UTI Primary Equity Fund may have stuck to a large-cap, diversified portfolio but that's half the job well done. In the absence of active management, the fund's returns since launch have been paltry.
Launched in April 1995, the fund seeks long-term capital appreciation with up to 90% investment in equities. Further, at least 50% of the corpus is aimed at initial primary issues or IPOs. However, with primary markets in a limbo for most part of its tenure, UTI Primary Equity Fund has primarily focussed on index heavyweights. Apart from a diversified milieu, the fund has largely steered clear concentrated holdings in individual stocks or sectors. For instance, even at the peak of the tech rally, the fund had only a third of its assets in technology stocks. However, the fund suffers from the UTI syndrome of an overly diversified portfolio - in April 2001, the Rs 77 crore fund was spread across 63 securities with several marginal holdings, which are a drag on the portfolio. Today, the fund is also almost fully out of the technology sector with investments largely in the FMCG and cyclical sectors of metals, diversified, engineering, energy and construction.
Despite an impressive initial mobilisation and top holdings in industry leaders, UTI Primary Equity Fund has failed to deliver in the long run with a return since launch at a measly 4.8%. Thus, the fund has been under sustained redemption pressure with unit capital plunging from Rs 182 crore in 1996 to only 66 crore in 2000. The passive investment strategy has been a blessing in disguise since early 2000 with the fund outperforming its category average with lower losses. Yet, this short-term performance does not inspire much confidence to stay put.