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PART I: ''This will be the last bailout''

PART II: 'It's not as if we knew nothing about the market'

The concluding segment of UTI Chairman M Damodaran's interview with Kanchana Suggu:

When you became chairman, you said unlike before an individual fund manager will look after each scheme. How has it helped?

Firstly, there is a sense of belonging with a fund knowing there is much more responsibility and accountability to the decision making process. Because different funds have different objectives, the risk appetite of the investors is different in different funds, it is only at the fund level that you can take buy and sell decisions based on the objectives and things of that nature.

Today, we have not only complete delegation of powers for our fund managers, we also have incentivization, which is a first in the public sector. Fund managers know if they perform they will be taking home more money than in the past. That is also in place already.

You are at the helm of an organization which has given sleepless nights to millions of investors in the country. Since you joined this organization during very troubled times, did you ever get sleepless nights?

I don't have sleepless nights at all. I sleep very well. The quality and duration of my sleep is unchanged, then as well as now. Sleepless nights would arise if you did not know the nature of the problem, if you did not know the dimension of the problem and if you thought there was no light at the end of the tunnel. If you are willing to live with the fact, that there is a tunnel and it might be long, but there is light at the end of it and that you can reach there, you needn't stop midway through the tunnel.

I have always maintained it is the question of creating the right environment to allow excellence to manifest itself. That has been the charter.

Of the funds amounting to Rs 49,655.57 crores (Rs 496.55 billion) that UTI manages, how much would you say is completely safe with UTI?

Every rupee is safe. But what I am saying is there could be a depreciation in the value of stocks. That is not something on which we have control. If you are looking at, will we manage these funds competitively? Yes, I have no doubt at all. I think every investor's interest is safe to the extent that it depends on our skill and commitment. The only variable is what happens in the market.

Last year, there were problems not just here. Look at problems in other markets. Two events took place, which haven't happened anytime earlier and hopefully won't happen again -- September 11 in the US, December 13 in the Indian Parliament, stand off on the border etc. We had lots of problems within the fund. We lost an executive director, our officers were arrested in connection with investments in a certain company. I think we have ridden out all that.

What are some concerns about UTI that are top of your mind? How do you plan to rectify the persistent problems?

A continuing concern is how to give the investor more tomorrow than we are giving him today. A lot of rationalization is going on in terms of processes. Lot of products have been improved. We are launching two new products very shortly. We have a regular income plan -- non-assured -- which we are launching early September. Then there is a variable index scheme where the equity-debt mix will undergo a change depending on the level of the Sensex. This is in response to our investor needs. What we are telling the investor is that this is the portfolio we have invested in and most of it is government securities and there will be marginal holdings in AAA rated corporate paper and nothing else.

Within two years, UTI's share in the mutual fund industry eroded by almost half. What are the steps you will take to tackle the plummeting market share?

I think in an expanding market, one should not worry about holding on to a percentage of market share. The question is the market is not expanding. You take out these liquid funds which are typically not the reasonable term mutual fund investments, but temporary parking lots for surpluses of cash and then look at our market share, then you will look at different set of numbers.

If you take out the liquid funds from those that claim to have seen inflows and without focusing on the outflows, none of them will tell you how much has gone out during the month. They will only tell you about how much has come in during the month.

I think it is legitimate to expect a fall in market share when you start out with a 100 percent share. We started out with a 100 percent market share. As people come in, the share goes down. It happens.

UTI recently completed two strategic sales -- one in Bajaj Hindustan and the other in Nestle. How many more such strategic sales will UTI be looking at to raise money?

Let me put it this way. It's not as if we have a number that we are working towards. It will be any sale, which is going to give us not a marginal increase, but a significant increase in value, whoever the buyer is and whatever the scrip is. There is no emotional attachment to the scrip. The beginning and the end of the exercise, as I mentioned earlier, is: Will the investor get a little more than what he is going to get?

What stops UTI from selling its stake in say HLL or ITC?

I think it is not fair to expect anyone in this business to comment on any particular scrip and what he is planning to do.

UTI rests on its past laurels, but the trust investors once had in it has almost eroded. What new strategy has UTI chalked out to attract investors?

In a month's time there will be a whole lot of things happening.

What, according to you, is the future of US-64?

June 1st, we'll have an answer to that. But I think the way we look at it now, it will be a smaller fund than it is at this point of time.

How much smaller?

It all depends. At the end of the day we have to ask ourselves, how will the investor behave on 31st May next year? What kind of numbers is he going to be looking at at that point of time? Are those numbers good enough for him to say that I will stay with the fund over a long-term basis and expect to see better returns or will the gap between the NAV and repurchase price which has been guaranteed by the government be such as will persuade him to opt out of the scheme?

Today, you might see two extreme scenarios. One is you might see the scheme practically coming to an end except those who have come in on an NAV basis from January 1, 2002. The other lot of investors who came in prior thereto, theoretically, all of them go out. So it depends on what we place by that time and how our performance is between now and then.

Is there any expectation the investor has of returns? We must also remember this. All investors are not looking at NAV. There are many investors who are saying I don't care what the NAV is, am I going to get returns year after year? What kind of situation would such investors be looking at?

I would imagine that whatever we put into place will appeal to that category of investors certainly. They will then see it makes sense to stay with the scheme. You will be looking at certainly not Rs 12,000 crores (Rs 120 billion) worth unit capital. It will be less than that. Would it be a lot less, would it be a little less? I wouldn't know.

What would you tell millions of investors about some good things at UTI?

I think you will see a whole lot of improved investor communication a month from now. It will be far more systematic and far more regular than it has been till now. There will be a lot more things we will be saying to investors. As far as the mudslinging is concerned, we will also be telling the investor how much of it is agenda-based, how much of it is in the perceived interest of those of who hope that if UTI fails, there would be some pickings for them and who they are hopelessly wrong on that count. How agenda-driven reporting is creating a kind of confusion, that also we will suitably communicate to investors.

We have added new features to old products in response to investor requirement. New products, we were a little late in launching because we needed some clearances. That process has started as we mentioned. It is a continuing process.

As far as people are concerned, they are incentivized. I would like to think there are the right people at the right place at this point of time. We have among the best and brightest fund managers in the market today.

All of this is showing in terms of the results of open-ended NAV-based schemes. It is a question really of telling the investor that you might have lost in some of our schemes, but there are several investors who gained in some of our schemes. To tar the entire organization with the same brush and to say that everything is bad about it is certainly not the right thing to do.

All this will bring more retail investors to UTI and will see to it that the existing investors stay. I think that is the objective.

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