The aphorism, that a government which is big enough to give all can also take away all, is illustrated best in India by what UTI MF has gone through since it was born in 2003. It had a fantastic run as an almost sovereign ticket despite what had happened in the stock market crash of 2001, but it made the investors realise the second part of the quote through 2011. Independent of the dizzy crash in the Indian financial markets, UTI MF staged its independent sideshow. The losers were the mutual fund investors, the overall confidence of the markets in the stability of the company and the erosion of the institutional independence of the four public sector financial institutions that were made to do a sort of dervish dance to the music played by the government. There are no winners as of now.
UTI MF has finally appointed an interim CEO from within the group of four who ran the company for the better part of 2011, and capital market regulator Sebi has responded by allowing it permission to launch two new schemes after a gap of a year.
Meanwhile, the price? December 2010 and 2011 were bad periods for the mutual fund league, so even the best managed funds had difficulty just managing to record some growth. Within them, UTI MF lined with Reliance MF to record the two worst performances at the top of the league. UTI lost 11.58% of its assets under management (year-on-year), while Reliance lost 19.36%. Although the reasons for the latter were self evident, it is to the credit of the government that it managed to send its own brood to the same classroom.
The fight between the finance ministry and an obdurate board of directors of the company has therefore proved two things. The first is that it is a perilous venture for independent directors to engage the government and second we have nicely proved how impossible it will be for India to claim the status of an international financial centre.
The first principle of an IFC is that it runs on rules and not on currying favourites. Through most of last year, for instance, the government kept the shareholders in UTI MF distracted by several means, so that they did not have the time or the space needed to recognise if and why they should oppose the finance ministry?s choice for the corner room at UTI MF. It kept the chair of one of the institutions vacant (LIC) and also launched an unexpected broadside on the new chairman of another one, SBI, for having made loud noises about a drop in its credit rating.
All the while, UTI MF kept slipping. It was fourth in the list and has now become fifth and, unless someone down below makes a radical mistake like, say SBI MF, it could soon go down another slot.
How has this affected the retail investors? Were they concerned about who should become the boss of the company in which they keep their money? Of course they were. Try telling that to the Bihar government teachers pension fund, which has made a UTI MF subsidiary their fund managers.
The steep drop in the total assets under management is itself a good indication. Cutting through those numbers, it is evident that this company has been the closest to a retail subscription-driven one in the Indian mutual fund industry.
As on September 2011, the percentage of retail money in its debt, equity-oriented and balanced ones, is 6.59%, 67.29% and 49.66%, respectively?not folio numbers but the assets under management. These are far higher than the industry standards. These three categories account for 77.6% of the total funds that UTI MF manages.
(I have not included liquid funds as those are corporate driven).
So, the fall in the total assets under management of the company is a clear indication that it?s the retail investors who have fled. This is the disservice from a year where lots of other things fell apart in the domestic financial
sector. Whether the new CEO gets confirmed or the chair goes to somebody else, it is a sobering thought that the government is also quite cool about dishing a wrong hand to small investors.
(With inputs from Pramod Sinha)
subhomoy.bhattacharjee@expressindia.com
