Search the Internet          Tips  Sites: Finance, Investment

UTI in talks for a US-64 benchmark index

Sangita Shah & Rakesh P Sharma

The Unit Trust of India is in talks with various rating agencies to develop a benchmark index for its flagship scheme US-64.

US-64, now being turned into a balanced scheme comprising equity and debt in the proportion of 55:45, will also be brought under the Securities and Exchange Board of India necessitating the need to benchmark the scheme's performance.

N K Garg, general manager, department of fund management, US-64, said, "We already are in talks with various rating agencies for developing an index for the scheme. We are also trying to develop it internally but we will be happy if a rating agency could do it for us."

He, however, did not specify the names of the agencies UTI was talking to.

Benchmarking the scheme to an index will give a realistic picture as how the scheme has performed during a particular period thereby making it more transparent to the investors.

Currently there are several indexes available to benchmark the performance of any mutual fund schemes but since balanced funds have different proportions there are hardly any indexes.

Generally, mutual funds benchmark their performance of equity schemes to various indexes available on the exchanges. Even debt schemes' performance is generally benchmarked to a particular index.

"The index could be a combination of an already available equity and a debt index or may have to be a newly composed index," Garg said.

Since the portfolio of US-64 is now almost cleansed by selling the property and realty investments, it would be easier to benchmark the portfolio now comprising equity and debt.

US-64 has already increased its debt exposure after June 2001. "Debt exposure has been increased to 36-37 per cent from 30 per cent. We are on target for our December 2003 deadline for Sebi compliance," Garg said.

UTI has already stated that US-64 would be modified to position the scheme as a balanced fund by December 2002. It has capped the investment in equities at a maximum of 55 per cent, while the investments in debt is capped at 75 per cent.

Of this, at least 7.5 per cent would be invested in central government securities. Further, it will invest in corporate debt instruments with a minimum rating of AA grade.

Generally, total returns has been the criteria for measuring the performance of mutual funds. Often, factors such as volatility, liquidity and portfolio composition are ignored, which then may not give the right picture of performance.

Parameters such as risk-adjusted returns of the scheme's net asset value, diversification of the portfolio and liquidity and asset size become important in an index for a balanced scheme.

Rating agencies Crisil and India Index Service Ltd often customise indexes required by various market investors. IISL undertakes the development and maintenance of customised indices for clients as well as offers consultancy services for developing indices.

Customised indices can be used for tracking the performance of the client's portfolio of stocks vis-a-vis objectively defined benchmarks, or for benchmarking NAV performance to customised indices. The customised indices can be sub-sets of existing indices or a completely new index.

Powered by

ALSO READ:
The UTI Crisis
The Rediff Budget Special
The Rediff-Business Standard Special
Money

Tell us what you think of this report