Mutual Funds

Gold traded MFs to pick up in 2-3 yrs'

Gold-traded mutual funds, though slow in taking-off, are expected to pick up in the next two-three years as the yellow metal has proved to be the only safe investment, offering a nine per cent return consistently in the long-term.

"Though the initial response to our gold traded exchange fund has been disappointing, we expect it to pick up in the coming months and years," UTI MF's Chairman and Managing Director, U K Sinha, told PTI here.

Globally, the response to gold traded funds has been lukewarm in the initial two years but then it perks up substantially, sometimes exponentially, Sinha said.

Contrary to belief, 35 per cent of gold in India is not for jewellery but procured for investment, he said, adding that "if gold traded funds cannot be successful in India, then where else can they be sucessful" as India is the largest consumer of gold."

Even in the US where gold traded funds were launched in March 2003, it took nearly two years for it to pick up after remaining "static" in 2004 before picking up in 2005, Sinha said.

"The growth became rapid from 2005 onwards and now nearly 600 tonnes of gold worth nearly USD 13-billion are with gold traded mutual funds globally of which the US market comprises of 450 tonnes (USD 9.5-billion)," he said.

In the first nine months, however, the quantum of gold traded was just around 10 tonnes. Attributing the lukewarm response for gold traded funds in India to poor media campaign and inadequate investor education, Sinha said that these needed to be stepped up for gold traded funds to pick up.

Highlighting the huge potential inherent in rural areas, Sinha said that big farmers, especially in the south and west, invest hugely in gold and if this could be tapped effectively, then it would go a long way in perking up the funds.

"Investor education needs to be undertaken by the industry," Sinha said, as people in rural areas were not familiar with the capital market nor with concepts like demat accounts. "We need to educate them about demat accounts and the advantages they offer such as enhanced liquidity," he said.

The greatest advantage of gold is that it is perhaps the safest investment option amongst all investment classes since historically it has always given a good return, including in adverse environments when other asset classes turn negative.

"The real estate and stockmarket segments go through periodic ups and downs but gold prices don't crash" Sinha said.

He also said that it was not correct to say that Indians were fond of keeping gold only in the form of jewellery as it accounted for only 22 per cent of the global jewellery demand but 35 per cent of global retail investment demand.

India holds about 10 per cent of the world's global stocks at around 15,000 tonnes.

Though jewellery accounted for 60 per cent of gold demand in India, gold coins and other forms accounted for 30-35 per cent of total demand in India.

Moreover, gold is an effective portfolio diversifier as also the best hedge against inflation, Sinha said, adding that there was also a possibility of gold prices increasing because of the demand-supply gap.

The UTI Gold Exchange Traded Fund provides both security and transparency and is, besides, cost effective as one can invest at the cheapest price replicating the international gold prices.

Besides, there are no making charges nor storage and insurance costs involved.

On the taxation front too, UTI Gold ETF offers many benefits with wealth tax and securities transaction tax (STT) not being applicable.

UTI MF declares tax-free dividend of 35 pc

UTI Banking Sector Fund from the UTI MF stable has declared a tax-free dividend of 35 per cent, Rs 3.50 on share of Rs 10 face value each.

Pursuant to the payment of dividend, the Net Asset Value (NAV) of the dividend option of the fund would fall to the extent of payout and statutory levy.

All unit holders registered under the dividend option of UTI Banking Sector Fund as on May 23, will be eligible for the dividend.

Besides, investors who join the dividend option of the fund on or before the record date will be eligible for the dividend. The NAV per unit as on May 17 was Rs 18.80 under the dividend option.

UTI Banking Sector Fund is an open-end equity fund and is one of the six funds launched under UTI-Thematic Fund.

UTI MF Fund Manager Gautami Desai said, "The fund is positioned to capitalise opportunities emerging in the banking sector...the economy is near the peak of interest rate cycle and hence the fund is positive on the banking stocks going forward."

UTI MF targets small investors, villages for big leap

Mutual funds major, UTI MF, plans a massive rural thrust and to tap small investors by cashing in on its extensive network to take on competitors and boosting its business.

"Our strategy is to tap Tier II and Tier III towns and small villages where we believe there is a tremendous potential for mutual funds to perform well. Our strategies are being geared up for this thrust," said, UTI MF Chairman and Managing Director U K Sinha.

The mutual funds industry is yet to mature in terms of reaching out to small investors in the smaller towns and villages. UTI MF plans to do just this, which, it hopes, will not only augment its customer base but also help enhance its business.

"It will be a long battle, but we have the network to win this battle," he said.

UTI MF has, in recent times, slipped in rankings to third place behind Reliance MF and Prudential ICICI, both of whose assets under management (AUM) are higher than that of UTI MF.

UTI MF's AUM as at end-April stood at Rs 36,000 crore putting it in third place behind the other leading private players.

UTI MF ahead on profit street even as AUM slips

Last year, the 43-year-old Unit Trust of India (UTI) went through a mid-life crisis. The state-owned mutual fund (MF) behemoth was struggling to retain its supremacy in the asset management game, something which it had done for decades. In terms of assets under management, it has ceded the top slot to ADAG-led Reliance MF. But UTI MF continues to hold a trump card. In absolute terms, it is the most profitable MF.

As per UTI officials, the asset management company has reported a profit after tax (PAT) of little less than Rs 150 crore for financial year 2007. Even last year, UTI was the only MF with a net profit of over Rs 100 crore. However, the growth in profits has slowed down to 12% in 2007, as compared with 30% in 2006.

Meanwhile, private sector MFs too have been growing at a brisk pace. HDFC AMC has reported a profit after tax of Rs 67.5 crore in 2007, up 47%, year-on-year while Reliance MF’s PAT was Rs 50.7 crore, up 74%, over the previous year. While HDFC continued to grow at last year’s levels, Reliance MF’s bottomline has more than doubled.

There is a high probability of a shuffle in the top three positions in terms of absolute profits. Reliance MF could edge past ICICI Prudential AMC to take the number three position. Last year, UTI remained the most profitable (Rs 133 crore), followed by HDFC (Rs 46 crore) and ICICI Pru (Rs 31 crore). Reliance’s profits last year was Rs 2 crore lesser than ICICI Pru at Rs 29 crore. But Reliance’s assets have grown at a faster pace (128%) in 2007 than ICICI Prudential (66%) and the former has a higher chunk of equity assets (which yield better fees). The other fast-growing fund houses include PruICICI (66.3%), HDFC (51.8%), SBI (58.2%), and DSPML (57.7%).

Even though assets have grown, overall profit growth could be slower. This is because in the past one year, a major part of the growth has taken place in debt assets, which yield lower fees to MFs. Fixed maturity plans (FMPs) have been the rage in the past six to eight months, thanks to rising interest rate scenario. While this has bolstered the AMCs’ assets, it is not very profitable proposition as these products earn management fees in the range of 0.04-0.07% per annum. Equity funds in contrast earn 0.65 to 0.95% on a net basis. These fees are generally charged to net asset value on a daily basis based on average fund assets.