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Powerhouse in the Making

UTI Mutual Fund is the most profitable fund company

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network, much of the two inherited from its parent, the Unit Trust of India.

As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come.

UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. After Anoop Bhaskar (ex Sundaram BNP Paribas) took over as CIO, a number of equity schemes were merged and the approach to equity investment was overhauled.

However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its infrastructure funds. Some of the income funds also stack up well against the competition.

UTI is co-owned by four public sector enterprises. When the old Unit Trust of India was wound up, UTI Asset Management was launched with four equal owners, Life Insurance Corporation, State Bank of India, Punjab National Bank and Bank of Baroda. Earlier this year, it was planning an IPO, which would have made UTI the only listed fund company in India and also enabled it to offer stock options to employees. However, the fall in the stock markets forced the issue to be deferred. The IPO was to be an offer-for-sale by the four owners which would have brought their stake to 51 per cent. It would also have created room for a strategic partner in the future.

During the last few years, UTI has slipped from being the largest AMC to the number four spot. However, it must be noted that this apparent slippage is not because of any shrinking of UTI’s asset base. As the accompanying table shows, UTI’s asset growth has been robust, but slower than that of some of the others. Most of the disadvantage of UTI has been in the short-term debt categories, which are not only less profitable but are also proving to be problematic because of the liquidity squeeze.

However, it still has the largest investor base and the biggest equity assets besides being the most profitable. If its equity performance can be improved, UTI’s unique advantages will ensure that it remains a powerhouse in the industry.