, respectively, since 2020. This encouraged mis-selling by distributors to push the common man towards the newer funds to earn higher commissions. Other proposals included brokerage to be included in the expense ratio and not charged separately. 

Our Take

Poor financial literacy makes mis-selling of financial products rampant. Whenever fund houses, launch new schemes, some distributors tend to switch investors’ money out from existing schemes and put it in new schemes to earn better commissions. If implemented, this will help bring much-needed transparency and truly make “Mutual Funds Sahi Hai”

All that glitters is not gold 👎

Hera Pheri: 

  • Biggest startup festival ever
  • Once is a lifetime opportunity
  • High-profile guests from Elon Musk to Sundar Pichai to even Gautam Adani
  • 1,500 institutional investors (like Sequoia, and Ah! Ventures) and 9,000 angel investors
  • Funding in 3 days!

This is what the World Startup Convention promised to the startups. But it turned out to be a BIG scam looting lakhs leaving a permanent scar on the whole startup ecosystem. 

How was it orchestrated? It all started last October and was the brainchild of schemers Luke Talwar and Arjun Chaudhary from Noida. With a swanky website in place, ads about this event started floating around. Targeted influencer marketing with names like Ankur Warikoo, Chetan Bhagat, Raj Shamani and made the whole event believable. Budding entrepreneurs believed it and bought passes worth Rs. 8,000 in the hope of getting their million-dollar idea funded. Little did they know: this hope would come crashing down. They were in a rude shock on the D day. There were founders but very few investors, no food or water and whatever pitches were happening were out in the open! All in all, it was a big disaster.

Our Take

It just took these scamsters a fancy website, some paid influencers and PR activity, and they could fool thousands of people. They created a joke out of the already stressed funding ecosystem. Some startups even lost lakhs of money in hopes of getting VC attention. All of this could have been avoided had these influencers did a basic check on what they were promoting and if people did not blindly trust them. This event is a wake up call for SEBI to bring more skin in the game for these influencers.

Pills get booster shot 💊

New health bill: Getting sick will now cost you more. Prices of over 1000 formulations and 384 essential drugs under National List of Essential Medicines (NLEM) to be hiked by 12% from April 1, due to a sharp rise in the Wholesale Price Index (WPI). This is the highest ever annual hike and follows an 11% hike done last year. These meds are used in various government health prog and also sold directly.

NLEM: Used for common ailments like fever, diabetes, infection, tuberculosis, hypertension, skin diseases. cancers and anemia, etc. They include common meds like paracetamol, azithromycin, folic acid, vitamins, and minerals. Out of total of 6,000 formulations available in the Indian market, more than 1000 formulations are scheduled drugs and are under price controls. In past few years, coronary stents and knee implants, too, have been brought under the ambit of price controls. Earlier, the prices of these medicines used to rise by only 2-3%. 

Rajasthan in peril: Meanwhile, doctors in Rajasthan are protesting against the Right to Health bill which forces doctors to treat anybody while making clinics and hospitals dependent on payment by the government. Doctors fret bureaucratic interferences in hospitals and delay in bill clearance to rise as a result of this. More clarity is awaited over what is emergency and how the reimbursements will be settled. 

Our Take

Hike in NLEM drug prices was inevitable since input costs, especially those of active pharmaceutical ingredients (APIs) had skyrocketed. These were largely imported from China which was hit by zero-Covid policy-led supply chain disruption. The extent of the hike is worrisome though and is likely to weigh heavy on anybody’s pockets. forcing them to treat anybody who comes along, while making clinics and hospitals dependent on government discretion for payment. 

The health bill is sure to drive up healthcare costs for the middle classes, just like RTE drove up school fees. 


Alibaba hits a six 🏏

Breaking up: Alibaba or the Amazon of China is splitting its businesses into six divisions. A holding company will oversee its sprawling empire that includes everything from e-commerce to cloud (and AI), media and entertainment, and logistics. Chinese regulators had been cracking down on big businesses and Jack Ma (founder of Alibaba) was an obvious target. The billionaire went underground and seems to have resurfaced right before its $20b logistics arm’s IPO goes live in HK. 

Why the split? Better focus with each biz having its own managing team and eventually go the IPO route. But more importantly, less trouble (less penalties) as breakup might lessen China’s regulatory scare as smaller companies = less of a threat. 

Some background: In last 2 years, China has cracked down on a dozen tech companies, levying big fines and imposing strict anti-monopoly laws to curb their influence. In 2021, Alibaba was fined a massive $2.6 billion while its fintech arm Ant Group was forced to postpone its mega-IPO plan. Chinese tech stocks plummeted because of this power tussle leading to slowest GDP growth for the Asian giant. Share of Alibaba suffered a 70% fall in last 2 years. 

Our Take

Sum of the parts can turn out be greater than the whole. Alibaba’s restructuring could also serve as a template for other big tech companies to follow suit, both in China and elsewhere. Amazon CEO Andy Jassy too hinted at something similar last year, describing Prime Video as a potential “standalone biz.

What else made the news?

💵UPI charge: The NPCI introduced a charge of 1.1% on merchant payments above Rs 2000, this charge will be borne by only merchants. Customer transactions are still free. 

📉Twitter crash: Twitter reported 89% lower ad sales since the platform was taken over by Elon Musk.

😕 No deal: Walmart-owned payments company PhonePe called off a deal to acquire buy-now-pay-later startup ZestMoney over due-diligence concerns. 

🗃️ IPO frenzy: OYO and Digit Insurance file for IPO that should roll out next year.

😟 Layoffs again: Edtech startup Unacamdemy plans to lay off 12% of its workforce in a new round of layoffs.

👊 Crypto crackdown: US financial regulator, sued crypto giant Binance and its CEO Changpeng Zhao for operating illegally and violating compliance rules.

🍎Another BNPL: Apple rolled out its buy-now-pay-later service, Apple Pay Later, for its US users.

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