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Fund Pick: UTI Mastergain

Mastergain '92, the largest equity fund in India, was converted into an open-ended fund in January 1997. According to its stated objective, the fund is not supposed to pay any dividend. However, it paid a 12 per cent dividend before conversion into an open-ended fund.

The fund has declared another dividend of 15 per cent for all investors as on March 16, 2000. Entry in the fund is at net asset value (NAV) while UTI has brought down the exit load from 5 to 3 per cent. Based on the current NAV of Rs 13.29, investment in the fund will yield a current tax-free return of 11.28 after the 3 per cent exit load besides assuming the market risk.

Mastergain '92 has given an annualised return of 7.90 per cent since its launch. The fund was a laggard till 1999 but gained a handsome 52.4 per cent in a rising market in calendar 1999. Through its tenure, the fund has been an average performer with returns as good or bad as those from the Sensex.

Soon after its launch in May 1992 with an initial corpus of Rs 4700 crore, Mastergain witnessed a major downslide in its NAV. Though the fund gained smartly in the 1994 rally, it steadily lost ground in the free-falling market from October 1994 till early 1996. The fund came under heavy redemption pressure when it commenced repurchase in August 1995 and its corpus shrunk by almost 50 per cent of the original size. The portfolio of the fund has, for long, remained static.

Even today, the fund has a large portfolio, well-diversified over large-cap stocks. Though 75 per cent of the portfolio is now concentrated in the top 15 stocks, the huge size of the fund remains a constraint. The fund lacks flexibility, and the fund was managed passively for long. Of late, the fund has changed track shedding its public sector portfolio and has increased its concentration in the top holdings.

Even though the fund has retained its diversified profile, the fund has lost ground in a falling market much like an infotech fund. Mastergain's NAV has fallen by 18 per cent post-budget since most of its large cap consumer and cyclical holdings, have taken a severe beating on the bourses. The fund has under-performed the Sensex by 12 per cent with the latter dropping by only 6 per cent.

The fund has only a 15.6 per cent (Rs 256 crore) exposure to the software sector and this has clearly not lent much support to the NAV. Mastergain is an unattractive long-term investment given its size and portfolio orientation. The aggressive strategy being followed now looks incompatible for its size. Investors seeking superior performance should exit Mastergain in favour of aggressive yet well-diversified smaller equity funds.

Fund Basics
Objective	Size (Rs cr)	NAV (Rs): 16/3/2000	Exit Price	Entry Price	Total Returns
Growth	1639.6	13.29	Bk. clr.	Bk. clr.	7.90%
Benchmark Comparisons (%)					29/2/2000
	1M	3M	6M	1Yr	3Yr
Fund	2.28	10.53	3.65	50.84	11.71
Sensex	2.08	17.41	11.83	60.22	14.26
Nat. Index	11.52	46.89	50.80	118.54	27.62
Obj. Avg.	7.53	40.12	53.46	129.90	36.68
Top Holdings (1/3/2000)					Net Assets (%)
Hindustan Lever					13.39
ITC					12.75
Reliance Petroleum					11.00
Reliance Industries					8.60
Infosys					6.68
Satyam Computer					4.62
MTNL					3.88
Larsen & Toubro					3.39
NIIT					2.19
Zee Telefilms					2.11
Gujarat Ambuja					1.71
Hindalco					1.59
TELCO					1.49
HDFC Bank					1.30
National Aluminium					1.27
Sectoral exposure (1/3/2000)					Net Assets (%)
FMCG					26.62
Oil/petroleum					20.75
Software					15.62
Cement					5.47
Metals					4.69

Source: Value Research

Mutual Funds

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