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BW Businessworld

UTI: The Burden Of The Past

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Today, it is trying to regain its lost eminence

Mumbai-based bimalkumar berry is among those investors who were badly stung when Unit Trust of India (UTI) was hit by an asset-erosion crisis in 2001. Berry had about 3,000 units of US-64, UTI’s prestigious fund that was launched in 1964, a year after the institution was born under an Act of Parliament. He, however, got back only Rs 12 per unit under a government rescue plan when the net asset value was quoting at Rs 18 per unit. That crisis kept investors like him away from UTI for the next several years. Berry invested again in a UTI fund only in 2006. UTI was transforming during those years, reclaiming investor confidence and pulling together a doddering organisation.
In the past 4-5 years, UTI has gradually managed to smooth out its severely dented image, though it has slipped to the third position in the AUM (assets under management) sweepstakes. It still manages assets worth nearly Rs 57,000 crore belonging to 9.26 million investors, the largest base in the country. The AUM is 10 per cent of the Rs 5.7 lakh crore that the mutual fund industry manages today.

In 1993, when private players were allowed entry, the industry was managing assets worth Rs 47,000 crore. Ten years later, when UTI was split into two — UTI Mutual Fund and Specified Undertaking of UTI, which housed all the assured return schemes — the entire industry managed only about Rs 1,22,000 crore, of which Rs 44,541 crore was managed by UTI.
After the bifurcation in January 2003, UTI Mutual Fund was left with assets worth only Rs 14,476 crore to manage. It was still the largest fund in the country. The transformation to its current status has taken time and effort. “The main transformation in UTI is in HR practices and organisational restructuring,” says U.K. Sinha, chairman and managing director of UTI Asset Management Company, which runs 77 schemes, some of them very popular.
“About 60 per cent of our schemes are in the top half (in terms of industry performance) and UTI Infrastructure Fund was ranked the eighth-best infrastructure fund in the world,” says Sinha. “We never had so many well-performing funds earlier.”
He says the company has identified past weaknesses and is working on eliminating them. UTI now pays employees and its nine fund managers salaries benchmarked to market standards, and the incentive payout is on a quarterly basis. It has expanded its sales and marketing channels by tying up with private and foreign banks.
Still, memories of the old UTI have not vanished completely. Financial planner Gaurav Mashruwala says he wants to wait some more time before he recommends UTI schemes to his clients. “I am not happy with their service standards,” he says. He is also miffed at UTI terminating old plans such as the UTI Senior Citizen’s Unit Plan, an assured heath insurance scheme. “That affects investor perception,” he says. Sinha does not agree. The 15-year-old plan was closed in January this year because regulation does not allow mutual funds to operate assured return schemes. He says that the company is not going back on its promise even though the scheme is terminated. “We are paying from our pocket to give the benefits to all investors (in UTI Senior Citizen’s Plan) above the age of 58,” he says. “No mutual fund will do that.” For the others, UTI has negotiated a 30 per cent rebate on premium from New India Assurance, he adds.
Sinha says the company is now consolidating all its funds under one registrar. Earlier, it had four, which resulted in confusion and delay in investor service. The consolidation will be complete by the end of this month. He says that will ensure quick service to investors.
(Businessworld Issue 25 Feb-3 Mar 2008)