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UTI continues to be a conservative investor

Aabhas Pandya

Despite a sharp spurt in assets under management in its aggressive and non-assured sectoral series, Unit Trust of India continues to be a haven for the conservative investor. The three categories of monthly income plans, special purpose funds and Unit Scheme-1964 account for roughly Rs 535 billion or a whopping 74 per cent of the total assets under management of Rs 728.18 billion as on June 30, 2000.

With monthly income plans and most special purpose funds doling out assured returns, these funds have become the mainstay of UTI's mammoth asset base. Of course, while US-64 does not assure any returns, it has paid an annual dividend without fail since 1965. Thus, an overwhelming part of the investing population continues to repose faith in US-64 despite a steady fall in yield from the fund. No wonder then, in terms of safety, UTI is ranked number three after banks and gold deposits.

For a breakup of assets under the three categories, consider this. The family of 21 monthly income plans has an asset base of Rs 217 billion on June 30, 2000 with most of the MIPs assuring returns for the entire tenure of five years. The special purpose funds, on the other hand, manage another Rs 115 billion among them. This includes some of the popular investment vehicles like Unit Linked Insurance Plan (ULIP) and the much-talked about Rajlakhshmi Unit Series.

The flagship US-64 also has an asset base of over Rs 200 billion. The three categories apart, UTI has an assured return series for institutional investors, which, on a conservative estimate, has an asset base of another Rs 30 billion.

Clearly, while the demand for assured or steady investment options would always remain unsatiated, it is UTI, which is now in a spot with its schemes in the assured return basket. With a marked increase in volatility in both equity and debt markets, even a behemoth like UTI is now shying from assuring returns. The Trust's decision to wind up Rajlakshmi Unit Scheme '92, which assured an annualised return of 16.4 per cent, is a case in point.

The Trust is also faced with problems in its most popular monthly income plan series. With interest rates hurtling down, the quantum of assured return has been slashed drastically over the years with MIP 2000 (III) assuring a return of only 10.2 per cent for the first year. While the Trust now assures returns on a year-to-year basis, the number of MIP launches has also gone down drastically over the years. For instance, both 1997 and 1998 saw as many as 10 MIPs hitting the market. On the other hand, only five MIPs have been launched in 1999 and 2000 with collections taking a dip in the last two MIPs. Add to it, the launch of open-end monthly income plans from private sector AMCs also poses a threat to the Trust's hegemony.

Last but not the least, US-64 has already been hit once for earning less and paying more to investors. Although the scheme survived the fiasco, the yield from the fund has taken a dip in spite of dividend income becoming tax-free since 1999. For instance, for an investor who entered US-64 in July 1999, the dividend yield was only 10.185 per cent in 2000. Sooner than later, poor returns from the fund may lead to an exodus of investors.

So, what's the way out for UTI as its cocoon of risk-free and assured returns threatens to crumble? The question is all the more pertinent as even the old equity funds of UTI like Mastergain and Masterplus continue to bleed after going open-end. For one, there is a ray of hope for the Trust from its new generation equity and bond funds, which have grown at a scorching pace. With their aggressive management style, the sectoral funds have generated impressive returns in the last one-year and consequently, seen assets under management gallop from Rs 630 million to over Rs 4.70 billion.

While the growth in the sectoral series has been in excess of 650 per cent, the absolute numbers simply pale in comparison to the massive investments locked in MIP and its ilk. No wonder, UTI has to devise, perform and garner heavy inflows with new investment options in order to replace the gigantic old order, which threatens to wither away.

Source: Value Research

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