Last week marked a milestone of sorts in the Indian mutual fund (MF) industry. UTI MF, the descendant of the Unit Trust of India founded in 1964, finally became a normal mutual fund company like any other when 26 per cent of its stake was sold to T. Rowe Price, an American mutual fund company. I know that technically, this had happened seven years ago, when the old Unit Trust was carved into a 'special undertaking' and a mutual fund company, but that was clearly an interim arrangement. At that point of time, the government needed promoters for UTI MF to be an asset management company (AMC) and it just asked four public sector entities (Bank of Baroda, Life Insurance Corporation, State Bank of India and Punjab National Bank) to play the role of promoters. For the last seven years, these four went through the motions of being promoters, but it was always known that they were just stand-ins for the Government of India itself. Now, the four's stake has been reduced to 18 per cent each and T. Rowe Price has become the largest shareholder in UTI MF.
At the end of the day, the rescue from the mess of Unit Trust has gone well for both the government and investors, but especially for the former. Back in 2002, it looked as if the government would end up footing a large bill. However, the general good times that have followed in the stock markets and the economy in general means that there was eventually no bill. The liability that the government took over in converting US64 and UTI's assured returns schemes to guaranteed bonds turned out to be a profitable deal for the government, as the value of most of the holdings went up sharply.
The most interesting part of the whole story is that UTI MF has been able to transform itself into a competent and professional mutual fund company much better than anyone expected back in 2002, or 2003. To the surprise of almost everyone in the fund business, UTI MF hasn't gone the way of an Air India or a BSNL or any of the other sad stories of once-dominant public sector outfits forced to compete in the open market. It's not the number one it once was, but it's not an also-ran. In terms of money managed, it's in the fourth position with 10 per cent market share, and in the profitable equity funds segment, it's 2nd with 11 per cent marketshare.
In this context, the arrival of T. Rowe Price is significant. T. Rowe Price is a good fit for UTI. Like UTI, it is a pure fund manager - it doesn't do banking, insurance, or any of the other businesses that so many other foreign fund companies do. It has also kept its nose clean of the various issues that have hit US financial companies in recent years. The company manages just under $300 billion of assets.
For UTI's vast investor base in India, the change is a further sign that UTI is well on its way to completing the long transformation from a public sector outfit that had a mandated monopoly to a normal business.