UTI to merge 7 schemes

In what would be the largest merger of fund schemes in India, the Unit Trust of India plans to merge seven of its closed-ended equity linked savings schemes with a total corpus of Rs 713 crore (Rs 7.13 billion).

While the nitty-gritty of splitting the mutual fund behemoth into UTI-I and UTI-II are being thrashed out, the present management of UTI has chalked out a blueprint to consolidate its portfolio of schemes by merging look-alike schemes and launching innovative products.

The trust will shortly approach the Securities and Exchange Board of India for approval.

UTI had already conducted a mock run of the portfolio of the proposed scheme and it did not violate any of Sebi's investment guidelines, said a senior UTI official.

All existing unitholders will be allotted units in proportion to the net asset values of their current holdings in the new scheme to be called Master Equity Plan Unit Scheme. While the scheme will remain a closed-ended one with a repurchase facility, no fresh sales will be allowed.

Unitholders will be given the option to exit the fund at no load for a period of one month in line with Sebi's regulations.

According to the official, the next step will be to merge the look-alike equity schemes in the open-ended segment. Currently, UTI runs six open-ended equity diversified schemes with an aggregate corpus of Rs 1,750 crore (Rs 17.50 billion).

A merger of smaller schemes like Grandmaster and Primary Equity Funds into one of the

larger schemes is on the cards.

UTI officials are, however, debating internally whether to merge the three larger schemes — Mastergain, Mastergrowth and Masterplus — since they may become unwieldy, given their huge corpus. Being in the same category, they cater for the same class of investors.

"But since these are schemes with much larger corpuses, they will be dealt with later," said the official.

The mutual fund giant has been facing the problem of look-alike schemes for reasons rooted in the past. In the early 1990s, when closed-ended funds were in vogue, UTI launched at least one equity diversified fund every year.

On completion of their tenures, the funds were converted into open-ended funds. This resulted in too many open-ended diversified funds with little differentiating factor.

By merging these funds, UTI will have to focus on fewer schemes, and fund managers can monitor portfolios and focus on performance better.

Besides, UTI is making one of its closed-ended scheme, Master Value Unit Scheme, into an open-ended one. The scheme has been a star performer, posting a return of 38 per cent in the past year and has a corpus of about Rs 120 crore (Rs 1.20 billion).

Though speculation is rife that UTI will make Mastershare, one of UTI's stellar closed-ended equity diversified schemes, open-ended ahead of its redemption in October 2003, the official said, "No call has been taken on Mastershare as yet. The idea is to cut down the number of similar schemes and add a few innovative schemes to our portfolio."

The new schemes being deliberated on included capital guaranteed products, he added.