It is that time of the year when the largest mutual fund of India, Unit Trust of India (UTI) declares its performance for the half-year ended June 30, 2002. Given the track record of the past few years, the results were awaited with much dread and less anticipation.
This time too, the dread came home to roost. Of the 63 schemes for which UTI has published data for the half-year ended June 30, 2002, as many as 35 schemes have posted negative reserves, totaling Rs. 12,203 crore. Of this, 14 Monthly Income Plans (MIPs) and UTIs flagship and oldest scheme, US-64 alone accounted for 67 percent of the negative reserves.
UTI has explained that lower income from trading activities and a change in policies on the provision of non performing assets (NPAs) impacted the reserves during the year.
The Unit Scheme 64’s negative returns account for 37 percent of aggregate negative reserves. And the 14 MIP schemes have almost doubled their negative reserves to Rs. 3,740 crore this year from Rs. 1,803 crore as on June 30, 2001.
But the sliver lining in this dark cloud is that US-64, has actually managed to cut its negative reserves by Rs. 489.60 crores for the current six months. The reserves under the scheme stood at negative Rs. 4,476.43 crore as on June 30, 2002 while as on Dec. 31, 2001, the negative reserves stood at Rs. 4,966.03 crore.
That’s about all there is to “cheer” about the scheme. The rest of the story continues to remain gloomy. The scheme witnessed a negative cashflow of Rs. 793.39 crore on account of redemptions and loss on sale of investment, which stood at Rs. 990.78 crore. Further, the scheme has provided Rs. 366.02 crore for doubtful income/debts.
The Children’s Gift Growth Fund 86 is the second largest in terms of negative reserves, registered a increase of over 50 percent in its negative reserves to Rs. 2,467 crore as on June 2002.
Among the monthly income plans, the MIP 2000 scheme had the largest negative reserve of Rs. 473 crore, almost 41 percent higher than on June 30, 2001, followed by MIP 98 II with Rs. 441 crore negative reserves.
The remaining 28 schemes had a modest Rs. 2,849 crore in positive reserves. As a result, the 63 schemes had a cumulative reserve base of a negative Rs. 9,355 crore as on June 30, 2002.
The figures of redemption and sale are also quite startling. UTI booked a loss of Rs. 2,349 crore on sale and redemption of investments in 48 schemes during this period. The loss was attributed to the massive redemption of Rs. 9,272 crore UTI had to face during the six months. Of the total redemption of Rs. 9,272 crore, Rs. 5,297 crore was on account of the maturity of schemes. Apart from big time losers like MIPs, US-64 and Children’s Gift Growth Fund, there are other losers too. Mutual Fund 1986 made a loss of Rs. 104 crore followed by the Growth Sector fund-Software with a loss of Rs. 76 crore. The schemes attempt to take advantage of trading opportunities arising out of volatility in the market, thus denting earnings.
Now for the performers. G sec, an open-ended gilt fund, earned maximum profits by reshuffling its portfolio. The profit stood at Rs. 17.94 crore as on June 30, 2002. The scheme, was among the excellent performer of the fund house basket which provided over 14 percent returns since inception.
Master growth followed with a profit of Rs. 14.76 crore. Profit booking at counters such as Bharat Petroleum Corporation Ltd, Gujarat Ambuja Cement, Hindustan Lever, Oil and Natural Gas Commission triggered the gain for the scheme. Another fund, Unit Scheme 95, a balanced fund made a profit of Rs. 10 crore. Based on all this, it is clear that UTI is once again in a tight spot. It now requires a total of Rs. 8,217 crore to cover the current shortfall in assured return plans. This includes the sum of Rs. 3,740.2 crore being the negative reserves in its 14 monthly income plans (MIP) and Rs. 4,476.40 crore to cover the negative returns in its US-64 scheme.
From where is UTI going to get this money? Who will pick the tab for covering the shortfall? Well, UTI needs first to calculate the final bill at the end of the year, depending on the state of the equity and debt markets in the coming months. Depending on this, the bill may either go up further or get trimmed.
The government has already provided a bailout of Rs. 500 crore for the US-64 scheme, as part of its first batch of supplementary demand for grants for Rs. 8007.16 crore for this fiscal year. This Rs. 500-crore provided to UTI comes on top of the Rs. 300 crore provided to the mutual fund in the last fiscal and a Rs. 1,000 crore guarantee for borrowings to meet the redemption pressure on its schemes.
UTI’s dreadful performance raises the inevitable question whether the company will be able to bring back the smiles on the face of its stock holders any time in the near future?
