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With UTI fumbling, whither Indian fund industry?

While there may be a setback in the short-term, fund houses gear up to grab UTI's market share. Further, the selling pressure from UTI is expected to ebb

The suspension of redemption and sale of US-64 units has left a cross-section of investors and fund industry dumbfounded. US-64 is the largest scheme in the domestic fund industry with a unit capital of Rs 12778 crore and over two crore unitholders. The million-dollar question is – what will be the impact of the US-64 imbroglio on the fund industry? With intense competition and a bearish equity market, will the UTI fiasco add to the woes? Value Research spoke to a cross-section of fund chiefs to gauge their reaction.

Vivek Reddy, Chief Executive Officer, Kothari Pioneer AMC

I think in the long-term, private sector mutual funds will see some kind of a positive effect; some uptrend in fresh investments. In the immediate future, corporates and investors locked in US-64 could move out from other funds and hence, rest of the industry could see some redemption. Anyway, savvy investors have already exited US-64. On the positive side, redemption pressure on UTI will stop and hence, the overall selling pressure on the markets will subside. Thus, while the move is bad for investors, it looks good for the overall market.

Chandrashekhar Sathe, Chief Executive Officer, Kotak Mahindra AMC
It is too early to comment though there is unhappiness at the ground level. However, finally the monopoly situation of UTI is coming to an end Yet, I do not see any impact on the fund industry due to US-64. In fact, inflows will be accelerated as investors shift from UTI's funds to other mutual funds.

Nilesh Shah, Chief Investment Officer, Templeton AMC

The move is good for us. Equity markets should start to look up, as selling from UTI will not happen. Else, it could have put severe pressure on the illiquid markets. It is also good for the UTI, which will not see any redemption pressure for the next six months. I do not see any redemption happening in other funds since people largely invest in US-64 for dividend income and not for active buying and selling.

Ved Prakash Chaturvedi, Chief Executive Officer, Cholamandalam AMC

It is s short-term issue, which will get sorted out once the market picks up. While it is definitely a temporary setback, it must be kept in mind that for 37 years, US-64 has done well and currently has the largest investor base. It has a long track record. Like it happens with every monopoly, investors are already moving from UTI to other funds and this will only gather momentum.