The Financial Markets is always in a continuous flux. The other day, the Finance Minister inaugurated the trading of Currency Futures. In this news update bulletin, we bring to you some important updates and insights on Mutual Funds and Insurance.

Mutual Funds

When markets peaked in January, gross inflows into equity schemes were at their highest, Rs 21,247 crore. As the markets started descending, gross inflows started dropping. In July, when the Sensex hit a low around 12,500 (almost 40% below the peak), gross flows were Rs 2,762 crore—a whopping 87% below the January highs. Worse, redemptions as a percentage of gross inflows (36%) were amongst the lowest at the market peak in January, and rose as high as 91% in July, with markets at the year’s low.

Household exposure to stock markets accounts for less than 7% of household investments. Of the few retail investors who are exposed to stock markets, many invest in the wrong way. Retail investors should focus on long-term objectives of wealth creation from stock markets.

Liquid Funds: If your investment advisor forced to you put money into liquid mutual fund schemes 6 months ago, you may want to thank him today. In a scenario of negative returns from stock markets, liquid funds — that usually invest only in short-term money market instruments — have posted the best average returns of close to 4% for the last six months, data from The Times of India analysis of 14 different types of open-ended mutual fund schemes (that are continuously open for subscription and redemption) show.

Insurance

Almost two years after the UPA government referred the Insurance Amendment Bill aimed at raising the foreign direct investment cap in the sector from 26% to 49%to a Group of Ministers (GoM), the panel finally paved the way for the Bill to be introduced in Parliament.

Besides increasing the foreign investment cap, other proposed amendments would allow Indian promoters to continue to hold a majority stake in insurance companies. They would also allow public sector non-life insurers to sell a minority stake to raise capital. The proposed revisions would enable foreign reinsurance companies to enter the Indian market as well.

The reforms will require amendments to the Insurance Act, 1938; LIC Act, 1956; IRDA Act, 1999; and General Insurance Business (Nationalisation) Act, 1972.

Insurance companies invested Rs35,880 crore (US$8.1 billion) in government securities in the last fiscal year ended 31 March, 173% higher than the amount invested in 2006/07, according to data from the Reserve Bank of India (RBI).

The share of insurance companies in overall investment in the government securities market rose to 23% during 2007/08, more than double the 9% share during the previous financial year.

The decline in the stock market since late 2007 has prodded insurance companies into shifting their investment portfolio towards fixed income securities.

About Rs10,000 crore (US$2.26 billion) is expected to be invested by insurers in venture capital (VC) funds in the next six to eight months, in a bid to earn higher returns, reports the Economic Times.

IRDA recently allowed insurance firms to invest 3% of their total investible funds or 10% of the fund’s size, whichever is lower, into VC funds.