Kolkata: India’s fourth largest asset management company, UTI Mutual Fund, plans to merge its 28 pure equity schemes into 10 to create a focused portfolio of investment plans that would be easier for buyers to choose from, chairman and managing director U.K. Sinha said.
UTI Mutual Fund, with Rs48,750 crore in assets under management (AUM), has already started consolidating its portfolio, Sinha said in an interview. In fiscal 2009, it merged nine schemes into three, and in the current year, it has already decided to merge four into two.
Eventually, the aim is to bring down the number of pure equity schemes to 10, added Sinha, who concedes that UTI Mutual Fund, like the broader asset management industry, has a surfeit of investment plans focused on equities.
“The vast number of mutual funds schemes available in the market is a reflection of the immaturity of the mutual fund industry in the country,” Sinha said. “If you ask me, the launch of every new scheme is a sales gimmick. Schemes are launched to increase assets under management. New schemes do not have track records, yet people invest in them. This should stop.”
UTI Mutual Fund has Rs12,100 crore in assets under management and over 6.5 million investors in its pure equity schemes. The biggest in its portfolio are schemes such as UTI Infrastructure Advantage Series I, UTI Mastershare, UTI Infrastructure, UTI Equity and UTI Dividend Yield.
The top five pure equity schemes in UTI’s portfolio had at least Rs6,000 crore in assets under management, or about 50% of total assets under this category, at the end of February.
“It’s a good idea to consolidate similar schemes,” said Dhirendra Kumar, chief executive officer of mutual fund tracker Value Research India Pvt. Ltd, on UTI Mutual Fund’s plan to merge schemes.
“I think many others will do the same thing going forward, and if UTI is the first to do it, it shows it is getting smarter. Eventually, the poor performers—and there are many in the industry—will get merged into the better performing schemes, and the track record of the bad ones will thus get buried,” he added.
The merger of schemes will also lead to reduction in compliance, communication and administrative costs, according to Kumar, but “the savings would not be substantial”.
Kumar agreed with Sinha on the launch of new investment plans. “It makes no sense to launch new schemes now,” he said. “All fund houses, including UTI, have been launching schemes to shore up their AUM.”
Asked if UTI Mutual Fund had a surfeit of schemes in other categories as well, such as balanced funds that invest in both shares and debt instruments, Sinha said the asset manager was strongly positioned in the debt-plus-equity segment.
The fund house has three major schemes in the balanced segment: a child plan, a unit-linked insurance plan and a retirement plan, “each focusing on a different stage of a person’s life”, he said. “We don’t want to change these plans and confuse people.”