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Home > Business > Special


How a behemoth plans to regain lost crown

Veena Venugopal with Kayezad E Adajania, Outlook Money | April 05, 2007

How does a 43-year-old take on its 10-year-old competitors? With difficulty, especially if it is the behemoth of the Indian mutual fund industry, whose every move is watched carefully.

In many ways, this is the best of times and the worst of times for UTI MF. The fund house, which has finally started breaking away from its sarkari shackles, has now lost its top industry position and slipped to number three in the ranking of MFs on the basis of the size of the assets they manage.

Till May 2006, UTI MF was the industry's undisputed leader, and others were happy to fight for the number one private sector fund house and other self-styled titles. When assets under management data for May was released, Prudential ICICI had overtaken UTI by Rs 1,600 crore (Rs 16 billion).

This was set right in August and all was well until the end of the year. In January 2007, UTI was overtaken again, this time by Reliance MF. By February, it had fallen to the third position with both Reliance and Prudential ICICI sprinting ahead.

Though UTI chairman U K Sinha is not ready to concede the number one position to Reliance MF and Prudential ICICI AMC, it is clear that he is rankled by this new market that his fund house finds itself in. "The AUM is just one number that comes at the end of the month. Is that the way the industry is supposed to judge itself? My understanding is that is not the right way to judge. We have 85 lakh customers. Others, who claim they are number one, have only about 35 lakh. We have the largest network of advisors and branches. Nobody can match our international operations and portfolio management services. Ditto for our micro-pension scheme," he says.

Corrective measures. More important than the fall in rankings were other problems. While fund performances were suffering, customer and investor services fell well below the mark. Sinha and his team have spent most of the last six months trying to set these right.

Fund performance, says Sinha, suffered largely because of the exit of a lot of fund managers. At the time the Indian financial services industry is booming, UTI salaries - boxed in by the public sector nature of the company - were no match to what the market was paying competent fund managers. This has now been set right. While the previous chairman, M Damodaran, took this to a certain level, Sinha feels he has been able to take it further.

"We have revised our compensation structure to match the markets' and have made it, substantially, performance-driven. We have given a lot of operational freedom to our people and the work environment has also improved. A number of our people who had left us have joined us back, including some of our best fund managers.

"Some of our funds that were not performing well have started doing well, such as UTI Infrastructure and UTI Index-Select funds. Our liquid funds are the best performing in the category. Today, UTI MF is a changed and charged organisation," he says.

UTI's new gameplan

  • Plans better compensation and operational freedom to fund managers
  • Aims at streamlining investor services
  • Has initiated buying and selling units on the Net, will list UTI AMC soon
  • Will put thrust on pension products

Kudos from industry. Market participants and industry watchers are recognising the efforts. "Performance of UTI funds has definitely improved. There is also a perception shift. Ever since they took over the erstwhile IL&FS MF, there has been no looking back. Our AUM with the company has grown not just by several crores but several times in the last couple of years," says Sameer Kamdar, country-head, mutual funds, Mata Securities.

Investors also faced problems due to poor customer response. Account statements were not delivered on time, dividend cheques went missing routinely and queries went unanswered as the company grappled with managing the back office on its own. Now, it has drafted four registrars and streamlined investor services.

Performance Report

Scheme Name

NAV (Rs)

1 Year

3 Years

5 Years

EQUITY

UTI Growth Sector - Services

45.90

17.70

30.70

34.70

UTI Masterplus Unit Scheme 91

60.40

14.60

29.00

33.60

UTI India Advantage Equity

7.70

5.90

26.00

18.80

UTI MNC

31.80

-10.80

25.70

27.00

UTI Equity

29.80

-1.20

24.60

31.60

UTI Master Growth

40.40

8.00

24.30

34.10

UTI Growth & Value

53.40

3.80

23.00

36.30

UTI Mastershare

31.90

7.70

22.60

28.30

UTI Master Value

26.80

-7.10

19.70

37.20

Category average

8.80

32.20

36.70

S&P CNX 500

 

11.80

26.10

30.50

BALANCED

Category average

7.40

22.30

25.30

UTI Balanced Fund-Growth

51.40

3.60

19.30

22.90

Crisil Balanced Fund Index

13.20

16.10

NA1

LIQUID

 

NAV

1 Mth

3 Mths

6 Mths

UTI Money Market

20.92

6.99

7.76

7.47

Category average

7.16

7.20

6.91

Crisil Liquid fund index

5.67

6.17

6.10

1Launched on 1 April 2002            Source: Mutualfundsindia.com

All figures in per cent, unless mentioned               As on 9 March 2006

 
J Rajagopalan, managing director, Bluechip Corporate Investment Centre, says that UTI is far easier to deal with now. "Earlier, we used to have difficulties with every small thing. Redemption cheques would take months to arrive, even brokerages were not paid on time. With the sheer number of investors they had, it was difficult to get basic services. This has changed now," he adds.

New initiatives. In its final leg of aligning the company to the new competitive MF industry today, UTI has roped in the Boston Consulting Group to help it restructure itself. One of the new initiatives that would be announced as part of this exercise would be buying and selling of units through the Internet. This would make it convenient for the Internet-enabled investor and go a long way in diluting the stronghold that distributors have over the industry.

Sinha admits the overt influence of distributors was harmful to the industry, saying distributors have become the prime driving force of the industry. "MFs can't afford such high levels of commission over a longer period of time, it's not sustainable."

However, for now, this is certainly only rhetoric. Market information is that UTI is increasingly aggressive and has hiked brokerages. "They are even taking distributors for the cricket World Cup. Can you imagine UTI coming out with a scheme like that?" says a Mumbai-based distributor.

Widening customer base. However, UTI has also started opening up whole new classes of MF investors. It has tied up with various organisations for its micro-pension scheme, including Self-Employed Women's Association (Sewa), members of the Paradeep port, Dock Mazdoor Union and self-help groups of Bank of India. UTI sees this as bolstering its MF business. For instance, under the arrangement with Paradeep Port and Dock Mazdoor Union, its members will contribute Rs 200 each every month towards UTI-Retirement Benefit Pension Fund up to the age of 55 years.

"Globally, almost 40 per cent of the MF business comes from pension schemes. So micro-pension is not different from MF. We are trying to demonstrate to the world that if these poor women (Sewa) who do no have any regular source of income, can save for their old age, then why can't you and I, the middle class, start thinking on those lines. I have got one lakh investors through this initiative," Sinha says.

The Board of UTI MF has also now given it a mandate to go public. The sponsors would be liquidating a part of their stake and this would be offered to the public.

If all goes well and as per schedule, the country's oldest fund house would also be the first one to list on the bourses. Despite, its several falls, UTI has so far managed to pick itself up and move on. This new phase of UTI would determine if it is fit enough to beat its much younger and more nimble competitors. In UTI country, there is determination, and hope.

We've decided to avoid fighting the AUM game'

UTI Mutual Fund's chairman U K Sinha speaks to Outlook Money on funds, industry practices and the challenge ahead

What is your outlook on the Indian mutual funds industry? It has grown substantially since you came on board.

Much of the growth in the industry is illusionary. The growth has occurred mainly on account of liquid funds, where companies park their excess cash to benefit from the tax arbitrage. Leave that aside and adjust the growth in assets under management contributed simply by the growth in equity markets; you will notice that the industry has not grown the way it should have.

And why is that?

Most players in the industry want to gain AUM at any cost. The Indian MF industry has not matured yet. Also, the distributors have become the prime driving force in this industry by charging high commissions that are not sustainable over a longer period of time. MFs are not interested in penetrating small towns. They chase only corporate money through liquid funds or selected eight to10 cities.

I fail to understand how Rs 7,000 crore (Rs 70 billion) of AUM can flow into a MF in a day. We have decided to avoid fighting the AUM game.

Besides your regular fund management, UTI MF has also started portfolio management services and micro-pension schemes. Is UTI losing focus?

Only 12 per cent of Indians have access to mandated pension in this country. People are living longer; a worker has to save for two decades of his post-retired life. Globally, almost 40 per cent of the MF business comes from pension schemes. I have got one lakh investors through this initiative. We are trying to bring additional customers to the MF business.

This requires a lot of time and effort. This is hard work. No other MF in India does this kind of work; they run after easy-to-come corporate money. My strategy remains to do core MF. Some of my investors, who have been with us for a very long time, have also derived the confidence to take additional risk. So PMS is a natural extension for a large-sized MF in India.

Last year, you had put a team in place called 'The Factory' to come up with new ideas for products. What kind of new and innovative ideas could we expect? UTI hasn't launched many innovative products

As far as the launch of new funds are concerned, we have been second to none in 2006-07. Every second or third month we have launched a new fund. The Factory has been in production but I am not sure whether it has been producing innovative products. That is for you to judge.

Are you still keen on introducing new products or would you be focusing on consolidating your existing ones?

New products will have to be brought in. Investors need new products. The investing community in India is diversified with several needs. We have to cater to all kinds of customers. Also, because of the way the mass market has become distributor driven, new assets can be accumulated only through launches; a fact of life. So we will continue to do both.

Earlier you were criticising industry practices. One of them is that it is largely distributor driven?

Yes, I do not like it. I criticise it.

But you are not standing up to it.

Do you want me to be out of business? I don't have that luxury. This industry has not matured enough. There will be more and more new entrants, there will be some shake-out but that time has not yet come. We have seen some players going out and some new players entering the market. I think we are still a few years away before we see real consolidation and maturity of the industry. Once that happens, we can look to big changes.

As one of the leading players in this industry, tell us some of the reforms that the MF industry needs.

There's not enough transparency today. The customer is not being told how much cost he will actually be incurring. Also, nobody is working towards investor education.


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