BOMBAY, 13 August — The Unit Trust of India (UTI) debacle continues to hang like a sword over millions of investors. The uncertainty which the largest public sector mutual fund has spread is akin to the spreading of some fatal epidemic like plague. Though the redemption’s are not as much as they were expected, there is little doubt that investors have lost complete faith in UTI. The average redemption per unit holder is around 1200-1500, almost half the limit of 3,000 units. Till yesterday, UTI received applications for repurchase to the extent of Rs.480 million. And now the latest is that UTI plans to link its flagship scheme US-64 to its net asset value (NAV) by October, ahead of the stipulated deadline of January 2002.
UTI chairman, Damodaran, plans to kick off the US-64 restructuring exercise around the time it is linked to the NAV. “The scheme is over-exposed to certain scrips. We are in the process of slashing high exposures to those scrips as well as certain sectors. We plan to bring down the number of scrips from the current level of more than 1000,” he said. The UTI is also planning to increase its exposure to good quality debt paper.
Going beyond US-64, UTI plans to give a face-lift to all the existing schemes. “We are planning a few add-ons to the schemes. There will be new options offered to investors. For instance, a growth scheme may be added, with new features like liquidity and so on. Moreover, we are also working on plans whereby an investor will be given the option of switching from one particular scheme to another,” he said.
But over this period of time, realization has dawned that UTI is just the tip of an iceberg. UTI’s controversial investment in Cyberspace Infosys is not something typical only of UTI. Similar investments have been made by private sector mutual funds in many unlisted companies, valued way below their acquisition prices.
Most of these stocks were privately-placed at sky-high prices at the peak of the infotech boom and since then many of these companies have found it difficult to launch IPOs even at reduced prices.
In the frenzy of the infotech sector, most of these private sector mutual funds rushed in to , hopefully, make a killing. But instead, it looks like they have got killed! Investments made by funds like SBI MF and DSP Merrill Lynch in such infotech stocks, is believed to have cost their chief investment officers their jobs.
DSP Merrill Lynch MF purchased 1.8 lakh shares of SIP Technology, at Rs.275 per share. At one point, the stock formed more than 7 percent of the portfolio of DSP Equity fund. The fund has already written down the value of the shares thrice. They are currently valued at Rs.41. It still continues to account for 5 percent of the net asset value of the Equity fund.
Taurus Discovery stock holds 26.2 percent in unlisted companies such as Akshay Software, Associated Infotech and Sovika Infotek.
Sun F&C Emerging Tech fund, which purchased 100,000 shares of Mediline Equipment and Computer Systems (Mediline), a company that develops hospital software services, has written down the value of that holding from Rs.150 per share to Rs.33 per share. It is however doubtful whether even this reflects its true value.
Sun F&Cs’ Value Fund, holds 1,76,300 shares of Virtual Dynamics now valued at just Rs.3.
Prudential ICICI Tech fund holds almost 5 percent of its portfolio in stocks like Ampersand Software, Cranes Software, Quality Assurance Institute, SIP Tech and Mediline Equip.
Interestingly, Prudential seems to have valuing its unlisted stocks much higher than others. Its values SIP Tech at Rs.99, while Mediline is at Rs.42, higher than the values assigned by other mutual funds to the same stocks. Ampersand Software, its highest holding among the unlisted stocks, is valued at Rs 150.
And consequently, due to such mindless investments, apart from falling investor confidence, Indian debt funds have been the biggest beneficiaries of falling equity markets, with their assets increasing more than 66 percent in the past four months as investors have now shifted money to more stable fixed income products. Fund tracking firm Value Research’s data showed that the average return offered by 36 open-ended, medium-term debt funds, in the past year to July, was 15.12 percent. An open-ended fund is always open for subscription or redemption based at market prices.
In July, their returns were an average 1.34 percent, which works out to an annualized 16.08 percent. In comparison, the benchmark Bombay Stock Exchange index dropped 16 percent since the start of 2001.
Assets owned by seven main categories of debt funds surged 66.67 percent to Rs.318.52 billion ($6.7 billion) in the four months ended July 31, data compiled by the New Delhi-based fund tracking firm showed. In the coming days, a new investment scenario is expected to emerge where investors will now look for more stable, albeit, lower returns, investment tools. It is going to take a very long time for the broken down confidence of the investors to return. Indian mutual funds, as such, never figured on the “favored” list of investors and now it looks like, it will not find any favor for some time to come.