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UTI outpaced by global changes

Investors are not the only ones upset with the way Unit Trust of India manages their hard earned savings.

Intermediaries and distributors -- independent agencies and brokers who are key links between asset management companies and investors -- say India's largest fund manager has not kept up with changes in global investments.

As a result state-run UTI, which handles some two-thirds of the Indian fund industry's assets, has seen smarter money flowing out of its schemes and grabbed by fleet-footed private AMCs.

"UTI still believes that its funds will be bought though today schemes are sold to investors," said Dhirendra Kumar, managing director of fund tracking firm Value Research.

"Unlike a decade ago, schemes are now differentiated through servicing standards."

On July 2, UTI angered investors by suspending repurchases for the rest of the year in its largest

fund Unit Scheme-64 after facing heavy redemptions in the past quarter to June, sparked by falling markets and fears of a dividend cut.

Bombay-based UTI later withdrew the freeze under heavy pressure from the media and the government, but allowed limited redemption of only 3,000 units starting August on a minimum guaranteed price.

"Evaluated on performance parameters and basic hygiene issues, such as transparency, stated fund strategy and friendly servicing, UTI's funds are untouchables," said Kumar referring to the recent woes of US-64, UTI's flagship scheme, with some 20 million investors and a fifth of UTI's assets.

UTI manages Rs 575 billion in assets through 87 funds subscribed to by 41 million investors. "Trail commissions are absent in large majority of UTI schemes," said Sandeep Parwal, director at SPA Capital, a large fund distributor. "Commissions are important from an intermediary point of view to continue servicing clients."

A global industry standard, trail payments are a percentage paid by the AMC to the intermediary -- on the business garnered by him.

Commissions vary between 0.2 and 0.5 per cent on average assets paid annually, and continue to be paid as long as the investor remains in a fund.

Parwal said UTI recently introduced trail commissions on UTI Bond fund which were competitive, but the fund has a higher exit load before one year than any other peer scheme, which deters bigger investors.

UTI's executive director B G Daga said plans to introduce trail commissions in all schemes were underway.

Customer service

Since its inception in 1964, the Indian fund industry has UTI as the sole player till 1987. For the flagship US-64 scheme the 10-year annualised return is 14.45 per cent which includes dividend, rights and bonuses.

The first private sector fund was launched in 1993. The industry now has 36 AMCs majority-owned by foreign and Indian private funds offering schemes tailored around investment needs and provide international servicing standards.

Distributors say UTI's client servicing remains a prisoner of archaic times and has not kept pace with private AMCs, some of which offer 24-hour helplines to investors.

"The shabbiest and the smallest mutual fund in the private sector does not delay redemption beyond three days. With UTI it is a minimum of seven days," said Puneet Pandey, vice-president at Strategic Capital, a large player in the debt segment.

Parwal said: "You are never sure of getting payment in a week, so a corporate investor in UTI is unable to plan short-term cash flows."

While accepting the charge, UTI's Daga said the fund was investing heavily in technology and would have a centralised processing facility by the end of the year to process corporate redemptions in metro cities within five days.

"UTI has the best infrastructure and the largest reach, but it doesn't deliver vis-a-vis the peer group," Parwal added.

UTI has 54 branch offices and over 67,000 agents who sell the fund's schemes door-to-door in a country of one billion people.

The fund also comes under flack as most of its schemes are dated, which drain its assets.

For instance, UTI has some 25 closed-ended monthly income plans that assure an annual return of between 10 and 13 per cent, in a scenario of falling interest rates and equity values.

Even private AMCs offer MIPs, but they are neither closed-ended nor offer assured returns.

UTI's Daga said the fund was working on a new set of MIPs which would be open-ended and based on their net asset values.

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