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UTI to offer fund managers more powers

Priya Ganapati in Bombay

Unit Trust of India chairman M Damodaran has said that UTI has started the process of minimizing inter-scheme transfers and will soon put an end to the practice completely.

Fund managers of individual schemes would be the final decision-makers when it comes to their schemes and they will be given complete freedom to decide on sale and repurchase of shares based solely on the needs of their particular scheme.

UTI has created a Chinese wall between the fund managers as all inter-scheme operations are being routed through a middle office that examines and directs on the requests before it.

"Inter-scheme transfers are not necessarily bad. But if it is non-transparent and individual fund managers are pressurized to sell just to help another scheme then it becomes an undesirable practice," Damodaran said.

Damodaran was responding to criticism from Ajay Shah, assistant professor, Indira Gandhi Institute for developmental research.

Shah said that inter-scheme transfers violated the interest of a particular scheme holder as profits from his scheme are transferred to prop up other failing schemes.

As part of a restructuring exercise, Damodaran said that UTI is currently undergoing a series of changes on the organisational and portfolio management front.

Till recently, UTI had a hierarchical management system wherein all decisions regarding portfolio management originated from the fund manager and ended up at the desk of the chairman or the executive director.

The result has been that the fund manager did not have complete control over his portfolio and his decisions are subject to the vagaries of the hierarchical system that is subservient to.

Damodaran assured that the supremacy of the fund manager in the decision-making process would be restored. "Till now, investment decisions like sale and repurchase were taken by the bosses. We will now give more power to the fund managers," he said.

'No bailout guarantee yet

He clarified that the government has not given UTI any guarantee of a bailout.

"I have not sought guarantee of a bailout so far and the government has not yet given us any without our asking. But if a time comes that the market does not pick up and we do need a hand holding exercise I hope that the government will help us," he said.

Damodaran warned that while the idea of a bailout for UTI may not appeal to many, the consequences of not doing so would be disastrous.

"If the government does not help the UTI through an hand holding exercise when needed, then the result will be that UTI will have to close many of its existing schemes. If it does that, then no money will come to UTI or the mutual fund industry of which UTI is the biggest," he said.

"The financial sector will then go weak and the economy will be greatly affected. It is in the best interest of everyone that the government helps us when needed. But I am sure we will not require it. As soon as the markets pick up, we will be back on our feet," he said.

On the portfolio side, Damodaran said that the content of all the schemes is being examined and restructuring would take place on them as soon as the markets look up.

"There is a limitation to the churning of the portfolio. It is subject to what the market can take. We do not want to do anything that will destabilize the markets. At the same thing we do not want to take a hit, so we are working on a careful strategy," he said.

UTI is also open to the idea of hiring independent portfolio managers to handle its funds. Reacting to the idea, Damodaran said that once the markets start looking up and the portfolio restructuring exercise is in swing, the outsourcing of fund management would be implemented.

"The suggestion that parts of the fund be outsourced has been made to us and we are looking into how and when it will be implemented. I would like to see it done during my tenure and will initiate steps towards that," Damodaran said.

UTI plans to come out with new schemes soon and will announce additional features on existing schemes.

"We will do whatever we can to restructure UTI to make it a little fitter and faster so that it can respond to the demands of the market place," Damodaran assured.

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