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Sleepy Investors Unlikely to Pull Out

There's precedence here - despite being poor performers, investors have largely stayed put in UTI's equity funds

On the eve of US-64 repurchase, it is an irony that could give some reprieve to the harried UTI mandarins! Despite a disastrous performance and a long history of abysmal returns, most equity funds from the UTI stable have seen little redemption pressure. Thus, while fresh investments have been absent, existing investors have largely stayed put despite turning pauper, which is reflected by the marginal dip in unit capital. For instance, the combined unit capital of UTI's 29 equity funds has dropped by only Rs 33 crore (under 1%) for the year ended June 30, 2001. Yet, this is not to say that there has been no redemption - over the years, the funds have continued to bleed but there is nothing alarming about these repurchases and they still command a humungous asset base.

It is immaterial whether investors are showing exemplary patience or hardly bothered or plain lazy - it simply shows that they are a sticky lot. Thus, UTI bosses could afford to breathe easy and rein in their fears of a massive redemption in US-64, which reopens for repurchase on August 1. UTI is believed to have lined up funds in the region of Rs 3,000 crore from a clutch of banks to meet initial repurchase pressures in US-64. Transactions were temporarily suspended in the fund in July this year after it declared only a 10 per cent dividend with signs of a deteriorating performance.

Yet, US-64 still has a chequered history with a consistent dividend paying record and outstrips most of UTI's equity funds, which have been dismal performers. Take the case of UTI Mastergain '92, whose IPO was a roaring success but has returned a paltry 1.11 per cent in the last nine years! Yet, despite little signs of revival and a below par NAV, the fund continues to be the largest after US-64 with an asset base of over Rs 860 crore with the unit capital still over Rs 1,000 crore. Or, take the case of UTI Masterplus '91, which continues to hold assets of Rs 500 crore despite a 10-year return of only 6.75 per cent.

UTI's Equity Baggage: Surviving Poor Returns?
  Launch Date  NAV *  Return since Launch **  Unit Capital ***
UTI Grandmaster Jun-93 8.38 1.70 36.83
UTI Index Select Equity Jun-97 13.31 10.10 17.37
UTI Master Growth Feb-93 13.23 5.05 197.91
UTI Master Index Jun-98 10.11 0.36 194.43
UTI Master Plus '91 Dec-91 16.34 6.75 317.72
UTI Mastergain '92 May-92 8.98 1.11 1002.41
UTI Nifty Index Mar-00 6.57 -27.20 199.32
UTI PEF  Apr-95 12.03 4.79 64.73
UTI Equity Tax Savings Plan - 2000 Dec-99 8.84 -7.68 18.99
UTI Software Jun-99 7.58 -4.52 230.29
UTI Pharma & Healthcare Jun-99 9.31 -3.49 68.95
Unit Growth Scheme 10000 May-98 9.66 3.14 129.12
UTI Brand Value Jun-99 7.01 -11.64 51.84
UTI Petro Jun-99 14.40 25.62 15.41
UTI Services Sector Jun-99 17.40 40.18 35.27
"* in Rs, ** in %, *** in Rs Cr as on June 30, 2001"

On the other hand, some equity funds have even attracted fresh inflows despite negative returns. For instance, UTI Software has been the top equity grosser for UTI last year with its unit capital zooming by Rs 133 crore to Rs 230 crore. However, the fund's return since launch is a (-) 4.52 per cent with a one-year loss at a startling 65 per cent.

Well, with investors not inclined to pull out or at best, redeem only at a gradual pace, it is likely that both UTI's funds and US-64 may actually continue to flourish despite returns hitting a nadir. Thus, it will not come as a surprise if UTI officials trust this precedence and now do not lose sleep over US-64!