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MF industry must change to make itself investor-centric

MF industry must change to make itself investor-centric
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First Published: Mon, Mar 02 2009. 11 53 PM IST

Challenging times: UTI’s Sinha says it’s entirely misleading to show that the mutual fund industry has grown to Rs5 trillion, when most of its assets are short-term. Hardly 27% of its total assets are
Challenging times: UTI’s Sinha says it’s entirely misleading to show that the mutual fund industry has grown to Rs5 trillion, when most of its assets are short-term. Hardly 27% of its total assets are
Updated: Mon, Mar 02 2009. 11 53 PM IST
Mumbai: Assets under management (AUM) at Indian mutual funds (MFs) plunged from Rs5.99 trillion in May to Rs4.6 trillion in January, as investors ran for the exits amid the market meltdown. To add to the industry’s woes, fresh inflows have stopped despite MFs offering new products. In an interview, U.K. Sinha, chairman and managing director of UTI Asset Management Co. Pvt. Ltd, which manages assets worth about Rs50,000 crore, says the problems are largely of the industry’s own making. UTI Asset Management was created in 2003 after the bifurcation of the former Unit Trust of India into two units managing assured return and market-linked investment plans. The other unit was named Specified Undertaking of UTI (SUUTI). Edited excerpts:
How challenging are the times for the industry?
The mutual fund industry is passing through challenging times and the industry has to change its practices and again make itself investor-centric. They had become either growth-centric or distributor-centric or league-table centric, and somewhere the industry has forgotten that it is serving investors. So, this is a reminder for the industry that it has to work for the investors. And if the industry does not do it, it will suffer badly. It is already suffering. It will suffer even worse.
Challenging times: UTI’s Sinha says it’s entirely misleading to show that the mutual fund industry has grown to Rs5 trillion, when most of its assets are short-term. Hardly 27% of its total assets are in equity, he says.
At this time, the industry should make a serious attempt to sell what is good for the investor and I am not finding a very serious attempt towards that. The industry has also been engaging in the practice of somehow increasing assets under management. The game of getting a higher AUM at any cost is continuing...
The sad part is that all these assets are short-term assets. So, to show that the industry has grown to (Rs)5 lakh crore is entirely misleading. Hardly 27% of the total assets of the industry are in equity. So whom are we trying to fool? It is short-term assets that they are focusing on and even paying money, they hardly get any revenue there. Revenue earning for short-term assets is negligible. In fact, it is a loss-making thing and even then they are doing it.
Fresh sales have come down substantially. I am sure some of the mutual funds will be loss-making. Even earlier, very few mutual funds were making profits. I am sure in 2008-09, even lesser number of mutual funds will be making (a) profit. So, if the industry continues to behave like this, it will come to grief.
So, what is the solution to this? Is it affordable products such as, say, the Tata Nano(car)?
Nanos are available. I have much bigger Nanos, much (more) powerful Nanos. But again the problem is nobody is buying it. I started a micro-pension scheme in 2006: 25,000 Sewa (Self-Employed Women’s Association) women, Rs100 per month. I went to Patna to meet 40,000 milk farmers... I went to (southern Indian cities) Trichy (now known as Tiruchirapalli) and Madurai. About 15,000 women self-help group workers joined from Tamil Nadu in 2007 and I have spent enough money on investor education doing all this, but this is not picking up. So, I have a product for an unorganized sector worker. Even less than Rs100, I accept, but it is still not picking up.
But why is it not picking up especially when microfinance groups are doing well?
I have serious reservations on your observations. Wait for another six months and you will get the real picture. All this hype that microfinance companies in India are doing very well, I don’t agree with that. The truth is entirely different. The amount of interest they charge from the customer—I won’t be surprised if defaults start happening soon. The hype was created by some people who got their seed money from foreign agencies. I am not enthused.
What is the latest on selling a stake in UTI Asset Management Co.?
I cannot say anything on it. The only thing I can say is that we have received government approval and the process is on.
Are you getting the same interest now as in September? Will you wait some more before divesting?
Again you are dragging me into (something) which I do not want to reply. You can draw your conclusions. I can only say the process is on.
You have at least Rs100 crore capital as stipulated by the regulators. What is the reason for this divestment?
This whole thing has the approval of my shareholders and government. Beyond that I would not like to be drawn into further conversations. Maybe when the time comes, I will be able to share more details.
Is it true that after the repeal of the UTI Act, you cannot sack any employees?
It is not like that. The old UTI Act was repealed through a UTI Repeal Act that created SUUTI and UTI. This act says that the rights and privileges the employees enjoyed prior to the repeal will continue. Their rights will not be compromised. It doesn’t say the employees cannot be sacked. In case somebody has to be removed, a due process has to be followed. For business reasons, Voluntary Service Scheme (VSS) has to be followed. After the repeal of UTI Act, UTI has already done VSS for nearly 1,250 employees in 2003.
Your conclusion that employees cannot be sacked is incorrect. But I must hasten to add that there are no plans for retrenchment, because I am expanding.
Will this clause be a dampener in disinvestment?
Why should it be? I have recruited 250 executives in the last two years.
Will you recruit a similar number or even half of it this year?
Our expansion plans are on and recruitment will depend on these expansions.
Can you put a figure to that?
I don’t have the number.
You had UTI Technology Services as a registrar (to service investment schemes) and then came Karvy. Meanwhile, you appointed Camus as one of the registrars. Despite all of that, in one instance, you paid dividend twice to investors.
Maybe. UTI Technology Services does not belong to UTI. When bifurcation took place, that company belonged to SUUTI. It is not my company. UTI in 2007 had four registrars. If you had invested in four schemes, you have to go to four registrars, not one. And these registrars were not talking to each other.
For example, if you wanted to know the total investments made in UTI and the total value of your scheme, you had to talk to four registrars and you had to add it up manually. That was the situation.
This was before you joined?
I inherited this. It was a very bad situation, it was an ancient situation. What we have done is, we have migrated from four registrars to one. Now Karvy is our sole registrar. All schemes have been successfully migrated in June last year. Now we can provide value-added services like analytics.
Coming to instance of paying dividend twice or not paying dividend. It must have been possible. If that has happened, the cost has to be borne by the registrar...as per our agreement. There might have been several instances of dividend being paid twice in the past. But now I know how many times and how many cases it had happened. And I recover that money. Secondly, since I have only one registrar, I have systems audit by a third party, who give us the reasons of any mishap.
The sponsors of UTI have their own mutual funds competing with you. They also have joint ventures with foreign partners. How does this work? Don’t you think there is a conflict of interest?
Sebi (markets regulator Securities and Exchange Board of India) ensures there is no conflict of interest. But I don’t get any support from them.
Don’t you think pension funds should be managed by UTI, given its public sector background, rather than by banks?
I endorse your perception. But it has not come to me. In EPFO (Employees Provident Fund Organization), UTI was the first or second in technical parameters. But in financials, others, including one of my shareholders, quoted so low that we were not selected.
You said these are challenging times for the mutual fund industry. Do you think the time is ripe for consolidation?
Absolutely. I have said it earlier.
When did you get these signs?
October. One MF has already been sold off. I have reasons to believe three or four MFs are in very serious trouble...for a variety of reasons. The capital invested by the promoter has been wiped out or eroded substantially. And for their investments, if there are any non-performing assets, they will find it difficult to meet investor obligations. There are reports that fund managers have ganged up with promoters and when they do that, the mutual fund will be in trouble. So, consolidation cannot be avoided. It has to happen.
Has anybody come to you to sell their MF business?
I cannot tell you. All I can tell you is that in the past, UTI had acquired MFs like that of IL&FS (Infrastructure Leasing and Financial Services Ltd). So, we are not averse to this idea.
ravi.k@livemint.com
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First Published: Mon, Mar 02 2009. 11 53 PM IST